Wendy's Co [WEN] Filings

10-Q 1 wen-20231001.htm 10-Q wen-20231001

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 1, 2023


☐						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 206,259,422 shares of The Wendy’s Company common stock outstanding as of October 26, 2023.

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 1 , 2023 and January 1, 2023			4
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended October 1, 2023 and October 2 , 2022			5
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 1 , 2023 and October 2 , 2022			6
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended October 1 , 2023 and October 2 , 2022			7
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended October 1 , 2023 and October 2 , 2022			9
Notes to Condensed Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures about Market Risk			41
Item 4. Controls and Procedures			42

PART II: OTHER INFORMATION			43
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 6. Exhibits			46
Signatures			47

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 1, 2023		January 1, 2023
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	598,025	$	745,889
Restricted cash	36,727		35,203
Accounts and notes receivable, net	138,064		116,426
Inventories	6,813		7,129
Prepaid expenses and other current assets	33,311		26,963
Advertising funds restricted assets	113,112		126,673
Total current assets	926,052		1,058,283
Properties	886,792		895,778
Finance lease assets	227,289		234,570
Operating lease assets	718,387		754,498
Goodwill	773,187		773,088
Other intangible assets	1,225,290		1,248,800
Investments	34,441		46,028
Net investment in sales-type and direct financing leases	313,969		317,337
Other assets	185,041		170,962
Total assets	$	5,290,448	$	5,499,344

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	29,250	$	29,250
Current portion of finance lease liabilities	19,734		18,316
Current portion of operating lease liabilities	49,155		48,120
Accounts payable	41,693		43,996
Accrued expenses and other current liabilities	148,936		116,010
Advertising funds restricted liabilities	116,432		132,307
Total current liabilities	405,200		387,999
Long-term debt	2,768,226		2,822,196
Long-term finance lease liabilities	566,739		571,877
Long-term operating lease liabilities	753,301		792,051
Deferred income taxes	270,614		270,421
Deferred franchise fees	89,363		90,231
Other liabilities	94,441		98,849
Total liabilities	4,947,884		5,033,624
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 207,468 and 213,101 shares outstanding, respectively	47,042		47,042
Additional paid-in capital	2,950,916		2,937,885
Retained earnings	414,324		414,749
Common stock held in treasury, at cost; 262,956 and 257,323 shares, respectively	(3,006,116)		(2,869,780)
Accumulated other comprehensive loss	(63,602)		(64,176)
Total stockholders’ equity	342,564		465,720
Total liabilities and stockholders’ equity	$	5,290,448	$	5,499,344

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 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
	(Unaudited)
Revenues:
Sales	$	234,721	$	228,786	$	703,358	$	668,930
Franchise royalty revenue and fees	149,345		141,733		444,070		414,145
Franchise rental income	57,567		58,463		173,407		174,944
Advertising funds revenue	108,922		103,587		320,092		300,976
	550,555		532,569		1,640,927		1,558,995
Costs and expenses:
Cost of sales	199,522		196,168		597,068		578,506
Franchise support and other costs	14,806		12,728		41,853		34,456
Franchise rental expense	31,876		31,687		94,901		92,699
Advertising funds expense	107,895		108,269		319,174		317,042
General and administrative	59,288		62,523		184,306		186,506
Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below)	34,288		34,252		101,258		100,911
Amortization of cloud computing arrangements	3,844		888		7,692		888
System optimization gains, net	(120)		(452)		(119)		(4,138)
Reorganization and realignment costs	611		8		8,100		628
Impairment of long-lived assets	59		206		513		2,682
Other operating income, net	(3,117)		(11,843)		(9,174)		(20,482)
	448,952		434,434		1,345,572		1,289,698
Operating profit	101,603		98,135		295,355		269,297
Interest expense, net	(30,957)		(31,916)		(93,798)		(90,406)
Loss on early extinguishment of debt	(319)		—		(1,585)		—
Investment (loss) income, net	—		—		(10,389)		2,107
Other income, net	7,637		2,910		22,546		4,355
Income before income taxes	77,964		69,129		212,129		185,353
Provision for income taxes	(19,915)		(18,587)		(54,627)		(49,258)
Net income	$	58,049	$	50,542	$	157,502	$	136,095

