Wendy's Co 10-Q

Item 1. Financial Statements. THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands Except Par Value) September 29, 2024 December 31, 2023 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 482,224 $ 516,037 Restricted cash 35,180 35,848 Accounts and notes receivable, net 111,413 121,683 Inventories 6,251 6,690 Prepaid expenses and other current assets 32,816 39,640 Advertising funds restricted assets 115,329 117,755 Total current assets 783,213 837,653 Properties 894,200 891,080 Finance lease assets 235,780 228,936 Operating lease assets 686,286 705,615 Goodwill 773,187 773,727 Other intangible assets 1,199,413 1,219,129 Investments 31,758 34,445 Net investment in sales-type and direct financing leases 285,711 313,664 Other assets 183,675 178,577 Total assets $ 5,073,223 $ 5,182,826 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 29,250 $ 29,250 Current portion of finance lease liabilities 21,952 20,250 Current portion of operating lease liabilities 50,578 49,353 Accounts payable 29,047 27,370 Accrued expenses and other current liabilities 128,734 135,149 Advertising funds restricted liabilities 113,511 120,558 Total current liabilities 373,072 381,930 Long-term debt 2,716,486 2,732,814 Long-term finance lease liabilities 567,242 568,767 Long-term operating lease liabilities 712,570 739,340 Deferred income taxes 270,089 270,353 Deferred franchise fees 89,300 90,132 Other liabilities 84,611 89,711 Total liabilities 4,813,370 4,873,047 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 203,089 and 205,397 shares outstanding, respectively 47,042 47,042 Additional paid-in capital 2,967,927 2,960,035 Retained earnings 403,259 409,863 Common stock held in treasury, at cost; 267,335 and 265,027 shares, respectively ( 3,097,785 ) ( 3,048,786 ) Accumulated other comprehensive loss ( 60,590 ) ( 58,375 ) Total stockholders’ equity 259,853 309,779 Total liabilities and stockholders’ equity $ 5,073,223 $ 5,182,826 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Amounts) Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 (Unaudited) Revenues: Sales $ 230,403 $ 234,721 $ 693,081 $ 703,358 Franchise royalty revenue and fees 153,868 149,345 458,038 444,070 Franchise rental income 59,314 57,567 177,938 173,407 Advertising funds revenue 123,154 108,922 343,162 320,092 566,739 550,555 1,672,219 1,640,927 Costs and expenses: Cost of sales 195,638 199,522 587,637 597,068 Franchise support and other costs 16,047 14,806 47,011 41,853 Franchise rental expense 32,237 31,876 96,405 94,901 Advertising funds expense 129,732 107,895 357,923 319,174 General and administrative 62,794 59,288 188,047 184,306 Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) 36,996 34,288 110,006 101,258 Amortization of cloud computing arrangements 3,576 3,844 10,637 7,692 System optimization gains, net ( 420 ) ( 120 ) ( 573 ) ( 119 ) Reorganization and realignment costs 354 611 8,479 8,100 Impairment of long-lived assets 178 59 2,873 513 Other operating income, net ( 5,068 ) ( 3,117 ) ( 11,564 ) ( 9,174 ) 472,064 448,952 1,396,881 1,345,572 Operating profit 94,675 101,603 275,338 295,355 Interest expense, net ( 31,270 ) ( 30,957 ) ( 92,800 ) ( 93,798 ) Loss on early extinguishment of debt — ( 319 ) — ( 1,585 ) Investment income (loss), net — — 11 ( 10,389 ) Other income, net 6,246 7,637 19,382 22,546 Income before income taxes 69,651 77,964 201,931 212,129 Provision for income taxes ( 19,427 ) ( 19,915 ) ( 55,071 ) ( 54,627 ) Net income $ 50,224 $ 58,049 $ 146,860 $ 157,502 Net income per share: Basic $ .25 $ .28 $ .72 $ .75 Diluted $ .25 $ .28 $ .71 $ .74 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 (Unaudited) Net income $ 50,224 $ 58,049 $ 146,860 $ 157,502 Other comprehensive income (loss): Foreign currency translation adjustment 4,382 ( 4,533 ) ( 2,215 ) 574 Other comprehensive income (loss) 4,382 ( 4,533 ) ( 2,215 ) 574 Comprehensive income $ 54,606 $ 53,516 $ 144,645 $ 158,076 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In Thousands) Common Stock Additional Paid-In Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total (Unaudited) Balance at December 31, 2023 $ 47,042 $ 2,960,035 $ 409,863 $ ( 3,048,786 ) $ ( 58,375 ) $ 309,779 Net income — — 41,993 — — 41,993 Other comprehensive loss — — — — ( 4,586 ) ( 4,586 ) Cash dividends — — ( 51,374 ) — — ( 51,374 ) Repurchases of common stock — — — ( 7,216 ) — ( 7,216 ) Share-based compensation — 5,853 — — — 5,853 Common stock issued upon exercises of stock options — 179 — 1,036 — 1,215 Common stock issued upon vesting of restricted shares — ( 3,855 ) — 1,778 — ( 2,077 ) Other — 29 ( 17 ) 55 — 67 Balance at March 31, 2024 $ 47,042 $ 2,962,241 $ 400,465 $ ( 3,053,133 ) $ ( 62,961 ) $ 293,654 Net income — — 54,643 — — 54,643 Other comprehensive loss — — — — ( 2,011 ) ( 2,011 ) Cash dividends — — ( 51,252 ) — — ( 51,252 ) Repurchases of common stock — — — ( 27,493 ) — ( 27,493 ) Share-based compensation — 5,824 — — — 5,824 Common stock issued upon exercises of stock options — ( 134 ) — 874 — 740 Common stock issued upon vesting of restricted shares — ( 3,484 ) — 3,058 — ( 426 ) Other — 32 ( 20 ) 62 — 74 Balance at June 30, 2024 $ 47,042 $ 2,964,479 $ 403,836 $ ( 3,076,632 ) $ ( 64,972 ) $ 273,753 Net income — — 50,224 — — 50,224 Other comprehensive income — — — — 4,382 4,382 Cash dividends — — ( 50,785 ) — — ( 50,785 ) Repurchases of common stock — — — ( 25,418 ) — ( 25,418 ) Share-based compensation — 6,814 — — — 