# Wendy's Co (WEN) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Wendy's Co's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/30697/000003069724000004/wen-20231231.htm
Accession: 0000030697-24-000004
Filing date: 2024-02-26
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/WEN/
All MD&A years: /company/WEN/mda/
Previous year: /company/WEN/mda/a-0000030697-23-000002/ (FY 2023)
Next year: /company/WEN/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us,” or “our”) should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere within this report. Certain statements we make under this Item 7 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part I” preceding “Item 1 - Business.” You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors” in Item 1A above, as well as our consolidated financial statements, related notes and other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission (the “SEC”).

The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s Restaurants, LLC (“Wendy’s Restaurants”). Wendy’s Restaurants is the parent company of Wendy’s International, LLC (formerly known as Wendy’s International, Inc). Wendy’s International, LLC is the indirect parent company of (1) Quality Is Our Recipe, LLC (“Quality”), which is the owner and franchisor of the Wendy’s restaurant system in the United States (the “U.S.”) and all international jurisdictions except for Canada, and (2) Wendy’s Restaurants of Canada Inc., which is the owner and franchisor of the Wendy’s restaurant system in Canada. As used herein, unless the context requires otherwise, the term “Company” refers to The Wendy’s Company and its direct and indirect subsidiaries, and “Wendy’s” refers to Quality when the context relates to the ownership or franchising of the Wendy’s restaurant system and to Wendy’s International, LLC when the context refers to the Wendy’s brand.

Wendy’s is primarily engaged in the business of operating, developing and franchising a system of distinctive quick-service restaurants serving high quality food. Wendy’s opened its first restaurant in Columbus, Ohio in 1969. Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment 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 December 31, 2023.

The Company is comprised of the following segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. Wendy’s U.S. includes the operation and franchising of Wendy’s restaurants in the U.S. and derives its revenues from sales at Company-operated restaurants and royalties, fees and advertising fund collections from franchised restaurants. Wendy’s International includes the operation and franchising of Wendy’s restaurants in countries and territories other than the U.S. and derives its revenues from sales at Company-operated restaurants and royalties, fees and advertising fund collections from franchised restaurants. Global Real Estate & Development includes real estate activity for owned sites and sites leased from third parties, which are leased and/or subleased to franchisees, and also includes our share of the income of our TimWen real estate joint venture. In addition, Global Real Estate & Development earns fees from facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”) and providing other development-related services to franchisees. In this Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company reports on the segment profit for each of the three segments described above. The Company measures segment profit using segment adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”). 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 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.

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Executive Overview

Our Business

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. Of the U.S. restaurants, 403 were operated by the Company and 5,627 were operated by a total of 212 franchisees. In addition, at December 31, 2023, there were 1,210 Wendy’s restaurants in operation in 32 foreign countries and U.S. territories. 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.”).

The revenues from our restaurant business are derived from two principal sources: (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 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.

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

We track our results of operations and manage our business using the following key business measures, which include non-GAAP financial measures:

•Same-Restaurant Sales - We report same-restaurant sales commencing after new restaurants have been open for 15 continuous months and as soon as reimaged restaurants reopen. Restaurants temporarily closed for more than one week are excluded from same-restaurant sales. 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.

•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 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. Franchised restaurants’ sales are reported by our franchisees and represent their revenues from sales at franchised Wendy’s restaurants. The Company’s consolidated financial statements do not include sales by franchised restaurants to their customers. The Company’s royalty and advertising funds revenues are computed as percentages of sales made by Wendy’s franchisees. As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty and advertising funds revenues and profitability.

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•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.

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. The Company’s consolidated financial statements do not include sales by franchised restaurants to their customers. We calculate franchised restaurant average unit volumes by summing the average weekly sales of all franchised restaurants which reported sales during the week.

The Company calculates same-restaurant sales and systemwide sales growth on a constant currency basis. Constant currency results exclude the impact of foreign currency translation and are derived by translating current year results at prior year average exchange rates. The Company believes excluding the impact of foreign currency translation provides better year over year comparability.

