What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-10 compared with 2022-11-09 · 186 added, 335 removed, 453 unchanged (53% of the section changed)

57 unchanged sentences

(In Thousands Except Per Share Amounts)

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Three Months Ended

2023 April 3,

Sales $ 227,949 $ 209,275

9 unchanged sentences

General and administrative 62,276 62,346

Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) 34,252 30,940 100,911 93,243

Depreciation and amortization (exclusive of amortization of

cloud computing arrangements shown separately below)

33,472 33,231

Amortization of cloud computing arrangements 1,582 —

7 unchanged sentences

Loss on early extinguishment of debt ( 1,266 ) —

Investment income, net — — 2,107 6

Investment (loss) income, net ( 3,562 ) 2,111

Other income, net 7,336 207

2 unchanged sentences

Net income $ 39,821 $ 37,402

Net income per share:

Basic $ .24 $ .19 $ .64 $ .67

Diluted .24 .18 .63 .66

Basic and diluted net income per share $ .19 $ .17

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Three Months Ended

2023 April 3,

Net income $ 39,821 $ 37,402

Other comprehensive (loss) income:

Other comprehensive income:

Foreign currency translation adjustment 158 1,118

Other comprehensive (loss) income ( 14,183 ) ( 4,659 ) ( 20,520 ) 908

Other comprehensive income 158 1,118

Comprehensive income $ 39,979 $ 38,520

9 unchanged sentences

Cash dividends — — ( 53,103 ) — — ( 53,103 )

Repurchases of common stock, including accelerated share repurchase — 18,750 — ( 18,750 ) — —

Share-based compensation — 6,348 — — — 6,348

Common stock issued upon exercises of stock options

— 237 — 1,354 — 1,591

Common stock issued upon vesting of restricted shares

— ( 1,989 ) — 459 — ( 1,530 )

Other — 63 ( 8 ) 57 — 112

Balance at April 3, 2022 $ 47,042 $ 2,922,042 $ 354,681 $ ( 2,822,148 ) $ ( 47,082 ) $ 454,535

Net income — — 48,151 — — 48,151

Other comprehensive loss — — — — ( 7,455 ) ( 7,455 )

Cash dividends — — ( 26,635 ) — — ( 26,635 )

Repurchases of common stock — — — ( 38,810 ) — ( 38,810 )

5 unchanged sentences

Other — 58 ( 22 ) 54 — 90

Balance at July 3, 2022 $ 47,042 $ 2,926,739 $ 376,187 $ ( 2,872,568 ) $ ( 54,537 ) $ 422,863

Net income — — 50,542 — — 50,542

Other comprehensive loss — — — — ( 14,183 ) ( 14,183 )

Cash dividends — — ( 26,607 ) — — ( 26,607 )

Share-based compensation — 5,027 — — — 5,027

Common stock issued upon exercises of stock options

— 450 — 241 — 691

Common stock issued upon vesting of restricted shares

— ( 1,876 ) — 817 — ( 1,059 )

Other — 48 ( 11 ) 68 — 105

Balance at October 2, 2022 $ 47,042 $ 2,930,388 $ 400,111 $ ( 2,871,442 ) $ ( 68,720 ) $ 437,379

See accompanying notes to condensed consolidated financial statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED

(In Thousands)

Stock Additional

Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total

Balance at April 2, 2023 $ 47,042 $ 2,941,138 $ 401,445 $ ( 2,906,050 ) $ ( 64,018 ) $ 419,557

Balance at January 2, 2022 $ 47,042 $ 2,898,633 $ 344,198 $ ( 2,805,268 ) $ ( 48,200 ) $ 436,405

2 unchanged sentences

Cash dividends — — ( 26,911 ) — — ( 26,911 )

Repurchases of common stock — — — ( 56,084 ) — ( 56,084 )

Repurchases of common stock, including accelerated share repurchase — 18,750 — ( 18,750 ) — —

Share-based compensation — 6,348 — — — 6,348

5 unchanged sentences

Balance at April 3, 2022 $ 47,042 $ 2,922,042 $ 354,681 $ ( 2,822,148 ) $ ( 47,082 ) $ 454,535

Net income — — 65,724 — — 65,724

Other comprehensive income — — — — 3,347 3,347

Cash dividends — — ( 22,123 ) — — ( 22,123 )

Repurchases of common stock — — — ( 27,291 ) — ( 27,291 )

Share-based compensation — 5,882 — — — 5,882

Common stock issued upon exercises of stock options

— 850 — 23,466 — 24,316

Common stock issued upon vesting of restricted shares

— ( 959 ) — 714 — ( 245 )

Other — 41 ( 5 ) 45 — 81

Balance at July 4, 2021 $ 47,042 $ 2,907,274 $ 303,475 $ ( 2,643,361 ) $ ( 44,074 ) $ 570,356

Net income — — 41,171 — — 41,171

Other comprehensive loss — — — — ( 4,659 ) ( 4,659 )

Cash dividends — — ( 26,684 ) — — ( 26,684 )

Repurchases of common stock — — — ( 43,857 ) — ( 43,857 )

Share-based compensation — 5,702 — — — 5,702

Common stock issued upon exercises of stock options

— 351 — 1,465 — 1,816

Common stock issued upon vesting of restricted shares

— ( 1,835 ) — 642 — ( 1,193 )

Other — 60 ( 6 ) 48 — 102

Balance at October 3, 2021 $ 47,042 $ 2,911,552 $ 317,956 $ ( 2,685,063 ) $ ( 48,733 ) $ 542,754

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Nine Months Ended

2022 October 3,

Three Months Ended

2023 April 3,

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) 100,911 93,243

Depreciation and amortization (exclusive of amortization of

cloud computing arrangements shown separately below)

33,472 33,231

Amortization of cloud computing arrangements 1,582 —

4 unchanged sentences

Change in operating lease liabilities ( 11,718 ) ( 11,615 )

Net receipt of deferred vendor incentives 1,884 1,906

Net (recognition) receipt of deferred vendor incentives ( 1,197 ) 7,711

System optimization gains, net ( 5 ) ( 3,534 )

7 unchanged sentences

Franchise development fund ( 218 ) ( 955 )

Acquisitions — 4,879

Dispositions 287 263

Notes receivable, net 110 141

Net cash (used in) provided by investing activities ( 46,076 ) 15,042

Net cash used in investing activities ( 12,061 ) ( 13,047 )

Cash flows from financing activities:

7 unchanged sentences

Payments related to tax withholding for share-based compensation ( 1,809 ) ( 1,530 )

Net cash provided by (used in) financing activities 324,505 ( 57,481 )

Net cash provided by operations before effect of exchange rate changes on cash 461,068 234,234

Net cash (used in) provided by financing activities ( 132,278 ) 452,802

Net cash (used in) provided by operations before effect of exchange rate changes on cash ( 91,364 ) 460,737

Effect of exchange rate changes on cash 129 305

Net increase in cash, cash equivalents and restricted cash 453,892 234,411

Net (decrease) increase in cash, cash equivalents and restricted cash ( 91,235 ) 461,042

Cash, cash equivalents and restricted cash at beginning of period 831,801 366,966

6 unchanged sentences

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements.

