PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands Except ~~Per Share Amounts)~~Par Value)


	October 3, 2021		January 3, 2021
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	571,502	$	306,989
Restricted cash	36,321		33,973
Accounts and notes receivable, net	100,265		109,891
Inventories	4,257		4,732
Prepaid expenses and other current assets	23,820		89,732
Advertising funds restricted assets	107,320		142,306
Total current assets	843,485		687,623
Properties	873,250		915,889
Finance lease assets	210,660		206,153
Operating lease assets	783,986		821,480
Goodwill	751,805		751,049
Other intangible assets	1,209,695		1,224,960
Investments	41,356		44,574
Net investment in sales-type and direct financing leases	305,242		268,221
Other assets	137,468		120,057
Total assets	$	5,156,947	$	5,040,006

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	32,750	$	28,962
Current portion of finance lease liabilities	15,915		12,105
Current portion of operating lease liabilities	45,541		45,346
Accounts payable	26,506		31,063
Accrued expenses and other current liabilities	158,800		155,321
Advertising funds restricted liabilities	127,673		140,511
Total current liabilities	407,185		413,308
Long-term debt	2,360,763		2,218,163
Long-term finance lease liabilities	528,775		506,076
Long-term operating lease liabilities	830,488		865,325
Deferred income taxes	279,813		280,755
Deferred franchise fees	90,086		89,094
Other liabilities	117,083		117,689
Total liabilities	4,614,193		4,490,410
Commitments and contingencies	0		0
Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 221,301 and 224,268 shares outstanding, respectively	47,042		47,042
Additional paid-in capital	2,911,552		2,899,276
Retained earnings	317,956		238,674
Common stock held in treasury, at cost; 249,123 and 246,156 shares, respectively	(2,685,063)		(2,585,755)
Accumulated other comprehensive loss	(48,733)		(49,641)
Total stockholders’ equity	542,754		549,596
Total liabilities and stockholders’ equity	$	5,156,947	$	5,040,006

October 1,
2017 January 1,
2017
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 186,629
$ 198,240
Restricted cash 34,042
57,612
Accounts and notes receivable, net 115,390
98,825
Inventories 2,895
2,851
Prepaid expenses and other current assets 23,762
19,244
Advertising funds restricted assets 58,163
75,760
Total current assets 420,881
452,532
Properties 1,252,246
1,192,339
Goodwill 743,508
741,410
Other intangible assets 1,332,130
1,322,531
Investments 58,171
56,981
Net investment in direct financing leases 213,649
123,604
Other assets 69,688
49,917
Total assets $ 4,090,273
$ 3,939,314

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt $ 29,359
$ 24,652
Accounts payable 25,776
27,635
Accrued expenses and other current liabilities 121,124
102,034
Advertising funds restricted liabilities 58,163
75,760
Total current liabilities 234,422
230,081
Long-term debt 2,696,520
2,487,630
Deferred income taxes 419,293
446,513
Other liabilities 277,443
247,354
Total liabilities 3,627,678
3,411,578
Commitments and contingencies

Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized;
470,424 shares issued; 242,565 and 246,574 shares outstanding, respectively
47,042
47,042
Additional paid-in capital 2,883,504
2,878,589
Accumulated deficit (305,703 ) (290,857 )
Common stock held in treasury, at cost; 227,859 and 223,850 shares, respectively (2,117,232 ) (2,043,797 )
Accumulated other comprehensive loss (45,016 ) (63,241 )
Total stockholders’ equity 462,595
527,736
Total liabilities and stockholders’ equity $ 4,090,273
$ 3,939,314

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Amounts)


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
	(Unaudited)
Revenues:
Sales	$	171,078	$	191,946	$	553,660	$	522,961
Franchise royalty revenue and fees	138,755		116,820		398,246		321,645
Franchise rental income	62,446		58,721		182,190		173,434
Advertising funds revenue	97,976		84,755		289,699		241,468
	470,255		452,242		1,423,795		1,259,508
Costs and expenses:
Cost of sales	146,436		159,545		457,440		450,170
Franchise support and other costs	10,509		5,960		27,080		19,427
Franchise rental expense	34,424		32,426		101,058		93,024
Advertising funds expense	108,529		92,048		310,642		253,353
General and administrative	62,840		47,322		178,576		147,553
Depreciation and amortization	30,940		32,966		93,243		98,726
System optimization gains, net	(1,437)		(23)		(32,719)		(2,333)
Reorganization and realignment costs	345		3,375		7,381		10,196
Impairment of long-lived assets	566		23		1,831		4,727
Other operating income, net	(3,092)		(2,748)		(10,800)		(6,076)
	390,060		370,894		1,133,732		1,068,767
Operating profit	80,195		81,348		290,063		190,741
Interest expense, net	(26,000)		(29,086)		(82,990)		(86,696)
Loss on early extinguishment of debt	—		—		(17,917)		—
Other income, net	171		181		461		1,113
Income before income taxes	54,366		52,443		189,617		105,158
Provision for income taxes	(13,195)		(12,690)		(41,356)		(26,060)
Net income	$	41,171	$	39,753	$	148,261	$	79,098

Net income per share:
Basic	$	.19	$	.18	$	.67	$	.35
Diluted	.18		.17		.66		.35

Three Months Ended Nine Months Ended
October 1,
2017 October 2,
2016 October 1,
2017 October 2,
2016
(Unaudited)
Revenues:
Sales $ 158,843
$ 228,644
$ 467,914
$ 747,211
Franchise royalty revenue and fees 98,882
98,039
306,120
275,886
Franchise rental income 50,275
37,329
140,127
102,420
308,000
364,012
914,161
1,125,517
Costs and expenses:
Cost of sales 132,387
186,546
385,154
603,836
Franchise rental expense 24,076
17,534
64,841
49,684
General and administrative 52,960
58,938
156,690
184,708
Depreciation and amortization 31,216
29,362
91,690
92,456
System optimization losses (gains), net 106
(37,756 ) 39,749
(48,106 )
Reorganization and realignment costs 2,888
2,129
20,768
7,866
Impairment of long-lived assets 1,041
361
1,804
12,991
Other operating expense (income), net 1,669
810
5,294
(13,483 )
246,343
257,924
765,990
889,952
Operating profit 61,657
106,088
148,171
235,565
Interest expense (29,977 ) (28,731 ) (87,887 ) (85,483 )
Other (expense) income, net (125 ) 498
3,108
1,036
Income before income taxes 31,555
77,855
63,392
151,118
Provision for income taxes (17,298 ) (28,965 ) (28,639 ) (50,385 )
Net income $ 14,257
$ 48,890
$ 34,753
$ 100,733

Net income per share:
Basic $ .06
$ .19
$ .14
$ .38
Diluted .06
.18
.14
.37

Dividends per share $ .07
$ .06
$ .21
$ .18

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
	(Unaudited)
Net income	$	41,171	$	39,753	$	148,261	$	79,098
Other comprehensive (loss) income:
Foreign currency translation adjustment	(4,659)		3,220		908		(5,138)
Other comprehensive (loss) income	(4,659)		3,220		908		(5,138)
Comprehensive income	$	36,512	$	42,973	$	149,169	$	73,960

Three Months Ended Nine Months Ended
October 1,
2017 October 2,
2016 October 1,
2017 October 2,
2016
(Unaudited)

Net income $ 14,257
$ 48,890
$ 34,753
$ 100,733
Other comprehensive income (loss), net:
Foreign currency translation adjustment 8,787
(3,369 ) 16,797
10,887
Change in unrecognized pension loss, net of income tax (provision) benefit of $(60) and $34 for the nine months ended October 1, 2017 and October 2, 2016, respectively —
—
96
(56 )
Effect of cash flow hedges, net of income tax provision of $279 and $838 for both the three and nine months ended October 1, 2017 and October 2, 2016, respectively 444
444
1,332
1,332
Other comprehensive income (loss), net 9,231
(2,925 ) 18,225
12,163
Comprehensive income $ 23,488
$ 45,965
$ 52,978
$ 112,896

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands)


	Common Stock		Additional Paid-In Capital		Retained Earnings		Common Stock Held in Treasury		Accumulated Other Comprehensive Loss		Total

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

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED

(In Thousands)


	Common Stock		Additional Paid-In Capital		Retained Earnings		Common Stock Held in Treasury		Accumulated Other Comprehensive Loss		Total

	(Unaudited)
Balance at December 29, 2019	$	47,042	$	2,874,001	$	185,725	$	(2,536,581)	$	(53,828)	$	516,359
Net income	—		—		14,441		—		—		14,441
Other comprehensive loss	—		—		—		—		(12,507)		(12,507)
Cash dividends	—		—		(26,793)		—		—		(26,793)
Repurchases of common stock, including accelerated share repurchase	—		15,000		—		(58,336)		—		(43,336)
Share-based compensation	—		4,539		—		—		—		4,539
Common stock issued upon exercises of stock options	—		280		—		1,330		—		1,610
Common stock issued upon vesting of restricted shares	—		(4,017)		—		726		—		(3,291)
Other	—		33		(7)		27		—		53
Balance at March 29, 2020	$	47,042	$	2,889,836	$	173,366	$	(2,592,834)	$	(66,335)	$	451,075
Net income	—		—		24,904		—		—		24,904
Other comprehensive income	—		—		—		—		4,149		4,149
Cash dividends	—		—		(11,181)		—		—		(11,181)

Share-based compensation	—		4,787		—		—		—		4,787
Common stock issued upon exercises of stock options	—		(902)		—		11,361		—		10,459
Common stock issued upon vesting of restricted shares	—		(1,041)		—		773		—		(268)
Other	—		19		(3)		42		—		58
Balance at June 28, 2020	$	47,042	$	2,892,699	$	187,086	$	(2,580,658)	$	(62,186)	$	483,983
Net income	—		—		39,753		—		—		39,753
Other comprehensive income	—		—		—		—		3,220		3,220
Cash dividends	—		—		(11,202)		—		—		(11,202)
Repurchases of common stock	—		—		—		(1,708)		—		(1,708)
Share-based compensation	—		5,786		—		—		—		5,786
Common stock issued upon exercises of stock options	—		838		—		2,465		—		3,303
Common stock issued upon vesting of restricted shares	—		(2,600)		—		918		—		(1,682)
Other	—		44		(2)		40		—		82
Balance at September 27, 2020	$	47,042	$	2,896,767	$	215,635	$	(2,578,943)	$	(58,966)	$	521,535

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

Nine Months Ended
October 1,
2017 October 2,
2016
(Unaudited)
Cash flows from operating activities:
Net income $ 34,753
$ 100,733
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 91,690
94,056
Share-based compensation 16,356
14,260
Impairment of long-lived assets 1,804
12,991
Deferred income tax 945
(17,024 )
Non-cash rental income, net (8,348 ) (5,138 )
Net receipt of deferred vendor incentives 4,547
4,110
System optimization losses (gains), net 39,749
(48,106 )
Gain on sale of investments, net (1,807 ) —
Distributions received from TimWen joint venture 5,524
8,451
Equity in earnings in joint ventures, net (6,113 ) (6,495 )
Accretion of long-term debt 927
914
Amortization of deferred financing costs 5,954
5,668
Reclassification of unrealized losses on cash flow hedges 2,170
2,170
Other, net 2,395
4,229
Changes in operating assets and liabilities:
Restricted cash 233
181
Accounts and notes receivable, net (14,193 ) (29,118 )
Inventories (44 ) 126
Prepaid expenses and other current assets (1,281 ) (3,958 )
Accounts payable (1,557 ) (6,412 )
Accrued expenses and other current liabilities 3,039
5,677
Net cash provided by operating activities 176,743
137,315
Cash flows from investing activities:

Capital expenditures (53,711 ) (108,744 )
Acquisitions (86,788 ) (2,209 )
Dispositions 80,058
173,849
Proceeds from sale of investments 3,282
—
Payments for investments (375 ) (172 )
Notes receivable, net (4,174 ) (2,282 )
Changes in restricted cash 23,624
1,912
Other, net —
103
Net cash (used in) provided by investing activities (38,084 ) 62,457
Cash flows from financing activities:

Repayments of long-term debt (20,291 ) (18,678 )
Deferred financing costs (1,069 ) (1,017 )
Repurchases of common stock (90,065 ) (161,194 )
Dividends (51,464 ) (47,793 )
Proceeds from stock option exercises 10,419
10,623
Payments related to tax withholding for share-based compensation (4,484 ) (4,142 )
Net cash used in financing activities (156,954 ) (222,201 )
Net cash used in operations before effect of exchange rate changes on cash (18,295 ) (22,429 )
Effect of exchange rate changes on cash 6,684
3,997
Net decrease in cash and cash equivalents (11,611 ) (18,432 )
Cash and cash equivalents at beginning of period 198,240
327,216
Cash and cash equivalents at end of period $ 186,629
$ 308,784

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—CONTINUED~~

~~(In Thousands)~~

Nine Months Ended
October 1,
2017 October 2,
2016
(Unaudited)
Supplemental cash flow information:
Cash paid for:

Interest $ 93,701
$ 85,753
Income taxes, net of refunds 22,092
63,775

Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable $ 9,621
$ 20,108
Capitalized lease obligations 239,721
102,748


	Nine Months Ended
	October 3, 2021		September 27, 2020
	(Unaudited)
Cash flows from operating activities:
Net income	$	148,261	$	79,098
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	93,243		98,726
Share-based compensation	16,735		15,112
Impairment of long-lived assets	1,831		4,727
Deferred income tax	(25)		5,878
Non-cash rental expense, net	28,421		19,967
Change in operating lease liabilities	(34,220)		(29,539)
Net receipt of deferred vendor incentives	1,906		5,061
System optimization gains, net	(32,719)		(2,333)
Distributions received from joint ventures, net of equity in earnings	3,561		1,187
Long-term debt-related activities, net	23,043		4,866
Changes in operating assets and liabilities and other, net	26,636		3,009
Net cash provided by operating activities	276,673		205,759
Cash flows from investing activities:
Capital expenditures	(43,401)		(44,876)
Acquisitions	4,879		—
Dispositions	52,657		3,570
Proceeds from sale of investments	—		169
Notes receivable, net	907		138
Net cash provided by (used in) investing activities	15,042		(40,999)
Cash flows from financing activities:
Proceeds from long-term debt	1,100,000		153,315
Repayments of long-term debt	(955,782)		(174,959)
Repayments of finance lease liabilities	(9,021)		(5,850)
Deferred financing costs	(20,873)		(2,122)
Repurchases of common stock	(125,656)		(46,667)
Dividends	(68,963)		(49,176)
Proceeds from stock option exercises	27,204		15,540
Payments related to tax withholding for share-based compensation	(4,390)		(5,409)
Net cash used in financing activities	(57,481)		(115,328)
Net cash provided by operations before effect of exchange rate changes on cash	234,234		49,432
Effect of exchange rate changes on cash	177		(1,715)
Net increase in cash, cash equivalents and restricted cash	234,411		47,717
Cash, cash equivalents and restricted cash at beginning of period	418,241		358,707
Cash, cash equivalents and restricted cash at end of period	$	652,652	$	406,424

Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable	$	4,363	$	4,789
Finance leases	43,277		24,617

	October 3, 2021		January 3, 2021
Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	$	571,502	$	306,989
Restricted cash	36,321		33,973
Restricted cash, included in Advertising funds restricted assets	44,829		77,279
Total cash, cash equivalents and restricted cash	$	652,652	$	418,241

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements. In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of October ~~1, 2017~~ ~~and~~3, 2021, the results of our operations for the three and nine months ended October ~~1, 2017~~3, 2021 and ~~October 2, 2016~~September 27, 2020 and cash flows for the nine months ended October ~~1, 2017~~3, 2021 and ~~October 2, 2016.~~September 27, 2020. The results of operations for the ~~three and~~ nine months ended October ~~1, 2017~~3, 2021 are not necessarily indicative of the results to be expected for the full ~~2017~~2021 fiscal year. ~~These~~The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January ~~1, 2017~~3, 2021 (the “Form 10-K”).

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic. We continue to monitor the dynamic nature of the COVID-19 pandemic on our business, results and financial condition; however, we cannot predict the ultimate duration, scope or severity of the COVID-19 pandemic or its ultimate impact on our results of operations, financial condition and prospects.

The principal 100% owned subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). The Company manages and internally reports its business ~~geographically. The operation~~in the following segments: (1) Wendy’s U.S., (2) Wendy’s International and ~~franchising of Wendy’s~~^®restaurants in North America (defined as the United States of America (“U.S.”) and Canada) comprises virtually all of our current operations and represents a single reportable segment. The revenues and operating results of Wendy’s restaurants outside of North America are not material.(3) Global Real Estate & Development. See Note 17 for further information.

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

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

(2) Revenue

Disaggregation of Revenue

The following tables disaggregate revenue by segment and source:


	Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total
Three Months Ended October 3, 2021
Sales at Company-operated restaurants	$	169,961	$	1,117	$	—	$	171,078
Franchise royalty revenue	102,603		13,918		—		116,521
Franchise fees (a)	19,759		1,144		1,331		22,234
Franchise rental income	—		—		62,446		62,446
Advertising funds revenue	91,481		6,495		—		97,976
Total revenues	$	383,804	$	22,674	$	63,777	$	470,255

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)


	Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total
Nine Months Ended October 3, 2021
Sales at Company-operated restaurants	$	552,297	$	1,363	$	—	$	553,660
Franchise royalty revenue	305,373		39,048		—		344,421
Franchise fees (a)	46,020		4,041		3,764		53,825
Franchise rental income	—		—		182,190		182,190
Advertising funds revenue	271,911		17,788		—		289,699
Total revenues	$	1,175,601	$	62,240	$	185,954	$	1,423,795

Three Months Ended September 27, 2020
Sales at Company-operated restaurants	$	191,946	$	—	$	—	$	191,946
Franchise royalty revenue	98,128		11,216		—		109,344
Franchise fees (a)	5,651		463		1,362		7,476
Franchise rental income	—		—		58,721		58,721
Advertising funds revenue	79,170		5,585		—		84,755
Total revenues	$	374,895	$	17,264	$	60,083	$	452,242

Nine Months Ended September 27, 2020
Sales at Company-operated restaurants	$	522,961	$	—	$	—	$	522,961
Franchise royalty revenue	271,082		30,809		—		301,891
Franchise fees (a)	16,244		1,369		2,141		19,754
Franchise rental income	—		—		173,434		173,434
Advertising funds revenue	226,907		14,561		—		241,468
Total revenues	$	1,037,194	$	46,739	$	175,575	$	1,259,508

_______________

(a)Includes fees for providing information technology services to franchisees, which are recognized as revenue as earned.

Contract Balances

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


	October 3, 2021 (a)		January 3, 2021 (a)
Receivables, which are included in “Accounts and notes receivable, net” (b)	$	46,747	$	57,677
Receivables, which are included in “Advertising funds restricted assets”	57,222		63,252
Deferred franchise fees (c)	99,057		97,785

_______________

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

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

(c)Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $8,971 and $90,086 as of October 3, 2021, respectively, and $8,691 and $89,094 as of January 3, 2021, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Significant changes in deferred franchise fees are as follows:


	Nine Months Ended
	October 3, 2021		September 27, 2020
Deferred franchise fees at beginning of period	$	97,785	$	100,689
Revenue recognized during the period	(14,001)		(6,286)
New deferrals due to cash received and other	15,273		3,642
Deferred franchise fees at end of period	$	99,057	$	98,045

Anticipated Future Recognition of Deferred Franchise Fees

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


Estimate for fiscal year:
2021 (a)	$	4,428
2022	6,293
2023	6,128
2024	5,938
2025	5,758
Thereafter	70,512
	$	99,057

_______________

(a)Represents franchise fees expected to be recognized for the remainder of 2021, which includes development-related franchise fees expected to be recognized over a duration of one year or less.

(3) Acquisitions

No restaurants were acquired from franchisees during the nine months ended October 3, 2021 and September 27, 2020.

NPC Quality Burgers, Inc. (“NPC”)

As previously announced, NPC, formerly the Company’s largest franchisee, filed for chapter 11 bankruptcy in July 2020 and commenced a process to sell all or substantially all of its assets, including its interest in approximately 393 Wendy’s restaurants across 8 different markets, pursuant to a court-approved auction process. On November 18, 2020, the Company submitted a consortium bid together with a group of pre-qualified franchisees to acquire NPC’s Wendy’s restaurants. Under the terms of the consortium bid, several existing and new franchisees would have been ~~made~~the ultimate purchasers of 7 of the NPC markets, while the Company would have acquired 1 market. As part of the consortium bid, the Company submitted a deposit of $43,240, which was included in “Prepaid expenses and other current assets” as of January 3, 2021. The deposit included $38,361 received from the group of prequalified franchisees, which was payable to the ~~prior year presentation to conform to~~franchisees and included in “Accrued expenses and other current liabilities” as of January 3, 2021 pending resolution of the ~~current year presentation.~~bankruptcy sale process.

~~(2) System Optimization Losses (Gains), Net~~

~~In July 2013,~~During the three months ended April 4, 2021, following a court-approved mediation process, NPC and certain affiliates of Flynn Restaurant Group (“FRG”) and the Company ~~announced a system optimization initiative,~~entered into separate asset purchase agreements under which all of NPC’s Wendy’s restaurants were sold to Wendy’s approved franchisees. Under the transaction, FRG acquired approximately half of NPC’s Wendy’s restaurants in 4 markets, while several existing Wendy’s franchisees that were part of the Company’s consortium bid acquired the other half of NPC’s Wendy’s restaurants in the other 4 markets. The Company did not acquire any restaurants as part of ~~its brand transformation, which~~this transaction. In addition, the deposits outstanding as of January 3, 2021 were settled during the three months ended April 4, 2021 upon resolution of the bankruptcy sale process. The net settlement of deposits of $4,879 is included in “Acquisitions” in the condensed consolidated statements of cash flows.

