# Wendy's Co (WEN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Wendy's Co's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/30697/000003069725000003/wen-20241229.htm
Accession: 0000030697-25-000003
Filing date: 2025-02-21
Report date: 2024-12-29
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/WEN/
All MD&A years: /company/WEN/mda/
Previous year: /company/WEN/mda/fy2023/ (FY 2023)
Next year: /company/WEN/mda/fy2025/ (FY 2025)

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”).

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 31 foreign countries and U.S. territories as of December 29, 2024.

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 25 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 29, 2024” or “2024,” (2) “the year ended December 31, 2023” or “2023,” and (3) “the year ended January 1, 2023” or “2022,” all of which consisted of 52 weeks. All references to years, quarters and months relate to fiscal periods rather than calendar periods.

Executive Overview

Our Business

As of December 29, 2024, the Wendy’s restaurant system was comprised of 7,240 restaurants, with 5,933 Wendy’s restaurants in operation in the U.S. Of the U.S. restaurants, 381 were operated by the Company and 5,552 were operated by a total of 207 franchisees. In addition, at December 29, 2024, there were 1,307 Wendy’s restaurants in operation in 31 foreign countries and U.S. territories. Of the international restaurants, 1,294 were operated by 107 franchisees and 13 were operated by the Company in 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 29, 2024.

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.

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Wendy’s strategic framework includes providing fresh, famous food to consumers, delivering an exceptional customer experience through operational excellence and expanding the Company’s footprint across the globe. Our opportunities to execute on this framework for long-term profitable growth include (1) driving same-restaurant sales and share growth, (2) accelerating digital growth, (3) improving restaurant profitability and (4) driving global unit growth.

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.

•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 revenue 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 due to that country’s highly inflationary economy. 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

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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.

2024 Financial Highlights

•Revenue increased 3.0% to $2.25 billion in 2024 compared to $2.18 billion in 2023;

•Global same-restaurant sales increased 1.5%, U.S. same-restaurant sales increased 1.4% and international same-restaurant sales increased 2.8% compared to 2023. On a two-year basis, global same-restaurant sales increased 5.8%;

•Global Company-operated restaurant margin was 15.4% in 2024, an increase of 80 basis points compared to 2023; and

•Net income decreased 4.9% to $194.4 million in 2024 compared to $204.4 million in 2023.

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 enhancements to Wendy’s mobile apps and loyalty programs and establishing delivery arrangements with third-party vendors for Wendy’s U.S. and Canadian restaurants. 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. The Company’s digital business has continued to grow and digital sales increased from approximately 13.2% of global systemwide sales during 2023 to approximately 17.6% during 2024.

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 and existing restaurants (see Note 20 to the Consolidated Financial Statements contained in Item 8 herein for further discussion), in addition to our build to suit development fund (see Note 19 to the Consolidated Financial Statements contained in Item 8 herein for further discussion). 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. Global restaurant counts as of December 29, 2024 were flat compared to December 31, 2023 as a result of our actions to strengthen the system by closing certain underperforming restaurants during 2024.

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Organizational Redesign

In February 2023, the Board of Directors approved a plan to redesign the Company’s organizational structure to better support the execution of the Company’s long-term growth strategy by maximizing organizational efficiency and streamlining decision making (the “Organizational Redesign Plan”). As a result of the Organizational Redesign Plan, the Company held its general and administrative expense in 2023 relatively flat compared with 2022. Additionally, in January 2024, the Board of Directors announced the appointment of Kirk Tanner as the Company’s new President and Chief Executive Officer, effective February 5, 2024. Mr. Tanner succeeded Todd A. Penegor, the Company’s previous President and Chief Executive Officer, who departed from the Company in February 2024. The Company expects to incur total costs of approximately $18 million related to the Organizational Redesign Plan, including costs related to the succession of the President and Chief Executive Officer role. Of the total costs, approximately $15 million will be cash expenditures through 2026. Costs related to the Organizational Redesign Plan are recorded to “Reorganization and realignment costs.” During 2024, the Company recognized costs totaling $8.4 million, which primarily included severance and related employee costs. The Company expects to incur additional costs aggregating approximately $0.6 million, comprised primarily of share-based compensation. 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 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. For discussion related to 2022 items and year-to-year comparisons between 2023 and 2022 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 2023 Form 10-K, filed with the United States Securities and Exchange Commission on February 26, 2024.

