Wendy's 2012 Annual Report Download - page 22

• a current expectation that more-likely-than-not (e.g., a likelihood that is more than 50%) long-lived assets
will be sold or otherwise disposed of significantly before the end of their previously estimated useful life;
and
• a significant drop in our stock price.
Based upon future economic and capital market conditions, as well as the operating performance of our
reporting units, future impairment charges could be incurred.
We enter into swaps and other derivative contracts, which expose us to potential losses in the event of
nonperformance by counterparties.
We have entered into interest rate swaps and other derivative contracts as described in Note 13 of the Financial
Statements and Supplementary Data included in Item 8 herein, and we may enter into additional swaps in the future.
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.
Wendy’s 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.
In May 2012, Wendy’s entered into a Credit Agreement, as amended (the “Credit Agreement”), which includes
a senior secured term loan facility of $1,125.0 million and a senior secured revolving credit facility of $200.0 million.
The Credit Agreement also contains provisions for an uncommitted increase of up to $275.0 million principal
amount of the revolving credit facility and/or term loan subject to the satisfaction of certain conditions. The revolving
credit facility includes a sub-facility for the issuance of up to $70.0 million of letters of credit. The obligations under
the Credit Agreement are secured by substantially all of the non-real estate assets of Wendy’s and its domestic
subsidiaries (other than certain unrestricted subsidiaries), the stock of its domestic subsidiaries (other than certain
unrestricted subsidiaries), and 65% of the stock of certain of its foreign subsidiaries, in each case subject to certain
limitations and exceptions. 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, and (ii) a consolidated senior secured leverage ratio. For
purposes of these covenants, “consolidated” means the combined results of Wendy’s and its subsidiaries (other than
unrestricted subsidiaries). The covenants generally do not restrict The Wendy’s Company or any of its subsidiaries
that are not subsidiaries of Wendy’s. If Wendy’s and its subsidiaries 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 Wendy’s 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 has 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 debt payment obligations.
Wendy’s has a significant amount of debt and debt service requirements. As of December 30, 2012, on a
consolidated basis, there was approximately $1.5 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 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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