In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of October 2, 2022, the results of our operations for the three and nine months ended October 2, 2022 and October 3, 2021 and cash flows for the nine months ended October 2, 2022 and October 3, 2021.

The results of operations for the nine months ended October 2, 2022 are not necessarily indicative of the results to be expected for the full 2022 fiscal year.

In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of April 2, 2023 and the results of our operations and cash flows for the three months ended April 2, 2023 and April 3, 2022.

The results of operations for the three months ended April 2, 2023 are not necessarily indicative of the results to be expected for the full 2023 fiscal year.

The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2023 (the “Form 10-K”).

In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic.

We continue to monitor the dynamic nature of the COVID-19 pandemic on our business, results and financial condition;

however, we cannot predict the ultimate duration, scope or severity of the COVID-19 pandemic or its ultimate impact on our results of operations, financial condition and prospects.

The principal 100% owned subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”).

3 unchanged sentences

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to or on December 31.

All three- and nine-month periods presented herein contain 13 weeks and 39 weeks, respectively.

All three-month periods presented herein contain 13 weeks.

All references to years, quarters and months relate to fiscal periods rather than calendar periods.

Our significant interim accounting policies include the recognition of advertising funds expense in proportion to advertising funds revenue.

Reclassifications

Beginning in 2022, the Company has reclassified payments for cloud computing arrangements to “Cloud computing arrangements expenditures,” which were previously recorded to “Changes in operating assets and liabilities and other, net.” The prior period amounts in the condensed consolidated statement of cash flows reflect the reclassification of these cash flows to conform to the current year presentation.

There was no impact to “Net cash provided by operating activities.”

The following table illustrates the reclassifications made to the condensed consolidated statement of cash flows for the nine months ended October 3, 2021:

As Previously Reported Reclassifications As Currently Reported

Cloud computing arrangements expenditures $ — $ ( 5,619 ) $ ( 5,619 )

Changes in operating assets and liabilities and other, net 26,636 5,619 32,255

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Disaggregation of Revenue

1 unchanged sentence

Wendy’s International Global Real Estate & Development Total

Three Months Ended October 2, 2022

Sales at Company-operated restaurants $ 225,245 $ 3,541 $ — $ 228,786

Franchise royalty revenue 108,780 15,777 — 124,557

Franchise fees 15,294 1,257 625 17,176

Franchise rental income — — 58,463 58,463

Advertising funds revenue 96,615 6,972 — 103,587

Total revenues $ 445,934 $ 27,547 $ 59,088 $ 532,569

Nine Months Ended October 2, 2022

Sales at Company-operated restaurants $ 659,649 $ 9,281 $ — $ 668,930

Franchise royalty revenue 315,572 45,743 — 361,315

Franchise fees 46,685 3,695 2,450 52,830

Franchise rental income — — 174,944 174,944

Advertising funds revenue 281,779 19,197 — 300,976

Total revenues $ 1,303,685 $ 77,916 $ 177,394 $ 1,558,995

Three Months Ended October 3, 2021

Three Months Ended April 2, 2023

Sales at Company-operated restaurants $ 222,632 $ 5,317 $ — $ 227,949

4 unchanged sentences

Total revenues $ 440,988 $ 29,280 $ 58,539 $ 528,807

Nine Months Ended October 3, 2021

Three Months Ended April 3, 2022

Sales at Company-operated restaurants $ 206,501 $ 2,774 $ — $ 209,275

18 unchanged sentences

(b) Includes receivables related to “Sales” and “Franchise royalty revenue and fees.”

(c) Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $ 8,467 and $ 91,669 , respectively, as of October 2, 2022, and $ 9,084 and $ 88,102 , respectively, as of January 2, 2022.

(c) Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $ 9,533 and $ 88,161 , respectively, as of April 2, 2023, and $ 8,977 and $ 90,231 , respectively, as of January 1, 2023.

Significant changes in deferred franchise fees are as follows:

Nine Months Ended

2022 October 3,

Three Months Ended

2023 April 3,

Deferred franchise fees at beginning of period $ 99,208 $ 97,186

13 unchanged sentences

(In Thousands Except Per Share Amounts)

(3) Acquisitions

The Company completed no significant acquisitions of restaurants from franchisees during the nine months ended October 2, 2022 and October 3, 2021.

During the fourth quarter of 2021, the Company acquired 93 restaurants from a franchisee for total net cash consideration of $ 127,948 .

The fair values of the identifiable net assets related to the acquisition were provisional amounts as of January 2, 2022, pending final purchase accounting adjustments.

The Company finalized the purchase price allocation during the three months ended April 3, 2022, which resulted in no adjustments to the fair values of the identifiable net assets related to the acquisition.

(3) System Optimization Gains, Net

The Company’s system optimization initiative includes a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”).

As of January 1, 2017, the Company completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5 % of the total system.

While the Company has no plans to move its ownership away from approximately 5 % of the total system, the Company expects to continue to optimize the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, drive new restaurant development and accelerate reimages.

During the nine months ended October 2, 2022 and October 3, 2021, the Company facilitated 54 and 34 Franchise Flips, respectively.

Additionally, during the nine months ended October 2, 2022, the Company completed the sale of one Company-operated restaurant to a franchisee and, during the nine months ended October 3, 2021, the Company completed the sale of 47 Company-operated restaurants in New York (including Manhattan) to franchisees.

The Company’s system optimization initiative included a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”).

As of January 1, 2017, the Company achieved its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5 % of the total system.

During the three months ended April 3, 2022, the Company facilitated five Franchise Flips.