Same-restaurant sales and systemwide sales exclude sales from Argentina and Venezuela due to the highly inflationary economies of those countries. 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, 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. The Company believes investors, analysts and other interested parties use these metrics in evaluating issuers and that the presentation of these measures facilitates a comparative assessment of the Company’s operating performance. With respect to same-restaurant sales, systemwide sales and franchised restaurant average unit volumes, the Company also believes that the data is useful in assessing consumer demand for the Company’s products and the overall success of the Wendy’s brand.

The non-GAAP financial measures discussed above do not replace the presentation of the Company’s financial results in accordance with GAAP. Because all companies do not calculate non-GAAP financial measures in the same way, these measures as used by other companies may not be consistent with the way the Company calculates such measures.

2023 Financial Highlights

•Revenue increased 4.1% to $2.2 billion in 2023 compared to $2.1 billion in 2022;

•Global same-restaurant sales increased 4.3%, U.S. same-restaurant sales increased 3.7% and international same-restaurant sales increased 8.1% compared to 2022. On a two-year basis, global same-restaurant sales increased 9.2%;

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

•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 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.

Digital

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 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

36

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 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. and Canada that provides for waivers of royalty, national advertising and technical assistance fees for up to the first three years of operation for qualifying new restaurants. In addition, the Company has development agreements in place with a number of franchisees that contractually obligate such franchisees to open additional Wendy’s restaurants over a specified timeframe. During 2023, the Company and its franchisees added 145 net new restaurants across the Wendy’s system.

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. 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.

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This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. For discussion related to 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K, please refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K, filed with the United States Securities and Exchange Commission on March 1, 2023.

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 December 31, 2023, January 1, 2023 and January 2, 2022.

