What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-03-01 · 164 added, 192 removed, 396 unchanged (47% of the section changed)

10 unchanged sentences

Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the U.S.

based on traffic share, and the third largest globally with 7,095 restaurants in the U.S.

based on traffic and dollar share, and the third largest globally with 7,240 restaurants in the U.S.

and 32 foreign countries and U.S.

territories as of January 1, 2023.

territories as of December 31, 2023.

The Company is comprised of the following segments:

10 unchanged sentences

Segment adjusted EBITDA excludes certain unallocated general and administrative expenses and other items that vary from period to period without correlation to the Company’s core operating performance.

See “Results of Operations” below and Note 27 of the Financial Statements and Supplementary Data contained in Item 8 herein for segment financial information.

The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31 and are referred to herein as (1) “the year ended January 1, 2023” or “2022,” which consisted of 52 weeks, (2) “the year ended January 2, 2022” or “2021,” which consisted of 52 weeks, and (3) “the year ended January 3, 2021” or “2020,” which consisted of 53 weeks.

See “Results of Operations” below and Note 26 to the Consolidated Financial Statements contained in Item 8 herein for segment financial information.

The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31 and are referred to herein as (1) “the year ended December 31, 2023” or “2023,” (2) “the year ended January 1, 2023” or “2022,” and (3) “the year ended January 2, 2022” or “2021,” all of which consisted of 52 weeks.

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

Executive Overview

As of January 1, 2023, the Wendy’s restaurant system was comprised of 7,095 restaurants, with 5,994 Wendy’s restaurants in operation in the U.S.

As of December 31, 2023, the Wendy’s restaurant system was comprised of 7,240 restaurants, with 6,030 Wendy’s restaurants in operation in the U.S.

restaurants, 403 were operated by the Company and 5,627 were operated by a total of 212 franchisees.

In addition, at January 1, 2023, there were 1,101 Wendy’s restaurants in operation in 31 foreign countries and U.S.

In addition, at December 31, 2023, there were 1,210 Wendy’s restaurants in operation in 32 foreign countries and U.S.

Of the international restaurants, 1,198 were operated by 106 franchisees and 12 were operated by the Company in the United Kingdom (the “U.K.”).

1 unchanged sentence

(1) sales at Company-operated restaurants and (2) franchise-related revenues, including royalties, national advertising funds contributions, rents and franchise fees received from Wendy’s franchised restaurants.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of January 1, 2023.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of December 31, 2023.

Wendy’s operating results are impacted by a number of external factors, including commodity costs, labor costs, intense price competition, unemployment and consumer spending levels, general economic and market trends and weather.

The COVID-19 pandemic has had and may continue to have the effect of heightening the impact of many of these factors.

See “Special Note Regarding Forward-Looking Statements and Projections” in “Part I” preceding “Item 1 - Business” for additional information.

Wendy’s long-term growth opportunities include delivering accelerated global growth through (1) driving strong same-restaurant sales momentum across all dayparts, (2) accelerating our implementation of consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint through global restaurant expansion.

Wendy’s long-term growth opportunities include delivering accelerated global growth through (1) driving same-restaurant sales momentum across all dayparts, (2) accelerating our consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint across the globe.

Key Business Measures

2 unchanged sentences

Restaurants temporarily closed for more than one week are excluded from same-restaurant sales.

For 2020, same-restaurant sales excluded the impact of a 53 rd operating week.

For 2020, same-restaurant sales compared the 52 weeks from December 30, 2019 through December 27, 2020 to the 52 weeks from December 31, 2018 through December 29, 2019.

For 2021, same-restaurant sales compared the 52 weeks from January 4, 2021 through January 2, 2022 to the 52 weeks from January 6, 2020 through January 3, 2021.

This methodology is consistent with the metric used by our management for internal reporting and analysis.

The table summarizing same-restaurant sales below in “Results of Operations” provides the same-restaurant sales percent changes.

• Restaurant Margin - We define restaurant margin as sales from Company-operated restaurants less cost of sales divided by sales from Company-operated restaurants.

• Company-Operated Restaurant Margin - We define Company-operated restaurant margin as sales from Company-operated restaurants less cost of sales divided by sales from Company-operated restaurants.

Cost of sales includes food and paper, restaurant labor and occupancy, advertising and other operating costs.

Cost of sales excludes certain costs that support restaurant operations that are not allocated to individual restaurants, which are included in “General and administrative.” Cost of sales also excludes depreciation and amortization expense and impairment of long-lived assets.

Therefore, as restaurant margin as presented excludes certain costs as described above, its usefulness may be limited and may not be comparable to other similarly titled measures of other companies in our industry.

Restaurant margin is influenced by factors such as price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, fluctuations in food and labor costs, restaurant openings, remodels and closures and the level of our fixed and semi-variable costs.

Therefore, as Company-operated restaurant margin as presented excludes certain costs as described above, its usefulness may be limited and may not be comparable to other similarly titled measures of other companies in our industry.

Company-operated restaurant margin is influenced by factors such as price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, fluctuations in food and labor costs, restaurant openings, remodels and closures and the level of our fixed and semi-variable costs.

• Systemwide Sales - Systemwide sales is a non-GAAP financial measure, which includes sales by both Company-operated restaurants and franchised restaurants.

4 unchanged sentences

• Average Unit Volumes - We calculate Company-operated restaurant average unit volumes by summing the average weekly sales of all Company-operated restaurants which reported sales during the week.

Average unit volumes exclude the impact of the 53 rd week of 2020.

For 2020, average unit volumes are calculated using the 52 weeks from December 30, 2019 through December 27, 2020.

Franchised restaurant average unit volumes is a non-GAAP financial measure, which includes sales by franchised restaurants, which are reported by our franchisees and represent their revenues from sales at franchised Wendy’s restaurants.

6 unchanged sentences

The Company considers economies that have had cumulative inflation in excess of 100% over a three-year period as highly inflationary.

The Company believes its presentation of same-restaurant sales, restaurant margin, systemwide sales and average unit volumes, including franchised restaurant average unit volumes, provide a meaningful perspective of the underlying operating performance of the Company’s current business and enables investors to better understand and evaluate the Company’s historical and prospective operating performance.

The Company believes its presentation of same-restaurant sales, Company-operated restaurant margin, systemwide sales and average unit volumes, including franchised restaurant average unit volumes, provide a meaningful perspective of the underlying operating performance of the Company’s current business and enables investors to better understand and evaluate the Company’s historical and prospective operating performance.

The Company believes that these metrics are important supplemental measures of operating performance because they highlight trends in the Company’s business that may not otherwise be apparent when relying solely on GAAP financial measures.

8 unchanged sentences

On a two-year basis, global same-restaurant sales increased 9.2%;

• Global Company-operated restaurant margin was 13.8% in 2022, a decrease of 290 basis points compared to 2021;

• Net income decreased 11.5% to $177.4 million in 2022 compared to $200.4 million in 2021.