During the three months ended April 2, 2023, the Company facilitated no Franchise Flips.

Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our condensed consolidated statements of operations.

Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs,” which are further described in Note 5.

All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs.” All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

The following is a summary of the disposition activity recorded as a result of our system optimization initiative:

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Number of restaurants sold to franchisees 1 — 1 47

Proceeds from sales of restaurants (a) $ 79 $ — $ 79 $ 50,518

Net assets sold (b) ( 141 ) — ( 141 ) ( 16,939 )

Goodwill related to sales of restaurants — — — ( 4,847 )

Net unfavorable leases (c) ( 360 ) — ( 360 ) ( 2,939 )

Gain on sales-type leases — — — 7,156

Other (d) 6 — 6 ( 2,148 )

( 416 ) — ( 416 ) 30,801

Post-closing adjustments on sales of restaurants (e) — 5 3,522 520

(Loss) gain on sales of restaurants, net ( 416 ) 5 3,106 31,321

Gain on sales of other assets, net (f) 868 1,432 1,032 1,398

Three Months Ended

2023 April 3,

Post-closing adjustments on sales of restaurants (a) $ — $ 3,447

Gain on sales of other assets, net (b) 5 87

System optimization gains, net $ 5 $ 3,534

_______________

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(a) In addition to the proceeds noted herein, the Company received cash proceeds of $ 126 and $ 284 during the three and nine months ended October 2, 2022, respectively, and $ 26 during the three and nine months ended October 3, 2021 related to a note receivable issued in connection with the sale of the Manhattan Company-operated restaurants.

(b) Net assets sold consisted primarily of equipment.

(c) During the nine months ended October 3, 2021, the Company recorded favorable lease assets of $ 3,799 and unfavorable lease liabilities of $ 6,738 as a result of leasing and/or subleasing land, buildings and/or leasehold improvements to franchisees, in connection with the sale of the New York Company-operated restaurants (including Manhattan).

(d) The nine months ended October 3, 2021 include a deferred gain of $ 3,500 as a result of certain contingencies related to the extension of lease terms.

(e) Represents the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

(f) During the three and nine months ended October 2, 2022, the Company received net cash proceeds of $ 2,510 and $ 3,368 , respectively, primarily from the sale of surplus and other properties.

During the three and nine months ended October 3, 2021, the Company received net cash proceeds of $ 2,100 and $ 2,113 , respectively, primarily from the sale of surplus and other properties.

(a) Represents the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

(b) During the three months ended April 2, 2023 and April 3, 2022, the Company received net cash proceeds of $ 287 and $ 168 , respectively, primarily from the sale of surplus and other properties.

The Company also received cash proceeds of $ 95 during the three months ended April 3, 2022 related to a note receivable issued in connection with the sale of the Manhattan Company-operated restaurants.

Assets Held for Sale

As of October 2, 2022 and January 2, 2022, the Company had assets held for sale of $ 2,100 and $ 3,541 , respectively, primarily consisting of surplus properties.

As of April 2, 2023 and January 1, 2023, the Company had assets held for sale of $ 1,379 and $ 1,661 , respectively, primarily consisting of surplus properties.

Assets held for sale are included in “Prepaid expenses and other current assets.”

1 unchanged sentence

The following is a summary of the initiatives included in “Reorganization and realignment costs:”

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

System optimization initiative $ 7 $ 295 $ 548 $ 5,870

Three Months Ended

2023 April 3,

Organizational redesign $ 6,737 $ —

Other reorganization and realignment plans 71 464

Reorganization and realignment costs $ 6,808 $ 464

System Optimization Initiative

The Company recognizes costs related to acquisitions and dispositions under its system optimization initiative.

During the nine months ended October 2, 2022, the Company recognized costs totaling $ 548 , which were primarily comprised of professional fees and other costs associated with the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021.

During the nine months ended October 3, 2021, the Company recognized costs totaling $ 5,870 , which were primarily comprised of the write-off of certain lease assets and lease termination fees associated with the bankruptcy sale process of NPC Quality Burgers, Inc.

As previously announced, NPC, formerly the Company’s largest franchisee, filed for chapter 11 bankruptcy in July 2020 and completed a process during the three months ended April 4, 2021 under which all of NPC’s Wendy’s restaurants were sold to Wendy’s approved franchisees.

The Company expects to recognize a gain of approximately $ 700 , primarily related to the write-off of certain NPC-related lease liabilities, upon final termination of the leases.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

The following is a summary of the costs recorded as a result of our system optimization initiative:

Three Months Ended Nine Months Ended Total

Incurred Since Inception

2022 October 3,

2021 October 2,

2022 October 3,

Organizational Redesign

In February 2023, the Board of Directors approved a plan to redesign the Company’s organizational structure to better support the execution of the Company’s long-term growth strategy by maximizing organizational efficiency and streamlining decision making (the “Organizational Redesign Plan”).

As a result of the Organizational Redesign Plan, the Company expects to hold its general and administrative expense in 2023 and 2024 relatively flat compared with 2022.

The Company expects to incur total costs of approximately $ 11,000 to $ 13,000 related to the Organizational Redesign Plan.

During the three months ended April 2, 2023, the Company recognized costs totaling $ 6,737 , which primarily included severance and related employee costs and share-based compensation.

The Company expects to incur additional costs aggregating approximately $ 4,000 to $ 6,000 , comprised of (1) severance and related employee costs of approximately $ 2,500 , (2) recruitment and relocation costs of approximately $ 900 , (3) third-party and other costs of approximately $ 700 and (4) share-based compensation of approximately $ 1,200 .

The Company expects costs related to the Organizational Redesign Plan to continue into 2026, with approximately three-fourths of the total costs to be recognized during 2023.

The following is a summary of the costs recorded as a result of the Organizational Redesign Plan:

Three Months Ended

Severance and related employee costs $ 5,539

Professional fees ( 28 ) 277 346 1,016 24,023

Other (a) 18 — 151 1,354 7,769

( 10 ) 277 497 3,031 50,690

Accelerated depreciation and amortization (b) — — — — 25,398

NPC lease termination costs (c) 17 18 51 2,839 2,907

Share-based compensation (d) — — — — 5,013

Total system optimization initiative $ 7 $ 295 $ 548 $ 5,870 $ 84,008

_______________

(a) The nine months ended October 3, 2021 includes transaction fees of $ 1,350 associated with the NPC bankruptcy sale process.

