Wendy's 2008 Annual Report Download - page 28

ability and the ability of franchisees to purchase or lease new desirable locations. If desirable locations cannot
be obtained at reasonable prices, each brand’s ability to effect its growth strategies will be adversely affected.
Wendy’s and Arby’s business could be hurt by increased labor costs or labor shortages.
Labor is a primary component in the cost of operating our company-owned restaurants. Each brand
devotes significant resources to recruiting and training its managers and hourly employees. Increased labor
costs due to competition, increased minimum wage or employee benefits costs or other factors would adversely
impact our cost of sales and operating expenses. In addition, each brand’s success depends on its ability to
attract, motivate and retain qualified employees, including restaurant managers and staff. If either brand is
unable to do so, our results of operations could be adversely affected.
Each brand’s leasing and ownership of significant amounts of real estate exposes it to possible
liabilities and losses, including liabilities associated with environmental matters.
As of December 28, 2008, Wendy’s leased or owned the land and/or the building for 1,406 Wendy’s
restaurants and ARG leased or owned the land and/or the building for 1,170 Arby’s restaurants. Accordingly,
each brand is subject to all of the risks associated with leasing and owning real estate. In particular, the value
of our real property assets could decrease, and costs could increase, because of changes in the investment
climate for real estate, demographic trends, supply or demand for the use of the restaurants, which may result
from competition from similar restaurants in the area, and liability for environmental matters.
Each brand is subject to federal, state and local environmental, health and safety laws and regulations
concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances. These
environmental laws provide for significant fines, penalties and liabilities, sometimes without regard to whether
the owner, operator or occupant of the property knew of, or was responsible for, the release or presence of the
hazardous or toxic substances. Third parties may also make claims against owners, operators or occupants of
properties for personal injuries and property damage associated with releases of, or actual or alleged exposure
to, such substances. A number of our restaurant sites were formerly gas stations or are adjacent to current or
former gas stations, or were used for other commercial activities that can create environmental impacts. We
may also acquire or lease these types of sites in the future. We have not conducted a comprehensive
environmental review of all of our properties. We may not have identified all of the potential environmental
liabilities at our leased and owned properties, and any such liabilities identified in the future could cause us to
incur significant costs, including costs associated with litigation, fines or clean-up responsibilities.
Each brand leases real property generally for initial terms of 20 years with two to four additional options
to extend the term of the leases in consecutive five-year increments. Many leases provide that the landlord may
increase the rent over the term of the lease and any renewals thereof. Most leases require us to pay all of the
costs of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases. If an existing or
future restaurant is not profitable, and we decide to close it, we may nonetheless be committed to perform its
obligations under the applicable lease including, among other things, paying the base rent for the balance of
the lease term. In addition, as each lease expires, we may fail to negotiate additional renewals or renewal
options, either on commercially acceptable terms or at all, which could cause us to close stores in desirable
locations.
Complaints or litigation may hurt each brand.
Occasionally, Wendy’s and Arby’s customers file complaints or lawsuits against us alleging that we are
responsible for an illness or injury they suffered at or after a visit to a Wendy’s or Arby’s restaurant, or alleging
that there was a problem with food quality or operations at a Wendy’s or Arby’s restaurant. We are also subject
to a variety of other claims arising in the ordinary course of our business, including personal injury claims,
contract claims, claims from franchisees (which tend to increase when franchisees experience declining sales and
profitability) and claims alleging violations of federal and state law regarding workplace and employment
matters, discrimination and similar matters. We could also become subject to class action lawsuits related to
these matters in the future. Regardless of whether any claims against us are valid or whether we are found to be
liable, claims may be expensive to defend and may divert management’s attention away from operations and
hurt our performance. A judgment significantly in excess of our insurance coverage for any claims could
materially adversely affect our financial condition or results of operations. Further, adverse publicity resulting
from these allegations may hurt us and our franchisees.
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