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 29, 2024, December 31, 2023 and January 1, 2023.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Revenues:"],["Sales","$","925.9","","","$","(4.2)","","","$","930.1","","","$","33.5","","","$","896.6"],["Franchise royalty revenue and fees","626.0","","","33.7","","","592.3","","","34.1","","","558.2"],["Franchise rental income","236.5","","","6.3","","","230.2","","","(4.3)","","","234.5"],["Advertising funds revenue","458.1","","","29.1","","","429.0","","","22.8","","","406.2"],["","2,246.5","","","64.9","","","2,181.6","","","86.1","","","2,095.5"],["Costs and expenses:"],["Cost of sales","783.2","","","(11.3)","","","794.5","","","21.3","","","773.2"],["Franchise support and other costs","67.7","","","10.5","","","57.2","","","10.5","","","46.7"],["Franchise rental expense","127.4","","","2.0","","","125.4","","","1.3","","","124.1"],["Advertising funds expense","478.1","","","50.1","","","428.0","","","(2.8)","","","430.8"],["General and administrative","255.2","","","5.2","","","250.0","","","(5.0)","","","255.0"],["Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below)","143.2","","","7.4","","","135.8","","","2.4","","","133.4"],["Amortization of cloud computing arrangements","14.7","","","1.9","","","12.8","","","10.4","","","2.4"],["System optimization gains, net","(1.2)","","","(0.3)","","","(0.9)","","","5.9","","","(6.8)"],["Reorganization and realignment costs","8.5","","","(0.7)","","","9.2","","","8.5","","","0.7"],["Impairment of long-lived assets","9.7","","","8.3","","","1.4","","","(5.0)","","","6.4"],["Other operating income, net","(11.4)","","","2.4","","","(13.8)","","","9.9","","","(23.7)"],["","1,875.1","","","75.5","","","1,799.6","","","57.4","","","1,742.2"],["Operating profit","371.4","","","(10.6)","","","382.0","","","28.7","","","353.3"],["Interest expense, net","(123.9)","","","0.2","","","(124.1)","","","(1.8)","","","(122.3)"],["Gain on early extinguishment of debt, net","\u2014","","","(2.3)","","","2.3","","","2.3","","","\u2014"],["Investment income (loss), net","\u2014","","","10.4","","","(10.4)","","","(12.5)","","","2.1"],["Other income, net","24.8","","","(4.8)","","","29.6","","","19.2","","","10.4"],["Income before income taxes","272.4","","","(7.0)","","","279.4","","","35.9","","","243.5"],["Provision for income taxes","(78.0)","","","(3.0)","","","(75.0)","","","(8.9)","","","(66.1)"],["Net income","$","194.4","","","$","(10.0)","","","$","204.4","","","$","27.0","","","$","177.4"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","2024","","% of Total Revenues","","2023","","% of Total Revenues","","2022","","% of Total Revenues"],["Revenues:"],["Sales","$","925.9","","","41.2","%","","$","930.1","","","42.6","%","","$","896.6","","","42.8","%"],["Franchise royalty revenue and fees:"],["Franchise royalty revenue","528.4","","","23.5","%","","512.1","","","23.5","%","","485.5","","","23.2","%"],["Franchise fees","97.6","","","4.4","%","","80.2","","","3.6","%","","72.7","","","3.4","%"],["Total franchise royalty revenue and fees","626.0","","","27.9","%","","592.3","","","27.1","%","","558.2","","","26.6","%"],["Franchise rental income","236.5","","","10.5","%","","230.2","","","10.6","%","","234.5","","","11.2","%"],["Advertising funds revenue","458.1","","","20.4","%","","429.0","","","19.7","%","","406.2","","","19.4","%"],["Total revenues","$","2,246.5","","","100.0","%","","$","2,181.6","","","100.0","%","","$","2,095.5","","","100.0","%"],["","2024","","% of Sales","","2023","","% of Sales","","2022","","% of Sales"],["Cost of sales:"],["Food and paper","$","287.2","","","31.0","%","","$","297.4","","","32.0","%","","$","292.9","","","32.7","%"],["Restaurant labor","298.1","","","32.2","%","","298.5","","","32.1","%","","288.0","","","32.1","%"],["Occupancy, advertising and other operating costs","197.9","","","21.4","%","","198.6","","","21.3","%","","192.3","","","21.4","%"],["Total cost of sales","$","783.2","","","84.6","%","","$","794.5","","","85.4","%","","$","773.2","","","86.2","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","2024","","% of Sales","","2023","","% of Sales","","2022","","% of Sales"],["Company-operated restaurant margin:"],["U.S.","$","143.6","","","16.0","%","","$","138.6","","","15.3","%","","$","125.9","","","14.3","%"],["Global","142.7","","","15.4","%","","135.6","","","14.6","%","","123.4","","","13.8","%"]]
[[/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]]
[["","2024","","2023","","2022"],["Key business measures:"],["U.S. same-restaurant sales:"],["Company-operated","0.0","%","","2.6","%","","4.4","%"],["Franchised","1.5","%","","3.8","%","","3.9","%"],["Systemwide","1.4","%","","3.7","%","","3.9","%"],["International same-restaurant sales (a)","2.8","%","","8.1","%","","12.4","%"],["Global same-restaurant sales:"],["Company-operated","(0.1)","%","","2.7","%","","4.4","%"],["Franchised (a)","1.7","%","","4.4","%","","4.9","%"],["Systemwide (a)","1.5","%","","4.3","%","","4.9","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["Key business measures (continued):"],["Systemwide sales (b):"],["U.S. Company-operated","$","898.9","","","$","905.7","","","$","882.7"],["U.S. franchised","11,654.9","","","11,379.6","","","10,811.7"],["U.S. systemwide","12,553.8","","","12,285.3","","","11,694.4"],["International Company-operated","27.0","","","24.4","","","13.9"],["International franchised (a)","1,906.6","","","1,778.0","","","1,592.4"],["International systemwide (a)","1,933.6","","","1,802.4","","","1,606.3"],["Global systemwide (a)","$","14,487.4","","","$","14,087.7","","","$","13,300.7"],["Restaurant average unit volumes (in thousands):"],["U.S. Company-operated","$","2,275.1","","","$","2,256.7","","","$","2,192.0"],["U.S. franchised","2,085.7","","","2,046.0","","","1,957.2"],["U.S. systemwide","2,098.2","","","2,060.2","","","1,973.1"],["International systemwide (a)","1,576.9","","","1,585.3","","","1,526.5"],["Global systemwide (a)","$","2,009.6","","","$","1,984.1","","","$","1,905.8"]]
[[/GREPCENT_TABLE]]

