UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~July 4,~~October 3, 2021


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

For the transition period from ______________ to _______________

Commission file number: 1-2207

THE WENDY’S COMPANY

(Exact name of registrant as specified in its charter)


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

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

(614) 764-3100

(Registrant’s telephone number, including area code)

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


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

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

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

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


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

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

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

Yes ☐ No ☒

There were ~~222,787,694~~220,634,432 shares of The Wendy’s Company common stock outstanding as of ~~August 4,~~November 3, 2021.

THE WENDY’S COMPANY AND SUBSIDIARIES

INDEX TO FORM 10-Q


			Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements			4
Unaudited Condensed Consolidated Balance Sheets as of ~~July 4,~~October 3, 2021 and January 3, 2021			4
Unaudited Condensed Consolidated Statements of Operations for the three and ~~six~~nine months ~~ended~~ ~~July 4,~~ ended October 3, 2021 and ~~June 28,~~September 27 , 2020			5
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and ~~six~~nine months ended ~~July 4,~~October 3 , 2021 and ~~June 28,~~September 27 , 2020			6
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and ~~six~~nine months ended ~~July 4,~~October 3 , 2021 and ~~June 28,~~September 27 , 2020			7
Unaudited Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~July 4,~~ October 3, 2021 and ~~June 28,~~September 27 , 2020			9
Notes to Condensed Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3132
Item 3. Quantitative and Qualitative Disclosures about Market Risk			4748
Item 4. Controls and Procedures			4849

PART II: OTHER INFORMATION			4950
Item 1. Legal Proceedings			5051
Item 1A. Risk Factors			5152
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5152
Item 6. Exhibits			5253
Signatures			5354

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands Except Par Value)


		July 4, 2021		January 3, 2021			October 3, 2021		January 3, 2021
ASSETS	ASSETS	(Unaudited)				ASSETS	(Unaudited)
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	568,139	$	306,989	Cash and cash equivalents	$	571,502	$	306,989
Restricted cash	Restricted cash	37,792		33,973		Restricted cash	36,321		33,973
Accounts and notes receivable, net	Accounts and notes receivable, net	103,257		109,891		Accounts and notes receivable, net	100,265		109,891
Inventories	Inventories	4,261		4,732		Inventories	4,257		4,732
Prepaid expenses and other current assets	Prepaid expenses and other current assets	24,219		89,732		Prepaid expenses and other current assets	23,820		89,732
Advertising funds restricted assets	Advertising funds restricted assets	101,858		142,306		Advertising funds restricted assets	107,320		142,306
Total current assets	Total current assets	839,526		687,623		Total current assets	843,485		687,623
Properties	Properties	881,798		915,889		Properties	873,250		915,889
Finance lease assets	Finance lease assets	206,586		206,153		Finance lease assets	210,660		206,153
Operating lease assets	Operating lease assets	791,924		821,480		Operating lease assets	783,986		821,480
Goodwill	Goodwill	752,552		751,049		Goodwill	751,805		751,049
Other intangible assets	Other intangible assets	1,217,275		1,224,960		Other intangible assets	1,209,695		1,224,960
Investments	Investments	43,676		44,574		Investments	41,356		44,574
Net investment in sales-type and direct financing leases	Net investment in sales-type and direct financing leases	302,694		268,221		Net investment in sales-type and direct financing leases	305,242		268,221
Other assets	Other assets	130,843		120,057		Other assets	137,468		120,057
Total assets	Total assets	$	5,166,874	$	5,040,006	Total assets	$	5,156,947	$	5,040,006

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	32,750	$	28,962	Current portion of long-term debt	$	32,750	$	28,962
Current portion of finance lease liabilities	Current portion of finance lease liabilities	14,547		12,105		Current portion of finance lease liabilities	15,915		12,105
Current portion of operating lease liabilities	Current portion of operating lease liabilities	45,269		45,346		Current portion of operating lease liabilities	45,541		45,346
Accounts payable	Accounts payable	32,430		31,063		Accounts payable	26,506		31,063
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	137,991		155,321		Accrued expenses and other current liabilities	158,800		155,321
Advertising funds restricted liabilities	Advertising funds restricted liabilities	109,799		140,511		Advertising funds restricted liabilities	127,673		140,511
Total current liabilities	Total current liabilities	372,786		413,308		Total current liabilities	407,185		413,308
Long-term debt	Long-term debt	2,373,610		2,218,163		Long-term debt	2,360,763		2,218,163
Long-term finance lease liabilities	Long-term finance lease liabilities	521,608		506,076		Long-term finance lease liabilities	528,775		506,076
Long-term operating lease liabilities	Long-term operating lease liabilities	838,585		865,325		Long-term operating lease liabilities	830,488		865,325
Deferred income taxes	Deferred income taxes	279,837		280,755		Deferred income taxes	279,813		280,755
Deferred franchise fees	Deferred franchise fees	89,286		89,094		Deferred franchise fees	90,086		89,094
Other liabilities	Other liabilities	120,806		117,689		Other liabilities	117,083		117,689
Total liabilities	Total liabilities	4,596,518		4,490,410		Total liabilities	4,614,193		4,490,410
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 222,960 and 224,268 shares outstanding, respectively		47,042		47,042
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 221,301 and 224,268 shares outstanding, respectively						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	Additional paid-in capital	2,907,274		2,899,276		Additional paid-in capital	2,911,552		2,899,276
Retained earnings	Retained earnings	303,475		238,674		Retained earnings	317,956		238,674
Common stock held in treasury, at cost; 247,464 and 246,156 shares, respectively		(2,643,361)		(2,585,755)
Common stock held in treasury, at cost; 249,123 and 246,156 shares, respectively						Common stock held in treasury, at cost; 249,123 and 246,156 shares, respectively	(2,685,063)		(2,585,755)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(44,074)		(49,641)		Accumulated other comprehensive loss	(48,733)		(49,641)
Total stockholders’ equity	Total stockholders’ equity	570,356		549,596		Total stockholders’ equity	542,754		549,596
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	5,166,874	$	5,040,006	Total liabilities and stockholders’ equity	$	5,156,947	$	5,040,006