6,814 Common stock issued upon exercises of stock options — 258 — 2,133 — 2,391 Common stock issued upon vesting of restricted shares — ( 3,654 ) — 2,069 — ( 1,585 ) Other — 30 ( 16 ) 63 — 77 Balance at September 29, 2024 $ 47,042 $ 2,967,927 $ 403,259 $ ( 3,097,785 ) $ ( 60,590 ) $ 259,853 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED (In Thousands) Common Stock Additional Paid-In Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total (Unaudited) Balance at January 1, 2023 $ 47,042 $ 2,937,885 $ 414,749 $ ( 2,869,780 ) $ ( 64,176 ) $ 465,720 Net income — — 39,821 — — 39,821 Other comprehensive income — — — — 158 158 Cash dividends — — ( 53,103 ) — — ( 53,103 ) Repurchases of common stock — — — ( 38,810 ) — ( 38,810 ) Share-based compensation — 4,609 — — — 4,609 Common stock issued upon exercises of stock options — 808 — 1,808 — 2,616 Common stock issued upon vesting of restricted shares — ( 2,222 ) — 678 — ( 1,544 ) Other — 58 ( 22 ) 54 — 90 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 Net income — — 58,049 — — 58,049 Other comprehensive loss — — — — ( 4,533 ) ( 4,533 ) Cash dividends — — ( 52,156 ) — — ( 52,156 ) Repurchases of common stock — — — ( 56,714 ) — ( 56,714 ) Share-based compensation — 6,551 — — — 6,551 Common stock issued upon exercises of stock options — 210 — 894 — 1,104 Common stock issued upon vesting of restricted shares — ( 1,658 ) — 702 — ( 956 ) Other — 59 ( 18 ) 63 — 104 Balance at October 1, 2023 $ 47,042 $ 2,950,916 $ 414,324 $ ( 3,006,116 ) $ ( 63,602 ) $ 342,564 See accompanying notes to condensed consolidated financial statements. 8 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Nine Months Ended September 29, 2024 October 1, 2023 (Unaudited) Cash flows from operating activities: Net income $ 146,860 $ 157,502 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) 110,006 101,258 Amortization of cloud computing arrangements 10,637 7,692 Share-based compensation 18,491 16,769 Impairment of long-lived assets 2,873 513 Deferred income tax ( 465 ) ( 502 ) Non-cash rental expense, net 31,973 30,724 Change in operating lease liabilities ( 36,461 ) ( 35,319 ) Net receipt of deferred vendor incentives 1,449 4,007 System optimization (gains), net ( 573 ) ( 119 ) Distributions received from joint ventures, net of equity in earnings 2,055 1,349 Long-term debt-related activities, net 5,609 7,310 Cloud computing arrangements expenditures ( 10,583 ) ( 25,154 ) Changes in operating assets and liabilities and other, net 4,810 3,495 Net cash provided by operating activities 286,681 269,525 Cash flows from investing activities: Capital expenditures ( 52,361 ) ( 55,689 ) Franchise development fund ( 21,040 ) ( 1,947 ) Dispositions 3,222 280 Notes receivable, net 1,383 1,825 Net cash used in investing activities ( 68,796 ) ( 55,531 ) Cash flows from financing activities: Repayments of long-term debt ( 21,937 ) ( 61,280 ) Repayments of finance lease liabilities ( 15,421 ) ( 16,947 ) Repurchases of common stock ( 60,056 ) ( 142,413 ) Dividends ( 153,411 ) ( 157,871 ) Proceeds from stock option exercises 4,651 9,113 Payments related to tax withholding for share-based compensation ( 4,395 ) ( 3,827 ) Net cash used in financing activities ( 250,569 ) ( 373,225 ) Net cash used in operations before effect of exchange rate changes on cash ( 32,684 ) ( 159,231 ) Effect of exchange rate changes on cash ( 1,603 ) 307 Net decrease in cash, cash equivalents and restricted cash ( 34,287 ) ( 158,924 ) Cash, cash equivalents and restricted cash at beginning of period 588,816 831,801 Cash, cash equivalents and restricted cash at end of period $ 554,529 $ 672,877 See accompanying notes to condensed consolidated financial statements. 9 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (1) Basis of Presentation 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 September 29, 2024, the results of our operations for the three and nine months ended September 29, 2024 and October 1, 2023 and cash flows for the nine months ended September 29, 2024 and October 1, 2023. The results of operations for the nine months ended September 29, 2024 are not necessarily indicative of the results to be expected for the full 2024 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 December 31, 2023 (the “Form 10-K”). The principal 100% owned subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). The Company manages and internally reports its business in the following segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. See Note 16 for further information. We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to or on December 31. All three- and nine-month periods presented herein contain 13 weeks and 39 weeks, respectively. All references to years, quarters and months relate to fiscal periods rather than calendar periods. Our significant interim accounting policies include the recognition of advertising funds expense in proportion to advertising funds revenue. (2) Revenue Disaggregation of Revenue The following tables disaggregate revenue by segment and source: Wendy’s U.S. Wendy’s International Global Real Estate & Development Total Three Months Ended September 29, 2024 Sales at Company-operated restaurants $ 222,745 $ 7,658 $ — $ 230,403 Franchise royalty revenue 114,379 18,222 — 132,601 Franchise fees 17,859 2,306 1,102 21,267 Franchise rental income — — 59,314 59,314 Advertising funds revenue 113,742 9,412 — 123,154 Total revenues $ 468,725 $ 37,598 $ 60,416 $ 566,739 Three Months Ended October 1, 2023 Sales at Company-operated restaurants $ 227,674 $ 7,047 $ — $ 234,721 Franchise royalty revenue 112,698 17,390 — 130,088 Franchise fees 17,079 1,597 581 19,257 Franchise rental income — — 57,567 57,567 Advertising funds revenue 99,789 9,133 — 108,922 Total revenues $ 457,240 $ 35,167 $ 58,148 $ 550,555 10 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Wendy’s U.S. Wendy’s International Global Real Estate & Development Total Nine Months Ended September 29, 2024 Sales at Company-operated restaurants $ 673,364 $ 19,717 $ — $ 693,081 Franchise royalty revenue 341,229 53,370 — 394,599 Franchise fees 53,511 6,584 3,344 63,439 Franchise rental income — — 177,938 177,938 Advertising funds revenue 316,059 27,103 — 343,162 Total revenues $ 1,384,163 $ 106,774 $ 181,282 $ 1,672,219 Nine Months Ended October 1, 2023 Sales at Company-operated restaurants $ 685,168 $ 18,190 $ — $ 703,358 Franchise royalty revenue 333,958 50,408 — 384,366 Franchise fees 51,812 4,515 3,377 59,704 Franchise rental income — — 173,407 173,407 Advertising funds revenue 296,043 24,049 — 320,092 Total revenues $ 1,366,981 $ 97,162 $ 176,784 $ 1,640,927 Contract Balances The following table provides information about receivables and contract liabilities (deferred franchise fees) from contracts with customers: September 29, 2024 (a) December 31, 2023 (a) Receivables, which are included in “Accounts and notes receivable, net” (b) $ 54,814 $ 55,293 Receivables, which are included in “Advertising funds restricted assets” 68,354 76,838 Deferred franchise fees (c) 100,754 100,805 _______________ (a) Excludes funds collected from the sale of gift cards, which are primarily reimbursed to franchisees upon redemption at franchised restaurants and do not ultimately result in the recognition of revenue in the Company’s condensed consolidated statements of operations. (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 $ 11,454 and $ 89,300 , respectively, as of September 29, 2024, and $ 10,673 and $ 90,132 , respectively, as of December 31, 2023. Significant changes in deferred franchise fees are as follows: Nine Months Ended September 29, 2024 October 1, 2023 Deferred franchise fees at beginning of period $ 100,805 $ 99,208 Revenue recognized during the period ( 8,873 ) ( 9,016 ) New deferrals due to cash received and other 8,822 9,697 Deferred franchise fees at end of period $ 100,754 $ 99,889 11 Table of Contents 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 The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period: Estimate for fiscal year: 2024 (a) $ 6,427 2025 6,685 2026 6,546 2027 6,439 2028 6,320 Thereafter 68,337 $ 100,754 _______________ (a) Represents franchise fees expected to be recognized for the remainder of 2024, which includes development-related franchise fees expected to be recognized over a duration of one year or less. (3) System Optimization 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”). As of September 29, 2024, Company-operated restaurant ownership was approximately 5 % of the total system. While the Company has no plans to move its ownership away from approximately 5 % of the total system, the Company expects to continue to optimize the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, drive new restaurant development and accelerate reimages. During the nine months ended September 29, 2024 and October 1, 2023, the Company facilitated 14 and 88 Franchise Flips, respectively. Additionally, during the nine months ended September 29, 2024, the Company completed the sale of one Company-operated restaurant to a franchisee. No Company-operated restaurants were sold to or purchased from franchisees during the nine months ended October 1, 2023. Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our condensed consolidated statements of operations. Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs,” which are further described in Note 4. All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.” 12 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) The following is a summary of the disposition activity recorded as a result of our system optimization initiative: Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Number of restaurants sold to franchisees 1 — 1 — Proceeds from sales of restaurants $ 834 $ — $ 834 $ — Net assets sold (a) ( 725 ) — ( 725 ) — Other 6 — 6 — 115 — 115 — Post-closing adjustments on sales of restaurants (b) 440 537 694 537 Gain on sales of restaurants, net 555 537 809 537 Loss on sales of other assets, net (c) ( 135 ) ( 417 ) ( 236 ) ( 418 ) System optimization gains, net $ 420 $ 120 $ 573 $ 119 _______________ (a) Net assets sold consisted primarily of land. (b) 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. (c) During the three and nine months ended September 29, 2024, the Company received net cash proceeds of $ 1,787 and $ 2,388 , respectively, primarily from the sale of surplus and other properties. During the nine months ended October 1, 2023, the Company received net cash proceeds of $ 280 primarily from the sale of surplus and other properties . Assets Held for Sale As of September 29, 2024 and December 31, 2023, the Company had assets held for sale of $ 2,517 and $ 2,689 , respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.” (4) Reorganization and Realignment Costs The following is a summary of the initiatives included in “Reorganization and realignment