Net income per share:
Basic	$	.28	$	.24	$	.75	$	.64
Diluted	.28		.24		.74		.63

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 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
	(Unaudited)
Net income	$	58,049	$	50,542	$	157,502	$	136,095
Other comprehensive (loss) income:
Foreign currency translation adjustment	(4,533)		(14,183)		574		(20,520)
Other comprehensive (loss) income	(4,533)		(14,183)		574		(20,520)
Comprehensive income	$	53,516	$	36,359	$	158,076	$	115,575

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 1, 2023	$	47,042	$	2,937,885	$	414,749	$	(2,869,780)	$	(64,176)	$	465,720
Net income	—		—		39,821		—		—		39,821
Other comprehensive income	—		—		—		—		158		158
Cash dividends	—		—		(53,103)		—		—		(53,103)
Repurchases of common stock	—		—		—		(38,810)		—		(38,810)
Share-based compensation	—		4,609		—		—		—		4,609
Common stock issued upon exercises of stock options	—		808		—		1,808		—		2,616
Common stock issued upon vesting of restricted shares	—		(2,222)		—		678		—		(1,544)
Other	—		58		(22)		54		—		90
Balance at April 2, 2023	$	47,042	$	2,941,138	$	401,445	$	(2,906,050)	$	(64,018)	$	419,557
Net income	—		—		59,632		—		—		59,632
Other comprehensive income	—		—		—		—		4,949		4,949
Cash dividends	—		—		(52,612)		—		—		(52,612)
Repurchases of common stock	—		—		—		(50,183)		—		(50,183)
Share-based compensation	—		5,609		—		—		—		5,609
Common stock issued upon exercises of stock options	—		1,136		—		3,829		—		4,965
Common stock issued upon vesting of restricted shares	—		(2,182)		—		1,283		—		(899)
Other	—		53		(16)		60		—		97
Balance at July 2, 2023	$	47,042	$	2,945,754	$	408,449	$	(2,951,061)	$	(59,069)	$	391,115
Net income	—		—		58,049		—		—		58,049
Other comprehensive loss	—		—		—		—		(4,533)		(4,533)
Cash dividends	—		—		(52,156)		—		—		(52,156)
Repurchases of common stock	—		—		—		(56,714)		—		(56,714)
Share-based compensation	—		6,551		—		—		—		6,551
Common stock issued upon exercises of stock options	—		210		—		894		—		1,104
Common stock issued upon vesting of restricted shares	—		(1,658)		—		702		—		(956)
Other	—		59		(18)		63		—		104
Balance at October 1, 2023	$	47,042	$	2,950,916	$	414,324	$	(3,006,116)	$	(63,602)	$	342,564

See accompanying notes to condensed consolidated financial statements.

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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 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.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	Nine Months Ended
	October 1, 2023		October 2, 2022
	(Unaudited)
Cash flows from operating activities:
Net income	$	157,502	$	136,095
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)	101,258		100,911
Amortization of cloud computing arrangements	7,692		888
Share-based compensation	16,769		17,497
Impairment of long-lived assets	513		2,682
Deferred income tax	(502)		10,214
Non-cash rental expense, net	30,724		26,164
Change in operating lease liabilities	(35,319)		(34,241)
Net receipt of deferred vendor incentives	4,007		1,884
System optimization gains, net	(119)		(4,138)
Distributions received from joint ventures, net of equity in earnings	1,349		3,468
Long-term debt-related activities, net	7,310		5,746
Cloud computing arrangements expenditures	(25,154)		(22,685)
Changes in operating assets and liabilities and other, net	3,495		(61,846)
Net cash provided by operating activities	269,525		182,639
Cash flows from investing activities:
Capital expenditures	(55,689)		(50,036)
Franchise development fund	(1,947)		(2,484)