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(In Thousands Except Per Share Amounts)

(4) System Optimization Gains, Net

The Company’s system optimization initiative includes a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant ~~transfers. In February 2015,~~transfers (“Franchise Flips”). As of January 1, 2017, the Company ~~announced plans~~completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total ~~system, which~~system. While the Company ~~completed as of January 1, 2017. Wendy’s will~~has no plans to reduce its ownership below the approximately 5% level, the Company expects to continue to optimize ~~its~~the Wendy’s system ~~by facilitating franchisee-to-franchisee restaurant transfers,~~through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, ~~and~~ drive new restaurant development and accelerate ~~reimages in the Image Activation format.~~

reimages. During the nine months ended October ~~1, 2017,~~3, 2021 and September 27, 2020, the Company ~~recorded post-closing adjustments on sales of restaurants~~facilitated 34 and 22 Franchise Flips, respectively. In addition, during the nine months ended October 3, 2021, the Company completed the sale of ~~other assets, resulting~~47 Company-operated restaurants in ~~net gains totaling $3,385. In addition, the Company facilitated the transfer of 270~~New York (including Manhattan) to franchisees. No Company-operated restaurants ~~between~~were sold to franchisees during the nine months ended ~~October 1, 2017 (excluding~~September 27, 2020.

Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our condensed consolidated statements of operations. Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs,” which are further described in Note 5. All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

The following is a summary of the ~~DavCo and NPC transactions discussed below).~~

~~DavCo and NPC Transactions~~

~~As part~~disposition activity recorded as a result of our system optimization ~~initiative,~~initiative:


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Number of restaurants sold to franchisees	—		—		47		—

Proceeds from sales of restaurants (a)	$	—	$	—	$	50,518	$	—
Net assets sold (b)	—		—		(16,939)		—
Goodwill related to sales of restaurants	—		—		(4,847)		—
Net unfavorable leases (c)	—		—		(2,939)		—
Gain on sales-type leases	—		—		7,156		—
Other (d)	—		—		(2,148)		—
	—		—		30,801		—
Post-closing adjustments on sales of restaurants (e)	5		23		520		368
Gain on sales of restaurants, net	5		23		31,321		368

(Loss) gain on sales of other assets, net (f)	1,432		—		1,398		1,965
System optimization gains, net	$	1,437	$	23	$	32,719	$	2,333

_______________

(a)In addition to the proceeds noted herein, the Company acquired 140 Wendy’s restaurants on May 31, 2017 from DavCo Restaurants, LLC (“DavCo”) for total net cash consideration of $86,788, which were immediately sold to NPC International, Inc. (“NPC”), an existing franchisee of the Company, forreceived cash proceeds of ~~$70,688 (the “DavCo~~$26 during the three and ~~NPC transactions”). As part~~nine months ended October 3, 2021 related to a note receivable issued in connection with the sale of the ~~transaction, NPC has agreed~~Manhattan Company-operated restaurants.

(b)Net assets sold consist primarily of equipment.

(c)During the nine months ended October 3, 2021, the Company recorded favorable lease assets of $3,799 and unfavorable lease liabilities of $6,738 as a result of leasing and/or subleasing land, buildings, and/or leasehold improvements to ~~remodel 90 acquired restaurants~~franchisees, in the Image Activation format by the end of 2021 and build 15 new Wendy’s restaurants by the end of 2022. Prior to closing the DavCo transaction, seven DavCo restaurants were closed. The acquisition of Wendy’s restaurants from DavCo was not contingent on executingconnection with the sale agreement with NPC; as such, the Company accounted for the transactions as an acquisition and subsequent disposition of a business. The total consideration paid to DavCo was allocated to net tangible and identifiable intangible assets acquired based on their estimated fair values. As part of the ~~transactions,~~New York Company-operated restaurants (including Manhattan).

(d)The nine months ended October 3, 2021 include a deferred gain of $3,500 as a result of certain contingencies related to the ~~Company retained leases for purposes~~extension of ~~subleasing such properties to NPC.~~

lease terms.

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(In Thousands Except Per Share Amounts)

(e)The nine months ended October 3, 2021 includes the recognition of deferred gains of $515 as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees. The three and nine months ended September 27, 2020 represent the recognition of such deferred gains.

(f)During the three and nine months ended October 3, 2021, the Company received net cash proceeds of $2,100 and $2,113, respectively, primarily from the sale of surplus and other properties. During the nine months ended September 27, 2020, the Company received net cash proceeds of $3,570, primarily from the sale of surplus and other properties.

Assets Held for Sale


	October 3, 2021		January 3, 2021
Number of restaurants classified as held for sale	—		43
Net restaurant assets held for sale (a)	$	—	$	20,587
Other assets held for sale (b)	$	3,749	$	1,732

_______________

(a)Net restaurant assets held for sale as of January 3, 2021 included New York Company-operated restaurants (excluding Manhattan) and consisted primarily of cash, inventory, property and an estimate of allocable goodwill. During the three months ended April 4, 2021, the Company also classified its 4 Manhattan restaurants as held for sale.

(b)Other assets held for sale primarily consist of surplus properties.

Assets held for sale are included in “Prepaid expenses and other current assets.”

(5) Reorganization and Realignment Costs

The following is a summary of the ~~activity recorded as a result of the DavCo and NPC transactions:~~

Nine Months Ended
October 1,
2017
Acquisition (a)
Total consideration paid $ 86,788
Identifiable assets and liabilities assumed:
Net assets held for sale 70,688
Capital lease assets 49,360
Deferred taxes 27,639
Capital lease obligations (97,046 )
Net unfavorable leases (b) (22,330 )
Other liabilities (c) (6,999 )
Total identifiable net assets 21,312
Goodwill (d) $ 65,476

Disposition
Proceeds $ 70,688
Net assets sold (70,688 )
Goodwill (d) (65,476 )
Net favorable leases (e) 24,034
Other (f) (1,692 )
Loss on DavCo and NPC transactions $ (43,134 )

~~_______________~~

~~(a)~~

The fair values of the identifiable intangible assets and taxes related to the acquisition are provisional amounts as of October 1, 2017, pending final valuations and purchase accounting adjustments. The Company utilized management estimates and consultation with an independent third-party valuation firm to assist in the valuation process. For the three months ended October 1, 2017, the Company recorded adjustments to the fair value of deferred taxes and net unfavorable leases, resulting in a decrease in goodwill of $27.


~~(b)~~	~~Includes favorable lease assets of $1,229 and unfavorable lease liabilities of $23,559.~~


~~(c)~~	~~Includes a supplemental purchase price estimated at $6,344 to be paid to DavCo for the resolution of certain lease-related matters, which is~~initiatives included in ~~“Accrued expenses and other current liabilities.”~~


~~(d)~~	~~Includes tax deductible goodwill of $21,870.~~


~~(e)~~	~~The Company recorded favorable lease assets of $30,068 and unfavorable lease liabilities of $6,034 as a result of subleasing land, buildings and leasehold improvements to NPC.~~


~~(f)~~	Includes cash payments for selling and other costs associated with the transaction. For the three and nine months ended October 1, 2017, the Company recorded additional selling and other costs of $12.

Gains and losses recognized on dispositions are recorded to “System optimization losses (gains), net” in our condensed consolidated statements of operations. Costs related to our system optimization initiative were historically recorded to “Reorganization and realignment costs:”


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Operations and field realignment	$	74	$	3,021	$	1,563	$	3,021
IT realignment	(17)		403		(11)		6,809
G&A realignment	(7)		(49)		(41)		282
System optimization initiative	295		—		5,870		84
Reorganization and realignment costs	$	345	$	3,375	$	7,381	$	10,196

Operations and Field Realignment

In September 2020, the Company initiated a plan to reallocate resources to better support the long-term growth strategies for Company and franchise operations (the “Operations and Field Realignment Plan”). The Operations and Field Realignment Plan realigned the Company’s restaurant operations team, including transitioning from separate leaders of Company and franchise operations to a single leader of all U.S. restaurant operations. The Operations and Field Realignment Plan also includes contract terminations, including the closure of certain field offices. The Company expects to incur total costs aggregating approximately $5,500 to $6,000 related to the Operations and Field Realignment Plan. During the nine months ended October 3, 2021, the Company recognized costs totaling $1,563, which primarily included third-party and other costs.~~” Costs incurred during 2017 in connection~~ During the three and nine months ended September 27, 2020, the Company recognized costs totaling $3,021, which included severance and related employee costs and share-based compensation. The Company expects to incur additional costs aggregating up to approximately $500, comprised primarily of third-party and other costs. The Company expects to recognize the majority of the remaining costs associated with the ~~DavCo~~Operations and ~~NPC transactions continue to be recorded to “Reorganization and realignment costs.” All other costs incurred~~Field Realignment Plan during ~~2017 related to facilitating franchisee-to-franchisee restaurant transfers are recorded to “Other operating expense (income), net.” See Note 4 for further information.~~

the remainder of 2021.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following is a summary of the ~~disposition~~ activity recorded as a result of ~~our system optimization initiative:~~the Operations and Field Realignment Plan:

Three Months Ended Nine Months Ended
October 1, 2017 October 2,
2016 October 1,
2017 October 2,
2016
Number of restaurants sold to franchisees —
156
—
211

Proceeds from sales of restaurants $ —
$ 124,765
$ —
$ 164,380
Net assets sold (a) —
(58,227 ) —
(75,282 )
Goodwill related to sales of restaurants —
(24,254 ) —
(30,630 )
Net unfavorable leases (b) —
(6,225 ) —
(11,131 )
Other —
(726 ) —
(1,521 )
—
35,333
—
45,816
Post-closing adjustments on sales of restaurants (c) 418
(120 ) 1,345
(1,710 )
Gain on sales of restaurants, net 418
35,213
1,345
44,106

(Loss) gain on sales of other assets, net (d) (539 ) 2,543
2,040
4,000
Gain (loss) on DavCo and NPC transactions 15
—
(43,134 ) —
System optimization (losses) gains, net $ (106 ) $ 37,756
$ (39,749 ) $ 48,106


	Three Months Ended				Nine Months Ended				Total Incurred Since Inception
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Severance and related employee costs	$	—	$	2,502	$	333	$	2,502	$	3,446
Third-party and other costs	74		—		1,230		—		1,297
	74		2,502		1,563		2,502		4,743
Share-based compensation (a)	—		519		—		519		621
Total operations and field realignment	$	74	$	3,021	$	1,563	$	3,021	$	5,364

_______________


~~(a)~~	~~Net assets sold consisted primarily of equipment.~~


~~(b)~~	During the three and nine months ended October 2, 2016, the Company recorded favorable lease assets of $2,114 and $2,297, respectively, and unfavorable lease liabilities of $8,339 and $13,428, respectively, as a result of leasing and/or subleasing land, buildings and/or leasehold improvements to franchisees in connection with sales of restaurants.

~~(c)~~

The three and nine months ended October 1, 2017 includes cash payments, net of proceeds received, of $333 and $33, respectively, related to post-closing reconciliations with franchisees. The nine months ended October 1, 2017 also includes the recognition of a deferred gain of $312 as a result of the resolution of certain contingencies related to the extension of lease terms for a Canadian restaurant.

~~(d)~~

During the three and nine months ended October 1, 2017, the Company received cash proceeds of $2,411 and $9,403, respectively, primarily from the sale of surplus properties. The nine months ended October 1, 2017 also includes the recognition of a deferred gain of $375 related to the sale of a share in an aircraft. During the three and nine months ended October 2, 2016, the Company received cash proceeds of $4,006 and $9,469, respectively, primarily from the sale of surplus properties.

As(a)Primarily represents incremental share-based compensation resulting from the modification of ~~October 1, 2017~~stock options in connection with the termination of employees under the Operations and ~~January 1, 2017,~~Field Realignment Plan.

The table below presents a rollforward of our accruals for the ~~Company had assets held for sale of $2,509~~Operations and ~~$4,800, respectively, primarily consisting of surplus properties. Assets held for sale~~Field Realignment Plan, which are included in ~~“Prepaid~~“Accrued expenses and other current ~~assets.”~~liabilities” as of October 3, 2021.


	Balance January 3, 2021		Charges		Payments		Balance October 3, 2021
Severance and related employee costs	$	2,600	$	333	$	(2,377)	$	556
Third-party and other costs	—		1,230		(1,230)		—
	$	2,600	$	1,563	$	(3,607)	$	556


	Balance December 29, 2019		Charges		Payments		Balance September 27, 2020
Severance and related employee costs	$	—	$	2,502	$	—	$	2,502

Information Technology (“IT”) Realignment

In December 2019, our Board of Directors approved a plan to realign and reinvest resources in the Company’s IT organization to strengthen its ability to accelerate growth (the “IT Realignment Plan”). The Company has partnered with a third-party global IT consultant on this new structure to leverage their global capabilities, enabling a more seamless integration between its digital and corporate IT assets. The IT Realignment Plan has reduced certain employee compensation and other related costs that the Company has reinvested back into IT to drive additional capabilities and capacity across all of its technology platforms. Additionally, in June 2020, the Company made changes to its leadership structure that included the elimination of the Chief Digital Experience Officer position and the creation of a Chief Information Officer position, for which the Company completed the hiring process in October 2020. During the nine months ended September 27, 2020, the Company recognized costs totaling $6,809, which primarily included third-party and other costs and severance and related employee costs. The Company does not expect to incur any material additional costs under the IT Realignment Plan.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~(3) Acquisitions~~

~~The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for acquisitions of franchised restaurants:~~

Nine Months Ended
October 1,
2017 October 2,
2016
Restaurants acquired from franchisees —
2

Total consideration paid, net of cash received $ —
$ 2,209
Identifiable assets acquired and liabilities assumed:
Properties —
2,218
Deferred taxes and other assets —
9
Other liabilities —
(18 )
Total identifiable net assets —
2,209
Goodwill $ —
$ —

~~On May 31, 2017, the Company also entered into the DavCo and NPC transactions. See Note 2 for further information.~~

~~(4) Reorganization and Realignment Costs~~

The following is a summary of the ~~initiatives~~activity recorded as a result of the IT Realignment Plan:


	Three Months Ended				Nine Months Ended				Total Incurred Since Inception
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Severance and related employee costs (a)	$	(32)	$	34	$	(151)	$	1,009	$	8,240
Recruitment and relocation costs	12		345		133		659		1,429
Third-party and other costs	3		24		7		5,141		6,542
	(17)		403		(11)		6,809		16,211
Share-based compensation (b)	—		—		—		—		193
Total IT realignment	$	(17)	$	403	$	(11)	$	6,809	$	16,404

_______________

(a)The three and nine months ended October 3, 2021 include a reversal of an accrual as a result of a change in estimate.

(b)Primarily represents incremental share-based compensation resulting from the modification of stock options in connection with the termination of employees under the IT Realignment Plan.

As of October 3, 2021, the accruals for the IT Realignment Plan are included in ~~“Reorganization~~“Accrued expenses and ~~realignment costs:~~other current liabilities.” As of September 27, 2020, the accruals for the IT Realignment Plan were included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $2,739 and $178, respectively. The tables below present a rollforward of our accruals for the IT Realignment Plan.


	Balance January 3, 2021		Charges		Payments		Balance October 3, 2021
Severance and related employee costs	$	1,508	$	(151)	$	(1,115)	$	242
Recruitment and relocation costs	—		133		(133)		—
Third-party and other costs	—		7		(7)		—
	$	1,508	$	(11)	$	(1,255)	$	242

Three Months Ended Nine Months Ended
October 1,
2017 October 2,
2016 October 1,
2017 October 2,
2016
System optimization initiative $ 232
$ 2,091
$ 867
$ 6,895
G&A realignment - November 2014 plan —
38
—
971
G&A realignment - May 2017 plan 2,656
—
19,901
—
Reorganization and realignment costs $ 2,888
$ 2,129
$ 20,768
$ 7,866


	Balance December 29, 2019		Charges		Payments		Balance September 27, 2020
Severance and related employee costs	$	7,548	$	1,009	$	(5,640)	$	2,917
Recruitment and relocation costs	—		659		(659)		—
Third-party and other costs	1,076		5,141		(6,217)		—
	$	8,624	$	6,809	$	(12,516)	$	2,917

~~System Optimization Initiative~~General and Administrative (“G&A”) Realignment

~~The~~In May 2017, the Company ~~has~~initiated a plan to further reduce its G&A expenses (the “G&A Realignment Plan”). Additionally, in May 2019, the Company announced changes to its management and operating structure that included the creation of two new positions, a President, U.S. and Chief Commercial Officer and a President, International and Chief Development Officer, and the elimination of the Chief Operations Officer position. During the nine months ended September 27, 2020, the Company recognized costs ~~related to its system optimization initiative,~~totaling $282, which ~~includes a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers.~~primarily included share-based compensation. The Company does not expect to incur any material additional costs ~~during~~under the remainder of 2017 in connection with the DavCo and NPC transactions. All other costs incurred during 2017 related to facilitating franchisee-to-franchisee restaurant transfers are recorded to “Other operating expense (income), net.”G&A Realignment Plan.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following is a summary of the ~~costs~~activity recorded as a result of ~~our system optimization initiative:~~the G&A Realignment Plan:

Three Months Ended Nine Months Ended
Total
Incurred Since Inception
October 1,
2017 October 2,
2016 October 1,
2017 October 2,
2016
Severance and related employee costs $ —
$ 28
$ 3
$ 46
$ 18,237
Professional fees 232
1,991
794
5,137
17,404
Other (a) —
72
70
112
5,813
232
2,091
867
5,295
41,454
Accelerated depreciation and amortization (b) —
—
—
1,600
25,398
Share-based compensation (c) —
—
—
—
5,013
Total system optimization initiative $ 232
$ 2,091
$ 867
$ 6,895
$ 71,865


	Three Months Ended				Nine Months Ended				Total Incurred Since Inception
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Severance and related employee costs (a)	$	(8)	$	(116)	$	(61)	$	30	$	24,205
Recruitment and relocation costs	1		27		1		42		2,877
Third-party and other costs	—		9		—		10		2,223
	(7)		(80)		(60)		82		29,305
Share-based compensation (b)	—		31		19		200		8,130
Termination of defined benefit plans	—		—		—		—		1,335
Total G&A realignment	$	(7)	$	(49)	$	(41)	$	282	$	38,770

_______________


~~(a)~~	~~The nine months ended October 2, 2016 includes a reversal of an accrual of $50 as a result of a change in estimate.~~


~~(b)~~	Primarily includes accelerated amortization of previously acquired franchise rights related to Company-operated restaurants in territories that have been sold in connection with our system optimization initiative.


~~(c)~~	Represents incremental share-based compensation resulting from the modification of stock options and performance-based awards in connection with the termination of employees under our system optimization initiative.

(a)The three and nine months ended October 3, 2021 and September 27, 2020 include a reversal of an accrual as a result of a change in estimate.

(b)Primarily represents incremental share-based compensation resulting from the modification of stock options in connection with the termination of employees under our G&A Realignment Plan.

As of October 3, 2021, the accruals for the G&A realignment plan are included in “Accrued expenses and other current liabilities.” As of September 27, 2020, the accruals for the G&A realignment plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled and $1,705 and $18, respectively. The tables below present a rollforward of our ~~accrual~~accruals for ~~our~~the G&A Realignment Plan.


	Balance January 3, 2021		Charges		Payments		Balance October 3, 2021
Severance and related employee costs	$	932	$	(61)	$	(828)	$	43
Recruitment and relocation costs	—		1		(1)		—
Third-party and other costs	—		—		—		—
	$	932	$	(60)	$	(829)	$	43


	Balance December 29, 2019		Charges		Payments		Balance September 27, 2020
Severance and related employee costs	$	5,276	$	30	$	(3,627)	$	1,679
Recruitment and relocation costs	83		42		(81)		44
Third-party and other costs	—		10		(10)		—
	$	5,359	$	82	$	(3,718)	$	1,723

System Optimization Initiative

The Company recognizes costs related to acquisitions and dispositions under its system optimization ~~initiative, which is included in “Accrued expenses and other current liabilities.”~~

Balance
January 1,
2017
Charges Payments
Balance
October 1, 2017
Severance and related employee costs $ —
$ 3
$ (3 ) $ —
Professional fees 101
794
(885 ) 10
Other —
70
(70 ) —
$ 101
$ 867
$ (958 ) $ 10

Balance
January 3, 2016
Charges Payments
Balance October 2,
2016
Severance and related employee costs $ 77
$ 46
$ (123 ) $ —
Professional fees 708
5,137
(5,740 ) 105
Other 90
112
(202 ) —
$ 875
$ 5,295
$ (6,065 ) $ 105

~~General and Administrative (~~“~~G&A~~”) ~~Realignment~~

~~November 2014 Plan~~

~~In November 2014,~~initiative. During the Company initiated a plan to reduce its G&A expenses. The plan included a realignment and reinvestment of resources to focus primarily on accelerated restaurant development and consumer-facing restaurant technology to drive long-term growth. The Company achievednine months ended October 3, 2021, the majority of the expense reductions through the realignment of its U.S. field operations and savings at its Restaurant Support Center in Dublin, Ohio, which was substantially completed by the end of the second quarter of 2015. The Company recognized costs totaling ~~$38~~$5,870, which were primarily comprised of the write-off of certain lease assets and ~~$971 during~~lease termination fees associated with the ~~three and nine months ended October 2, 2016, respectively, and $23,960 in aggregate since inception.~~NPC bankruptcy sale process. See Note 3 for further information. The Company ~~did not incur any expenses during the three and nine months ended October 1, 2017 and does not expect~~expects to ~~incur additional costs~~recognize a gain of approximately $1,000 related to the ~~plan.~~write-off of certain NPC-related lease liabilities upon final termination of the leases.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~May 2017 Plan~~

In May 2017, the Company initiated a new plan to further reduce its G&A expenses. The Company expects to incur total costs aggregating approximately $28,000 to $33,000 related to the plan. The Company recognized costs totaling $2,656 and $19,901 during the three and nine months ended October 1, 2017, respectively, which primarily included severance and related employee costs and share-based compensation. The Company expects to incur additional costs aggregating approximately $8,000 to $13,000, comprised of (1) severance and related employee costs of approximately $3,000, (2) recruitment and relocation costs of approximately $4,000, (3) third-party and other costs of approximately $1,000 and (4) share-based compensation of approximately $3,000. The Company expects costs to be recognized during the remainder of 2017 and continue into 2019, with approximately two-thirds to be recognized during 2017.