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Revenues:"],["Sales","$","930.1","","","$","33.5","","","$","896.6","","","$","162.5","","","$","734.1"],["Franchise royalty revenue and fees","592.3","","","34.1","","","558.2","","","21.5","","","536.7"],["Franchise rental income","230.2","","","(4.3)","","","234.5","","","(2.2)","","","236.7"],["Advertising funds revenue","429.0","","","22.8","","","406.2","","","16.7","","","389.5"],["","2,181.6","","","86.1","","","2,095.5","","","198.5","","","1,897.0"],["Costs and expenses:"],["Cost of sales","794.5","","","21.3","","","773.2","","","161.5","","","611.7"],["Franchise support and other costs","57.2","","","10.5","","","46.7","","","3.8","","","42.9"],["Franchise rental expense","125.4","","","1.3","","","124.1","","","(8.3)","","","132.4"],["Advertising funds expense","428.0","","","(2.8)","","","430.8","","","19.0","","","411.8"],["General and administrative","250.0","","","(5.0)","","","255.0","","","12.0","","","243.0"],["Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below)","135.8","","","2.4","","","133.4","","","7.9","","","125.5"],["Amortization of cloud computing arrangements","12.8","","","10.4","","","2.4","","","2.4","","","\u2014"],["System optimization gains, net","(0.9)","","","5.9","","","(6.8)","","","26.7","","","(33.5)"],["Reorganization and realignment costs","9.2","","","8.5","","","0.7","","","(7.8)","","","8.5"],["Impairment of long-lived assets","1.4","","","(5.0)","","","6.4","","","4.1","","","2.3"],["Other operating income, net","(13.8)","","","9.9","","","(23.7)","","","(9.1)","","","(14.6)"],["","1,799.6","","","57.4","","","1,742.2","","","212.2","","","1,530.0"],["Operating profit","382.0","","","28.7","","","353.3","","","(13.7)","","","367.0"],["Interest expense, net","(124.1)","","","(1.8)","","","(122.3)","","","(13.1)","","","(109.2)"],["Gain (loss) on early extinguishment of debt, net","2.3","","","2.3","","","\u2014","","","17.9","","","(17.9)"],["Investment (loss) income, net","(10.4)","","","(12.5)","","","2.1","","","2.1","","","\u2014"],["Other income, net","29.6","","","19.2","","","10.4","","","9.7","","","0.7"],["Income before income taxes","279.4","","","35.9","","","243.5","","","2.9","","","240.6"],["Provision for income taxes","(75.0)","","","(8.9)","","","(66.1)","","","(25.9)","","","(40.2)"],["Net income","$","204.4","","","$","27.0","","","$","177.4","","","$","(23.0)","","","$","200.4"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","2023","","% of Total Revenues","","2022","","% of Total Revenues","","2021","","% of Total Revenues"],["Revenues:"],["Sales","$","930.1","","","42.6","%","","$","896.6","","","42.8","%","","$","734.1","","","38.7","%"],["Franchise royalty revenue and fees:"],["Franchise royalty revenue","512.1","","","23.5","%","","485.5","","","23.2","%","","460.7","","","24.3","%"],["Franchise fees","80.2","","","3.6","%","","72.7","","","3.4","%","","76.0","","","4.0","%"],["Total franchise royalty revenue and fees","592.3","","","27.1","%","","558.2","","","26.6","%","","536.7","","","28.3","%"],["Franchise rental income","230.2","","","10.6","%","","234.5","","","11.2","%","","236.7","","","12.5","%"],["Advertising funds revenue","429.0","","","19.7","%","","406.2","","","19.4","%","","389.5","","","20.5","%"],["Total revenues","$","2,181.6","","","100.0","%","","$","2,095.5","","","100.0","%","","$","1,897.0","","","100.0","%"],["","2023","","% of Sales","","2022","","% of Sales","","2021","","% of Sales"],["Cost of sales:"],["Food and paper","$","297.4","","","32.0","%","","$","292.9","","","32.7","%","","$","224.1","","","30.5","%"],["Restaurant labor","298.5","","","32.1","%","","288.0","","","32.1","%","","231.5","","","31.5","%"],["Occupancy, advertising and other operating costs","198.6","","","21.3","%","","192.3","","","21.4","%","","156.1","","","21.3","%"],["Total cost of sales","$","794.5","","","85.4","%","","$","773.2","","","86.2","%","","$","611.7","","","83.3","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","2023","","% of Sales","","2022","","% of Sales","","2021","","% of Sales"],["Company-operated restaurant margin:"],["U.S.","$","138.6","","","15.3","%","","$","125.9","","","14.3","%","","$","124.4","","","17.0","%"],["Global","135.6","","","14.6","%","","123.4","","","13.8","%","","122.4","","","16.7","%"]]
[[/GREPCENT_TABLE]]

The table below presents certain of the Company’s key business measures, which are defined and further discussed in the “Executive Overview” section included herein.

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Key business measures:"],["U.S. same-restaurant sales:"],["Company-operated","2.6","%","","4.4","%","","11.9","%"],["Franchised","3.8","%","","3.9","%","","9.0","%"],["Systemwide","3.7","%","","3.9","%","","9.2","%"],["International same-restaurant sales (a)","8.1","%","","12.4","%","","17.6","%"],["Global same-restaurant sales:"],["Company-operated","2.7","%","","4.4","%","","11.9","%"],["Franchised (a)","4.4","%","","4.9","%","","9.9","%"],["Systemwide (a)","4.3","%","","4.9","%","","10.0","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Key business measures (continued):"],["Systemwide sales (b):"],["U.S. Company-operated","$","905.7","","","$","882.7","","","$","730.4"],["U.S. franchised","11,379.6","","","10,811.7","","","10,380.3"],["U.S. systemwide","12,285.3","","","11,694.4","","","11,110.7"],["International Company-operated","24.4","","","13.9","","","3.7"],["International franchised (a)","1,778.0","","","1,592.4","","","1,392.9"],["International systemwide (a)","1,802.4","","","1,606.3","","","1,396.6"],["Global systemwide (a)","$","14,087.7","","","$","13,300.7","","","$","12,507.3"],["Restaurant average unit volumes (in thousands):"],["U.S. Company-operated","$","2,256.7","","","$","2,192.0","","","$","2,172.4"],["U.S. franchised","2,046.0","","","1,957.2","","","1,878.4"],["U.S. systemwide","2,060.2","","","1,973.1","","","1,895.3"],["International systemwide (a)","1,585.3","","","1,526.5","","","1,448.1"],["Global systemwide (a)","$","1,984.1","","","$","1,905.8","","","$","1,832.1"]]
[[/GREPCENT_TABLE]]

_______________

(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.