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				Six Months Ended					Three Months Ended				Nine Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
		(Unaudited)									(Unaudited)
Revenues:	Revenues:									Revenues:
Sales	Sales	$	193,525	$	164,217	$	382,582	$	331,015	Sales	$	171,078	$	191,946	$	553,660	$	522,961
Franchise royalty revenue and fees	Franchise royalty revenue and fees	136,661		103,120		259,491		204,825		Franchise royalty revenue and fees	138,755		116,820		398,246		321,645
Franchise rental income	Franchise rental income	60,868		56,857		119,744		114,713		Franchise rental income	62,446		58,721		182,190		173,434
Advertising funds revenue	Advertising funds revenue	102,283		78,112		191,723		156,713		Advertising funds revenue	97,976		84,755		289,699		241,468
		493,337		402,306		953,540		807,266			470,255		452,242		1,423,795		1,259,508
Costs and expenses:	Costs and expenses:									Costs and expenses:
Cost of sales	Cost of sales	154,154		140,626		311,004		290,625		Cost of sales	146,436		159,545		457,440		450,170
Franchise support and other costs	Franchise support and other costs	8,885		5,454		16,571		13,467		Franchise support and other costs	10,509		5,960		27,080		19,427
Franchise rental expense	Franchise rental expense	34,068		31,297		66,634		60,598		Franchise rental expense	34,424		32,426		101,058		93,024
Advertising funds expense	Advertising funds expense	107,875		81,317		202,113		161,305		Advertising funds expense	108,529		92,048		310,642		253,353
General and administrative	General and administrative	63,114		48,592		115,736		100,231		General and administrative	62,840		47,322		178,576		147,553
Depreciation and amortization	Depreciation and amortization	30,761		34,714		62,303		65,760		Depreciation and amortization	30,940		32,966		93,243		98,726
System optimization gains, net	System optimization gains, net	(30,766)		(1,987)		(31,282)		(2,310)		System optimization gains, net	(1,437)		(23)		(32,719)		(2,333)
Reorganization and realignment costs	Reorganization and realignment costs	2,102		2,911		7,036		6,821		Reorganization and realignment costs	345		3,375		7,381		10,196
Impairment of long-lived assets	Impairment of long-lived assets	630		117		1,265		4,704		Impairment of long-lived assets	566		23		1,831		4,727
Other operating income, net	Other operating income, net	(4,232)		(1,396)		(7,708)		(3,328)		Other operating income, net	(3,092)		(2,748)		(10,800)		(6,076)
		366,591		341,645		743,672		697,873			390,060		370,894		1,133,732		1,068,767
Operating profit	Operating profit	126,746		60,661		209,868		109,393		Operating profit	80,195		81,348		290,063		190,741
Interest expense, net	Interest expense, net	(28,204)		(29,085)		(56,990)		(57,610)		Interest expense, net	(26,000)		(29,086)		(82,990)		(86,696)
Loss on early extinguishment of debt	Loss on early extinguishment of debt	(17,917)		0		(17,917)		0		Loss on early extinguishment of debt	—		—		(17,917)		—
Other income (expense), net		161		(144)		290		932
Other income, net										Other income, net	171		181		461		1,113
Income before income taxes	Income before income taxes	80,786		31,432		135,251		52,715		Income before income taxes	54,366		52,443		189,617		105,158
Provision for income taxes	Provision for income taxes	(15,062)		(6,528)		(28,161)		(13,370)		Provision for income taxes	(13,195)		(12,690)		(41,356)		(26,060)
Net income	Net income	$	65,724	$	24,904	$	107,090	$	39,345	Net income	$	41,171	$	39,753	$	148,261	$	79,098

Net income per share:	Net income per share:									Net income per share:
Basic	Basic	$	.30	$	.11	$	.48	$	.18	Basic	$	.19	$	.18	$	.67	$	.35
Diluted	Diluted	.29		.11		.47		.17		Diluted	.18		.17		.66		.35

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				Six Months Ended					Three Months Ended				Nine Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
		(Unaudited)									(Unaudited)
Net income	Net income	$	65,724	$	24,904	$	107,090	$	39,345	Net income	$	41,171	$	39,753	$	148,261	$	79,098
Other comprehensive income (loss):
Other comprehensive (loss) income:										Other comprehensive (loss) income:
Foreign currency translation adjustment	Foreign currency translation adjustment	3,347		4,149		5,567		(8,358)		Foreign currency translation adjustment	(4,659)		3,220		908		(5,138)
Other comprehensive income (loss)		3,347		4,149		5,567		(8,358)
Other comprehensive (loss) income										Other comprehensive (loss) income	(4,659)		3,220		908		(5,138)
Comprehensive income	Comprehensive income	$	69,071	$	29,053	$	112,657	$	30,987	Comprehensive income	$	36,512	$	42,973	$	149,169	$	73,960