(b) Primarily includes accelerated amortization of previously acquired franchise rights related to the Company-operated restaurants in territories that have been sold to franchisees in connection with our system optimization initiative.

(c) The nine months ended October 3, 2021 includes the write-off of lease assets of $ 1,359 and lease termination fees paid of $ 1,480 .

(d) Represents incremental share-based compensation resulting from the modification of stock options and performance-based awards in connection with the termination of employees under our system optimization initiative.

The tables below present a rollforward of our accruals for our system optimization initiative, which were included in “Accrued expenses and other current liabilities” as of January 3, 2021.

2022 Charges Payments Balance

Professional fees $ — $ 346 $ ( 346 ) $ —

Other — 151 ( 151 ) —

Recruitment and relocation costs 78

Third-party and other costs 345

Share-based compensation (a) 775

Total organizational redesign $ 6,737

_______________

(a) Primarily represents the accelerated recognition of share-based compensation resulting from the termination of employees under the Organizational Redesign Plan.

As of April 2, 2023, the accruals for the Organizational Redesign Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 4,650 and $ 431 , respectively.

The table below presents a rollforward of our accruals for the Organizational Redesign Plan.

Charges Payments Balance

Severance and related employee costs $ — $ 5,539 $ ( 741 ) $ 4,798

Professional fees 1,230 1,016 ( 2,246 ) —

Other — 1,354 ( 1,354 ) —

Recruitment and relocation costs — 78 ( 78 ) —

Third-party and other costs — 345 ( 62 ) 283

$ — $ 5,962 $ ( 881 ) $ 5,081

Other Reorganization and Realignment Plans

Costs incurred under the Company’s other reorganization and realignment plans were not material during the nine months ended October 2, 2022 and October 3, 2021.

Costs incurred under the Company’s other reorganization and realignment plans were not material during the three months ended April 2, 2023 and April 3, 2022.

The Company does not expect to incur any material additional costs under these plans.

14 unchanged sentences

Presented below is activity related to our investment in TimWen and the Brazil JV included in our condensed consolidated financial statements:

Nine Months Ended

2022 October 3,

Three Months Ended

2023 April 3,

Balance at beginning of period $ 33,921 $ 39,870

2 unchanged sentences

Distributions received ( 2,493 ) ( 2,675 )

Foreign currency translation adjustment included in “Other comprehensive (loss) income” and other

( 3,027 ) 343

Foreign currency translation adjustment included in “Other comprehensive income” and other

Balance at end of period $ 33,537 $ 39,346

2 unchanged sentences

Other Investments in Equity Securities

During 2021, the Company made an investment in equity securities of $ 10,000 .

During the nine months ended October 2, 2022, the Company recognized a gain of $ 2,107 as a result of an observable price change for a similar investment of the same issuer.

During 2021, the Company made an investment in equity securities of $ 10,000 and, during the three months ended April 3, 2022, recognized a gain of $ 2,107 as a result of an observable price change for a similar investment of the same issuer.

During the three months ended April 2, 2023, the Company recorded an impairment charge of $ 3,562 for the difference between the estimated fair value and the carrying value of the investment.

The Company will continue to monitor its investment in equity securities and it is possible that additional impairment charges will be recorded in future periods if there are further declines in fair value of the investment.

THE WENDY’S COMPANY AND SUBSIDIARIES

6 unchanged sentences

4.236 % Series 2022-1 Class A-2-I Notes, anticipated repayment date 2029

$ 99,250 $ 99,500

4.535 % Series 2022-1 Class A-2-II Notes, anticipated repayment date 2032

397,000 398,000

Series 2021-1 Class A-2 Notes:

11 unchanged sentences

450,063 451,250

7 % debentures, due in 2025

7 % debentures, due in 2025 (a)

56,264 86,369

3 unchanged sentences

Total long-term debt $ 2,786,493 $ 2,822,196

Wendy’s Funding, LLC, a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of The Wendy’s Company, is the master issuer (the “Master Issuer”) of outstanding senior secured notes under a securitized financing facility that was entered into in June 2015.

On April 1, 2022, the Master Issuer completed a financing transaction with respect to this facility under which the Master Issuer issued fixed rate senior secured notes in the following 2022-1 series:

Class A-2-I with an initial principal amount of $ 100,000 and Class A-2-II with an initial principal amount of $ 400,000 (collectively, the “Series 2022-1 Class A-2 Notes”).

Interest and principal payments on the Series 2022-1 Class A-2 Notes are payable on a quarterly basis.

The legal final maturity date of the Series 2022-1 Class A-2 Notes is March 2052.

If the Master Issuer has not repaid or refinanced the Series 2022-1 Class A-2 Notes prior to their respective anticipated repayment dates, additional interest will accrue pursuant to the indenture governing the Series 2022-1 Class A-2 Notes.

The Series 2022-1 Class A-2 Notes have scheduled principal payments of $ 2,500 in 2022 (of which $ 1,250 was paid during the three months ended October 2, 2022), $ 5,000 annually from 2023 through 2028, $ 97,500 in 2029, $ 4,000 annually from 2030 through 2031 and $ 362,000 in 2032.

The Series 2022-1 Class A-2 Notes are secured by a security interest in substantially all of the assets of the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company that act as guarantors, except for certain real estate assets and subject to certain limitations.

The Series 2022-1 Class A-2 Notes are subject to substantially the same series of covenants and restrictions as the Company’s outstanding Series 2021-1 Class A-2 Notes, Series 2019-1 Class A-2 Notes and Series 2018-1 Class A-2 Notes.

Under the securitized financing facility, the Master Issuer has issued outstanding Series 2021-1 Variable Funding Senior Secured Notes, Class A-1 (the “Class A-1 Notes”), which allow for the drawing of up to $ 300,000 on a revolving basis using various credit instruments, including a letter of credit facility.

No amounts were borrowed under the Class A-1 Notes during the nine months ended October 2, 2022.

During the nine months ended October 2, 2022, the Company incurred debt issuance costs of $ 10,232 in connection with the issuance of the Series 2022-1 Class A-2 Notes.

The debt issuance costs will be amortized to “Interest expense, net” through the anticipated repayment dates of the Series 2022-1 Class A-2 Notes utilizing the effective interest rate method.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

_______________

(a) Wendy’s 7 % debentures are unsecured and were reduced to fair value in connection with the Wendy’s Merger.