costs:” Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Organizational redesign $ 296 $ 579 $ 8,327 $ 7,986 Other reorganization and realignment plans 58 32 152 114 Reorganization and realignment costs $ 354 $ 611 $ 8,479 $ 8,100 13 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Organizational Redesign In February 2023, the Board of Directors approved a plan to redesign the Company’s organizational structure to better support the execution of the Company’s long-term growth strategy by maximizing organizational efficiency and streamlining decision making (the “Organizational Redesign Plan”). As a result of the Organizational Redesign Plan, the Company 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. Mr. Tanner succeeded Todd A. Penegor, the Company’s previous President and Chief Executive Officer, who departed from the Company in February 2024. The Company expects to incur total costs of approximately $ 18,000 related to the Organizational Redesign Plan, including costs related to the succession of the President and Chief Executive Officer role. During the nine months ended September 29, 2024 and October 1, 2023, the Company recognized costs totaling $ 8,327 and $ 7,986 , respectively, which primarily included severance and related employee costs. The Company expects to incur additional costs aggregating approximately $ 800 , comprised primarily of share-based compensation. The Company expects costs related to the Organizational Redesign Plan to continue into 2026. The following is a summary of the costs recorded as a result of the Organizational Redesign Plan: Three Months Ended Nine Months Ended Total Incurred Since Inception September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Severance and related employee costs $ 12 $ 114 $ 7,322 $ 5,674 $ 13,565 Recruitment and relocation costs 75 140 157 304 711 Third-party and other costs 57 173 120 904 1,117 144 427 7,599 6,882 15,393 Share-based compensation (a) 152 152 728 1,104 1,998 Total organizational redesign $ 296 $ 579 $ 8,327 $ 7,986 $ 17,391 _______________ (a) Primarily represents the accelerated recognition of share-based compensation resulting from the termination of employees under the Organizational Redesign Plan. As of September 29, 2024, the accruals for the Organizational Redesign Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 4,210 and $ 1,215 , respectively. The tables below present a rollforward of our accruals for the Organizational Redesign Plan. Balance December 31, 2023 Charges Payments Balance September 29, 2024 Severance and related employee costs $ 1,692 $ 7,322 $ ( 3,589 ) $ 5,425 Recruitment and relocation costs — 157 ( 157 ) — Third-party and other costs — 120 ( 120 ) — $ 1,692 $ 7,599 $ ( 3,866 ) $ 5,425 Balance January 1, 2023 Charges Payments Balance October 1, 2023 Severance and related employee costs $ — $ 5,674 $ ( 3,524 ) $ 2,150 Recruitment and relocation costs — 304 ( 304 ) — Third-party and other costs — 904 ( 904 ) — $ — $ 6,882 $ ( 4,732 ) $ 2,150 14 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Other Reorganization and Realignment Plans Costs incurred under the Company’s other reorganization and realignment plans were not material during the nine months ended September 29, 2024 and October 1, 2023. The Company does not expect to incur any material additional costs under these plans. (5) Investments The following is a summary of the carrying value of our investments: September 29, 2024 December 31, 2023 Equity method investment $ 30,040 $ 32,727 Other investments in equity securities 1,718 1,718 $ 31,758 $ 34,445 Equity Method Investment 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.). 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.” Presented below is activity related to our investment in TimWen included in our condensed consolidated financial statements: Nine Months Ended September 29, 2024 October 1, 2023 Balance at beginning of period $ 32,727 $ 33,921 Equity in earnings for the period 10,493 10,012 Amortization of purchase price adjustments (a) ( 1,870 ) ( 2,051 ) 8,623 7,961 Distributions received ( 10,678 ) ( 9,310 ) Foreign currency translation adjustment included in “Other comprehensive income (loss)” ( 632 ) 151 Balance at end of period $ 30,040 $ 32,723 _______________ (a) Purchase price adjustments that impacted the carrying value of the Company’s investment in TimWen are being amortized over the average original aggregate life of 21 years. Other Investments in Equity Securities During the nine months ended October 1, 2023, the Company recorded impairment charges of $ 10,389 for the difference between the estimated fair value and the carrying value of an investment in equity securities. 