The following is a summary of the ~~activity~~costs recorded as a result of ~~the May 2017 plan:~~our system optimization initiative:

Three Months Ended Nine Months Ended
October 1,
2017 October 1,
2017
Severance and related employee costs $ 1,210
$ 14,436
Recruitment and relocation costs 145
145
Third-party and other costs 496
821
1,851
15,402
Share-based compensation (a) 805
4,499
Total G&A realignment - May 2017 plan $ 2,656
$ 19,901


	Three Months Ended				Nine Months Ended				Total Incurred Since Inception
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Severance and related employee costs	$	—	$	—	$	661	$	—	$	18,898
Professional fees	277		—		1,016		80		23,123
Other (a)	—		—		1,354		4		7,207
	277		—		3,031		84		49,228
Accelerated depreciation and amortization (b)	—		—		—		—		25,398
NPC lease termination costs (c)	18		—		2,839		—		2,839
Share-based compensation (d)	—		—		—		—		5,013
Total system optimization initiative	$	295	$	—	$	5,870	$	84	$	82,478

_______________


~~(a)~~	Primarily represents incremental share-based compensation resulting from the modification of stock options in connection with the termination of employees under our May 2017 plan. The three and nine months ended October 1, 2017 includes incremental share-based compensation of $652 related to the modification of stock options granted during August 2017.

As(a)The nine months ended October 3, 2021 includes transaction fees of $1,350 associated with the NPC bankruptcy sale process.

(b)Primarily includes accelerated amortization of previously acquired franchise rights related to the Company-operated restaurants in territories that have been sold to franchisees in connection with our system optimization initiative.

(c)The nine months ended October ~~1, 2017,~~3, 2021 includes the ~~accruals for~~write-off of lease assets of $1,359 and lease termination fees paid of $1,480.

(d)Represents incremental share-based compensation resulting from the modification of stock options and performance-based awards in connection with the termination of employees under our ~~May 2017 plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $7,766 and $5,429, respectively.~~ system optimization initiative.

The table below presents a rollforward of our accruals for ~~the May 2017 plan.~~our system optimization initiative, which were included in “Accrued expenses and other current liabilities” as of January 3, 2021.


	Balance January 3, 2021		Charges		Payments		Balance October 3, 2021
Severance and related employee costs	$	—	$	661	$	(661)	$	—
Professional fees	1,230		1,016		(2,246)		—
Other	—		1,354		(1,354)		—
	$	1,230	$	3,031	$	(4,261)	$	—

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Rental expense:
Minimum rentals $ 23,997
$ 19,137
$ 66,701
$ 59,139
Contingent rentals 5,395
5,254
14,405
13,786
Total rental expense (a) $ 29,392
$ 24,391
$ 81,106
$ 72,925

~~_______________~~


~~(a)~~	Amounts exclude sublease income of $35,022 and $92,434 recognized during the three and nine months ended October 1, 2017, respectively, and $25,127 and $68,400 recognized during the three and nine months ended October 2, 2016, respectively.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Accumulated Other Comprehensive Loss

~~Rental income for operating leases and subleases consists of the following components:~~

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Rental income:
Minimum rentals $ 44,682
$ 31,902
$ 124,847
$ 87,409
Contingent rentals 5,593
5,427
15,280
15,011
Total rental income $ 50,275
$ 37,329
$ 140,127
$ 102,420

The following table ~~illustrates~~provides a rollforward of accumulated other comprehensive loss:


	Nine Months Ended
	October 3, 2021		September 27, 2020
Balance at beginning of period	$	(49,641)	$	(53,828)
Foreign currency translation	908		(5,138)
Balance at end of period	$	(48,733)	$	(58,966)

(13) Leases

Nature of Leases

The Company operates restaurants that are located on sites owned by us and sites leased by us from third parties. In addition, the ~~Company’s future minimum~~Company owns sites and leases sites from third parties, which it leases and/or subleases to franchisees. At October 3, 2021, Wendy’s and its franchisees operated 6,891 Wendy’s restaurants. Of the 313 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for 136 restaurants, owned the building and held long-term land leases for 117 restaurants and held leases covering the land and building for 60 restaurants. Wendy’s also owned 510 and leased 1,275 properties that were either leased or subleased principally to franchisees. The Company also leases restaurant, office and transportation equipment.

Company as Lessee

The components of lease cost are as follows:


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Finance lease cost:
Amortization of finance lease assets	$	3,543	$	3,471	$	10,302	$	9,995
Interest on finance lease liabilities	10,371		10,244		30,931		30,462
	13,914		13,715		41,233		40,457
Operating lease cost	22,388		23,170		68,761		68,304
Variable lease cost (a)	16,635		15,548		48,406		43,766
Short-term lease cost	1,125		1,006		3,721		3,327
Total operating lease cost (b)	40,148		39,724		120,888		115,397
Total lease cost	$	54,062	$	53,439	$	162,121	$	155,854

_______________

(a)Includes expenses for executory costs of $10,016 and $9,326 for the three months ended October 3, 2021 and September 27, 2020, respectively, and $30,166 and $28,526 for the nine months ended October 3, 2021 and September 27, 2020, respectively, for which the Company is reimbursed by sublessees.

(b)Includes $34,396 and $32,421 for the three months ended October 3, 2021 and September 27, 2020, respectively, and $101,011 and $92,975 for the nine months ended October 3, 2021 and September 27, 2020, respectively, recorded to “Franchise rental payments and rental receipts for non-cancelable leases and subleases, including rental receipts for direct financing leases as of October 1, 2017. Rental receipts below are presented separately for owned properties andexpense” for leased properties ~~based on the classification of the underlying lease.~~

Rental Payments Rental Receipts
Fiscal Year
Capital
Leases

Operating
Leases

Capital
Leases

Operating
Leases

Owned
Properties
2017 (a) $ 11,989
$ 24,894
$ 15,868
$ 18,782
$ 13,436
2018 43,406
93,431
60,844
75,167
53,896
2019 42,717
93,272
61,368
75,267
54,866
2020 43,660
92,434
62,469
74,983
55,489
2021 45,249
91,892
64,260
74,672
57,102
Thereafter 748,736
1,188,165
1,045,693
973,428
1,008,243
Total minimum payments $ 935,757
$ 1,584,088
$ 1,310,502
$ 1,292,299
$ 1,243,032
Less interest (499,703 )
Present value of minimum capital lease payments (b) $ 436,054

~~_______________~~


~~(a)~~	~~Represents future minimum rental payments and rental receipts for non-cancelable leases and subleases for the remainder of our 2017 fiscal year.~~


~~(b)~~	~~The present value of minimum capital lease payments of $6,608 and $429,446 are included in “Current portion of long-term debt” and “Long-term debt,” respectively.~~

~~Properties owned by the Company and~~that are subsequently leased to ~~franchisees~~franchisees. Also includes $5,213 and ~~other third parties under operating~~$6,651 for the three months ended October 3, 2021 and September 27, 2020, respectively, and $18,005 and $20,315 for the nine months ended October 3, 2021 and September 27, 2020, respectively, recorded to “Cost of sales” for leases ~~include:~~for Company-operated restaurants.

October 1, 2017 January 1, 2017
Land $ 271,840
$ 271,160
Buildings and improvements 312,796
312,067
Restaurant equipment 1,491
1,507
586,127
584,734
Accumulated depreciation and amortization (122,970 ) (110,166 )
$ 463,157
$ 474,568

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following table includes supplemental cash flow and non-cash information related to leases:


	Nine Months Ended
	October 3, 2021		September 27, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	31,608	$	28,689
Operating cash flows from operating leases	69,476		62,026
Financing cash flows from finance leases	9,021		5,850
Right-of-use assets obtained in exchange for lease obligations:
Finance lease liabilities	43,277		24,617
Operating lease liabilities	11,404		12,149

~~Our~~The following table includes supplemental information related to leases:


	October 3, 2021			January 3, 2021
Weighted-average remaining lease term (years):
Finance leases	15.8			16.2
Operating leases	14.2			14.6

Weighted average discount rate:
Finance leases	9.19		%	9.54		%
Operating leases	5.01		%	5.06		%

Supplemental balance sheet information:
Finance lease assets, gross	$	271,075		$	261,308
Accumulated amortization	(60,415)			(55,155)
Finance lease assets	210,660			206,153
Operating lease assets	783,986			821,480

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of October 3, 2021:


	Finance Leases				Operating Leases
Fiscal Year	Company-Operated		Franchise and Other		Company-Operated		Franchise and Other
2021 (a) (b)	$	1,398	$	13,934	$	3,504	$	18,313
2022	3,699		51,912		14,412		73,572
2023	3,644		53,569		14,726		73,226
2024	3,712		54,001		14,738		73,145
2025	3,787		54,496		14,633		72,829
Thereafter	46,140		682,798		141,258		732,276
Total minimum payments	$	62,380	$	910,710	$	203,271	$	1,043,361
Less interest	(22,694)		(405,706)		(58,455)		(312,148)
Present value of minimum lease payments (c) (d)	$	39,686	$	505,004	$	144,816	$	731,213

_______________

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(a)Represents future minimum rental payments for non-cancelable leases for the remainder of 2021.

(b)In addition to the 2021 future minimum rental payments, the Company expects to pay $1,038 primarily during 2021 related to rent deferrals obtained due to the COVID-19 pandemic. The related payable is included in “Accrued expenses and other current liabilities.”

(c)The present value of minimum finance lease payments of $15,915 and $528,775 are included in “Current portion of finance lease liabilities” and “Long-term finance lease liabilities,” respectively.

(d)The present value of minimum operating lease payments of $45,541 and $830,488 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively.

Company as Lessor

The components of lease income are as follows:


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Sales-type and direct-financing leases:
Selling profit	$	705	$	182	$	4,244	$	1,379
Interest income (a)	7,786		7,296		22,861		21,804

Operating lease income	45,834		43,510		134,312		130,514
Variable lease income	16,612		15,211		47,878		42,920
Franchise rental income (b)	$	62,446	$	58,721	$	182,190	$	173,434

_______________

(a)Included in “Interest expense, net.”

(b)Includes sublease income of $46,102 and $43,122 for the three months ended October 3, 2021 and September 27, 2020, respectively, and $134,597 and $126,653 for the nine months ended October 3, 2021 and September 27, 2020, respectively. Sublease income includes lessees’ variable payments to the Company for executory costs of $10,087 and $9,379 for the three months ended October 3, 2021 and September 27, 2020, respectively, and $30,156 and $28,538 for the nine months ended October 3, 2021 and September 27, 2020, respectively.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following table illustrates the Company’s future minimum rental receipts for non-cancelable leases and subleases as of October 3, 2021:


	Sales-Type and Direct Financing Leases				Operating Leases
Fiscal Year	Subleases		Owned Properties		Subleases		Owned Properties
2021 (a) (b)	$	8,409	$	1,407	$	28,841	$	13,942
2022	34,188		2,610		116,068		56,305
2023	35,247		2,656		116,795		56,614
2024	37,248		2,667		116,962		57,720
2025	36,149		2,784		116,443		58,323
Thereafter	479,695		32,057		1,172,444		748,781
Total future minimum receipts	630,936		44,181		$	1,667,553	$	991,685
Unearned interest income	(341,031)		(21,892)
Net investment in sales-type and direct financing leases (c)	$	289,905	$	22,289

_______________

(a)Represents future minimum rental receipts for non-cancelable leases for the remainder of 2021.

(b)In addition to the 2021 future minimum rental receipts, the Company expects to collect $273 primarily during 2021 related to its offer to franchisees to defer base rent payments in response to the COVID-19 pandemic. The related receivable is included in “Accounts and notes receivable, net.”

(c)The present value of minimum sales-type and direct financing rental receipts of $6,952 and $305,242 are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively. The present value of minimum sales-type and direct financing rental receipts includes a net investment in ~~direct financing~~unguaranteed residual assets of $535.

Properties owned by the Company and leased to franchisees and other third parties under operating leases ~~is as follows:~~include:


	October 3, 2021		January 3, 2021
Land	$	280,767	$	279,956
Buildings and improvements	307,593		309,605
Restaurant equipment	1,701		1,701
	590,061		591,262
Accumulated depreciation and amortization	(179,439)		(170,722)
	$	410,622	$	420,540

October 1, 2017 January 1, 2017
Future minimum rental receipts $ 630,352
$ 401,452
Unearned interest income (416,221 ) (277,747 )
Net investment in direct financing leases 214,131
123,705
Net current investment in direct financing leases (a) (482 ) (101 )
Net non-current investment in direct financing leases (b) $ 213,649
$ 123,604

~~_______________~~


~~(a)~~	~~Included in “Accounts and notes receivable, net.”~~


~~(b)~~	~~Included in “Net investment in direct financing leases.”~~

~~(12)~~(14) Transactions with Related Parties

Except as described below, the Company did not have any significant changes in or transactions with its related parties during the current fiscal period since those reported in the Form 10-K.

TimWen Lease and Management Fee Payments

A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen, which are then subleased to franchisees for the operation of Wendy’s/Tim Hortons combo units in Canada. During the nine months ended October ~~1, 2017~~3, 2021 and ~~October 2, 2016,~~September 27, 2020, Wendy’s paid TimWen ~~$9,362~~$13,994 and ~~$8,926,~~$11,970, respectively, under these lease agreements. In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of ~~$158~~$165 and ~~$156~~$152 during the nine months ended October ~~1, 2017~~3, 2021 and ~~October 2, 2016,~~September 27, 2020, respectively, which has been included as a reduction to “General and administrative.”

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THE WENDY’S COMPANY AND SUBSIDIARIES

~~(13)~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Transactions with Yellow Cab

Certain family members and affiliates of Mr. Nelson Peltz, our Chairman, and Mr. Peter May, our Vice Chairman, as well as Mr. Matthew Peltz, a director of the Company, hold indirect, minority ownership interests in operating companies managed by Yellow Cab Holdings, LLC (“Yellow Cab”), a Wendy’s franchisee, that as of October 3, 2021 owned and operated 78 Wendy’s restaurants (including Wendy’s restaurants acquired from NPC during the first quarter of 2021 as described below). During the nine months ended October 3, 2021, the Company recognized $7,016 in royalty, advertising fund, lease and other income from Yellow Cab and related entities. As of October 3, 2021, $866 was due from Yellow Cab for such income, which is included in “Accounts and notes receivable, net” and “Advertising funds restricted assets.”

In November 2020, the Company submitted a consortium bid together with a group of pre-qualified franchisees (of which Yellow Cab was a member) to acquire the Wendy’s restaurants owned by NPC, the Company’s largest franchisee, which filed for chapter 11 bankruptcy in July 2020. As part of the consortium bid, in November 2020, the Company received deposits from each of the pre-qualified franchisees (including Yellow Cab), which amounts were transferred to a third-party escrow account pending resolution of the bankruptcy sale process. On January 7, 2021, following a court-approved mediation process, Yellow Cab was selected as the purchaser for 54 of NPC’s Wendy’s restaurants. In March 2021, Yellow Cab closed on its acquisition of these restaurants and its deposit was applied against the purchase price for the restaurants. See Note 3 for further information.

(15) Guarantees and Other Commitments and Contingencies

~~The~~Except as described below, the Company did not have any significant changes in guarantees and other commitments and contingencies during the current fiscal period since those reported in the Form 10-K. Refer to the Form 10-K for further information regarding the Company’s additional commitments and obligations.

~~Franchisee Image Activation Incentive Programs~~

In order to promote Image Activation new restaurant development, Wendy’s has an incentive program for franchisees that provides for reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants opened by December 31, 2020, with the value of the incentives declining in the later years of the program. Wendy’s also has incentive programs for 2017 available to franchisees that commence Image Activation restaurant remodels by December 15, 2017. The remodel incentive programs provide for reductions in royalty payments for one year after the completion of construction.

Lease Guarantees

Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees, amounting to ~~$56,299~~$89,574 as of October ~~1, 2017.~~3, 2021. These leases extend through ~~2056.~~2045. We have ~~not received any notice~~had no judgments against us as guarantor of ~~default related to~~ these leases as of October ~~1, 2017.~~3, 2021. In the event of default by a franchise owner, Wendy’s generally retains the right to acquire possession of the related restaurant locations.

~~Wendy’s is contingently liable~~ The liability recorded for ~~certain other leases which have been assigned to unrelated third parties who have indemnified Wendy’s against future liabilities amounting to $637~~our probable exposure associated with these lease guarantees was not material as of October ~~1, 2017. These leases expire on various dates through~~3, 2021.

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In Thousands Except Per Share Amounts)~~

Letters of Credit

As of October ~~1, 2017,~~3, 2021, the Company had outstanding letters of credit with various parties totaling ~~$32,575,~~$23,569. Substantially all of ~~which $3,205 were cash collateralized. The~~the outstanding letters of credit include amounts outstanding against the ~~securitized financing facility. The related cash collateral is classified as “Restricted cash” in the condensed consolidated balance sheets.~~2021-1 Class A-1 Notes. We do not expect any material loss to result from these letters of credit.

~~(14)~~(16) Legal and Environmental Matters

~~We are~~The Company is involved in litigation and claims incidental to our ~~current and prior businesses.~~business. We provide accruals for such litigation and claims when payment is probable and reasonably estimable. ~~As of October 1, 2017, the Company had~~We believe we have adequate accruals for all of ~~its~~our legal and environmental ~~matters aggregating $1,639.~~matters. We cannot estimate the aggregate possible range of loss ~~due~~for our existing litigation and claims for various reasons, including, but not limited to, ~~most~~many proceedings ~~including those described below,~~ being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur ~~and~~and/or significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently ~~difficult. Based on currently available information, including legal defenses available~~difficult and future developments could cause these actions or claims, individually or in aggregate, to ~~us, and given the aforementioned accruals and our insurance coverage, we do not believe that the outcome of these legal and environmental matters will~~ have a material adverse effect on ~~our consolidated~~the Company’s financial ~~position or~~condition, results of ~~operations.~~operations, or cash flows of a particular reporting period.

We previously described certain legal proceedings ~~under Note 14 to our Condensed Consolidated Financial Statements~~ in ~~our Quarterly Report on~~the Form ~~10-Q for the second quarter of 2017, as filed with the SEC on August 9, 2017.~~10-K. Except as set forth below, there were no material developments in those legal proceedings ~~during the third quarter~~as of ~~2017.~~October 3, 2021.

As previously reported, the Company has been named as a defendant in putative class action lawsuits alleging, among other things, that the Company failed to safeguard customer credit card information and failed to provide notice that credit card information had been compromised. Jonathan Torres and other consumers filed an action in the U.S. District Court for the Middle District of Florida (the “Torres case”). The operative complaint seeks to certify a nationwide class of consumers, or in the alternative, statewide classes of consumers for Florida, New York, New Jersey, Texas, and Tennessee, as well as statewide classes of consumers under those states’ consumer protection and unfair trade practices laws. On October 27, 2017, the Company moved to dismiss the operative complaint. The Company’s motion is pending before the court.

~~(15) New Accounting Standards~~

~~New Accounting Standards~~

In May 2017, the FASB issued new guidance on the scope of modification accounting for share-based payment arrangements. The new guidance will provide relief to entities that make non-substantive changes to their share-based payment arrangements. The Company does not expect the amendment, which requires prospective adoption and is effective commencing with our 2018 fiscal year, to have a material impact on our consolidated financial statements.

In March 2017, the FASB issued new guidance on the presentation of net periodic benefit costs that requires entities to disaggregate the current service cost component from the other components of net benefit cost in the income statement. The Company does not expect the amendment, which requires retrospective adoption and is effective commencing with our 2018 fiscal year, to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued new guidance on leases, which outlines principles for the recognition, measurement, presentation and disclosure of leases applicable to both lessors and lessees. The new guidance requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by finance and operating leases with lease terms of more than 12 months. The amendment requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements and plan to reflect adoption when effective in the first quarter of our 2019 fiscal year. As shown in Note 11, there are $1,584,088 in future minimum rental payments for operating leases that are not currently on our balance sheet; therefore, we expect this will have a material impact on our balance sheet and related disclosures.

In May 2014, the FASB issued amended guidance for revenue recognition. The new guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the guidance is

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

In a Form 8-K filed with the Securities and Exchange Commission on June 28, 2021 (the “Form 8-K”), the Company provided an update on the proposed settlement of the previously-disclosed shareholder derivative action arising out of the criminal cyberattacks that targeted the point of sale systems of certain Wendy’s franchisees in 2015 and 2016 (the “Derivative Lawsuit”).

