Wendy's 2013 Annual Report Download - page 19

future. We have not conducted a comprehensive environmental review of all of our properties. We may not have
identified all of the potential environmental liabilities at our leased and owned properties, and any such liabilities
identified in the future could cause us to incur significant costs, including costs associated with litigation, fines or
clean-up responsibilities. In addition, we cannot predict what environmental legislation or regulations will be enacted
in the future or how existing or future laws or regulations will be administered or interpreted. We cannot predict the
amount of future expenditures that may be required in order to comply with any environmental laws or regulations or
to satisfy any such claims. See “Item 1. Business—General—Legal and Environmental Matters.”
Wendy’s leases real property generally for initial terms of 20 years with two to four additional options to extend
the term of the leases in consecutive five-year increments. Many leases provide that the landlord may increase the rent
over the term of the lease and any renewals thereof. Most leases require us to pay all of the costs of insurance, taxes,
maintenance and utilities. We generally cannot cancel these leases. If an existing or future restaurant is not profitable,
and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease
including, among other things, paying the base rent for the balance of the lease term. In addition, as each lease
expires, we may fail to negotiate additional renewals or renewal options, either on commercially acceptable terms or at
all, which could cause us to close restaurants in desirable locations.
Due to the concentration of Wendy’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 December 29, 2013, we and our franchisees operated Wendy’s restaurants in 50 states, the District of
Columbia and 28 foreign countries and territories. As of December 29, 2013 and as detailed in “Item 2. Properties,”
the 8 leading states by number of operating units were: Florida, Ohio, Texas, Georgia, Michigan, California,
Pennsylvania 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 restaurants could have a material adverse
impact on our results of operations in the future.
Our operations are influenced by adverse weather conditions.
Weather, which is unpredictable, can impact Wendy’s restaurant sales. Harsh weather conditions that keep customers
from dining out result in lost opportunities for our restaurants. A heavy snowstorm in the Northeast or Midwest or a
hurricane in the Southeast can shut down an entire metropolitan area, resulting in a 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 Wendy’s performance or how it may perform in the future.
Wendy’s business could be hurt by increased labor costs or labor shortages.
Labor is a primary component in the cost of operating our company-owned restaurants. Wendy’s devotes
significant resources to recruiting and training its managers and hourly employees. Increased labor costs due to
competition, increased minimum wage or employee benefits costs (including various federal, state and local actions to
increase minimum wages and government-mandated health care benefits) or other factors would adversely impact our
cost of sales and operating expenses. In addition, Wendy’s success depends on its ability to attract, motivate and retain
qualified employees, including restaurant managers and staff. If the brand is unable to do so, our results of operations
could be adversely affected.
The Company, through a subsidiary, has withdrawn from a multiemployer pension plan. Wendy’s assumed an
estimated withdrawal liability in the fourth quarter of 2013, but the final withdrawal liability will be
determined through discussions with the pension fund administrator and resolution of a charge filed with the
National Labor Relations Board.
Prior to the fourth quarter of 2013, the unionized employees at The New Bakery Co. of Ohio, Inc. (the
“Bakery”), a 100% owned subsidiary of Wendy’s, now known as The New Bakery Company, LLC, were covered by
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