What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 187 added, 137 removed, 502 unchanged (39% of the section changed)

57 unchanged sentences

(In Thousands Except Per Share Amounts)

Three Months Ended

2023 April 3,

Three Months Ended Six Months Ended

Sales $ 240,688 $ 230,869 $ 468,637 $ 440,144

9 unchanged sentences

General and administrative 62,742 61,637 125,018 123,983

Depreciation and amortization (exclusive of amortization of

cloud computing arrangements shown separately below)

33,472 33,231

Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) 33,498 33,428 66,970 66,659

Amortization of cloud computing arrangements 2,266 — 3,848 —

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

System optimization losses (gains), net 6 ( 152 ) 1 ( 3,686 )

Reorganization and realignment costs 681 156 7,489 620

10 unchanged sentences

Net income $ 59,632 $ 48,151 $ 99,453 $ 85,553

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

Net income per share:

Basic $ .28 $ .23 $ .47 $ .40

Diluted .28 .22 .46 .39

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Three Months Ended

2023 April 3,

Three Months Ended Six Months Ended

Net income $ 59,632 $ 48,151 $ 99,453 $ 85,553

Other comprehensive income:

Other comprehensive income (loss):

Foreign currency translation adjustment 4,949 ( 7,455 ) 5,107 ( 6,337 )

Other comprehensive income 158 1,118

Other comprehensive income (loss) 4,949 ( 7,455 ) 5,107 ( 6,337 )

Comprehensive income $ 64,581 $ 40,696 $ 104,560 $ 79,216

17 unchanged sentences

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

Net income — — 59,632 — — 59,632

Other comprehensive income — — — — 4,949 4,949

Cash dividends — — ( 52,612 ) — — ( 52,612 )

Repurchases of common stock — — — ( 50,183 ) — ( 50,183 )

Share-based compensation — 5,609 — — — 5,609

Common stock issued upon exercises of stock options

— 1,136 — 3,829 — 4,965

Common stock issued upon vesting of restricted shares

— ( 2,182 ) — 1,283 — ( 899 )

Other — 53 ( 16 ) 60 — 97

Balance at July 2, 2023 $ 47,042 $ 2,945,754 $ 408,449 $ ( 2,951,061 ) $ ( 59,069 ) $ 391,115

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

10 unchanged sentences

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 — — — ( 51,950 ) — ( 51,950 )

Share-based compensation — 6,122 — — — 6,122

Common stock issued upon exercises of stock options

— ( 300 ) — 399 — 99

Common stock issued upon vesting of restricted shares

— ( 1,178 ) — 1,073 — ( 105 )

Other — 53 ( 10 ) 58 — 101

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

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Three Months Ended

2023 April 3,

Six Months Ended

Cash flows from operating activities:

10 unchanged sentences

Change in operating lease liabilities ( 23,528 ) ( 22,913 )

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

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

Net receipt of deferred vendor incentives 6,881 5,039

System optimization losses (gains), net 1 ( 3,686 )

Distributions received from joint ventures, net of equity in earnings 542 1,108

30 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 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.

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

The results of operations for the six months ended July 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”).

4 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-month periods presented herein contain 13 weeks.

All three- and six-month periods presented herein contain 13 weeks and 26 weeks, respectively.

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

3 unchanged sentences

Wendy’s International Global Real Estate & Development Total

Three Months Ended April 2, 2023

Three Months Ended July 2, 2023

Sales at Company-operated restaurants $ 234,862 $ 5,826 $ — $ 240,688

4 unchanged sentences

Total revenues $ 468,753 $ 32,715 $ 60,097 $ 561,565

Three Months Ended April 3, 2022

Three Months Ended July 3, 2022

Sales at Company-operated restaurants $ 227,903 $ 2,966 $ — $ 230,869

7 unchanged sentences

(In Thousands Except Per Share Amounts)

Wendy’s International Global Real Estate & Development Total

Six Months Ended July 2, 2023

Sales at Company-operated restaurants $ 457,494 $ 11,143 $ — $ 468,637

Franchise royalty revenue 221,260 33,018 — 254,278

Franchise fees 34,733 2,918 2,796 40,447

Franchise rental income — — 115,840 115,840

Advertising funds revenue 196,254 14,916 — 211,170

Total revenues $ 909,741 $ 61,995 $ 118,636 $ 1,090,372

Six Months Ended July 3, 2022

Sales at Company-operated restaurants $ 434,404 $ 5,740 $ — $ 440,144

Franchise royalty revenue 206,792 29,966 — 236,758

Franchise fees 31,391 2,438 1,825 35,654

Franchise rental income — — 116,481 116,481

Advertising funds revenue 185,164 12,225 — 197,389

Total revenues $ 857,751 $ 50,369 $ 118,306 $ 1,026,426

Contract Balances

9 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 $ 9,533 and $ 88,161 , respectively, as of April 2, 2023, and $ 8,977 and $ 90,231 , respectively, as of January 1, 2023.