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

				(Unaudited)																			(Unaudited)
Balance at January 3, 2021	Balance at January 3, 2021	$	47,042				$	2,899,276					$	238,674					$	(2,585,755)			$	(49,641)			$	549,596	Balance at January 3, 2021		$	47,042			$	2,899,276			$	238,674			$	(2,585,755)	$	(49,641)	$	549,596
Net income	Net income	0			0				41,366		0				0		41,366			Net income	—				—				41,366				—				—				41,366
Other comprehensive income	Other comprehensive income	0			0				0		0				2,220		2,220			Other comprehensive income	—				—				—				—				2,220				2,220
Cash dividends	Cash dividends	0			0				(20,156)		0				0		(20,156)			Cash dividends	—				—				(20,156)				—				—				(20,156)
Repurchases of common stock	Repurchases of common stock	0			0				0		(56,084)				0		(56,084)			Repurchases of common stock	—				—				—				(56,084)				—				(56,084)
Share-based compensation	Share-based compensation	0			5,151				0		0				0		5,151			Share-based compensation	—				5,151				—				—				—				5,151
Common stock issued upon exercises of stock options	Common stock issued upon exercises of stock options	0			(20)				0		683				0		663			Common stock issued upon exercises of stock options	—				(20)				—				683				—				663
Common stock issued upon vesting of restricted shares	Common stock issued upon vesting of restricted shares	0			(2,996)				0		817				0		(2,179)			Common stock issued upon vesting of restricted shares	—				(2,996)				—				817				—				(2,179)
Other	Other	0			49				(5)		44				0		88			Other	—				49				(5)				44				—				88
Balance at April 4, 2021	Balance at April 4, 2021	$	47,042		$	2,901,460			$	259,879	$	(2,640,295)			$	(47,421)	$	520,665		Balance at April 4, 2021	$	47,042			$	2,901,460			$	259,879			$	(2,640,295)			$	(47,421)			$	520,665
Net income	Net income	0			0				65,724		0				0		65,724			Net income	—				—				65,724				—				—				65,724
Other comprehensive income	Other comprehensive income	0			0				0		0				3,347		3,347			Other comprehensive income	—				—				—				—				3,347				3,347
Cash dividends	Cash dividends	0			0				(22,123)		0				0		(22,123)			Cash dividends	—				—				(22,123)				—				—				(22,123)
Repurchases of common stock	Repurchases of common stock	0			0				0		(27,291)				0		(27,291)			Repurchases of common stock	—				—				—				(27,291)				—				(27,291)
Share-based compensation	Share-based compensation	0			5,882				0		0				0		5,882			Share-based compensation	—				5,882				—				—				—				5,882
Common stock issued upon exercises of stock options	Common stock issued upon exercises of stock options	0			850				0		23,466				0		24,316			Common stock issued upon exercises of stock options	—				850				—				23,466				—				24,316
Common stock issued upon vesting of restricted shares	Common stock issued upon vesting of restricted shares	0			(959)				0		714				0		(245)			Common stock issued upon vesting of restricted shares	—				(959)				—				714				—				(245)
Other	Other	0			41				(5)		45				0		81			Other	—				41				(5)				45				—				81
Balance at July 4, 2021	Balance at July 4, 2021	$	47,042		$	2,907,274			$	303,475	$	(2,643,361)			$	(44,074)	$	570,356		Balance at July 4, 2021	$	47,042			$	2,907,274			$	303,475			$	(2,643,361)			$	(44,074)			$	570,356

Net income																				Net income	—				—				41,171				—				—				41,171
Other comprehensive loss																				Other comprehensive loss	—				—				—				—				(4,659)				(4,659)
Cash dividends																				Cash dividends	—				—				(26,684)				—				—				(26,684)
Repurchases of common stock																				Repurchases of common stock	—				—				—				(43,857)				—				(43,857)
Share-based compensation																				Share-based compensation	—				5,702				—				—				—				5,702
Common stock issued upon exercises of stock options																				Common stock issued upon exercises of stock options	—				351				—				1,465				—				1,816
Common stock issued upon vesting of restricted shares																				Common stock issued upon vesting of restricted shares	—				(1,835)				—				642				—				(1,193)
Other																				Other	—				60				(6)				48				—				102
Balance at October 3, 2021																				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.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED

(In Thousands)