• Global Company-operated restaurant margin was 14.6% in 2023, an increase of 80 basis points compared to 2022;

• Net income increased 15.3% to $204.4 million in 2023 compared to $177.4 million in 2022.

Global Same-Restaurant Sales

Wendy’s long-term growth opportunities include driving strong same-restaurant sales momentum across all dayparts through our ownable core products, exciting menu innovation, compelling value offerings and improvements in speed and consistency in our restaurants.

Global same-restaurant sales increased 4.9% during 2022.

Wendy’s long-term growth opportunities include accelerated implementation of consumer-facing digital platforms and technologies.

Over the past several years, the Company has invested significant resources to focus on consumer-facing

technology, including activating mobile ordering via Wendy’s mobile app, launching the Wendy’s Rewards loyalty program in the U.S.

Wendy’s long-term growth opportunities include driving same-restaurant sales across all dayparts through quality differentiation, exciting menu innovation and compelling value offerings.

Global same-restaurant sales increased 4.3% during 2023 and increased 9.2% on a two-year basis.

Wendy’s long-term growth opportunities include accelerating consumer-facing digital platforms and technologies.

Over the past several years, the Company has invested significant resources to focus on consumer-facing technology, including activating mobile ordering via Wendy’s mobile app, launching the Wendy’s Rewards loyalty program in the U.S.

and Canada and establishing delivery agreements with third-party vendors.

The Company is also partnering with key technology providers to help execute our digital, restaurant technology and enterprise technology initiatives and support our technology innovation and growth.

The Company’s digital business represented approximately 10.3% of global systemwide sales during 2022.

The Company is also continuing to make digital investments and is partnering with key technology providers to help execute our digital, restaurant technology and enterprise technology initiatives and support our technology innovation and growth.

During the second quarter of 2023, the Company revised its

definition of digital sales to reflect our full digital portfolio by including in-restaurant mobile scans, in addition to our previously included delivery, mobile order and kiosk digital channels.

The Company’s digital business has continued to grow and, under the revised definition, digital sales increased from approximately 11.0% of global systemwide sales during 2022 to approximately 13.2% during 2023.

New Restaurant Development

Wendy’s long-term growth opportunities include expanding the Company’s footprint through global restaurant expansion.

To promote new restaurant development, the Company has provided franchisees with certain incentive programs for qualifying new restaurants.

Wendy’s long-term growth opportunities include expanding the Company’s footprint across the globe.

To promote new restaurant development, the Company has provided franchisees with certain incentive programs for qualifying new restaurants, in addition to our build to suit development fund (see Note 20 to the Consolidated Financial Statements contained in Item 8 herein for further discussion).

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

3 unchanged sentences

Organizational Redesign

On February 16, 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.

As a result of the redesign, 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 million to $13 million related to these savings, of which approximately $9 million to $11 million will be cash expenditures.

The cash expenditures are expected to continue into 2025, with approximately two-thirds of the total cash expenditures occurring in 2023.

Costs related to the plan are recorded to “Reorganization and realignment costs.” The total costs expected to be incurred are comprised of (1) severance and related employee costs of approximately $8 million, (2) recruitment and relocation costs of approximately $1 million, (3) third-party and other costs of approximately $1 million and (4) share-based compensation of approximately $2 million.

The Company expects costs to be recognized during 2023 and continue into 2026, with approximately three-fourths to be recognized during 2023.

Debt Financing

On April 1, 2022, the Company completed a debt financing transaction under which the Company issued fixed rate senior secured notes in the following 2022-1 series:

Class A-2-I with an interest rate of 4.236% and initial principal amount of $100.0 million (the “Class A-2-I Notes”) and Class A-2-II with an interest rate of 4.535% and initial principal amount of $400.0 million (the “Class A-2-II Notes”).

The anticipated repayment dates of the Class A-2-I Notes and the Class A-2-II Notes will be March 2029 and March 2032, respectively.

See Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information on the Company’s debt financing transaction.

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 held its general and administrative expense in 2023 relatively flat compared with 2022.

Additionally, in January 2024, the Board of Directors announced the appointment of Kirk Tanner as the Company’s new President and Chief Executive Officer, effective February 5, 2024.

Tanner succeeded Todd A.

Penegor, the Company’s previous President and Chief Executive Officer, who departed from the Company in February.

As a result of the succession of the President and Chief Executive Officer, the Company now expects to incur total costs of approximately $17 million to $19 million related to the Organizational Redesign Plan, of which approximately $15 million to $17 million will be cash expenditures expected through 2026.

Costs related to the plan are recorded to “Reorganization and realignment costs.” During 2023, the Company recognized costs totaling $9.1 million, which primarily included severance and related employee costs and share-based compensation.

The Company expects to incur additional costs aggregating approximately $8 million to $10 million, comprised of (1) severance and related employee costs of approximately $7.0 million, (2) share-based compensation of approximately $2.0 million and (3) recruitment and relocation costs of approximately $0.5 million.

The Company expects costs related to the Organizational Redesign Plan to continue into 2026.

This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.

2 unchanged sentences

Results of Operations

The tables included throughout this Results of Operations section set forth in millions (except as otherwise indicated) the Company’s consolidated results of operations for the years ended January 1, 2023, January 2, 2022 and January 3, 2021.

Except as noted below, the Company’s consolidated results of operations described below includes the benefit of the 53 rd week in 2020.

The tables included throughout this Results of Operations section set forth in millions (except as otherwise indicated) the Company’s consolidated results of operations for the years ended December 31, 2023, January 1, 2023 and January 2, 2022.

2023 2022 2021

20 unchanged sentences

Interest expense, net (124.1) (1.8) (122.3) (13.1) (109.2)

Loss on early extinguishment of debt — 17.9 (17.9) (17.9) —

Investment income (loss), net 2.1 2.1 — 0.2 (0.2)

Gain (loss) on early extinguishment of debt, net 2.3 2.3 — 17.9 (17.9)

Investment (loss) income, net (10.4) (12.5) 2.1 2.1 —

Other income, net 29.6 19.2 10.4 9.7 0.7

27 unchanged sentences

Key business measures:

same-restaurant sales (a):

same-restaurant sales:

Company-operated 2.6 % 4.4 % 11.9 %

1 unchanged sentence

Systemwide 3.7 % 3.9 % 9.2 %

International same-restaurant sales (a) (b) 12.4 % 17.6 % (6.0) %

Global same-restaurant sales (a):

International same-restaurant sales (a) 8.1 % 12.4 % 17.6 %

Global same-restaurant sales:

Company-operated 2.7 % 4.4 % 11.9 %

Franchised (b) 4.9 % 9.9 % 1.4 %

Systemwide (b) 4.9 % 10.0 % 1.2 %

Systemwide sales (c):

Franchised (a) 4.4 % 4.9 % 9.9 %

Systemwide (a) 4.3 % 4.9 % 10.0 %

2023 2022 2021

Key business measures (continued):