(c) The current portion of deferred franchise fees is included in “Accrued expenses and other current liabilities” and the long-term portion of deferred franchise fees is included in “Deferred franchise fees” and totaled $ 10,510 and $ 89,729 , respectively, as of July 2, 2023, and $ 8,977 and $ 90,231 , respectively, as of January 1, 2023.

Significant changes in deferred franchise fees are as follows:

Three Months Ended

2023 April 3,

Six Months Ended

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

3 unchanged sentences

Deferred franchise fees at end of period $ 100,239 $ 99,108

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Anticipated Future Recognition of Deferred Franchise Fees

5 unchanged sentences

(a) Represents franchise fees expected to be recognized for the remainder of 2023, which includes development-related franchise fees expected to be recognized over a duration of one year or less.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(3) System Optimization Gains, Net

(3) System Optimization Losses (Gains), Net

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”).

1 unchanged sentence

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 and drive new restaurant development.

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.

During the six months ended July 2, 2023 and July 3, 2022, the Company facilitated 88 and 46 Franchise Flips, respectively.

Gains and losses recognized on dispositions are recorded to “System optimization losses (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.” 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

2023 April 3,

Three Months Ended Six Months Ended

Post-closing adjustments on sales of restaurants (a) $ — $ 75 $ — $ 3,522

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

System optimization gains, net $ 5 $ 3,534

(Loss) gain on sales of other assets, net (b) ( 6 ) 77 ( 1 ) 164

System optimization (losses) gains, net $ ( 6 ) $ 152 $ ( 1 ) $ 3,686

_______________

(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.

(b) During the six months ended July 2, 2023, the Company received net cash proceeds of $ 280 primarily from the sale of surplus and other properties.

During the three and six months ended July 3, 2022, the Company received net cash proceeds of $ 690 and $ 858 , respectively, primarily from the sale of surplus and other properties.

The Company also received cash proceeds of $ 63 and $ 158 during the three and six months ended July 3, 2022, respectively, related to a note receivable issued in connection with the sale of the Manhattan Company-operated restaurants.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Assets Held for Sale

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.

As of July 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

2023 April 3,

Three Months Ended Six Months Ended

Organizational redesign $ 670 $ — $ 7,407 $ —

1 unchanged sentence

Reorganization and realignment costs $ 681 $ 156 $ 7,489 $ 620

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Organizational Redesign

2 unchanged sentences

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.

During the six months ended July 2, 2023, the Company recognized costs totaling $ 7,407 , which primarily included severance and related employee costs and share-based compensation.

The Company expects to incur additional costs aggregating approximately $ 3,500 to $ 5,500 , comprised of (1) severance and related employee costs of approximately $ 2,500 , (2) recruitment and relocation costs of approximately $ 800 , (3) third-party and other costs of approximately $ 300 and (4) share-based compensation of approximately $ 1,000 .

1 unchanged sentence

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

Three Months Ended

Three Months Ended Six Months Ended

Severance and related employee costs $ 21 $ 5,560

5 unchanged sentences

(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 WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

As of July 2, 2023, the accruals for the Organizational Redesign Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 3,038 and $ 117 , respectively.

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

5 unchanged sentences

Other Reorganization and Realignment Plans

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.

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

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

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(5) Investments

6 unchanged sentences

Wendy’s has a 50 % share in a partnership in a Canadian restaurant real estate joint venture (“TimWen”) with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company that owns the Tim Hortons ® brand (Tim Hortons is a registered trademark of Tim Hortons USA Inc.).

In addition, the Company has a 20 % share in a joint venture in Brazil (the “Brazil JV”).

The Company has significant influence over these investees.

Such investments are accounted for using the equity method, under which our results of operations include our share of the income (loss) of the investees in “Other operating income, net.”

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

Three Months Ended

2023 April 3,

The Company has significant influence over this investee.

Such investment is accounted for using the equity method, under which our results of operations include our share of the income of the investee in “Other operating income, net.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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

Six Months Ended

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

2 unchanged sentences

Distributions received ( 5,512 ) ( 5,389 )

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

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

Balance at end of period $ 34,165 $ 38,088

2 unchanged sentences

Other Investments in Equity Securities

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

During 2021, the Company made an investment in equity securities of $ 10,000 and, during the six months ended July 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 and six months ended July 2, 2023, the Company recorded impairment charges of $ 6,827 and $ 10,389 , respectively, for the difference between the estimated fair value and the carrying value of the investment.