_______________

(a)Excludes Argentina due to the impact of that country’s highly inflationary economy.

(b)During 2024 and 2023, global systemwide sales increased 3.1% and 6.1%, respectively, U.S. systemwide sales increased 2.2% and 5.1%, respectively, and international systemwide sales increased 9.0% and 14.1%, respectively, on a constant currency basis.

The table below presents details regarding the change in restaurant counts of the Wendy’s system from 2022 to 2024.

[[GREPCENT_TABLE]]
[["","U.S. Company-operated","","U.S. Franchised","","International Company-operated","","International Franchised","","Systemwide"],["Restaurant count:"],["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"],["Opened","2","","","99","","","1","","","174","","","276"],["Closed","(21)","","","(177)","","","\u2014","","","(78)","","","(276)"],["Net (sold to) purchased by franchisees","(3)","","","3","","","\u2014","","","\u2014","","","\u2014"],["Restaurant count at December 29, 2024","381","","","5,552","","","13","","","1,294","","","7,240"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Sales","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Sales","$","925.9","","","$","(4.2)","","","$","930.1","","","$","33.5","","","$","896.6"]]
[[/GREPCENT_TABLE]]

The decrease in sales during 2024 was primarily due to (1) net closures of Company-operated restaurants of $3.1 million and (2) a 0.1% decrease in Company-operated same-restaurant sales of $2.4 million. Company-operated same-restaurant sales decreased due to a decrease in customer count, partially offset by higher average check.

[[GREPCENT_TABLE]]
[["Franchise Royalty Revenue and Fees","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Franchise royalty revenue","$","528.4","","","$","16.3","","","$","512.1","","","$","26.6","","","$","485.5"],["Franchise fees","97.6","","","17.4","","","80.2","","","7.5","","","72.7"],["","$","626.0","","","$","33.7","","","$","592.3","","","$","34.1","","","$","558.2"]]
[[/GREPCENT_TABLE]]

Franchise royalty revenue during 2024 increased $16.3 million, of which (1) $9.3 million was due to a 1.7% increase in global franchise same-restaurant sales and (2) $8.3 million was due to net new restaurant development. Franchise same-restaurant sales during 2024 increased due to higher average check, partially offset by a decrease in customer count.

The increase in franchise fees during 2024 was primarily due to (1) early termination fees for franchised restaurant closures of $8.2 million, (2) higher fees for providing information technology services to franchisees of $4.7 million and (3) an increase in other miscellaneous fees of $4.5 million.

[[GREPCENT_TABLE]]
[["Franchise Rental Income","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Franchise rental income","$","236.5","","","$","6.3","","","$","230.2","","","$","(4.3)","","","$","234.5"]]
[[/GREPCENT_TABLE]]

The increase in franchise rental income during 2024 was primarily due to the impact of (1) amending certain existing leases of $4.0 million and (2) entering into new leases of $2.2 million.

[[GREPCENT_TABLE]]
[["Advertising Funds Revenue","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Advertising funds revenue","$","458.1","","","$","29.1","","","$","429.0","","","$","22.8","","","$","406.2"]]
[[/GREPCENT_TABLE]]

The increase in advertising funds revenue during 2024 was primarily due to (1) promotional activity of $12.0 million, (2) an increase in franchise same-restaurant sales in the U.S. and Canada of $6.9 million and (3) net new restaurant development of $5.6 million.

[[GREPCENT_TABLE]]
[["Cost of Sales, as a Percent of Sales","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Food and paper","31.0","%","","(1.0)","%","","32.0","%","","(0.7)","%","","32.7","%"],["Restaurant labor","32.2","%","","0.1","%","","32.1","%","","\u2014","%","","32.1","%"],["Occupancy, advertising and other operating costs","21.4","%","","0.1","%","","21.3","%","","(0.1)","%","","21.4","%"],["","84.6","%","","(0.8)","%","","85.4","%","","(0.8)","%","","86.2","%"]]
[[/GREPCENT_TABLE]]

The decrease in cost of sales, as a percent of sales, during 2024 was primarily due to (1) higher average check and (2) labor efficiencies. These impacts were partially offset by (1) an increase in restaurant labor rates and (2) a decrease in customer count.

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[[GREPCENT_TABLE]]
[["Franchise Support and Other Costs","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Franchise support and other costs","$","67.7","","","$","10.5","","","$","57.2","","","$","10.5","","","$","46.7"]]
[[/GREPCENT_TABLE]]

The increase in franchise support and other costs during 2024 was primarily due to (1) an increase in costs incurred to provide information technology and other services to franchisees and (2) an increase in the provision for doubtful accounts.

[[GREPCENT_TABLE]]
[["Franchise Rental Expense","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Franchise rental expense","$","127.4","","","$","2.0","","","$","125.4","","","$","1.3","","","$","124.1"]]
[[/GREPCENT_TABLE]]

The increase in franchise rental expense during 2024 was primarily due to the impact of assigning certain leases to franchisees.

[[GREPCENT_TABLE]]
[["Advertising Funds Expense","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Advertising funds expense","$","478.1","","","$","50.1","","","$","428.0","","","$","(2.8)","","","$","430.8"]]
[[/GREPCENT_TABLE]]

The increase in advertising funds expense during 2024 was primarily due to (1) the same factors as described above for “Advertising Funds Revenue” and (2) the recognition of the expected Company breakfast advertising spend in excess of advertising funds revenue of $21.9 million.

[[GREPCENT_TABLE]]
[["General and Administrative","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Employee compensation and benefits","$","135.1","","","$","8.7","","","$","126.4","","","$","(2.1)","","","$","128.5"],["Professional fees","58.0","","","(2.3)","","","60.3","","","(1.5)","","","61.8"],["Incentive compensation","25.6","","","(1.2)","","","26.8","","","1.8","","","25.0"],["Share-based compensation","22.2","","","(0.3)","","","22.5","","","(2.0)","","","24.5"],["Other, net","14.3","","","0.3","","","14.0","","","(1.2)","","","15.2"],["","$","255.2","","","$","5.2","","","$","250.0","","","$","(5.0)","","","$","255.0"]]
[[/GREPCENT_TABLE]]

The increase in general and administrative expenses during 2024 was primarily due to higher employee compensation and benefits. This increase was partially offset by (1) lower professional fees, primarily as a result of costs associated with the Company’s human capital management (“HCM”) system implementation during 2023, and (2) a decrease in incentive compensation accruals, reflecting lower operating performance as compared to plan in 2024 versus 2023.

[[GREPCENT_TABLE]]
[["Depreciation and Amortization (exclusive of amortization of cloud computing arrangements shown separately below)","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Restaurants","$","87.4","","","$","1.6","","","$","85.8","","","$","1.8","","","$","84.0"],["Technology support, corporate and other","55.8","","","5.8","","","50.0","","","0.6","","","49.4"],["","$","143.2","","","$","7.4","","","$","135.8","","","$","2.4","","","$","133.4"]]
[[/GREPCENT_TABLE]]

The increase in depreciation and amortization during 2024 was primarily due to (1) depreciation and amortization for technology investments and (2) asset additions for new and remodeled restaurants.

42

[[GREPCENT_TABLE]]
[["Amortization of Cloud Computing Arrangements","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Amortization of cloud computing arrangements","$","14.7","","","$","1.9","","","$","12.8","","","$","10.4","","","$","2.4"]]
[[/GREPCENT_TABLE]]

The increase in amortization of cloud computing arrangements was primarily due to amortization of assets associated with the Company’s HCM system implementation completed in 2023.

[[GREPCENT_TABLE]]
[["System Optimization Gains, Net","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["System optimization gains, net","$","1.2","","","$","0.3","","","$","0.9","","","$","(5.9)","","","$","6.8"]]
[[/GREPCENT_TABLE]]

System optimization gains, net during 2024 were primarily comprised of gains on the sale of Company-operated restaurants. See Note 15 to the Consolidated Financial Statements contained in Item 8 herein for further discussion.

[[GREPCENT_TABLE]]
[["Reorganization and Realignment Costs","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Organizational Redesign Plan","$","8.4","","","$","(0.7)","","","$","9.1","","","$","9.1","","","$","\u2014"],["Other reorganization and realignment plans","0.1","","","\u2014","","","0.1","","","(0.6)","","","0.7"],["","$","8.5","","","$","(0.7)","","","$","9.2","","","$","8.5","","","$","0.7"]]
[[/GREPCENT_TABLE]]

During 2024 and 2023, the Company recognized costs under the Organizational Redesign Plan of $8.4 million and $9.1 million, respectively, which primarily included severance and related employee costs. See Note 16 to the Consolidated Financial Statements contained in Item 8 herein for further information on the Organizational Redesign Plan.

[[GREPCENT_TABLE]]
[["Impairment of Long-Lived Assets","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Impairment of long-lived assets","$","9.7","","","$","8.3","","","$","1.4","","","$","(5.0)","","","$","6.4"]]
[[/GREPCENT_TABLE]]

The increase in impairment of long-lived assets during 2024 was primarily due to (1) the decision to close certain Company-operated restaurants and (2) the deterioration in operating performance of certain other Company-operated restaurants.

[[GREPCENT_TABLE]]
[["Other Operating Income, Net","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Gains on sales-type leases","$","0.5","","","$","(2.0)","","","$","2.5","","","$","(0.5)","","","$","3.0"],["Lease buyout","(1.0)","","","(0.9)","","","(0.1)","","","(2.9)","","","2.8"],["Equity in earnings in joint ventures, net","11.6","","","0.8","","","10.8","","","1.4","","","9.4"],["Gain from insurance recoveries","\u2014","","","\u2014","","","\u2014","","","(8.6)","","","8.6"],["Other, net","0.3","","","(0.3)","","","0.6","","","0.7","","","(0.1)"],["","$","11.4","","","$","(2.4)","","","$","13.8","","","$","9.9","","","$","23.7"]]
[[/GREPCENT_TABLE]]

The decrease in other operating income, net during 2024 was primarily due to prior year gains on new and modified sales-type leases.

[[GREPCENT_TABLE]]
[["Interest Expense, Net","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Interest expense, net","$","123.9","","","$","(0.2)","","","$","124.1","","","$","1.8","","","$","122.3"]]
[[/GREPCENT_TABLE]]

Interest expense, net decreased during 2024 primarily due to lower outstanding long-term debt. See Note 9 to the Consolidated Financial Statements contained in Item 8 herein for further information.

43

[[GREPCENT_TABLE]]
[["Gain on Early Extinguishment of Debt, Net","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Gain on early extinguishment of debt, net","$","\u2014","","","$","(2.3)","","","$","2.3","","","$","2.3","","","$","\u2014"]]
[[/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 9 to the Consolidated Financial Statements contained in Item 8 herein for further information.

[[GREPCENT_TABLE]]
[["Investment Income (Loss), Net","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Investment income (loss), net","$","\u2014","","","$","10.4","","","$","(10.4)","","","$","(12.5)","","","$","2.1"]]
[[/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.

[[GREPCENT_TABLE]]
[["Other Income, Net","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Other income, net","$","24.8","","","$","(4.8)","","","$","29.6","","","$","19.2","","","$","10.4"]]
[[/GREPCENT_TABLE]]

The decrease in other income, net during 2024 was primarily due to a decrease in interest income, reflecting lower balances of cash equivalents.

[[GREPCENT_TABLE]]
[["Provision for Income Taxes","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Income before income taxes","$","272.4","","","$","(7.0)","","","$","279.4","","","$","35.9","","","$","243.5"],["Provision for income taxes","(78.0)","","","(3.0)","","","(75.0)","","","(8.9)","","","(66.1)"],["Effective tax rate on income","28.7","%","","1.9","%","","26.8","%","","(0.4)","%","","27.2","%"]]
[[/GREPCENT_TABLE]]

The increase in the provision for income taxes and the effective tax rate during 2024 was primarily due to a discrete state tax item.

Numerous countries have enacted the Organization of Economic Corporation and Development’s framework on a global minimum tax (referred to as “Pillar 2”), with the earliest effective date for taxable years beginning after December 31, 2023. While the Company does not expect this enactment will have a material impact on the Consolidated Financial Statements contained in Item 8 herein, we will continue to evaluate and monitor as additional guidance and clarification becomes available.

Segment Information

See Note 25 to the Consolidated Financial Statements contained in Item 8 herein for further information regarding the Company’s segments.

Wendy’s U.S.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Sales","$","898.9","","","$","(6.8)","","","$","905.7","","","$","23.0","","","$","882.7"],["Franchise royalty revenue","456.6","","","11.9","","","444.7","","","20.7","","","424.0"],["Franchise fees","82.7","","","14.0","","","68.7","","5.7","","","63.0"],["Advertising fund revenue","421.5","","","24.8","","","396.7","","","16.2","","","380.5"],["Total revenues","$","1,859.7","","","$","43.9","","","$","1,815.8","","","$","65.6","","","$","1,750.2"],["Segment profit","$","526.0","","","$","(2.4)","","","$","528.4","","","$","47.9","","","$","480.5"]]
[[/GREPCENT_TABLE]]

44

The increase in Wendy’s U.S. revenues during 2024 was primarily due to (1) higher advertising fund revenue, (2) an increase in franchisee fees, (3) an increase in franchise same-restaurant sales and (4) restaurant development activity. Franchise same-restaurant sales increased during 2024 primarily due to higher average check, partially offset by a decrease in customer count. These increases were partially offset by a decrease in Company-operated sales driven by the same factors as described above for “Sales.”

The decrease in Wendy’s U.S. segment profit during 2024 was primarily due to (1) an increase in the Company’s funding of incremental advertising, (2) a decrease in Company-operated sales and (3) higher franchise support and other costs. These changes were partially offset by an increase in franchise fees and royalty revenue.

Wendy’s International

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Sales","$","27.0","","","$","2.6","","","$","24.4","","","$","10.5","","","$","13.9"],["Franchise royalty revenue","71.7","","","4.2","","","67.5","","","6.0","","","61.5"],["Franchise fees","9.3","","","2.9","","","6.4","","","0.8","","","5.6"],["Advertising fund revenue","36.6","","","4.4","","","32.2","","","6.5","","","25.7"],["Total revenues","$","144.7","","","$","14.2","","","$","130.5","","","$","23.8","","","$","106.7"],["Segment profit","$","43.3","","","$","7.6","","","$","35.7","","","$","5.3","","","$","30.4"]]
[[/GREPCENT_TABLE]]

The increase in Wendy’s International revenues during 2024 was primarily due to (1) net new restaurant development and (2) an increase in franchise same-restaurant sales. Franchise same-restaurant sales increased during 2024 due to higher average check, partially offset by a decrease in customer count.

The increase in Wendy’s International segment profit during 2024 was primarily due to higher revenues, partially offset by higher franchise support and other costs.

Global Real Estate & Development

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Franchise fees","$","5.6","","","$","0.6","","","$","5.0","","","$","0.9","","","$","4.1"],["Franchise rental income","236.5","","","6.3","","","230.2","","","(4.3)","","","234.5"],["Total revenues","$","242.1","","","$","6.9","","","$","235.2","","","$","(3.4)","","","$","238.6"],["Segment profit","$","108.6","","","$","5.1","","","$","103.5","","","$","(5.2)","","","$","108.7"]]
[[/GREPCENT_TABLE]]

The increase in Global Real Estate & Development revenues during 2024 was primarily due to higher franchise rental income as a result of (1) amending certain existing leases and (2) entering into new leases.

The increase in Global Real Estate & Development segment profit during 2024 was primarily due to higher revenues, partially offset by higher franchise rental expense driven by the same factors above for “Franchise Rental Expense.”

Consolidated Outlook for 2025

Sales

We expect sales at our Company-operated restaurants to be favorably impacted primarily by (1) innovation on our core menu items, (2) new offerings in fast growing categories, (3) expanding our digital sales and (4) focused execution of operational excellence anticipated to improve the customer experience.

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.

45

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.

General and Administrative

We expect general and administrative expenses to be higher primarily due to increases in (1) employee compensation and benefits, including investments in field resources to drive operational excellence, and (2) incentive compensation.

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

As of December 29, 2024, cash, cash equivalents and restricted cash totaled $503.6 million. In addition, the Company maintains a revolving financing facility, which allows for the drawing of up to $300.0 million. 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.

Material Cash Requirements

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”). During 2024, the Company repurchased 4.3 million shares under the January 2023 Authorization with an aggregate purchase price of $75.0 million, excluding excise tax of $0.6 million and commissions of $0.1 million. As of December 29, 2024, the Company had $235.0 million of availability remaining under the January 2023 Authorization. The Company expects to repurchase shares with an aggregate purchase price of up to $200.0 million during 2025, subject to market conditions. Subsequent to December 29, 2024 through February 19, 2025, the Company repurchased 3.4 million shares under the January 2023 Authorization with an aggregate purchase price of $50.4 million, excluding applicable excise tax and commissions.

Dividends

On March 15, 2024, June 17, 2024, September 17, 2024 and December 16, 2024, the Company paid quarterly cash dividends per share of $.25, aggregating $204.4 million. On February 13, 2025, the Company announced a dividend of $.25 per share to be paid on March 17, 2025 to stockholders of record as of March 3, 2025. Beginning in the second quarter of 2025, the Company expects to pay a quarterly dividend of $.14 per share. As a result, the Company’s total cash requirement for dividends for all of 2025 is expected to be approximately $125.0 million. 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.

Capital Expenditures

In 2024, cash capital expenditures amounted to $94.4 million, primarily related to digital and technology investments and various other development-related projects. In 2025, we expect that cash capital expenditures will amount to approximately $100.0 million to $110.0 million, principally relating to (1) technology investments, including consumer-facing digital technology, (2) the opening of new Company-operated restaurants, (3) land investments and (4) various other capital projects.

46

In addition to the capital expenditures noted above, cash expenditures related to the Company’s build to suit development fund amounted to $41.2 million during 2024. In 2025, we expect to invest approximately $70.0 million in the development fund to drive new restaurant growth.

Long-Term Debt, Including Current Portion

As of December 29, 2024, the Company’s long-term debt obligations totaled $2,740.3 million, including $78.2 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 2024.

