Wendy's 2011 Annual Report Download - page 40

On June 29, 2011, The Wendy’s Company and TASCO entered into an agreement to extend the Aircraft
Lease Agreement for an additional one year period (expiring on June 30, 2012) and an increased monthly rent of $13
thousand.
The Aircraft Lease Agreement may be terminated by The Wendy’s Company without penalty in the event it
sells the aircraft to a third party, subject to a right of first refusal in favor of the Management Company with respect
to such a sale. We intend to dispose of the Company-owned aircraft leased under the lease agreement discussed above
as soon as practicable. As of January 1, 2012, the aircraft has a carrying value that approximates its fair value, is
classified as held-for-sale, and is included in “Prepaid expenses and other current assets.”
Franchisee-Related Equipment Purchase and Installation Programs
Equipment for Systemwide Core Menu Initiative
In order to facilitate the purchase and related installation of equipment by franchisees required to implement a
systemwide core menu initiative, Wendy’s initiated incentive programs for franchisees, including the partial subsidy of
interest rates and a guarantee program.
Breakfast Expansion
In order to encourage franchisees to participate in the breakfast daypart, Wendy’s has established the following
programs:
• Wendy’s will continue to lease equipment to certain franchisees that are participating in the breakfast
program. At the time breakfast becomes a required program, the franchisees will be required to purchase
the equipment from Wendy’s based on its then book value plus installation costs. The total amount of
expenditures for equipment (including installation) leased to franchisees is expected to be no more than
$4.5 million.
• Additionally, Wendy’s is providing loans to certain franchisees for the purchase and installation of
equipment required to implement the breakfast program. The loans are expected to not exceed $25
thousand per restaurant, carry no interest charge and be repayable in full 24 months after the installation is
completed. Wendy’s will fund a maximum of $20.0 million of these loans for early adopters of the
breakfast program.
As of January 1, 2012, Wendy’s has purchased equipment with a current net book value of approximately $2.6
million that has been leased to franchisees and has made loans of $2.6 million under the above breakfast program.
The above programs also have the following additional features:
• For the first three years of an early adopting franchisee’s participation in the breakfast program, a portion
of franchise royalties (on a sliding scale) will not be payable to Wendy’s but will be required to be
reinvested in local advertising and promotions for the breakfast program. Based on franchisee participation
in the breakfast program, Wendy’s estimates the royalties not to be received under this program will
approximate $4.4 million over the three year period through the second quarter of 2015.
• Contributions otherwise due to The Wendy’s National Advertising Program, Inc. (“Wendy’s National
Advertising Program”) based on breakfast sales will not be made but will be required to be reinvested in
local advertising and promotions for the breakfast program until Wendy’s National Advertising Program
begins to purchase national advertising for the breakfast programs.
North America Incentive Program
In order to promote new unit development, Wendy’s has established a franchisee assistance program for its
North American franchisees that provides for reduced technical assistance fees and a sliding scale of royalties for the
first two years of operation for qualifying locations opened between April 1, 2011 and December 31, 2013. While we
are unable to project the number of locations to be opened under this program, we do not expect the effect on current
or future franchise revenues to be material.
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