Systemwide sales (b):

Company-operated $ 905.7 $ 882.7 $ 730.4

2 unchanged sentences

International Company-operated 24.4 13.9 3.7

International franchised (b) 1,592.4 1,392.9 1,107.2

International systemwide (b) 1,606.3 1,396.6 1,107.2

Global systemwide (b) $ 13,300.7 $ 12,507.3 $ 11,338.5

Restaurant average unit volumes (in thousands) (a):

International franchised (a) 1,778.0 1,592.4 1,392.9

International systemwide (a) 1,802.4 1,606.3 1,396.6

Global systemwide (a) $ 14,087.7 $ 13,300.7 $ 12,507.3

Restaurant average unit volumes (in thousands):

Company-operated $ 2,256.7 $ 2,192.0 $ 2,172.4

1 unchanged sentence

systemwide 2,060.2 1,973.1 1,895.3

International systemwide (b) 1,526.5 1,448.1 1,199.5

Global systemwide (b) $ 1,905.8 $ 1,832.1 $ 1,654.7

International systemwide (a) 1,585.3 1,526.5 1,448.1

Global systemwide (a) $ 1,984.1 $ 1,905.8 $ 1,832.1

_______________

(a) Excludes the impact of the 53 rd week in 2020.

(b) Excludes Argentina and Venezuela due to the impact of the highly inflationary economies of those countries.

(a) Excludes Argentina and Venezuela due to the impact of the highly inflationary economies of those countries.

(b) During 2023 and 2022, global systemwide sales increased 6.1% and 6.8%, respectively, U.S.

systemwide sales increased 5.1% and 5.3%, respectively, and international systemwide sales increased 14.1% and 19.2%, respectively, on a constant currency basis.

7 unchanged sentences

Closed (7) (76) — (47) (130)

Net purchased from (sold by) franchisees 43 (43) — — —

Restaurant count at January 1, 2023

2 unchanged sentences

Closed (3) (58) (1) (41) (103)

Restaurant count at January 1, 2023

Restaurant count at December 31, 2023

403 5,627 12 1,198 7,240

2 unchanged sentences

Sales $ 930.1 $ 33.5 $ 896.6 $ 162.5 $ 734.1

The increase in sales during 2022 was primarily due to (1) the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021 of $162.7 million, (2) a 4.4% increase in Company-operated same-restaurant sales of $27.9 million and (3) net new restaurant development of $11.4 million.

The increase in sales during 2022 was partially offset by the sale of 47 Company-operated restaurants in New York during the second quarter of 2021 of $42.9 million.

The increase in sales during 2023 was primarily due to (1) a 2.7% increase in Company-operated same-restaurant sales of $23.9 million and (2) net new restaurant development of $10.7 million.

Company-operated same-restaurant sales increased due to higher average check, partially offset by a decrease in customer count.

Company-operated same-restaurant sales during 2021 benefited from government stimulus payments to consumers during the first quarter of 2021, which did not recur in 2022.

Franchise Royalty Revenue and Fees 2023 2022 2021

3 unchanged sentences

$ 592.3 $ 34.1 $ 558.2 $ 21.5 $ 536.7

Franchise royalty revenue during 2022 increased $24.8 million, of which (1) $21.8 million was due to a 4.9% increase in global franchise same-restaurant sales and (2) $3.1 million was due to a net increase in the number of franchise restaurants in operation during 2022 compared to 2021.

Franchise royalty revenue during 2023 increased $26.6 million, of which (1) $22.0 million was due to a 4.4% increase in franchise same-restaurant sales and (2) $6.3 million was due to net new restaurant development.

Franchise same-restaurant sales during 2023 increased due to higher average check, partially offset by a decrease in customer count.

Franchise same-restaurant sales during 2021 benefited from government stimulus payments to consumers during the first quarter of 2021, which did not recur in 2022.

The decrease in franchise fees during 2022 was primarily due to the accelerated recognition of franchise agreement revenue in the prior year as a result of franchisee-to-franchisee restaurant transfers of $8.3 million, partially offset by higher fees for providing information technology services to franchisees of $5.8 million.

This increase in fees for providing information technology services during 2022 reflects the one-month waiver of technology fees during the first quarter of 2021.

The increase in franchise fees during 2023 was primarily due to (1) higher fees for providing information technology services to franchisees of $3.5 million and (2) an increase in fees from facilitating Franchise Flips and other miscellaneous fees of $4.0 million.

Franchise Rental Income 2023 2022 2021

1 unchanged sentence

Franchise rental income $ 230.2 $ (4.3) $ 234.5 $ (2.2) $ 236.7

The decrease in franchise rental income during 2022 was primarily due to the impact of terminating existing leases where the Company was lessor of $5.2 million, primarily in connection with the Company’s acquisition of franchise-operated restaurants in Florida during the fourth quarter of 2021.

The decrease in franchise rental income was partially offset by (1) the impact of the sale of Company-operated restaurants in New York during the second quarter of 2021 of $1.5 million and (2) assigning certain leases to franchisees of $1.5 million.

The decrease in franchise rental income during 2023 was primarily due to the impact of assigning certain leases to franchisees, partially offset by an increase in executory costs.

See Note 19 to the Consolidated Financial Statements contained in Item 8 herein for further discussion.

Advertising Funds Revenue 2023 2022 2021

8 unchanged sentences

85.4 % (0.8) % 86.2 % 2.9 % 83.3 %

The increase in cost of sales, as a percent of sales, during 2022 was primarily due to (1) higher commodity costs, (2) an increase in restaurant labor rates, (3) a decrease in customer count and (4) the impact of the Company’s investments to support the entry into the U.K.

These impacts were partially offset by higher average check.

The decrease in cost of sales, as a percent of sales, during 2023 was primarily due to higher average check.

This impact was partially offset by (1) an increase in restaurant labor rates, (2) higher commodity costs, (3) a decrease in customer count and (4) the impact of the Company’s investments to support the entry into the U.K.

market and additional inflationary pressures in the U.K.

Franchise Support and Other Costs 2023 2022 2021

5 unchanged sentences

Franchise rental expense $ 125.4 $ 1.3 $ 124.1 $ (8.3) $ 132.4

The decrease in franchise rental expense during 2022 was primarily due to (1) the impact of assigning certain leases to franchisees and (2) the impact of the Company’s acquisition of franchise-operated restaurants in Florida during the fourth quarter of 2021.

The increase in franchise rental expense during 2023 was primarily due to an increase in executory costs.

See Note 19 to the Consolidated Financial Statements contained in Item 8 herein for further discussion.

Advertising Funds Expense 2023 2022 2021

1 unchanged sentence

Advertising funds expense $ 428.0 $ (2.8) $ 430.8 $ 19.0 $ 411.8

The increase in advertising funds expense during 2022 was primarily due to (1) an increase in franchise same-restaurant sales in the U.S.

and Canada and (2) timing of promotions.