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

				(Unaudited)																			(Unaudited)
Balance at December 29, 2019	Balance at December 29, 2019	$	47,042				$	2,874,001					$	185,725					$	(2,536,581)			$	(53,828)			$	516,359	Balance at December 29, 2019		$	47,042			$	2,874,001			$	185,725			$	(2,536,581)	$	(53,828)	$	516,359
Net income	Net income	0			0				14,441		0				0		14,441			Net income	—				—				14,441				—				—				14,441
Other comprehensive loss	Other comprehensive loss	0			0				0		0				(12,507)		(12,507)			Other comprehensive loss	—				—				—				—				(12,507)				(12,507)
Cash dividends	Cash dividends	0			0				(26,793)		0				0		(26,793)			Cash dividends	—				—				(26,793)				—				—				(26,793)
Repurchases of common stock, including accelerated share repurchase	Repurchases of common stock, including accelerated share repurchase	0			15,000				0		(58,336)				0		(43,336)			Repurchases of common stock, including accelerated share repurchase	—				15,000				—				(58,336)				—				(43,336)
Share-based compensation	Share-based compensation	0			4,539				0		0				0		4,539			Share-based compensation	—				4,539				—				—				—				4,539
Common stock issued upon exercises of stock options	Common stock issued upon exercises of stock options	0			280				0		1,330				0		1,610			Common stock issued upon exercises of stock options	—				280				—				1,330				—				1,610
Common stock issued upon vesting of restricted shares	Common stock issued upon vesting of restricted shares	0			(4,017)				0		726				0		(3,291)			Common stock issued upon vesting of restricted shares	—				(4,017)				—				726				—				(3,291)
Other	Other	0			33				(7)		27				0		53			Other	—				33				(7)				27				—				53
Balance at March 29, 2020	Balance at March 29, 2020	$	47,042		$	2,889,836			$	173,366	$	(2,592,834)			$	(66,335)	$	451,075		Balance at March 29, 2020	$	47,042			$	2,889,836			$	173,366			$	(2,592,834)			$	(66,335)			$	451,075
Net income	Net income	0			0				24,904		0				0		24,904			Net income	—				—				24,904				—				—				24,904
Other comprehensive income	Other comprehensive income	0			0				0		0				4,149		4,149			Other comprehensive income	—				—				—				—				4,149				4,149
Cash dividends	Cash dividends	0			0				(11,181)		0				0		(11,181)			Cash dividends	—				—				(11,181)				—				—				(11,181)

Share-based compensation	Share-based compensation	0			4,787				0		0				0		4,787			Share-based compensation	—				4,787				—				—				—				4,787
Common stock issued upon exercises of stock options	Common stock issued upon exercises of stock options	0			(902)				0		11,361				0		10,459			Common stock issued upon exercises of stock options	—				(902)				—				11,361				—				10,459
Common stock issued upon vesting of restricted shares	Common stock issued upon vesting of restricted shares	0			(1,041)				0		773				0		(268)			Common stock issued upon vesting of restricted shares	—				(1,041)				—				773				—				(268)
Other	Other	0			19				(3)		42				0		58			Other	—				19				(3)				42				—				58
Balance at June 28, 2020	Balance at June 28, 2020	$	47,042		$	2,892,699			$	187,086	$	(2,580,658)			$	(62,186)	$	483,983		Balance at June 28, 2020	$	47,042			$	2,892,699			$	187,086			$	(2,580,658)			$	(62,186)			$	483,983

Net income																				Net income	—				—				39,753				—				—				39,753
Other comprehensive income																				Other comprehensive income	—				—				—				—				3,220				3,220
Cash dividends																				Cash dividends	—				—				(11,202)				—				—				(11,202)
Repurchases of common stock																				Repurchases of common stock	—				—				—				(1,708)				—				(1,708)
Share-based compensation																				Share-based compensation	—				5,786				—				—				—				5,786
Common stock issued upon exercises of stock options																				Common stock issued upon exercises of stock options	—				838				—				2,465				—				3,303
Common stock issued upon vesting of restricted shares																				Common stock issued upon vesting of restricted shares	—				(2,600)				—				918				—				(1,682)
Other																				Other	—				44				(2)				40				—				82
Balance at September 27, 2020																				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.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


		Six Months Ended					Nine Months Ended
		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020
		(Unaudited)					(Unaudited)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	107,090	$	39,345	Net income	$	148,261	$	79,098
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	62,303		65,760		Depreciation and amortization	93,243		98,726
Share-based compensation	Share-based compensation	11,033		9,326		Share-based compensation	16,735		15,112
Impairment of long-lived assets	Impairment of long-lived assets	1,265		4,704		Impairment of long-lived assets	1,831		4,727
Deferred income tax	Deferred income tax	(2,137)		1,920		Deferred income tax	(25)		5,878
Non-cash rental expense, net	Non-cash rental expense, net	20,075		12,251		Non-cash rental expense, net	28,421		19,967
Change in operating lease liabilities	Change in operating lease liabilities	(23,074)		(19,233)		Change in operating lease liabilities	(34,220)		(29,539)
Net receipt of deferred vendor incentives	Net receipt of deferred vendor incentives	3,332		7,728		Net receipt of deferred vendor incentives	1,906		5,061
System optimization gains, net	System optimization gains, net	(31,282)		(2,310)		System optimization gains, net	(32,719)		(2,333)
Distributions received from joint ventures, net of equity in earnings	Distributions received from joint ventures, net of equity in earnings	2,354		1,262		Distributions received from joint ventures, net of equity in earnings	3,561		1,187
Long-term debt-related activities, net	Long-term debt-related activities, net	21,328		3,141		Long-term debt-related activities, net	23,043		4,866
Changes in operating assets and liabilities and other, net	Changes in operating assets and liabilities and other, net	(13,536)		(93,332)		Changes in operating assets and liabilities and other, net	26,636		3,009
Net cash provided by operating activities	Net cash provided by operating activities	158,751		30,562		Net cash provided by operating activities	276,673		205,759
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(24,069)		(29,402)		Capital expenditures	(43,401)		(44,876)
Acquisitions	Acquisitions	4,879		0		Acquisitions	4,879		—
Dispositions	Dispositions	50,531		4,320		Dispositions	52,657		3,570
Proceeds from sale of investments						Proceeds from sale of investments	—		169
Notes receivable, net	Notes receivable, net	611		138		Notes receivable, net	907		138
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	31,952		(24,944)		Net cash provided by (used in) investing activities	15,042		(40,999)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from long-term debt	Proceeds from long-term debt	1,100,000		153,315		Proceeds from long-term debt	1,100,000		153,315
Repayments of long-term debt	Repayments of long-term debt	(941,220)		(24,271)		Repayments of long-term debt	(955,782)		(174,959)
Repayments of finance lease liabilities	Repayments of finance lease liabilities	(5,777)		(3,707)		Repayments of finance lease liabilities	(9,021)		(5,850)
Deferred financing costs	Deferred financing costs	(20,873)		(2,122)		Deferred financing costs	(20,873)		(2,122)
Repurchases of common stock	Repurchases of common stock	(83,658)		(45,137)		Repurchases of common stock	(125,656)		(46,667)
Dividends	Dividends	(42,279)		(37,974)		Dividends	(68,963)		(49,176)
Proceeds from stock option exercises	Proceeds from stock option exercises	25,933		11,865		Proceeds from stock option exercises	27,204		15,540
Payments related to tax withholding for share-based compensation	Payments related to tax withholding for share-based compensation	(3,197)		(3,704)		Payments related to tax withholding for share-based compensation	(4,390)		(5,409)
Net cash provided by financing activities		28,929		48,265
Net cash used in financing activities						Net cash used in financing activities	(57,481)		(115,328)
Net cash provided by operations before effect of exchange rate changes on cash	Net cash provided by operations before effect of exchange rate changes on cash	219,632		53,883		Net cash provided by operations before effect of exchange rate changes on cash	234,234		49,432
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	2,283		(3,132)		Effect of exchange rate changes on cash	177		(1,715)
Net increase in cash, cash equivalents and restricted cash	Net increase in cash, cash equivalents and restricted cash	221,915		50,751		Net increase in cash, cash equivalents and restricted cash	234,411		47,717
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	418,241		358,707		Cash, cash equivalents and restricted cash at beginning of period	418,241		358,707
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	640,156	$	409,458	Cash, cash equivalents and restricted cash at end of period	$	652,652	$	406,424