The fair value adjustment is being accreted and the related charge included in “Interest expense, net” until the debentures mature.

During the three months ended April 2, 2023, Wendy’s repurchased $ 31,571 in principal of its 7 % debentures at par value.

As a result, the Company recognized a loss on early extinguishment of debt of $ 1,266 during the three months ended April 2, 2023.

(7) Fair Value Measurements

9 unchanged sentences

The inputs into the determination of fair value require significant management judgment or estimation.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Financial Instruments

6 unchanged sentences

Other investments in equity securities (a) 8,545 8,545 12,107 12,107 Level 2

Financial liabilities

Series 2022-1 Class A-2-I Notes (b) 99,750 90,374 — — Level 2

Series 2022-1 Class A-2-II Notes (b) 399,000 354,152 — — Level 2

Series 2021-1 Class A-2-I Notes (b) 444,375 360,966 447,750 439,283 Level 2

Series 2021-1 Class A-2-II Notes (b) 641,875 501,946 646,750 642,352 Level 2

Series 2019-1 Class A-2-I Notes (b) 365,000 336,348 368,000 381,579 Level 2

Series 2019-1 Class A-2-II Notes (b) 410,625 365,744 414,000 439,792 Level 2

Series 2018-1 Class A-2-II Notes (b) 452,438 408,325 456,000 473,693 Level 2

7 % debentures, due in 2025 (b)

Financial liabilities (b)

Series 2022-1 Class A-2-I Notes 99,250 92,322 99,500 89,401 Level 2

Series 2022-1 Class A-2-II Notes 397,000 362,183 398,000 349,444 Level 2

Series 2021-1 Class A-2-I Notes 442,125 370,987 443,250 357,304 Level 2

Series 2021-1 Class A-2-II Notes 638,625 517,350 640,250 499,011 Level 2

Series 2019-1 Class A-2-I Notes 363,000 341,184 364,000 334,334 Level 2

Series 2019-1 Class A-2-II Notes 408,375 373,908 409,500 361,875 Level 2

Series 2018-1 Class A-2-II Notes 450,063 416,758 451,250 405,809 Level 2

7 % debentures, due in 2025

56,264 58,283 86,369 92,367 Level 2

_______________

(a) The fair value of our other investments in equity securities is based on our review of information provided by the investment manager, which is based on observable price changes in orderly transactions for a similar investment of the same issuer.

(a) The fair value of our other investments in equity securities is based on our review of information provided by the investment manager, which, as of April 2, 2023, was based on a valuation performed by the investment manager and, as of January 1, 2023, was based on an observable price change in an orderly transaction for a similar investment of the same issuer.

(b) The fair values were based on quoted market prices in markets that are not considered active markets.

2 unchanged sentences

Our cash equivalents are the only financial assets measured and recorded at fair value on a recurring basis.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Non-Recurring Fair Value Measurements

2 unchanged sentences

The fair values of long-lived assets held and used presented in the tables below represent the remaining carrying value and were estimated based on either discounted cash flows of future anticipated lease and sublease income or discounted cash flows of future anticipated Company-operated restaurant performance.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Total impairment losses may also include the impact of remeasuring long-lived assets held for sale.

14 unchanged sentences

The following is a summary of impairment losses recorded, which represent the excess of the carrying amount over the fair value of the affected assets and are included in “Impairment of long-lived assets:”

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Three Months Ended

2023 April 3,

Company-operated restaurants $ 350 $ 367

1 unchanged sentence

Surplus properties 26 55

$ 206 $ 566 $ 2,682 $ 1,831

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(9) Income Taxes

The Company’s effective tax rate for the three months ended October 2, 2022 and October 3, 2021 was 26.9 % and 24.3 %, respectively.

The Company’s effective tax rate varied from the U.S.

federal statutory rate of 21 % for the three months ended October 2, 2022 primarily due to state income taxes, including discrete changes to state deferred income taxes, and tax effects of our foreign operations.

The Company’s effective tax rate for the nine months ended October 2, 2022 and October 3, 2021 was 26.6 % and 21.8 %, respectively.

The Company’s effective tax rate for the three months ended April 2, 2023 and April 3, 2022 was 28.0 % and 26.4 %, respectively.

The Company’s effective tax rate varied from the U.S.

federal statutory rate of 21 % for the nine months ended October 2, 2022 primarily due to state income taxes, including discrete changes to state deferred income taxes.

Unrecognized tax benefits for the Company decreased $ 1,225 and $ 1,175 during the three and nine months ended October 2, 2022, respectively.

The decrease was primarily related to a state tax law change and the lapse of statutes of limitations during the third quarter of 2022.

federal statutory rate of 21 % for the three months ended April 2, 2023 primarily due to a one-time adjustment to our foreign deferred income taxes related to prior periods and state income taxes, including discrete changes to state deferred income taxes.

There were no significant changes to the unrecognized tax benefits or related interest and penalties for the three months ended April 2, 2023.

During the next twelve months, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $ 582 due to lapses of statutes of limitations.

The current portion of refundable income taxes was $ 7,136 and $ 11,901 as of October 2, 2022 and January 2, 2022, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of October 2, 2022 and January 2, 2022.

The current portion of refundable income taxes was $ 4,357 and $ 3,236 as of April 2, 2023 and January 1, 2023, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of April 2, 2023 and January 1, 2023.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(10) Net Income Per Share

The calculation of basic and diluted net income per share was as follows:

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Three Months Ended

2023 April 3,

Net income $ 39,821 $ 37,402

2 unchanged sentences

Dilutive effect of stock options and restricted shares

1,796 2,685 1,971 3,201

Weighted average diluted shares outstanding 215,029 218,167

Net income per share:

Basic $ .24 $ .19 $ .64 $ .67

Diluted $ .24 $ .18 $ .63 $ .66

Basic net income per share for the three and nine months ended October 2, 2022 and October 3, 2021 was computed by dividing net income amounts by the weighted average number of shares of common stock outstanding.

Basic and diluted net income per share $ .19 $ .17

Basic net income per share for the three months ended April 2, 2023 and April 3, 2022 was computed by dividing net income amounts by the weighted average number of shares of common stock outstanding.

Diluted net income per share was computed by dividing net income by the weighted average number of basic shares outstanding plus the potential common share effect of dilutive stock options and restricted shares.

