Wendy's 2010 Annual Report Download - page 29

reduction in sales in that area. Our first quarter includes winter months and historically has a lower level of sales at
company-owned restaurants. Because a significant portion of our restaurant operating costs is fixed or semi-fixed in
nature, the loss of sales during these periods hurts our operating margins, and can result in restaurant operating
losses. For these reasons, a quarter-to-quarter comparison may not be a good indication of either brand’s performance
or how it may perform in the future.
Due to the concentration of Wendy’s and Arby’s restaurants in particular geographic regions, our business
results could be impacted by the adverse economic conditions prevailing in those regions regardless of the state of
the national economy as a whole.
As of January 2, 2011, we and our franchisees operated Wendy’s or Arby’s restaurants in 50 states and 24
foreign countries. As of January 2, 2011 as detailed in “Item 2. Properties,” the 8 leading states by number of
operating units were: Ohio, Florida, Texas, Michigan, Georgia, Pennsylvania, California, and North Carolina. This
geographic concentration can cause economic conditions in particular areas of the country to have a disproportionate
impact on our overall results of operations. It is possible that adverse economic conditions in states or regions that
contain a high concentration of Wendy’s and Arby’s restaurants could have a material adverse impact on our results of
operations in the future.
Wendy’s/Arby’s Restaurants and its subsidiaries are subject to various restrictions, and substantially all of their
non-real estate assets are pledged and subject to certain restrictions, under a Credit Agreement.
On May 24, 2010, Wendy’s/Arby’s Restaurants entered into a $650,000 Credit Agreement which includes a
$500,000 senior secured term loan facility and a $150,000 senior secured revolving credit facility. The obligations
under the Credit Agreement are secured by substantially all of the non-real estate assets of Wendy’s/Arby’s
Restaurants and its domestic subsidiaries (other than certain unrestricted subsidiaries), the stock of its domestic
subsidiaries (other than certain unrestricted subsidiaries), 65% of the stock of certain of its foreign subsidiaries, as well
as by mortgages on certain restaurant properties. The affirmative and negative covenants in the Credit Agreement
include, among others, preservation of corporate existence; payment of taxes; and maintenance of insurance; and
limitations on: indebtedness (including guarantee obligations of other indebtedness); liens; mergers, consolidations,
liquidations and dissolutions; sales of assets; dividends and other payments in respect of capital stock; investments;
payments of certain indebtedness; transactions with affiliates; changes in fiscal year; negative pledge clauses and
clauses restricting subsidiary distributions; and material changes in lines of business. The financial covenants
contained in the Credit Agreement are (i) a consolidated interest coverage ratio, (ii) a consolidated senior secured
leverage ratio and (iii) a consolidated senior secured lease adjusted leverage ratio. The covenants generally do not
restrict Wendy’s/Arby’s or any of Wendy’s/Arby’s subsidiaries that are not subsidiaries of Wendy’s/Arby’s
Restaurants. If the Borrowers are unable to generate sufficient cash flow or otherwise obtain the funds necessary to
make required payments of interest or principal under, or are unable to comply with covenants of, the Credit
Agreement, then they would be in default under the terms of the agreement, which would preclude the payment of
dividends to Wendy’s/Arby’s, restrict access to the revolving credit facility, and, under certain circumstances, permit
the lenders to accelerate the maturity of the indebtedness. See Note 11 of the Financial Statements and
Supplementary Data included in Item 8 herein, for further information regarding the Credit Agreement.
Wendy’s/Arby’s Restaurants and its subsidiaries have 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
payment obligations under the Senior Notes and other debt.
Certain of Wendy’s/Arby’s subsidiaries have a significant amount of debt and debt service requirements. As of
January 2, 2011, on a consolidated basis, there was approximately $1.6 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 the Senior Notes and other
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;
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