Wendy's 2008 Annual Report Download - page 27

made it more difficult for businesses to obtain financing. If such conditions persist, then they may result in
significant declines in consumer food-away-from-home spending and customer traffic in our restaurants and
those of our franchisees. Such conditions may also adversely impact the ability of franchisees to build or
purchase restaurants, remodel existing restaurants, renew expiring franchise agreements and make timely
royalty and other payments. There can be no assurance that government responses to the disruptions in the
financial markets will restore consumer confidence, stabilize the markets or increase liquidity and the
availability of credit. If we or our franchisees are unable to obtain borrowed funds on acceptable terms, or if
conditions in the economy and the financial markets do not improve, our revenues, results of operations,
business and financial condition could be adversely affected as a result.
Additionally, we enter into total return and interest rate swaps and other derivative contracts as described
in Note 12 to the Consolidated Financial Statements included in this Form 10-K. We are exposed to potential
losses in the event of nonperformance by counterparties on these instruments, which could adversely affect our
results of operations, financial condition and liquidity.
Changes in food and supply costs could harm results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in food and supply
costs. Any increase in food prices, especially those of beef or chicken, could harm operating results. Ethanol
production has increased the cost of corn, which has raised corn oil prices and contributed to higher beef and
chicken prices stemming from increased corn feed pricing. In addition, each brand is susceptible to increases in
food costs as a result of other factors beyond its control, such as weather conditions, global demand, food safety
concerns, product recalls and government regulations. Additionally, prices for feed ingredients used to produce
beef and chicken could be adversely affected by changes in global weather patterns, which are inherently
unpredictable. We cannot predict whether we will be able to anticipate and react to changing food costs by
adjusting our purchasing practices and menu prices, and a failure to do so could adversely affect our operating
results. In addition, we may not seek to or be able to pass along price increases to our customers.
Competition from other restaurant companies could hurt our brands.
The market segments in which company-owned and franchised Wendy’s and Arby’s restaurants compete
are highly competitive with respect to, among other things, price, food quality and presentation, service,
location, and the nature and condition of the restaurant facility. Wendy’s and Arby’s restaurants compete with
a variety of locally-owned restaurants, as well as competitive regional and national chains and franchises.
Several of these chains compete by offering high quality sandwiches and/or menu items that are targeted at
certain consumer groups. Additionally, many of our competitors have introduced lower cost, value meal menu
options. Our revenues and those of our franchisees may be hurt by this product and price competition.
Moreover, new companies, including operators outside the quick service restaurant industry, may enter
our market areas and target our customer base. For example, additional competitive pressures for prepared food
purchases have come from deli sections and in-store cafes of a number of major grocery store chains, as well as
from convenience stores and casual dining outlets. Such competitors may have, among other things, lower
operating costs, lower debt service requirements, better locations, better facilities, better management, more
effective marketing and more efficient operations. Many of our competitors have substantially greater financial,
marketing, personnel and other resources than we do, which may allow them to react to changes in pricing and
marketing strategies in the quick service restaurant industry better than we can. Many of our competitors
spend significantly more on advertising and marketing than we do, which may give them a competitive
advantage through higher levels of brand awareness among consumers. All such competition may adversely
affect our revenues and profits by reducing revenues of company-owned restaurants and royalty payments from
franchised restaurants.
Current restaurant locations may become unattractive, and attractive new locations may not be
available for a reasonable price, if at all.
The success of any restaurant depends in substantial part on its location. There can be no assurance that
our current restaurant locations will continue to be attractive as demographic patterns change. Neighborhood
or economic conditions where our restaurants are located could decline in the future, thus resulting in
potentially reduced sales in those locations. In addition, rising real estate prices in some areas may restrict our
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