Wendy's 2010 Annual Report Download - page 27

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 (including government-mandated health care
benefits) 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 January 2, 2011, Wendy’s leased or owned the land and/or the building for 1,394 Wendy’s restaurants
and Arby’s leased or owned the land and/or the building for 1,144 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. In addition, we cannot predict what environmental legislation or regulations will be
enacted in the future or how existing or future laws or regulations will be administered or interpreted. We cannot
predict the amount of future expenditures that may be required in order to comply with any environmental laws or
regulations or to satisfy any such claims. See “Item 1. Business-General-Environmental Matters.”
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 our 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.
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,
including class action lawsuits related to these matters. 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 claims may hurt us and our franchisees.
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