The table below presents details regarding the change in restaurant counts of the Wendy’s system from 2021 to 2023.

[[GREPCENT_TABLE]]
[["","U.S. Company-operated","","U.S. Franchised","","International Company-operated","","International Franchised","","Systemwide"],["Restaurant count:"],["Restaurant count at January 2, 2022","403","","","5,535","","","5","","","1,006","","","6,949"],["Opened","7","","","132","","","7","","","130","","","276"],["Closed","(7)","","","(76)","","","\u2014","","","(47)","","","(130)"],["Restaurant count at January 1, 2023","403","","","5,591","","","12","","","1,089","","","7,095"],["Opened","3","","","94","","","1","","","150","","","248"],["Closed","(3)","","","(58)","","","(1)","","","(41)","","","(103)"],["Restaurant count at December 31, 2023","403","","","5,627","","","12","","","1,198","","","7,240"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Sales","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Sales","$","930.1","","","$","33.5","","","$","896.6","","","$","162.5","","","$","734.1"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["Franchise Royalty Revenue and Fees","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Franchise royalty revenue","$","512.1","","","$","26.6","","","$","485.5","","","$","24.8","","","$","460.7"],["Franchise fees","80.2","","","7.5","","","72.7","","","(3.3)","","","76.0"],["","$","592.3","","","$","34.1","","","$","558.2","","","$","21.5","","","$","536.7"]]
[[/GREPCENT_TABLE]]

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.

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.

[[GREPCENT_TABLE]]
[["Franchise Rental Income","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Franchise rental income","$","230.2","","","$","(4.3)","","","$","234.5","","","$","(2.2)","","","$","236.7"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["Advertising Funds Revenue","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Advertising funds revenue","$","429.0","","","$","22.8","","","$","406.2","","","$","16.7","","","$","389.5"]]
[[/GREPCENT_TABLE]]

The increase in advertising funds revenue during 2023 was primarily due to an increase in franchise same-restaurant sales in the U.S. and Canada.

[[GREPCENT_TABLE]]
[["Cost of Sales, as a Percent of Sales","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Food and paper","32.0","%","","(0.7)","%","","32.7","%","","2.2","%","","30.5","%"],["Restaurant labor","32.1","%","","\u2014","%","","32.1","%","","0.6","%","","31.5","%"],["Occupancy, advertising and other operating costs","21.3","%","","(0.1)","%","","21.4","%","","0.1","%","","21.3","%"],["","85.4","%","","(0.8)","%","","86.2","%","","2.9","%","","83.3","%"]]
[[/GREPCENT_TABLE]]

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.

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[[GREPCENT_TABLE]]
[["Franchise Support and Other Costs","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Franchise support and other costs","$","57.2","","","$","10.5","","","$","46.7","","","$","3.8","","","$","42.9"]]
[[/GREPCENT_TABLE]]

The increase in franchise support and other costs during 2023 was primarily due to an increase in costs incurred to provide information technology and other services to franchisees.

[[GREPCENT_TABLE]]
[["Franchise Rental Expense","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Franchise rental expense","$","125.4","","","$","1.3","","","$","124.1","","","$","(8.3)","","","$","132.4"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["Advertising Funds Expense","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Advertising funds expense","$","428.0","","","$","(2.8)","","","$","430.8","","","$","19.0","","","$","411.8"]]
[[/GREPCENT_TABLE]]

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. and Canada.

