Wendy's 2012 Annual Report Download - page 52

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Guarantees and Other Contingencies
Year End
2012
Lease guarantees and contingent rent on leases (a) .................................... $54.8
Recourse on loans (b) ......................................................... 13.0
Letters of credit (c) ........................................................... 20.6
Other guarantees (d) .......................................................... 3.0
Total .................................................................. $91.4
(a) Wendy’s is contingently liable for certain leases and other obligations primarily from former company-owned
restaurant locations now operated by franchises amounting to $48.1 million as of December 30, 2012. These
leases extend through 2050. In addition, 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
$6.7 million as of December 30, 2012. These leases expire on various dates through 2021.
(b) Wendy’s provided loan guarantees to various lenders on behalf of franchisees under pooled debt facility
arrangements for new store development and equipment financing to promote systemwide initiatives. Recourse
on the majority of these loans is limited, generally to a percentage of the original loan amount or the current loan
balance on individual franchisee loans or an aggregate minimum for the entire loan arrangement. During 2012,
Wendy’s provided a $2.0 million 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.
(c) The Company has outstanding letters of credit of $20.6 million with various parties. The Company does not
expect any material loss to result from these letters of credit because we do not believe performance will be
required.
(d) 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 $3.0 million 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 $3.0 million, could total up to approximately $8.0 million if our joint venture partners are
unable to perform their reimbursement and indemnity obligations to us.
Inflation and Changing Prices
We believe that general inflation did not have a significant effect on our consolidated results of operations,
except as mentioned below for certain commodities, during the reporting periods. We manage any inflationary costs
and commodity price increases through selective menu price increases. Delays in implementing such menu price
increases and competitive pressures may limit our ability to recover such cost increases in the future. Inherent
volatility experienced in certain commodity markets, such as those for beef, chicken, corn and wheat had a significant
effect on our results of operations in 2012 and 2011 and is expected to have an adverse effect on us in the future. The
extent of any impact will depend on our ability and timing to increase food prices.
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