These increases were partially offset by a decrease in the Company’s funding of incremental advertising.

The decrease in advertising funds expense during 2023 was primarily due to a decrease in the Company’s funding of incremental advertising, partially offset by an increase in franchise same-restaurant sales in the U.S.

General and Administrative 2023 2022 2021

Amount Change Amount (a) Change Amount (a)

Amount Change Amount Change Amount

Employee compensation and benefits $ 126.4 $ (2.1) $ 128.5 $ 13.4 $ 115.1

Professional services 61.8 8.5 53.3 11.3 42.0

Travel-related expenses 11.5 6.0 5.5 0.3 5.2

Share-based compensation 22.5 (2.0) 24.5 2.5 22.0

Professional fees 60.3 (1.5) 61.8 8.5 53.3

Incentive compensation 26.8 1.8 25.0 (21.5) 46.5

1 unchanged sentence

$ 250.0 $ (5.0) $ 255.0 $ 12.0 $ 243.0

_______________

(a) Certain reclassifications have been made to the prior year presentation to conform to the current year presentation.

The increase in general and administrative expenses during 2022 was primarily due to (1) an increase in employee compensation and benefits, reflecting investments in resources to support the Company’s development and digital organizations, (2) higher professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning (“ERP”) system implementation and (3) an increase in travel-related expenses.

These increases were partially offset by a decrease in incentive compensation accruals, reflecting higher operating performance as compared to plan in 2021 versus 2022.

The decrease in general and administrative expenses during 2023 was primarily due to (1) a decrease in employee compensation and benefits, (2) a decrease in share-based compensation and (3) lower professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning (“ERP”) system implementation during 2022.

These decreases were partially offset by an increase in incentive compensation accruals, reflecting higher operating performance as compared to plan in 2023 versus 2022.

Depreciation and Amortization (exclusive of amortization of cloud computing arrangements shown separately below) 2023 2022 2021

3 unchanged sentences

$ 135.8 $ 2.4 $ 133.4 $ 7.9 $ 125.5

The increase in depreciation and amortization during 2022 was primarily due to depreciation and amortization on assets acquired from a franchisee in Florida during the fourth quarter of 2021.

The increase in depreciation and amortization during 2023 was primarily due to (1) asset additions for new and remodeled restaurants and (2) asset disposals associated with closed restaurants.

These increases were partially offset by assets becoming fully depreciated.

Amortization of Cloud Computing Arrangements 2023 2022 2021

6 unchanged sentences

System optimization gains, net during 2022 were primarily comprised of gains on the sale of surplus and other properties.

System optimization gains, net during 2021 were primarily comprised of a gain on the sale of 47 Company-operated restaurants in New York.

See Note 4 of the Financial Statements and Supplementary Data contained in Item 8 herein for further discussion.

See Note 4 to the Consolidated Financial Statements contained in Item 8 herein for further discussion.

Reorganization and Realignment Costs 2023 2022 2021

Amount Change Amount Change Amount

Operations and field realignment $ 0.1 $ (1.6) $ 1.7 $ (2.1) $ 3.8

IT realignment — — — (7.3) 7.3

G&A realignment — 0.1 (0.1) (0.7) 0.6

Organizational Redesign Plan $ 9.1 $ 9.1 $ — $ — $ —

System optimization initiative 0.1 (0.5) 0.6 (6.3) 6.9

Other reorganization and realignment plans — (0.1) 0.1 (1.6) 1.7

$ 9.2 $ 8.5 $ 0.7 $ (7.8) $ 8.5

As part of the Company’s system optimization initiative, the Company expects to continue to optimize the Wendy’s system through strategic restaurant acquisitions and dispositions, as well as by facilitating Franchise Flips.

During 2022, the Company recognized costs associated with its system optimization initiative totaling $0.6 million, 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 2021, the Company recognized costs totaling $6.9 million, which were primarily comprised of the write-off of certain lease assets, lease termination fees and transaction fees associated with the bankruptcy sale process of NPC Quality Burgers, Inc.

(“NPC”), as well as professional fees and transaction fees associated with the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021.

The Company expects to recognize a gain of approximately $0.7 million, primarily related to the write-off of certain NPC-related lease liabilities upon final termination of the leases.

See Note 3 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information regarding the NPC bankruptcy sale process.

Costs incurred under the Company’s other reorganization and realignment plans were not material during 2022 and 2021.

During 2023, the Company recognized costs totaling $9.1 million under the Organizational Redesign Plan, which primarily included severance and related employee costs of $6.2 million and share-based compensation of $1.3 million.

See Note 5 to the Consolidated Financial Statements contained in Item 8 herein for further information regarding the Organizational Redesign Plan.

Costs incurred under the Company’s system optimization initiative and other reorganization and realignment plans were not material during 2023 and 2022.

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

See Note 5 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information regarding the Company’s reorganization and realignment plans.

See Note 5 to the Consolidated Financial Statements contained in Item 8 herein for further information regarding the Company’s reorganization and realignment plans.

Impairment of Long-Lived Assets 2023 2022 2021

1 unchanged sentence

Impairment of long-lived assets $ 1.4 $ (5.0) $ 6.4 $ 4.1 $ 2.3

The increase in impairment charges during 2022 was primarily driven by the deterioration in operating performance of certain Company-operated restaurants.

The decrease in impairment of long-lived assets during 2023 was primarily driven by higher impairment charges in the prior year as a result of the deterioration in operating performance of certain Company-operated restaurants.

Other Operating Income, Net 2023 2022 2021

2 unchanged sentences

Lease buyout 0.1 2.9 (2.8) (3.8) 1.0

Equity in earnings in joint ventures, net (9.4) 1.8 (11.2) (5.1) (6.1)

Gains on sales-type leases (2.5) 0.5 (3.0) 1.2 (4.2)

Equity in earnings in joint ventures, net (10.8) (1.4) (9.4) 1.8 (11.2)

Other, net (0.6) (0.7) 0.1 0.3 (0.2)

$ (13.8) $ 9.9 $ (23.7) $ (9.1) $ (14.6)

The increase in other operating income, net during 2022 was primarily due to (1) a gain from insurance recoveries and (2) lease buyout activity.

These impacts were partially offset by a decrease in the equity in earnings from our TimWen joint venture, which included a gain on the sale of a parcel of land during 2021.

The decrease in other operating income, net during 2023 was primarily due to (1) a gain from insurance recoveries during 2022 and (2) lease buyout activity in 2022.

These impacts were partially offset by an increase in the equity in earnings from our TimWen joint venture.

Interest Expense, Net 2023 2022 2021

1 unchanged sentence

Interest expense, net $ 124.1 $ 1.8 $ 122.3 $ 13.1 $ 109.2

Interest expense, net increased during 2022 primarily due to the impact of completing a debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022, partially offset by the impact of completing the refinancing of a portion of the Company’s securitized financing facility in the second quarter of 2021.

