Wendy's 2012 Annual Report Download - page 106

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
(22) Guarantees and Other Commitments and Contingencies
Guarantees and Contingent Liabilities
Franchise Image Activation Incentive Program
In order to encourage franchisees to participate in Wendy’s Image Activation program, which includes
innovative exterior and interior restaurant designs for new and reimaged restaurants, Wendy’s initiated a cash
incentive program for franchisees during the third quarter of 2012. In January 2013, the program was expanded to
include variable cash incentives for Tier 1, 2, and 3 remodels and to allow for a maximum of $100 each, for up to
three incentives per franchisee. The cash incentive program is for the reimaging of restaurants completed in 2013 and
totals $10,000.
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 (with certain exceptions) 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. For the years ended December 30, 2012 and January 1, 2012, the effect on franchise revenues
was not material and we do not expect the effect on future franchise revenues to be material.
Japan Joint Venture Guarantee
In 2012, Wendy’s (1) provided a guarantee to certain lenders to the Japan JV for which our joint venture
partners have agreed, should it become necessary, to reimburse and otherwise indemnify us for their 51% share of the
guarantee and (2) agreed to reimburse and otherwise indemnify our joint venture partners for our 49% share of the
guarantee by our joint venture partners of a line of credit granted by a different lender to the Japan JV to fund
working capital requirements. As of December 30, 2012, our portion of these contingent obligations totaled
approximately $3,000 based upon then current rates of exchange. The fair value of our guarantees is immaterial.
In early 2013, the joint venture partners agreed on a plan to finance anticipated future cash requirements of the
Japan JV. As determined by the amount of future capital contributions by each of the partners, Wendy’s may become
the majority owner of the Japan JV. The Japan JV and the effect of the noncontrolling interest in the Japan JV would
then be included in the Wendy’s consolidated financial statements from the date that Wendy’s became the majority
owner, or otherwise assumed day-to-day control of the Japan JV’s operations.
Our obligations, including the funding of anticipated future cash requirements of the Japan JV of
approximately $3,000, could total up to approximately $8,000 if our joint venture partners are unable to perform
their reimbursement and indemnity obligations to us.
Other Loan Guarantees
Wendy’s provided loan guarantees to various lenders on behalf of franchisees entering into pooled debt facility
arrangements for new store development and equipment financing to promote systemwide initiatives. Wendy’s has
accrued a liability for the fair value of these guarantees, the calculation for which was based upon a weighted average
risk percentage established at the inception of each program which has been adjusted for a history of defaults.
Wendy’s potential recourse for the aggregate amount of these loans amounted to $11,003 as of December 30, 2012.
As of December 30, 2012, the fair value of these guarantees totaled $720 and was included in “Other liabilities.”
During 2012, Wendy’s provided a $2,000 guarantee to a lender for a franchisee, in connection with the
refinancing of the franchisee’s debt which originated in 2007. Pursuant to the agreement, the guarantee is subject to
an annual reduction over a five year period. Wendy’s also received a $3,000 prepayment on the note receivable owed
103