Wendy's Co [WEN] Filings

10-Q 1 wen-20221002.htm 10-Q wen-20221002

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2022


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission file number: 1-2207

THE WENDY’S COMPANY

(Exact name of registrant as specified in its charter)


Delaware		38-0471180
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Dave Thomas Blvd.
Dublin,	Ohio	43017
(Address of principal executive offices)		(Zip Code)

(614) 764-3100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.10 par value	WEN	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

There were 213,026,982 shares of The Wendy’s Company common stock outstanding as of November 2, 2022.

THE WENDY’S COMPANY AND SUBSIDIARIES

INDEX TO FORM 10-Q


			Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements			4
Unaudited Condensed Consolidated Balance Sheets as of October 2 , 2022 and January 2, 2022			4
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended October 2, 2022 and October 3 , 2021			5
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 2, 2022 and October 3 , 2021			6
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended October 2 , 2022 and October 3 , 2021			7
Unaudited Condensed Consolidated Statements of Cash Flows for the n ine months ended October 2 , 2022 and October 3 , 2021			9
Notes to Condensed Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures about Market Risk			43
Item 4. Controls and Procedures			43

PART II: OTHER INFORMATION			45
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			48
Item 6. Exhibits			49
Signatures			50

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands Except Par Value)


	October 2, 2022		January 2, 2022
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	731,801	$	249,438
Restricted cash	34,363		27,535
Accounts and notes receivable, net	142,447		119,540
Inventories	6,578		5,934
Prepaid expenses and other current assets	28,795		30,584
Advertising funds restricted assets	150,662		159,818
Total current assets	1,094,646		592,849
Properties	882,283		906,867
Finance lease assets	237,517		244,279
Operating lease assets	765,688		812,620
Goodwill	772,984		775,278
Other intangible assets	1,252,198		1,280,791
Investments	45,482		49,870
Net investment in sales-type and direct financing leases	310,576		299,707
Other assets	163,615		139,130
Total assets	$	5,524,989	$	5,101,391

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	29,250	$	24,250
Current portion of finance lease liabilities	17,585		15,513
Current portion of operating lease liabilities	47,481		47,315
Accounts payable	34,667		41,163
Accrued expenses and other current liabilities	130,202		140,783
Advertising funds restricted liabilities	159,231		157,901
Total current liabilities	418,416		426,925
Long-term debt	2,827,493		2,356,416
Long-term finance lease liabilities	567,472		559,587
Long-term operating lease liabilities	804,632		853,328
Deferred income taxes	276,089		267,710
Deferred franchise fees	91,669		88,102
Other liabilities	101,839		112,918
Total liabilities	5,087,610		4,664,986
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 212,945 and 215,849 shares outstanding, respectively	47,042		47,042
Additional paid-in capital	2,930,388		2,898,633
Retained earnings	400,111		344,198
Common stock held in treasury, at cost; 257,479 and 254,575 shares, respectively	(2,871,442)		(2,805,268)
Accumulated other comprehensive loss	(68,720)		(48,200)
Total stockholders’ equity	437,379		436,405
Total liabilities and stockholders’ equity	$	5,524,989	$	5,101,391

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Amounts)


	Three Months Ended				Nine Months Ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
	(Unaudited)
Revenues:
Sales	$	228,786	$	171,078	$	668,930	$	553,660
Franchise royalty revenue and fees	141,733		138,755		414,145		398,246
Franchise rental income	58,463		62,446		174,944		182,190
Advertising funds revenue	103,587		97,976		300,976		289,699
	532,569		470,255		1,558,995		1,423,795
Costs and expenses:
Cost of sales	196,168		146,436		578,506		457,440
Franchise support and other costs	12,728		10,509		34,456		27,080
Franchise rental expense	31,687		34,424		92,699		101,058
Advertising funds expense	108,269		108,529		317,042		310,642
General and administrative	62,523		62,840		186,506		178,576
Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below)	34,252		30,940		100,911		93,243
Amortization of cloud computing arrangements	888		—		888		—
System optimization gains, net	(452)		(1,437)		(4,138)		(32,719)
Reorganization and realignment costs	8		345		628		7,381
Impairment of long-lived assets	206		566		2,682		1,831
Other operating income, net	(11,843)		(3,092)		(20,482)		(10,800)
	434,434		390,060		1,289,698		1,133,732
Operating profit	98,135		80,195		269,297		290,063
Interest expense, net	(31,916)		(26,000)		(90,406)		(82,990)
Loss on early extinguishment of debt	—		—		—		(17,917)
Investment income, net	—		—		2,107		6
Other income, net	2,910		171		4,355		455
Income before income taxes	69,129		54,366		185,353		189,617
Provision for income taxes	(18,587)		(13,195)		(49,258)		(41,356)
Net income	$	50,542	$	41,171	$	136,095	$	148,261