Loss on Early Extinguishment of Debt 2022 2021 2020

Interest expense, net increased during 2023 primarily due to the impact of completing a debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022, partially offset by the impact of repurchasing $40.4 million in principal of the Company’s 7% debentures and $29.2 million in principal of the Company’s Class A-2 senior secured notes during 2023.

See Note 12 to the Consolidated Financial Statements contained in Item 8 herein for further discussion.

Gain (Loss) on Early Extinguishment of Debt, Net 2023 2022 2021

Amount Change Amount Change Amount

Loss on early extinguishment of debt $ — $ (17.9) $ 17.9 $ 17.9 $ —

During the second quarter of 2021, in connection with the refinancing of a portion of the Company’s securitized financing facility, the Company incurred a loss on the early extinguishment of debt as a result of repaying the outstanding 2015-1 Class A-2-III Notes and 2018-1 Class A-2-I Notes with the proceeds from the issuance of its 2021-1 Class A-2 Notes.

The loss on the early extinguishment of debt of $17.9 million was comprised of a specified make-whole payment of $9.6 million and the write-off of certain unamortized deferred financing costs of $8.3 million.

Investment Income (Loss), Net 2022 2021 2020

Gain (loss) on early extinguishment of debt, net $ 2.3 $ 2.3 $ — $ 17.9 $ (17.9)

During 2023, the Company incurred a net gain on early extinguishment of debt of $2.3 million, primarily due to a gain related to the repurchase of $29.2 million in principal of its Class A-2 senior secured notes, partially offset by a loss related to the repurchase of $40.4 million in principal of its 7% debentures.

See Note 12 to the Consolidated Financial Statements contained in Item 8 herein for further information.

Investment (Loss) Income, Net 2023 2022 2021

Amount Change Amount Change Amount

Investment income (loss), net $ 2.1 $ 2.1 $ — $ 0.2 $ (0.2)

Investment (loss) income, net $ (10.4) $ (12.5) $ 2.1 $ 2.1 $ —

During 2023, the Company recorded a loss of $10.4 million due to impairment charges for the difference between estimated fair value and the carrying value of an investment in equity securities.

During 2022, the Company recognized a gain of $2.1 million on an investment in equity securities as a result of an observable price change.

2 unchanged sentences

Other income, net $ 29.6 $ 19.2 $ 10.4 $ 9.7 $ 0.7

The increase in other income, net during 2022 was primarily due to interest income earned on our cash equivalents, which increased as a result of cash received from our debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022.

The increase in other income, net during 2023 was primarily due to interest income earned on our cash equivalents, which increased due to higher interest rates.

Provision for Income Taxes 2023 2022 2021

4 unchanged sentences

Effective tax rate on income 26.8 % (0.4) % 27.2 % 10.5 % 16.7 %

The increase in the provision for income taxes and effective tax rate during 2022 was primarily due to (1) an increase in state income taxes, including an increase in state deferred income taxes, (2) a decrease in the tax benefit from share-based compensation and (3) an increase in tax on our foreign operations.

The increase in state deferred income taxes from 2021 to 2022 was primarily due to a 2021 change in tax law, which resulted in a one-time release of a previously recorded valuation allowance against our state deferred tax assets.

The increase in the provision for income taxes was primarily due to (1) higher income before income taxes in 2023 and (2) an increase in the tax effects of our foreign operations.

These changes were partially offset by additional net income from our advertising funds, which are not subject to tax.

The decrease in the effective tax rate during 2023 was primarily due to (1) additional net income from our advertising funds, which are not subject to tax and (2) the tax benefit for changes in state deferred income taxes.

These changes were partially offset by an increase in the tax effects of our foreign operations.

Segment Information

See Note 27 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information regarding the Company’s segments.

See Note 26 to the Consolidated Financial Statements contained in Item 8 herein for further information regarding the Company’s segments.

2023 2022 2021

7 unchanged sentences

The increase in Wendy’s U.S.

revenues during 2022 was primarily due to (1) the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021 and (2) an increase in same-restaurant sales.

These increases were partially offset by the sale of 47 Company-operated restaurants in New York during the second quarter of 2021.

revenues during 2023 was primarily due to an increase in same-restaurant sales.

Same-restaurant sales increased during 2023 primarily due to higher average check, partially offset by a decrease in customer count.

The increase in Wendy’s U.S.

segment profit during 2022 was primarily due to (1) higher revenues and (2) a decrease in the Company’s funding of incremental advertising.

These increases were partially offset by higher cost of sales, as a percent of sales for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales” (excluding the impact of the U.K.

segment profit during 2023 was primarily due to (1) higher revenues, (2) lower cost of sales, as a percent of sales for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales” (excluding the impact of the U.K.

market) and (3) a decrease in the Company’s funding of incremental advertising.

Wendy’s International

7 unchanged sentences

Segment profit $ 35.7 $ 5.3 $ 30.4 $ 3.0 $ 27.4

The increase in Wendy’s International revenues during 2022 was primarily due to (1) the opening of Company-operated restaurants in the U.K.

beginning in the second quarter of 2021 and (2) an increase in franchise same-restaurant sales.

Franchise same-restaurant sales increased during 2022 due to (1) an increase in customer count and (2) higher average check.

The increase in Wendy’s International revenues during 2023 was primarily due to (1) net new restaurant development in the U.K.

and (2) an increase in same-restaurant sales.

Same-restaurant sales increased during 2023 due to (1) higher average check and (2) an increase in customer count.

The increase in Wendy’s International segment profit during 2023 was primarily due to higher revenues.

This increase was partially offset by (1) higher advertising fund expense, reflecting the Company’s funding of incremental advertising to support the launch of breakfast in Canada in May 2022, and (2) the Company’s investments to support the entry into the U.K.

This increase was partially offset by (1) higher other international advertising expenses, (2) higher franchise support and other costs and (3) the Company’s investments to support the entry into the U.K.

market and inflationary pressures in the U.K.

Global Real Estate & Development

5 unchanged sentences

Segment profit $ 103.5 $ (5.2) $ 108.7 $ 2.6 $ 106.1

The decrease in Global Real Estate & Development revenues during 2022 was primarily due to (1) the accelerated recognition of franchise agreement revenue in the prior year as a result of franchisee-to-franchisee restaurant transfers and (2) lower franchise rental income.

See “Franchise Rental Income” above for further information.

The increase in Global Real Estate & Development segment profit during 2022 was primarily due to a decrease in franchise rental expense, partially offset by lower revenues.

See “Franchise Rental Expense” above for further information.

The decrease in Global Real Estate & Development revenues during 2023 was primarily due to the impact of assigning certain leases to franchisees, partially offset by an increase in executory costs.

The decrease in Global Real Estate & Development segment profit during 2023 was primarily due to a decrease in franchise rental income.