Supplemental non-cash investing and financing activities:	Supplemental non-cash investing and financing activities:					Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable	Capital expenditures included in accounts payable	$	7,242	$	6,082	Capital expenditures included in accounts payable	$	4,363	$	4,789
Finance leases	Finance leases	30,863		12,962		Finance leases	43,277		24,617

		July 4, 2021		January 3, 2021			October 3, 2021		January 3, 2021
Reconciliation of cash, cash equivalents and restricted cash at end of period:	Reconciliation of cash, cash equivalents and restricted cash at end of period:					Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	Cash and cash equivalents	$	568,139	$	306,989	Cash and cash equivalents	$	571,502	$	306,989
Restricted cash	Restricted cash	37,792		33,973		Restricted cash	36,321		33,973
Restricted cash, included in Advertising funds restricted assets	Restricted cash, included in Advertising funds restricted assets	34,225		77,279		Restricted cash, included in Advertising funds restricted assets	44,829		77,279
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	640,156	$	418,241	Total cash, cash equivalents and restricted cash	$	652,652	$	418,241

See accompanying notes to condensed consolidated financial statements.

Table of Contents

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 ~~July 4,~~October 3, 2021, the results of our operations for the three and ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020 and cash flows for the ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020. The results of operations for the ~~six~~nine months ended ~~July 4,~~October 3, 2021 are not necessarily indicative of the results to be expected for the full 2021 fiscal year. The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 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 in the following segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. See Note 17 for further information.

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to or on December 31. All three- and ~~six-month~~nine-month periods presented herein contain 13 weeks and 2639 weeks, respectively. All references to years, quarters and months relate to fiscal periods rather than calendar periods.

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

(2) Revenue

Disaggregation of Revenue

The following tables disaggregate revenue by segment and source:


		Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total			Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total
Three Months Ended July 4, 2021
Three Months Ended October 3, 2021										Three Months Ended October 3, 2021
Sales at Company-operated restaurants	Sales at Company-operated restaurants	$	193,279	$	246	$	0	$	193,525	Sales at Company-operated restaurants	$	169,961	$	1,117	$	—	$	171,078
Franchise royalty revenue	Franchise royalty revenue	106,006		13,560		0		119,566		Franchise royalty revenue	102,603		13,918		—		116,521
Franchise fees (a)	Franchise fees (a)	14,331		1,454		1,310		17,095		Franchise fees (a)	19,759		1,144		1,331		22,234
Franchise rental income	Franchise rental income	0		0		60,868		60,868		Franchise rental income	—		—		62,446		62,446
Advertising funds revenue	Advertising funds revenue	96,227		6,056		0		102,283		Advertising funds revenue	91,481		6,495		—		97,976
Total revenues	Total revenues	$	409,843	$	21,316	$	62,178	$	493,337	Total revenues	$	383,804	$	22,674	$	63,777	$	470,255

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)


		Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total			Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total
Six Months Ended July 4, 2021
Nine Months Ended October 3, 2021										Nine Months Ended October 3, 2021
Sales at Company-operated restaurants	Sales at Company-operated restaurants	$	382,336	$	246	$	0	$	382,582	Sales at Company-operated restaurants	$	552,297	$	1,363	$	—	$	553,660
Franchise royalty revenue	Franchise royalty revenue	202,770		25,130		0		227,900		Franchise royalty revenue	305,373		39,048		—		344,421
Franchise fees (a)	Franchise fees (a)	26,261		2,897		2,433		31,591		Franchise fees (a)	46,020		4,041		3,764		53,825
Franchise rental income	Franchise rental income	0		0		119,744		119,744		Franchise rental income	—		—		182,190		182,190
Advertising funds revenue	Advertising funds revenue	180,430		11,293		0		191,723		Advertising funds revenue	271,911		17,788		—		289,699
Total revenues	Total revenues	$	791,797	$	39,566	$	122,177	$	953,540	Total revenues	$	1,175,601	$	62,240	$	185,954	$	1,423,795