[[GREPCENT_TABLE]]
[["General and Administrative","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Employee compensation and benefits","$","126.4","","","$","(2.1)","","","$","128.5","","","$","13.4","","","$","115.1"],["Share-based compensation","22.5","","","(2.0)","","","24.5","","","2.5","","","22.0"],["Professional fees","60.3","","","(1.5)","","","61.8","","","8.5","","","53.3"],["Incentive compensation","26.8","","","1.8","","","25.0","","","(21.5)","","","46.5"],["Other, net","14.0","","","(1.2)","","","15.2","","","9.1","","","6.1"],["","$","250.0","","","$","(5.0)","","","$","255.0","","","$","12.0","","","$","243.0"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["Depreciation and Amortization (exclusive of amortization of cloud computing arrangements shown separately below)","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Restaurants","$","85.8","","","$","1.8","","","$","84.0","","","$","7.6","","","$","76.4"],["Technology support, corporate and other","50.0","","","0.6","","","49.4","","","0.3","","","49.1"],["","$","135.8","","","$","2.4","","","$","133.4","","","$","7.9","","","$","125.5"]]
[[/GREPCENT_TABLE]]

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.

42

[[GREPCENT_TABLE]]
[["Amortization of Cloud Computing Arrangements","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Amortization of cloud computing arrangements","$","12.8","","","$","10.4","","","$","2.4","","","$","2.4","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

Amortization of cloud computing arrangements primarily represents amortization of assets associated with the Company’s ERP system implementation completed in 2022.

[[GREPCENT_TABLE]]
[["System Optimization Gains, Net","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["System optimization gains, net","$","(0.9)","","","$","5.9","","","$","(6.8)","","","$","26.7","","","$","(33.5)"]]
[[/GREPCENT_TABLE]]

System optimization gains, net during 2022 were primarily comprised of gains on the sale of surplus and other properties. See Note 4 to the Consolidated Financial Statements contained in Item 8 herein for further discussion.

[[GREPCENT_TABLE]]
[["Reorganization and Realignment Costs","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Organizational Redesign Plan","$","9.1","","","$","9.1","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["System optimization initiative","0.1","","","(0.5)","","","0.6","","","(6.3)","","","6.9"],["Other reorganization and realignment plans","\u2014","","","(0.1)","","","0.1","","","(1.6)","","","1.7"],["","$","9.2","","","$","8.5","","","$","0.7","","","$","(7.8)","","","$","8.5"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["Impairment of Long-Lived Assets","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Impairment of long-lived assets","$","1.4","","","$","(5.0)","","","$","6.4","","","$","4.1","","","$","2.3"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["Other Operating Income, Net","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Gain from insurance recoveries","$","\u2014","","","$","8.6","","","$","(8.6)","","","$","(8.6)","","","$","\u2014"],["Lease buyout","0.1","","","2.9","","","(2.8)","","","(3.8)","","","1.0"],["Gains on sales-type leases","(2.5)","","","0.5","","","(3.0)","","","1.2","","","(4.2)"],["Equity in earnings in joint ventures, net","(10.8)","","","(1.4)","","","(9.4)","","","1.8","","","(11.2)"],["Other, net","(0.6)","","","(0.7)","","","0.1","","","0.3","","","(0.2)"],["","$","(13.8)","","","$","9.9","","","$","(23.7)","","","$","(9.1)","","","$","(14.6)"]]
[[/GREPCENT_TABLE]]

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.

