Wendy's 2015 Annual Report Download - page 93

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
Joint Venture in Japan
A wholly-owned subsidiary of Wendy’s entered into a joint venture for the operation of Wendy’s restaurants in
Japan (the “Japan JV”) with Ernest M. Higa and Higa Industries, Ltd., a corporation organized under the laws of
Japan (collectively, the “Higa Partners”) during the second quarter of 2011. Through the first quarter of 2013 as
further described below, our 49% share of the Japan JV was accounted for as an equity method investment. Our share
of the Japan JV’s net loss of $1,090 during the year ended December 29, 2013 is included in “Other operating
expense, net” in our consolidated statements of operations.
In January 2013, Wendy’s and the Higa Partners agreed to fund future anticipated cash requirements of the
Japan JV up to a maximum amount per partner. In conjunction with the first contributions in April 2013 of $1,000
and $219 by Wendy’s and the Higa Partners, respectively, the partners executed an amendment to the original joint
venture agreement which included revised rights and obligations of the partners and changes to the ownership and
profit distribution percentages. As a result of the changes in the ownership rights and obligations of the partners in
April 2013, Wendy’s consolidated the Japan JV beginning in the second quarter of 2013. Beginning in the second
quarter of 2013, we reported the Japan JV’s results of operations in the appropriate line items in our consolidated
statements of operations and the net loss attributable to the Higa Partners’ ownership percentage in “Net loss
attributable to noncontrolling interests.” The consolidation of the Japan JV’s three restaurants did not have a material
impact on our consolidated financial statements. In August 2013, additional contributions of $1,000 and $219 were
made by Wendy’s and the Higa Partners, respectively.
In December 2013, Wendy’s and the Higa Partners agreed to terminate Wendy’s investment in the joint
venture and repay their respective portions of the Japan JV’s outstanding financing debt and liabilities related to
restaurant closure costs (the “Obligations”). In connection with that agreement, Wendy’s (1) made a contribution to
the Japan JV of $2,800 to pay the Obligations attributable to Wendy’s interest and (2) loaned $2,800 to the Japan JV
to pay the Obligations attributable to the Higa Partners interest. Wendy’s also loaned $197 to the Japan JV to help
support the future working capital needs of that entity. On December 27, 2013, Wendy’s transferred its interest in
the Japan JV to Higa Industries, Ltd. for nominal consideration, terminating the joint venture, and establishing the
Japan JV as a wholly-owned entity of the Higa Partners (“Wendy’s Japan”). Wendy’s Japan and the Higa Partners
issued a promissory note to Wendy’s evidencing the commitment to repay both amounts described above in full by
December 27, 2018. We have included our capital contributions totaling $4,800, net of cash acquired of $188, for
the year ended December 29, 2013 in “Acquisitions” in our consolidated statement of cash flows. Therefore, Wendy’s
deconsolidated the Japan JV and recognized a loss of $1,658, which was included in “Other operating expense, net”
in our consolidated statements of operations for the year ended December 29, 2013.
Certain of the Obligations were supported by guarantees by Wendy’s and the Higa Partners, and such
guarantees were subject to a cross-indemnification arrangement between Wendy’s and the Higa Partners. With the
repayment of the Japan JV’s financing debt, the applicable guarantees were also terminated, and both Wendy’s and
the Higa Partners terminated the cross-indemnification arrangement related thereto. As a result, as of December 29,
2013, Wendy’s had no remaining funding requirements for, or exposure under guarantees to lenders to, the Japan JV.
Indirect Investment in Arby’s
In connection with the sale of Arby’s, Wendy’s Restaurants obtained an 18.5% equity interest in ARG Holding
Corporation (through which Wendy’s Restaurants indirectly retained an 18.5% interest in Arby’s) with a fair value of
$19,000. See Note 2 for more information on the sale of Arby’s. We account for our interest in Arby’s as a cost
method investment. During 2015, we received a dividend of $54,911 from our investment in Arby’s, which was
recognized in “Investment income, net.” During 2013, we received a dividend of $40,145, of which $21,145 was
recognized in “Investment income, net,” with the remainder recorded as a reduction to the carrying value of our
investment in Arby’s.
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