Consolidated Outlook for 2024

We expect sales at our Company-operated restaurants to be favorably impacted primarily by (1) a net increase in the number of Company-operated restaurants, (2) continued growth of our breakfast daypart, (3) our “Fast Food Done Right” strategy, which includes continuing core menu improvements, product innovation and strategic price increases on our menu items to partially offset commodity and labor inflation pressures, (4) focused execution of operational excellence and (5) continued growth of our digital business.

We expect sales at our Company-operated restaurants to be favorably impacted primarily by (1) investments in accelerated growth, which include a focus on growth of our breakfast daypart and digital business, (2) strategic price increases on our menu items and (3) focused execution of operational excellence.

Franchise Royalty Revenue and Fees

We expect sales at franchised restaurants to generally benefit from many of the factors described above under “Sales.” In addition, we expect franchise royalty revenue and fees to be favorably impacted by (1) a net increase in the number of franchise restaurants in operation due to net new restaurant development and (2) a full year of operating in the breakfast daypart across the Canadian system after the launch of breakfast in Canada in May 2022.

Cost of Sales

We expect cost of sales, as a percent of sales to be favorably impacted by many of the same factors described above under “Sales,” and to also benefit from productivity initiatives.

We expect cost of sales, as a percent of sales to be negatively impacted by (1) an increase in commodity costs and (2) higher restaurant labor rates.

We expect cost of sales, as a percent of sales to be favorably impacted by many of the same factors described above under “Sales,” and to also benefit from productivity and cost management initiatives.

We expect cost of sales, as a percent of sales to be negatively impacted by higher restaurant labor rates.

Advertising Funds Revenue and Expense

We expect advertising funds expense to exceed advertising funds revenue due to the Company’s plans to fund approximately $27.0 million of incremental advertising in 2024 to continue to drive growth in our breakfast daypart.

General and Administrative

We expect general and administrative expenses to be relatively flat, despite elevated inflationary pressures, primarily as a result of the Company’s organizational redesign.

See “Executive Overview” above for further information regarding expected costs to be incurred under the plan.

Reorganization and Realignment Costs

We expect reorganization and realignment costs to be elevated as a result of the Company’s organizational redesign announced in January 2023.

See “Executive Overview” above for further information regarding expected costs to be incurred under the plan.

We expect general and administrative expenses to be higher primarily due to increases in (1) employee compensation and benefits, (2) stock compensation and (3) incentive compensation.

These increases are expected to be partially offset by lower professional fees.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under our securitized financing facility.

Our principal uses of cash are operating expenses, capital expenditures, repurchases of common stock, dividends to stockholders and repurchases of debt.

Our principal uses of cash are operating expenses, dividends to stockholders, repurchases of common stock and capital expenditures.

Cash Flows from Operating, Investing and Financing Activities

7 unchanged sentences

Effect of exchange rate changes on cash 2.4 8.4 (6.0) (6.3) 0.3

Net increase (decrease) in cash, cash equivalents and restricted cash $ 464.8 $ 516.1 $ (51.3) $ (110.8) $ 59.5

Net (decrease) increase in cash, cash equivalents and restricted cash $ (243.0) $ (707.8) $ 464.8 $ 516.1 $ (51.3)

Operating Activities

1 unchanged sentence

Cash provided by operating activities was $345.4 million and $259.9 million in 2023 and 2022, respectively.

The change was primarily due to (1) the timing of payments for marketing expenses of the national advertising funds, (2) an increase in payments for incentive compensation for the 2021 fiscal year paid in 2022 and (3) cash paid for cloud computing arrangements, primarily related to the Company’s ERP system implementation.

The change was primarily due to (1) higher net income, adjusted for non-cash expenses, (2) a decrease in payments for incentive compensation and (3) the timing of payments for marketing expenses of the national advertising funds.

Investing Activities

Cash used in investing activities was $86.5 million and $77.8 million in 2023 and 2022, respectively.

The change was primarily due to (1) a decrease in payments for acquisitions of $123.1 million, reflecting the impact of the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021 and (2) a payment for an investment in equity securities of $10.0 million during 2021.

These changes were partially offset by (1) a decrease in proceeds from dispositions of $46.9 million, reflecting the sale of 47 Company-operated restaurants in New York during the second quarter of 2021 and (2) an increase in capital expenditures of $7.6 million.

The change was primarily due to (1) a decrease in proceeds from dispositions of $6.1 million and (2) an increase in expenditures associated with the Company’s franchise development fund of $4.3 million.

Financing Activities

Cash provided by (used in) financing activities was $288.7 million and $(242.7) million in 2022 and 2021, respectively.

The change was primarily due to (1) a net increase in cash provided by long-term debt activities of $354.2 million, reflecting the respective impacts of the completion of the Company’s debt financing transaction during the first quarter of 2022 and the Company’s debt refinancing transaction during the second quarter of 2021, and (2) a decrease in the repurchases of common stock of $216.6 million.

These changes were partially offset by (1) a decrease in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of $23.8 million and (2) an increase in dividends of $11.9 million.

Cash (used in) provided by financing activities was $(504.3) million and $288.7 million in 2023 and 2022, respectively.

During 2023, cash used in financing activities was primarily comprised of (1) dividends of $209.3 million, (2) repurchases of common stock of $189.6 million and (3) long-term debt activities of $94.7 million, including the impact of repurchases of the Company’s 7% debentures and Class A-2 senior secured notes.

During 2022, cash provided by financing activities was primarily comprised of long-term debt activities of $463.0 million, reflecting the impact of the completion of the Company’s debt financing transaction during the first quarter of 2022, partially offset by (1) dividends of $106.8 million and (2) repurchases of common stock of $52.0 million.

Material Cash Requirements

1 unchanged sentence

• capital expenditures of approximately $90.0 million to $100.0 million as discussed below in “Capital Expenditures;”

• quarterly cash dividends aggregating approximately $212.6 million as discussed below in “Dividends;”

• stock repurchases under the Company’s January 2023 Authorization as discussed below in “Stock Repurchases;” and

• debt repurchases of up to $75.0 million as discussed below in “Long-Term Debt, Including Current Portion.”

• quarterly cash dividends aggregating approximately $205.0 million as discussed below in “Dividends;” and

• stock repurchases under the January 2023 Authorization as discussed below in “Stock Repurchases.”

Based on current levels of operations, the Company expects that available cash and cash flows from operations will provide sufficient liquidity to meet operating cash requirements for the next 12 months.

3 unchanged sentences

In 2023, cash capital expenditures amounted to $85.0 million.

In 2023, we expect that cash capital expenditures will amount to approximately $75.0 million to $85.0 million, principally relating to (1) technology investments, including consumer-facing digital technology, (2) the opening of new Company-operated restaurants and the reimaging of existing Company-operated restaurants, (3) restaurant equipment investments, (4) maintenance capital expenditures for Company-operated restaurants and (5) various other capital projects.