43

[[GREPCENT_TABLE]]
[["Interest Expense, Net","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Interest expense, net","$","124.1","","","$","1.8","","","$","122.3","","","$","13.1","","","$","109.2"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["Gain (Loss) on Early Extinguishment of Debt, Net","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Gain (loss) on early extinguishment of debt, net","$","2.3","","","$","2.3","","","$","\u2014","","","$","17.9","","","$","(17.9)"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["Investment (Loss) Income, Net","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Investment (loss) income, net","$","(10.4)","","","$","(12.5)","","","$","2.1","","","$","2.1","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["Other Income, Net","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Other income, net","$","29.6","","","$","19.2","","","$","10.4","","","$","9.7","","","$","0.7"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["Provision for Income Taxes","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Income before income taxes","$","279.4","","","$","35.9","","","$","243.5","","","$","2.9","","","$","240.6"],["Provision for income taxes","(75.0)","","","(8.9)","","","(66.1)","","","(25.9)","","","(40.2)"],["Effective tax rate on income","26.8","%","","(0.4)","%","","27.2","%","","10.5","%","","16.7","%"]]
[[/GREPCENT_TABLE]]

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.

44

Segment Information

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

Wendy’s U.S.

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Sales","$","905.7","","","$","23.0","","","$","882.7","","","$","152.3","","","$","730.4"],["Franchise royalty revenue","444.7","","","20.7","","","424.0","","","16.7","","","407.3"],["Franchise fees","68.7","","","5.7","","","63.0","","(1.2)","","","64.2"],["Advertising fund revenue","396.7","","","16.2","","","380.5","","","14.9","","","365.6"],["Total revenues","$","1,815.8","","","$","65.6","","","$","1,750.2","","","$","182.7","","","$","1,567.5"],["Segment profit","$","528.4","","","$","47.9","","","$","480.5","","","$","30.4","","","$","450.1"]]
[[/GREPCENT_TABLE]]

The increase in Wendy’s U.S. 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 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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Sales","$","24.4","","","$","10.5","","","$","13.9","","","$","10.2","","","$","3.7"],["Franchise royalty revenue","67.5","","","6.0","","","61.5","","","8.1","","","53.4"],["Franchise fees","6.4","","","0.8","","","5.6","","","0.2","","","5.4"],["Advertising fund revenue","32.2","","","6.5","","","25.7","","","1.8","","","23.9"],["Total revenues","$","130.5","","","$","23.8","","","$","106.7","","","$","20.3","","","$","86.4"],["Segment profit","$","35.7","","","$","5.3","","","$","30.4","","","$","3.0","","","$","27.4"]]
[[/GREPCENT_TABLE]]

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 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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Franchise fees","$","5.0","","","$","0.9","","","$","4.1","","","$","(2.3)","","","$","6.4"],["Franchise rental income","230.2","","","(4.3)","","","234.5","","","(2.2)","","","236.7"],["Total revenues","$","235.2","","","$","(3.4)","","","$","238.6","","","$","(4.5)","","","$","243.1"],["Segment profit","$","103.5","","","$","(5.2)","","","$","108.7","","","$","2.6","","","$","106.1"]]
[[/GREPCENT_TABLE]]

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.

45

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

Sales

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 a net increase in the number of franchise restaurants in operation due to net new restaurant development.

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 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 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, dividends to stockholders, repurchases of common stock and capital expenditures.

Cash Flows from Operating, Investing and Financing Activities

The table below summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years:

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["","Amount","","Change","","Amount","","Change","","Amount"],["Net cash provided by (used in):"],["Operating activities","$","345.4","","","$","85.5","","","$","259.9","","","$","(85.9)","","","$","345.8"],["Investing activities","(86.5)","","","(8.7)","","","(77.8)","","","76.9","","","(154.7)"],["Financing activities","(504.3)","","","(793.0)","","","288.7","","","531.4","","","(242.7)"],["Effect of exchange rate changes on cash","2.4","","","8.4","","","(6.0)","","","(6.3)","","","0.3"],["Net (decrease) increase in cash, cash equivalents and restricted cash","$","(243.0)","","","$","(707.8)","","","$","464.8","","","$","516.1","","","$","(51.3)"]]
[[/GREPCENT_TABLE]]

46

Operating Activities

Cash provided by operating activities consists primarily of net income, adjusted for non-cash expenses such as depreciation and amortization, deferred income tax and share-based compensation, and the net change in operating assets and liabilities. 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) 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 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 (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

Our anticipated cash requirements for 2024, exclusive of operating cash flow requirements, consist principally of:

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

•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.

