Wendy's 2011 Annual Report Download - page 23

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 The Wendy’s Company or any of its subsidiaries that are not subsidiaries of Wendy’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 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 12 of the Financial Statements and Supplementary Data
included in Item 8 herein, for further information regarding the Credit Agreement.
Wendy’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 Wendy’s Restaurants 10.0% Senior Notes due in 2016 (the “Senior Notes”) and other
debt.
Wendy’s Restaurants and certain of its subsidiaries have a significant amount of debt and debt service
requirements. As of January 1, 2012, on a consolidated basis, there was approximately $1.3 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;
• 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
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