~~that~~

As described in the Form 8-K, on February 14, 2019, the Company entered into a Stipulation and Agreement of Settlement (the “Settlement”) to resolve the Derivative Lawsuit. On January 24, 2020, the United States District Court for the Southern District of Ohio (the “Court”) issued an ~~entity should recognize revenue to depict~~order granting preliminary approval of the ~~transfer~~Settlement, which consists of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The new guidance supersedes most current revenue recognition guidance, including industry-specific guidance, and is effective commencing with our 2018 fiscal year. The guidance allows for either a full retrospective or modified retrospective transition method. We currently expect to apply the modified retrospective method upon adoption. This guidance will not impact our recognition of revenue from Company-operated restaurant sales or our recognition of continuing royalty revenues from franchisees, which are based on a percentage of franchise sales. Under current guidance, we recognize initial fees from franchisees when we have performed all material obligations and services, which generally occurs when the franchised restaurant opens. Additionally, under current guidance, our advertising fund contributions from franchiseescertain corporate governance undertakings and the ~~related advertising expenditures are reported on a net basis in our consolidated balance sheet as “Advertising funds restricted assets”~~payment of plaintiffs’ attorneys’ fees and ~~“Advertising funds restricted liabilities.” Under~~expenses up to $950 (covered by applicable insurance). On September 15, 2021, the ~~new guidance, we anticipate recognizing the initial fees from franchisees over the life~~Court issued an order granting final approval of the ~~related franchise agreements and we expect~~Settlement, with the final judgment entered on September 24, 2021. On October 20, 2021, Thomas Caracci, one of the plaintiffs in the matter, filed a Notice of Appeal.

(17)Segment Information

Revenues by segment were as follows:


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Wendy’s U.S.	$	383,804	$	374,895	$	1,175,601	$	1,037,194
Wendy’s International	22,674		17,264		62,240		46,739
Global Real Estate & Development	63,777		60,083		185,954		175,575
Total revenues	$	470,255	$	452,242	$	1,423,795	$	1,259,508

The following table reconciles profit by segment to ~~consolidate~~ the ~~operations and cash flow results~~Company’s consolidated income before income taxes:


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Wendy’s U.S. (a)	$	108,878	$	108,297	$	347,615	$	283,261
Wendy’s International	6,949		6,567		21,161		15,256
Global Real Estate & Development	27,027		25,340		79,849		75,541
Total segment profit	$	142,854	$	140,204	$	448,625	$	374,058
Unallocated franchise support and other costs	(70)		—		(70)		—
Advertising funds deficit	(1,574)		(1,140)		(4,440)		(3,547)
Unallocated general and administrative (b)	(30,744)		(21,424)		(84,715)		(68,594)
Depreciation and amortization	(30,940)		(32,966)		(93,243)		(98,726)
System optimization gains, net	1,437		23		32,719		2,333
Reorganization and realignment costs	(345)		(3,375)		(7,381)		(10,196)
Impairment of long-lived assets	(566)		(23)		(1,831)		(4,727)
Unallocated other operating income, net	143		49		399		140
Interest expense, net	(26,000)		(29,086)		(82,990)		(86,696)
Loss on early extinguishment of debt	—		—		(17,917)		—
Other income, net	171		181		461		1,113
Income before income taxes	$	54,366	$	52,443	$	189,617	$	105,158

_______________

Table of ~~our national~~Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(a)Includes advertising funds ~~both~~expense of ~~which will have a material impact on our consolidated financial statements.~~$8,979 and $16,503 for the three and nine months ended October 3, 2021, respectively, and $6,153 and $8,338 for the three and nine months ended September 27, 2020, respectively, related to the Company funding of incremental advertising.

(b)Includes corporate overhead costs, such as employee compensation and related benefits.

(18)New Accounting Standards ~~Adopted~~

In ~~March 2016,~~July 2021, the ~~FASB~~Financial Accounting Standards Board issued an amendment that addresses an issue related to ~~equity method~~a lessor’s accounting ~~which eliminates~~for certain leases with variable lease payments that could result in the ~~requirement~~recognition of a selling loss at lease commencement even if the lessor expects the arrangement to ~~retrospectively apply the equity method to an investment that subsequently qualifies~~be profitable overall. The amendment specifies lessors should classify and account for such ~~accounting~~a lease with variable lease payments as an operating lease, dependent upon meeting certain criteria, for which a ~~result of an increase in level of ownership interest~~selling profit or ~~degree of influence.~~loss is not recognized. The Company early adopted this amendment ~~prospectively,~~ during the ~~first quarter~~three months ended October 3, 2021 by applying the guidance prospectively to leases that commence or are modified on or after the date of ~~2017.~~adoption. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

In March 2016, the FASB issued an amendment that clarifies the steps for assessing triggering events of embedded contingent put and call options within debt instruments. The Company adopted this amendment during the first quarter of 2017. The adoption of this guidance did not impact our consolidated financial statements.

In March 2016, the FASB issued an amendment that modifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as statement of cash flows presentation. The transition requirement is generally modified retrospective, with the exception of recognition of excess tax benefits and tax deficiencies that requires prospective adoption. The Company adopted this amendment during the first quarter of 2017. The cash flows used in financing activities related to the excess tax benefits from share-based compensation arrangements, which amounted to $2,376 during the nine months ended October 2, 2016, was reclassified retrospectively to cash flows provided by operating activities. Additionally, during the nine months ended October 2, 2016, $4,142 was paid to taxing authorities for withheld shares on share-based compensation arrangement activities, which was reclassified retrospectively from cash flows provided by operating activities to cash flows used in financing activities. Upon adopting the amendment in the first quarter of 2017, the Company recognized $1,880 in unrecognized tax benefits for deductions in excess of cumulative compensation costs relating to the exercise of stock options and vesting of restricted stock. This tax benefit was recognized as a reduction to the Company’s deferred tax liability with an equal offsetting increase to “Accumulated deficit.” The Company will continue to estimate forfeitures each period.

In July 2015, the FASB issued an amendment that requires entities to measure inventory at the lower of cost and net realizable value, rather than the lower of cost or market, with market value represented by replacement cost, net realizable value or net realizable value less a normal profit margin. The Company adopted this amendment during the first quarter of 2017. The adoption of this guidance did not impact our consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us,” or “our”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included elsewhere within this report and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January ~~1, 2017~~3, 2021 (the “Form 10-K”). There have been no material changes as of October ~~1, 2017~~3, 2021 to the application of our critical accounting policies as described in Item 7 of the Form 10-K. Certain statements we make under this Item 2 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part ~~II -~~II. Other Information” ~~preceding Item 1 of Part II~~ of this report. You should consider our forward-looking statements in light of the risks discussed in “Item 1A. Risk Factors” in “Part II. Other Information” of this report and our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report, the Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”).

The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s Restaurants, LLC (“Wendy’s Restaurants”). The principal 100% owned subsidiary of Wendy’s Restaurants is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). Wendy’s ~~franchises~~is primarily engaged in the business of operating, developing and ~~operates Wendy’s~~^®franchising a system of distinctive quick-service restaurants ~~throughout North America (defined as~~serving high quality food. Wendy’s opened its first restaurant in Columbus, Ohio in 1969. Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the United States ~~of America (“U.S.~~(the “U.S.”) based on traffic share, and ~~Canada). Wendy’s also has franchised~~the third largest globally with 6,891 restaurants in 29the U.S. and 31 foreign countries and U.S. ~~territories.~~territories as of October 3, 2021.

Each Wendy’s ~~restaurants offer~~restaurant offers an extensive menu specializing in hamburger sandwiches and featuring ~~fillet~~filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of condiments. Wendy’s menu also includes chicken nuggets, chili, french fries, baked potatoes, freshly prepared salads, soft drinks, Frosty^® desserts and kids’ meals. In addition, ~~the~~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 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.

The Company ~~manages~~is comprised of the following segments: (1) Wendy’s U.S., (2) Wendy’s International and ~~internally reports its business geographically. The~~(3) Global Real Estate & Development. Wendy’s U.S. includes the operation and franchising of Wendy’s restaurants in ~~North America comprises virtually all of our current operations~~the U.S. and ~~represents a single reportable segment. The~~derives its revenues from sales at Company-operated restaurants and ~~operating results~~royalties, fees and advertising fund collections from franchised restaurants. Wendy’s International includes the operation and franchising of Wendy’s restaurants ~~outside~~in countries and territories other than the U.S. and derives its revenues from sales at Company-operated restaurants and royalties, fees and advertising fund collections from franchised restaurants. Global Real Estate & Development includes real estate activity for owned sites and sites leased from third parties, which are leased and/or subleased to franchisees, and also includes our share of ~~North America are not material. The results~~the income of ~~operations discussed below may not necessarily be indicative~~our TimWen real estate joint venture. In addition, Global Real Estate & Development earns fees from facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”) and providing other development-related services to franchisees. In this Item 2. “Management’s Discussion and Analysis of ~~future results.~~

~~The~~Financial Condition and Results of Operations,” the Company reports on athe segment profit for each of the three segments described above. The Company measures segment profit based on segment adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”). Segment adjusted EBITDA excludes certain unallocated general and administrative expenses and other items that vary from period to period without correlation to the Company’s core operating performance. See “Results of Operations” below and Note 17 to the Condensed Consolidated Financial Statements contained in Item 1 herein for segment financial information.

The Company’s fiscal ~~year consisting~~reporting periods consist of 52 or 53 weeks ending on the Sunday closest to ~~or on~~ December 31. All three- and nine-month periods presented herein contain 13 weeks and 39 weeks, respectively. All references to years, quarters and ~~quarters~~months relate to fiscal periods rather than calendar periods.

Executive Overview

Our Business

As of October ~~1, 2017,~~3, 2021, the Wendy’s restaurant system was comprised of ~~6,586~~6,891 restaurants, ~~of which 333~~with 5,901 Wendy’s restaurants in operation in the U.S. Of the U.S. restaurants, 311 were ~~owned and~~ operated by the ~~Company. All~~Company and 5,590 were operated by a total of 225 franchisees. In addition, at October 3, 2021, there were 990 Wendy’s restaurants in operation in 31 foreign countries and U.S. territories. Of the international restaurants, 988 were operated by franchisees and two 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 ~~are located in~~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 ~~U.S.~~total Wendy’s system as of October 3, 2021.

Wendy’s operating results are impacted by a number of external factors, including ~~unemployment, general economic trends, intense price competition,~~ commodity costs, labor costs, intense price competition, unemployment and consumer spending levels, general economic and market trends and weather. The COVID-19 pandemic has had and may continue to have the effect of heightening the impact of many of these factors.

Wendy’s long-term growth opportunities ~~will be driven by a combination~~include investing in accelerated global growth through (1) building our breakfast daypart, (2) continued implementation of ~~brand relevance~~consumer-facing digital platforms and ~~economic relevance. Key components of growth include (1) systemwide~~technologies and (3) expanding the Company’s footprint through targeted U.S. expansion and accelerated international expansion through same-restaurant sales growth ~~through continuing core menu improvement, product innovation~~ and ~~customer count growth, (2) investing in our Image Activation program, which includes innovative exterior and interior~~net new restaurant designs for our new and reimaged restaurants and focused execution of operational excellence, (3) growth in new restaurants, including global growth, (4) increased restaurant utilization in various dayparts and brand access utilizing mobile technology, (5) building shareholder value through financial management strategies and (6) our system optimization initiative.development.

Wendy’s revenues for the first nine months of 2017 include (1) $467.9 million of sales at Company-operated restaurants, (2) $306.1 million of franchise royalty revenue and fees and (3) $140.2 million of franchise rental income. Substantially all of our Wendy’s royalty agreements provide for royalties of 4.0% of franchisees’ revenues.

Key Business Measures

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

•Same-Restaurant Sales - We report same-restaurant sales commencing after new restaurants have been open for 15 continuous months and as soon as reimaged restaurants reopen. Restaurants temporarily closed for more than one fiscal week are excluded from same-restaurant sales. For fiscal 2020, same-restaurant sales excluded the impact of a 53rd operating week. In fiscal 2020, same-restaurant sales compared the 52 weeks from December 30, 2019 through December 27, 2020 to the 52 weeks from December 31, 2018 through December 29, 2019. For fiscal 2021, same-restaurant sales will compare the 52 weeks from January 4, 2021 through January 2, 2022 to the 52 weeks from January 6, 2020 through January 3, 2021. This methodology is consistent with the metric used by our management for internal reporting and analysis. The table summarizing same-restaurant sales below in “Results of Operations” provides the same-restaurant sales percent changes. ~~Same-restaurant sales exclude the impact of currency translation.~~

•Restaurant Margin - We define restaurant margin as sales from Company-operated restaurants less cost of sales divided by sales from Company-operated restaurants. Cost of sales includes food and paper, restaurant labor and occupancy, advertising and other operating costs. Restaurant margin is influenced by factors such as ~~restaurant openings, remodels and closures,~~ price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, fluctuations in food and labor costs, restaurant openings, remodels and closures and the level of our fixed and semi-variable ~~costs and fluctuations in food and labor~~ costs.

•Systemwide Sales - Systemwide sales is a non-GAAP financial measure, which includes sales by both Company-operated restaurants and franchised restaurants. Franchised restaurants’ sales are reported by our franchisees and represent their revenues from sales at franchised Wendy’s restaurants. The Company’s consolidated financial statements do not include sales by franchised restaurants to their customers. The Company believes systemwide sales data is useful in assessing consumer demand for the Company’s products, the overall success of the Wendy’s brand and, ultimately, the performance of the Company. The Company’s royalty and advertising funds revenues are computed as percentages of sales made by Wendy’s franchisees. As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty and advertising funds revenues and ~~therefore on the Company’s~~ profitability.

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

Same-restaurant sales and systemwide sales exclude sales from Argentina and Venezuela due to the highly inflationary economies of those countries. The Company considers economies that have had cumulative inflation in excess of 100% over a three-year period as highly inflationary.

The Company believes its presentation of same-restaurant sales, restaurant margin and systemwide sales provide a meaningful perspective of the underlying operating performance of the Company’s current business and enables investors to better understand and evaluate the Company’s historical and prospective operating performance. The Company believes that these metrics are important supplemental measures of operating performance because they highlight trends in the Company’s business that may not otherwise be apparent when relying solely on GAAP financial measures. The Company believes investors, analysts and other interested parties use these metrics in evaluating issuers and that the presentation of these measures facilitates a comparative assessment of the Company’s operating performance. With respect to same-restaurant sales and systemwide sales, the Company also believes that the data is useful in assessing consumer demand for the Company’s products and the overall success of the Wendy’s brand.

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

Third Quarter Financial Highlights

•Revenue increased 4.0% to $470.3 million in the third quarter of 2021 compared to $452.2 million in the third quarter of 2020;

•Global same-restaurant sales increased 3.3%, U.S. same-restaurant sales increased 2.1% and international same-restaurant sales increased 14.7% compared to the third quarter of 2020;

•Company-operated restaurant margin was 14.4% in the third quarter of 2021, a decrease of 250 basis points from the third quarter of 2020; and

•Net income increased 3.6% to $41.2 million in the third quarter of 2021 compared to $39.8 million in the third quarter of 2020.

Year-to-Date Financial Highlights

•Revenue increased 13.0% to $1.4 billion in the first nine months of 2021 compared to $1.3 billion in the first nine months of 2020;

•Global same-restaurant sales increased 10.9%, U.S. same-restaurant sales increased 10.2% and international same-restaurant sales increased 17.4% compared to the first nine months of 2020;

•Company-operated restaurant margin was 17.4% in the first nine months of 2021, an increase of 350 basis points from the first nine months of 2020; and

•Net income increased 87.4% to $148.3 million in the first nine months of 2021 compared to $79.1 million in the first nine months of 2020.

COVID-19 Update

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic. We continue to monitor the dynamic nature of the COVID-19 pandemic on our business, results and financial condition; however, we cannot predict the ultimate duration, scope or severity of the COVID-19 pandemic or its ultimate impact on our results of operations, financial condition and prospects.

In response to the pandemic, in March 2020, Wendy’s updated its brand standard to include the closure of all dining rooms except where there were specific needs, or a drive-thru or pick-up window option was not available, subject to applicable federal, state and local requirements. Substantially all Wendy’s restaurants continued to offer drive-thru and delivery service to our customers. During the second quarter of 2020, the Company began to implement its restaurant and dining room reopening

process through a phased approach in accordance with federal, state and local requirements, with customer and team member safety as its top priority. Dining rooms have been re-opening at each restaurant owner’s discretion, subject to applicable regulatory restrictions. During the third quarter and the first nine months of 2021, restaurant operations have been impacted by increased pressure on labor availability brought about by both the COVID-19 pandemic and other macroeconomic factors; however, as of October 3, 2021, substantially all restaurants were open across the Wendy’s system, and the majority of restaurants had dining rooms open. Global systemwide same-restaurant sales during the first nine months of 2021 increased 10.9%, in part due to a significant increase in customer count compared with the adversely impacted fiscal months of March through June 2020.

Breakfast

Wendy’s long-term growth opportunities include investing in accelerated global growth, which includes building upon our breakfast daypart. Since the launch of breakfast across the U.S. system on March 2, 2020, systemwide sales have benefited from this new daypart, with breakfast representing approximately 7.2% of U.S. systemwide sales during the nine months ended October 3, 2021. As previously disclosed, the Company expects to fund a total of $25.0 million of incremental advertising to support the breakfast daypart during 2021, which the Company expects will continue to drive trial and acceleration of the Company’s breakfast offering.

Digital

Wendy’s long-term growth opportunities include accelerating same-restaurant sales through continued 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. The Company’s digital business continues to grow and represented approximately 8.0% of global systemwide sales during the nine months ended October 3, 2021.

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”). A portion of the net proceeds from the sale of the Series 2021-1 Class A-2 Notes were used to repay in full the Company’s outstanding Series 2015-1 Class A-2-III Notes and Series 2018-1 Class A-2-I Notes, including the payment of prepayment and transaction costs. The Company also entered into a revolving financing facility of Series 2021-1 Variable Funding Senior Secured Notes, Class A-1 (the “Series 2021-1 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 Series 2021-1 Class A-1 Notes during the nine months ended October 3, 2021. The Series 2021-1 Class A-1 Notes replaced the Company’s $150.0 million Series 2019-1 Class A-1 Notes and $100.0 million Series 2020-1 Class A-1 Notes, which were cancelled on the closing date. As a result of the refinancing transaction, the Company incurred a loss on the early extinguishment of debt of $17.9 million, which was comprised of a specified make-whole payment of $9.6 million and the write-off of certain unamortized deferred financing costs of $8.3 million. See “Liquidity and Capital Resources” below and Note 7 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information on the Company’s debt refinancing transaction.

New Restaurant Development

REEF Kitchens Development Commitment

On August 11, 2021, the Company announced a development commitment by REEF Kitchens (“REEF”) to open and operate 700 delivery kitchens over the next five years across the U.S., Canada and the U.K.

Strategic Build to Suit Development Fund

On August 11, 2021, the Company announced the creation of a $100.0 million strategic build to suit development fund to drive additional new restaurant growth that is being funded by the additional cash that was obtained as part of the Company’s debt refinancing transaction completed in June 2021. The Company expects the development fund to drive approximately 80 to 90 new franchise restaurants from 2022 to 2025.

System Optimization Initiative

~~In July 2013, the Company announced a~~The Company’s system optimization initiative ~~as part of its brand transformation, which~~ includes a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating ~~franchisee-to-franchisee restaurant transfers. In February 2015,~~Franchise Flips. As of January 1, 2017, the Company ~~announced plans~~completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total ~~system, which~~system. While the Company ~~completed as of January 1, 2017. Wendy’s will~~has no plans to reduce its ownership below the approximately 5% level, the Company expects to continue to optimize ~~its~~the Wendy’s system ~~by facilitating franchisee-to-franchisee restaurant transfers,~~through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, ~~and~~ drive new restaurant development and accelerate ~~reimages in the Image Activation format.~~reimages.

During the ~~first~~ nine months ~~of 2017,~~ended October 3, 2021, the Company ~~recorded post-closing adjustments on sales of restaurants and~~ completed the sale of ~~other assets,~~47 Company-operated restaurants in New York (including Manhattan) to franchisees, resulting in net gains totaling ~~$3.4~~$30.8 million. Gains and losses recognized on dispositions are recorded to “System optimization ~~losses (gains),~~gains, net” in our condensed consolidated statements of operations. ~~In addition,~~

NPC Quality Burgers, Inc. (“NPC”)

~~DavCo and NPC Transactions~~

~~As part of our system optimization initiative,~~markets, while the Company would have acquired ~~140~~one market.

During the three months ended April 4, 2021, following a court-approved mediation process, NPC and certain affiliates of Flynn Restaurant Group (“FRG”) and the Company entered into separate asset purchase agreements under which all of NPC’s Wendy’s restaurants ~~on May 31, 2017 from DavCo Restaurants, LLC (“DavCo”) for total net cash consideration of $86.8 million, which~~ were ~~immediately~~ sold to ~~NPC International, Inc. (“NPC”), an~~Wendy’s approved franchisees. Under the transaction, FRG acquired approximately half of NPC’s Wendy’s restaurants in four markets, while several existing ~~franchisee of the Company, for cash proceeds of $70.7 million (the “DavCo and NPC transactions”). As~~Wendy’s franchisees that were part of the ~~transaction, NPC has agreed to remodel 90~~Company’s consortium bid acquired the other half of NPC’s Wendy’s restaurants in the ~~Image Activation format by the end of 2021 and build 15 new Wendy’s~~other four markets. The Company did not acquire any restaurants by the end of 2022. Prior to closing the DavCo transaction, seven DavCo restaurants were closed. The acquisition of Wendy’s restaurants from DavCo was not contingent on executing the sale agreement with NPC; as such, the Company accounted for the transactions as an acquisition and subsequent disposition of a business. The total consideration paid to DavCo was allocated to net tangible and identifiable intangible assets acquired based on their estimated fair values. As part of the transactions, the Company retained leases for purposes of subleasing such properties to NPC. As a result of the transactions, the Company recognized a loss of $43.1 million during the first nine months of 2017.this transaction.