We currently believe we have the ability to pursue additional sources of liquidity if needed or desired to fund operating cash requirements or for other purposes. However, there can be no assurance that additional liquidity will be readily available or available on terms acceptable to us.

Capital Expenditures

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

47

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.

Dividends

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 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; however, there can be no assurance that any additional quarterly dividends will be declared or paid or of the amount or timing of such dividends, if any.

Stock Repurchases

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 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 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.

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 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 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.

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 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.

48

Purchase Obligations

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

[[GREPCENT_TABLE]]
[["","Year End"],["","2023"],["Lease guarantees (a)","$","98.1"],["Letters of credit (b)","28.8"],["Total","$","126.9"]]
[[/GREPCENT_TABLE]]

_______________

(a)Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees. These leases extend through 2045.

(b)The Company has outstanding letters of credit with various parties. The Company does not expect any material loss to result from these letters of credit because we do not believe performance will be required.

General Inflation, Commodities and Changing Prices

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, 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.

Seasonality

Wendy’s restaurant operations are moderately seasonal. Wendy’s average restaurant sales are normally higher during the summer months than during the winter months. Because our business is moderately seasonal, results for a particular quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Off-Balance Sheet Arrangements

Other than the obligations for guarantees described above in “Guarantees and Other Contingencies,” we do not have any off-balance sheet arrangements that have, or are, in the opinion of management, reasonably likely to have, a current or future material effect on our financial condition or results of operations.

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. We evaluate those estimates and assumptions on an ongoing basis based on historical experience and on various other factors which we believe are reasonable under the circumstances.

49

We believe that the following represent our more critical estimates and assumptions used in the preparation of our consolidated financial statements:

•Impairment of goodwill and indefinite-lived intangible assets:

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.

We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Our annual impairment test of goodwill may be completed through a qualitative assessment to determine if the fair value of the reporting unit is more likely than not greater than the carrying amount. If we elect to bypass the qualitative assessment for any reporting units, or if a qualitative assessment indicates it is more likely than not that the estimated carrying value of a reporting unit exceeds its fair value, we perform a quantitative goodwill impairment test. Under the quantitative test, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The fair value of the reporting unit is determined by management and is based on the results of (1) estimates we made regarding the present value of the anticipated cash flows associated with each reporting unit (the “income approach”) and/or (2) the indicated value of the reporting units based on a comparison and correlation of the Company and other similar companies (the “market approach”).

The income approach, which considers factors unique to each of our reporting units and related long range plans that may not be comparable to other companies and that are not yet publicly available, is dependent on several critical management assumptions. These assumptions include estimates of future sales growth, operating profit, income tax rates, terminal value growth rates, capital expenditures and the weighted average cost of capital (discount rate). Anticipated cash flows used under the income approach are developed every fourth quarter in conjunction with our annual budgeting process and also incorporate amounts and timing of future cash flows based on our long range plan.

The discount rates used in the income approach are an estimate of the rate of return that a market participant would expect of each reporting unit. To select an appropriate rate for discounting the future earnings stream, a review is made of short-term interest rate yields of long-term corporate and government bonds, as well as the typical capital structure of companies in the industry. The discount rates used for each reporting unit may vary depending on the risk inherent in the cash flow projections, as well as the risk level that would be perceived by a market participant. A terminal value is included at the end of the projection period used in our discounted cash flow analysis to reflect the remaining value that each reporting unit is expected to generate. The terminal value represents the present value in the last year of the projection period of all subsequent cash flows into perpetuity. The terminal value growth rate is a key assumption used in determining the terminal value as it represents the annual growth of all subsequent cash flows into perpetuity.