Dispositions	280		3,731

Notes receivable, net	1,825		2,713
Net cash used in investing activities	(55,531)		(46,076)
Cash flows from financing activities:
Proceeds from long-term debt	—		500,000
Repayments of long-term debt	(61,280)		(19,437)
Repayments of finance lease liabilities	(16,947)		(13,411)
Deferred financing costs	—		(10,232)
Repurchases of common stock	(142,413)		(51,950)
Dividends	(157,871)		(80,153)
Proceeds from stock option exercises	9,113		2,668
Payments related to tax withholding for share-based compensation	(3,827)		(2,980)
Net cash (used in) provided by financing activities	(373,225)		324,505
Net cash (used in) provided by operations before effect of exchange rate changes on cash	(159,231)		461,068
Effect of exchange rate changes on cash	307		(7,176)
Net (decrease) increase in cash, cash equivalents and restricted cash	(158,924)		453,892
Cash, cash equivalents and restricted cash at beginning of period	831,801		366,966
Cash, cash equivalents and restricted cash at end of period	$	672,877	$	820,858

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 1, 2023, the results of our operations for the three and nine months ended October 1, 2023 and October 2, 2022 and cash flows for the nine months ended October 1, 2023 and October 2, 2022. The results of operations for the nine months ended October 1, 2023 are not necessarily indicative of the results to be expected for the full 2023 fiscal year. The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2023 (the “Form 10-K”).

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 17 for further information.

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to or on December 31. All three- and nine-month periods presented herein contain 13 weeks and 39 weeks, respectively. All references to years, quarters and months relate to fiscal periods rather than calendar periods.

Our significant interim accounting policies include the recognition of advertising funds expense in proportion to advertising funds revenue.

(2) Revenue

Disaggregation of Revenue

The following tables disaggregate revenue by segment and source:


	Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total
Three Months Ended October 1, 2023
Sales at Company-operated restaurants	$	227,674	$	7,047	$	—	$	234,721
Franchise royalty revenue	112,698		17,390		—		130,088
Franchise fees	17,079		1,597		581		19,257
Franchise rental income	—		—		57,567		57,567
Advertising funds revenue	99,789		9,133		—		108,922
Total revenues	$	457,240	$	35,167	$	58,148	$	550,555

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

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)


	Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total
Nine Months Ended October 1, 2023
Sales at Company-operated restaurants	$	685,168	$	18,190	$	—	$	703,358
Franchise royalty revenue	333,958		50,408		—		384,366
Franchise fees	51,812		4,515		3,377		59,704
Franchise rental income	—		—		173,407		173,407
Advertising funds revenue	296,043		24,049		—		320,092
Total revenues	$	1,366,981	$	97,162	$	176,784	$	1,640,927

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	—		—		174,944		174,944
Advertising funds revenue	281,779		19,197		—		300,976
Total revenues	$	1,303,685	$	77,916	$	177,394	$	1,558,995

Contract Balances

The following table provides information about receivables and contract liabilities (deferred franchise fees) from contracts with customers:


	October 1, 2023 (a)		January 1, 2023 (a)
Receivables, which are included in “Accounts and notes receivable, net” (b)	$	54,931	$	54,497
Receivables, which are included in “Advertising funds restricted assets”	66,676		70,422
Deferred franchise fees (c)	99,889		99,208

_______________

(a)Excludes funds collected from the sale of gift cards, which are primarily reimbursed to franchisees upon redemption at franchised restaurants and do not ultimately result in the recognition of revenue in the Company’s condensed consolidated statements of operations.

(b)Includes receivables related to “Sales” and “Franchise royalty revenue and fees.”

(c)The current portion of deferred franchise fees is included in “Accrued expenses and other current liabilities” and the long-term portion of deferred franchise fees is included in “Deferred franchise fees” and totaled $10,526 and $89,363, respectively, as of October 1, 2023, and $8,977 and $90,231, respectively, as of January 1, 2023.