We excluded potential common shares of 4,298 and 4,377 for the three and nine months ended October 2, 2022, respectively, and 2,746 and 2,147 for the three and nine months ended October 3, 2021, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

We excluded potential common shares of 4,532 and 3,295 for the three months ended April 2, 2023 and April 3, 2022, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

(11) Stockholders’ Equity

During each of the first, second and third quarters of 2022, the Company paid quarterly dividends per share of $ .125 .

During the first, second and third quarters of 2021, the Company paid dividends per share of $ .09 , $ .10 and $ .12 , respectively.

During the first quarter of 2023 and 2022, the Company paid dividends per share of $ .25 and $ .125 , respectively.

Repurchases of Common Stock

In February 2022, our Board of Directors authorized a repurchase program for up to $ 100,000 of our common stock through February 28, 2023, when and if market conditions warrant and to the extent legally permissible (the “February 2022 Authorization”).

On April 1, 2022, the Company’s Board of Directors approved an increase of $ 150,000 to the February 2022 Authorization, resulting in an aggregate authorization of $ 250,000 that continues to expire on February 28, 2023.

During the nine months ended October 2, 2022, the Company repurchased 2,759 shares under the February 2022 Authorization with an aggregate purchase price of $ 51,911 , excluding commissions of $ 39 .

As of October 2, 2022, the Company had $ 198,089 of availability remaining under its February 2022 authorization.

Subsequent to October 2, 2022 through November 2, 2022, no shares were repurchased under the February 2022 Authorization.

In January 2023, our Board of Directors authorized a repurchase program for up to $ 500,000 of our common stock through February 28, 2027, when and if market conditions warrant and to the extent legally permissible (the “January 2023 Authorization”).

In connection with the January 2023 Authorization, the remaining portion of the previous February 2022 authorization for $ 250,000 was canceled.

During the three months ended April 2, 2023, the Company repurchased 1,794 shares under the January 2023 Authorization with an aggregate purchase price of $ 38,785 , of which $ 2,083 was accrued as of April 2, 2023, and excluding commissions of $ 25 .

As of April 2, 2023, the Company had $ 461,215 of availability remaining under the January 2023 Authorization.

Subsequent to April 2, 2023 through May 3, 2023, the Company repurchased 1,074 shares under the January 2023 Authorization with an aggregate purchase price of $ 23,597 , excluding commissions of $ 15 .

In February 2020, our Board of Directors authorized a repurchase program for up to $ 100,000 of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally permissible (the “February 2020 Authorization”).

In July 2020, the Company’s Board of Directors approved an extension of the February 2020 Authorization by one year, through February 28, 2022.

In addition, in May 2021, August 2021 and November 2021, the Board of Directors approved increases of $ 50,000 , $ 70,000 and $ 80,000 , respectively, to the February 2020 Authorization, resulting in an aggregate authorization of $ 300,000 that continued to expire on February 28, 2022.

In addition, the Board of Directors approved increases totaling $ 200,000 to the February 2020 Authorization, resulting in an aggregate authorization of $ 300,000 that continued to expire on February 28, 2022.

In November 2021, the Company entered into an accelerated share repurchase agreement (the “2021 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the February 2020 Authorization.

2 unchanged sentences

The total number of shares of common stock ultimately purchased by the Company under the 2021 ASR Agreement was based on the average of the daily volume-weighted average prices of the common stock during the term of the 2021 ASR Agreement, less an agreed upon discount.

In total, 5,625 shares were delivered under the 2021 ASR Agreement at an average purchase price of $ 22.22 per share.

In total, 5,625 shares were delivered under the 2021 ASR Agreement

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

at an average purchase price of $ 22.22 per share.

With the completion of the 2021 ASR Agreement in February 2022 as described above, the Company completed the February 2020 Authorization.

During the nine months ended October 3, 2021, the Company repurchased 5,876 shares under the February 2020 Authorization with an aggregate purchase price of $ 127,150 , of which $ 2,299 was accrued at October 3, 2021, and excluding commissions of $ 82 .

Accumulated Other Comprehensive Loss

The following table provides a rollforward of accumulated other comprehensive loss, which is entirely comprised of foreign currency translation:

Nine Months Ended

2022 October 3,

Three Months Ended

2023 April 3,

Balance at beginning of period $ ( 64,176 ) $ ( 48,200 )

Foreign currency translation

( 20,520 ) 908

Balance at end of period $ ( 64,018 ) $ ( 47,082 )

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Nature of Leases

1 unchanged sentence

In addition, the Company owns sites and leases sites from third parties, which it leases and/or subleases to franchisees.

At October 2, 2022, Wendy’s and its franchisees operated 7,080 Wendy’s restaurants.

At April 2, 2023, Wendy’s and its franchisees operated 7,095 Wendy’s restaurants.

Of the 414 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for 158 restaurants, owned the building and held long-term land leases for 145 restaurants and held leases covering the land and building for 111 restaurants.

3 unchanged sentences

The components of lease cost are as follows:

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Three Months Ended

2023 April 3,

Finance lease cost:

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_______________

(a) Includes expenses for executory costs of $ 8,943 and $ 10,016 for the three months ended October 2, 2022 and October 3, 2021, respectively, and $ 27,796 and $ 30,166 for the nine months ended October 2, 2022 and October 3, 2021, respectively, for which the Company is reimbursed by sublessees.

(b) Includes $ 31,559 and $ 34,396 for the three months ended October 2, 2022 and October 3, 2021, respectively, and $ 92,555 and $ 101,011 for the nine months ended October 2, 2022 and October 3, 2021, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees.

Also includes $ 7,357 and $ 5,213 for the three months ended October 2, 2022 and October 3, 2021, respectively, and $ 22,130 and $ 18,005 for the nine months ended October 2, 2022 and October 3, 2021, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

(a) Includes expenses for executory costs of $ 9,848 and $ 9,608 for the three months ended April 2, 2023 and April 3, 2022, respectively, for which the Company is reimbursed by sublessees.

(b) Includes $ 30,598 and $ 28,925 for the three months ended April 2, 2023 and April 3, 2022, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees.

Also includes $ 7,865 and $ 7,294 for the three months ended April 2, 2023 and April 3, 2022, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

THE WENDY’S COMPANY AND SUBSIDIARIES

3 unchanged sentences

The components of lease income are as follows:

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Three Months Ended

2023 April 3,

Sales-type and direct-financing leases:

6 unchanged sentences

(a) Included in “Interest expense, net.”