Under the market approach, we apply the guideline company method in estimating fair value. The guideline company method makes use of market price data of corporations whose stock is actively traded in a public market. The corporations we select as guideline companies are engaged in a similar line of business or are subject to similar financial and business risks, including the opportunity for growth. The guideline company method of the market approach provides an indication of value by relating the equity or invested capital (debt plus equity) of guideline companies to various measures of their earnings and cash flow, then applying such multiples to the business being valued. The result of applying the guideline company approach is adjusted based on the incremental value associated with a controlling interest in the business. This “control premium” represents the amount a new controlling stockholder would pay for the benefits resulting from synergies and other potential benefits derived from controlling the enterprise.

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 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 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

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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. Our annual impairment test may be completed through a qualitative assessment to determine if the fair value of the indefinite-lived intangible assets is more likely than not greater than the carrying amount. If we elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that the estimated carrying value exceeds the fair value, we test for impairment using a quantitative process. Our quantitative process includes comparing the carrying value to the fair value of our indefinite-lived intangible assets, with any excess recognized as an impairment loss. Our critical estimates in the determination of the fair value of our indefinite-lived intangible assets include the anticipated future revenues of Company-operated and franchised restaurants and the resulting cash flows.

For the annual impairment test of our indefinite-lived intangible assets in the fourth quarter of 2023, we elected to perform a qualitative assessment. The qualitative assessment indicated the fair value of our indefinite-lived intangible assets was more likely than not greater than the carrying amount.

The estimated fair values of our goodwill reporting units and indefinite-lived intangible assets are subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment. Should actual cash flows and our future estimates vary adversely from those estimates we use, we may be required to recognize impairment charges in future years.

•Impairment of long-lived assets:

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.

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We assess the recoverability of our long-lived assets by comparing the carrying amount of the asset group to future undiscounted net cash flows expected to be generated through leases and/or subleases or by our individual Company-operated restaurants. If the carrying amount of the long-lived asset group is not recoverable on an undiscounted cash flow basis, then impairment is recognized to the extent that the carrying amount exceeds its fair value and is included in “Impairment of long-lived assets.” Our critical estimates in this review process include the anticipated future cash flows from leases and/or subleases or individual Company-operated restaurants, which is used in assessing the recoverability of the respective long-lived assets. Our impairment losses principally reflect impairment charges resulting from the deterioration in operating performance of certain Company-operated restaurants.

Our fair value estimates are subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment. Should actual cash flows and our future estimates vary adversely from those estimates we used, we may be required to recognize additional impairment charges in future years.

•Our ability to realize deferred tax assets:

We account for income taxes under the asset and liability method. A deferred tax asset or liability is recognized whenever there are (1) future tax effects from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and (2) operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the years in which those differences are expected to be recovered or settled.

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Deferred tax assets are recognized to the extent the Company believes these assets will more likely than not be realized. In evaluating the realizability of deferred tax assets, the Company considers all available positive and negative evidence, including the interaction and the timing of future reversals of existing temporary differences, recent operating results, tax-planning strategies and projected future taxable income. In projecting future taxable income, we begin with historical results from continuing operations and incorporate assumptions including future operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment and are consistent with the plans and estimates we are using to manage our underlying business. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income.

When considered necessary, a valuation allowance is recorded to reduce the carrying amount of the deferred tax assets to their anticipated realizable value. Our evaluation of the realizability of our deferred tax assets is subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions, the competitive environment and the effect of future tax legislation. Should future taxable income vary from projected taxable income, we may be required to adjust our valuation allowance in future years.

Net operating loss and credit carryforwards are subject to various limitations and carryforward periods. 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. In recognition of this risk, we have provided a valuation allowance of $39.3 million.

•Income tax uncertainties:

We measure income tax uncertainties in accordance with a two-step process of evaluating a tax position. We first determine if it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. 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 $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”). As part of CAP, tax years are examined on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. As such, our U.S. federal income tax returns for fiscal years through 2021 have been settled. The statute of limitations for the Company’s state tax returns vary, but generally the Company’s state income tax returns from its 2018 fiscal year forward remain subject to examination. We believe that adequate provisions have been made for any liabilities, including interest and penalties that may result from the completion of these examinations.

New Accounting Standards

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.