15 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (6) Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. These inputs are classified into the following hierarchy: • Level 1 Inputs - Quoted prices for identical assets or liabilities in active markets. • Level 2 Inputs - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. • Level 3 Inputs - Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation. Financial Instruments The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments: September 29, 2024 December 31, 2023 Carrying Amount Fair Value Carrying Amount Fair Value Fair Value Measurements Financial assets Cash equivalents $ 333,761 $ 333,761 $ 365,901 $ 365,901 Level 1 Other investments in equity securities (a) 1,718 1,718 1,718 1,718 Level 2 Financial liabilities (b) Series 2022-1 Class A-2-I Notes 97,750 95,635 98,500 92,289 Level 2 Series 2022-1 Class A-2-II Notes 387,134 367,777 390,134 370,577 Level 2 Series 2021-1 Class A-2-I Notes 419,894 379,609 423,269 362,572 Level 2 Series 2021-1 Class A-2-II Notes 628,655 553,411 633,530 530,581 Level 2 Series 2019-1 Class A-2-I Notes 354,673 348,204 357,673 341,606 Level 2 Series 2019-1 Class A-2-II Notes 399,748 388,131 403,123 374,058 Level 2 Series 2018-1 Class A-2-II Notes 437,537 425,767 441,099 412,754 Level 2 7 % debentures, due in 2025 48,744 49,586 48,237 49,431 Level 2 _______________ (a) The fair value of our other investments in equity securities is based on our review of information provided by the investment manager, which is based on observable price changes in orderly transactions for a similar investment of the same issuer. (b) The fair values were based on quoted market prices in markets that are not considered active markets. The carrying amounts of cash, accounts payable and accrued expenses approximate fair value due to the short-term nature of those items. The carrying amounts of accounts and notes receivable, net (both current and non-current) approximate fair value due to the effect of the related allowance for doubtful accounts. Our cash equivalents are the only financial assets measured and recorded at fair value on a recurring basis. 16 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Non-Recurring Fair Value Measurements Assets and liabilities remeasured to fair value on a non-recurring basis resulted in impairment that we have recorded to “Impairment of long-lived assets” in our condensed consolidated statements of operations. Total impairment losses may reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements, favorable lease assets and right-of-use assets) to fair value as a result of (1) the deterioration in operating performance of certain Company-operated restaurants and (2) the Company’s decision to lease and/or sublease the land and/or buildings to franchisees in connection with the sale or anticipated sale of restaurants, including any subsequent lease modifications. 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. Total impairment losses may also include the impact of remeasuring long-lived assets held for sale. The fair values of long-lived assets held for sale presented in the tables below represent the remaining carrying value and were estimated based on current market values. See Note 7 for further information on impairment of our long-lived assets. Fair Value Measurements September 29, 2024 Level 1 Level 2 Level 3 Held and used $ 2,372 $ — $ — $ 2,372 Held for sale 2,241 — — 2,241 Total $ 4,613 $ — $ — $ 4,613 Fair Value Measurements December 31, 2023 Level 1 Level 2 Level 3 Held and used $ 1,212 $ — $ — $ 1,212 Held for sale 1,044 — — 1,044 Total $ 2,256 $ — $ — $ 2,256 (7) Impairment of Long-Lived Assets The Company records impairment charges as a result of (1) the deterioration in operating performance of certain Company-operated restaurants, (2) the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of Company-operated restaurants, including any subsequent lease modifications and (3) classifying surplus properties as held for sale. The following is a summary of impairment losses recorded, which represent the excess of the carrying amount over the fair value of the affected assets and are included in “Impairment of long-lived assets:” Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Company-operated restaurants $ — $ — $ 2,418 $ 428 Surplus properties 178 59 455 85 $ 178 $ 59 $ 2,873 $ 513 17 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (8) Income Taxes The Company’s effective tax rate for the three months ended September 29, 2024 and October 1, 2023 was 27.9 % and 25.5 %, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21 % for the three months ended September 29, 2024 primarily due to state income taxes and the tax effects of our foreign operations. The Company’s effective tax rate for the nine months ended September 29, 2024 and October 1, 2023 was 27.3 % and 25.8 %, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21 % for the nine months ended September 29, 2024 primarily due to state income taxes and the tax effects of our foreign operations. There were no significant changes to the unrecognized tax benefits or related interest and penalties for the three and nine months ended September 29, 2024. During the next twelve months, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $ 220 due to lapses of statutes of limitations. The current portion of refundable income taxes was $ 9,307 and $ 5,284 as of September 29, 2024 and December 31, 2023, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of September 29, 2024 or December 31, 2023. (9) Net Income Per Share The calculation of basic and diluted net income per share was as follows: Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Net income $ 50,224 $ 58,049 $ 146,860 $ 157,502 Common stock: Weighted average basic shares outstanding 203,264 208,834 204,518 210,668 Dilutive effect of stock options and restricted shares 990 1,768 1,285 2,185 Weighted average diluted shares outstanding 204,254 210,602 205,803 212,853 Net income per share: Basic $ .25 $ .28 $ .72 $ .75 Diluted $ .25 $ .28 $ .71 $ .74 Basic net income per share for the three and nine months ended September 29, 2024 and October 1, 2023 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 8,605 and 7,667 for the three and nine months ended September 29, 2024, respectively, and 5,204 and 4,719 for the three and nine months ended October 1, 2023, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects. (10) Stockholders’ Equity Dividends During each of the first, second, and third quarters of 2024 and 2023, the Company paid dividends per share of $ .25 . 