~~Costs related to our system optimization initiative were historically recorded to “Reorganization~~Operations and realignment costs.” Costs incurred during 2017 in connection with the DavCo and NPC transactions continue to be recorded to “Reorganization and realignment costs.” All other costs incurred during 2017 related to facilitating franchisee-to-franchisee restaurant transfers are recorded to “Other operating expense (income), net.” During the first nine months of 2017, the Company recognized reorganization and realignment costs totaling $0.9 million, which primarily included professional fees. The Company does not expect to incur additional costs during the remainder of 2017 in connection with the DavCo and NPC transactions.

~~General and Administrative (“G&A”)~~Field Realignment

~~November 2014 Plan~~

In ~~November 2014,~~September 2020, the Company initiated a plan to ~~reduce its G&A expenses. The plan included a realignment and reinvestment of~~reallocate resources to ~~focus primarily on accelerated~~better support the long-term growth strategies for Company and franchise operations (the “Operations and Field Realignment Plan”). The Operations and Field Realignment Plan realigned the Company’s restaurant ~~development~~operations team, including transitioning from separate leaders of Company and ~~consumer-facing~~franchise operations to a single leader of all U.S. restaurant ~~technology to drive long-term growth.~~operations. The ~~Company achieved~~Operations and Field Realignment Plan also includes contract terminations, including the ~~majority~~closure of ~~the expense reductions through the realignment of its U.S.~~certain field operations and savings at its Restaurant Support Center in Dublin, Ohio, which was substantially completed by the end of the second quarter of 2015. Costs related to the plan are recorded to “Reorganization and realignment costs.” The Company recognized costs totaling $1.0 million during the first nine months of 2016 and $24.0 million in aggregate since inception. The Company did not incur any expenses during the first nine months of 2017 and does not expect to incur additional costs related to the plan.

~~May 2017 Plan~~

In May 2017, the Company initiated a new plan to further reduce its G&A expenses. The Company expects that approximately three-quarters of the total G&A expense reduction of approximately $35.0 million will be realized by the end of 2018, with the remainder of the savings being realized in 2019.offices. The Company expects to incur total costs aggregating approximately ~~$28.0~~$5.5 million to ~~$33.0~~$6.0 million, of which ~~$23.0~~approximately $5.0 million to ~~$27.0~~$5.5 million will be cash expenditures, related to ~~such savings. The cash expenditures are expected to continue into 2019, with approximately half of~~ the ~~total cash expenditures occurring in 2018.~~Operations and Field Realignment Plan. Costs related to the ~~plan~~Operations and Field Realignment Plan are recorded to “Reorganization and realignment costs.” ~~The~~During the nine months ended October 3, 2021, the Company recognized costs totaling ~~$19.9~~$1.6 million, ~~during the first nine months of 2017,~~ which primarily included ~~severance~~third-party and ~~related employee costs and share-based compensation.~~other costs. The Company expects to incur additional costs aggregating up to approximately ~~$8.0 million to $13.0~~$0.5 million, comprised primarily of ~~(1) severance and related employee costs of approximately $3.0 million, (2) recruitment and relocation costs of approximately $4.0 million, (3)~~ third-party and other ~~costs of approximately $1.0 million and (4) share-based compensation of approximately $3.0 million.~~costs. The Company expects to recognize the majority of the remaining costs ~~to be recognized~~and make the majority of the remaining cash expenditures associated with the Operations and Field Realignment Plan during the remainder of ~~2017 and continue into 2019, with approximately two-thirds to be recognized during 2017.~~2021.

~~Related Party Transactions~~

~~TimWen Lease and Management Fee Payments~~

A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen for the operation of Wendy’s/Tim Hortons combo units in Canada. During the first nine months of 2017 and 2016, Wendy’s paid TimWen $9.4 million and $8.9 million, respectively, under these lease agreements. In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $0.2 million during both the first nine months of 2017 and 2016, which has been included as a reduction to “General and administrative.”

~~Cybersecurity Incident~~

The Company first reported unusual payment card activity affecting some franchise-owned restaurants in February 2016 and that malware had been discovered on certain systems. Subsequently, on June 9, 2016, the Company reported that an additional malware variant had been identified and disabled. On July 7, 2016, the Company, on behalf of affected franchise locations, provided information about specific restaurant locations that may have been impacted by these attacks, all of which are located in the United States, along with support for customers who may have been affected by the malware variants. See “Item 1 - Financial Statements,” Note 14 to the Condensed Consolidated Financial Statements for further information.

Results of Operations

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the third quarter and the first nine months of ~~2017~~2021 and ~~2016.~~2020.


	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Revenues:
Sales	$	171.1	$	191.9	$	(20.8)	$	553.7	$	523.0	$	30.7
Franchise royalty revenue and fees	138.8		116.8		22.0		398.2		321.6		76.6
Franchise rental income	62.4		58.7		3.7		182.2		173.4		8.8
Advertising funds revenue	98.0		84.8		13.2		289.7		241.5		48.2
	470.3		452.2		18.1		1,423.8		1,259.5		164.3
Costs and expenses:
Cost of sales	146.4		159.5		(13.1)		457.4		450.2		7.2
Franchise support and other costs	10.5		6.0		4.5		27.1		19.4		7.7
Franchise rental expense	34.4		32.4		2.0		101.1		93.0		8.1
Advertising funds expense	108.5		92.0		16.5		310.6		253.4		57.2
General and administrative	62.8		47.3		15.5		178.6		147.6		31.0
Depreciation and amortization	30.9		33.0		(2.1)		93.2		98.7		(5.5)
System optimization gains, net	(1.4)		—		(1.4)		(32.7)		(2.3)		(30.4)
Reorganization and realignment costs	0.4		3.4		(3.0)		7.4		10.2		(2.8)
Impairment of long-lived assets	0.6		—		0.6		1.8		4.7		(2.9)
Other operating income, net	(3.0)		(2.7)		(0.3)		(10.8)		(6.1)		(4.7)
	390.1		370.9		19.2		1,133.7		1,068.8		64.9
Operating profit	80.2		81.3		(1.1)		290.1		190.7		99.4
Interest expense, net	(26.0)		(29.1)		3.1		(83.0)		(86.7)		3.7
Loss on early extinguishment of debt	—		—		—		(17.9)		—		(17.9)
Other income, net	0.2		0.2		—		0.4		1.2		(0.8)
Income before income taxes	54.4		52.4		2.0		189.6		105.2		84.4
Provision for income taxes	(13.2)		(12.6)		(0.6)		(41.3)		(26.1)		(15.2)
Net income	$	41.2	$	39.8	$	1.4	$	148.3	$	79.1	$	69.2

Third Quarter Nine Months
2017 2016 Change 2017 2016 Change
Revenues:
Sales $ 158.8
$ 228.6
$ (69.8 ) $ 467.9
$ 747.2
$ (279.3 )
Franchise royalty revenue and fees 98.9
98.0
0.9
306.1
275.9
30.2
Franchise rental income 50.3
37.4
12.9
140.2
102.4
37.8
308.0
364.0
(56.0 ) 914.2
1,125.5
(211.3 )
Costs and expenses:

Cost of sales 132.4
186.5
(54.1 ) 385.2
603.8
(218.6 )
Franchise rental expense 24.1
17.5
6.6
64.8
49.7
15.1
General and administrative 52.9
58.9
(6.0 ) 156.7
184.7
(28.0 )
Depreciation and amortization 31.2
29.4
1.8
91.7
92.4
(0.7 )
System optimization losses (gains), net 0.1
(37.8 ) 37.9
39.7
(48.1 ) 87.8
Reorganization and realignment costs 2.9
2.1
0.8
20.8
7.9
12.9
Impairment of long-lived assets 1.0
0.4
0.6
1.8
13.0
(11.2 )
Other operating expense (income), net 1.7
0.9
0.8
5.3
(13.5 ) 18.8
246.3
257.9
(11.6 ) 766.0
889.9
(123.9 )
Operating profit 61.7
106.1
(44.4 ) 148.2
235.6
(87.4 )
Interest expense (30.0 ) (28.7 ) (1.3 ) (87.9 ) (85.5 ) (2.4 )
Other (loss) income, net (0.1 ) 0.5
(0.6 ) 3.1
1.0
2.1
Income before income taxes 31.6
77.9
(46.3 ) 63.4
151.1
(87.7 )
Provision for income taxes (17.3 ) (29.0 ) 11.7
(28.6 ) (50.4 ) 21.8
Net income $ 14.3
$ 48.9
$ (34.6 ) $ 34.8
$ 100.7
$ (65.9 )


	Third Quarter								Nine Months
	2021		% of Total Revenues		2020		% of Total Revenues		2021		% of Total Revenues		2020		% of Total Revenues
Revenues:
Sales	$	171.1	36.4	%	$	191.9	42.4	%	$	553.7	38.9	%	$	523.0	41.5	%
Franchise royalty revenue and fees:
Franchise royalty revenue	116.6		24.8	%	109.3		24.2	%	344.4		24.2	%	301.9		24.0	%
Franchise fees	22.2		4.7	%	7.5		1.6	%	53.8		3.8	%	19.7		1.5	%
Total franchise royalty revenue and fees	138.8		29.5	%	116.8		25.8	%	398.2		28.0	%	321.6		25.5	%
Franchise rental income	62.4		13.3	%	58.7		13.0	%	182.2		12.8	%	173.4		13.8	%
Advertising funds revenue	98.0		20.8	%	84.8		18.8	%	289.7		20.3	%	241.5		19.2	%
Total revenues	$	470.3	100.0	%	$	452.2	100.0	%	$	1,423.8	100.0	%	$	1,259.5	100.0	%

	Third Quarter								Nine Months
	2021		% of Sales		2020		% of Sales		2021		% of Sales		2020		% of Sales
Cost of sales:
Food and paper	$	54.8	32.0	%	$	59.6	31.1	%	$	165.5	29.9	%	$	161.4	30.9	%
Restaurant labor	54.8		32.0	%	59.4		30.9	%	173.5		31.3	%	170.3		32.6	%
Occupancy, advertising and other operating costs	36.8		21.6	%	40.5		21.1	%	118.4		21.4	%	118.5		22.6	%
Total cost of sales	$	146.4	85.6	%	$	159.5	83.1	%	$	457.4	82.6	%	$	450.2	86.1	%


	Third Quarter								Nine Months
	2021		% of Sales		2020		% of Sales		2021		% of Sales		2020		% of Sales
Restaurant margin	$	24.7	14.4	%	$	32.4	16.9	%	$	96.3	17.4	%	$	72.8	13.9	%

Third Quarter Nine Months
2017
% of
Total Revenues
2016
% of
Total Revenues
2017
% of
Total Revenues
2016
% of
Total Revenues
Revenues:
Sales $ 158.8
51.6 % $ 228.6
62.8 % $ 467.9
51.2 % $ 747.2
66.4 %
Franchise royalty revenue and fees:
Royalty revenue 93.7
30.4 % 87.9
24.1 % 275.0
30.1 % 255.0
22.6 %
Franchise fees 5.2
1.7 % 10.1
2.8 % 31.1
3.4 % 20.9
1.9 %
Total franchise royalty revenue and fees 98.9
32.1 % 98.0
26.9 % 306.1
33.5 % 275.9
24.5 %
Franchise rental income 50.3
16.3 % 37.4
10.3 % 140.2
15.3 % 102.4
9.1 %
Total revenues $ 308.0
100.0 % $ 364.0
100.0 % $ 914.2
100.0 % $ 1,125.5
100.0 %

Third Quarter Nine Months
2017 % of
Sales 2016 % of
Sales 2017 % of
Sales 2016 % of
Sales
Cost of sales:
Food and paper $ 51.8
32.6 % $ 69.3
30.3 % $ 147.1
31.4 % $ 226.9
30.4 %
Restaurant labor 45.6
28.7 % 64.8
28.4 % 135.8
29.0 % 211.7
28.3 %
Occupancy, advertising and other operating costs 35.0
22.0 % 52.4
22.9 % 102.3
21.9 % 165.2
22.1 %
Total cost of sales $ 132.4
83.3 % $ 186.5
81.6 % $ 385.2
82.3 % $ 603.8
80.8 %
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.

Third Quarter Nine Months
2017
% of
Sales
2016
% of
Sales
2017
% of
Sales
2016
% of
Sales
Restaurant margin $ 26.4
16.7 % $ 42.1
18.4 % $ 82.7
17.7 % $ 143.4
19.2 %


	Third Quarter				Nine Months					Third Quarter						Nine Months
	2017		2016		2017		2016			2021			2020			2021			2020
Key business measures:									Key business measures:
North America same-restaurant sales:
U.S. same-restaurant sales:									U.S. same-restaurant sales:
Company-operated	(0.5	)%	2.7	%	0.7	%	2.9	%	Company-operated	3.4		%	4.2		%	13.2		%	(2.2)		%
Franchised	2.1	%	1.2	%	2.4	%	1.7	%	Franchised	2.0		%	7.2		%	10.0		%	1.1		%
Systemwide	2.0	%	1.4	%	2.3	%	1.8	%	Systemwide	2.1		%	7.0		%	10.2		%	0.9		%

Total same-restaurant sales:
International same-restaurant sales (a)									International same-restaurant sales (a)	14.7		%	(2.1)		%	17.4		%	(7.3)		%

Global same-restaurant sales:									Global same-restaurant sales:
Company-operated	(0.5	)%	2.7	%	0.7	%	2.9	%	Company-operated	3.4		%	4.2		%	13.2		%	(2.2)		%
Franchised (a)	2.1	%	1.3	%	2.4	%	1.6	%	Franchised (a)	3.3		%	6.2		%	10.8		%	0.2		%
Systemwide (a)	1.9	%	1.4	%	2.3	%	1.7	%	Systemwide (a)	3.3		%	6.1		%	10.9		%	—		%

Systemwide sales: (b)									Systemwide sales: (b)
U.S. Company-operated									U.S. Company-operated	$	170.0		$	191.9		$	552.3		$	523.0
U.S. franchised									U.S. franchised	2,621.2			2,499.7			7,783.6			6,913.1
U.S. systemwide									U.S. systemwide	2,791.2			2,691.6			8,335.9			7,436.1
International Company-operated									International Company-operated	1.1			—			1.4			—
International franchised (a)									International franchised (a)	361.3			291.3			1,018.3			784.1
International systemwide (a)									International systemwide (a)	362.4			291.3			1,019.7			784.1
Global systemwide (a)									Global systemwide (a)	$	3,153.6		$	2,982.9		$	9,355.6		$	8,220.2

________________

(a) ~~Includes international franchised same-restaurant sales (excluding~~Excludes Argentina and Venezuela due to the impact of ~~Venezuela’s~~the highly inflationary ~~economy).~~economies of those countries.

(b)During the third quarter of 2021 and 2020, global systemwide sales increased 5.3% and 6.7%, respectively, U.S. systemwide sales increased 3.7% and 7.9%, respectively, and international systemwide sales increased 20.2% and decreased 3.5%, respectively, on a constant currency basis. During the first nine months of 2021 and 2020, global systemwide sales increased 13.2% and 0.5%, respectively, U.S. systemwide sales increased 12.1% and 1.6%, respectively, and international systemwide sales increased 23.6% and decreased 9.3%, respectively, on a constant currency basis.

Third Quarter Nine Months
2017 2016 2017 2016
Key business measures (continued):
Systemwide sales: (a)
Company-operated $ 158.8
$ 228.6
$ 467.9
$ 747.2
North America franchised 2,347.2
2,198.2
6,897.4
6,381.8
International franchised (b) 119.4
106.9
351.6
309.6
Global systemwide sales $ 2,625.4
$ 2,533.7
$ 7,716.9
$ 7,438.6


	Third Quarter
	U.S. Company-operated	U.S. Franchised	International Company-operated	International Franchised	Systemwide
Restaurant count:
Restaurant count at July 4, 2021	314	5,581	1	970	6,866
Opened	1	26	1	20	48
Closed (a)	(4)	(17)	—	(2)	(23)

Restaurant count at October 3, 2021	311	5,590	2	988	6,891

	Nine Months
	U.S. Company-operated	U.S. Franchised	International Company-operated	International Franchised	Systemwide

Restaurant count at January 3, 2021	361	5,520	—	947	6,828
Opened	4	65	2	58	129
Closed (a)	(6)	(43)	—	(17)	(66)
Net (sold to) purchased by franchisees	(48)	48	—	—	—
Restaurant count at October 3, 2021	311	5,590	2	988	6,891

________________

~~(a)~~

During the third quarter of 2017 and 2016, North America systemwide sales increased 3.0% and 1.8%, respectively, international franchised sales increased 13.4% and 9.0%, respectively, and global systemwide sales increased 3.4% and 2.1%, respectively, on a constant currency basis. During the first nine months of 2017 and 2016, North America systemwide sales increased 3.2% and 2.9%, respectively, international franchised sales increased 15.0% and 4.1%, respectively, and global systemwide sales increased 3.7% and 3.0%, respectively, on a constant currency basis.


~~(b)~~	~~Excludes Venezuela due to the impact of Venezuela’s highly inflationary economy.~~

(a)Excludes restaurants temporarily closed due to the impact of the COVID-19 pandemic.

Third Quarter
Company-operated North America Franchised International Franchised Systemwide
Restaurant count:
Restaurant count at July 2, 2017 331
5,762
471
6,564
Opened 4
25
13
42
Closed (2 ) (15 ) (3 ) (20 )
Restaurant count at October 1, 2017 333
5,772
481
6,586

Nine Months
Company-operated North America Franchised International Franchised Systemwide

Restaurant count at January 1, 2017 330
5,768
439
6,537
Opened 7
50
53
110
Closed (4 ) (46 ) (11 ) (61 )
Restaurant count at October 1, 2017 333
5,772
481
6,586


Sales	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Sales	$	171.1	$	191.9	$	(20.8)	$	553.7	$	523.0	$	30.7

Sales Change
Third
Quarter Nine
Months
Sales $ (69.8 ) $ (279.3 )

The decrease in sales for ~~both~~ the third quarter ~~and the first nine months~~ of ~~2017~~2021 was primarily due to the impact of ~~Wendy’s~~the sale of 47 Company-operated restaurants ~~sold under our system optimization initiative, which resulted~~ in New York during the second quarter of 2021, partially offset by a ~~reduction~~3.4% increase in Company-operated same-restaurant sales. Company-operated same-restaurant sales increased due to higher average check, partially offset by a decrease in customer count.

The increase in sales for the first nine months of ~~$74.1 million~~2021 was primarily due to a 13.2% increase in Company-operated same-restaurant sales, partially offset by the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021. Company-operated same-restaurant sales increased due to (1) higher average check and ~~$295.9 million~~(2) an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic. Company-operated same-restaurant sales during the first nine months of 2021 benefited from (1) government stimulus payments to consumers during the first quarter of 2021 and (2) the positive impact from the breakfast daypart.


Franchise Royalty Revenue and Fees	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Franchise royalty revenue	$	116.6	$	109.3	$	7.3	$	344.4	$	301.9	$	42.5
Franchise fees	22.2		7.5		14.7		53.8		19.7		34.1
	$	138.8	$	116.8	$	22.0	$	398.2	$	321.6	$	76.6

The increase in franchise royalty revenue during the third quarter and the first nine months of ~~2017, respectively. For~~2021 was primarily due to (1) a 3.3% and 10.8% increase in global franchise same-restaurant sales, respectively, and (2) a net increase in the number of franchise restaurants in operation during 2021 compared to 2020. Franchise same-restaurant sales during the third quarter of ~~2017, Company-operated same-restaurant sales declined~~2021 increased due to ~~a decrease in customer count, which was partially offset by an increase in our~~higher average ~~per customer~~ check, amount. A portion of the customer count decline in the third quarter of 2017 resulted from the hurricanes in the U.S. For the first nine months of 2017, Company-operated same-restaurant sales benefited from an increase in our average per customer check amount, which was partially offset by a decrease in customer count. ~~Our per~~Franchise same-restaurant sales during the first nine months of 2021 increased due to (1) higher average check and (2) an increase in customer ~~check amount increased~~count, reflecting the prior year impact of the COVID-19 pandemic. Franchise same-restaurant sales during the first nine months of 2021

benefited from (1) government stimulus payments to consumers during the first quarter of 2021 and (2) the positive impact from the breakfast daypart.

The increase in franchise fees during the third quarter and the first nine months of 2017 primarily due to benefits from strategic price increases on our menu items and changes in product mix. Sales also benefited from higher sales growth at our new and remodeled Image Activation restaurants.