Net income per share:
Basic	$	.24	$	.19	$	.64	$	.67
Diluted	.24		.18		.63		.66

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)


	Three Months Ended				Nine Months Ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
	(Unaudited)
Net income	$	50,542	$	41,171	$	136,095	$	148,261
Other comprehensive (loss) income:
Foreign currency translation adjustment	(14,183)		(4,659)		(20,520)		908
Other comprehensive (loss) income	(14,183)		(4,659)		(20,520)		908
Comprehensive income	$	36,359	$	36,512	$	115,575	$	149,169

See accompanying notes to condensed consolidated financial statements.

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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 January 2, 2022	$	47,042	$	2,898,633	$	344,198	$	(2,805,268)	$	(48,200)	$	436,405
Net income	—		—		37,402		—		—		37,402
Other comprehensive income	—		—		—		—		1,118		1,118
Cash dividends	—		—		(26,911)		—		—		(26,911)
Repurchases of common stock, including accelerated share repurchase	—		18,750		—		(18,750)		—		—
Share-based compensation	—		6,348		—		—		—		6,348
Common stock issued upon exercises of stock options	—		237		—		1,354		—		1,591
Common stock issued upon vesting of restricted shares	—		(1,989)		—		459		—		(1,530)
Other	—		63		(8)		57		—		112
Balance at April 3, 2022	$	47,042	$	2,922,042	$	354,681	$	(2,822,148)	$	(47,082)	$	454,535
Net income	—		—		48,151		—		—		48,151
Other comprehensive loss	—		—		—		—		(7,455)		(7,455)
Cash dividends	—		—		(26,635)		—		—		(26,635)
Repurchases of common stock	—		—		—		(51,950)		—		(51,950)
Share-based compensation	—		6,122		—		—		—		6,122
Common stock issued upon exercises of stock options	—		(300)		—		399		—		99
Common stock issued upon vesting of restricted shares	—		(1,178)		—		1,073		—		(105)
Other	—		53		(10)		58		—		101
Balance at July 3, 2022	$	47,042	$	2,926,739	$	376,187	$	(2,872,568)	$	(54,537)	$	422,863
Net income	—		—		50,542		—		—		50,542
Other comprehensive loss	—		—		—		—		(14,183)		(14,183)
Cash dividends	—		—		(26,607)		—		—		(26,607)

Share-based compensation	—		5,027		—		—		—		5,027
Common stock issued upon exercises of stock options	—		450		—		241		—		691
Common stock issued upon vesting of restricted shares	—		(1,876)		—		817		—		(1,059)
Other	—		48		(11)		68		—		105
Balance at October 2, 2022	$	47,042	$	2,930,388	$	400,111	$	(2,871,442)	$	(68,720)	$	437,379

See accompanying notes to condensed consolidated financial statements.

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 3, 2021	$	47,042	$	2,899,276	$	238,674	$	(2,585,755)	$	(49,641)	$	549,596
Net income	—		—		41,366		—		—		41,366
Other comprehensive income	—		—		—		—		2,220		2,220
Cash dividends	—		—		(20,156)		—		—		(20,156)
Repurchases of common stock	—		—		—		(56,084)		—		(56,084)
Share-based compensation	—		5,151		—		—		—		5,151
Common stock issued upon exercises of stock options	—		(20)		—		683		—		663
Common stock issued upon vesting of restricted shares	—		(2,996)		—		817		—		(2,179)
Other	—		49		(5)		44		—		88
Balance at April 4, 2021	$	47,042	$	2,901,460	$	259,879	$	(2,640,295)	$	(47,421)	$	520,665
Net income	—		—		65,724		—		—		65,724
Other comprehensive income	—		—		—		—		3,347		3,347
Cash dividends	—		—		(22,123)		—		—		(22,123)
Repurchases of common stock	—		—		—		(27,291)		—		(27,291)
Share-based compensation	—		5,882		—		—		—		5,882
Common stock issued upon exercises of stock options	—		850		—		23,466		—		24,316
Common stock issued upon vesting of restricted shares	—		(959)		—		714		—		(245)
Other	—		41		(5)		45		—		81
Balance at July 4, 2021	$	47,042	$	2,907,274	$	303,475	$	(2,643,361)	$	(44,074)	$	570,356
Net income	—		—		41,171		—		—		41,171
Other comprehensive loss	—		—		—		—		(4,659)		(4,659)
Cash dividends	—		—		(26,684)		—		—		(26,684)
Repurchases of common stock	—		—		—		(43,857)		—		(43,857)
Share-based compensation	—		5,702		—		—		—		5,702
Common stock issued upon exercises of stock options	—		351		—		1,465		—		1,816
Common stock issued upon vesting of restricted shares	—		(1,835)		—		642		—		(1,193)
Other	—		60		(6)		48		—		102
Balance at October 3, 2021	$	47,042	$	2,911,552	$	317,956	$	(2,685,063)	$	(48,733)	$	542,754