Three Months Ended June 28, 2020
Three Months Ended September 27, 2020										Three Months Ended September 27, 2020
Sales at Company-operated restaurants	Sales at Company-operated restaurants	$	164,217	$	0	$	0	$	164,217	Sales at Company-operated restaurants	$	191,946	$	—	$	—	$	191,946
Franchise royalty revenue	Franchise royalty revenue	88,121		9,070		0		97,191		Franchise royalty revenue	98,128		11,216		—		109,344
Franchise fees (a)	Franchise fees (a)	5,308		433		188		5,929		Franchise fees (a)	5,651		463		1,362		7,476
Franchise rental income	Franchise rental income	0		0		56,857		56,857		Franchise rental income	—		—		58,721		58,721
Advertising funds revenue	Advertising funds revenue	73,612		4,500		0		78,112		Advertising funds revenue	79,170		5,585		—		84,755
Total revenues	Total revenues	$	331,258	$	14,003	$	57,045	$	402,306	Total revenues	$	374,895	$	17,264	$	60,083	$	452,242

Six Months Ended June 28, 2020
Nine Months Ended September 27, 2020										Nine Months Ended September 27, 2020
Sales at Company-operated restaurants	Sales at Company-operated restaurants	$	331,015	$	0	$	0	$	331,015	Sales at Company-operated restaurants	$	522,961	$	—	$	—	$	522,961
Franchise royalty revenue	Franchise royalty revenue	172,954		19,593		0		192,547		Franchise royalty revenue	271,082		30,809		—		301,891
Franchise fees (a)	Franchise fees (a)	10,593		906		779		12,278		Franchise fees (a)	16,244		1,369		2,141		19,754
Franchise rental income	Franchise rental income	0		0		114,713		114,713		Franchise rental income	—		—		173,434		173,434
Advertising funds revenue	Advertising funds revenue	147,737		8,976		0		156,713		Advertising funds revenue	226,907		14,561		—		241,468
Total revenues	Total revenues	$	662,299	$	29,475	$	115,492	$	807,266	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:


		July 4, 2021 (a)		January 3, 2021 (a)			October 3, 2021 (a)		January 3, 2021 (a)
Receivables, which are included in “Accounts and notes receivable, net” (b)	Receivables, which are included in “Accounts and notes receivable, net” (b)	$	51,005	$	57,677	Receivables, which are included in “Accounts and notes receivable, net” (b)	$	46,747	$	57,677
Receivables, which are included in “Advertising funds restricted assets”	Receivables, which are included in “Advertising funds restricted assets”	62,468		63,252		Receivables, which are included in “Advertising funds restricted assets”	57,222		63,252
Deferred franchise fees (c)	Deferred franchise fees (c)	98,409		97,785		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 ~~$9,123~~$8,971 and ~~$89,286~~$90,086 as of ~~July 4,~~October 3, 2021, respectively, and $8,691 and $89,094 as of January 3, 2021, respectively.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Significant changes in deferred franchise fees are as follows:


		Six Months Ended					Nine Months Ended
		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020
Deferred franchise fees at beginning of period	Deferred franchise fees at beginning of period	$	97,785	$	100,689	Deferred franchise fees at beginning of period	$	97,785	$	100,689
Revenue recognized during the period	Revenue recognized during the period	(6,845)		(3,898)		Revenue recognized during the period	(14,001)		(6,286)
New deferrals due to cash received and other	New deferrals due to cash received and other	7,469		1,772		New deferrals due to cash received and other	15,273		3,642
Deferred franchise fees at end of period	Deferred franchise fees at end of period	$	98,409	$	98,563	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:	Estimate for fiscal year:			Estimate for fiscal year:
2021 (a)	2021 (a)	$	6,073	2021 (a)	$	4,428
2022	2022	6,298		2022	6,293
2023	2023	6,126		2023	6,128
2024	2024	5,930		2024	5,938
2025	2025	5,746		2025	5,758
Thereafter	Thereafter	68,236		Thereafter	70,512
		$	98,409		$	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

~~NaN~~No restaurants were acquired from franchisees during the ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~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 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 franchisees and included in “Accrued expenses and other current liabilities” as of January 3, 2021 pending resolution of the bankruptcy sale process.