Franchise Royalty Revenue and Fees Change
Third
Quarter Nine
Months
Royalty revenue $ 5.8
$ 20.0
Franchise fees (4.9 ) 10.2
$ 0.9
$ 30.2

~~The increase in franchise royalty revenue and fees during the third quarter of 2017~~2021 was primarily due to ~~higher royalty revenue resulting from sales of Company-operated restaurants to franchisees under our system optimization initiative. Royalty revenue also benefited from a 2.1%~~(1) an increase in ~~franchise same-restaurant sales. These increases were largely offset by a decrease in franchise~~ fees ~~driven by lower initial franchise fees because no sales of Company-operated restaurants or franchisee-to-franchisee restaurant transfers occurred during the third quarter of 2017.~~

~~The increase in franchise royalty revenue and fees during the first nine months of 2017 was due to sales of Company-operated restaurants~~for providing information technology services to franchisees and ~~facilitating~~(2) the accelerated recognition of franchise agreement revenue as a result of franchisee-to-franchisee restaurant ~~transfers under our system optimization initiative. Royalty revenue also benefited from a 2.4% increase in franchise same-restaurant sales.~~transfers.


Franchise Rental Income	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Franchise rental income	$	62.4	$	58.7	$	3.7	$	182.2	$	173.4	$	8.8

Franchise Rental Income Change
Third
Quarter Nine
Months
Franchise rental income $ 12.9
$ 37.8

The increase in franchise rental income during the third quarter and the first nine months of ~~2017~~2021 was primarily due to ~~leasing and/or subleasing properties to franchisees~~(1) an increase in ~~connection~~percent rent, reflecting higher systemwide sales compared with 2020, and (2) the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021.


Advertising Funds Revenue	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Advertising funds revenue	$	98.0	$	84.8	$	13.2	$	289.7	$	241.5	$	48.2

The Company maintains two national advertising funds established to collect and ~~facilitating franchisee-to-franchisee restaurant transfers.~~administer funds contributed for use in advertising and promotional programs for Company-operated and franchised restaurants in the U.S. and Canada. Franchisees make contributions to the national advertising funds based on a percentage of sales of the franchised restaurants. The increase in advertising funds revenue during the third quarter and the first nine months of 2021 was primarily due to (1) an increase in franchise same-restaurant sales in the U.S. and Canada and (2) the prior year abatement of national advertising fund contributions on breakfast sales.


Cost of Sales, as a Percent of Sales	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Food and paper	32.0	%	31.1	%	0.9	%	29.9	%	30.9	%	(1.0)	%
Restaurant labor	32.0	%	30.9	%	1.1	%	31.3	%	32.6	%	(1.3)	%
Occupancy, advertising and other operating costs	21.6	%	21.1	%	0.5	%	21.4	%	22.6	%	(1.2)	%
	85.6	%	83.1	%	2.5	%	82.6	%	86.1	%	(3.5)	%

Cost of Sales, as a Percent of Sales Change
Third
Quarter Nine
Months
Food and paper 2.3 % 1.0 %
Restaurant labor 0.3 % 0.7 %
Occupancy, advertising and other operating costs (0.9 )% (0.2 )%
1.7 % 1.5 %

The increase in cost of sales, as a percent of sales, during the third quarter of ~~2017~~2021 was primarily due to (1) an increase in restaurant labor rates, (2) higher commodity costs, ~~reflecting~~(3) lower local advertising spend during 2020 and (4) a decrease in customer count. These impacts were partially offset by higher ~~beef and bacon costs.~~average check.

The ~~increase~~decrease in cost of sales, as a percent of sales, during the first nine months of ~~2017~~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. These impacts were partially offset by (1) an increase in restaurant labor rates and (2) higher commodity costs.


Franchise Support and Other Costs	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Franchise support and other costs	$	10.5	$	6.0	$	4.5	$	27.1	$	19.4	$	7.7

The increase in franchise support and other costs during the third quarter and the first nine months of 2021 was primarily due to an increase in ~~commodity~~ costs ~~reflecting higher chicken~~incurred to provide information technology and ~~bacon costs.~~other services to our franchisees. The increases in the first nine months were partially offset by investments made in 2020 to support U.S. franchisees in preparation of ~~2017 were also negatively impacted by increased restaurant labor rates.~~the national launch of breakfast on March 2, 2020.


Franchise Rental Expense	Change				Franchise Rental Expense	Third Quarter						Nine Months
	Third Quarter		Nine Months			2021		2020		Change		2021		2020		Change
Franchise rental expense	$	6.6	$	15.1	Franchise rental expense	$	34.4	$	32.4	$	2.0	$	101.1	$	93.0	$	8.1

The increase in franchise rental expense during the third quarter and the first nine months of ~~2017~~2021 was primarily due to ~~subleasing properties~~(1) an increase in percent rent, reflecting higher systemwide sales compared with 2020 and (2) the impact of the sale of 47 Company-operated restaurants in New York to franchisees ~~that were previously Company-operated restaurants and as such, had been previously recorded in cost~~during the second quarter of ~~sales. Rental~~2021. Franchise rental expense for the first nine months of 2021 also increased ~~as a result of entering into new leases in connection with facilitating franchisee-to-franchisee restaurant transfers for purposes of subleasing such properties~~due to the ~~franchisee.~~impact of assigning certain leases to a franchisee in 2020.


Advertising Funds Expense	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Advertising funds expense	$	108.5	$	92.0	$	16.5	$	310.6	$	253.4	$	57.2

General and Administrative Change
Third
Quarter Nine
Months
Professional services $ (5.5 ) $ (11.7 )
Employee compensation and related expenses (2.2 ) (7.7 )
Severance (0.7 ) (3.5 )
Share-based compensation (0.2 ) (2.4 )
Incentive compensation 1.1
(2.0 )
Other, net 1.5
(0.7 )
$ (6.0 ) $ (28.0 )
On an interim basis, advertising funds expense is recognized in proportion to advertising funds revenue. The Company expects advertising funds expense to exceed advertising funds revenue by approximately $31.0 million for 2021, which includes (1) the Company’s previously announced decision to fund up to $25.0 million of incremental advertising and (2) the amount by which advertising funds revenue exceeded advertising funds expense in 2020 (excluding the Company’s funding of $14.6 million of incremental advertising) and 2019 of approximately $6.0 million. During the third quarter and the first nine months of 2021, advertising funds expense increased due to (1) an increase in franchise same-restaurant sales in the U.S. and Canada and (2) an increase of $3.3 million and $9.0 million, respectively, in the recognition of the expected advertising spend in excess of advertising funds revenue compared with the prior year.


General and Administrative	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Incentive compensation	$	11.0	$	4.2	$	6.8	33.5		13.2		20.3
Professional fees	11.7		8.0		3.7		29.4		20.8		8.6
Share-based compensation	5.7		5.2		0.5		16.7		14.4		2.3
Travel-related expenses	1.9		0.8		1.1		3.9		4.7		(0.8)
Other, net	32.5		29.1		3.4		95.1		94.5		0.6
	$	62.8	$	47.3	$	15.5	$	178.6	$	147.6	$	31.0

The ~~decrease~~increase in general and administrative expenses during the third quarter ~~of 2017 was primarily due to decreases in (1) professional services due to legal~~ and other costs associated with the cybersecurity incident recognized during the third quarter of 2016 (see “Item 1 - Financial Statements,” Note 14 to the Condensed Consolidated Financial Statements for further information) and (2) employee compensation and related expenses primarily as a result of changes in staffing driven by our system optimization initiative.

~~The decrease in general and administrative expenses during~~ the first nine months of ~~2017~~2021 was primarily due to ~~decreases~~(1) an increase in (1) professional services due to legal and other costs associated with the cybersecurity incident recognized during the first nine months of 2016 (see “Item 1 - Financial Statements,” Note 14 to the Condensed Consolidated Financial Statements for further information), (2) employee compensation and related expenses primarily as a result of changes in staffing driven by our system optimization initiative, (3) severance expense, (4) share-based compensation primarily as a result of awards granted and timing of expense recognition and (5) incentive compensation accruals ~~due to a decrease in~~and higher share-based compensation, reflecting higher operating performance as compared to plan in ~~2017~~the first nine months of 2021 versus ~~2016.~~the first nine months of 2020, and (2) higher professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning implementation. General and administrative expenses also increased during the third quarter of 2021 due to higher travel-related expenses.


Depreciation and Amortization	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Restaurants	$	18.4	$	21.2	$	(2.8)	$	56.5	$	63.7	$	(7.2)
Technology support, corporate and other	12.5		11.8		0.7		36.7		35.0		1.7
	$	30.9	$	33.0	$	(2.1)	$	93.2	$	98.7	$	(5.5)

Depreciation and Amortization Change
Third
Quarter Nine
Months
Restaurants $ (0.1 ) $ (4.7 )
Corporate and other 1.9
4.0
$ 1.8
$ (0.7 )

The decrease in ~~restaurant~~ depreciation and amortization during the third quarter and the first nine months of ~~2017~~2021 was primarily due to ~~a decrease in depreciation on~~ assets ~~sold under our system optimization initiative of $0.2 million and $3.9 million, respectively. Corporate and other depreciation expense increased due to~~becoming fully depreciated, partially offset by an increase in depreciation and amortization for technology investments.

System Optimization Losses (Gains), Net Third Quarter Nine Months
2017 2016 2017 2016
System optimization losses (gains), net $ 0.1
$ (37.8 ) $ 39.7
$ (48.1 )

The change in system optimization losses (gains), net was because no sales of Company-operated restaurants occurred during the third quarter of 2017, compared with the sale of 156 restaurants during the third quarter of 2016.

~~The change in system optimization losses (gains), net~~ Depreciation and amortization during the first nine months of ~~2017 was~~2021 also decreased due to the ~~DavCo~~impact of a prior year change in useful lives for certain asset categories.


System Optimization Gains, Net	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
System optimization gains, net	$	(1.4)	$	—	$	(1.4)	$	(32.7)	$	(2.3)	$	(30.4)

System optimization gains, net for the third quarter of 2021 were primarily comprised of gains on the sale of surplus and ~~NPC transactions, which resulted in a loss of $43.1 million during~~other properties. System optimization gains, net for the first nine months of ~~2017.~~2021 were primarily comprised of a gain on the sale of 47 Company-operated restaurants in New York. See Note 4 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information on the sale of the Company-operated restaurants in New York.


Reorganization and Realignment Costs	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Operations and field realignment	$	0.1	$	3.0	$	(2.9)	$	1.6	$	3.0	$	(1.4)
IT realignment	—		0.4		(0.4)		—		6.8		(6.8)
G&A realignment	—		—		—		—		0.3		(0.3)
System optimization initiative	0.3		—		0.3		5.8		0.1		5.7
	$	0.4	$	3.4	$	(3.0)	$	7.4	$	10.2	$	(2.8)

In September 2020, the Company initiated the Operations and Field Realignment Plan. The Operations and Field Realignment Plan realigned the Company’s restaurant operations team, including transitioning from separate leaders of Company and franchise operations to a single leader of all U.S. restaurant operations. The Operations and Field Realignment Plan also includes contract terminations, including the closure of certain field offices. During the first nine months of ~~2016,~~2021, the Company ~~sold 211 Company-operated restaurants~~recognized costs totaling $1.6 million, which primarily included third-party and other costs. The Company expects to ~~franchisees.~~incur additional costs aggregating up to approximately $0.5 million, comprised primarily of third-party and other costs. The Company expects to recognize the majority of the remaining costs associated with the Operations and Field Realignment Plan during the remainder of 2021.

Reorganization and Realignment Costs Third Quarter Nine Months
2017 2016 2017 2016
System optimization initiative $ 0.2
$ 2.1
$ 0.9
$ 6.9
G&A realignment - November 2014 plan —
—
—
1.0
G&A realignment - May 2017 plan 2.7
—
19.9
—
$ 2.9
$ 2.1
$ 20.8
$ 7.9

As part of the Company’s system optimization initiative, the Company expects to continue to optimize the Wendy’s system through strategic restaurant acquisitions and dispositions, as well as by facilitating Franchise Flips. During the ~~third quarter of 2017 and 2016,~~nine months ended October 3, 2021, the Company recognized costs associated with its system optimization initiative totaling ~~$0.2~~$5.8 million, which were primarily comprised of the write-off of certain lease assets, lease termination fees and ~~$2.1 million, respectively. In both the third quarter of 2017 and 2016, costs primarily included professional fees.~~

~~During the first nine months of 2017 and 2016, the Company recognized costs~~transaction fees associated with ~~its system optimization initiative totaling $0.9 million and $6.9 million, respectively. In~~ the ~~first nine months~~NPC bankruptcy sale process. The Company expects to recognize a gain of 2017, costs primarily included professional fees. In the first nine months of 2016, costs primarily included professional fees of $5.1 million and accelerated amortization of previously acquired franchise rights of $1.6 million.

In November 2014, the Company initiated the realignment of its U.S. field operations and Restaurant Support Center in Dublin, Ohio to reduce its G&A expenses. During the first nine months of 2016, the Company recognized costs associated with this plan totalingapproximately $1.0 million ~~which primarily included recruitment and relocation costs. The Company did not incur any expenses during the first nine months of 2017 and does not expect to incur additional costs~~ related to the ~~plan.~~write-off of certain NPC-related lease liabilities upon final termination of the leases.

In May 2017, the Company initiated a new plan to further reduce its G&A expenses. During the third quarter of 2017, the Company recognized costs associated with this plan totaling $2.7 million, which primarily included (1) severance and related employee costs of $1.2 million, (2) share-based compensation of $0.8 million and (3) third-party and other costs of $0.5 million.


Impairment of Long-Lived Assets	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Impairment of long-lived assets	$	0.6	$	—	$	0.6	$	1.8	$	4.7	$	(2.9)

During the first nine months of 2017, the Company recognized costs associated with its May 2017 plan totaling $19.9 million, which primarily included (1) severance and related employee costs of $14.4 million, (2) share-based compensation of $4.5 million and (3) third-party and other costs of $0.8 million.

Impairment of Long-Lived Assets Change
Third
Quarter Nine
Months
Impairment of long-lived assets $ 0.6
$ (11.2 )

~~Impairment of long-lived assets increased~~The change in impairment charges during the third quarter of ~~2017~~2021 was primarily ~~due to~~driven by impairment charges as a result of the deterioration in operating performance of certain Company-operated restaurants ~~and~~when compared to the third quarter of 2020. The change in impairment charges ~~for capital improvements in previously impaired restaurants that did not subsequently recover.~~

~~Impairment of long-lived assets decreased~~ during the first nine months of ~~2017~~2021 was primarily ~~due to lower impairment charges resulting from~~driven by the remeasurement of properties to fair value upon determination that the assets will be leased and/or subleased to franchisees in connection with the sale of Company-operated restaurants. This decrease was partially offset by higher impairment charges due to theexpected deterioration in operating performance of certain Company-operated restaurants ~~and charges for capital improvements~~ in ~~previously impaired restaurants that did not subsequently recover.~~the first nine months of 2020 as a result of the COVID-19 pandemic.


Other Operating Income, Net	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Gains on sales-type leases	$	(0.7)	$	(0.2)	$	(0.5)	$	(4.2)	$	(1.4)	$	(2.8)
Equity in earnings in joint ventures, net	(2.3)		(2.1)		(0.2)		(5.6)		(4.4)		(1.2)


Other, net	—		(0.4)		0.4		(1.0)		(0.3)		(0.7)
	$	(3.0)	$	(2.7)	$	(0.3)	$	(10.8)	$	(6.1)	$	(4.7)

Other Operating Expense (Income), Net Third Quarter Nine Months
2017 2016 2017 2016
Lease buyout $ 0.2
$ —
$ 0.1
$ (11.6 )
Equity in earnings in joint ventures, net (2.3 ) (2.2 ) (6.1 ) (6.5 )
Other, net 3.8
3.1
11.3
4.6
$ 1.7
$ 0.9
$ 5.3
$ (13.5 )

The change in other operating ~~expense (income),~~income, net during the third quarter of 2017 was primarily due to costs incurred to provide information technology services to our franchisees, as well as costs related to facilitating franchisee-to-franchisee restaurant transfers.

Other operating expense (income), net during the first nine months of 2017 includes costs incurred to provide information technology services to our franchisees, as well as costs related to facilitating franchisee-to-franchisee restaurant transfers. The first nine months of 2016 includes a gain recognized on a lease buyout during the first quarter of 2016.

Interest Expense Change
Third
Quarter Nine
Months
Interest expense $ 1.3
$ 2.4

~~Interest expense increased~~ during the third quarter and the first nine months of ~~2017~~2021 was primarily due to (1) gains on new and modified sales-type leases and (2) an increase in ~~capital lease obligations resulting~~the equity in earnings from ~~facilitating franchisee-to-franchisee restaurant transfers~~our TimWen joint venture.


Interest Expense, Net	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Interest expense, net	$	26.0	$	29.1	$	(3.1)	$	83.0	$	86.7	$	(3.7)

Interest expense, net decreased during the third quarter and ~~subleasing such properties~~the first nine months of 2021 primarily due to the ~~franchisee.~~impact of completing the refinancing of a portion of the Company’s securitized financing facility in the second quarter of 2021.


Loss on Early Extinguishment of Debt	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Loss on early extinguishment of debt	$	—	$	—	$	—	$	17.9	$	—	$	17.9

Provision for Income Taxes Third Quarter Nine Months
2017 2016 2017 2016
Income before income taxes $ 31.6
$ 77.9
$ 63.4
$ 151.1
Provision for income taxes 17.3
29.0
28.6
50.4
Effective tax rate on income 54.8 % 37.2 % 45.2 % 33.3 %

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. The loss on the early extinguishment of debt of $17.9 million was comprised of a specified make-whole payment of $9.6 million and the write-off of certain unamortized deferred financing costs of $8.3 million.


Other Income, Net	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Other income, net	$	0.2	$	0.2	$	—	$	0.4	$	1.2	$	(0.8)

The change in other income, net during the first nine months of 2021 was primarily due to fluctuations in interest income earned on our cash equivalents.


Provision for Income Taxes	Third Quarter									Nine Months
	2021			2020			Change			2021			2020			Change
Income before income taxes	$	54.4		$	52.4		$	2.0		$	189.6		$	105.2		$	84.4
Provision for income taxes	(13.2)			(12.6)			(0.6)			(41.3)			(26.1)			(15.2)
Effective tax rate on income	24.3		%	24.2		%	0.1		%	21.8		%	24.8		%	(3.0)		%

Our effective tax rates infor the third quarter and the first nine months of ~~2017~~2021 and ~~2016~~2020 were impacted by variations in income before income taxes, including uncertainty in 2020 income before income taxes arising from the COVID-19 pandemic, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items. ~~Discrete items, which may occur~~The increase in ~~any given year but are not consistent~~the effective tax rate for the third quarter of 2021 compared with the third quarter of 2020 was primarily due to a decrease in the tax benefit from ~~year~~share-based compensation. The decrease in the effective tax rate for the first nine months of 2021 compared with the first nine months of 2020 was primarily due to ~~year include~~a decrease in the ~~following: (1)~~tax effects of our ~~system optimization initiative, (2) state income taxes net of federal benefits, including non-recurring changes to state deferred taxes, (3)~~foreign operations and an increase in the ~~adoption of an amendment issued by the Financial Accounting Standards Board (“FASB”), which requires that excess~~ tax ~~benefits and tax deficiencies related to~~benefit from share-based ~~payments be recognized in net income (see “Item 1 - Financial Statements,”~~compensation.

Segment Information

See Note 1517 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further ~~information)~~information regarding the Company’s segments.

Wendy’s U.S.


	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Sales	$	170.0	$	191.9	$	(21.9)	$	552.3	$	523.0	$	29.3
Franchise royalty revenue	102.6		98.1		4.5		305.4		271.1		34.3
Franchise fees	19.7		5.7		14.0		46.0		16.2		29.8
Advertising fund revenue	91.5		79.2		12.3		271.9		226.9		45.0
Total revenues	$	383.8	$	374.9	$	8.9	$	1,175.6	$	1,037.2	$	138.4
Segment profit	$	108.9	$	108.3	$	0.6	$	347.6	$	283.3	$	64.3

The increase in Wendy’s U.S. revenues during the third quarter and ~~(4) the rate differential between foreign and domestic taxes.~~

~~Our effective tax rates in~~ the first nine months of ~~2017~~2021 was primarily due to (1) an increase in systemwide same-restaurant sales and ~~2016 were impacted by variations~~(2) higher franchise fees, reflecting an increase in ~~income before income taxes, adjusted~~fees for ~~recurring items such as non-deductible expenses~~providing information technology services to franchisees. Same-restaurant sales increased during the third quarter and state income taxes, as well as non-recurring discrete items. Discrete items, which may occur in any given year but are not consistent from year to year include the following: (1) our system optimization initiative (including corrections to prior years identified and recorded in the first nine months of 2017 and 2016, which resulted in a benefit of $2.2 million and $7.1 million, respectively), (2) the adoption of an amendment issued by the FASB, which requires that excess tax benefits and tax deficiencies related2021 primarily due to share-based payments be recognized in net income, which resulted in a benefit of $5.2 million in the first nine months of 2017 (see “Item 1 - Financial Statements,” Note 15 to the Condensed Consolidated Financial Statements for further information), (3) state income taxes net of federal benefits, including non-recurring changes to state deferred taxes, and (4) the rate differential between foreign and domestic taxes.

The impact of our system optimization initiative on the provision for income taxes included the effects of changes to our state deferred taxes and valuation allowances on state net operating losses caused by the shifting relative taxable presence in the various states as our system optimization initiative is executed, and the disposition of non-deductible goodwill. These items, which are non-recurring, increased the provision for income taxes by $5.0 million and $2.3 million during the third quarter of 2017 and 2016, respectively, and increased the provision for income taxes by $7.1 million and decreased the provision by $1.3 millionhigher average check. Same-restaurant sales during the first nine months of ~~2017 and 2016, respectively.~~

~~Deferred income taxes are not recorded for temporary differences related to our investments~~2021 also benefited from (1) an increase in ~~non-U.S. subsidiaries that we consider permanently invested outside~~customer count, reflecting the prior year impact of the ~~U.S. At October 1, 2017, our cash balances held outside~~COVID-19 pandemic, and (2) the positive impact from the breakfast daypart. These increases were partially offset by the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021.

