Wendy's 2013 Annual Report Download - page 24

make required payments of interest or principal under, or are unable to comply with covenants of, the Restated Credit
Agreement, then Wendy’s would be in default under the terms of the agreement, which would preclude the payment
of dividends to The Wendy’s Company, restrict access to the revolving credit facility, and, under certain
circumstances, permit the lenders to accelerate the maturity of the indebtedness. See Note 10 of the Financial
Statements and Supplementary Data included in Item 8 herein, for further information regarding the Restated Credit
Agreement.
Wendy’s has a significant amount of debt outstanding. Such indebtedness, along with the other contractual
commitments of our subsidiaries, could adversely affect our business, financial condition and results of
operations, as well as the ability of certain of our subsidiaries to meet debt payment obligations.
Wendy’s has a significant amount of debt and debt service requirements. As of December 29, 2013, on a
consolidated basis, there was approximately $1.5 billion of outstanding debt.
This level of debt could have significant consequences on our future operations, including:
• making it more difficult to meet payment and other obligations under outstanding debt;
• resulting in an event of default if our subsidiaries fail to comply with the financial and other restrictive
covenants contained in debt agreements, which event of default could result in all of our subsidiaries’ debt
becoming immediately due and payable;
• reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other
general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
• subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable
interest rates, including borrowings under the Restated Credit Agreement;
• limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our
business, the industry in which we operate and the general economy; and
• placing us at a competitive disadvantage compared to our competitors that are less leveraged.
In addition, certain of our subsidiaries also have significant contractual requirements for the purchase of soft
drinks. Wendy’s has also provided loan guarantees to various lenders on behalf of franchisees entering into debt
arrangements for new restaurant development and equipment financing, and one guarantee to a lender for a
franchisee, in connection with the refinancing of the franchisee’s debt. Certain subsidiaries also guarantee or are
contingently liable for certain leases of their respective franchisees for which they have been indemnified. In addition,
certain subsidiaries also guarantee or are contingently liable for certain leases of their respective franchisees for which
they have not been indemnified. These commitments could have an adverse effect on our liquidity and the ability of
our subsidiaries to meet payment obligations.
The ability to meet payment and other obligations under the debt instruments of our subsidiaries depends on
their ability to generate significant cash flow in the future. This, to some extent, is subject to general economic,
financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot
assure you that our business will generate cash flow from operations, or that future borrowings will be available to us
under existing or any future credit facilities or otherwise, in an amount sufficient to enable our subsidiaries to meet
their debt payment obligations and to fund other liquidity needs. If our subsidiaries are not able to generate sufficient
cash flow to service their debt obligations, they may need to refinance or restructure debt, sell assets, reduce or delay
capital investments, or seek to raise additional capital. If our subsidiaries are unable to implement one or more of
these alternatives, they may not be able to meet debt payment and other obligations.
We and our subsidiaries may still be able to incur substantially more debt. This could exacerbate further the
risks associated with our substantial leverage.
We and our subsidiaries may be able to incur substantial additional indebtedness, including additional secured
indebtedness, in the future. The terms of the Restated Credit Agreement restrict, but do not completely prohibit, us
or our subsidiaries from doing so. If new debt or other liabilities are added to our current consolidated debt levels, the
related risks that we now face could intensify.
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