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 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 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.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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 (“Franchise Flips”). As of January 1, 2017, the Company completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total system. While the Company has no plans to reduce its ownership below the approximately 5% level, the Company expects to continue to optimize the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, drive new restaurant development and accelerate reimages. During the ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020, the Company facilitated 1934 and 322 Franchise Flips, respectively. In addition, during the ~~three~~nine months ended ~~July 4,~~October 3, 2021, the Company completed the sale of 47 Company-operated restaurants in New York (including Manhattan) to franchisees. ~~NaN~~No Company-operated restaurants were sold to franchisees during the ~~six~~nine months ended ~~June 28,~~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 disposition activity recorded as a result of our system optimization initiative:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Number of restaurants sold to franchisees	Number of restaurants sold to franchisees	47		0		47		0		Number of restaurants sold to franchisees	—		—		47		—

Proceeds from sales of restaurants(a)	Proceeds from sales of restaurants(a)	$	50,518	$	0	$	50,518	$	0	Proceeds from sales of restaurants(a)	$	—	$	—	$	50,518	$	—
Net assets sold ~~(a)~~(b)	Net assets sold ~~(a)~~(b)	(16,939)		0		(16,939)		0		Net assets sold ~~(a)~~(b)	—		—		(16,939)		—
Goodwill related to sales of restaurants	Goodwill related to sales of restaurants	(4,847)		0		(4,847)		0		Goodwill related to sales of restaurants	—		—		(4,847)		—
Net unfavorable leases ~~(b)~~(c)	Net unfavorable leases ~~(b)~~(c)	(2,939)		0		(2,939)		0		Net unfavorable leases ~~(b)~~(c)	—		—		(2,939)		—
Gain on sales-type leases	Gain on sales-type leases	7,156		0		7,156		0		Gain on sales-type leases	—		—		7,156		—
Other ~~(c)~~(d)	Other ~~(c)~~(d)	(2,148)		0		(2,148)		0		Other ~~(c)~~(d)	—		—		(2,148)		—
		30,801		0		30,801		0			—		—		30,801		—
Post-closing adjustments on sales of restaurants ~~(d)~~(e)	Post-closing adjustments on sales of restaurants ~~(d)~~(e)	0		0		515		345		Post-closing adjustments on sales of restaurants ~~(d)~~(e)	5		23		520		368
Gain on sales of restaurants, net	Gain on sales of restaurants, net	30,801		0		31,316		345		Gain on sales of restaurants, net	5		23		31,321		368

(Loss) gain on sales of other assets, net ~~(e)~~(f)	(Loss) gain on sales of other assets, net ~~(e)~~(f)	(35)		1,987		(34)		1,965		(Loss) gain on sales of other assets, net ~~(e)~~(f)	1,432		—		1,398		1,965
System optimization gains, net	System optimization gains, net	$	30,766	$	1,987	$	31,282	$	2,310	System optimization gains, net	$	1,437	$	23	$	32,719	$	2,333

_______________

(a)In addition to the proceeds noted herein, the Company received cash proceeds of $26 during the three and nine months ended October 3, 2021 related to a note receivable issued in connection with the sale of the Manhattan Company-operated restaurants.

(b)Net assets sold consist primarily of equipment.

~~(b)~~(c)During the ~~three and six~~nine months ended ~~July 4,~~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 franchisees, in connection with the sale of the New York Company-operated restaurants (including Manhattan).

~~(c)~~(d)The ~~three and six~~nine months ended ~~July 4,~~October 3, 2021 include a deferred gain of $3,500 as a result of certain contingencies related to the extension of lease terms.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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 ~~six~~nine months ended ~~July 4,~~October 3, 2021, the Company received net cash proceeds of ~~$10~~$2,100 and ~~$13,~~$2,113, respectively, primarily from the sale of surplus and other properties. During the ~~three and six~~nine months ended ~~June 28,~~September 27, 2020, the Company received net cash proceeds of ~~$4,125 and $4,320, respectively,~~$3,570, primarily from the sale of surplus and other properties.

Assets Held for Sale


		July 4, 2021		January 3, 2021			October 3, 2021		January 3, 2021
Number of restaurants classified as held for sale	Number of restaurants classified as held for sale	0		43		Number of restaurants classified as held for sale	—		43
Net restaurant assets held for sale (a)	Net restaurant assets held for sale (a)	$	0	$	20,587	Net restaurant assets held for sale (a)	$	—	$	20,587
Other assets held for sale (b)	Other assets held for sale (b)	$	2,318	$	1,732	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 initiatives included in “Reorganization and realignment costs:”


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Operations and field realignment	Operations and field realignment	$	1,215	$	0	$	1,489	$	0	Operations and field realignment	$	74	$	3,021	$	1,563	$	3,021
IT realignment	IT realignment	6		2,847		6		6,406		IT realignment	(17)		403		(11)		6,809
G&A realignment	G&A realignment	(16)		64		(34)		331		G&A realignment	(7)		(49)		(41)		282
System optimization initiative	System optimization initiative	897		0		5,575		84		System optimization initiative	295		—		5,870		84
Reorganization and realignment costs	Reorganization and realignment costs	$	2,102	$	2,911	$	7,036	$	6,821	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 ~~$6,000~~$5,500 to ~~$8,000~~$6,000 related to the Operations and Field Realignment Plan. During the ~~three and six~~nine months ended ~~July 4,~~October 3, 2021, the Company recognized costs totaling ~~$1,215 and $1,489, respectively,~~$1,563, which primarily included third-party and other costs. 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 ~~$1,000 to $3,000,~~$500, 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.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following is a summary of the activity recorded as a result of the Operations and Field Realignment Plan:


		Three Months Ended		Six Months Ended		Total Incurred Since Inception			Three Months Ended				Nine Months Ended				Total Incurred Since Inception
		July 4, 2021		July 4, 2021					October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Severance and related employee costs	Severance and related employee costs	$	79	$	333	$	3,446	Severance and related employee costs	$	—	$	2,502	$	333	$	2,502	$	3,446
Third-party and other costs	Third-party and other costs	1,136		1,156		1,223		Third-party and other costs	74		—		1,230		—		1,297
		1,215		1,489		4,669			74		2,502		1,563		2,502		4,743
Share-based compensation (a)	Share-based compensation (a)	0		0		621		Share-based compensation (a)	—		519		—		519		621
Total operations and field realignment	Total operations and field realignment	$	1,215	$	1,489	$	5,290	Total operations and field realignment	$	74	$	3,021	$	1,563	$	3,021	$	5,364

_______________

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

The table below presents a rollforward of our accruals for the Operations and Field Realignment Plan, which are included in “Accrued expenses and other current liabilities” as of ~~July 4,~~October 3, 2021.


