Wendy's 2012 Annual Report Download - page 107

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
by the franchisee as part of the refinancing. As of December 30, 2012, Wendy’s has accrued a liability for the fair
value of this guarantee of $220, the calculation for which was based upon a weighted average risk percentage
established at the inception of the guarantee.
Lease Guarantees
Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former
company-owned restaurant locations now operated by franchisees, amounting to $47,910 as of December 30, 2012.
These leases extend through 2050. We have not received any notice of default related to these leases as of
December 30, 2012. In the event of default by a franchise owner, Wendy’s generally retains the right to acquire
possession of the related restaurant locations.
Wendy’s is contingently liable for certain other leases which have been assigned to unrelated third parties who
have indemnified Wendy’s against future liabilities amounting to $6,666 as of December 30, 2012. These leases
expire on various dates, through 2021.
Wendy’s Canadian subsidiary has established a lease guarantee program to promote new franchisee unit
development for up to an aggregate of C$5,000 for periods of up to five years. Franchisees pay the Canadian
subsidiary a nominal fee for the guarantee. As of December 30, 2012, the Canadian subsidiary had guaranteed $180
under this program.
Insurance
Wendy’s is self-insured for most workers’ compensation losses and purchases insurance for general liability and
automotive liability losses, all subject to a $500 per occurrence retention or deductible limit. Wendy’s determines its
liability for claims incurred but not reported for the insurance liabilities on an actuarial basis. Wendy’s is self-insured
for health care claims for eligible participating employees subject to certain deductibles and limitations and determines
its liability for health care claims incurred but not reported based on historical claims runoff data.
Letters of Credit
As of December 30, 2012, the Company had outstanding letters of credit with various parties of $20,601. We
do not expect any material loss to result from these letters of credit.
Purchase and Capital Commitments
Beverage Agreements
Wendy’s had an agreement with a beverage vendor which provided fountain beverage products and certain
marketing support funding to the Company and its franchisees. This agreement required minimum purchases of
fountain syrup (“Syrup”) by the Company and its franchisees at certain agreed upon prices until the total contractual
gallon volume usage was reached. This agreement also provided for an annual advance to be paid to the Company
based on the vendor’s expectation of the Company’s annual Syrup usage, which was amortized over actual usage
during the year.
Beverage purchases made by the Company under this agreement during 2012, 2011 and 2010 were $20,545,
$20,464 and $21,273, respectively. As of December 30, 2012, $1,517 is due to the beverage vendor and is included
in “Accounts payable,” principally for annual estimated payments that exceeded usage, under this agreement.
The Company entered into a new beverage agreement with the beverage vendor, effective January 1, 2013,
which establishes a new contract term and, among other terms, new pricing and usage requirements. This agreement
also provides for an annual advance to be paid to the Company based on the vendor’s expectation of the Company’s
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