In addition to the capital expenditures noted above, the Company’s cash expenditures related to cloud computing arrangements (“CCA”) amounted to $30.2 million during 2022, primarily related to the Company’s ERP system implementation.

In 2023, we expect to spend approximately $25.0 million on CCA, primarily related to the Company’s human capital management system implementation.

See Note 1 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information related to our accounting policy for CCA.

In 2024, we expect that cash capital expenditures will amount to approximately $90.0 million to $100.0 million, principally relating to (1) technology investments, including consumer-facing digital technology, (2) the opening of new Company-operated restaurants and the reimaging of existing Company-operated restaurants, (3) land investments, (4) maintenance capital expenditures for Company-operated restaurants, (5) restaurant equipment investments and (6) various other capital projects.

In addition to the capital expenditures noted above, cash expenditures related to the Company’s build to suit development fund amounted to $8.0 million during 2023.

In 2024, we expect to spend approximately $35.0 million under the development fund to drive new restaurant growth.

Cloud Computing Arrangements

The Company’s cash expenditures related to cloud computing arrangements (“CCA”) amounted to $32.9 million during 2023, primarily related to the Company’s human capital management system implementation.

In 2024, we expect to spend approximately $25.0 million on CCA, primarily related to data platforms, ERP projects and investments associated with the

Company’s growth initiatives.

See Note 1 to the Consolidated Financial Statements contained in Item 8 herein for further information related to our accounting policy for CCA.

On March 15, 2023, June 15, 2023, September 15, 2023 and December 15, 2023, the Company paid quarterly cash dividends per share of $.25, aggregating $209.3 million.

On January 13, 2023, the Company announced a dividend of $.25 per share to be paid on March 15, 2023 to stockholders of record as of March 1, 2023.

If the Company pays regular quarterly cash dividends for the remainder of 2023 at the same rate as declared in the first quarter of 2023, the Company’s total cash requirement for dividends for all of 2023 would be approximately $212.6 million based on the number of shares of its common

stock outstanding at February 21, 2023.

On February 15, 2024, the Company announced a dividend of $.25 per share to be paid on March 15, 2024 to stockholders of record as of March 1, 2024.

If the Company pays regular quarterly cash dividends for the remainder of 2024 at the same rate as declared in the first quarter of 2024, the Company’s total cash requirement for dividends for all of 2024 would be approximately $205.0 million based on the number of shares of its common stock outstanding at February 16, 2024.

The Company currently intends to continue to declare and pay quarterly cash dividends;

1 unchanged sentence

Stock Repurchases

In February 2022, our Board of Directors authorized a repurchase program for up to $100.0 million of our common stock through February 28, 2023, when and if market conditions warranted and to the extent legally permissible (the “February 2022 Authorization”).

On April 1, 2022, the Company’s Board of Directors approved an increase of $150.0 million to the February 2022 Authorization, resulting in an aggregate authorization of $250.0 million that was set to expire on February 28, 2023.

During 2022, the Company repurchased 2.8 million shares under the February 2022 Authorization with an aggregate purchase price of $51.9 million, excluding commissions.

As of January 1, 2023, the Company had $198.1 million of availability remaining under the February 2022 Authorization.

In January 2023, our Board of Directors authorized a repurchase program for up to $500.0 million 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 February 2022 Authorization was canceled.

Subsequent to January 1, 2023 through February 21, 2023, the Company repurchased 0.6 million shares under the January 2023 Authorization with an aggregate purchase price of $12.9 million, excluding commissions.

In February 2020, our Board of Directors authorized a repurchase program for up to $100.0 million 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 $50.0 million, $70.0 million and $80.0 million, respectively, to the February 2020 Authorization, resulting in an aggregate authorization of $300.0 million 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.

Under the 2021 ASR Agreement, the Company paid the financial institution an initial purchase price of $125.0 million in cash and received an initial delivery of 4.9 million shares of common stock, representing an estimated 85% of the total shares expected to be delivered under the 2021 ASR Agreement.

In February 2022, the Company completed the 2021 ASR Agreement and received an additional 0.7 million shares of common stock.

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, 5.6 million 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.

In connection with the January 2023 Authorization, the remaining portion of the Company’s previously authorized $250.0 million repurchase program was canceled.

During 2023, the Company repurchased 9.1 million shares under the January 2023 Authorization with an aggregate purchase price of $190.0 million, of which $0.6 million was accrued as of December 31, 2023, and excluding excise tax of $1.7 million and commissions of $0.1 million.

As of December 31, 2023, the Company had $310.0 million of availability remaining under the January 2023 Authorization.

Long-Term Debt, Including Current Portion

As of January 1, 2023, the Company’s long-term debt obligations totaled $2,851.4 million, including $29.3 million payable within 12 months.

As of December 31, 2023, the Company’s long-term debt obligations totaled $2,762.1 million, including $29.3 million payable within 12 months.

In addition, the Company is party to a revolving financing facility of Series 2021-1 Variable Funding Senior Secured Notes, Class A-1 (the “Class A-1 Notes”), which allows for the drawing of up to $300.0 million 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 2023.

Subsequent to January 1, 2023, Wendy’s repurchased $25.0 million in principal of its 7% debentures at par value.

During the year ended December 31, 2023, Wendy’s repurchased $40.4 million in principal of its 7% debentures for $40.5 million and repurchased $29.2 million in principal of its Class A-2 senior secured notes for $24.9 million.

We may from time to time seek to repurchase additional portions of our outstanding long-term debt, including our 7% debentures and/or our senior secured notes, through open market purchases, privately negotiated transactions or otherwise.

In February 2023, our Board of Directors authorized additional debt repurchases of up to $50.0 million through February 28, 2024, resulting in total debt repurchases of up to $75.0 million in 2023.

Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

In December 2022, our Board of Directors authorized debt repurchases of up to $25.0 million (the “December 2022 Authorization”) and, in February 2023, our Board of Directors authorized additional debt repurchases of up to $50.0 million through February 29, 2024 (the “February 2023 Authorization”).

In addition, in October 2023, our Board of Directors approved an increase of $10.0 million to the February 2023 Authorization, which continues to expire in February 2024, resulting in total debt repurchases of up to $85.0 million.

As of December 31, 2023, the Company had completed the December 2022 Authorization and had $19.6 million remaining under the February 2023 Authorization.

Further repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Whether or not to repurchase any debt and the size and timing of any such repurchases will be determined at our discretion.

See Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information related to our long-term debt obligations and the timing of expected payments.

See Note 12 to the Consolidated Financial Statements contained in Item 8 herein for further information related to our long-term debt obligations and the timing of expected payments.

The Company operates restaurants that are located on sites owned by us and sites leased by us from third parties.

1 unchanged sentence

The Company also leases restaurant, office and transportation equipment.

As of January 1, 2023, the Company’s future minimum rental payments for non-cancelable leases were $2,159.5 million, including $148.5 million payable within 12 months.

