Wendy's 2013 Annual Report Download - page 18

on ongoing operations, any tax impact from the sale of restaurants, and the future benefits to the Company’s
earnings, restaurant operating margin, cash flow and depreciation. If Wendy’s is unable to manage these risks
effectively, our business and financial results could be adversely affected.
Wendy’s may be unable to manage effectively the acquisition and disposition of restaurants not part of the
system optimization initiative, which could adversely affect our business and financial results.
Wendy’s has from time to time acquired the interests of and sold Wendy’s restaurants to franchisees not part of
the system optimization initiative. Wendy’s intends to evaluate strategic acquisitions of franchised restaurants and
strategic dispositions of company-owned restaurants to existing and new franchisees not part of the system
optimization initiative. The success of these transactions is dependent upon the availability of sellers and buyers, the
availability of financing, and the brand’s ability to negotiate transactions on terms deemed acceptable. In addition, the
operations of restaurants that the brand acquires may not be integrated successfully, and the intended benefits of such
transactions may not be realized. Acquisitions of franchised restaurants pose various risks to brand operations,
including:
• diversion of management’s attention to the integration of acquired restaurant operations;
• increased operating expenses and the inability to achieve expected cost savings and operating efficiencies;
• exposure to liabilities arising out of sellers’ prior operations of acquired restaurants; and
• incurrence or assumption of debt to finance acquisitions or improvements and/or the assumption of
long-term, non-cancelable leases.
In addition, engaging in acquisitions and dispositions places increased demands on the brand’s operational and
financial management resources and may require us to continue to expand these resources. If Wendy’s is unable to
manage the acquisition and disposition of restaurants effectively, our business and financial results could be adversely
affected.
Current restaurant locations may become unattractive, and attractive new locations may not be available for a
reasonable price, if at all.
The success of any restaurant depends in substantial part on its location. There can be no assurance that our
current restaurant locations will continue to be attractive as demographic patterns change. Neighborhood or
economic conditions where our restaurants are located could decline in the future, thus resulting in potentially
reduced sales in those locations. In addition, rising real estate prices in some areas may restrict our ability and the
ability of franchisees to purchase or lease new desirable locations. If desirable locations cannot be obtained at
reasonable prices, the brand’s ability to execute its growth strategies will be adversely affected.
Wendy’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 December 29, 2013, Wendy’s leased or owned the land and/or the building for 1,183 Wendy’s
restaurants. Wendy’s also owned 138 and leased 276 properties that were either leased or subleased principally to
franchisees as of December 29, 2013. Accordingly, we are 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.
Wendy’s 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
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