The increase in Wendy’s U.S. ~~totaled $107.7 million.~~segment profit during the third quarter of 2021 was primarily due to higher revenues, partially offset by (1) higher cost of sales, as a percent of sales, for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales,” (2) higher franchise support and other costs, (3) higher general and administrative expenses and (4) higher advertising fund expense, reflecting the Company’s decision to fund incremental advertising to support the breakfast daypart. The increase in Wendy’s U.S. segment profit during the first nine months of 2021 was primarily due to (1) higher revenues and (2) lower cost of sales, as a percent of sales, for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales.” These changes were partially offset by (1) higher general and administrative expenses, (2) higher advertising fund expense, reflecting the Company’s decision to fund incremental advertising to support the breakfast daypart and (3) higher franchise support and other costs.

Wendy’s International


	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Sales	$	1.1	$	—	$	1.1	$	1.4	$	—	$	1.4
Franchise royalty revenue	13.9		11.2		2.7		39.0		30.8		8.2
Franchise fees	1.2		0.5		0.7		4.0		1.3		2.7
Advertising fund revenue	6.5		5.6		0.9		17.8		14.6		3.2
Total revenues	$	22.7	$	17.3	$	5.4	$	62.2	$	46.7	$	15.5
Segment profit	$	6.9	$	6.6	$	0.3	$	21.2	$	15.3	$	5.9

The increase in Wendy’s International revenues during the third quarter and the first nine months of 2021 was primarily due to an increase in same-restaurant sales. Same-restaurant sales increased during the third quarter and the first nine months of 2021 due to an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic. The increase in Wendy’s International segment profit during the third quarter and the first nine months of 2021 was primarily due to higher revenues, partially offset by higher general and administrative expenses.

Global Real Estate & Development


	Third Quarter						Nine Months
	2021		2020		Change		2021		2020		Change
Franchise fees	$	1.4	$	1.4	$	—	$	3.8	$	2.2	$	1.6
Franchise rental income	62.4		58.7		3.7		182.2		173.4		8.8
Total revenues	$	63.8	$	60.1	$	3.7	$	186.0	$	175.6	$	10.4
Segment profit	$	27.0	$	25.3	$	1.7	$	79.8	$	75.5	$	4.3

The increase in Global Real Estate & Development revenues during the third quarter and the first nine months of 2021 was primarily due to higher franchise rental income. See “Franchise Rental Income” above for further information.

The increase in Global Real Estate & Development segment profit during the third quarter of 2021 was primarily due to an increase in net rental income, reflecting the impact of the sale of 47 Company-operated restaurants in New York to franchisees during the second quarter of 2021. The increase in Global Real Estate & Development segment profit during the first nine months of 2021 was primarily due to (1) gains on new and modified sales-type leases and (2) an increase in the equity in earnings from the TimWen joint venture.

Liquidity and Capital Resources

~~The tables included throughout Liquidity and Capital Resources present dollars in millions.~~

Cash Flows

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under our securitized

financing facility. ~~Principal~~Our principal uses of cash are operating expenses, capital expenditures, repurchases of common stock and dividends to ~~shareholders.~~stockholders.

Our anticipated ~~consolidated sources of cash and~~ cash requirements for the remainder of ~~2017,~~2021, exclusive of operating cash flow requirements, consist principally of:

•capital expenditures of approximately ~~$26.0~~$30.0 million to ~~$31.0~~$40.0 million, resulting in total anticipated cash capital expenditures for the year of approximately ~~$80.0~~$75.0 million to $85.0 ~~million.~~million;

•cash dividends aggregating ~~up to~~ approximately ~~$17.0~~$26.5 million as discussed below in “Dividends;” and

•potential stock repurchases of up to ~~$59.1~~$140.6 million, of which ~~$6.6~~$15.5 million was repurchased subsequent to October ~~1, 2017~~3, 2021 through November ~~2, 2017~~3, 2021, as discussed below in “Stock Repurchases.”

Based on current levels of operations, the Company expects that available cash and cash flows from operations will provide sufficient liquidity to meet operating cash requirements for the next 12 months.

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

The table below summarizes our cash flows from operating, investing and financing activities for the first nine months of ~~2017~~2021 and ~~2016:~~2020:


	Nine Months
	2021		2020		Change
Net cash provided by (used in):
Operating activities	$	276.7	$	205.8	$	70.9
Investing activities	15.0		(41.0)		56.0
Financing activities	(57.5)		(115.3)		57.8
Effect of exchange rate changes on cash	0.2		(1.8)		2.0
Net increase in cash, cash equivalents and restricted cash	$	234.4	$	47.7	$	186.7

Nine Months
2017 2016 Change
Net cash provided by (used in):
Operating activities $ 176.7
$ 137.3
$ 39.4
Investing activities (38.1 ) 62.5
(100.6 )
Financing activities (156.9 ) (222.2 ) 65.3
Effect of exchange rate changes on cash 6.7
4.0
2.7
Net decrease in cash and cash equivalents $ (11.6 ) $ (18.4 ) $ 6.8

Operating Activities

~~Cash provided by operating activities was $176.7 and $137.3 in the first nine months of 2017 and 2016, respectively.~~ Cash provided by operating activities consists primarily of net income, adjusted for non-cash expenses such as depreciation and amortization, deferred income tax and share-based compensation, and the net change in operating assets and liabilities.

Cash provided by operating activities ~~increased $39.4~~was $276.7 million ~~during~~and $205.8 million in the first nine months of ~~2017 as compared to the first nine months of 2016,~~2021 and 2020, respectively. The increase was primarily due to (1) ~~an increase of $19.7 million in~~higher net income, adjusted for non-cash expenses, ~~and~~ (2) a ~~favorable change~~cash payment of $24.7 million related to the settlement of the financial institutions class action in ~~operating assets~~January 2020, (3) the timing of receipt of franchisee rental payments and ~~liabilities of $19.7 million. The favorable change in operating assets and liabilities resulted primarily from a decrease in income tax payments, net of refunds and~~(4) a decrease in payments for incentive compensation for the ~~2016~~2020 fiscal ~~year.~~year paid in 2021. These increases were partially offset by (1) the timing of payments for marketing expenses of the national advertising funds and (2) an increase in cash paid for income taxes.

Investing Activities

Cash ~~used in~~provided by (used in) investing activities ~~increased $100.6~~was $15.0 million ~~during~~and $(41.0) million in the first nine months of ~~2017 as compared~~2021 and 2020, respectively. The change was primarily due to (1) an increase in proceeds from dispositions of $49.1 million, reflecting the sale of 47 Company-operated restaurants in New York during the second quarter of 2021, (2) the net settlement of deposits associated with the Company’s consortium bid to acquire NPC’s Wendy’s restaurants of $4.9 million in the first quarter of 2021 and (3) a decrease in capital expenditures of $1.5 million.

Financing Activities

Cash used in financing activities was $57.5 million and $115.3 million in the first nine months of ~~2016,~~2021 and 2020, respectively. The change was primarily due to (1) a ~~decrease~~net increase in cash provided by long-term debt activities of $147.1 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 ~~dispositions~~stock option exercises, net of ~~Company-operated restaurants and other assets~~payments related to tax withholding for share-based compensation, of ~~$164.5 million and (2) net cash used in the DavCo and NPC transactions of $16.1~~$12.7 million. These ~~unfavorable~~ changes were partially offset by (1) ~~a decrease of $55.0 million in capital expenditures and (2) a decrease of $21.7 million in restricted cash for the reinvestment in capital assets under our securitized financing facility.~~

~~Financing Activities~~

~~Cash used in financing activities decreased $65.3 million during the first nine months of 2017 as compared to the first nine months of 2016, primarily due to a decrease~~an increase in repurchases of common stock of ~~$71.1~~$79.0 million and (2) an increase in dividends of $19.8 million.

Long-Term Debt, Including Current Portion

Wendy’s Funding, LLC, a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of The Wendy’s Company, is the master issuer (the “Master Issuer”) of outstanding senior secured notes under a securitized financing facility that was entered into in June 2015. In June 2021, the Master Issuer completed a refinancing transaction with respect to this facility under which the Master Issuer issued the Series 2021-1 Class A-2 Notes with initial principal amounts totaling $1.1 billion. The net proceeds from the sale of the Series 2021-1 Class A-2 Notes were used to repay in full the Master Issuer’s outstanding Series 2015-1 Class A-2-III Notes and Series 2018-1 Class A-2-I Notes, including the payment of prepayment and transaction costs. The remaining funds will be used for general corporate purposes, which may include funding for growth initiatives, return of capital to shareholders, or additional debt retirement.

In connection with the issuance of the Series 2021-1 Class A-2 Notes, the Master Issuer also issued the Series 2021-1 Class A-1 Notes, which allow 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 Series 2021-1 Class A-1 Notes during the nine months ended October 3, 2021. The Series 2021-1 Class A-1 Notes replaced the Company’s $150.0 million Series 2019-1 Class A-1 Notes and $100.0 million Series 2020-1 Class A-1 Notes, which were cancelled on the closing date, and the letters of credit outstanding against the Series 2019-1 Class A-1 Notes were transferred to the Series 2021-1 Class A-1 Notes.

Except as described above, there were no material changes to the terms of any debt obligations since January 3, 2021. The Company was in compliance with its debt covenants as of October 3, 2021. See Note 7 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information related to our long-term debt obligations.

Dividends

On March 15, ~~2017,~~2021, June 15, ~~2017~~2021 and September 15, ~~2017, The Wendy’s~~2021, the Company paid quarterly cash dividends ~~of $0.07~~ per share ~~on its common stock,~~of $.09, $0.10 and $.12, respectively, aggregating ~~$51.5~~$69.0 million. On November ~~2, 2017, The Wendy’s~~10, 2021, the Company ~~declared~~announced a dividend of ~~$0.07~~$.12 per share to be paid on December 15, ~~2017~~2021 to ~~shareholders~~stockholders of record as of December 1, ~~2017.~~2021. As a result of the ~~declaration, The Wendy’s Company’s~~November 10 announcement, the Company expects that its total cash ~~requirements~~requirement for the fourth quarter of ~~2017~~2021 will be approximately ~~$17.0~~$26.5 million based on the number of shares of its common stock outstanding at November ~~2, 2017.~~3, 2021. The ~~Wendy’s~~ Company currently intends to continue to declare and pay quarterly cash dividends; however, there can be no assurance that any additional quarterly dividends will be declared or paid ~~in the future~~ or of the amount or timing of such dividends, if any.

Stock Repurchases

In February ~~2017,~~2020, our Board of Directors authorized a repurchase program for up to ~~$150.0~~$100.0 million of our common stock through March 4, 2018, when and if market conditions warrant and to the extent legally permissible. During the nine months ended October 1, 2017, the Company repurchased 6.1 million shares with an aggregate purchase price of $90.9 million, of which $0.9 million was accrued at October 1, 2017 and excluding commissions of $0.1 million. As of October 1, 2017, the Company had $59.1 million of availability remaining under its February ~~2017 authorization. Subsequent to October 1, 2017 through November 2, 2017, the Company repurchased 0.4 million shares with an aggregate purchase price of $6.6 million, excluding commissions.~~

~~On June 1, 2015, our Board of Directors authorized a repurchase program for up to $1,400.0 million of our common stock through January 1, 2017,~~28, 2021, when and if market conditions warranted and to the extent legally permissible (the “February 2020 authorization”). As previously announced, beginning in March 2020, the Company temporarily suspended all share repurchase activity under the February 2020 authorization in connection with the Company’s response to the COVID-19 pandemic. In July 2020, the Company’s Board of Directors approved an extension of the February 2020 authorization by one year, through February 28, 2022, when and if market and economic conditions warrant and to the extent legally permissible. The Company resumed share repurchases in August 2020. In addition, in May 2021 and August 2021, the Board of Directors approved increases of $50.0 million and $70.0 million, respectively, to the February 2020 authorization, resulting in an aggregate authorization of $220.0 million that continues to expire on February 28, 2022. During the nine months ended October ~~2, 2016,~~3, 2021, the Company repurchased ~~16.0~~5.9 million shares under the February 2020 authorization with an aggregate purchase price of ~~$162.3~~$127.2 million, of which ~~$3.0~~$2.3 million was accrued at October ~~2, 2016~~3, 2021, and excluding commissions of ~~$0.2~~$0.1 million. As of October 3, 2021, the Company had $60.6 million of availability remaining under the February 2020 authorization. Subsequent to October 3, 2021 through November 3, 2021, the Company repurchased 0.7 million shares under the February 2020 authorization with an aggregate purchase price of $15.5 million, excluding commissions. In addition, in November 2021, the Board of Directors approved an increase of $80.0 million to the February 2020 authorization, resulting in an aggregate authorization of $300.0 million that continues to expire on February 28, 2022. The Company also announced in November 2021 its intention to launch a $125.0 million accelerated share repurchase transaction during the fourth quarter of 2021 as part of the February 2020 authorization. The Company has availability of $125.1 million remaining under the February 2020 authorization as of November 10, 2021.

General Inflation, Commodities and Changing Prices

We believe that general inflation did not have a significant effect on our ~~condensed~~ consolidated results of ~~operations during the reporting periods.~~operations. We attempt to manage any inflationary costs and commodity price increases ~~primarily~~ through product mix and selective menu price increases. Delays in implementing such menu price increases and competitive pressures may limit our ability to recover such cost increases in the future. Inherent volatility experienced in certain commodity markets, such as those for beef, chicken, ~~corn,~~ pork, cheese and ~~cheese~~grains, could have ~~an unfavorable~~a significant effect on our results of operations and may have an adverse effect on us in the future. The extent of any impact will depend on our ability to manage such volatility through product mix and ~~timing to increase food prices.~~selective menu price increases.

Seasonality

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

This “Quantitative and Qualitative Disclosures about Market Risk” should be read in conjunction with “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our annual report on Form 10-K for the fiscal year ended January 3, 2021 (the “Form 10-K”).

As of October ~~1, 2017~~3, 2021, there were no material changes from the information contained in the Form 10-K, except as described below.

Interest Rate Risk

Following the Company’s debt refinancing transaction, our long-term debt, including the current portion, aggregated $2,437.1 million as of October 3, 2021 (excluding unamortized debt issuance costs and the effect of purchase accounting adjustments). The Company’s predominantly fixed-rate debt structure reduces its exposure to interest rate increases that could adversely affect its earnings and cash flows. The 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 and other lines of credit as of October 3, 2021. See “Liquidity and Capital Resources” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 7 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information regarding the ~~fiscal year ended January 1, 2017.~~Company’s debt refinancing transaction.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The management of the Company, under the supervision and with the participation of ~~its~~the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of October ~~1, 2017~~.3, 2021. Based on such evaluations, the Chief Executive Officer and Chief Financial Officer concluded that as of October ~~1, 2017,~~3, 2021, the disclosure controls and procedures of the Company were effective at a reasonable assurance level in (1) recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and (2) ensuring that information required to be disclosed by the Company in such reports is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the internal control over financial reporting of the Company during the third quarter of ~~2017~~2021 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

There are inherent limitations in the effectiveness of any control system, including the potential for human error and the possible circumvention or overriding of controls and procedures. Additionally, judgments in decision-making can be faulty and breakdowns can occur because of a simple error or mistake. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Accordingly, the management of the Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that the control system can prevent or detect all ~~errors~~error or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.

PART II. OTHER INFORMATION

Special Note Regarding Forward-Looking Statements and Projections

This Quarterly Report on Form 10-Q and oral statements made from time to time by representatives of the Company may contain or incorporate by reference certain statements that are not historical facts, including, most importantly, information concerning possible or assumed future results of operations of the Company. Those statements, as well as statements preceded by, followed by, or that include the words “may,” “believes,” “plans,” “expects,” “anticipates,” or the negation thereof, or similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). ~~All~~Generally, forward-looking statements include the words “may,” “believes,” “plans,” “expects,” “anticipates,” “intends,” “estimate,” “goal,” “upcoming,” “outlook,” “guidance” or the negation thereof, or similar expressions. In addition, all statements that address future operating, financial or business ~~performance;~~performance, strategies or initiatives, ~~or expectations;~~ future ~~synergies,~~ efficiencies or ~~overhead savings;~~savings, anticipated costs or ~~charges;~~charges, future ~~capitalization; and~~capitalization, anticipated ~~financial~~ impacts of recent or pending investments or transactions and statements expressing general views about future results or brand health are forward-looking statements within the meaning of the Reform Act. ~~The forward-looking~~Forward-looking statements are based on our expectations at the time such statements are made, speak only as of the dates they are made and are susceptible to a number of risks, uncertainties and other factors. ~~Our actual results, performance and achievements may differ materially from any future results, performance or achievements expressed or implied by our forward-looking statements.~~ For all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Reform Act. Our actual results, performance and achievements may differ materially from any future results, performance or achievements expressed in or implied by our forward-looking statements. Many important factors could affect our future results and ~~could~~ cause those results to differ materially from those expressed in or implied by ~~the~~our forward-looking ~~statements contained herein.~~statements. Such factors ~~all of which are difficult or impossible to predict accurately, and many of which are beyond our control,~~ include, but are not limited to, the following:

~~competition, including pricing pressures, couponing, aggressive marketing~~•the disruption to our business from the novel coronavirus (COVID-19) pandemic and ~~the potential impact of competitors’ new unit openings on sales of Wendy’s restaurants;~~

~~consumers’ perceptions of the relative quality, variety, affordability and value of the food products we offer;~~

~~food safety events, including instances of food-borne illness (such as salmonella or E. coli) involving Wendy’s or its supply chain;~~

consumer concerns over nutritional aspects of beef, poultry, french fries or other products we sell, concerns regarding the ingredients in our products and/or cooking processes used in our restaurants, or concerns regarding the effects of disease outbreaks, epidemics or pandemics impacting the Company’s customers or food supplies;

~~the effects of negative publicity that can occur from increased use of social media;~~

~~success of operating and marketing initiatives, including advertising and promotional efforts and new product and concept development by us and our competitors;~~

the impact of ~~general~~ the pandemic on our results of operations, financial condition and prospects;

•the impact of competition or poor customer experiences at Wendy’s restaurants;

•economic ~~conditions and increases~~disruptions, including in ~~unemployment rates on consumer spending, particularly in geographic~~ regions ~~that contain~~with a high concentration of Wendy’s restaurants;

•changes in discretionary consumer spending and consumer tastes and ~~preferences,~~preferences;

•impacts to our corporate reputation or the value and ~~in discretionary consumer spending;~~

~~changes in spending patterns and demographic trends, such as the extent to which consumers eat meals away from home;~~

certain factors affecting our franchisees, including the business and financial viability of franchisees, the timely payment of such franchisees’ obligations due to us or to national or local advertising organizations, and the abilityperception of our ~~franchisees to open~~brand;

•the effectiveness of our marketing and advertising programs and new ~~restaurants and remodel existing restaurants in accordance with their development and franchise commitments, including their~~product development;

•our ability to ~~finance~~manage the accelerated impact of social media;

•our ability to protect our intellectual property;

•food safety events or health concerns involving our products;

•our ability to achieve our growth strategy through new restaurant development and ~~remodels;~~our Image Activation program;

~~increased labor costs due~~•our ability to ~~competition~~effectively manage the acquisition and disposition of restaurants or ~~increased minimum wage or employee benefit costs;~~ successfully implement other

strategic initiatives;

•risks associated with leasing and owning significant amounts of real estate, including environmental matters;

•our ability to achieve and maintain market share in the breakfast daypart;

•risks associated with our international operations, including our ability to execute our international growth strategy;

•changes in commodity ~~costs (including beef, chicken and corn), labor, supplies, fuel, utilities, distribution~~ and other operating costs;

~~availability, location~~•shortages or interruptions in the supply or distribution of our products and ~~terms~~other risks associated with our independent

supply chain purchasing co-op;

•the impact of ~~sites for restaurant development by us~~increased labor costs or labor shortages;

•the continued succession and retention of key personnel and the effectiveness of our ~~franchisees;~~leadership structure;

~~development costs,~~

•risks associated with our digital commerce strategy, platforms and technologies, including ~~real estate~~our ability to adapt to changes in industry trends and ~~construction costs;~~consumer preferences;

~~delays in opening new restaurants or completing reimages of existing restaurants,~~•our dependence on computer systems and information technology, including risks associated with the ~~Image Activation program;~~

~~the timing and impact~~failure, misuse, interruption or breach of ~~acquisitions and dispositions of restaurants;~~

~~anticipated or unanticipated restaurant closures by us and~~ our ~~franchisees;~~

~~our ability to identify, attract and retain potential franchisees with sufficient experience and financial resources to develop and operate Wendy’s restaurants successfully;~~

~~availability of qualified restaurant personnel to us and to our franchisees, and the ability to retain such personnel;~~

our ability, if necessary, to secure alternative distribution of supplies of food, equipment and other products to Wendy’s restaurants at competitive rates and in adequate amounts, and the potential financial impact of any interruptions in such distribution;

~~availability and cost of insurance;~~

~~adverse weather conditions;~~

~~availability, terms (including changes in interest rates) and deployment of capital;~~

changes in, and our ability to comply with, legal, regulatory or similar requirements, including franchising laws, payment card industry rules, overtime rules, minimum wage rates, wage and hour laws, government-mandated health care benefits, tax legislation, federal ethanol policy and accounting standards (including the amended guidance for revenue recognition that will become effective for the Company’s 2018 fiscal year and that may impact the Company’s adjusted EBITDA margin goal for 2020, as well as the new guidance on leases that will become effective for fiscal year 2019);

~~the costs, uncertainties and other effects of legal, environmental and administrative proceedings;~~

~~the effects of charges for impairment of goodwill or for the impairment of other long-lived assets;~~

~~the effects of war or terrorist activities;~~

~~risks associated with failures, interruptions or security breaches of the Company’s computer~~ systems or technology or ~~the occurrence of~~other cyber incidents or ~~a deficiency in cybersecurity that impacts the Company or its franchisees,~~deficiencies;

•risks associated with our securitized financing facility and other debt agreements, including ~~the cybersecurity incident described in Item 1 below;~~

~~the difficulty in predicting~~compliance with operational and financial covenants, restrictions on our ability to raise additional capital, the impact of ~~the sale of Company-operated restaurants to franchisees on ongoing operations, any tax impact from the sale of restaurants~~our overall debt levels and ~~the future impact to the Company’s earnings, restaurant operating margins, cash flow and depreciation;~~

the difficulty in predicting the ultimate costs that will be incurred in connection with the Company’s plan to reduce its general and administrative expense, and the future impact on the Company’s earnings;

~~risks associated with the Company’s securitized financing facility, including the~~our ability to generate sufficient cash flow to meet ~~increased~~our debt service obligations ~~compliance with operational~~ and ~~financial covenants, and restrictions on the Company’s ability to raise additional capital;~~operate our business;

•risks associated with our capital allocation policy, including the amount and timing of ~~share~~equity and debt repurchases ~~under~~and

dividend payments;

•risks associated with complaints and litigation, compliance with legal and regulatory requirements and an increased focus on environmental, social and governance issues;

•risks associated with the ~~$150.0 million share repurchase program approved by~~availability and cost of insurance, changes in accounting standards, the ~~Board~~recognition of ~~Directors;~~impairment or other charges, the impact of reorganization and realignment initiatives, changes in tax rates or tax laws and fluctuations in foreign currency exchange rates;

•conditions beyond our control, such as adverse weather conditions, natural disasters, hostilities, social unrest, health epidemics or pandemics or other catastrophic events; and

•other risks and uncertainties affecting us and our subsidiaries referred to in our Annual Report on Form 10-K ~~for~~filed with the ~~fiscal year ended January 1, 2017 (the “Form 10-K”)~~SEC on March 3, 2021 (see especially “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and in our other current and periodic filings with the SEC.