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 18 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Authorization”). During the nine months ended September 29, 2024, the Company repurchased 3,447 shares under the January 2023 Authorization with an aggregate purchase price of $ 59,637 , of which $ 203 was accrued as of September 29, 2024, and excluding excise tax of $ 441 and commissions of $ 49 . As of September 29, 2024, the Company had $ 250,363 of availability remaining under the January 2023 Authorization. Subsequent to September 29, 2024 through October 24, 2024, the Company repurchased 150 shares under the January 2023 Authorization with an aggregate purchase price of $ 2,679 , excluding applicable excise tax and commissions. During the nine months ended October 1, 2023, the Company repurchased 6,730 shares under the January 2023 Authorization with an aggregate purchase price of $ 144,320 , of which $ 2,001 was accrued as of October 1, 2023, and excluding excise tax of $ 1,293 and commissions of $ 94 . Accumulated Other Comprehensive Loss The following table provides a rollforward of accumulated other comprehensive loss, which is entirely comprised of foreign currency translation: Nine Months Ended September 29, 2024 October 1, 2023 Balance at beginning of period $ ( 58,375 ) $ ( 64,176 ) Foreign currency translation ( 2,215 ) 574 Balance at end of period $ ( 60,590 ) $ ( 63,602 ) (11) Leases Nature of Leases The Company operates restaurants that are located on sites owned by us and sites leased by us from third parties. In addition, the Company owns sites and leases sites from third parties, which it leases and/or subleases to franchisees. The Company also leases restaurant, office and transportation equipment. As of September 29, 2024, the nature of restaurants operated by the Company and its franchisees was as follows: September 29, 2024 Company-operated restaurants: Owned land and building 154 Owned building and held long-term land leases 145 Leased land and building 112 Total Company-operated restaurants 411 Franchisee-operated restaurants: Company-owned properties leased to franchisees 492 Company-leased properties subleased to franchisees 1,161 Other franchisee-operated restaurants 5,228 Total franchisee-operated restaurants 6,881 Total Company-operated and franchisee-operated restaurants 7,292 19 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Company as Lessee The components of lease cost are as follows: Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Finance lease cost: Amortization of finance lease assets $ 4,779 $ 4,111 $ 13,448 $ 12,232 Interest on finance lease liabilities 10,921 10,664 32,278 32,157 15,700 14,775 45,726 44,389 Operating lease cost 21,496 21,577 64,721 64,455 Variable lease cost (a) 17,087 16,889 50,940 50,489 Short-term lease cost 1,478 1,466 4,098 4,433 Total operating lease cost (b) 40,061 39,932 119,759 119,377 Total lease cost $ 55,761 $ 54,707 $ 165,485 $ 163,766 _______________ (a) Includes expenses for executory costs of $ 10,108 and $ 9,777 for the three months ended September 29, 2024 and October 1, 2023, respectively, and $ 30,362 and $ 29,797 for the nine months ended September 29, 2024 and October 1, 2023, respectively, for which the Company is reimbursed by sublessees. (b) Includes $ 32,197 and $ 31,824 for the three months ended September 29, 2024 and October 1, 2023, respectively, and $ 96,270 and $ 94,751 for the nine months ended September 29, 2024 and October 1, 2023, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees. Also includes $ 7,299 and $ 7,570 for the three months ended September 29, 2024 and October 1, 2023, respectively, and $ 22,089 and $ 22,981 for the nine months ended September 29, 2024 and October 1, 2023, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants. Company as Lessor The components of lease income are as follows: Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Sales-type and direct-financing leases: Selling profit $ 67 $ 354 $ 139 $ 1,555 Interest income (a) 7,110 7,853 22,007 23,583 Operating lease income 41,882 40,567 126,329 123,352 Variable lease income 17,432 17,000 51,609 50,055 Franchise rental income (b) $ 59,314 $ 57,567 $ 177,938 $ 173,407 _______________ (a) Included in “Interest expense, net.” (b) Includes sublease income of $ 43,698 and $ 42,545 recognized during the three months ended September 29, 2024 and October 1, 2023, respectively, and $ 131,530 and $ 128,457 recognized during the nine months ended September 29, 2024 and October 1, 2023, respectively. Sublease income includes lessees’ variable payments to the Company for executory costs of $ 10,112 and $ 9,811 for the three months ended September 29, 2024 and October 1, 2023, 20 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) respectively, and $ 30,356 and $ 29,704 for the nine months ended September 29, 2024 and October 1, 2023, respectively. (12) Supplemental Cash Flow Information The following table includes supplemental non-cash investing and financing activities: Nine Months Ended September 29, 2024 October 1, 