Significant changes in deferred franchise fees are as follows:


	Nine Months Ended
	October 1, 2023		October 2, 2022
Deferred franchise fees at beginning of period	$	99,208	$	97,186
Revenue recognized during the period	(9,016)		(7,193)
New deferrals due to cash received and other	9,697		10,143
Deferred franchise fees at end of period	$	99,889	$	100,136

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Anticipated Future Recognition of Deferred Franchise Fees

The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period:


Estimate for fiscal year:
2023 (a)	$	6,332
2024	6,090
2025	5,908
2026	5,797
2027	5,689
Thereafter	70,073
	$	99,889

_______________

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

(3) System Optimization Gains, Net

The Company’s system optimization initiative included a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”). As of January 1, 2017, the Company achieved its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total system. While the Company has no plans to move its ownership away from approximately 5% of the total system, the Company expects to continue to optimize the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base and drive new restaurant development. During the nine months ended October 1, 2023 and October 2, 2022, the Company facilitated 88 and 54 Franchise Flips, respectively. Additionally, during the nine months ended October 2, 2022, the Company completed the sale of 1 Company-operated restaurant to a franchisee. No Company-operated restaurants were sold to franchisees during the nine months ended October 1, 2023.

Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our condensed consolidated statements of operations. Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs.” All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following is a summary of the disposition activity recorded as a result of our system optimization initiative:


	Three Months Ended				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Number of restaurants sold to franchisees	—		1		—		1

Proceeds from sales of restaurants (a)	$	—	$	79	$	—	$	79
Net assets sold (b)	—		(141)		—		(141)
Net unfavorable leases	—		(360)		—		(360)
Other	—		6		—		6
	—		(416)		—		(416)
Post-closing adjustments on sales of restaurants (c)	537		—		537		3,522
Gain (loss) on sales of restaurants, net	537		(416)		537		3,106

(Loss) gain on sales of other assets, net (d)	(417)		868		(418)		1,032
System optimization gains, net	$	120	$	452	$	119	$	4,138

_______________

(a)In addition to the proceeds noted herein, the Company received cash proceeds of $126 and $284 during the three and nine months ended October 2, 2022, respectively, related to a note receivable issued in connection with the sale of the Manhattan Company-operated restaurants.

(b)Net assets sold consisted primarily of equipment.

(c)Represents the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

(d)During the nine months ended October 1, 2023, the Company received net cash proceeds of $280 primarily from the sale of surplus and other properties. During the three and nine months ended October 2, 2022, the Company received net cash proceeds of $2,510 and $3,368, respectively, primarily from the sale of surplus and other properties.

Assets Held for Sale

As of October 1, 2023 and January 1, 2023, the Company had assets held for sale of $1,320 and $1,661, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”

(4) Reorganization and Realignment Costs

The following is a summary of the initiatives included in “Reorganization and realignment costs:”


	Three Months Ended				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Organizational redesign	$	579	$	—	$	7,986	$	—

Other reorganization and realignment plans	32		8		114		628
Reorganization and realignment costs	$	611	$	8	$	8,100	$	628

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Organizational Redesign

In February 2023, the Board of Directors approved a plan to redesign the Company’s organizational structure to better support the execution of the Company’s long-term growth strategy by maximizing organizational efficiency and streamlining decision making (the “Organizational Redesign Plan”). As a result of the Organizational Redesign Plan, the Company expects to hold its general and administrative expense in 2023 and 2024 relatively flat compared with 2022. The Company expects to incur total costs of approximately $11,000 to $13,000 related to the Organizational Redesign Plan. During the nine months ended October 1, 2023, the Company recognized costs totaling $7,986, which primarily included severance and related employee costs and share-based compensation. The Company expects to incur additional costs aggregating approximately $3,000 to $5,000, comprised of (1) severance and related employee costs of approximately $1,500, (2) recruitment and relocation costs of approximately $500, (3) third-party and other costs of approximately $500 and (4) share-based compensation of approximately $1,500. The Company expects costs related to the Organizational Redesign Plan to continue into 2026, with approximately three-fourths of the total costs to be recognized during 2023.

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


	Three Months Ended		Nine Months Ended
	October 1, 2023		October 1, 2023
Severance and related employee costs	$	114	$	5,674
Recruitment and relocation costs	140		304
Third-party and other costs	173		904
	427		6,882
Share-based compensation (a)	152		1,104
Total organizational redesign	$	579	$	7,986

_______________

(a)Primarily represents the accelerated recognition of share-based compensation resulting from the termination of employees under the Organizational Redesign Plan.