(b) Includes sublease income of $ 43,540 and $ 46,102 recognized during the three months ended October 2, 2022 and October 3, 2021, respectively, and $ 130,394 and $ 134,597 recognized during the nine months ended October 2, 2022 and October 3, 2021, respectively.

Sublease income includes lessees’ variable payments to the Company for executory costs of $ 8,947 and $ 10,087 for the three months ended October 2, 2022 and October 3, 2021, respectively, and $ 27,732 and $ 30,156 for the nine months ended October 2, 2022 and October 3, 2021, respectively.

(b) Includes sublease income of $ 42,951 and $ 43,165 recognized during the three months ended April 2, 2023 and April 3, 2022, respectively.

Sublease income includes lessees’ variable payments to the Company for executory costs of $ 9,778 and $ 9,535 for the three months ended April 2, 2023 and April 3, 2022, respectively.

(13) Supplemental Cash Flow Information

The following table includes supplemental non-cash investing and financing activities:

Nine Months Ended

2022 October 3,

Three Months Ended

2023 April 3,

Supplemental non-cash investing and financing activities:

8 unchanged sentences

Total cash, cash equivalents and restricted cash $ 740,566 $ 831,801

Franchise Development Fund

In August 2021, the Company announced the creation of a $ 100,000 strategic build to suit development fund to drive additional new restaurant growth.

The Company expects the development fund to drive approximately 80 to 90 new franchise restaurants from 2022 to 2025.

Capital expenditures related to the fund are included in “Franchise development fund” in the condensed consolidated statements of cash flows.

THE WENDY’S COMPANY AND SUBSIDIARIES

5 unchanged sentences

A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen, which are then subleased to franchisees for the operation of Wendy’s/Tim Hortons combo units in Canada.

During the nine months ended October 2, 2022 and October 3, 2021, Wendy’s paid TimWen $ 15,148 and $ 13,994 , respectively, under these lease agreements.

In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 166 and $ 165 during the nine months ended October 2, 2022 and October 3, 2021, respectively, which has been included as a reduction to “General and administrative.”

Wendy’s paid TimWen $ 4,673 and $ 4,350 under these lease agreements during the three months ended April 2, 2023 and April 3, 2022, respectively, which has been recorded to “Franchise rental expense.” In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 60 and $ 54 during the three months ended April 2, 2023 and April 3, 2022, respectively, which has been included as a reduction to “General and administrative.”

Transactions with Yellow Cab

2 unchanged sentences

Peter May, our Senior Vice Chairman, as well as Mr.

Matthew Peltz, our Vice Chairman, hold indirect, minority ownership interests in Yellow Cab Holdings, LLC (“Yellow Cab”) and operating companies managed by Yellow Cab, a Wendy’s franchisee, that as of October 2, 2022 owned and operated 84 Wendy’s restaurants.

During the nine months ended October 2, 2022 and October 3, 2021, the Company recognized $ 9,942 and $ 7,016 , respectively, in royalty, advertising fund, lease and other income from Yellow Cab and related entities.

As of October 2, 2022 and January 2, 2022, $ 987 and $ 974 , respectively, was due from Yellow Cab for such income, which is included in “Accounts and notes receivable, net” and “Advertising funds restricted assets.”

Matthew Peltz, our Vice Chairman, hold indirect, minority ownership interests in Yellow Cab Holdings, LLC (“Yellow Cab”) and operating companies managed by Yellow Cab, a Wendy’s franchisee, that as of April 2, 2023 owned and operated 83 Wendy’s restaurants.

During the three months ended April 2, 2023 and April 3, 2022, the Company recognized $ 3,610 and $ 3,067 , respectively, in royalty, advertising fund, lease and other income from Yellow Cab and related entities.

As of April 2, 2023 and January 1, 2023, $ 1,271 and $ 1,125 , respectively, was due from Yellow Cab for such income, which is included in “Accounts and notes receivable, net” and “Advertising funds restricted assets.”

Transactions with AMC

In February 2023, Ms.

Kristin Dolan, a director of the Company, was appointed as the Chief Executive Officer of AMC Networks Inc.

During the three months ended April 2, 2023, the Company purchased $ 419 of advertising time from a subsidiary of AMC.

As of April 2, 2023, approximately $ 450 was due to AMC for advertising time, which is included in “Advertising funds restricted liabilities.”

(15) Guarantees and Other Commitments and Contingencies

1 unchanged sentence

Refer to the Form 10-K for further information regarding the Company’s additional commitments and obligations.

Franchisee Image Activation Incentive Programs

To promote new restaurant development, Wendy’s has provided franchisees with certain incentive programs for qualifying new restaurants.

In February 2023, Wendy’s announced a new restaurant development incentive program in the U.S.

and Canada that provides for waivers of royalty, national advertising and technical assistance fees for up to the first three years of operation for qualifying new restaurants (referred to as the “Pacesetter” program).

Wendy’s previously offered and will continue to offer a restaurant development incentive program that provides for reductions in royalty and national advertising fees for up to the first two years of operation for qualifying new restaurants (referred to as the “Groundbreaker” program).

and Canadian franchisees may elect either the Pacesetter program or the Groundbreaker program when committing to new multi-unit development agreements or adding incremental commitments to existing development agreements.

Wendy’s also provides franchisees with the option of an early 20 -year or 25 -year renewal of their franchise agreement upon completion of reimaging utilizing certain approved Image Activation reimage designs.

Lease Guarantees

Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees, amounting to $ 94,075 as of October 2, 2022.

These leases extend through 2045.

We have had no judgments against us as guarantor of these leases as of October 2, 2022.

In the event of default by a franchise owner where Wendy’s is called upon to perform under its guarantee, Wendy’s has the ability to pursue repayment from the franchise owner.

The liability recorded for our probable exposure associated with these lease guarantees was not material as of October 2, 2022.

Letters of Credit

As of October 2, 2022, the Company had outstanding letters of credit with various parties totaling $ 28,619 .

Substantially all of the outstanding letters of credit include amounts outstanding against the 2021-1 Class A-1 Notes.

See Note 7 for further information.

We do not expect any material loss to result from these letters of credit.

We have had no judgments against us as guarantor of these leases as of April 2, 2023.