See Note 20 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information related to our finance and operating lease obligations and the timing of expected payments.

As of December 31, 2023, the Company’s future minimum rental payments for non-cancelable leases were $2,037.0 million, including $149.1 million payable within 12 months.

See Note 19 to the Consolidated Financial Statements contained in Item 8 herein for further information related to our finance and operating lease obligations and the timing of expected payments.

Purchase Obligations

The Company’s purchase obligations include payment obligations to a third-party global IT consultant, purchase requirements under a beverage agreement and other obligations related primarily to marketing and information technology.

As of January 1, 2023, the Company’s purchase obligations were $252.9 million, including $117.4 million payable within 12 months.

The Company’s purchase obligations include purchase requirements under a beverage agreement and other obligations related primarily to information technology and marketing.

As of December 31, 2023, the Company’s purchase obligations were $202.3 million, including $88.4 million payable within 12 months.

Guarantees and Other Contingencies

8 unchanged sentences

General Inflation, Commodities and Changing Prices

Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during 2022, and we expect this to continue into 2023.

Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during 2023.

We expect inflationary pressures on labor to continue into 2024.

We attempt to manage any inflationary costs and commodity price increases through selective menu price increases and product mix.

Delays in implementing such menu price increases and competitive pressures may limit our ability to recover such cost increases in the future.

Inherent volatility experienced in certain commodity markets, such as those for beef, chicken, pork, cheese and grains, could have a significant effect on our results of operations and may have an adverse effect on us in the future.

Inherent volatility experienced in certain commodity markets, such as those for beef, chicken, eggs, pork, cheese and grains, could have a significant effect on our results of operations and may have an adverse effect on us in the future.

The extent of any impact will depend on our ability to manage such volatility through product mix and selective menu price increases.

5 unchanged sentences

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in applying our critical accounting policies that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated

financial statements and the reported amount of revenues and expenses during the reporting period.

Our estimates and assumptions affect, among other things, impairment of goodwill and indefinite-lived intangible assets, impairment of long-lived assets, realizability of deferred tax assets and federal and state income tax uncertainties.

2 unchanged sentences

• Impairment of goodwill and indefinite-lived intangible assets:

Our goodwill totaled $773.1 million as of January 1, 2023, of which $620.6 million, $30.0 million and $122.5 million was allocated to our U.S.

Our goodwill totaled $773.7 million as of December 31, 2023, of which $620.6 million, $30.6 million and $122.5 million was allocated to our U.S.

Company-operated and franchise restaurants reporting unit, Canada franchise restaurants reporting unit and global real estate and development operations reporting unit, respectively.

21 unchanged sentences

For the annual goodwill impairment test in the fourth quarter of 2023, we elected to perform a qualitative assessment for the U.S.

Company-operated and franchise restaurants and the Canada franchise restaurants, and we performed a quantitative goodwill impairment test for the global real estate and development operations.

Company-operated and franchise restaurants reporting unit and the Canada franchise restaurants reporting unit, and we performed a quantitative goodwill impairment test for the global real estate and development operations reporting unit.

The qualitative assessment indicated the fair value of our U.S.

Company-operated and franchise restaurants and our Canada franchise restaurants reporting units was more likely than not greater than the carrying amount.

Our quantitative goodwill impairment test for our global real estate and development operations indicated that there had been no impairment and the fair value of this reporting unit of approximately $1,400.0 million was approximately 21% in excess of its carrying value.

Our indefinite-lived intangible assets represent trademarks and totaled $903.0 million as of January 1, 2023.

Company-operated and franchise restaurants reporting unit and our Canada franchise restaurants reporting unit was more likely than not greater than the carrying amount.

Our quantitative goodwill impairment test for our global real estate and development operations reporting unit indicated that there had been no impairment and the fair value of this

reporting unit of approximately $1,300.0 million was approximately 9% in excess of its carrying value.

A 70 basis point increase in the discount rate or a 140 basis point decrease in the terminal value growth rate would have resulted in the fair value of the reporting unit being less than its carrying value.

Our indefinite-lived intangible assets represent trademarks and totaled $903.0 million as of December 31, 2023.

We test indefinite-lived intangible assets for impairment annually, or more frequently if events or changes in circumstances indicate that the assets may be impaired.

8 unchanged sentences

• Impairment of long-lived assets:

As of January 1, 2023, the total net carrying value of our long-lived tangible and definite-lived intangible assets was $2,230.6 million.

As of December 31, 2023, the total net carrying value of our long-lived tangible and definite-lived intangible assets was $2,141.8 million.

Our long-lived assets include (1) properties and related definite-lived intangible assets (e.g., favorable leases) that are leased and/or subleased to franchisees, (2) Company-operated restaurant assets and related definite-lived intangible assets, which include reacquired rights under franchise agreements, and (3) finance and operating lease assets.

18 unchanged sentences

Net operating loss and credit carryforwards are subject to various limitations and carryforward periods.

As of January 1, 2023, we have foreign tax credits of $18.2 million and state tax credits of $0.4 million.

The foreign tax credits begin to expire in 2027 and the state tax credits begin to expire in 2023.

In addition, as of January 1, 2023, we have deferred tax assets for foreign net operating loss carryforwards of $3.5 million and state and local net operating loss carryforwards of $35.9 million that will begin to expire in 2023.

As of December 31, 2023, we have foreign tax credits of $21.1 million that will begin to expire in 2027.

In addition, as of December 31, 2023, we have deferred tax assets for foreign net operating loss carryforwards of $2.9 million and state and local net operating loss carryforwards of $34.2 million that will begin to expire in 2024.

We believe it is more likely than not that the benefit from certain net operating loss carryforwards and tax credits will not be realized.

4 unchanged sentences

A tax position that meets the more-likely-than-not recognition threshold is then measured, for purposes of financial statement recognition, as the largest amount that has a greater than 50% likelihood of being realized upon effective settlement.

We have unrecognized tax benefits of $17.4 million, which if resolved favorably would reduce our tax expense by $13.7 million as of January 1, 2023.

We accrue interest related to uncertain tax positions in “Interest expense, net.” As of January 1, 2023, we had $0.9 million accrued for interest.

We have unrecognized tax benefits of $16.7 million, which if resolved favorably would reduce our tax expense by $13.2 million as of December 31, 2023.

We accrue interest related to uncertain tax positions in “Interest expense, net.” As of December 31, 2023, we had $1.0 million accrued for interest.

The Company participates in the Internal Revenue Service (the “IRS”) Compliance Assurance Process (“CAP”).

5 unchanged sentences

New Accounting Standards

See Note 1 of the Financial Statements and Supplementary Data contained in Item 8 herein for a summary of new or amended accounting standards applicable to us.

See Note 1 to the Consolidated Financial Statements contained in Item 8 herein for a summary of new or amended accounting standards applicable to us.

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-K

Item 7. Management’s Discussion and Analysis