2023 Supplemental non-cash investing and financing activities: Capital expenditures included in accounts payable $ 10,734 $ 10,856 Finance leases 21,531 13,436 The following table includes a reconciliation of cash, cash equivalents and restricted cash: September 29, 2024 December 31, 2023 Reconciliation of cash, cash equivalents and restricted cash at end of period: Cash and cash equivalents $ 482,224 $ 516,037 Restricted cash 35,180 35,848 Restricted cash, included in Advertising funds restricted assets 37,125 36,931 Total cash, cash equivalents and restricted cash $ 554,529 $ 588,816 (13) Transactions with Related Parties Except as described below, the Company did not have any significant changes in or transactions with its related parties during the current fiscal period since those reported in the Form 10-K. TimWen Lease and Management Fee Payments 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 $ 16,065 and $ 15,713 under these lease agreements during the nine months ended September 29, 2024 and October 1, 2023, respectively, which is recorded to “Franchise rental expense.” In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 179 and $ 181 during the nine months ended September 29, 2024 and October 1, 2023, respectively, which is included as a reduction to “General and administrative.” Transactions with QSCC Wendy’s has a purchasing co-op relationship structure with its franchisees that establishes Quality Supply Chain Co-op, Inc. (“QSCC”). QSCC manages, for the Wendy’s system in the U.S. and Canada, contracts for the purchase and distribution of food, proprietary paper, operating supplies and equipment under national agreements with pricing based upon total system volume. QSCC’s supply chain management facilitates continuity of supply and provides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s supply chain in the U.S. and Canada. 21 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Wendy’s and its franchisees pay sourcing fees to third-party vendors on certain products sourced by QSCC. Such sourcing fees are remitted by these vendors to QSCC and are the primary means of funding QSCC’s operations. In addition, QSCC collects certain rebates, price variance and other recoveries, technology fees, convention fees and other funding from third-party vendors as part of the administration and management of the Wendy’s supply chain in the U.S. and Canada. Should QSCC’s sourcing fees exceed its expected needs, QSCC’s board of directors may return some or all of the excess to its members in the form of a patronage dividend. Wendy’s recorded its share of patronage dividends of $ 3,493 during the nine months ended September 29, 2024, of which $ 2,909 is included in “Other operating income, net” and $ 584 is included as a reduction of “Cost of sales.” Wendy’s recorded its share of patronage dividends of $ 363 during the nine months ended October 1, 2023, all of which is included as a reduction of “Cost of sales.” Transactions with Yellow Cab Certain family members and/or affiliates of Mr. Nelson Peltz, our former Chairman, Mr. Peter May, our Senior Vice Chairman, and Mr. Matthew Peltz, our Vice Chairman, hold minority ownership interests in Yellow Cab Holdings, LLC (“Yellow Cab”), a Wendy’s franchisee, that as of September 29, 2024 owns and operates 87 Wendy’s restaurants, and/or certain of the operating companies managed by Yellow Cab. During the nine months ended September 29, 2024 and October 1, 2023, the Company recognized $ 11,397 and $ 11,143 , respectively, in royalty, advertising fund, lease and other income from Yellow Cab and related entities. In all transactions involving Yellow Cab, the Company’s standard franchisee recruiting and approval processes were followed, no modifications were made to the Company’s standard franchise agreements or related documents, and all deal terms and transaction documents were negotiated and executed on an arm’s-length basis, consistent with the Company’s comparable franchise transactions and relationships. As of September 29, 2024 and December 31, 2023, $ 1,099 and $ 1,153 , respectively, was due from Yellow Cab for such income, which is included in “Accounts and notes receivable, net” and “Advertising funds restricted assets.” Transactions with AMC In February 2023, Ms. Kristin Dolan, a director of the Company, was appointed as the Chief Executive Officer of AMC Networks Inc. (“AMC”). During the nine months ended September 29, 2024 and October 1, 2023, the Company purchased approximately $ 1,600 and $ 1,800 , respectively, of advertising time from a subsidiary of AMC. The Company’s advertising spend with AMC was made in the ordinary course of business and approved on an arm’s-length basis, consistent with the Company’s comparable advertising decisions. As of December 31, 2023, approximately $ 584 was due to AMC for such advertising time, which is included in “Advertising funds restricted liabilities.” There were no amounts due to AMC as of September 29, 2024. (14) Guarantees and Other Commitments and Contingencies Except as described below, the Company did not have any significant changes in guarantees and other commitments and contingencies during the current fiscal period since those reported in the Form 10-K. Refer to the Form 10-K for further information regarding the Company’s additional commitments and obligations. Franchisee Incentive Programs To promote new restaurant development, Wendy’s has provided franchisees with certain incentive programs for qualifying new restaurants. In July and September 2024, Wendy’s announced a new development incentive structure in the U.S. and Canada and select international markets, respectively, that provides for reductions in royalty and national advertising fees for qualifying new restaurants for two, three or four years of operation based on the number of restaurants committed to under the development agreement. 