In the event of default by a franchise owner where Wendy’s is called upon to perform under its guarantee, Wendy’s has the ability to pursue repayment from the

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

franchise owner.

The liability recorded for our probable exposure associated with these lease guarantees was not material as of April 2, 2023.

Letters of Credit

As of April 2, 2023, the Company had outstanding letters of credit with various parties totaling $ 28,861 .

Substantially all of the outstanding letters of credit include amounts outstanding against the 2021-1 Variable Funding Senior Secured Notes, Class A-1.

We do not expect any material loss to result from these letters of credit.

(16) Legal and Environmental Matters

The Company is involved in litigation and claims incidental to our business.

We provide accruals for such litigation and claims when payment is probable and reasonably estimable.

We believe we have adequate accruals for all of our legal and environmental matters.

We cannot estimate the aggregate possible range of loss for our existing litigation and claims for various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and/or significant factual matters unresolved.

We provide accruals for such litigation and claims when we determine it is probable that a liability has been incurred and the loss is reasonably estimable.

The Company believes it has adequate accruals for all of our legal and environmental matters.

We cannot estimate the aggregate possible range of loss for our existing litigation and claims due to various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and significant factual matters unresolved.

In addition, most cases seek an indeterminate amount of damages and many involve multiple parties.

Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period.

We previously described certain legal proceedings in the Form 10-K.

Except as set forth below, there were no material developments in those legal proceedings as of October 2, 2022.

Certain of the Company’s present and former directors have been named in two putative stockholder derivative complaints arising out of the cybersecurity incidents that affected certain of our franchisees in 2015 and 2016.

The first case, brought by James Graham in the U.S.

District Court for the Southern District of Ohio (the “Graham Case”), asserts claims of breach of fiduciary duty, waste of corporate assets, unjust enrichment and gross mismanagement, and additionally names one non-director executive officer of the Company.

The second case, brought by Thomas Caracci in the U.S.

District Court for the Southern District of Ohio (the “Caracci Case”), asserts claims of breach of fiduciary duty and violations of Section 14(a) and Rule 14a-9 of the Securities Exchange Act of 1934.

Collectively, the plaintiffs seek a judgment on behalf of the Company for all damages incurred or that will be incurred as a result of the alleged wrongful acts or omissions, a judgment ordering disgorgement of all profits, benefits, and other compensation obtained by the named individual defendants, a judgment directing the Company to reform its governance and internal procedures, attorneys’ fees and other costs.

The Graham Case and the Caracci Case were consolidated and on December 31, 2018, the court issued an order naming Graham and his counsel as lead in the case.

On January 31, 2019, Graham filed a consolidated verified stockholder derivative complaint with the court.

On January 24, 2020, the court issued an order granting preliminary approval of the settlement, which consists of certain corporate governance undertakings and the payment of plaintiffs’ attorneys’ fees and expenses up to $ 950 (covered by applicable insurance).

On September 15, 2021, the court issued an order granting final approval of the settlement, with the final judgment entered on September 24, 2021.

On October 20, 2021, Thomas Caracci filed a Notice of Appeal.

On August 11, 2022, the U.S.

Court of Appeals for the Sixth Circuit issued an opinion affirming the district court’s order.

(17) Segment Information

Revenues by segment were as follows:

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Revenues by segment are as follows:

Three Months Ended

2023 April 3,

$ 440,988 $ 407,311

6 unchanged sentences

The following table reconciles profit by segment to the Company’s consolidated income before income taxes:

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Three Months Ended

2023 April 3,

(a) $ 125,230 $ 104,824

3 unchanged sentences

Unallocated franchise support and other costs — 6

Advertising funds deficit ( 1,441 ) ( 1,574 ) ( 4,059 ) ( 4,440 )

Advertising funds surplus (deficit) 1,106 ( 1,243 )

Unallocated general and administrative (c) ( 32,161 ) ( 31,005 )

7 unchanged sentences

Loss on early extinguishment of debt ( 1,266 ) —

Investment income, net — — 2,107 6

Investment (loss) income, net ( 3,562 ) 2,111

Other income, net 7,336 207

2 unchanged sentences

(a) Wendy’s U.S.

includes advertising fund expense of $ 2,779 and $ 8,101 for the three and nine months ended October 2, 2022, respectively, and $ 8,979 and $ 16,503 for the three and nine months ended October 3, 2021, respectively, related to the Company’s funding of incremental advertising.

(b) Wendy’s International includes advertising fund expense of $ 1,002 and $ 2,924 for the three and nine months ended October 2, 2022, respectively, related to the Company’s funding of incremental advertising.

In addition, Wendy’s International includes other international-related advertising surplus (deficit) of $ 538 and $( 984 ) for the three and nine months ended October 2, 2022, respectively.

includes advertising funds expense of $ 2,556 for the three months ended April 3, 2022 related to the Company’s funding of incremental advertising.

(b) Wendy’s International includes advertising funds expense of $ 548 and $ 838 for the three months ended April 2, 2023 and April 3, 2022, respectively, related to the Company’s funding of incremental advertising.

In addition, Wendy’s International includes other international-related advertising deficit of $ 845 and $ 642 for the three months ended April 2, 2023 and April 3, 2022, respectively.

(18) New Accounting Standards

Financial Instruments

In August 2020, the Financial Accounting Standards Board (“FASB”) issued an amendment that simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The amendment simplifies accounting for convertible instruments by removing major separation models required under current accounting guidance.

In addition, the amendment removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception, and also simplifies the diluted earnings per share calculation in certain areas.

Business Combinations

In October 2021, the Financial Accounting Standards Board (“FASB”) issued an amendment to improve the accounting for revenue contracts with customers acquired in a business combination.

The amendment requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with current revenue recognition guidance as if the acquirer had originated the contracts.

The Company adopted this amendment during the first quarter of 2023.

The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Common-Control Lease Arrangements

In March 2023, the FASB issued an update to amend certain lease accounting guidance that applies to arrangements between related parties under common control.

The amendment requires a lessee in a common-control lease arrangement to amortize leasehold improvements that it owns over the useful life of the improvements to the common-control group, regardless of the lease term, if the lessee continues to control the use of the underlying asset through a lease.

The standard is effective beginning with our 2024 fiscal year.

The Company does not expect the guidance to have a material impact on our condensed consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements