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What changed in Wendy's Co's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Wendy's Co's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+367 added−412 removedSource: 10-K (2023-03-01) vs 10-K (2022-03-01)

Top changes in Wendy's Co's 2023 10-K

367 paragraphs added · 412 removed · 307 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

75 edited+10 added−18 removed63 unchanged
Biggest change(Arby’s is a registered trademark of Arby’s IP Holder, LLC and Buffalo Wild Wings is a registered trademark of Buffalo Wild Wings, Inc.) Fiscal Year 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 January 2, 2022” or “2021,” which consisted of 52 weeks, (2) “the year ended January 3, 2021” or “2020,” which consisted of 53 weeks, and (3) “the year ended December 29, 2019” or “2019,” which consisted of 52 weeks. 6 Business Strategy Wendy’s long-term growth opportunities include investing in accelerated global growth through (1) building our breakfast daypart, (2) accelerating our implementation of consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint through targeted U.S. restaurant expansion and accelerated international restaurant expansion.
Biggest changeFiscal Year 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 January 1, 2023” or “2022,” which consisted of 52 weeks, (2) “the year ended January 2, 2022” or “2021,” which consisted of 52 weeks, and (3) “the year ended January 3, 2021” or “2020,” which consisted of 53 weeks.
Each Wendy’s restaurant is subject to licensing and regulation by a number of governmental authorities in the state or municipality in which the restaurant is located.
Each Wendy’s restaurant is subject to licensing and regulation by a number of governmental authorities in the state and/or municipality in which the restaurant is located.
There is a possibility that government initiatives, or actual or perceived effects of changes in weather patterns, climate change or scarcity of energy and water resources, could have a direct impact on our business in ways that we cannot predict at this time. 15 Legal Matters The Company is involved in litigation and claims incidental to our business.
There is a possibility that government initiatives, or actual or perceived effects of changes in weather patterns, climate change or scarcity of energy and water resources, could have a direct impact on our business in ways that we cannot predict at this time. Legal Matters The Company is involved in litigation and claims incidental to our business.
These filings are also available to the public on the Securities and Exchange Commission’s website at www.sec.gov. We also provide our Code of Business Conduct and Ethics, free of charge, on our website. Our corporate website address is www.wendys.com and our Investor Relations website address is www.irwendys.com. Information contained on those websites is not part of this Form 10-K.
These filings are also available to the public on the Securities and Exchange Commission’s website at www.sec.gov. We also provide our Code of Business Conduct and Ethics, free of charge, on our website. Our corporate website address is www.wendys.com and our Investor Relations website address is www.irwendys.com. Information contained on those websites is not part of this Form 10-K. 15
Wendy’s quality assurance personnel regularly conduct sanitation and production audits for all of our core menu product processing facilities, which include beef, chicken, pork, buns, french fries, Frosty® dessert ingredients and produce. Animal welfare audits are also conducted at all beef, chicken and pork facilities to confirm compliance with our required animal welfare and handling policies and procedures.
Wendy’s quality assurance personnel regularly conduct sanitation and production audits for all of our core menu product processing facilities, which include beef, chicken, egg, pork, buns, french fries, Frosty ® dessert ingredients and produce. Animal welfare audits are also conducted at all beef, chicken and pork facilities to confirm compliance with our required animal welfare and handling policies and procedures.
Several states require registration and disclosure of the FDD in connection with franchise offers and sales and have laws regulating the franchisor-franchisee relationship. These state laws often limit, among other things, the duration and scope of non-competition provisions and the ability of franchisors to terminate franchise agreements or withhold consent to the renewal or transfer of franchise agreements.
Several states require registration and disclosure of the FDD in connection with franchise offers and sales and have laws regulating the franchisor-franchisee relationship. These state laws often limit, among other things, the duration and scope of non-competition provisions and the ability of franchisors to terminate franchise agreements or withhold consent to the 14 renewal or transfer of franchise agreements.
The price charged for each menu item may vary from market to market (and within markets) depending on competitive pricing 9 and the local cost structure. Wendy’s competes within the food service industry and the quick-service restaurant sector for customers as well as for personnel, suitable real estate sites and qualified franchisees.
The price charged for each menu item may vary from market to market (and within markets) depending on competitive pricing and the local cost structure. Wendy’s competes within the food service industry and the quick-service restaurant sector for customers as well as for personnel, suitable real estate sites and qualified franchisees.
Additional information about our people and human capital initiatives is available on our website at www.wendys.com/what-we-value, in our annual Corporate Social Responsibility report and on The Square Deal TM Wendy’s Blog at 14 www.squaredealblog.com.
Additional information about our people and human capital initiatives is available on our website at www.wendys.com/what-we-value, in our annual Corporate Social Responsibility report and on The Square Deal TM Wendy’s Blog at www.squaredealblog.com.
Effective July 5, 2011, in connection with the Company’s sale of Arby’s Restaurant Group, Inc. (“Arby’s”), the Company’s corporate name was changed to The Wendy’s Company.
Effective July 5, 2011, in connection with the Company’s sale of Arby’s Restaurant Group, Inc., the Company’s corporate name was changed to The Wendy’s Company.
See “The Wendy’s Restaurant System—Quality Assurance” above for additional information. See Note 7 and Note 21 of the Financial Statements and Supplementary Data contained in Item 8 herein, and the information under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, for information regarding certain guarantee obligations, reserves, commitments and contingencies involving franchisees.
See “The Wendy’s Restaurant System—Quality Assurance” above for additional information. See Note 7 and Note 22 of the Financial Statements and Supplementary Data contained in Item 8 herein, and the information under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, for information regarding certain guarantee obligations, reserves, commitments and contingencies involving franchisees.
(*Fresh beef available in the contiguous U.S., Alaska and Canada.) Wendy’s continues to implement its Image Activation program, which includes reimaging existing Wendy’s restaurants and building new Wendy’s restaurants with innovative exterior and interior restaurant designs, with plans for a significant number of new and reimaged restaurants in 2022 and beyond.
(*Fresh beef available in the contiguous U.S., Alaska and Canada.) Wendy’s continues to implement its Image Activation program, which includes reimaging existing Wendy’s restaurants and building new Wendy’s restaurants with innovative exterior and interior restaurant designs, with plans for a significant number of new and reimaged restaurants in 2023 and beyond.
Environmental Matters The Company’s operations, including the selection and development of properties that we own or lease and any construction or improvements made at those properties, are subject to a variety of federal, state, local and international environmental laws and regulations, including laws and regulations concerning the storage, handling and disposal of hazardous or toxic substances.
Environmental Matters The Company’s operations, including the selection and development of properties that we own, lease and/or sublease to franchisees, and any construction or improvements made at those properties, are subject to a variety of federal, state, local and international environmental laws and regulations, including laws and regulations concerning the storage, handling and disposal of hazardous or toxic substances.
This agreement provides the franchisee the right to construct, own and operate a Wendy’s restaurant upon a site accepted by Wendy’s and to use the Wendy’s system in connection with the operation of the restaurant at that site. The Current Franchise Agreement provides for a 20-year term and a ten-year renewal subject to certain conditions.
This agreement provides the franchisee the right to construct, own and operate a Wendy’s restaurant upon a site accepted by Wendy’s and to use the Wendy’s system in connection with the operation of the restaurant at that site. The Current Franchise Agreement provides for a 20-year term and a 10-year renewal subject to certain conditions.
Non-traditional locations, including delivery kitchens, may be subject to adjusted requirements for national, local and regional advertising contributions. See Note 24 of the Financial Statements and Supplementary Data contained in Item 8 herein for additional information regarding advertising.
Non-traditional locations, including delivery kitchens, may be subject to adjusted requirements for national, local and regional advertising contributions. See Note 25 of the Financial Statements and Supplementary Data contained in Item 8 herein for additional information regarding advertising.
In 2021, Wendy’s made charitable donations to a variety of organizations across the globe, highlighted by our continued support of the Dave Thomas Foundation for Adoption, a charitable foundation created by our founder, Dave Thomas, which has been our signature charitable cause for more than 25 years.
In 2022, Wendy’s made charitable donations to a variety of organizations across the globe, highlighted by our continued support of the Dave Thomas Foundation for Adoption, a charitable foundation created by our founder, Dave Thomas, which has been our signature charitable cause for more than 25 years.
These delivery kitchens and other non-traditional locations may be subject to different rights and obligations than our traditional franchise arrangements, including with respect to initial and renewal franchise terms, technical assistance fees, monthly royalty rates and advertising contribution rates, and the sales levels at these locations may also differ from sales levels at traditional Wendy’s restaurants.
These non-traditional locations may be subject to different rights and obligations than our traditional franchise arrangements, including with respect to initial and renewal franchise terms, technical assistance fees, monthly royalty rates and advertising contribution rates, and the sales levels at these locations may also differ from sales levels at traditional Wendy’s restaurants.
Wendy’s menu also includes chicken nuggets, chili, french fries, baked potatoes, freshly prepared salads, soft drinks, Frosty® desserts and kids’ meals. In addition, Wendy’s restaurants sell a variety of promotional products on a limited time basis. In March 2020, Wendy’s entered the breakfast daypart across the U.S. system.
Wendy’s menu also includes chicken nuggets, chili, french fries, baked potatoes, freshly prepared salads, soft drinks, Frosty ® desserts and kids’ meals. In addition, Wendy’s restaurants sell a variety of promotional products on a limited time basis. In March 2020, Wendy’s entered the breakfast daypart across the U.S. system and, in May 2022, launched breakfast in Canada.
Wendy’s generally retains a right of first refusal in connection with any proposed sale or transfer of franchised restaurants. 10 The table below shows the number of restaurant acquisitions, restaurant dispositions and Franchise Flips completed in each of 2021, 2020 and 2019.
Wendy’s generally retains a right of first refusal in connection with any proposed sale or transfer of franchised restaurants. The table below shows the number of restaurant acquisitions, restaurant dispositions and Franchise Flips completed in each of 2022, 2021 and 2020.
QSCC’s supply chain management facilitates the continuity of supply and provides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s supply chain in the United States and Canada. Wendy’s and its franchisees pay sourcing fees to third-party vendors on certain products sourced by QSCC.
QSCC’s supply chain management facilitates the continuity of supply and provides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s supply chain in the U.S. and Canada. Wendy’s and its franchisees pay sourcing fees to third-party vendors on certain products sourced by QSCC.
Required franchisee contributions to the national advertising funds and for local and regional advertising programs are governed by the Current Franchise Agreement in the United States and by the Single Unit Sub-Franchise Agreement in Canada. Required contributions by Company-operated restaurants for advertising and promotional programs are at the same percentage of sales as franchised restaurants within the Wendy’s system.
Required franchisee contributions to the national advertising funds and for local and regional advertising programs are governed by the Current Franchise Agreement in the U.S. and by the Single Unit Sub-Franchise Agreement in Canada. Required contributions by Company-operated restaurants for advertising and promotional programs are at the same percentage of sales as franchised restaurants within the Wendy’s system.
As of January 2, 2022, the contribution rate for Canadian restaurants was generally 3.0% of sales for national advertising and 1.0% of sales for local and regional advertising, with the exception of Quebec, for which there is no national advertising contribution rate and the local and regional advertising contribution rate is 4.0% of sales.
As of January 1, 2023, the contribution rate for Canadian restaurants was generally 3.0% of sales for national advertising and 1.0% of sales for local and regional advertising, with the exception of Quebec, for which there is no national advertising contribution rate and the local and regional advertising contribution rate is 4.0% of sales.
In addition to corporate contributions, we also hosted an employee-driven Community Giving Program, in which employees from across the Wendy’s system nominated worthy charitable organizations to receive charitable grants from The Wendy’s Foundation. We also made grants available to charitable organizations chosen by each of our ERGs in support of their missions.
In addition to corporate contributions, we also host an employee-driven Community Giving Program, in which employees from across the Wendy’s system nominate worthy charitable organizations to receive charitable grants from The Wendy’s Foundation. We also made grants available to charitable organizations chosen by each of our ERGs in support of their missions.
Franchise Arrangements The rights and obligations governing the majority of franchised restaurants operating in the United States are set forth in the Wendy’s current Unit Franchise Agreement (the “Current Franchise Agreement”) (non-traditional locations, including delivery kitchens, may operate under an amended agreement or alternate form of agreement).
Franchise Arrangements The rights and obligations governing the majority of franchised restaurants operating in the U.S. are set forth in the Wendy’s current Unit Franchise Agreement (the “Current Franchise Agreement”) (non-traditional locations, including delivery kitchens, may operate under an amended agreement or alternate form of agreement).
We also offer a robust set of benefits to help eligible employees and their families stay healthy, manage spend related to health and financial wellbeing and effectively balance work and life.
We also offer a robust set of benefits to help eligible employees and their families stay healthy, manage spend related to health and financial well-being and effectively balance work and life.
Suppliers and distributors to the Wendy’s system must comply with United States Department of Agriculture (“USDA”) and United States Food and Drug Administration (“FDA”) regulations governing the manufacture, packaging, storage, distribution and sale of all food and packaging products. Wendy’s has a purchasing co-op relationship structure with its franchisees that establishes Quality Supply Chain Co-op, Inc. (“QSCC”).
Suppliers and distributors to the Wendy’s system must comply with U.S. Department of Agriculture (“USDA”) and U.S. Food and Drug Administration (“FDA”) regulations governing the manufacture, packaging, storage, distribution and sale of all food and packaging products. 7 Wendy’s has a purchasing co-op relationship structure with its franchisees that establishes Quality Supply Chain Co-op, Inc. (“QSCC”).
With the efforts and attributes of Mr. Thomas, Wendy’s has, through its extensive investment in the advertising and promotional use of Mr. Thomas’ name, likeness, image, voice, caricature, endorsement rights and photographs (the “Thomas Persona”), made the Thomas Persona well known in the United States and throughout North America and a valuable asset for both Wendy’s and Mr. Thomas’ estate.
With the efforts and attributes of Mr. Thomas, Wendy’s has, through its extensive investment in the advertising and promotional use of Mr. Thomas’ name, likeness, image, voice, caricature, endorsement rights and photographs (the “Thomas Persona”), made the Thomas Persona well known in the U.S. and throughout North America and a valuable asset for both Wendy’s and Mr. 8 Thomas’ estate.
The agreement also typically requires that the franchisee pay Wendy’s an initial technical assistance fee. In the United States, the standard technical assistance fee required under a newly executed Current Franchise Agreement is currently $50,000 for each new restaurant opened.
The agreement also typically requires that the franchisee pay Wendy’s an initial technical assistance fee. In the U.S., the standard technical assistance fee required under a newly executed Current Franchise Agreement is currently $50,000 for each new restaurant opened.
Of the international restaurants, 1,006 were operated by franchisees and five were operated by the Company in the United Kingdom (the “U.K.”). The Company’s principal executive offices are located at One Dave Thomas Blvd., Dublin, Ohio 43017, and its telephone number is (614) 764-3100.
Of the international restaurants, 1,089 were operated by 106 franchisees and 12 were operated by the Company in the United Kingdom (the “U.K.”). The Company’s principal executive offices are located at One Dave Thomas Blvd., Dublin, Ohio 43017, and its telephone number is (614) 764-3100.
Wendy’s maintains two national advertising funds established to collect and administer 12 funds contributed for use in advertising through television, radio, the Internet and a variety of promotional campaigns, including through digital and social media platforms. Separate national advertising funds are administered for Wendy’s United States and Canadian restaurant locations.
Wendy’s maintains two national advertising funds established to collect and administer funds contributed for use in advertising through television, radio, the Internet and a variety of promotional campaigns, including through digital and social media platforms. Separate national advertising funds are administered for Wendy’s U.S. and Canadian restaurant locations.
In addition, there was one main in-line distributor of food, packaging and beverage products, excluding breads, that serviced approximately 67% of Wendy’s restaurants in the United States and four additional in-line distributors that, in the aggregate, serviced approximately 32% of Wendy’s restaurants in the United States.
In addition, there was one main in-line distributor of food, packaging and beverage products, excluding breads, that serviced approximately 67% of Wendy’s restaurants in the U.S. and four additional in-line distributors that, in the aggregate, serviced approximately 32% of Wendy’s restaurants in the U.S.
QSCC manages, for the Wendy’s system in the United States and Canada, contracts for the purchase and distribution of food, proprietary paper, operating supplies and equipment under national agreements with pricing based upon total system volume.
QSCC manages, for the Wendy’s system in the U.S. and Canada, contracts for the purchase and distribution of food, proprietary paper, operating supplies and equipment under national agreements with pricing based upon total system volume.
Our commitment to these values is reflected in our Code of Business Conduct and Ethics, which applies to Company employees and directors, and in our Supplier Code of Conduct, which sets forth our expectations for suppliers to the Wendy’s system.
Our commitment to these values is reflected in our Code of Business Conduct and Ethics, which applies to Company employees and directors, and in our Supplier Code of Conduct, which sets forth our expectations for key suppliers to the Wendy’s system in the U.S. and Canada.
Year Ended 2021 2020 2019 Restaurant acquisitions 93 — 5 Restaurant dispositions 47 1 — Franchise Flips (a) 34 54 37 _______________ (a) Represents franchisee-to-franchisee restaurant transfers for which the Company received advisory fees, which include valuation services and fees for selecting pre-approved buyers.
Year Ended 2022 2021 2020 Restaurant acquisitions 1 93 — Restaurant dispositions 1 47 1 Franchise Flips (a) 79 34 54 _______________ (a) Represents franchisee-to-franchisee restaurant transfers for which the Company received advisory fees, which include valuation services and fees for selecting pre-approved buyers.
Domestic trademarks and service marks have their next required maintenance filings at various times from 2022 to 2032 in order to keep such registrations in force, while international trademarks and service marks have various durations of ten to 15 years. Wendy’s generally intends to maintain and renew its trademarks and service mark registrations in accordance with applicable deadlines.
Domestic trademarks and service marks have their next required maintenance filings at various times from 2023 to 2033 in order to keep such registrations in force, while international trademarks and service marks have various durations of seven to 15 years. Wendy’s generally intends to maintain and renew its trademarks and service mark registrations in accordance with applicable deadlines.
The following table sets forth the number of Wendy’s restaurants in operation at the beginning and end of each fiscal year from 2019 to 2021: 2021 2020 2019 Restaurants open at beginning of period 6,828 6,788 6,711 Restaurants opened during period 210 147 182 Restaurants closed during period (89) (107) (105) Restaurants open at end of period 6,949 6,828 6,788 Restaurant Operations Each Wendy’s restaurant offers an extensive menu specializing in hamburger sandwiches and featuring filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of toppings and condiments.
The following table sets forth the number of Wendy’s restaurants in operation at the beginning and end of each fiscal year from 2020 to 2022 : 2022 2021 2020 Restaurants open at beginning of period 6,949 6,828 6,788 Restaurants opened during period 276 210 147 Restaurants closed during period (130) (89) (107) Restaurants open at end of period 7,095 6,949 6,828 Restaurant Operations Each Wendy’s restaurant offers an extensive menu specializing in hamburger sandwiches and featuring filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of toppings and condiments.
International Operations Internationally, the Company and our franchisees are subject to national, provincial and local laws and regulations that often are similar to those impacting us and our franchisees in the U.S., including laws and regulations concerning franchises, labor and employment, building and zoning, health, fire and safety, sanitation, food preparation, nutritional content, menu labeling, advertising, information security, privacy and consumer protection, as well as laws, regulations, recommendations and guidelines related to the COVID-19 pandemic.
International Operations Internationally, the Company and our franchisees are subject to national, provincial and local laws and regulations that often are similar to those impacting us and our franchisees in the U.S., including laws and regulations concerning franchises, labor and employment, building and zoning, health, fire and safety, sanitation, food preparation, nutritional content, menu labeling, advertising, information security, privacy and consumer protection.
As of January 2, 2022, the contribution rate for U.S. restaurants was generally 3.5% of sales for national advertising and 0.5% of sales for local and regional advertising.
As of January 1, 2023, the contribution rate for U.S. restaurants was generally 3.5% of sales for national advertising and 0.5% of sales for local and regional advertising.
Operations The Company and our franchisees are subject to various federal, state and local laws and regulations affecting the operation of our respective businesses, including laws and regulations relating to building and zoning, health, fire and safety, sanitation, food preparation, nutritional content and menu labeling, advertising, information security, privacy and consumer protection, as well as laws, regulations, recommendations and guidelines related to the COVID-19 pandemic.
Operations The Company and our franchisees are subject to various federal, state and local laws and regulations affecting the operation of our respective businesses, including laws and regulations relating to building and zoning, health, fire and safety, sanitation, food preparation, nutritional content and menu labeling, advertising, information security and privacy and consumer protection.
We continue to invest in employees to ensure we are able to attract, hire, develop and retain great talent throughout our organization. We measure our effectiveness in these areas using various tools and metrics, including administering an employee engagement survey twice a year and tracking our employee turnover rates compared to others in the restaurant industry.
We continue to invest in employees to ensure we are able to attract, hire and retain great talent throughout our organization. We measure our effectiveness in these areas using various tools and metrics, including administering employee engagement surveys annually and tracking our employee turnover rates compared to others in the restaurant industry.
Corporate History The Wendy’s Company’s corporate predecessor was incorporated in Ohio in 1929 and was reincorporated in Delaware in June 1994. Effective September 29, 2008, in conjunction with the Wendy’s Merger (as defined below), the Company’s corporate name was changed from Triarc Companies, Inc. to Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s”).
Corporate History The Wendy’s Company’s corporate predecessor was incorporated in Ohio in 1929 and was reincorporated in Delaware in June 1994. Effective September 29, 2008, in conjunction with the merger of Triarc Companies, Inc. and Wendy’s International, Inc., the Company’s corporate name was changed from Triarc Companies, Inc. to Wendy’s/Arby’s Group, Inc.
Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the United States (the “U.S.”) based on traffic share, and the third largest globally with 6,949 restaurants in the United States and 31 foreign countries and U.S. territories as of January 2, 2022.
Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the United States (the “U.S.”) based on traffic share, and the third largest globally with 7,095 restaurants in the U.S. and 31 foreign countries and U.S. territories as of January 1, 2023.
Trademarks and Service Marks Wendy’s or its subsidiaries have registered certain trademarks and service marks in the United States Patent and Trademark Office and in international jurisdictions, some of which include Wendy’s ® , Quality Is Our Recipe ® and the Wendy Cameo design. Wendy’s believes that these and other related marks are of material importance to its business.
Patent and Trademark Office and in international jurisdictions, some of which include Wendy’s ® , Quality Is Our Recipe ® and the Wendy Cameo design. Wendy’s believes that these and other related marks are of material importance to its business.
For our restaurant-level employees, we offer the potential for raises based on individual performance reviews throughout the year. At Wendy’s, we are committed to providing pay equity for all employees, regardless of gender or ethnicity.
Restaurant support service employees are also eligible to participate in a performance-based annual bonus plan. For our restaurant-level employees, we offer the potential for raises based on individual performance reviews throughout the year. At Wendy’s, we are committed to providing pay equity for all employees, regardless of gender or ethnicity.
The sub-franchisee pays to WROC a monthly royalty of 4.0% of sales, as defined in the agreement, from the operation of the restaurant. The agreement also typically requires that the franchisee pay WROC an initial technical assistance fee.
The sub-franchisee pays to WROC a monthly royalty of 4.0% of sales, as defined in the agreement, from the operation of the restaurant. The agreement also typically requires that the franchisee pay WROC an initial technical assistance fee. The standard technical assistance fee is currently C$50,000 for each new restaurant opened.
We enable this by benchmarking and analyzing pay and benefits both externally and internally. In addition to receiving competitive hourly rates and base salaries, all general managers and district managers of our Company-operated restaurants are eligible for performance-based cash incentive bonuses, along with all corporate management staff.
Compensation and Benefits We are committed to providing market-competitive pay and benefits to attract and retain great talent. We enable this by benchmarking and analyzing pay and benefits both externally and internally. In addition to receiving competitive hourly rates and base salaries, all general managers and district managers of our Company-operated restaurants are eligible for performance-based cash incentive bonuses.
The standard technical assistance fee is currently C$50,000 for each new restaurant opened. 11 Franchisees who wish to operate Wendy’s restaurants outside of the United States and Canada enter into franchise or license agreements with Wendy’s that generally provide franchise rights for each restaurant for an initial term of ten years or 20 years, depending on the country, and typically include a ten-year renewal provision, subject to certain conditions.
Franchisees who wish to operate Wendy’s restaurants outside of the U.S. and Canada enter into franchise or license agreements with Wendy’s that generally provide franchise rights for each restaurant for an initial term of ten years or 20 years, depending on the country, and typically include a ten-year renewal provision, subject to certain conditions.
In October 2021, we announced a partnership with a third-party global cloud provider with the intention to enhance our restaurant experience and unlock new customer, restaurant and employee experiences through data-driven insights.
In October 2021, we announced a partnership with a third-party global cloud provider with the intention to enhance our restaurant experience and unlock new customer, restaurant and employee experiences through data-driven insights. Trademarks and Service Marks Wendy’s or its subsidiaries have registered certain trademarks and service marks in the U.S.
Franchising As of January 2, 2022, 228 Wendy’s U.S. franchisees operated 5,535 franchised restaurants in 50 states and the District of Columbia, and 100 Wendy’s international franchisees operated 1,006 franchised restaurants in 31 foreign countries and U.S. territories. U.S.
Franchising As of January 1, 2023, 217 Wendy’s U.S. franchisees operated 5,591 franchised restaurants in 50 states and the District of Columbia, and 106 Wendy’s international franchisees operated 1,089 franchised restaurants in 31 foreign countries and U.S. territories. U.S.
At January 2, 2022, there were 5,938 Wendy’s restaurants in operation in the United States. Of these restaurants, 403 were operated by the Company and 5,535 were operated by a total of 228 franchisees. In addition, at January 2, 2022, there were 1,011 Wendy’s restaurants in operation in 31 foreign countries and U.S. territories.
At January 1, 2023, there were 5,994 Wendy’s restaurants in operation in the U.S. Of these restaurants, 403 were operated by the Company and 5,591 were operated by a total of 217 franchisees. In addition, at January 1, 2023, there were 1,101 Wendy’s restaurants in operation in 31 foreign countries and U.S. territories.
Creating and fostering inclusive work environments allows us to create an engaging and welcoming culture for our employees, which we believe positively affects the quality of products, service and experience we deliver to our customers. In 2021, we created an Office of DE&I and appointed Dr. Beverly Stallings-Johnson as our Chief DE&I Officer.
Creating and fostering inclusive work environments allows us to create an engaging and welcoming culture for our employees, which we believe positively affects the quality of products, service and experience we deliver to our customers.
So is staying true to the values established by our founder Dave Thomas more than 50 years ago, which include Doing the Right Thing, Treating People with Respect and Giving Something Back.
Respect and fair treatment for our team members, franchisees, supplier partners and vendors are a central part of our business. So is staying true to the values established by our founder Dave Thomas more than 50 years ago, which include Doing the Right Thing, Treating People with Respect and Giving Something Back.
Some of these chains also have in-store cafes with service counters and tables where consumers can order and consume a full menu of items prepared especially for that portion of the operation. Additionally, convenience stores and retail outlets at gas stations frequently offer a wide variety of sandwiches and other foods.
Some of these chains also have in-store cafes with service counters and tables where consumers can order and consume a full menu of items prepared especially for that portion of the operation.
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.
Business Segments 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.
Advertising and Marketing In the United States and Canada, Wendy’s advertises nationally through national advertising funds on network and cable television programs, including nationally televised events, and advertises locally primarily through regional network and cable television, radio and social media.
Advertising and Marketing In the U.S. and Canada, Wendy’s advertises nationally through national advertising funds primarily on network and cable television programs, including nationally televised events, as well as through audio and digital media, and advertises locally primarily through regional network and cable television, audio and digital media and out-of-home media, such as billboards.
In certain circumstances, Wendy’s may grant a franchisee the right to sub-franchise in a stated territory, subject to certain conditions. Non-Traditional Development Non-traditional locations, such as fuel and transportation centers, food courts and other retail locations, military bases and delivery kitchens, represent an increasing component of Wendy’s development strategy.
Non-Traditional Development Non-traditional locations, such as fuel and transportation centers, food courts and other retail locations, military bases and delivery kitchens, represent a component of Wendy’s development strategy.
Wendy’s has in the past franchised under different agreements on a multi-unit basis; however, Wendy’s now grants new Wendy’s franchises on a unit-by-unit basis. The Current Franchise Agreement requires that the franchisee pay a monthly royalty of 4.0% of sales, as defined in the agreement, from the operation of the restaurant.
The initial term may be extended up to 25 years and the renewal extended up to 20 or 25 years for qualifying restaurants under the new restaurant development incentive and reimage programs described below in “Franchise Development and Other Relationships.” Wendy’s has in the past franchised under different agreements on a multi-unit basis; however, Wendy’s now grants new Wendy’s franchises on a unit-by-unit basis. 10 The Current Franchise Agreement requires that the franchisee pay a monthly royalty of 4.0% of sales, as defined in the agreement, from the operation of the restaurant.
Technology and delivery are becoming increasingly critical parts of the restaurant consumer experience. In the quick-service restaurant category, technology initiatives include mobile interactive technology for brand and menu search information, mobile ordering, mobile payment, mobile offers, mobile order pick-up and carryout, customer loyalty and rewards programs and other self-service technologies.
In the quick-service restaurant category, technology initiatives include mobile interactive technology for brand and menu search information, mobile ordering, mobile payment, mobile offers, mobile order pick-up and carryout, customer loyalty and rewards programs and other self-service technologies. An increasing number of restaurant chains have also introduced or expanded their restaurant delivery arrangements as another strategy to increase market share.
Wendy’s also provides franchisees with the option of an early 20-year or 25-year renewal of their franchise agreement upon completion of reimaging utilizing certain approved Image Activation reimage designs.
Wendy’s U.S. and Canadian franchisees may elect either the Pacesetter program or the Groundbreaker program when committing to new multi-unit development agreements or adding incremental commitments to existing development agreements. Wendy’s also provides franchisees with the option of an early 20-year or 25-year renewal of their franchise agreement upon completion of reimaging utilizing certain approved Image Activation reimage designs.
Wendy’s also competes with grocery chains and other retail outlets that sell food to be prepared at home. Competition with these chains and other outlets could increase based on the gap between the price of food prepared at home compared to the price of food purchased at restaurants.
Competition with these chains, providers and other outlets could increase based on the gap between the price of food prepared at home compared to the price of food purchased at restaurants. Technology and delivery are becoming increasingly critical parts of the restaurant consumer experience.
In addition, Wendy’s has a restaurant development incentive program that provides for incremental reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants for existing franchisees that sign up for the program under a new development agreement, or through an extension of their existing development agreement, and commit to incremental development of new Wendy’s restaurants.
Wendy’s previously offered and will continue to offer a restaurant development incentive program that provides for reductions in royalty and national advertising fees for up to the first two years of operation for qualifying new restaurants (“Groundbreaker”).
In the case of franchisees, field visits are made by Wendy’s personnel who review operations, including quality, service and cleanliness and make recommendations to assist in compliance with Wendy’s specifications. Supply Chain, Distribution and Purchasing As of January 2, 2022, three independent processors (five total production facilities) supplied all of the beef used by Wendy’s restaurants in the United States.
In the case of franchisees, field visits are made by Wendy’s personnel who review restaurant operations, including quality, service and cleanliness, and make recommendations to assist in compliance with Wendy’s specifications.
The Wendy’s Restaurant System 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 January 2, 2022.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 herein and Note 27 of the Financial Statements and Supplementary Data contained in Item 8 herein for segment financial information. 6 The Wendy’s Restaurant System 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.
This includes insurance for medical, dental, vision and prescription drugs, telehealth access, 401(k) savings and retirement plans, health savings accounts, employee assistance program, paid sick leave, bonding leave and adoption assistance. Safety and Well-Being We are committed to providing our employees with safe and comfortable work environments and offering resources that our employees can use to help promote their well-being.
For our U.S. employees, this includes offerings such as insurance for medical, dental, vision and prescription drugs, telehealth access, 401(k) savings and retirement plans, health savings accounts, employee assistance program, paid sick leave, bonding leave and adoption assistance.
Wendy’s representatives, including third-party auditors, regularly conduct evaluations and inspections of all Company-operated and franchised restaurants to test conformance to our sanitation, food safety and operational requirements. Wendy’s has the right to terminate franchise agreements if franchisees fail to comply with quality standards.
Wendy’s representatives, including third-party auditors, regularly conduct evaluations and inspections of all Company-operated and franchised restaurants to test conformance to our sanitation, food safety and operational requirements. In addition, restaurant crew and managers at Company-operated and franchised restaurants are re-certified each year on critical food safety standards.
While we and our supply chain partners effectively managed through this disruption and the beef supply subsequently returned to normal levels across the Wendy’s system, the pandemic has continued to impact our supply chain and there can be no assurances that we will not see similar disruptions in the future.
During 2020, the COVID-19 pandemic led to interruptions in the delivery of beef and other products and, as a result, some menu items were occasionally in short supply at some Wendy’s system restaurants. While we and our supply chain partners effectively managed through this disruption, there can be no assurances that we will not see similar disruptions in the future.
In order to promote new restaurant development, Wendy’s has an incentive program for franchisees that provides for technical assistance fee waivers and reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants opened prior to December 31, 2022.
In February 2023, Wendy’s announced a new restaurant development incentive program in the U.S. and 11 Canada that provides for waivers of royalty, national advertising and technical assistance fees for up to the first three years of operation for qualifying new restaurants (“Pacesetter”).
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. See Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 herein and Note 26 of the Financial Statements and Supplementary Data contained in Item 8 herein for segment financial information.
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 addition, seven independent processors (15 total production facilities) supplied all of the chicken used by Wendy’s restaurants in the United States.
Supply Chain, Distribution and Purchasing As of January 1, 2023 , three independent processors (five total production facilities) supplied all of the beef used by Wendy’s restaurants in the U.S. In addition, seven independent processors (14 total production facilities) supplied all of the chicken used by Wendy’s restaurants in the U.S.
We are proud to have a workforce with diverse backgrounds and experiences. Respectful Workplace From day one, the Wendy’s business has always been of, for and about people. Respect and fair treatment for our team members, franchisees, supplier partners and vendors is a central part of our business.
Outside of our Company-operated restaurants, our 12 largest population of employees work in our restaurant support organization, which includes employees across the globe and at our restaurant support center in Dublin, Ohio. We are proud to have a workforce with diverse backgrounds and experiences. Respectful Workplace From day one, the Wendy’s business has always been of, for and about people.
Wendy’s breakfast menu features a variety of breakfast sandwiches, biscuits and croissants, sides such as seasoned potatoes, oatmeal bars and seasonal fruit, and a beverage platform that includes hot coffee, cold brew iced coffee and our vanilla and chocolate Frosty-ccino iced coffee. Free-standing Wendy’s restaurants generally include a pick-up window in addition to a dining room.
Wendy’s breakfast menu features a variety of breakfast sandwiches such as the Breakfast Baconator ® and sides such as seasoned potatoes. Free-standing Wendy’s restaurants generally include a pick-up window in addition to a dining room. In 2020, 2021 and 2022 pick-up window sales represented approximately 83%, 82% and 77% of sales at Company-operated restaurants, respectively.
During 2021, we continued to outperform our peer group and industry benchmarks in the areas of employee engagement and turnover. Employees As of January 2, 2022, the Company was comprised of approximately 14,500 employees, of which nearly two-thirds were part-time, and one-third were full-time.
Employees As of January 1, 2023, the Company was comprised of approximately 14,500 employees, of which approximately one-third were full-time, and two-thirds were part-time. The vast majority of our employees are located in the U.S. and work in our Company-operated restaurants within our Wendy’s U.S. business segment.
Restaurant Openings and Closings During 2021, Wendy’s opened 12 new Company-operated restaurants and closed eight generally underperforming Company-operated restaurants. During 2021, Wendy’s franchisees opened 198 new restaurants and closed 81 generally underperforming restaurants.
Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of January 1, 2023 . Restaurant Openings and Closings During 2022 , Wendy’s opened 14 new Company-operated restaurants and closed seven generally underperforming Company-operated restaurants. During 2022 , Wendy’s franchisees opened 262 new restaurants and closed 123 generally underperforming restaurants.
Our ERGs are open to all Company employees at our restaurant support center and focus on employees and allies who identify as Women (Women of Wendy’s), LGBTQ+ (WeQual), Military Veterans & Families (WeVets), Culturally Diverse (WCDN), Black (WeBERG) and Young Professionals (WenGEN). Compensation and Benefits We are committed to providing market-competitive pay and benefits to attract and retain great talent.
Our ERGs focus on employees and allies who identify as Women (W omen of Wendy’s), LGBTQ+ (WeQual), Military Veterans & Families (WeVets), Culturally Diverse (WCD), Black (WeBERG) and Young Professionals (WenGEN). In 2022, we added our newest ERG, GiveCare, with a focus on caretakers for children, siblings, parents, partners and other family members.
As we have done since the onset of the pandemic, we continued to monitor public health guidance and follow federal, state/provincial and local laws, regulations, rules and requirements related to COVID-19. We are extremely proud of the work our employees have done to support our restaurants, employees, customers and communities that we serve throughout the pandemic and that commitment remains.
Safety and Well-Being We are committed to providing our employees with safe and comfortable work environments and offering resources that our employees can use to help promote their well-being. We are extremely proud of the work our employees have done to support our restaurants, employees, customers and communities that we serve throughout the COVID-19 pandemic.
Wendy’s University also provides targeted programming for corporate management staff, including diversity training, people manager training, leadership dialogues and the opportunity to participate in third-party conferences and training. Community-Based Giving Wendy’s maintains charitable giving programs that support four core categories: foster care adoption; hunger and food integrity; youth and families; and vibrant communities.
Community-Based Giving Wendy’s maintains a charitable giving program that supports four core categories: (1) foster care adoption; (2) hunger and food integrity; (3) youth and families; and (4) vibrant communities.
Removed
Merger with Wendy’s On September 29, 2008, Triarc Companies, Inc. and Wendy’s International, Inc. completed their merger (the “Wendy’s Merger”) in an all-stock transaction in which Wendy’s shareholders received 4.25 shares of Wendy’s/Arby’s Class A common stock for each Wendy’s common share owned.
Added
Business Strategy Wendy’s long-term growth opportunities include delivering accelerated global growth through (1) driving strong same-restaurant sales momentum across all dayparts, (2) accelerating our implementation of consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint through global restaurant expansion. Wendy’s vision is to become the world’s most thriving and beloved restaurant brand.
Removed
In the Wendy’s Merger, approximately 377,000,000 shares of Wendy’s/Arby’s Class A common stock were issued to Wendy’s shareholders. In addition, effective on the date of the Wendy’s Merger, Wendy’s/Arby’s Class B common stock was converted into Class A common stock.
Added
Wendy’s has the right to terminate franchise agreements if franchisees fail to comply with quality standards. Information Technology Wendy’s relies on computer systems and information technology to conduct its business.
Removed
In connection with the May 28, 2009 amendment and restatement of Wendy’s/Arby’s Certificate of Incorporation, Wendy’s/Arby’s Class A common stock was redesignated as “Common Stock.” Sale of Arby’s On July 4, 2011, the Company completed the sale of 100% of the common stock of Arby’s to ARG IH Corporation (“ARG”), a wholly-owned subsidiary of ARG Holding Corporation (“ARG Parent”), for $130.0 million in cash (subject to customary purchase price adjustments) and 18.5% of the common stock of ARG Parent (through which the Company indirectly retained an 18.5% interest in Arby’s).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSuch competitors may have, among other things, lower operating costs, better locations, better facilities, more effective marketing and more efficient operations. Wendy’s also competes with grocery chains and other retail outlets that sell food to be prepared at home.
Biggest changeFor example, additional competitive pressures for prepared food purchases have come from deli sections and in-store cafes of a number of major grocery store chains, as well as from convenience stores, casual dining outlets and food delivery providers. Such competitors may have, among other things, lower operating costs, better locations, better facilities, more effective marketing and more efficient operations.
Additionally, adverse economic conditions in regions that contain a high concentration of Wendy’s restaurants, including markets in which our Company-operated restaurants are located, could also have a material adverse impact on our results of operations. Changes in discretionary consumer spending, and in consumer tastes and preferences, could adversely affect our business, results of operations and financial condition.
Additionally, adverse economic conditions in regions that contain a high concentration of Wendy’s restaurants, including markets in which Company-operated restaurants are located, could also have a material adverse impact on our results of operations. Changes in discretionary consumer spending, and in consumer tastes and preferences, could adversely affect our business, results of operations and financial condition.
Failure to use social media effectively or appropriately, particularly as compared to our competitors, could lead to a decline in brand value, customer visits and revenues. Laws and regulations governing the use of social media continue to rapidly evolve.
Our failure to use social media effectively or appropriately, particularly as compared to our competitors, could lead to a decline in brand value, customer visits and revenues. Laws and regulations governing the use of social media continue to rapidly evolve.
Some countries’ laws do not protect unregistered trademarks at all, or make them more difficult to enforce, and third parties have filed, or may in the future file, for “Wendy’s” or similar marks.
Some countries’ laws make unregistered trademarks more difficult to enforce, or do not protect them at all, and third parties have filed, or may in the future file, for “Wendy’s” or similar marks.
We could also be adversely impacted by the cost of products raised or grown in accordance with our responsible sourcing criteria, including those related to environmental sustainability and animal welfare, as availability of products that can be assured to meet those criteria are generally smaller and more concentrated, and may be more costly, than the markets for conventionally raised or grown products that are not assured to meet those criteria.
We could also be adversely impacted by the cost of products raised or grown in accordance with our responsible sourcing criteria, including those related to environmental sustainability and animal welfare, as the availability of products that can be assured to meet those criteria are generally smaller and more concentrated, and may be more costly, than the markets for conventionally raised or grown products that are not assured to meet those criteria.
We are dependent to a significant extent on our ongoing relationship with key technology providers, including their personnel, resources, technological expertise, systems and technology and their ability to help execute our digital, restaurant technology and enterprise technology initiatives and support our technology innovation and growth.
We are dependent to a significant extent on our ongoing relationship with key technology providers, including their personnel, resources, technological expertise, systems and technology and their ability to help execute our digital, restaurant technology and enterprise technology initiatives and support our technology innovation and growth initiatives.
The Senior Notes are subject to a series of covenants and restrictions customary for transactions of this type, including that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Senior Notes, provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments under certain circumstances, certain indemnification payments in the event, among other things, the assets pledged as collateral for the Senior Notes are in stated ways defective or ineffective and covenants relating to recordkeeping, access to information and similar matters.
The Senior Notes are subject to a series of covenants and restrictions customary for transactions of this type, including that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Senior Notes, provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments under certain circumstances, certain indemnification payments in the event, among other things, that the assets pledged as collateral for the Senior Notes are in stated ways defective or ineffective and covenants relating to recordkeeping, access to information and similar matters.
Foreign Corrupt Practices Act or similar laws of other countries, the inability to adapt to differing cultures or consumer preferences, inadequate brand infrastructure to support our international activities, inability to obtain adequate supplies meeting our quality standards and product specifications or interruptions in obtaining such supplies, challenges and risks associated with managing and monitoring suppliers, restrictions on our ability to move cash out of certain foreign countries, currency regulations and fluctuations, diverse government regulations and tax systems, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements, the collection of royalties and other fees from international franchisees, the inability to protect technology, data or intellectual property rights, compliance with international privacy and information security laws and regulations, the availability and cost of land, construction costs, other legal, financial or regulatory impediments to the development or operation of restaurants, the inability to identify, attract and retain experienced management, qualified franchisees and joint venture partners and ongoing disruptions and impacts from the COVID-19 pandemic.
Foreign Corrupt Practices Act or similar laws of other countries, the inability to adapt to differing cultures or consumer preferences, inadequate brand infrastructure to support our international activities, inability to obtain adequate supplies meeting our quality standards and product specifications or interruptions in obtaining such supplies, 21 challenges and risks associated with managing and monitoring suppliers, restrictions on our ability to move cash out of certain foreign countries, currency regulations and fluctuations, diverse government regulations and tax systems, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements, the collection of royalties and other fees from international franchisees, the inability to protect technology, data or intellectual property rights, compliance with international privacy and information security laws and regulations, the availability and cost of land, construction costs, other legal, financial or regulatory impediments to the development or operation of restaurants, the inability to identify, attract and retain experienced management, qualified franchisees and joint venture partners and ongoing disruptions and impacts from the COVID-19 pandemic.
If QSCC does not properly estimate the product needs of the Wendy’s system, makes poor purchasing decisions or ceases its operations, or if our relationship with QSCC is terminated for any reason, system sales, operating costs and supply chain management could be adversely affected, which could harm our franchisees and have a material adverse impact on our business, results of operations and financial condition.
If QSCC does not properly estimate the product needs of the Wendy’s system, makes poor purchasing decisions or ceases its operations, or if our relationship with QSCC is terminated for any reason, system sales, operating costs and supply chain management could be adversely affected, which could harm us and our franchisees and have a material adverse impact on our business, results of operations and financial condition.
If our digital commerce platforms, including the Wendy’s mobile app and online ordering system, do not meet customers’ expectations in terms of security, privacy, speed, attractiveness or ease of use, customers may be less inclined to return to those platforms, which could negatively impact our business, results of operations and financial condition.
If our digital commerce platforms, including the Wendy’s mobile app and online ordering system, do not meet customers’ expectations in terms of security, privacy, speed, attractiveness or ease of use, customers may be less inclined to return to those platforms, 23 which could negatively impact our business, results of operations and financial condition.
In addition, our competitors, some of whom have greater resources than we do, may be able to benefit from changes in technologies or consumer acceptance of such changes, which could harm our competitive position and brand. An increasing amount of our sales and revenues is derived from digital orders, which includes online ordering and delivery.
In addition, our competitors, some of whom have greater resources than we do, may be better able to benefit from changes in technologies or consumer acceptance of such changes, which could harm our competitive position and brand. An increasing amount of our sales and revenues is derived from digital orders, which includes online ordering and delivery.
While we attempt to minimize our foreign currency risks, our risk management strategies may not be effective and our results of operations and financial condition could be adversely affected. 30 Our results can be adversely affected by unforeseen events, such as adverse weather conditions, natural disasters, hostilities, social unrest, health epidemics or pandemics or other catastrophic events.
While we attempt to minimize our foreign currency risks, our risk management strategies may not be effective and our results of operations and financial condition could be adversely affected. Our results can be adversely affected by unforeseen events, such as adverse weather conditions, natural disasters, hostilities, social unrest, health epidemics or pandemics or other catastrophic events.
If a disruption of service from any of our key suppliers or distributors was to occur, we could experience short-term increases in our costs while supply and distribution channels were adjusted, and we may be unable to identify or negotiate with new suppliers or distributors on terms that are commercially reasonable to us.
If a disruption of service from any of our key suppliers or distributors was to occur, we could experience short-term increases in our costs while 22 supply and distribution channels were adjusted, and we may be unable to identify or negotiate with new suppliers or distributors on terms that are commercially reasonable to us.
We cannot predict whether we will be able to anticipate and react to changing commodity costs by adjusting our purchasing practices and menu prices, and a failure to 23 do so could adversely affect our results of operations. In addition, we may not seek to or be able to pass along price increases to our customers.
We cannot predict whether we will be able to anticipate and react to changing commodity costs by adjusting our purchasing practices and menu prices, and a failure to do so could adversely affect our results of operations. In addition, we may not seek to or be able to pass along price increases to our customers.
If we are unable to continue to achieve consumer acceptance or adapt to changes in consumer preferences, including with respect to nutrition, health or dietary trends or environmental or social concerns, Wendy’s restaurants may lose customers, and the resulting revenues from Company-operated restaurants and the royalties that we receive from franchisees may decline.
If we are unable to continue to achieve consumer acceptance or adapt to changes in consumer preferences, including 16 with respect to nutrition, health or dietary trends or environmental or social concerns, Wendy’s restaurants may lose customers, and the resulting revenues from Company-operated restaurants and the royalties that we receive from franchisees may decline.
Accordingly, we may not be able to adequately protect the Wendy’s brand everywhere in the world and use of the Wendy’s brand may result in liability for trademark infringement, trademark dilution or unfair competition. In addition, the laws of some foreign countries do not protect 19 intellectual property rights to the same extent as the laws of the United States.
Accordingly, we may not be able to adequately protect the Wendy’s brand everywhere in the world and use of the Wendy’s brand may result in liability for trademark infringement, trademark dilution or unfair competition. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.
The inability of us or our providers to successfully execute our technology growth initiatives while maintaining our brand value and perception could have an adverse impact on our business, results of operations and financial condition. 25 The occurrence of cyber incidents, or a deficiency in cybersecurity, could negatively impact our brand, business, results of operations and financial condition.
The inability of us or our providers to successfully execute our technology growth initiatives while maintaining our brand value and perception could have an adverse impact on our business, results of operations and financial condition. The occurrence of cyber incidents, or a deficiency in cybersecurity, could negatively impact our brand, business, results of operations and financial condition.
If our estimates or underlying assumptions change in the future, or if the operating performance or cash flows of our business decline, we may be required to record impairment charges, which could have a significant adverse effect on our reported results for the affected periods.
If our estimates or underlying assumptions change in the future, or if the operating performance or cash flows of our business decline, we may be 28 required to record impairment charges, which could have a significant adverse effect on our reported results for the affected periods.
In addition, such loss of rights could permit competing uses of such intellectual property which, in turn, could harm our business and adversely impact our results of operations and financial condition. Food safety events or health concerns regarding our products could create negative publicity and adversely affect our brand, business and results of operations.
In addition, such loss of rights could permit competing uses of such intellectual property which, in turn, could harm our business and adversely impact our results of operations and financial condition. 18 Food safety events or health concerns regarding our products could create negative publicity and adversely affect our brand, business and results of operations.
In addition, to the extent we use value offerings or other promotions or discounts in our marketing and advertising programs to drive customer counts, these actions may condition our customers to resist higher menu prices or result in reduced demand for premium products.
In addition, to the extent we use value offerings or other promotions or discounts in our marketing and advertising 17 programs to drive customer counts, these actions may condition our customers to resist higher menu prices or result in reduced demand for premium products.
If franchisees do not successfully operate their restaurants in a manner consistent with required standards, their royalty payments to us could be adversely affected and our brand’s image and reputation could be harmed, both of which in turn could hurt our business and results of operations.
If franchisees do not successfully operate their restaurants in a manner consistent with required standards, their royalty payments to us could be adversely affected and our brand’s image and reputation could be harmed, which in turn, could hurt our business and results of operations.
Wendy’s customers may file complaints or lawsuits against us or our franchisees alleging that we are responsible for an illness or injury they suffered at or after a visit to a Wendy’s restaurant, or alleging that there was a problem with food quality or operations at a Wendy’s restaurant.
Wendy’s customers may file complaints or lawsuits against us or our franchisees alleging that we are responsible for an illness or injury they suffered at or after a visit to a Wendy’s restaurant, or alleging that there was a problem with food safety, food quality or operations at a Wendy’s restaurant.
Additionally, many of our competitors have introduced lower 17 cost value meal menu options and have employed marketing strategies that include frequent use of price discounting (including through the use of coupons and other offers), frequent promotions and heavy advertising expenditures.
Additionally, many of our competitors have introduced lower cost value meal menu options and have employed marketing strategies that include frequent use of price discounting (including through the use of coupons and other offers), frequent promotions and heavy advertising expenditures.
Technology and consumer offerings continue to develop and evolve, and we expect that new and enhanced technologies and consumer offerings will be available in the future, including those with a focus on restaurant modernization, restaurant technology, digital engagement, online ordering and delivery.
Technology and consumer offerings continue to develop and evolve, and we expect that new and enhanced technologies and consumer offerings will be available in the future, including those with a focus on restaurant modernization, restaurant technology, digital engagement and integration, online ordering and delivery.
Certain of our competitors that have a significantly higher 20 percentage of company-operated restaurants than we do may have greater influence over their respective restaurant systems and greater ability to implement operational initiatives and business strategies.
Certain of our competitors that have a significantly higher percentage of company-operated restaurants than we do may have greater influence over their respective restaurant systems and greater ability to implement operational initiatives and business strategies.
Our leasing and ownership of significant amounts of real estate exposes us to possible liabilities and losses, including liabilities associated with environmental matters. We have significant real estate operations in connection with our business and are subject to the normal risks associated with leasing and owning real estate.
Our leasing and ownership of significant amounts of real estate exposes us to possible liabilities and losses, including liabilities associated with environmental matters. We have significant real estate operations in connection with our business and are subject to the normal risks associated with owning, leasing and subleasing real estate.
Our inability to predict consumer acceptance of new technology or our failure to adequately invest in new technology or adapt to technological developments, industry trends and evolving legal and regulatory requirements could result in a loss of customers and related market share.
Our inability to predict consumer acceptance of new technology or our failure to adequately invest in and implement new technology or adapt to technological developments, industry trends and evolving legal and regulatory requirements could result in a loss of customers and related market share.
Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power and other rights of the holders of our common stock.
Accordingly, our 26 Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power and other rights of the holders of our common stock.
Our brand could also be adversely impacted by other incidents described in this risk factors section, including incidents related to customer service, customer health or safety, a failure to attract and retain qualified employees, food safety or other health concerns regarding our products, the impact of social media, data privacy violations, cyber incidents, social and environmental sustainability matters or reports of our employees, franchisees or business partners taking controversial positions or acting in an unethical, illegal or socially irresponsible manner.
Our brand could also be adversely impacted by other incidents described in this risk factors section, including incidents related to customer service, health or safety, a failure to attract and retain qualified employees, food safety or other health concerns regarding our products, the impact of social media, data privacy violations, cyber incidents, environmental, social and governance matters or reports of our employees, franchisees or business partners taking controversial positions or acting in an unethical, illegal or socially irresponsible manner.
Any such incidents could cause a decline in consumer confidence in our brand and reduce consumer 18 demand for our products, which could have a material adverse impact on our business, results of operations and financial condition.
Any such incidents could cause a decline in consumer confidence in our brand and reduce consumer demand for our products, which could have a material adverse impact on our business, results of operations and financial condition.
We wish to caution readers that in addition to the important factors described elsewhere in this Form 10-K, we have included below certain material factors that have affected, or in the future could affect, our actual results and could cause our actual consolidated results during fiscal 2022, and beyond, to differ materially from those expressed in or implied by any forward-looking statements made by us or on our behalf.
We wish to caution readers that in addition to the important factors described elsewhere in this Form 10-K, we have included below certain material factors that have affected, or in the future could affect, our actual results and could cause our actual consolidated results during fiscal 2023, and beyond, to differ materially from those expressed in or implied by any forward-looking statements made by us or on our behalf.
The Senior Notes are subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of global gross sales for specified restaurants being below certain levels on certain measurement dates, certain manager termination events, an event of default and the failure to repay or refinance on the applicable scheduled maturity date.
The Senior Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of global gross sales for specified restaurants being below certain levels on certain measurement dates, certain manager termination events, the occurrence of an event of default and the failure to repay or refinance on the applicable scheduled maturity date.
In addition, Wendy’s current franchise model, and the way our brand strategies are executed across the system, may make it difficult for our brand to respond and adapt to the speed of change in technology, consumer preferences, the regulatory environment or other factors as quickly as may be required to maintain and grow market share and remain competitive.
In addition, Wendy’s current franchise model, and the way our brand strategies are executed across the system, may make it difficult for our brand to respond and adapt to the speed of change in technology, consumer preferences or other factors as quickly as may be required to maintain and grow market share and remain competitive.
This damage may be immediate, without an opportunity to correct inaccurate information or respond to or address particular issues. In addition, as part of our marketing efforts, we frequently use social media to communicate with consumers in order to build their awareness of, engagement with and loyalty to us.
This damage may be immediate, without an opportunity to correct inaccurate information or respond to or address particular issues. In addition, as part of our marketing efforts, we frequently use social media to communicate with consumers in order to build their awareness of, engagement with and loyalty to our brand.
Unforeseen events, such as adverse weather conditions, natural disasters, hostilities (including acts of war, terrorist activities and public or workplace violence), social unrest, health epidemics or pandemics or other catastrophic events can adversely affect consumer spending, consumer confidence, restaurant sales and operations, supply chains and our ability to perform corporate or support functions at our restaurant support center, any of which could affect our business, results of operations and financial condition.
Unforeseen events, such as adverse weather conditions (including related to climate change), natural disasters, hostilities (including acts of war, terrorist activities and public or workplace violence), social unrest, health epidemics or pandemics or other catastrophic events can adversely affect consumer spending, consumer confidence, restaurant sales and operations, supply chains and our ability to perform corporate or support functions at our restaurant support center, any of which could affect our business, results of operations and financial condition.
The ability of the Company to make payments on, repay or refinance its debt, and any additional debt, and to fund planned capital expenditures, dividends and other cash needs will depend largely upon its future operating performance and ability to generate significant cash flows.
The ability of the Company to make payments on, repay or refinance its debt, and to fund planned capital expenditures, dividends and other cash needs will depend largely upon its future operating performance and ability to generate significant cash flows.
The success of this initiative is dependent upon many factors, such as the availability of sellers and buyers, the availability of financing, the ability to 21 negotiate transactions on terms deemed acceptable and the ability to successfully transition and integrate restaurant operations.
The success of this initiative 20 is dependent upon many factors, such as the availability of sellers and buyers, the availability of financing, the ability to negotiate transactions on terms deemed acceptable and the ability to successfully transition and integrate restaurant operations.
If we are unable to effectively manage the risks associated with our complex regulatory environment, it could have a material adverse effect on our business and financial condition.
If we are unable to effectively manage the risks associated with this complex legislative and regulatory environment, it could have a material adverse effect on our business and financial condition.
Many leases provide that the landlord may increase the rent over the term of the lease and any renewals of the term. Most leases require us to pay the costs of insurance, taxes, maintenance, utilities and capital repairs and replacements. We generally cannot cancel these leases prior to the expiration of their term.
Many leases provide that the rent will increase over the term of the lease and any renewals of the term. Most leases require us to pay the costs of insurance, taxes, maintenance, utilities and capital repairs and replacements. We generally cannot cancel these leases prior to the expiration of their term.
There has been increasing public focus by investors, environmental activists, the media and governmental and nongovernmental organizations on social and environmental sustainability matters, including packaging and waste, animal health and welfare, human rights, climate change, greenhouse gases and land, energy and water use.
There has been increasing public focus by investors, environmental activists, the media and governmental and nongovernmental organizations on environmental, social and governance matters, including packaging and waste, animal health and welfare, human rights, diversity, climate change, greenhouse gases and land, energy and water use.
Our business could be hurt by increased labor costs or labor shortages. Labor is a primary component in the cost of operating our restaurants. We devote significant resources to recruiting and training our managers and hourly employees.
Our business could be hurt by increased labor costs or labor shortages. Labor is a primary component in the cost of operating our restaurants. We devote significant resources to recruiting and training our restaurant personnel, including managers and hourly employees.
These strategic initiatives involve various risks, including general transaction and business risk, integration and synergy risk, market acceptance risk and risks associated with the diversion of management. Strategic transactions may not ultimately create value for us or our stockholders and may harm our reputation and materially adversely affect our business, results of operations and financial condition.
These strategic initiatives involve various risks, including general transaction and business risk, integration and synergy risk, market acceptance risk and risks associated with the potential diversion of management’s attention. Strategic transactions may not ultimately create value for us or our stockholders and may harm our reputation and materially adversely affect our business, results of operations and financial condition.
Our results of operations and those of our franchisees could be adversely affected if our key suppliers or distributors are unable to fulfill their responsibilities and we are unable to identify and transition the impacted business to alternative suppliers or distributors in a timely manner.
Our results of operations and those of our franchisees could be adversely affected if our key suppliers or distributors are unable to fulfill their responsibilities and we are unable to timely identify and transition the impacted business to alternative suppliers or distributors.
Failure to meet applicable data privacy requirements could result in substantial penalties and adversely impact our business and financial condition.
Failure to meet applicable data privacy requirements could result in legal proceedings and substantial penalties and adversely impact our business and financial condition.
Our results of operation and financial condition could be adversely impacted if we are unable to effectively manage the risks or costs to us, our franchisees and our supply chain associated with social and environmental sustainability matters. Our current insurance may not provide adequate levels of coverage against claims that have been or may be filed.
Our results of operation and financial condition could be adversely impacted if we are unable to effectively manage the risks or costs to us, our franchisees and our supply chain associated with environmental, social and governance matte rs. Our current insurance may not provide adequate levels of coverage against claims that have been or may be filed.
As of January 2, 2022, approximately 95% of restaurants in the Wendy’s system were operated by franchisees. Wendy’s franchisees are contractually obligated to operate their restaurants in accordance with the standards set forth in our franchise and other agreements with them. Wendy’s also provides training and support to franchisees.
As of January 1, 2023, approximately 95% of restaurants in the Wendy’s system were operated by franchisees. Wendy’s franchisees are contractually obligated to operate their restaurants in accordance with the standards set forth in our franchise and other agreements with them. Wendy’s also provides training and support to franchisees.
Our marketing and advertising programs may not be successful, or we may fail to develop commercially successful new products, which may impact our ability to attract new customers and retain existing customers, which, in turn, could materially and adversely affect our results of operations.
Our marketing and advertising programs may not be successful, or we may fail to develop commercially successful new products, which may impact our ability to attract new customers and retain existing customers, which, in turn, could materially and adversely affect our results of operations and the value and perception of our brand.
As a result, we have 29 experienced increased pressure and expectations to provide expanded disclosure and make commitments, establish goals or set targets with respect to various environmental and social issues and to take the actions necessary to meet those commitments, goals and targets.
As a result, we have experienced increased pressure and expectations to provide expanded disclosure and establish commitments, goals or targets with respect to various environmental, social and governance issues and to take the actions necessary to meet those commitments, goals and targets.
Our real estate values and the costs associated with our real estate operations are impacted by a variety of factors, including changes in the investment climate for real estate, macroeconomic trends, governmental regulations, insurance, demographic trends, supply chain management, supply and demand for the ownership and operation of restaurants and environmental matters.
Our real estate values and the costs associated with our real estate operations are impacted by a variety of factors, including changes in the investment climate for real estate, macroeconomic trends, governmental regulations, infrastructure, condemnation or eminent domain, insurance, demographic trends, supply chain management, supply and demand for the ownership and operation of restaurants and environmental matters.
Our ability to efficiently manage our business depends significantly on the reliability and capacity of our systems and technology.
Our ability to efficiently manage our business depends significantly on the reliability and performance of our systems and technology.
In addition, as each lease expires, we may fail to negotiate additional renewals or renewal options, either on commercially acceptable terms or at all, which could cause us to close restaurants in desirable locations, negatively impacting our results of operations.
In addition, as our leases expire, we may fail to negotiate additional renewals or renewal options, either on commercially acceptable terms or at all, which could cause us to close restaurants in desirable locations, negatively impacting our results of operations.
The assets of the Securitization Entities include most of the domestic and certain of the foreign revenue-generating assets of the Company and its subsidiaries, which principally consist of franchise-related agreements, certain Company-operated restaurants, intellectual property and license agreements for the use of intellectual property.
The assets of the Securitization Entities include most of the domestic and certain of the foreign revenue-generating assets of the Company and its subsidiaries, which principally consist of franchise-related agreements, real estate assets, intellectual property and license agreements for the use of intellectual property.
We have a significant amount of debt outstanding, and such indebtedness could adversely affect our business, results of operations and financial condition. As of January 2, 2022, the Company had approximately $2.4 billion of outstanding debt on its balance sheet.
We have a significant amount of debt outstanding, and such indebtedness could adversely affect our business, results of operations and financial condition. As of January 1, 2023, the Company had approximately $2.9 billion of outstanding debt on its balance sheet.
We are heavily dependent on our computer systems and information technology, including those controlled by third-party providers, to conduct our business, including point-of-sale processing in our restaurants, management of our supply chain, collection of cash, payment of obligations and various other processes and procedures.
We are heavily dependent on our computer systems and information technology, including those controlled by third-party providers, to conduct our business, including point-of-sale processing in our restaurants, technologies that support our digital and delivery solutions, management of our supply chain, collection of cash, payment of obligations and various other processes and procedures.
Adverse economic conditions or disruptions in the national and global economies could result in higher unemployment rates, labor shortages, increases in inflation and declines in consumer confidence and spending. If such disruptions occur, they may result in significant declines in consumer food-away-from-home spending and customer counts in our restaurants and those of our franchisees.
Adverse economic conditions or disruptions in the national and global economies could result in higher unemployment rates, labor shortages, increases in inflation and interest rates and declines in consumer confidence and spending. If such disruptions occur, they may result in significant declines in consumer food-away-from-home spending and customer counts in Wendy’s restaurants.
In order to support our Image Activation program and promote new restaurant development, we have provided franchisees with certain incentive programs for qualifying new and reimaged restaurants, including reductions in royalty and national advertising payments and options for the early renewal of franchise agreements.
In order to support our Image Activation program and promote new restaurant development, we have provided franchisees with certain incentive programs for qualifying new and reimaged restaurants, including waivers or reductions in royalty, national advertising and technical assistance fees and options for the early renewal of franchise agreements.
Nelson Peltz, our Chairman, Peter May, our Senior Vice Chairman, Matthew Peltz, our Vice Chairman, and Edward Garden, a former director of the Company, beneficially own shares of our outstanding common stock that collectively constitute approximately 19% of the Company’s total voting power as of February 22, 2022.
Nelson Peltz, our Chairman, Peter May, our Senior Vice Chairman, Matthew Peltz, our Vice Chairman, and Edward Garden, a former director of the Company, beneficially own shares of our outstanding common stock that collectively constitute approximately 20% of the Company’s total voting power as of February 21, 2023.
While we believe we have adequate accruals for all of our legal and environmental 28 matters, we cannot estimate the aggregate possible range of loss for our existing litigation and claims due to most proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur, and significant factual matters unresolved.
While we believe we have adequate accruals for all of our legal and environmental matters, we cannot estimate the aggregate possible range of loss for our existing litigation and claims due to various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur, and significant factual matters unresolved.
If sales trends or economic conditions worsen for franchisees, or if the overall business or financial health of franchisees deteriorates, their results of operations or financial condition may worsen and our royalty, national advertising funds, rent and other fee revenues may decline and our accounts receivable and related allowance for doubtful accounts may increase.
If sales trends or economic conditions worsen for franchisees, or if the overall business or financial health of franchisees deteriorates, their results of operations or financial condition may worsen and our royalty, national advertising funds, rent and other fee revenues may decline.
A significant change in real estate values, or an increase in costs as result of any of these factors, could adversely affect our results of operations and financial condition. We are subject to federal, state and local environmental, health and safety laws and regulations concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances.
A significant decrease in real estate values or increase in real estate costs could adversely affect our results of operations and financial condition. We are subject to federal, state and local environmental, health and safety laws and regulations concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances.
We have not conducted a comprehensive environmental review of all of our properties and we may not have identified all of the potential environmental liabilities at our leased and owned properties, and any such liabilities identified in the future could cause us to incur significant costs, including costs associated with litigation, fines or clean-up responsibilities.
While we employ environmental review standards and practices in the current development of our real estate, we have not conducted a comprehensive environmental review of all of our properties and we may not have identified all of the potential environmental liabilities at our leased and owned properties, and any such liabilities identified in the future could cause us to incur significant costs, including costs associated with litigation, fines or clean-up responsibilities.
It is possible we may provide additional financial incentives to franchisees, which could result in additional expenses, a reduction of royalties or other revenues or the incurrence of other costs or liabilities. Some franchisees may need to borrow funds in order to participate in the Image Activation program.
It is possible we may provide additional financial incentives to franchisees, which could result in additional expenses, a reduction of royalties or other revenues or the incurrence of other costs or liabilities. Some franchisees may need to borrow funds in order to reimage existing restaurants or build new restaurants under the Image Activation program.
All such competition may adversely affect our brand, business, results of operations and financial condition. Adverse economic conditions or disruptions in the national and global economies, or in regions that have a high concentration of Wendy’s restaurants, could adversely impact our business, results of operations and financial condition.
Adverse economic conditions or disruptions in the national and global economies, or in regions that have a high concentration of Wendy’s restaurants, could adversely impact our business, results of operations and financial condition.
Our business and results of operations could be adversely affected if a significant number of franchisees do not participate in brand strategies, such as new restaurant development, Image Activation, digital commerce platforms and technologies and execution of the breakfast daypart, which in turn may harm our business and financial condition.
Our business and results of operations could be adversely affected if a significant number of franchisees do not participate in brand strategies, such as new restaurant development, Image Activation, marketing and menu programs and digital commerce platforms and technologies, 19 which in turn may harm our business and financial condition.
Although we do not believe this law applies to our franchisees or their employees, changes in the legal framework of employment or franchise liability could negatively impact our business, particularly if such changes result in any law, rule, regulation, governmental policy or interpretation or judicial decision determining that Wendy’s is an employer of its franchisees or a joint employer with our franchisees or otherwise imposing liability for employment-related claims or impacting our employment relationships based on theories of joint employer liability or other theories of vicarious liability.
Changes in the legal framework of employment or franchise liability could negatively impact our business, particularly if such 27 changes result in any law, rule, regulation, governmental policy or interpretation or judicial decision determining that Wendy’s is an employer of its franchisees or a joint employer with our franchisees or otherwise imposing liability for employment-related claims or impacting our employment relationships based on theories of joint employer liability or other theories of vicarious liability.
The failure of our systems and technology to operate effectively, an interruption in our systems or technology or a breach in security of our systems or technology could be harmful and cause delays in customer service, result in the loss of data, reduce efficiency or cause delays in operations.
The failure of our systems and technology to operate effectively, or an interruption or degradation in our systems or technology could be harmful and cause delays in customer service, result in the loss of digital sales or data, reduce efficiency or cause delays in operations.
Increased labor costs due to competition, increased wages or employee benefits costs (including various federal, state and local actions to increase minimum wages), unionization activity or other factors would adversely impact our cost of sales and operating expenses.
Increased labor costs due to competition, inflationary pressures, increased wages or employee benefits costs (including various federal, state and local actions to increase minimum wages), unionization activity or other factors have adversely impacted and could continue to adversely impact our cost of sales and operating expenses.
The COVID-19 pandemic has led, and could again lead, to interruptions in the delivery of food or other supplies to Wendy’s restaurants arising from delays or restrictions on shipping or manufacturing, closures of supplier or distributor facilities or financial distress or insolvency of suppliers or distributors.
Furthermore, the pandemic has led, and could again lead, to interruptions in the delivery of food or other supplies to Wendy’s restaurants arising from delays or restrictions on shipping or manufacturing, labor shortages and increased labor costs, closures of supplier or distributor facilities or financial distress of suppliers or distributors.
In addition, the failure of franchisees to adequately engage in succession planning may adversely affect their restaurant operations and development of new Wendy’s restaurants, which in turn could hurt our business and results of operations. Wendy’s franchisees are an integral part of our business, growth and brand strategies.
In addition, the failure of franchisees to adequately engage in succession planning may adversely affect their restaurant operations and development of new Wendy’s restaurants, which in turn could hurt our business and results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in commodity costs (including beef, chicken, pork, dairy and grains), supplies, fuel, utilities, distribution and other operating costs, including labor costs. Increases in commodity costs, particularly beef or chicken prices, could adversely affect our future results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in commodity costs (including beef, chicken, pork, dairy and grains), supplies, fuel, utilities, distribution and other operating costs, including labor costs. Increases in commodity costs have adversely impacted and could continue to adversely impact our results of operations.
We are heavily dependent on computer systems and information technology and any material failure, misuse, interruption or breach of our systems or technology could adversely affect our business, results of operations and financial condition.
We are heavily dependent on computer systems and information technology and any material failure, interruption or degradation of our systems or technology or issues with our key technology providers could adversely affect our business, results of operations and financial condition.
The rising popularity of social media has increased the speed and accessibility of information dissemination and given users the ability to more effectively organize collective actions such as boycotts and other brand-damaging behaviors. The dissemination of information via social media, whether accurate or inaccurate, could harm our business, brand, reputation, results of operation and financial condition.
The availability of information on social media platforms is virtually immediate and has given users the ability to more effectively organize collective actions such as boycotts and other brand-damaging behaviors. The dissemination of information via social media, whether accurate or inaccurate, could harm our business, brand, reputation, results of operation and financial condition.
The Senior Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or 26 other amounts due on or with respect to the Senior Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective and certain judgments.
The Senior Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the Senior Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, the trustee under the Indenture ceasing to have valid and perfected security interests in certain collateral and certain judgments.
Brand value is based in part on consumer perceptions on a variety of subjective qualities. Business incidents, whether isolated or recurring, and whether originating from us, our franchisees or our business partners, can significantly reduce brand value and consumer trust, particularly if the incidents receive considerable publicity or result in litigation.
Business incidents, whether isolated or recurring, and whether originating from us, our franchisees or our business partners, can significantly reduce brand value and consumer trust, particularly if the incidents receive considerable publicity or result in litigation.
In addition to the risks described above, the COVID-19 pandemic has had, and could continue to have, the effect of heightening other risks disclosed in this risk factors section, including, but not limited to, those related to brand value and perception, consumer preferences and spending, commodity costs, labor, supply chain and purchasing, performance of the breakfast daypart and international operations.
In addition to the risks described above, the pandemic has had, and could continue to have, the effect of heightening other risks disclosed in this risk factors section, including, but not limited to, those related to brand value and perception, consumer preferences and spending, our ability to achieve or maintain market share, new restaurant development, commodity costs, labor, supply chain and purchasing and international operations.
Any damage or violation of our intellectual property could harm our image, brand or competitive position and cause us to incur significant legal fees and diversion of resources.
Any damage or violation of our intellectual property could harm our image, brand or competitive position and result in significant legal fees and the diversion of resources.
Further, the Company’s outstanding variable funding notes may accrue interest based on the London interbank offered rate (“LIBOR”), which is expected to be discontinued in 2023. If LIBOR is discontinued, we may need to renegotiate certain loan documents and we cannot predict what alternative index would be negotiated with our lenders or the resulting impact on our interest expense.
Further, the Company’s outstanding variable funding notes may accrue interest based on the London interbank offered rate (“LIBOR”). In connection with the 25 discontinuance of LIBOR, we expect to renegotiate certain loan documents and cannot predict what alternative index will be negotiated with our lenders or the resulting impact on our interest expense.
We believe that over time our success has been dependent to a significant extent upon the efforts and abilities of our senior leadership team and other key personnel.
Our success depends in part upon the continued succession and retention of certain key personnel and the effectiveness of our leadership and organizational structure. We believe that over time our success has been dependent to a significant extent upon the efforts and abilities of our senior leadership team and other key personnel.
These factors include, among others, (i) our ability to attract new franchisees; (ii) the availability of site locations for new restaurants; (iii) the ability of restaurant owners to obtain financing; (iv) the ability of restaurant owners to attract, train and retain qualified operating personnel; (v) construction and development costs, particularly in highly competitive markets; (vi) the ability of restaurant owners to secure required governmental approvals and permits in a timely manner, or at all; and (vii) adverse weather conditions.
These factors include, among others: (i) our ability to attract new franchisees; (ii) the availability of site locations for new restaurants; (iii) the ability of restaurant owners to obtain financing; (iv) the ability of restaurant owners to attract, train and retain qualified operating personnel; (v) construction and development costs; (vi) the ability of restaurant owners to secure required governmental approvals and permits in a timely manner, or at all; (vii) the ability of us and our franchises to execute our development strategy for non-traditional restaurants, such as fuel and transportation centers, food courts and other retail locations, military bases and delivery kitchens; and (viii) adverse weather conditions.
Risks Related to Brand Perception and Value Our success depends substantially on our corporate reputation and on the value and perception of our brand. Our success depends in large part upon our ability to maintain and enhance the value of our brand, our customers’ loyalty to our brand and a positive relationship with our franchisees and other business partners.
Our success depends in large part upon our ability to maintain and enhance the value of our brand, our customers’ loyalty to our brand and a positive relationship with our franchisees and other business partners. Brand value is based in part on consumer perceptions on a variety of subjective qualities.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeCertain leases contain contingent rent provisions that require additional rental payments based upon restaurant sales volume in excess of specified amounts. As part of the Global Real Estate & Development segment, Wendy’s also owned 485 and leased 1,235 properties that were either leased or subleased principally to franchisees as of January 2, 2022.
Biggest changeCertain leases contain contingent rent provisions that require additional rental payments based upon restaurant sales volume in excess of specified amounts. As part of the Global Real Estate & Development segment, Wendy’s also owned 488 and leased 1,199 properties that were either leased or subleased principally to franchisees as of January 1, 2023.
Item 2. Properties. We believe that our properties, taken as a whole, are generally well maintained and are adequate for our current and foreseeable business needs. The following table contains information about our principal office facilities as of January 2, 2022: ACTIVE FACILITIES FACILITIES LOCATION LAND TITLE APPROXIMATE SQ. FT.
Item 2. Properties. We believe that our properties, taken as a whole, are generally well maintained and are adequate for our current and foreseeable business needs. The following table contains information about our principal office facilities as of January 1, 2023: ACTIVE FACILITIES FACILITIES LOCATION LAND TITLE APPROXIMATE SQ. FT.
Wendy’s also held leases covering the land and building for each of the five Company-operated restaurants in the Wendy’s International segment. Lease terms are generally initially between 15 and 20 years and, in most cases, provide for rent escalations and renewal options.
Wendy’s also 29 held leases covering the land and building for each of the 12 Company-operated restaurants in the Wendy’s International segment. Lease terms are generally initially between 15 and 20 years and, in most cases, provide for rent escalations and renewal options.
Of the 403 Company-operated restaurants in the Wendy’s U.S. segment, Wendy’s owned the land and building for 159 restaurants, owned the building and held long-term land leases for 141 restaurants and held leases covering the land and building for 103 restaurants.
Of the 403 Company-operated restaurants in the Wendy’s U.S. segment, Wendy’s owned the land and building for 158 restaurants, owned the building and held long-term land leases for 143 restaurants and held leases covering the land and building for 102 restaurants.
The Corporate Headquarters serves all of our operating segments. ** The Wendy’s Restaurants of Canada Inc. facility primarily serves the International operating segment. At January 2, 2022, Wendy’s and its franchisees operated 6,949 Wendy’s restaurants.
The Corporate Headquarters serves all of our operating segments. ** The Wendy’s Restaurants of Canada Inc. facility primarily serves the International operating segment. At January 1, 2023, Wendy’s and its franchisees operated 7,095 Wendy’s restaurants.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe cannot estimate the aggregate possible range of loss for our existing litigation and claims for various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and/or significant factual matters unresolved.
Biggest changeWe cannot estimate the aggregate possible range of loss for our existing litigation and claims due to various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur, and significant factual matters unresolved.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(2) In February 2020, our Board of Directors authorized the repurchase of up to $100.0 million of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally permissible. In July 2020, our Board of Directors approved an extension of the February 2020 authorization by one year, through February 28, 2022.
Biggest changeIn 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”).
Future dividend payments, if any, will be made at the discretion of our Board of Directors and will be based on such factors as the Company’s earnings, financial condition and cash requirements and other factors. As of February 22, 2022, there were approximately 21,119 holders of record of the Company’s common stock.
Future dividend payments, if any, will be made at the discretion of our Board of Directors and will be based on such factors as the Company’s earnings, financial condition and cash requirements and other factors. As of February 21, 2023, there were approximately 20,115 holders of record of the Company’s common stock.
In February 2022, our Board of Directors authorized the repurchase of up to $100.0 million of our common stock through February 28, 2023, when and if market conditions warrant and to the extent legally permissible. Item 6. [Reserved]
(2) In February 2022, our Board of Directors authorized the repurchase of up to $100.0 million of our common stock through February 28, 2023, when and if market conditions warranted and to the extent legally permissible (the “February 2022 Authorization”).
The Company paid quarterly cash dividends of $0.12, $0.05, $0.05 and $0.07 per share of common stock during the first, second, third and fourth quarters of 2020, respectively. The Company paid quarterly cash dividends of $0.09, $0.10, $0.12 and $0.12 per share of common stock during the first, second, third and fourth quarters of 2021, respectively.
The Company paid quarterly cash dividends of $.09, $.10, $.12 and $.12 per share of common stock during the first, second, third and fourth quarters of 2021, respectively. The Company paid quarterly cash dividends of $.125 per share of common stock during each of the first, second, third and fourth quarters of 2022.
During the first quarter of 2022, the Company declared a dividend of $0.125 per share of common stock to be paid on March 15, 2022 to stockholders of record as of March 7, 2022.
During the first quarter of 2023, the Company declared a dividend of $.25 per share of common stock to be paid on March 15, 2023 to stockholders of record as of March 1, 2023.
The following table provides information with respect to repurchases of shares of our common stock by us and our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the fourth fiscal quarter of 2021: Issuer Repurchases of Equity Securities Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (2) October 4, 2021 through November 7, 2021 701,581 $ 22.23 697,485 $ 125,071,941 November 8, 2021 through December 5, 2021 (3) 4,913,130 $ 21.64 4,913,130 $ 18,750,022 December 6, 2021 through January 2, 2022 1,386 $ 22.16 — $ 18,750,022 Total 5,616,097 $ 21.71 5,610,615 $ 18,750,022 (1) Includes 5,482 shares of common stock reacquired by the Company from holders of share-based awards to satisfy certain requirements associated with the vesting or exercise of the respective award.
The following table provides information with respect to repurchases of shares of our common stock by us and our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the fourth fiscal quarter of 2022: Issuer Repurchases of Equity Securities Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (2) October 3, 2022 through November 6, 2022 7,604 $ 19.27 — $ 198,088,626 November 7, 2022 through December 4, 2022 1,161 $ 20.83 — $ 198,088,626 December 5, 2022 through January 1, 2023 729 $ 23.22 — $ 198,088,626 Total 9,494 $ 19.77 — $ 198,088,626 (1) Represents shares of common stock reacquired by the Company from holders of share-based awards to satisfy certain requirements associated with the vesting or exercise of the respective award.
In May 2021, August 2021, and November 2021, our Board of Directors approved increases of $50.0 million, $70.0 million and $80.0 million, respectively, to the February 2020 authorization, resulting in an aggregate authorization of $300.0 million that expired on February 28, 2022.
In April 2022, our Board of Directors approved an increase of $150.0 million to the February 2022 Authorization, resulting in an aggregate authorization of $250.0 million.
Removed
(3) In November 2021, the Company entered into an accelerated share repurchase agreement (the “2021 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the Company’s existing share repurchase program.
Added
In connection with the January 2023 Authorization, the remaining portion of the February 2022 Authorization was canceled. 31 Subsequent to January 1, 2023 through February 21, 2023, the Company repurchased 0.6 million shares under the January 2023 Authorization with an aggregate purchase price of $12.9 million, excluding commissions. Item 6. [Reserved]
Removed
Under the 2021 ASR Agreement, the Company paid the financial institution an initial 32 purchase price of $125.0 million in cash and received an initial delivery of 4.9 million shares of common stock, representing an estimated 85% of the total shares expected to be delivered under the 2021 ASR Agreement.
Removed
In February 2022, the Company completed the 2021 ASR Agreement and received an additional 0.7 million shares of common stock.
Removed
The total number of shares of common stock ultimately purchased by the Company under the 2021 ASR Agreement was based on the average of the daily volume-weighted average prices of the common stock during the term of the 2021 ASR Agreement, less an agreed upon discount.
Removed
In total, 5.6 million shares were delivered under the 2021 ASR Agreement at an average purchase price of $22.22 per share. With the completion of the 2021 ASR Agreement, the Company completed its $300.0 million February 2020 authorization.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeExcept as noted below, the Company’s consolidated results of operations described below includes the benefit of the 53 rd week in 2020. 2021 2020 2019 Amount Change Amount Change Amount Revenues: Sales $ 734.1 $ 11.3 $ 722.8 $ 15.3 $ 707.5 Franchise royalty revenue and fees 536.7 92.0 444.7 15.7 429.0 Franchise rental income 236.7 4.1 232.6 (0.5) 233.1 Advertising funds revenue 389.5 55.8 333.7 (5.7) 339.4 1,897.0 163.2 1,733.8 24.8 1,709.0 Costs and expenses: Cost of sales 611.7 (3.2) 614.9 17.4 597.5 Franchise support and other costs 42.9 16.4 26.5 (17.2) 43.7 Franchise rental expense 132.4 6.8 125.6 1.7 123.9 Advertising funds expense 411.8 66.4 345.4 7.3 338.1 General and administrative 243.0 36.1 206.9 6.7 200.2 Depreciation and amortization 125.5 (7.3) 132.8 1.1 131.7 System optimization gains, net (33.5) (30.4) (3.1) (1.8) (1.3) Reorganization and realignment costs 8.5 (7.5) 16.0 (1.0) 17.0 Impairment of long-lived assets 2.3 (5.7) 8.0 1.0 7.0 Other operating income, net (14.6) (6.1) (8.5) 2.9 (11.4) 1,530.0 65.5 1,464.5 18.1 1,446.4 Operating profit 367.0 97.7 269.3 6.7 262.6 Interest expense, net (109.2) 8.5 (117.7) (1.7) (116.0) Loss on early extinguishment of debt (17.9) (17.9) — 8.5 (8.5) Investment income (loss), net — 0.2 (0.2) (25.8) 25.6 Other income, net 0.7 (0.7) 1.4 (6.4) 7.8 Income before income taxes 240.6 87.8 152.8 (18.7) 171.5 Provision for income taxes (40.2) (5.2) (35.0) (0.4) (34.6) Net income $ 200.4 $ 82.6 $ 117.8 $ (19.1) $ 136.9 38 2021 % of Total Revenues 2020 % of Total Revenues 2019 % of Total Revenues Revenues: Sales $ 734.1 38.7 % $ 722.8 41.7 % $ 707.5 41.4 % Franchise royalty revenue and fees: Franchise royalty revenue 460.7 24.3 % 416.5 24.0 % 400.7 23.4 % Franchise fees 76.0 4.0 % 28.2 1.7 % 28.3 1.7 % Total franchise royalty revenue and fees 536.7 28.3 % 444.7 25.7 % 429.0 25.1 % Franchise rental income 236.7 12.5 % 232.6 13.4 % 233.1 13.6 % Advertising funds revenue 389.5 20.5 % 333.7 19.2 % 339.4 19.9 % Total revenues $ 1,897.0 100.0 % $ 1,733.8 100.0 % $ 1,709.0 100.0 % 2021 % of Sales 2020 % of Sales 2019 % of Sales Cost of sales: Food and paper $ 224.1 30.5 % $ 221.8 30.7 % $ 222.8 31.5 % Restaurant labor 231.5 31.5 % 233.6 32.3 % 214.7 30.3 % Occupancy, advertising and other operating costs 156.1 21.3 % 159.5 22.1 % 160.0 22.7 % Total cost of sales $ 611.7 83.3 % $ 614.9 85.1 % $ 597.5 84.5 % 2021 % of Sales 2020 % of Sales 2019 % of Sales Restaurant margin $ 122.4 16.7 % $ 107.9 14.9 % $ 110.0 15.5 % 39 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. 2021 2020 2019 Key business measures: U.S. same-restaurant sales (a): Company-operated 11.9 % (0.7) % 3.1 % Franchised 9.0 % 2.3 % 2.9 % Systemwide 9.2 % 2.0 % 2.9 % International same-restaurant sales (a) (b) 17.6 % (6.0) % 3.2 % Global same-restaurant sales (a): Company-operated 11.9 % (0.7) % 3.1 % Franchised (b) 9.9 % 1.4 % 2.9 % Systemwide (b) 10.0 % 1.2 % 2.9 % Systemwide sales (c): U.S.
Biggest changeExcept as noted below, the Company’s consolidated results of operations described below includes the benefit of the 53 rd week in 2020. 2022 2021 2020 Amount Change Amount Change Amount Revenues: Sales $ 896.6 $ 162.5 $ 734.1 $ 11.3 $ 722.8 Franchise royalty revenue and fees 558.2 21.5 536.7 92.0 444.7 Franchise rental income 234.5 (2.2) 236.7 4.1 232.6 Advertising funds revenue 406.2 16.7 389.5 55.8 333.7 2,095.5 198.5 1,897.0 163.2 1,733.8 Costs and expenses: Cost of sales 773.2 161.5 611.7 (3.2) 614.9 Franchise support and other costs 46.7 3.8 42.9 16.4 26.5 Franchise rental expense 124.1 (8.3) 132.4 6.8 125.6 Advertising funds expense 430.8 19.0 411.8 66.4 345.4 General and administrative 255.0 12.0 243.0 36.1 206.9 Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) 133.4 7.9 125.5 (7.3) 132.8 Amortization of cloud computing arrangements 2.4 2.4 — — — System optimization gains, net (6.8) 26.7 (33.5) (30.4) (3.1) Reorganization and realignment costs 0.7 (7.8) 8.5 (7.5) 16.0 Impairment of long-lived assets 6.4 4.1 2.3 (5.7) 8.0 Other operating income, net (23.7) (9.1) (14.6) (6.1) (8.5) 1,742.2 212.2 1,530.0 65.5 1,464.5 Operating profit 353.3 (13.7) 367.0 97.7 269.3 Interest expense, net (122.3) (13.1) (109.2) 8.5 (117.7) Loss on early extinguishment of debt — 17.9 (17.9) (17.9) — Investment income (loss), net 2.1 2.1 — 0.2 (0.2) Other income, net 10.4 9.7 0.7 (0.7) 1.4 Income before income taxes 243.5 2.9 240.6 87.8 152.8 Provision for income taxes (66.1) (25.9) (40.2) (5.2) (35.0) Net income $ 177.4 $ (23.0) $ 200.4 $ 82.6 $ 117.8 36 2022 % of Total Revenues 2021 % of Total Revenues 2020 % of Total Revenues Revenues: Sales $ 896.6 42.8 % $ 734.1 38.7 % $ 722.8 41.7 % Franchise royalty revenue and fees: Franchise royalty revenue 485.5 23.2 % 460.7 24.3 % 416.5 24.0 % Franchise fees 72.7 3.4 % 76.0 4.0 % 28.2 1.7 % Total franchise royalty revenue and fees 558.2 26.6 % 536.7 28.3 % 444.7 25.7 % Franchise rental income 234.5 11.2 % 236.7 12.5 % 232.6 13.4 % Advertising funds revenue 406.2 19.4 % 389.5 20.5 % 333.7 19.2 % Total revenues $ 2,095.5 100.0 % $ 1,897.0 100.0 % $ 1,733.8 100.0 % 2022 % of Sales 2021 % of Sales 2020 % of Sales Cost of sales: Food and paper $ 292.9 32.7 % $ 224.1 30.5 % $ 221.8 30.7 % Restaurant labor 288.0 32.1 % 231.5 31.5 % 233.6 32.3 % Occupancy, advertising and other operating costs 192.3 21.4 % 156.1 21.3 % 159.5 22.1 % Total cost of sales $ 773.2 86.2 % $ 611.7 83.3 % $ 614.9 85.1 % 2022 % of Sales 2021 % of Sales 2020 % of Sales Company-operated restaurant margin: U.S. $ 125.9 14.3 % $ 124.4 17.0 % $ 108.9 15.1 % Global 123.4 13.8 % 122.4 16.7 % 107.9 14.9 % 37 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. 2022 2021 2020 Key business measures: U.S. same-restaurant sales (a): Company-operated 4.4 % 11.9 % (0.7) % Franchised 3.9 % 9.0 % 2.3 % Systemwide 3.9 % 9.2 % 2.0 % International same-restaurant sales (a) (b) 12.4 % 17.6 % (6.0) % Global same-restaurant sales (a): Company-operated 4.4 % 11.9 % (0.7) % Franchised (b) 4.9 % 9.9 % 1.4 % Systemwide (b) 4.9 % 10.0 % 1.2 % Systemwide sales (c): U.S.
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 initiatives.
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 initiatives.
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 2021.
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 2022.
See Note 12 of the Financial Statements and Supplementary Data 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.
See Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information related to our long-term debt obligations and the timing of expected payments. 47 Leases The Company operates restaurants that are located on sites owned by us and sites leased by us from third parties.
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.
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 48 financial statements and the reported amount of revenues and expenses during the reporting period.
Our impairment losses principally reflect impairment charges resulting from the deterioration in operating performance of certain Company-operated restaurants. 52 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.
Our impairment losses principally reflect impairment charges resulting from the deterioration in operating performance of certain Company-operated restaurants. Our fair value estimates are subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment.
Should actual cash flows and our future estimates vary adversely from those estimates we used, we may be required to recognize additional impairment charges in future years. • Our ability to realize deferred tax assets: We account for income taxes under the asset and liability method.
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. 50 • Our ability to realize deferred tax assets: We account for income taxes under the asset and liability method.
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.
As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty and advertising funds revenues and profitability. 33 • 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.
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 33 Company’s core operating performance.
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.
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 34 funds revenues are computed as percentages of sales made by Wendy’s franchisees.
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.
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. 51 Under the market approach, we apply the guideline company method in estimating fair value.
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 Company does not expect any material loss to result from these letters of credit because we do not believe performance will be required. General Inflation, Commodities and Changing Prices Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during 2021, and we expect this to continue into 2022.
The Company does not expect any material loss to result from these letters of credit because we do not believe performance will be required. General Inflation, Commodities and Changing Prices Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during 2022, and we expect this to continue into 2023.
As part of CAP, tax years are examined on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. As such, our U.S. federal income tax returns for fiscal years 2009 through 2019 have been settled.
As part of CAP, tax years are examined on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. As such, our U.S. federal income tax returns for fiscal years 2009 through 2020 have been settled.
For the annual impairment test of our indefinite-lived intangible assets in the fourth quarter of 2021, 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.
For the annual impairment test of our indefinite-lived intangible assets in the fourth quarter of 2022, 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 COVID-19 pandemic has had and may continue to have the effect of heightening the impact of many of these factors. See “COVID-19 Update” below and “Special Note Regarding Forward-Looking Statements and Projections” in “Part I” preceding “Item 1 - Business” for additional information.
The COVID-19 pandemic has had and may continue to have the effect of heightening the impact of many of these factors. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part I” preceding “Item 1 - Business” for additional information.
For discussion related to 2019 items and year-to-year comparisons between 2020 and 2019 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 2020 Form 10-K, filed with the United States Securities and Exchange Commission on March 3, 2021.
For discussion related to 2020 items and year-to-year comparisons between 2021 and 2020 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 2021 Form 10-K, filed with the United States Securities and Exchange Commission on March 1, 2022.
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 $38.3 million. • Income tax uncertainties: We measure income tax uncertainties in accordance with a two-step process of evaluating a tax position.
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 $35.7 million. • Income tax uncertainties: We measure income tax uncertainties in accordance with a two-step process of evaluating a tax position.
Stock Repurchases In February 2020, our Board of Directors authorized a repurchase program for up to $100.0 million of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally permissible.
In February 2020, our Board of Directors authorized a repurchase program for up to $100.0 million of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally permissible (the “February 2020 Authorization”).
See “Results of Operations” below and Note 26 of the Financial Statements and Supplementary Data contained in Item 8 herein for segment financial information.
See “Results of Operations” below and Note 27 of the Financial Statements and Supplementary Data contained in Item 8 herein for segment financial information.
Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of January 2, 2022. 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.
Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of January 1, 2023. Wendy’s operating results are impacted by a number of external factors, including commodity costs, labor costs, intense price competition, unemployment and consumer spending levels, general economic and market trends and weather.
Of the international restaurants, 1,006 were operated by franchisees and five were operated by the Company in the United Kingdom (the “U.K.”). The revenues from our restaurant business are derived from two principal sources: (1) sales at Company-operated restaurants and (2) franchise-related revenues, including royalties, national advertising funds contributions, rents and franchise fees received from Wendy’s franchised restaurants.
Of the international restaurants, 1,089 were operated by 106 franchisees and 12 were operated by the Company in the United Kingdom (the “U.K.”). The revenues from our restaurant business are derived from two principal sources: (1) sales at Company-operated restaurants and (2) franchise-related revenues, including royalties, national advertising funds contributions, rents and franchise fees received from Wendy’s franchised restaurants.
The Company resumed share repurchases in August 2020. In addition, in May 2021, August 2021 and November 2021 the Board of Directors approved increases of $50.0 million, $70.0 million and $80.0 million, respectively, to the February 2020 authorization, resulting in an aggregate authorization of $300.0 million that continued to expire on February 28, 2022.
In addition, in May 2021, August 2021 and November 2021, the Board of Directors approved increases of $50.0 million, $70.0 million and $80.0 million, respectively, to the February 2020 Authorization, resulting in an aggregate authorization of $300.0 million that continued to expire on February 28, 2022.
We accrue interest related to uncertain tax positions in “Interest expense, net.” As of January 2, 2022, we had $1.0 million accrued for interest. The Company participates in the Internal Revenue Service (the “IRS”) Compliance Assurance Process (“CAP”).
We accrue interest related to uncertain tax positions in “Interest expense, net.” As of January 1, 2023, we had $0.9 million accrued for interest. The Company participates in the Internal Revenue Service (the “IRS”) Compliance Assurance Process (“CAP”).
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 January 2, 2022, the total net carrying value of our long-lived tangible and definite-lived intangible assets was $2,341.6 million.
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 January 1, 2023, the total net carrying value of our long-lived tangible and definite-lived intangible assets was $2,230.6 million.
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 January 2, 2022” or “2021,” which consisted of 52 weeks, (2) “the year ended January 3, 2021” or “2020,” which consisted of 53 weeks, and (3) “the year ended December 29, 2019” or “2019,” which consisted of 52 weeks.
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 January 1, 2023” or “2022,” which consisted of 52 weeks, (2) “the year ended January 2, 2022” or “2021,” which consisted of 52 weeks, and (3) “the year ended January 3, 2021” or “2020,” which consisted of 53 weeks.
In 2022, we expect that cash capital expenditures will amount to approximately $90.0 million to $100.0 million, principally relating to (1) the opening of new Company-operated restaurants and the reimaging of existing Company-operated restaurants, (2) technology investments, including consumer-facing digital technology, (3) restaurant equipment investments, (4) maintenance capital expenditures for Company-operated restaurants and (5) various other capital projects.
In 2023, we expect that cash capital expenditures will amount to approximately $75.0 million to $85.0 million, principally relating to (1) technology investments, including consumer-facing digital technology, (2) the opening of new Company-operated restaurants and the reimaging of existing Company-operated restaurants, (3) restaurant equipment investments, (4) maintenance capital expenditures for Company-operated restaurants and (5) various other capital projects.
Our quantitative goodwill impairment test for our global real estate and development operations indicated that there had been no impairment and the fair value of this reporting unit of $1,586.0 million was approximately 33% in excess of its carrying value. Our indefinite-lived intangible assets represent trademarks and totaled $903.0 million as of January 2, 2022.
Our quantitative goodwill impairment test for our global real estate and development operations indicated that there had been no impairment and the fair value of this reporting unit of approximately $1,400.0 million was approximately 21% in excess of its carrying value. Our indefinite-lived intangible assets represent trademarks and totaled $903.0 million as of January 1, 2023.
See Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information on the Company’s debt refinancing transaction. 37 This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.
See Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information on the Company’s debt financing transaction. 35 This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
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 January 2, 2022, January 3, 2021 and December 29, 2019.
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 January 1, 2023, January 2, 2022 and January 3, 2021.
If the Company pays regular quarterly cash dividends for the remainder of 2022 at the same rate as declared in the first quarter of 2022, the Company’s total cash requirement for dividends for all of 2022 would be approximately $107.6 million based on the number of shares of its common stock outstanding at February 22, 2022.
If the Company pays regular quarterly cash dividends for the remainder of 2023 at the same rate as declared in the first quarter of 2023, the Company’s total cash requirement for dividends for all of 2023 would be approximately $212.6 million based on the number of shares of its common 46 stock outstanding at February 21, 2023.
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 January 2, 2022, the Company’s future minimum rental payments for non-cancelable leases were $2,280.6 million, including $148.3 million payable within 12 months.
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 January 1, 2023, the Company’s future minimum rental payments for non-cancelable leases were $2,159.5 million, including $148.5 million payable within 12 months.
The 2021 tax benefit for changes in state deferred income taxes was primarily due to a 2021 change in tax law, which resulted in a one-time release of a previously recorded valuation allowance against our deferred tax assets.
The increase in state deferred income taxes from 2021 to 2022 was primarily due to a 2021 change in tax law, which resulted in a one-time release of a previously recorded valuation allowance against our state deferred tax assets.
In November 2021, the Company entered into an accelerated share repurchase agreement (the “2021 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the Company’s existing share repurchase program.
In November 2021, the Company entered into an accelerated share repurchase agreement (the “2021 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the February 2020 Authorization.
Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the U.S. based on traffic share, and the third largest globally with 6,949 restaurants in the U.S. and 31 foreign countries and U.S. territories as of January 2, 2022.
Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the U.S. based on traffic share, and the third largest globally with 7,095 restaurants in the U.S. and 31 foreign countries and U.S. territories as of January 1, 2023.
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 $18.8 million, which if resolved favorably would reduce our tax expense by $14.9 million as of January 2, 2022.
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 $17.4 million, which if resolved favorably would reduce our tax expense by $13.7 million as of January 1, 2023.
Guarantees and Other Contingencies Year End 2021 Lease guarantees (a) $ 90.6 Letters of credit (b) 22.3 Total $ 112.9 _______________ (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.
Guarantees and Other Contingencies Year End 2022 Lease guarantees (a) $ 102.6 Letters of credit (b) 28.6 Total $ 131.2 _______________ (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.
Purchase Obligations The Company’s purchase obligations include payment obligations to a third-party global IT consultant, purchase requirements under a beverage agreement and other obligations related primarily to marketing and information technology. As of January 2, 2022, the Company’s purchase obligations were $210.1 million, including $68.0 million payable within 12 months.
Purchase Obligations The Company’s purchase obligations include payment obligations to a third-party global IT consultant, purchase requirements under a beverage agreement and other obligations related primarily to marketing and information technology. As of January 1, 2023, the Company’s purchase obligations were $252.9 million, including $117.4 million payable within 12 months.
The change was primarily due to (1) an increase in payments for acquisitions of $118.2 million compared to the prior year, reflecting the impact of the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021, (2) a payment for an investment in equity securities of $10.0 million during 2021 and (3) an increase in capital expenditures of $9.0 million.
The change was primarily due to (1) a decrease in payments for acquisitions of $123.1 million, reflecting the impact of the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021 and (2) a payment for an investment in equity securities of $10.0 million during 2021.
Company-operated $ 730.4 $ 722.8 $ 707.5 U.S. franchised 10,380.3 9,508.5 9,055.2 U.S. systemwide 11,110.7 10,231.3 9,762.7 International Company-operated 3.7 — — International franchised (b) 1,392.9 1,107.2 1,181.6 International systemwide (b) 1,396.6 1,107.2 1,181.6 Global systemwide (b) $ 12,507.3 $ 11,338.5 $ 10,944.3 Restaurant average unit volumes (in thousands) (a): U.S.
Company-operated $ 882.7 $ 730.4 $ 722.8 U.S. franchised 10,811.7 10,380.3 9,508.5 U.S. systemwide 11,694.4 11,110.7 10,231.3 International Company-operated 13.9 3.7 — International franchised (b) 1,592.4 1,392.9 1,107.2 International systemwide (b) 1,606.3 1,396.6 1,107.2 Global systemwide (b) $ 13,300.7 $ 12,507.3 $ 11,338.5 Restaurant average unit volumes (in thousands) (a): U.S.
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 $775.3 million as of January 2, 2022, of which $620.9 million, $31.9 million and $122.5 million was allocated to our U.S.
We believe that the following represent our more critical estimates and assumptions used in the preparation of our consolidated financial statements: • Impairment of goodwill and indefinite-lived intangible assets: Our goodwill totaled $773.1 million as of January 1, 2023, of which $620.6 million, $30.0 million and $122.5 million was allocated to our U.S.
Company-operated $ 2,172.4 $ 1,978.5 $ 1,989.6 U.S. franchised 1,878.4 1,708.9 1,664.1 U.S. systemwide 1,895.3 1,725.5 1,684.0 International systemwide (b) 1,448.1 1,199.5 1,357.5 Global systemwide (b) $ 1,832.1 $ 1,654.7 $ 1,641.4 ________________ (a) Excludes the impact of the 53 rd week in 2020.
Company-operated $ 2,192.0 $ 2,172.4 $ 1,978.5 U.S. franchised 1,957.2 1,878.4 1,708.9 U.S. systemwide 1,973.1 1,895.3 1,725.5 International systemwide (b) 1,526.5 1,448.1 1,199.5 Global systemwide (b) $ 1,905.8 $ 1,832.1 $ 1,654.7 _______________ (a) Excludes the impact of the 53 rd week in 2020.
All references to years, quarters and months relate to fiscal periods rather than calendar periods. Executive Overview Our Business As of January 2, 2022, the Wendy’s restaurant system was comprised of 6,949 restaurants, with 5,938 Wendy’s restaurants in operation in the U.S.
All references to years, quarters and months relate to fiscal periods rather than calendar periods. 32 Executive Overview Our Business As of January 1, 2023, the Wendy’s restaurant system was comprised of 7,095 restaurants, with 5,994 Wendy’s restaurants in operation in the U.S.
Of the U.S. restaurants, 403 were operated by the Company and 5,535 were operated by a total of 228 franchisees. In addition, at January 2, 2022, there were 1,011 Wendy’s restaurants in operation in 31 foreign countries and U.S. territories.
Of the U.S. restaurants, 403 were operated by the Company and 5,591 were operated by a total of 217 franchisees. In addition, at January 1, 2023, there were 1,101 Wendy’s restaurants in operation in 31 foreign countries and U.S. territories.
Franchise Royalty Revenue and Fees 2021 2020 2019 Amount Change Amount Change Amount Franchise royalty revenue $ 460.7 $ 44.2 $ 416.5 $ 15.8 $ 400.7 Franchise fees 76.0 47.8 28.2 (0.1) 28.3 $ 536.7 $ 92.0 $ 444.7 $ 15.7 $ 429.0 The increase in franchise royalty revenue during 2021 was primarily due to (1) a 9.9% increase in global franchise same-restaurant sales and (2) a net increase in the number of franchise restaurants in operation during 2021 compared to 2020.
Franchise Royalty Revenue and Fees 2022 2021 2020 Amount Change Amount Change Amount Franchise royalty revenue $ 485.5 $ 24.8 $ 460.7 $ 44.2 $ 416.5 Franchise fees 72.7 (3.3) 76.0 47.8 28.2 $ 558.2 $ 21.5 $ 536.7 $ 92.0 $ 444.7 Franchise royalty revenue during 2022 increased $24.8 million, of which (1) $21.8 million was due to a 4.9% increase in global franchise same-restaurant sales and (2) $3.1 million was due to a net increase in the number of franchise restaurants in operation during 2022 compared to 2021.
Impairment of Long-Lived Assets 2021 2020 2019 Amount Change Amount Change Amount Impairment of long-lived assets $ 2.3 $ (5.7) $ 8.0 $ 1.0 $ 7.0 The change in impairment charges during 2021 was primarily driven by the deterioration in operating performance of certain Company-operated restaurants in 2020 as a result of the COVID-19 pandemic.
Impairment of Long-Lived Assets 2022 2021 2020 Amount Change Amount Change Amount Impairment of long-lived assets $ 6.4 $ 4.1 $ 2.3 $ (5.7) $ 8.0 The increase in impairment charges during 2022 was primarily driven by the deterioration in operating performance of certain Company-operated restaurants.
Wendy’s International 2021 2020 2019 Amount Change Amount Change Amount Sales $ 3.7 $ 3.7 $ — $ — $ — Franchise royalty revenue 53.4 10.1 43.3 (1.7) 45.0 Franchise fees 5.4 3.4 2.0 (1.0) 3.0 Advertising fund revenue 23.9 3.6 20.3 0.1 20.2 Total revenues $ 86.4 $ 20.8 $ 65.6 $ (2.6) $ 68.2 Segment profit $ 27.4 $ 7.3 $ 20.1 $ (0.1) $ 20.2 The increase in Wendy’s International revenues during 2021 was primarily due to (1) an increase in same-restaurant sales, (2) the opening of Company-operated restaurants in the U.K and (3) higher franchise fees, reflecting an increase in fees for providing information technology services to franchisees.
Wendy’s International 2022 2021 2020 Amount Change Amount Change Amount Sales $ 13.9 $ 10.2 $ 3.7 $ 3.7 $ — Franchise royalty revenue 61.5 8.1 53.4 10.1 43.3 Franchise fees 5.6 0.2 5.4 3.4 2.0 Advertising fund revenue 25.7 1.8 23.9 3.6 20.3 Total revenues $ 106.7 $ 20.3 $ 86.4 $ 20.8 $ 65.6 Segment profit $ 30.4 $ 3.0 $ 27.4 $ 7.3 $ 20.1 The increase in Wendy’s International revenues during 2022 was primarily due to (1) the opening of Company-operated restaurants in the U.K. beginning in the second quarter of 2021 and (2) an increase in franchise same-restaurant sales.
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. 50 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.
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.
Our principal uses of cash are operating expenses, capital expenditures, repurchases of common stock and dividends to stockholders. 47 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: 2021 2020 2019 Amount Change Amount Change Amount Net cash provided by (used in): Operating activities $ 345.8 $ 61.4 $ 284.4 $ (4.5) $ 288.9 Investing activities (154.7) (86.4) (68.3) (13.4) (54.9) Financing activities (242.7) (84.8) (157.9) 207.4 (365.3) Effect of exchange rate changes on cash 0.3 (1.0) 1.3 (2.2) 3.5 Net (decrease) increase in cash, cash equivalents and restricted cash $ (51.3) $ (110.8) $ 59.5 $ 187.3 $ (127.8) Operating Activities Cash provided by operating activities consists primarily of net income, adjusted for non-cash expenses such as depreciation and amortization, deferred income tax and share-based compensation, and the net change in operating assets and liabilities.
Cash 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: 2022 2021 2020 Amount Change Amount Change Amount Net cash provided by (used in): Operating activities $ 259.9 $ (85.9) $ 345.8 $ 61.4 $ 284.4 Investing activities (77.8) 76.9 (154.7) (86.4) (68.3) Financing activities 288.7 531.4 (242.7) (84.8) (157.9) Effect of exchange rate changes on cash (6.0) (6.3) 0.3 (1.0) 1.3 Net increase (decrease) in cash, cash equivalents and restricted cash $ 464.8 $ 516.1 $ (51.3) $ (110.8) $ 59.5 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.
Global Real Estate & Development 2021 2020 2019 Amount Change Amount Change Amount Franchise fees $ 6.4 $ 2.2 $ 4.2 $ 0.8 $ 3.4 Franchise rental income 236.7 4.1 232.6 (0.5) 233.1 Total revenues $ 243.1 $ 6.3 $ 236.8 $ 0.3 $ 236.5 Segment profit $ 106.1 $ 5.4 $ 100.7 $ (6.4) $ 107.1 The increase in Global Real Estate & Development revenues during 2021 was primarily due to (1) higher franchise rental income (see “Franchise Rental Income” above for further information) and (2) the accelerated recognition of franchise agreement revenue as a result of franchisee-to-franchisee restaurant transfers.
Global Real Estate & Development 2022 2021 2020 Amount Change Amount Change Amount Franchise fees $ 4.1 $ (2.3) $ 6.4 $ 2.2 $ 4.2 Franchise rental income 234.5 (2.2) 236.7 4.1 232.6 Total revenues $ 238.6 $ (4.5) $ 243.1 $ 6.3 $ 236.8 Segment profit $ 108.7 $ 2.6 $ 106.1 $ 5.4 $ 100.7 The decrease in Global Real Estate & Development revenues during 2022 was primarily due to (1) the accelerated recognition of franchise agreement revenue in the prior year as a result of franchisee-to-franchisee restaurant transfers and (2) lower franchise rental income.
Long-Term Debt, Including Current Portion As of January 2, 2022, the Company’s long-term debt obligations totaled $2,380.7 million, including $24.3 million payable within 12 months.
Long-Term Debt, Including Current Portion As of January 1, 2023, the Company’s long-term debt obligations totaled $2,851.4 million, including $29.3 million payable within 12 months.
Cash provided by operating activities was $345.8 million and $284.4 million in 2021 and 2020, respectively.
Cash provided by operating activities was $259.9 million and $345.8 million in 2022 and 2021, respectively.
(c) During 2021 and 2020, global systemwide sales increased 9.8% and 3.7%, respectively, U.S. systemwide sales increased 8.6% and 4.8%, respectively, and international systemwide sales increased 20.7% and decreased 5.5%, respectively, on a constant currency basis. 2020 systemwide sales growth percentages included a positive impact of approximately 2% for the 53 rd week in 2020. 40 The table below presents details regarding the change in restaurant counts of the Wendy’s system from 2019 to 2021.
(c) During 2022 and 2021, global systemwide sales increased 6.8% and 9.8%, respectively, U.S. systemwide sales increased 5.3% and 8.6%, respectively, and international systemwide sales increased 19.2% and 20.7%, respectively, on a constant currency basis. 38 The table below presents details regarding the change in restaurant counts of the Wendy’s system from 2020 to 2022. U.S. Company-operated U.S.
See Note 3 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information on the acquisition.
Segment Information See Note 27 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information regarding the Company’s segments.
System Optimization Gains, Net 2021 2020 2019 Amount Change Amount Change Amount System optimization gains, net $ (33.5) $ (30.4) $ (3.1) $ (1.8) $ (1.3) System optimization gains, net during 2021 were primarily comprised of a gain on the sale of 47 Company-operated restaurants in New York.
System optimization gains, net during 2021 were primarily comprised of a gain on the sale of 47 Company-operated restaurants in New York.
In total, 5.6 million shares were delivered under the 2021 ASR Agreement at an average purchase price of $22.22 per share.
In total, 5.6 million shares were delivered under the 2021 ASR Agreement at an average purchase price of $22.22 per share. With the completion of the 2021 ASR Agreement in February 2022 as described above, the Company completed the February 2020 Authorization.
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.
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 January 1, 2023, we have foreign tax credits of $18.2 million and state tax credits of $0.4 million.
In addition, as of January 2, 2022, we have deferred tax assets for foreign net operating loss carryforwards of $1.4 million, as well as state and local net operating loss carryforwards of $39.1 million that will begin to expire in 2022.
The foreign tax credits begin to expire in 2027 and the state tax credits begin to expire in 2023. In addition, as of January 1, 2023, we have deferred tax assets for foreign net operating loss carryforwards of $3.5 million and state and local net operating loss carryforwards of $35.9 million that will begin to expire in 2023.
During 2021, the Company recognized costs associated with its system optimization initiative totaling $6.9 million, which were primarily comprised of the write-off of certain lease assets, lease termination fees and transaction fees associated with the NPC bankruptcy sale process, as well as professional fees and transaction fees associated with the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021.
During 2022, the Company recognized costs associated with its system optimization initiative totaling $0.6 million, which were primarily comprised of professional fees and other costs associated with the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021.
Loss on Early Extinguishment of Debt 2021 2020 2019 Amount Change Amount Change Amount Loss on early extinguishment of debt $ 17.9 $ 17.9 $ — $ (8.5) $ 8.5 During the second quarter of 2021, in connection with the refinancing of a portion of the Company’s securitized financing facility, the Company incurred a loss on the early extinguishment of debt as a result of repaying the outstanding Series 2015-1 Class A-2-III Notes and Series 2018-1 Class A-2-I Notes with the proceeds from the issuance of its Series 2021-1 Class A-2 Notes.
Interest Expense, Net 2022 2021 2020 Amount Change Amount Change Amount Interest expense, net $ 122.3 $ 13.1 $ 109.2 $ (8.5) $ 117.7 Interest expense, net increased during 2022 primarily due to the impact of completing a debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022, partially offset by the impact of completing the refinancing of a portion of the Company’s securitized financing facility in the second quarter of 2021. 42 Loss on Early Extinguishment of Debt 2022 2021 2020 Amount Change Amount Change Amount Loss on early extinguishment of debt $ — $ (17.9) $ 17.9 $ 17.9 $ — During the second quarter of 2021, in connection with the refinancing of a portion of the Company’s securitized financing facility, the Company incurred a loss on the early extinguishment of debt as a result of repaying the outstanding 2015-1 Class A-2-III Notes and 2018-1 Class A-2-I Notes with the proceeds from the issuance of its 2021-1 Class A-2 Notes.
Provision for Income Taxes 2021 2020 2019 Amount Change Amount Change Amount Income before income taxes $ 240.6 $ 87.8 $ 152.8 $ (18.7) $ 171.5 Provision for income taxes (40.2) (5.2) (35.0) (0.4) (34.6) Effective tax rate on income 16.7 % (6.2) % 22.9 % 2.8 % 20.1 % The increase in the provision for income taxes during 2021 was primarily due to higher income before income taxes in 2021, partially offset by (1) the tax benefit for changes in state deferred income taxes and (2) an increase in the tax benefit from share-based compensation.
Provision for Income Taxes 2022 2021 2020 Amount Change Amount Change Amount Income before income taxes $ 243.5 $ 2.9 $ 240.6 $ 87.8 $ 152.8 Provision for income taxes (66.1) (25.9) (40.2) (5.2) (35.0) Effective tax rate on income 27.2 % 10.5 % 16.7 % (6.2) % 22.9 % The increase in the provision for income taxes and effective tax rate during 2022 was primarily due to (1) an increase in state income taxes, including an increase in state deferred income taxes, (2) a decrease in the tax benefit from share-based compensation and (3) an increase in tax on our foreign operations.
See Note 3 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information regarding the NPC bankruptcy sale process.
See Note 5 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information regarding the Company’s reorganization and realignment plans.
Wendy’s U.S. 2021 2020 2019 Amount Change Amount Change Amount Sales $ 730.4 $ 7.6 $ 722.8 $ 15.3 $ 707.5 Franchise royalty revenue 407.3 34.1 373.2 17.5 355.7 Franchise fees 64.2 42.1 22.1 0.2 21.9 Advertising fund revenue 365.6 52.3 313.3 (5.9) 319.2 Total revenues $ 1,567.5 $ 136.1 $ 1,431.4 $ 27.1 $ 1,404.3 Segment profit $ 450.1 $ 56.8 $ 393.3 $ 24.1 $ 369.2 45 The increase in Wendy’s U.S. revenues during 2021 was primarily due to (1) an increase in systemwide same-restaurant sales, (2) higher franchise fees, reflecting an increase in fees for providing information technology services to franchisees, (3) net new restaurant development and (4) the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021.
Wendy’s U.S. 2022 2021 2020 Amount Change Amount Change Amount Sales $ 882.7 $ 152.3 $ 730.4 $ 7.6 $ 722.8 Franchise royalty revenue 424.0 16.7 407.3 34.1 373.2 Franchise fees 63.0 (1.2) 64.2 42.1 22.1 Advertising fund revenue 380.5 14.9 365.6 52.3 313.3 Total revenues $ 1,750.2 $ 182.7 $ 1,567.5 $ 136.1 $ 1,431.4 Segment profit $ 480.5 $ 30.4 $ 450.1 $ 56.8 $ 393.3 43 The increase in Wendy’s U.S. revenues during 2022 was primarily due to (1) the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021 and (2) an increase in same-restaurant sales.
Franchise same-restaurant sales during 2021 benefited from government stimulus payments to consumers during the first quarter of 2021.
Company-operated same-restaurant sales during 2021 benefited from government stimulus payments to consumers during the first quarter of 2021, which did not recur in 2022.
Material Cash Requirements Our anticipated cash requirements for 2022, exclusive of operating cash flow requirements, consist principally of: • capital expenditures of approximately $90.0 million to $100.0 million as discussed below in “Capital Expenditures;” • quarterly cash dividends aggregating approximately $107.6 million as discussed below in “Dividends;” and • stock repurchases of up to $100.0 million under our February 2022 authorization as discussed below in “Stock Repurchases.” Based on current levels of operations, the Company expects that available cash and cash flows from operations will provide sufficient liquidity to meet operating cash requirements for the next 12 months. 48 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.
Material Cash Requirements Our anticipated cash requirements for 2023, exclusive of operating cash flow requirements, consist principally of: • capital expenditures of approximately $75.0 million to $85.0 million as discussed below in “Capital Expenditures;” • quarterly cash dividends aggregating approximately $212.6 million as discussed below in “Dividends;” • stock repurchases under the Company’s January 2023 Authorization as discussed below in “Stock Repurchases;” and • debt repurchases of up to $75.0 million as discussed below in “Long-Term Debt, Including Current Portion.” 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.
Debt Refinancing In June 2021, the Company completed a refinancing transaction under which the Company issued fixed rate senior secured notes in the following 2021-1 series: Class A-2-I with an interest rate of 2.370% and initial principal amount of $450.0 million and Class A-2-II with an interest rate of 2.775% and initial principal amount of $650.0 million (collectively, the “Series 2021-1 Class A-2 Notes”).
Debt Financing On April 1, 2022, the Company completed a debt financing transaction under which the Company issued fixed rate senior secured notes in the following 2022-1 series: Class A-2-I with an interest rate of 4.236% and initial principal amount of $100.0 million (the “Class A-2-I Notes”) and Class A-2-II with an interest rate of 4.535% and initial principal amount of $400.0 million (the “Class A-2-II Notes”).
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. 2021 Financial Highlights • Revenue increased 9.4% to $1.9 billion in 2021 compared to $1.7 billion in 2020; • Global same-restaurant sales increased 10.0%, U.S. same-restaurant sales increased 9.2% and international same-restaurant sales increased 17.6% compared to 2020; • Company-operated restaurant margin was 16.7% in 2021, an increase of 180 basis points compared to 2020; and • Net income increased 70.1% to $200.4 million in 2021 compared to $117.8 million in 2020.
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. 2022 Financial Highlights • Revenue increased 10.5% to $2.1 billion in 2022 compared to $1.9 billion in 2021; • Global same-restaurant sales increased 4.9%, U.S. same-restaurant sales increased 3.9% and international same-restaurant sales increased 12.4% compared to 2021.
Cost of Sales, as a Percent of Sales 2021 2020 2019 Amount Change Amount Change Amount Food and paper 30.5 % (0.2) % 30.7 % (0.8) % 31.5 % Restaurant labor 31.5 % (0.8) % 32.3 % 2.0 % 30.3 % Occupancy, advertising and other operating costs 21.3 % (0.8) % 22.1 % (0.6) % 22.7 % 83.3 % (1.8) % 85.1 % 0.6 % 84.5 % The decrease in cost of sales, as a percent of sales, during 2021 was primarily due to (1) higher average check, (2) an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic, and (3) incremental recognition pay during April and May of 2020.
Cost of Sales, as a Percent of Sales 2022 2021 2020 Amount Change Amount Change Amount Food and paper 32.7 % 2.2 % 30.5 % (0.2) % 30.7 % Restaurant labor 32.1 % 0.6 % 31.5 % (0.8) % 32.3 % Occupancy, advertising and other operating costs 21.4 % 0.1 % 21.3 % (0.8) % 22.1 % 86.2 % 2.9 % 83.3 % (1.8) % 85.1 % The increase in cost of sales, as a percent of sales, during 2022 was primarily due to (1) higher commodity costs, (2) an increase in restaurant labor rates, (3) a decrease in customer count and (4) the impact of the Company’s investments to support the entry into the U.K. market.
For the annual goodwill impairment test in the fourth quarter of 2021, we elected to perform a qualitative assessment for the U.S. Company-operated and franchise restaurants and the Canada franchise restaurants, and we performed a quantitative goodwill impairment test for the global real estate and development operations. The qualitative assessment indicated the fair value of our U.S.
Company-operated and franchise restaurants and the Canada franchise restaurants, and we performed a quantitative goodwill impairment test for the global real estate and development operations. The qualitative assessment indicated the fair value of our U.S. Company-operated and franchise restaurants and our Canada franchise restaurants reporting units was more likely than not greater than the carrying amount.
Wendy’s long-term growth opportunities include investing in accelerated global growth through (1) building our breakfast daypart, (2) accelerating our implementation of consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint through targeted U.S. restaurant expansion and accelerated international restaurant expansion.
Wendy’s long-term growth opportunities include delivering accelerated global growth through (1) driving strong same-restaurant sales momentum across all dayparts, (2) accelerating our implementation of consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint through global restaurant expansion.
Digital Wendy’s long-term growth opportunities include accelerated implementation of consumer-facing digital platforms and technologies. The Company has invested significant resources to focus on consumer-facing technology, including activating mobile ordering via Wendy’s mobile app, launching the Wendy’s Rewards loyalty program and establishing delivery agreements with third-party vendors.
Over the past several years, the Company has invested significant resources to focus on consumer-facing 34 technology, including activating mobile ordering via Wendy’s mobile app, launching the Wendy’s Rewards loyalty program in the U.S. and Canada and establishing delivery agreements with third-party vendors.
On February 23, 2022, the Company announced a dividend of $0.125 per share to be paid on March 15, 2022 to stockholders of record as of March 7, 2022.
On January 13, 2023, the Company announced a dividend of $.25 per share to be paid on March 15, 2023 to stockholders of record as of March 1, 2023.
Liquidity and Capital Resources Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under our securitized financing facility.
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, capital expenditures, repurchases of common stock, dividends to stockholders and repurchases of debt.
These changes were partially offset by an increase in proceeds from dispositions of $49.0 million, reflecting the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021. Financing Activities Cash used in financing activities was $242.7 million and $157.9 million in 2021 and 2020, respectively.
These changes were partially offset by (1) a decrease in proceeds from dispositions of $46.9 million, reflecting the sale of 47 Company-operated restaurants in New York during the second quarter of 2021 and (2) an increase in capital expenditures of $7.6 million.
Franchise Support and Other Costs 2021 2020 2019 Amount Change Amount Change Amount Franchise support and other costs $ 42.9 $ 16.4 $ 26.5 $ (17.2) $ 43.7 The increase in franchise support and other costs during 2021 was primarily due to an increase in costs incurred to provide information technology and other services to franchisees, partially offset by investments made in 2020 to support U.S. franchisees in preparation of the national launch of breakfast in March 2020.
Franchise Support and Other Costs 2022 2021 2020 Amount Change Amount Change Amount Franchise support and other costs $ 46.7 $ 3.8 $ 42.9 $ 16.4 $ 26.5 The increase in franchise support and other costs during 2022 was primarily due to an increase in costs incurred to provide information technology and other services to franchisees.
Same-restaurant sales increased during 2021 due to (1) an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic, and (2) higher average check. The increase in Wendy’s International segment profit during 2021 was primarily due to higher revenues, partially offset by (1) higher general and administrative expenses and (2) higher franchise support and other costs.
Franchise same-restaurant sales increased during 2022 due to (1) an increase in customer count and (2) higher average check. The increase in Wendy’s International segment profit during 2022 was primarily due to higher revenues.
The Company’s digital business continues to grow and represented approximately 8.5% of global systemwide sales during 2021, with the fourth quarter of 2021 reaching approximately 9.5%. The Company is also 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 is also 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 represented approximately 10.3% of global systemwide sales during 2022. New Restaurant Development Wendy’s long-term growth opportunities include expanding the Company’s footprint through global restaurant expansion.
We believe that adequate provisions have been made for any liabilities, including interest and penalties that may result from the completion of these examinations. 53 New Accounting Standards See Note 1 of the Financial Statements and Supplementary Data contained in Item 8 herein for a summary of new or amended accounting standards applicable to us.
New Accounting Standards See Note 1 of the Financial Statements and Supplementary Data contained in Item 8 herein for a summary of new or amended accounting standards applicable to us. 51
The statute of limitations for the Company’s state tax returns vary, but generally the Company’s state income tax returns from its 2018 fiscal year forward remain subject to examination.
The statute of limitations for the Company’s state tax returns vary, but generally the Company’s state income tax returns from its 2018 fiscal year forward remain subject to examination. We believe that adequate provisions have been made for any liabilities, including interest and penalties that may result from the completion of these examinations.
After taking into consideration these repurchases, with the completion of the 2021 ASR Agreement in February 2022 described above, the Company completed the February 2020 authorization. 49 In February 2022, our Board of Directors authorized the repurchase of up to $100.0 million of our common stock through February 28, 2023, when and if market conditions warrant and to the extent legally permissible.
Stock Repurchases In February 2022, our Board of Directors authorized a repurchase program for up to $100.0 million of our common stock through February 28, 2023, when and if market conditions warranted and to the extent legally permissible (the “February 2022 Authorization”).
These changes were partially offset by (1) a net increase in cash provided by long-term debt activities of $149.1 million, reflecting the impact of the completion of the Company’s debt refinancing transaction during the second quarter of 2021, and (2) an increase in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of $7.7 million.
These changes were partially offset by (1) a decrease in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of $23.8 million and (2) an increase in dividends of $11.9 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe Company is exposed to interest rate increases under its Series 2021-1 Class A-1 Notes and other lines of credit; however, the Company had no outstanding borrowings under the 2021-1 Class A-1 Notes or its other lines of credit as of January 2, 2022.
Biggest changeThe Company could be exposed to interest rate increases under its Class A-1 Notes and other lines of credit; however, the Company had no outstanding borrowings under the Class A-1 Notes or its other lines of credit as of January 1, 2023.
See Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information on the Company’s debt structure and its securitized financing facility. In addition, certain of the Company’s loan documents determine interest based on LIBOR, and we currently intend to renegotiate such loan documents prior to LIBOR being discontinued in 2023.
See Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information on the Company’s debt structure and its securitized financing facility. In addition, certain of the Company’s loan documents determine interest based on LIBOR, and we currently intend to renegotiate such loan documents prior to LIBOR being discontinued.
At this time, we cannot predict what alternative index would be negotiated with our lenders or the resulting impact on our interest expense. Commodity Price Risk Commodity price increases directly impacted our consolidated results of operations during 2021, and we expect this to continue into 2022.
At this time, we cannot predict what alternative index would be negotiated with our lenders or the resulting impact on our interest expense. Commodity Price Risk Commodity price increases directly impacted our consolidated results of operations during 2022, and we expect this to continue into 2023.
The exposure to Canadian dollar exchange rates on the Company’s cash flows primarily includes imports paid for by Canadian operations in U.S. dollars and payments from the Company’s Canadian operations to the Company’s U.S. operations in U.S. dollars. Revenues from our Canadian operations for the year ended January 2, 2022 represented approximately 5% of our total revenues.
The exposure to Canadian dollar exchange rates on the Company’s cash flows primarily includes imports paid for by Canadian operations in U.S. dollars and payments from the Company’s Canadian operations to the Company’s U.S. operations in U.S. dollars. Revenues from our Canadian operations for the year ended January 1, 2023 represented approximately 5% of our total revenues.
Interest Rate Risk Our objective in managing our exposure to interest rate changes is to limit the impact on our earnings and cash flows. Our policies prohibit the use of derivative instruments for trading purposes, and we had no outstanding derivative instruments as of January 2, 2022.
Interest Rate Risk Our objective in managing our exposure to interest rate changes is to limit the impact on our earnings and cash flows. Our policies prohibit the use of derivative instruments for trading purposes, and we had no outstanding derivative instruments as of January 1, 2023.
Our long-term debt, including the current portion, aggregated $2,422.5 million as of January 2, 2022 (excluding unamortized debt issuance costs and the effect of purchase accounting adjustments). The Company’s predominantly fixed-rate debt structure has reduced its exposure to interest rate increases that could adversely affect its earnings and cash flows.
Our long-term debt, including the current portion, aggregated $2,895.8 million as of January 1, 2023 (excluding unamortized debt issuance costs and the effect of purchase accounting adjustments). The Company’s predominantly fixed-rate debt structure has reduced its exposure to interest rate increases that could adversely affect its earnings and cash flows.
An immediate 10% change in Canadian dollar exchange rates versus the U.S. dollar from their levels at January 2, 2022 would not have a material effect on our consolidated financial position or results of operations. 54
An immediate 10% change in Canadian dollar exchange rates versus the U.S. dollar from their levels at January 1, 2023 would not have a material effect on our consolidated financial position or results of operations. 52

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