Wendy's 2012 Annual Report Download - page 36

Related Party Transactions
Supply Chain Relationship Agreement
During the fourth quarter of 2009, Wendy’s entered into a purchasing co-op relationship agreement (the
“Wendy’s Co-op”) with its franchisees to establish Quality Supply Chain Co-op, Inc. (“QSCC”). QSCC manages, for
the Wendy’s system in the U.S. and Canada, contracts for the purchase and distribution of food, proprietary paper,
operating supplies and equipment under national contracts with pricing based upon total system volume.
QSCC’s supply chain management facilitates continuity of supply and provides consolidated purchasing
efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s supply
chain in the U.S. and Canada. Prior to 2010, the system’s purchasing function was performed and paid for by
Wendy’s. In order to facilitate the orderly transition of the 2010 purchasing function for operations in the U.S. and
Canada, Wendy’s transferred certain contracts, assets and certain Wendy’s purchasing employees to QSCC in 2010.
Pursuant to the terms of the Wendy’s Co-op, Wendy’s expensed $15.5 million in 2009 for payments to QSCC
required over an 18 month period through May 2011 in order to provide funding for start-up costs, operating
expenses and cash reserves. Wendy’s made such payments of $0.3 million and $15.2 million in 2011 and 2010,
respectively. In connection with the ongoing operations of QSCC during 2010, QSCC reimbursed Wendy’s
$0.9 million for amounts Wendy’s had paid primarily for payroll-related expenses for certain Canadian QSCC
purchasing employees.
Since the third quarter of 2010, all QSCC members (including Wendy’s) pay sourcing fees to third party
vendors on products which are sourced through QSCC. Such sourcing fees are remitted by these vendors to QSCC
and are the primary means of funding QSCC’s operations. Should QSCC’s sourcing fees exceed its expected needs,
QSCC’s board of directors may return some or all of the excess to its members in the form of a patronage dividend.
Wendy’s recorded its share of patronage dividends of $2.5 million, $2.0 million and $0.3 million in 2012, 2011 and
2010, respectively, which are included as a reduction of “Cost of sales.”
Effective January 4, 2010, QSCC leased 9,333 square feet of office space from Wendy’s. Effective January 1,
2011, Wendy’s and QSCC entered into a lease amendment which increased the office space leased to QSCC to
14,333 square feet for a one year period for a revised annual base rental of approximately $0.2 million with five
one-year renewal options, three of which are currently remaining.
Strategic Sourcing Group Agreement
On April 5, 2010, QSCC and the Arby’s independent purchasing cooperative (“ARCOP”) in consultation with
Wendy’s Restaurants, established Strategic Sourcing Group Co-op, LLC (“SSG”). SSG was formed to manage and
operate purchasing programs for certain non-perishable goods, equipment and services. Wendy’s Restaurants had
committed to pay approximately $5.1 million of SSG expenses, which were expensed in 2010 and included in
“General and administrative,” and were to be paid over a 24 month period through March 2012. However, in
anticipation of the sale of Arby’s, effective April 2011, SSG was dissolved and its activities were transferred to QSCC
and ARCOP and the remaining accrued commitment of $2.3 million was reversed and credited to “General and
administrative.”
Noncontrolling Interests in Jurl Holdings, LLC
Jurl Holdings, LLC (“Jurl”), a 99.7% owned subsidiary, held our approximately 11% cost method investment
in Jurlique International Pty Ltd. (“Jurlique”), an Australian manufacturer of skin care products. Prior to 2009, we
had determined that all of our then remaining $8.5 million investment in Jurlique was impaired. On February 2,
2012, Jurl completed the sale of our investment in Jurlique for which we received proceeds of $27.3 million, net of
the amount held in escrow. The amount held in escrow as of December 30, 2012 was $3.4 million, which was
adjusted for foreign currency translation and was included in “Deferred costs and other assets.” In connection with
the anticipated proceeds of the sale and in order to protect ourselves from a decrease in the Australian dollar through
the closing date, we entered into a foreign currency related derivative transaction for an equivalent notional amount in
U.S. dollars of the expected proceeds of A$28.5 million. We recorded a gain on sale of this investment of
$27.4 million, which included a loss of $2.9 million on the settlement of the derivative transaction discussed above.
The gain was included in “Investment income, net” in our consolidated statement of operations.
33