(6) Long-Term Debt

26 unchanged sentences

_______________

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

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 2008 merger of Triarc Companies, Inc.

and Wendy’s International, Inc.

(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.

During the six months ended July 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 six months ended July 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

17 unchanged sentences

_______________

(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.

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

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

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The carrying amounts of cash, accounts payable and accrued expenses approximate fair value due to the short-term nature of those items.

5 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

2023 April 3,

Three Months Ended Six Months Ended

Company-operated restaurants $ 78 $ 1,708 $ 428 $ 2,075

1 unchanged sentence

Surplus properties — 152 26 207

(9) Income Taxes

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 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 $ 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.

$ 78 $ 1,860 $ 454 $ 2,476

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

(9) Income Taxes

The Company’s effective tax rate for the three months ended July 2, 2023 and July 3, 2022 was 24.4 % and 26.4 %, respectively.

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

federal statutory rate of 21 % for the three months ended July 2, 2023 primarily due to state income taxes, including discrete changes to state deferred income taxes.

The Company’s effective tax rate for the six months ended July 2, 2023 and July 3, 2022 was 25.9 % and 26.4 %, respectively.

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

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

There were no significant changes to the unrecognized tax benefits or related interest and penalties for the three and six months ended July 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 $ 14,562 and $ 3,236 as of July 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 July 2, 2023 and January 1, 2023.

(10) Net Income Per Share

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

Three Months Ended

2023 April 3,

Three Months Ended Six Months Ended

Net income $ 59,632 $ 48,151 $ 99,453 $ 85,553

2 unchanged sentences

Dilutive effect of stock options and restricted shares

2,304 1,569 2,393 2,058

Weighted average diluted shares outstanding 212,928 215,242 213,978 216,704

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.

Net income per share:

Basic $ .28 $ .23 $ .47 $ .40

Diluted $ .28 $ .22 $ .46 $ .39

Basic net income per share for the three and six months ended July 2, 2023 and July 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 4,532 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.

We excluded potential common shares of 4,420 and 4,476 for the three and six months ended July 2, 2023, respectively, and 5,538 and 4,417 for the three and six months ended July 3, 2022, 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)

(11) Stockholders’ Equity

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

During each of the first and second quarters of 2023, the Company paid dividends per share of $ .25 .

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

Repurchases of Common Stock

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 .

During the six months ended July 2, 2023, the Company repurchased 4,023 shares under the January 2023 Authorization with an aggregate purchase price of $ 88,254 , of which $ 1,380 was accrued as of July 2, 2023, and excluding excise tax of $ 683 and commissions of $ 56 .

As of July 2, 2023, the Company had $ 411,746 of availability remaining under the January 2023 Authorization.

Subsequent to July 2, 2023 through August 2, 2023, the Company repurchased 706 shares under the January 2023 Authorization with an aggregate purchase price of $ 15,163 , excluding applicable excise tax and commissions of $ 10 .

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 warranted and to the extent legally permissible (the “February 2022 Authorization”).

In April 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 was set to expire on February 28, 2023.

During the six months ended July 3, 2022, the Company repurchased 2,759 shares under the February 2022 Authorization with an aggregate purchase price of $ 51,911 , excluding commissions of $ 39 .

In connection with the January 2023 Authorization, the remaining portion of the February 2022 Authorization was canceled.

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.

4 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

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.

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

1 unchanged sentence

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

Three Months Ended

2023 April 3,

Six Months Ended

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

Foreign currency translation

5,107 ( 6,337 )

Balance at end of period $ ( 59,069 ) $ ( 54,537 )

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

At July 2, 2023, Wendy’s and its franchisees operated 7,115 Wendy’s restaurants.

Of the 414 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for 159 restaurants, owned the building and held long-term land leases for 144 restaurants and held leases covering the land and building for 111 restaurants.

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The components of lease cost are as follows:

Three Months Ended

2023 April 3,

Three Months Ended Six Months Ended

Finance lease cost:

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_______________

(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.

(a) Includes expenses for executory costs of $ 10,172 and $ 9,245 for the three months ended July 2, 2023 and July 3, 2022, respectively, and $ 20,020 and $ 18,853 for the six months ended July 2, 2023 and July 3, 2022, respectively, for which the Company is reimbursed by sublessees.

(b) Includes $ 32,329 and $ 32,071 for the three months ended July 2, 2023 and July 3, 2022, respectively, and $ 62,927 and $ 60,996 for the six months ended July 2, 2023 and July 3, 2022, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees.

