Wendy's 2010 Annual Report Download - page 30

• 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 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 pooled
debt facility arrangements for new store development and equipment financing. 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 under the Senior Notes and other debt.
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 payment obligations under the Senior Notes and other debt 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, including the Senior Notes, 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 payment
obligations under the Senior Notes and other debt 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 Senior Notes indenture and the Credit Agreement restrict, but
do not completely prohibit, us or our subsidiaries from doing so. In addition, the Senior Notes indenture allows
Wendy’s/Arby’s Restaurants to issue additional Senior Notes under certain circumstances, which will also be
guaranteed by the guarantors of the Senior Notes. The indenture also allows Wendy’s/Arby’s Restaurants to incur
certain secured debt and allows our foreign subsidiaries to incur additional debt, which would be effectively senior to
the Senior Notes. In addition, the indenture does not prevent Wendy’s/Arby’s Restaurants from incurring other
liabilities that do not constitute indebtedness. If new debt or other liabilities are added to our current consolidated
debt levels, the related risks that we now face could intensify.
To service debt and meet its other cash needs, Wendy’s/Arby’s Restaurants will require a significant amount of
cash, which may not be generated or available to it.
The ability of Wendy’s/Arby’s Restaurants to make payments on, or repay or refinance, its debt, including the
Senior Notes and the Credit Agreement, and to fund planned capital expenditures, dividends and other cash needs
will depend largely upon its future operating performance. Future performance, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In
addition, the ability of Wendy’s/Arby’s Restaurants to borrow funds in the future to make payments on its debt will
depend on the satisfaction of the covenants in its credit facilities and other debt agreements, including the indenture
governing the Senior Notes, the Credit Agreement and other agreements it may enter into in the future. Specifically,
Wendy’s/Arby’s Restaurants will need to maintain specified financial ratios and satisfy financial condition tests. There
is no assurance that the Wendy’s/Arby’s Restaurants business will generate sufficient cash flow from operations or that
future borrowings will be available under its credit facilities or from other sources in an amount sufficient to enable it
to pay its debt, including the Senior Notes and Credit Agreement, or to fund its or Wendy’s/Arby’s dividend and
other liquidity needs.
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