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	Nine Months Ended
	October 2, 2022		October 3, 2021
	(Unaudited)
Cash flows from operating activities:
Net income	$	136,095	$	148,261
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below)	100,911		93,243
Amortization of cloud computing arrangements	888		—
Share-based compensation	17,497		16,735
Impairment of long-lived assets	2,682		1,831
Deferred income tax	10,214		(25)
Non-cash rental expense, net	26,164		28,421
Change in operating lease liabilities	(34,241)		(34,220)
Net receipt of deferred vendor incentives	1,884		1,906
System optimization gains, net	(4,138)		(32,719)
Distributions received from joint ventures, net of equity in earnings	3,468		3,561
Long-term debt-related activities, net	5,746		23,043
Cloud computing arrangements expenditures	(22,685)		(5,619)
Changes in operating assets and liabilities and other, net	(61,846)		32,255
Net cash provided by operating activities	182,639		276,673
Cash flows from investing activities:
Capital expenditures	(50,036)		(43,401)
Franchise development fund	(2,484)		—
Acquisitions	—		4,879
Dispositions	3,731		52,657

Notes receivable, net	2,713		907
Net cash (used in) provided by investing activities	(46,076)		15,042
Cash flows from financing activities:
Proceeds from long-term debt	500,000		1,100,000
Repayments of long-term debt	(19,437)		(955,782)
Repayments of finance lease liabilities	(13,411)		(9,021)
Deferred financing costs	(10,232)		(20,873)
Repurchases of common stock	(51,950)		(125,656)
Dividends	(80,153)		(68,963)
Proceeds from stock option exercises	2,668		27,204
Payments related to tax withholding for share-based compensation	(2,980)		(4,390)
Net cash provided by (used in) financing activities	324,505		(57,481)
Net cash provided by operations before effect of exchange rate changes on cash	461,068		234,234
Effect of exchange rate changes on cash	(7,176)		177
Net increase in cash, cash equivalents and restricted cash	453,892		234,411
Cash, cash equivalents and restricted cash at beginning of period	366,966		418,241
Cash, cash equivalents and restricted cash at end of period	$	820,858	$	652,652

See accompanying notes to condensed consolidated financial statements.

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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 October 2, 2022, the results of our operations for the three and nine months ended October 2, 2022 and October 3, 2021 and cash flows for the nine months ended October 2, 2022 and October 3, 2021. The results of operations for the nine months ended October 2, 2022 are not necessarily indicative of the results to be expected for the full 2022 fiscal year. The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022 (the “Form 10-K”).

In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic. We continue to monitor the dynamic nature of the COVID-19 pandemic on our business, results and financial condition; however, we cannot predict the ultimate duration, scope or severity of the COVID-19 pandemic or its ultimate impact on our results of operations, financial condition and prospects.

The principal 100% owned subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). 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 18 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.

Reclassifications

Beginning in 2022, the Company has reclassified payments for cloud computing arrangements to “Cloud computing arrangements expenditures,” which were previously recorded to “Changes in operating assets and liabilities and other, net.” The prior period amounts in the condensed consolidated statement of cash flows reflect the reclassification of these cash flows to conform to the current year presentation. There was no impact to “Net cash provided by operating activities.”

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


	As Previously Reported		Reclassifications		As Currently Reported
Cloud computing arrangements expenditures	$	—	$	(5,619)	$	(5,619)
Changes in operating assets and liabilities and other, net	26,636		5,619		32,255

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(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 October 2, 2022
Sales at Company-operated restaurants	$	225,245	$	3,541	$	—	$	228,786
Franchise royalty revenue	108,780		15,777		—		124,557
Franchise fees	15,294		1,257		625		17,176
Franchise rental income	—		—		58,463		58,463
Advertising funds revenue	96,615		6,972		—		103,587
Total revenues	$	445,934	$	27,547	$	59,088	$	532,569

Nine Months Ended October 2, 2022
Sales at Company-operated restaurants	$	659,649	$	9,281	$	—	$	668,930
Franchise royalty revenue	315,572		45,743		—		361,315
Franchise fees	46,685		3,695		2,450		52,830
Franchise rental income