In addition to the factors described above, there are risks associated with our predominantly franchised business model that could impact our results, performance and achievements. Such risks include our ability to identify, attract and retain experienced and qualified franchisees, our ability to effectively manage the transfer of restaurants between and among franchisees, the business and financial health of franchisees, the ability of franchisees to meet their royalty, advertising, development, reimaging and other commitments, participation by franchisees in brand strategies and the fact that franchisees are independent third parties that own, operate and are responsible for overseeing the operations of their restaurants. Our predominantly franchised business model may also impact the ability of the Wendy’s system to effectively respond and adapt to market changes. Many of these risks have been or in the future may be heightened due to the business disruption and impact from the COVID-19 pandemic.

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to ~~in this section.~~above. New risks and uncertainties arise from time to time, and factors that we currently deem immaterial may become material, and it is impossible for us to predict these events or how they may affect us. We assume no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q as a result of new information, future events or developments, except as required by federal securities ~~laws. In addition, it is our policy generally~~laws, although we may do so from time to time. We do not to endorse any projections regarding future performance that may be made by third parties.

Item 1. Legal Proceedings.

~~We are~~The Company is involved in litigation and claims incidental to our ~~current and prior businesses.~~business. We provide accruals for such litigation and claims when payment is probable and reasonably estimable. The Company believes it has adequate accruals for ~~continuing operations for~~ all of its legal and environmental matters. We cannot estimate the aggregate possible range of loss ~~due~~for our existing litigation and claims for various reasons, including, but not limited to, ~~most~~many proceedings ~~including those described below,~~ being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur ~~and~~and/or significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently ~~difficult. Based on our currently available information, including legal defenses available~~difficult and future developments could cause these actions or claims, individually or in aggregate, to ~~us, and given the aforementioned accruals and our insurance coverage, we do not believe that the outcome of these legal and environmental matters will~~ have a material adverse effect on ~~our consolidated~~the Company’s financial ~~position or~~condition, results of ~~operations.~~operations, or cash flows of a particular reporting period.

We previously described certain legal proceedings under Item 1 of Part II in our Quarterly Report on Form 10-Q for the second quarter of 2017, as filed with the SEC on August 9, 2017. Except as set forth below, there were no material developments in those legal proceedings during the third quarter of 2017.

As we previously reported, the Company has been named as a defendant in putative class action lawsuits alleging, among other things, that the Company failed to safeguard customer credit card information and failed to provide notice that credit card information had been compromised. Jonathan Torres and other consumers filed an action in the U.S. District Court for the Middle District of Florida (the “Torres case”). The operative complaint seeks to certify a nationwide class of consumers, or in the alternative, statewide classes of consumers for Florida, New York, New Jersey, Texas, and Tennessee, as well as statewide classes of consumers under those states’ consumer protection and unfair trade practices laws. On October 27, 2017, the Company moved to dismiss the operative complaint. The Company’s motion is pending before the court.

Item 1A. Risk Factors.

In addition to the information contained in this report, you should carefully consider the risk factors disclosed in our Form 10-K, which could materially affect our business, financial condition or future results. Except as described elsewhere in this report, there have been no material changes from the risk factors previously disclosed in our Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

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 third quarter of ~~2017~~: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 Plans	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (2)
July 5, 2021 through August 8, 2021	193,284	$22.76	193,251	$100,000,049
August 9, 2021 through September 5, 2021	805,356	$23.46	763,165	$82,118,243
September 6, 2021 through October 3, 2021	972,272	$22.38	963,721	$60,565,642
Total	1,970,912	$22.86	1,920,137	$60,565,642

Period Total Number of Shares Purchased (1)
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans (2)
July 3, 2017
through
August 6, 2017 934,795

$15.64
917,452

$83,214,931
August 7, 2017
through
September 3, 2017 877,515

$15.11
795,500

$71,230,388
September 4, 2017
through
October 1, 2017 806,500

$15.03
806,500

$59,123,593
Total 2,618,810

$15.27
2,519,452

$59,123,593
(1)Includes 50,775 shares 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 shares were valued at the fair market value of the Company’s common stock on the vesting or exercise date of such awards, as set forth in the applicable plan document.


~~(1)~~	Includes 99,358 shares reacquired by the Company from holders of share-based awards to satisfy certain requirements associated with the vesting or exercise of the respective awards. The shares were valued at the average of the high and low trading prices of our common stock on the vesting or exercise date of such awards.

(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. As previously announced, in March 2020, the Company temporarily suspended all share repurchase activity in connection with the Company’s response to the COVID-19 pandemic. In July 2020, the Company’s Board of Directors approved an extension of the February 2020 authorization by one year, through February 28, 2022, when and if market and economic conditions warrant and to the extent legally permissible. The Company resumed share repurchases in August 2020. In addition, in May 2021 and August 2021, the Board of Directors approved increases of $50.0 million and $70.0 million, respectively, to the February 2020 authorization, resulting in an aggregate authorization of $220.0 million that continues to expire on February 28, 2022.


~~(2)~~	In February 2017, our Board of Directors authorized the repurchase of up to $150 million of our common stock through March 4, 2018, when and if market conditions warrant and to the extent legally permissible.

Subsequent to October ~~1, 2017~~3, 2021 through November ~~2, 2017,~~3, 2021, the Company repurchased ~~0.4~~0.7 million shares under the February 2020 authorization with an aggregate purchase price of ~~$6.6~~$15.5 million, excluding commissions.

In addition, in November 2021, the Board of Directors approved an increase of $80.0 million to the February 2020 authorization, resulting in an aggregate authorization of $300.0 million that continues to expire on February 28, 2022.

Item 6. Exhibits.



EXHIBIT NO.		DESCRIPTION

~~10.1~~3.1		~~Form~~By-Laws of ~~Nonqualified Stock Option Award Agreement under~~ The Wendy’s Company 2010 Omnibus Award Plan.* **(a s amended and restated through November 4, 2021), incorporated herein by reference to Exhibit 3.1 of The Wendy’s Company Current Report on Form 8-K filed on November 8, 2021 (SEC f ile no. 001-02207).
31.1		Certification of the Chief Executive Officer of The Wendy’s Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2		Certification of the Chief Financial Officer of The Wendy’s Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
~~101.INS~~101		XBRL Instance Document*The following financial information from The Wendy’s Company’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2021 formatted in Inline eXtensible Business Reporting Language: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
~~101.SCH~~104		The cover page from The Wendy’s Company’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2021, formatted in Inline XBRL Taxonomy Extension Schema Document*
~~101.CAL~~	XBRL Taxonomy Extension Calculation Linkbase Document*
~~101.DEF~~	XBRL Taxonomy Extension Definition Linkbase Document*
~~101.LAB~~	XBRL Taxonomy Extension Label Linkbase Document*
~~101.PRE~~	XBRL Taxonomy Extension Presentation Linkbase Document*and contained in Exhibit 101.

____________________


*		Filed herewith.

*		~~Filed herewith.~~
**	~~Identifies a management contract or compensatory plan or arrangement.~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			THE WENDY’S COMPANY (Registrant)
Date: November ~~8, 2017~~10, 2021			By: /s/ Gunther Plosch
			Gunther Plosch
			Chief Financial Officer
			(On behalf of the ~~Company)~~registrant)

Date: November ~~8, 2017~~10, 2021			By: /s/ Leigh A. Burnside
			Leigh A. Burnside
			Senior Vice President, Finance and
			Chief Accounting Officer
			(Principal Accounting Officer)

4254



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

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


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


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



	Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements		34
Unaudited Condensed Consolidated Balance Sheets as of October ~~1, 2017~~3, 2021 and January ~~1, 2017~~3, 2021		34
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended October ~~1, 2017~~3, 2021 and ~~October 2, 2016~~September 27 , 2020		45
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October ~~1, 2017~~3 , 2021 and ~~October 2, 2016~~September 27 , 2020		56
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended October 3 , 2021 and September 27 , 2020		7
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended October ~~1, 2017~~3, 2021 and ~~October 2, 2016~~September 27 , 2020		69
Notes to Condensed Consolidated Financial Statements		810
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2432
Item 3. Quantitative and Qualitative Disclosures about Market Risk		3548
Item 4. Controls and Procedures		3649

PART II: OTHER INFORMATION		3750
Item 1. Legal Proceedings		3951
Item 1A. Risk Factors		3952
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4052
Item 6. Exhibits		4153
Signatures		4254


	Nine Months Ended							Nine Months Ended
	October 1, 2017			October 2, 2016				October 3, 2021		September 27, 2020
Balance at beginning of period	$	54,545		$	55,541		Balance at beginning of period	$	44,574	$	45,310

Investment	375			172

Equity in earnings for the period	7,844			8,207			Equity in earnings for the period	8,005		6,113
Amortization of purchase price adjustments (a)	(1,731		)	(1,712		)	Amortization of purchase price adjustments (a)	(2,392)		(1,671)
	6,113			6,495				5,613		4,442
Distributions received (b)	(8,128		)	(8,451		)
Foreign currency translation adjustment included in “Other comprehensive income, net”	4,304			3,204
Distributions received							Distributions received	(9,174)		(5,629)
Foreign currency translation adjustment included in “Other comprehensive (loss) income” and other							Foreign currency translation adjustment included in “Other comprehensive (loss) income” and other	343		(701)
Balance at end of period	$	57,209		$	56,961		Balance at end of period	$	41,356	$	43,422



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



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



	October 1, 2017			January 1, 2017
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	186,629		$	198,240
Restricted cash	34,042			57,612
Accounts and notes receivable, net	115,390			98,825
Inventories	2,895			2,851
Prepaid expenses and other current assets	23,762			19,244
Advertising funds restricted assets	58,163			75,760
Total current assets	420,881			452,532
Properties	1,252,246			1,192,339
Goodwill	743,508			741,410
Other intangible assets	1,332,130			1,322,531
Investments	58,171			56,981
Net investment in direct financing leases	213,649			123,604
Other assets	69,688			49,917
Total assets	$	4,090,273		$	3,939,314

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	29,359		$	24,652
Accounts payable	25,776			27,635
Accrued expenses and other current liabilities	121,124			102,034
Advertising funds restricted liabilities	58,163			75,760
Total current liabilities	234,422			230,081
Long-term debt	2,696,520			2,487,630
Deferred income taxes	419,293			446,513
Other liabilities	277,443			247,354
Total liabilities	3,627,678			3,411,578
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 242,565 and 246,574 shares outstanding, respectively	47,042			47,042
Additional paid-in capital	2,883,504			2,878,589
Accumulated deficit	(305,703		)	(290,857		)
Common stock held in treasury, at cost; 227,859 and 223,850 shares, respectively	(2,117,232		)	(2,043,797		)
Accumulated other comprehensive loss	(45,016		)	(63,241		)
Total stockholders’ equity	462,595			527,736
Total liabilities and stockholders’ equity	$	4,090,273		$	3,939,314



	Nine Months Ended
	October 1, 2017
Acquisition (a)
Total consideration paid	$	86,788
Identifiable assets and liabilities assumed:
Net assets held for sale	70,688
Capital lease assets	49,360
Deferred taxes	27,639
Capital lease obligations	(97,046		)
Net unfavorable leases (b)	(22,330		)
Other liabilities (c)	(6,999		)
Total identifiable net assets	21,312
Goodwill (d)	$	65,476

Disposition
Proceeds	$	70,688
Net assets sold	(70,688		)
Goodwill (d)	(65,476		)
Net favorable leases (e)	24,034
Other (f)	(1,692		)
Loss on DavCo and NPC transactions	$	(43,134	)



	Three Months Ended						Nine Months Ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Number of restaurants sold to franchisees	—			156			—			211

Proceeds from sales of restaurants	$	—		$	124,765		$	—		$	164,380
Net assets sold (a)	—			(58,227		)	—			(75,282		)
Goodwill related to sales of restaurants	—			(24,254		)	—			(30,630		)
Net unfavorable leases (b)	—			(6,225		)	—			(11,131		)
Other	—			(726		)	—			(1,521		)
	—			35,333			—			45,816
Post-closing adjustments on sales of restaurants (c)	418			(120		)	1,345			(1,710		)
Gain on sales of restaurants, net	418			35,213			1,345			44,106

(Loss) gain on sales of other assets, net (d)	(539		)	2,543			2,040			4,000
Gain (loss) on DavCo and NPC transactions	15			—			(43,134		)	—
System optimization (losses) gains, net	$	(106	)	$	37,756		$	(39,749	)	$	48,106



	Balance January 1, 2017		Charges		Payments			Balance October 1, 2017
Severance and related employee costs	$	—	$	3	$	(3	)	$	—
Professional fees	101		794		(885		)	10
Other	—		70		(70		)	—
	$	101	$	867	$	(958	)	$	10



	Balance January 3, 2016		Charges		Payments			Balance October 2, 2016
Severance and related employee costs	$	77	$	46	$	(123	)	$	—
Professional fees	708		5,137		(5,740		)	105
Other	90		112		(202		)	—
	$	875	$	5,295	$	(6,065	)	$	105


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


~~(b)~~	~~The nine months ended October 1, 2017 includes a distribution receivable from TimWen of $2,604, which is included in “Accounts and notes receivable, net.”~~


	October 3, 2021		January 3, 2021
Series 2021-1 Class A-2 Notes:
2.370% Series 2021-1 Class A-2-I Notes, anticipated repayment date 2029	$	448,875	$	—
2.775% Series 2021-1 Class A-2-II Notes, anticipated repayment date 2031	648,375		—
Series 2019-1 Class A-2 Notes:
3.783% Series 2019-1 Class A-2-I Notes, anticipated repayment date 2026	373,000		386,000
4.080% Series 2019-1 Class A-2-II Notes, anticipated repayment date 2029	419,625		434,250
Series 2018-1 Class A-2 Notes:
3.573% Series 2018-1 Class A-2-I Notes, repaid in connection with the June 2021 refinancing	—		436,500
3.884% Series 2018-1 Class A-2-II Notes, anticipated repayment date 2028	457,188		460,750
Series 2015-1 Class A-2 Notes:
4.497% Series 2015-1 Class A-2-III Notes, repaid in connection with the June 2021 refinancing	—		473,750
Canadian revolving credit facility	—		1,962
7% debentures, due in 2025	84,880		83,998
Unamortized debt issuance costs	(38,430)		(30,085)
	2,393,513		2,247,125
Less amounts payable within one year	(32,750)		(28,962)
Total long-term debt	$	2,360,763	$	2,218,163



	October 1, 2017				January 1, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements
Financial assets
Cash equivalents	$	337	$	337	$	5,335	$	5,335	Level 1
Non-current cost method investments (a)	962		325,869		2,436		326,283		Level 3

Financial liabilities
Series 2015-1 Class A-2-I Notes (b)	857,500		863,417		864,063		857,349		Level 2
Series 2015-1 Class A-2-II Notes (b)	882,000		900,169		888,750		880,005		Level 2
Series 2015-1 Class A-2-III Notes (b)	490,000		504,112		493,750		474,543		Level 2
7% debentures, due in 2025 (b)	89,204		106,000		88,277		99,750		Level 2
Guarantees of franchisee loan obligations (c)	224		224		280		280		Level 3


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


			Fair Value Measurements
	October 3, 2021		Level 1		Level 2		Level 3
Held and used	$	1,256	$	—	$	—	$	1,256
Held for sale	340		—		—		340
Total	$	1,596	$	—	$	—	$	1,596


~~(a)~~	During the nine months ended October 1, 2017, the Company recognized a tax benefit as a reduction to the Company’s deferred tax liability with an equal offsetting increase to “Accumulated deficit.” The adjustment was recognized as a result of adoption of an amendment to the accounting for employee share-based payment transactions. See Note 15 for further information.



	Foreign Currency Translation			Cash Flow Hedges (a)			Pension			Total
Balance at January 1, 2017	$	(60,299	)	$	(1,797	)	$	(1,145	)	$	(63,241	)
Current-period other comprehensive income	16,797			1,332			96			18,225
Balance at October 1, 2017	$	(43,502	)	$	(465	)	$	(1,049	)	$	(45,016	)

Balance at January 3, 2016	$	(66,163	)	$	(3,571	)	$	(1,089	)	$	(70,823	)
Current-period other comprehensive income (loss)	10,887			1,332			(56		)	12,163
Balance at October 2, 2016	$	(55,276	)	$	(2,239	)	$	(1,145	)	$	(58,660	)



	Rental Payments					Rental Receipts
Fiscal Year	Capital Leases			Operating Leases		Capital Leases		Operating Leases		Owned Properties
2017 (a)	$	11,989		$	24,894	$	15,868	$	18,782	$	13,436
2018	43,406			93,431		60,844		75,167		53,896
2019	42,717			93,272		61,368		75,267		54,866
2020	43,660			92,434		62,469		74,983		55,489
2021	45,249			91,892		64,260		74,672		57,102
Thereafter	748,736			1,188,165		1,045,693		973,428		1,008,243
Total minimum payments	$	935,757		$	1,584,088	$	1,310,502	$	1,292,299	$	1,243,032
Less interest	(499,703		)
Present value of minimum capital lease payments (b)	$	436,054



	October 1, 2017			January 1, 2017
Land	$	271,840		$	271,160
Buildings and improvements	312,796			312,067
Restaurant equipment	1,491			1,507
	586,127			584,734
Accumulated depreciation and amortization	(122,970		)	(110,166		)
	$	463,157		$	474,568



	October 1, 2017			January 1, 2017
Future minimum rental receipts	$	630,352		$	401,452
Unearned interest income	(416,221		)	(277,747		)
Net investment in direct financing leases	214,131			123,705
Net current investment in direct financing leases (a)	(482		)	(101		)
Net non-current investment in direct financing leases (b)	$	213,649		$	123,604



	Third Quarter
	Company-operated		North America Franchised		International Franchised		Systemwide
Restaurant count:
Restaurant count at July 2, 2017	331		5,762		471		6,564
Opened	4		25		13		42
Closed	(2	)	(15	)	(3	)	(20	)
Restaurant count at October 1, 2017	333		5,772		481		6,586

	Nine Months
	Company-operated		North America Franchised		International Franchised		Systemwide

Restaurant count at January 1, 2017	330		5,768		439		6,537
Opened	7		50		53		110
Closed	(4	)	(46	)	(11	)	(61	)
Restaurant count at October 1, 2017	333		5,772		481		6,586



System Optimization Losses (Gains), Net	Third Quarter					Nine Months
	2017		2016			2017		2016
System optimization losses (gains), net	$	0.1	$	(37.8	)	$	39.7	$	(48.1	)



Other Operating Expense (Income), Net	Third Quarter						Nine Months
	2017			2016			2017			2016
Lease buyout	$	0.2		$	—		$	0.1		$	(11.6	)
Equity in earnings in joint ventures, net	(2.3		)	(2.2		)	(6.1		)	(6.5		)
Other, net	3.8			3.1			11.3			4.6
	$	1.7		$	0.9		$	5.3		$	(13.5	)



Interest Expense	Change
	Third Quarter		Nine Months
Interest expense	$	1.3	$	2.4