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 $ 86,450 as of September 29, 2024. These leases extend through 2045. We have had no judgments against us as guarantor of these leases as of September 29, 2024. In the event of default by a franchise owner where Wendy’s is called upon to perform under its guarantee, Wendy’s has the ability to pursue repayment from the franchise owner. The liability recorded for our probable exposure associated with these lease guarantees was not material as of September 29, 2024. 22 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Letters of Credit As of September 29, 2024, the Company had outstanding letters of credit with various parties totaling $ 28,673 . Substantially all of the outstanding letters of credit include amounts outstanding against the 2021-1 Variable Funding Senior Secured Notes, Class A-1. We do not expect any material loss to result from these letters of credit. Purchase and Capital Commitments The Company has material purchase requirements under a marketing agreement with two national broadcasters and a beverage agreement with a vendor. In August 2024, the Company amended its contract with the beverage vendor, which now expires upon reaching a threshold usage requirement or, if certain undertakings are not fulfilled, at the later of reaching a threshold usage requirement or December 31, 2034. Our total purchase requirements under the marketing agreement and the amended beverage agreement are estimated to be approximately $ 107,500 over the remaining life of the contracts. (15) Legal and Environmental Matters The Company is involved in litigation and claims incidental to our business. We provide accruals for such litigation and claims when we determine it is probable that a liability has been incurred and the loss is reasonably estimable. The Company believes it has adequate accruals for all of our legal and environmental matters. We cannot estimate the aggregate possible range of loss for our existing litigation and claims due to various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period. (16) Segment Information Revenues by segment are as follows: Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Wendy’s U.S. $ 468,725 $ 457,240 $ 1,384,163 $ 1,366,981 Wendy’s International 37,598 35,167 106,774 97,162 Global Real Estate & Development 60,416 58,148 181,282 176,784 Total revenues $ 566,739 $ 550,555 $ 1,672,219 $ 1,640,927 23 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) The following table reconciles profit by segment to the Company’s consolidated income before income taxes: Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Wendy’s U.S. (a) $ 129,790 $ 134,887 $ 392,323 $ 403,064 Wendy’s International (b) 11,046 10,831 32,411 26,808 Global Real Estate & Development 27,237 24,418 79,480 76,020 Total segment profit 168,073 170,136 $ 504,214 $ 505,892 Unallocated franchise support and other costs ( 900 ) ( 29 ) ( 1,117 ) ( 6 ) Advertising funds deficit 190 1,088 651 3,509 Unallocated general and administrative (c) ( 32,443 ) ( 30,962 ) ( 98,289 ) ( 96,776 ) Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) ( 36,996 ) ( 34,288 ) ( 110,006 ) ( 101,258 ) Amortization of cloud computing arrangements ( 3,576 ) ( 3,844 ) ( 10,637 ) ( 7,692 ) System optimization gains, net 420 120 573 119 Reorganization and realignment costs ( 354 ) ( 611 ) ( 8,479 ) ( 8,100 ) Impairment of long-lived assets ( 178 ) ( 59 ) ( 2,873 ) ( 513 ) Unallocated other operating income, net 439 52 1,301 180 Interest expense, net ( 31,270 ) ( 30,957 ) ( 92,800 ) ( 93,798 ) Loss on early extinguishment of debt — ( 319 ) — ( 1,585 ) Investment income (loss), net — — 11 ( 10,389 ) Other income, net 6,246 7,637 19,382 22,546 Income before income taxes $ 69,651 $ 77,964 $ 201,931 $ 212,129 _______________ (a) Wendy’s U.S. includes advertising funds expense of $ 5,977 and $ 13,386 for the three and nine months ended September 29, 2024 related to the Company’s funding of incremental advertising. (b) Wendy’s International includes advertising funds expense of $ 622 and $ 1,387 for the three and nine months ended September 29, 2024, respectively, and $ 596 and $ 1,802 for the three and nine months ended October 1, 2023, respectively, related to the Company’s funding of incremental advertising in Canada. In addition, Wendy’s International includes other international-related advertising (deficit) surplus of $( 170 ) and $( 640 ) for the three and nine months ended September 29, 2024, respectively, and $ 535 and $( 789 ) for the three and nine months ended October 1, 2023, respectively. (c) Includes corporate overhead costs, such as employee compensation and related benefits. (17) New Accounting Standards New Accounting Standard Adopted Common-Control Lease Arrangements 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. The Company adopted this amendment during the first quarter of 2024. The adoption of this amendment did not have a material impact on our condensed consolidated financial statements. 24