As of October 1, 2023, the accruals for the Organizational Redesign Plan are included in “Accrued expenses and other current liabilities”. The table below presents a rollforward of our accruals for the Organizational Redesign Plan.


	Balance January 1, 2023		Charges		Payments		Balance October 1, 2023
Severance and related employee costs	$	—	$	5,674	$	(3,524)	$	2,150
Recruitment and relocation costs	—		304		(304)		—
Third-party and other costs	—		904		(904)		—
	$	—	$	6,882	$	(4,732)	$	2,150

Other Reorganization and Realignment Plans

Costs incurred under the Company’s other reorganization and realignment plans were not material during the nine months ended October 1, 2023 and October 2, 2022. The Company does not expect to incur any material additional costs under these plans.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(5) Investments

The following is a summary of the carrying value of our investments:


	October 1, 2023		January 1, 2023
Equity method investments	$	32,723	$	33,921
Other investments in equity securities	1,718		12,107
	$	34,441	$	46,028

Equity Method Investments

Wendy’s has a 50% share in a partnership in a Canadian restaurant real estate joint venture (“TimWen”) with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company that owns the Tim Hortons® brand (Tim Hortons is a registered trademark of Tim Hortons USA Inc.). The Company has significant influence over this investee. Such investment is accounted for using the equity method, under which our results of operations include our share of the income of the investee in “Other operating income, net.”

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


	Nine Months Ended
	October 1, 2023		October 2, 2022
Balance at beginning of period	$	33,921	$	39,870

Equity in earnings for the period	10,012		9,091
Amortization of purchase price adjustments (a)	(2,051)		(2,163)
	7,961		6,928
Distributions received	(9,310)		(10,396)
Foreign currency translation adjustment included in “Other comprehensive (loss) income” and other	151		(3,027)
Balance at end of period	$	32,723	$	33,375

_______________

(a)Purchase price adjustments that impacted the carrying value of the Company’s investment in TimWen are being amortized over the average original aggregate life of 21 years.

Other Investments in Equity Securities

During 2021, the Company made an investment in equity securities of $10,000 and, during the nine months ended October 2, 2022, recognized a gain of $2,107 as a result of an observable price change for a similar investment of the same issuer. During the nine months ended October 1, 2023, the Company recorded impairment charges of $10,389 for the difference between the estimated fair value and the carrying value of the investment.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(6) Long-Term Debt

Long-term debt consisted of the following:


	October 1, 2023		January 1, 2023
Class A-2 Notes (a):
4.236% Series 2022-1 Class A-2-I Notes, anticipated repayment date 2029	$	98,750	$	99,500
4.535% Series 2022-1 Class A-2-II Notes, anticipated repayment date 2032	395,000		398,000
2.370% Series 2021-1 Class A-2-I Notes, anticipated repayment date 2029	439,875		443,250
2.775% Series 2021-1 Class A-2-II Notes, anticipated repayment date 2031	635,375		640,250
3.783% Series 2019-1 Class A-2-I Notes, anticipated repayment date 2026	361,000		364,000
4.080% Series 2019-1 Class A-2-II Notes, anticipated repayment date 2029	406,125		409,500
3.884% Series 2018-1 Class A-2-II Notes, anticipated repayment date 2028	447,688		451,250
7% debentures, due in 2025 (b)	49,190		86,369
Unamortized debt issuance costs	(35,527)		(40,673)
	2,797,476		2,851,446
Less amounts payable within one year	(29,250)		(29,250)
Total long-term debt	$	2,768,226	$	2,822,196

_______________

(a)Subsequent to October 1, 2023 through October 26, 2023, the Company repurchased $29,171 in principal of its Class A-2 senior secured notes for $24,935.