Also includes $ 7,546 and $ 7,479 for the three months ended July 2, 2023 and July 3, 2022, respectively, and $ 15,411 and $ 14,773 for the six months ended July 2, 2023 and July 3, 2022, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

THE WENDY’S COMPANY AND SUBSIDIARIES

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The components of lease income are as follows:

Three Months Ended

2023 April 3,

Three Months Ended Six Months Ended

Sales-type and direct-financing leases:

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

(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.

(b) Includes sublease income of $ 42,961 and $ 43,689 recognized during the three months ended July 2, 2023 and July 3, 2022, respectively, and $ 85,912 and $ 86,854 recognized during the six months ended July 2, 2023 and July 3, 2022, respectively.

Sublease income includes lessees’ variable payments to the Company for executory costs of $ 10,115 and $ 9,250 for the three months ended July 2, 2023 and July 3, 2022, respectively, and $ 19,893 and $ 18,785 for the six months ended July 2, 2023 and July 3, 2022, respectively.

(13) Supplemental Cash Flow Information

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

Three Months Ended

2023 April 3,

Six Months Ended

Supplemental non-cash investing and financing activities:

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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.

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.”

Wendy’s paid TimWen $ 10,140 and $ 9,601 under these lease agreements during the six months ended July 2, 2023 and July 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 $ 121 and $ 111 during the six months ended July 2, 2023 and July 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 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.”

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 July 2, 2023 owned and operated 83 Wendy’s restaurants.

During the six months ended July 2, 2023 and July 3, 2022, the Company recognized $ 7,411 and $ 6,476 , respectively, in royalty, advertising fund, lease and other income from Yellow Cab and related entities.

As of July 2, 2023 and January 1, 2023, $ 1,130 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

1 unchanged sentence

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.”

During the six months ended July 2, 2023, the Company purchased approximately $ 1,200 of advertising time from a subsidiary of AMC.

As of July 2, 2023, approximately $ 850 was due to AMC for advertising time, which is included in “Advertising funds restricted liabilities.”

(15) Guarantees and Other Commitments and Contingencies

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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 $ 99,392 as of April 2, 2023.

These leases extend through 2045.

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

We have had no judgments against us as guarantor of these leases as of July 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

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franchise owner.

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

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

Letters of Credit

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

As of July 2, 2023, the Company had outstanding letters of credit with various parties totaling $ 28,847 .

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

9 unchanged sentences

Revenues by segment are as follows:

Three Months Ended

2023 April 3,

Three Months Ended Six Months Ended

$ 468,753 $ 450,440 $ 909,741 $ 857,751

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

Three Months Ended

2023 April 3,

Three Months Ended Six Months Ended

(a) $ 142,947 $ 126,999 $ 268,177 $ 231,823

7 unchanged sentences

Amortization of cloud computing arrangements ( 2,266 ) — ( 3,848 ) —

System optimization gains, net 5 3,534

System optimization (losses) gains, net ( 6 ) 152 ( 1 ) 3,686

Reorganization and realignment costs ( 681 ) ( 156 ) ( 7,489 ) ( 620 )

8 unchanged sentences

(a) Wendy’s U.S.

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.

includes advertising funds expense of $ 2,766 and $ 5,322 for the three and six months ended July 3, 2022, respectively, related to the Company’s funding of incremental advertising.

(b) Wendy’s International includes advertising funds expense of $ 658 and $ 1,206 for the three and six months ended July 2, 2023, respectively, and $ 1,084 and $ 1,922 for the three and six months ended July 3, 2022, respectively, related to the Company’s funding of incremental advertising.

In addition, Wendy’s International includes other international-related advertising deficit of $ 479 and $ 1,324 for the three and six months ended July 2, 2023, respectively, and $ 880 and $ 1,522 for the three and six months ended July 3, 2022, respectively.

(18) New Accounting Standards

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)

New Accounting Standards

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.

In March 2023, the Financial Accounting Standards Board (“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.

1 unchanged sentence

The Company does not expect the guidance to 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)

New Accounting Standards Adopted

Reference Rate Reform

In March 2020, the FASB issued guidance to provide temporary optional expedients and exceptions to current reference rate reform guidance to ease the financial reporting burdens related to the market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates.

During the three months ended July 2, 2023, certain of the Company’s subsidiaries executed amendments to the 2021-1 Variable Funding Senior Secured Notes, Class A-1 and the U.S.

advertising fund revolving line of credit to transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”), plus any applicable margin.

In connection with these contract amendments, the Company adopted the reference rate reform guidance during the second quarter of 2023.

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

Business Combinations

In October 2021, the FASB issued an amendment to improve the accounting for revenue contracts with customers acquired in a business combination.

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.

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