We may from time to time seek to repurchase 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. Such 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 9 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 29, 2024, the Company’s future minimum rental payments for non-cancelable leases were $1,978.3 million, including $148.4 million payable within 12 months. See Note 5 to the Consolidated Financial Statements contained in Item 8 herein for further information related to our finance and operating lease obligations and the timing of expected payments.

Purchase Obligations

The Company’s purchase obligations include purchase requirements under a beverage agreement and other obligations related primarily to information technology and marketing. As of December 29, 2024, the Company’s purchase obligations were $214.2 million, including $77.9 million payable within 12 months.

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]]
[["","2024","","2023","","2022"],["","Amount","","Change","","Amount","","Change","","Amount"],["Net cash provided by (used in):"],["Operating activities","$","355.3","","","$","9.9","","","$","345.4","","","$","85.5","","","$","259.9"],["Investing activities","(129.3)","","","(42.8)","","","(86.5)","","","(8.7)","","","(77.8)"],["Financing activities","(303.1)","","","201.2","","","(504.3)","","","(793.0)","","","288.7"],["Effect of exchange rate changes on cash","(8.1)","","","(10.5)","","","2.4","","","8.4","","","(6.0)"],["Net (decrease) increase in cash, cash equivalents and restricted cash","$","(85.2)","","","$","157.8","","","$","(243.0)","","","$","(707.8)","","","$","464.8"]]
[[/GREPCENT_TABLE]]

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.

47

Cash provided by operating activities was $355.3 million and $345.4 million in 2024 and 2023, respectively. The change was primarily due to a decrease in cash paid for cloud computing arrangements (“CCA”).

Investing Activities

Cash used in investing activities was $129.3 million and $86.5 million in 2024 and 2023, respectively. The change was primarily due to (1) an increase in expenditures associated with the Company’s franchise development fund of $33.3 million and (2) an increase in capital expenditures of $9.4 million.

Financing Activities

Cash used in financing activities was $303.1 million and $504.3 million in 2024 and 2023, respectively. The change was primarily due to (1) a decrease in repurchases of the Company’s common stock of $112.2 million, (2) a decrease in repayments of long-term debt of $65.5 million, reflecting the impact of repurchases of the Company’s 7% debentures and Class A-2 senior secured notes during 2023, and (3) an increase in proceeds from stock option exercises of $18.2 million.

Guarantees and Other Contingencies

[[GREPCENT_TABLE]]
[["","Year End"],["","2024"],["Lease guarantees (a)","$","94.6"],["Letters of credit (b)","28.7"],["Total","$","123.3"]]
[[/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 directly impacted our consolidated results of operations during 2024, and we anticipate continued labor inflation in 2025. We attempt to manage any inflationary costs and commodity price increases through selective menu price increases, product mix and focused execution of operational excellence. 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.

48

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.

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 $771.5 million as of December 29, 2024, of which $620.6 million, $28.4 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

49

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 2024, 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 reporting unit of approximately $1,500.0 million was approximately 29% in excess of its carrying value.

Our indefinite-lived intangible assets represent trademarks and totaled $903.0 million as of December 29, 2024. 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 2024, 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 29, 2024, the total net carrying value of our long-lived tangible and definite-lived intangible assets was $2,121.8 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 decision to close certain Company-operated restaurants and the deterioration in operating performance of certain other 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.

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•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.

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 29, 2024, we have foreign tax credits of $22.2 million that will begin to expire in 2027. In addition, as of December 29, 2024, we have deferred tax assets for foreign net operating loss carryforwards of $2.6 million and state and local net operating loss carryforwards of $26.8 million that will begin to expire in 2025. 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 $38.5 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 $14.8 million, which if resolved favorably would reduce our tax expense by $11.7 million as of December 29, 2024.

We accrue interest related to uncertain tax positions in “Provision for income taxes.” As of December 29, 2024, we had $1.4 million accrued for interest.

The Company participates in the Internal Revenue Service (the “IRS”) Compliance Assurance Process (“CAP”). As part of the 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 tax returns for fiscal years through 2022 have been settled. The Company or one of its subsidiaries also files tax returns in various state, local and foreign jurisdictions. The statute of limitations in these jurisdictions vary but generally income tax returns from its 2019 fiscal year and 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.

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