(b)Wendy’s 7% debentures are unsecured and were reduced to fair value in connection with the 2008 merger of Triarc Companies, Inc. and Wendy’s International, Inc. (the “Wendy’s Merger”). The fair value adjustment is being accreted and the related charge included in “Interest expense, net” until the debentures mature. During the nine months ended October 1, 2023, Wendy’s repurchased $39,266 in principal of its 7% debentures for $39,343. As a result, the Company recognized a loss on early extinguishment of debt of $1,585 during the nine months ended October 1, 2023. Subsequent to October 1, 2023 through October 26, 2023, the Company repurchased $1,164 in principal of its 7% debentures for $1,174.

(7) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. These inputs are classified into the following hierarchy:

•Level 1 Inputs - Quoted prices for identical assets or liabilities in active markets.

•Level 2 Inputs - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

•Level 3 Inputs - Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments:


	October 1, 2023				January 1, 2023
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements
Financial assets
Cash equivalents	$	419,744	$	419,744	$	560,682	$	560,682	Level 1
Other investments in equity securities (a)	1,718		1,718		12,107		12,107		Level 2

Financial liabilities (b)
Series 2022-1 Class A-2-I Notes	98,750		89,191		99,500		89,401		Level 2
Series 2022-1 Class A-2-II Notes	395,000		345,744		398,000		349,444		Level 2
Series 2021-1 Class A-2-I Notes	439,875		360,785		443,250		357,304		Level 2
Series 2021-1 Class A-2-II Notes	635,375		497,753		640,250		499,011		Level 2
Series 2019-1 Class A-2-I Notes	361,000		334,683		364,000		334,334		Level 2
Series 2019-1 Class A-2-II Notes	406,125		360,111		409,500		361,875		Level 2
Series 2018-1 Class A-2-II Notes	447,688		404,217		451,250		405,809		Level 2
7% debentures, due in 2025	49,190		51,115		86,369		92,367		Level 2

_______________

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

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

The carrying amounts of cash, accounts payable and accrued expenses approximate fair value due to the short-term nature of those items. The carrying amounts of accounts and notes receivable, net (both current and non-current) approximate fair value due to the effect of the related allowance for doubtful accounts. Our cash equivalents are the only financial assets measured and recorded at fair value on a recurring basis.

Non-Recurring Fair Value Measurements

Assets and liabilities remeasured to fair value on a non-recurring basis resulted in impairment that we have recorded to “Impairment of long-lived assets” in our condensed consolidated statements of operations.

Total impairment losses may reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements, favorable lease assets and right-of-use assets) to fair value as a result of (1) the deterioration in operating performance of certain Company-operated restaurants and (2) the Company’s decision to lease and/or sublease the land and/or buildings to franchisees in connection with the sale or anticipated sale of restaurants, including any subsequent lease modifications. The fair values of long-lived assets held and used presented in the tables below represent the remaining carrying value and were estimated based on either discounted cash flows of future anticipated lease and sublease income or discounted cash flows of future anticipated Company-operated restaurant performance.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Total impairment losses may also include the impact of remeasuring long-lived assets held for sale. The fair values of long-lived assets held for sale presented in the tables below represent the remaining carrying value and were estimated based on current market values. See Note 8 for further information on impairment of our long-lived assets.


			Fair Value Measurements
	October 1, 2023		Level 1		Level 2		Level 3
Held and used	$	593	$	—	$	—	$	593
Held for sale	1,044		—		—		1,044
Total	$	1,637	$	—	$	—	$	1,637


			Fair Value Measurements
	January 1, 2023		Level 1		Level 2		Level 3
Held and used	$	4,590	$	—	$	—	$	4,590
Held for sale	1,314		—		—		1,314
Total	$	5,904	$	—	$	—	$	5,904

(8) Impairment of Long-Lived Assets

The Company records impairment charges as a result of (1) the deterioration in operating performance of certain Company-operated restaurants, (2) the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of Company-operated restaurants, including any subsequent lease modifications and (3) closing Company-operated restaurants and classifying such surplus properties as held for sale.

The following is a summary of impairment losses recorded, which represent the excess of the carrying amount over the fair value of the affected assets and are included in “Impairment of long-lived assets:”


	Three Months Ended				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023	October 2, 2022
Company-operated restaurants	$	—	$	159	$