Wendy's 2012 Annual Report Download - page 111

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THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
(24) Legal, Environmental and Other Matters
We are involved in litigation and claims incidental to our current and prior businesses. We provide reserves for
such litigation and claims when payment is probable and reasonably estimable. As of December 30, 2012, the
Company had reserves for continuing operations for all of its legal and environmental matters aggregating $3,489. We
cannot estimate the aggregate possible range of loss due to most proceedings being in preliminary stages, with various
motions either yet to be submitted or pending, discovery yet to occur, and significant factual matters unresolved. In
addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the
outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult. Based on currently
available information, including legal defenses available to us, and given the aforementioned reserves and our
insurance coverage, we do not believe that the outcome of these legal and environmental matters will have a material
effect on our consolidated financial position or results of operations.
Wendy’s completed the initial public offering of THI in March 2006 and the spin-off of THI in September
2006. In connection with the initial public offering, Wendy’s and THI entered into a tax sharing agreement that
governed the rights and responsibilities of the parties with respect to taxes for periods up to the date of the spin-off,
including the allocation of tax attributes between the parties. In 2007, Wendy’s asserted a claim against THI for
approximately $1,000 for a tax claim related to a competent authority adjustment. THI has disputed this claim. In
addition, THI has asserted claims for damages related to foreign tax credits THI allegedly should have received in the
spin-off in the aggregate amount of C$29,000. Wendy’s has disputed and continues to dispute these claims. In 2011,
THI invoked the dispute resolution provision of the tax sharing agreement, which calls for binding mandatory
arbitration. In February 2012, THI submitted a notice of claim, which makes the same claims THI has asserted under
the tax sharing agreement, to Wendy’s under the master separation agreement between Wendy’s and THI that was
executed contemporaneously with the tax sharing agreement. The dispute resolution provision of the master
separation agreement calls for good faith negotiations between the parties, followed by non-binding mediation. Either
party can bring suit if no resolution is reached following mediation. The parties are still in discussions but it no longer
appears likely that a resolution will be reached without the involvement of a neutral third party. The parties have
agreed on a mediator and a mediation date. We cannot estimate a range of possible loss, if any, for this matter at this
time since, among other things, it is still in a preliminary stage, significant factual and legal issues are unresolved, no
mediation sessions have been held, and the mediation will be non-binding. If no agreed resolution is reached, the
matter would be resolved either by litigation or binding mandatory arbitration, in which case various motions would
be submitted and discovery would occur. If no agreed resolution is reached, Wendy’s intends to vigorously assert its
claim and defend against the THI claims.
(25) Advertising Costs and Funds
We currently participate in two national advertising funds (the “Advertising Funds”) established to collect and
administer funds contributed for use in advertising and promotional programs. Contributions to the Advertising
Funds are required from both company-owned and franchised restaurants and are based on a percentage of restaurant
sales. In addition to the contributions to the various Advertising Funds, company-owned and franchised restaurants
make additional contributions to other local and regional advertising programs.
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