		Balance January 3, 2021		Charges		Payments		Balance July 4, 2021			Balance January 3, 2021		Charges		Payments		Balance October 3, 2021
Severance and related employee costs	Severance and related employee costs	$	2,600	$	333	$	(1,924)	$	1,009	Severance and related employee costs	$	2,600	$	333	$	(2,377)	$	556
Third-party and other costs	Third-party and other costs	0		1,156		(1,156)		0		Third-party and other costs	—		1,230		(1,230)		—
		$	2,600	$	1,489	$	(3,080)	$	1,009		$	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 ~~three and six~~nine months ended ~~June 28,~~September 27, 2020, the Company recognized costs totaling ~~$2,847 and $6,406,~~$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.

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

Three Months Ended Six Months Ended Total
Incurred Since Inception
July 4,
2021 June 28,
2020 July 4,
2021 June 28,
2020
Severance and related employee costs (a) $ (8) $ 830 $ (119) $ 975 $ 8,272
Recruitment and relocation costs 13 143 121 314 1,417
Third-party and other costs 1 1,874 4 5,117 6,539
6 2,847 6 6,406 16,228
Share-based compensation (b) 0 0 0 0 193
Total IT realignment $ 6 $ 2,847 $ 6 $ 6,406 $ 16,421

~~_______________~~

~~(a)The three and six months ended July 4, 2021 include a reversal of an accrual as a result of a change in estimate.~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following is a summary of the 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.

~~The~~As of October 3, 2021, the accruals for the IT Realignment Plan are included in “Accrued expenses and 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 ~~$462~~$2,739 and ~~$10 as of July 4, 2021 and $4,039 and $371 as of June 28, 2020,~~$178, respectively. The tables below present a rollforward of our accruals for the IT Realignment Plan.


		Balance January 3, 2021		Charges		Payments		Balance July 4, 2021			Balance January 3, 2021		Charges		Payments		Balance October 3, 2021
Severance and related employee costs	Severance and related employee costs	$	1,508	$	(119)	$	(917)	$	472	Severance and related employee costs	$	1,508	$	(151)	$	(1,115)	$	242
Recruitment and relocation costs	Recruitment and relocation costs	0		121		(121)		0		Recruitment and relocation costs	—		133		(133)		—
Third-party and other costs	Third-party and other costs	0		4		(4)		0		Third-party and other costs	—		7		(7)		—
		$	1,508	$	6	$	(1,042)	$	472		$	1,508	$	(11)	$	(1,255)	$	242


		Balance December 29, 2019		Charges		Payments		Balance June 28, 2020			Balance December 29, 2019		Charges		Payments		Balance September 27, 2020
Severance and related employee costs	Severance and related employee costs	$	7,548	$	975	$	(4,113)	$	4,410	Severance and related employee costs	$	7,548	$	1,009	$	(5,640)	$	2,917
Recruitment and relocation costs	Recruitment and relocation costs	0		314		(314)		0		Recruitment and relocation costs	—		659		(659)		—
Third-party and other costs	Third-party and other costs	1,076		5,117		(6,193)		0		Third-party and other costs	1,076		5,141		(6,217)		—
		$	8,624	$	6,406	$	(10,620)	$	4,410		$	8,624	$	6,809	$	(12,516)	$	2,917

General and Administrative (“G&A”) Realignment

In May 2017, the Company 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 ~~six~~nine months ended ~~June 28,~~September 27, 2020, the Company recognized costs totaling ~~$331,~~$282, which primarily included share-based ~~compensation and severance and related employee costs.~~compensation. The Company does not expect to incur any material additional costs under the G&A Realignment Plan.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following is a summary of the activity recorded as a result of the G&A Realignment Plan:


		Three Months Ended				Six Months Ended				Total Incurred Since Inception			Three Months Ended				Nine Months Ended				Total Incurred Since Inception
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020					October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Severance and related employee costs (a)	Severance and related employee costs (a)	$	(22)	$	(6)	$	(53)	$	146	$	24,213	Severance and related employee costs (a)	$	(8)	$	(116)	$	(61)	$	30	$	24,205
Recruitment and relocation costs	Recruitment and relocation costs	(1)		0		0		15		2,876		Recruitment and relocation costs	1		27		1		42		2,877
Third-party and other costs	Third-party and other costs	(1)		0		0		1		2,223		Third-party and other costs	—		9		—		10		2,223
		(24)		(6)		(53)		162		29,312			(7)		(80)		(60)		82		29,305
Share-based compensation (b)	Share-based compensation (b)	8		70		19		169		8,130		Share-based compensation (b)	—		31		19		200		8,130
Termination of defined benefit plans	Termination of defined benefit plans	0		0		0		0		1,335		Termination of defined benefit plans	—		—		—		—		1,335
Total G&A realignment	Total G&A realignment	$	(16)	$	64	$	(34)	$	331	$	38,777	Total G&A realignment	$	(7)	$	(49)	$	(41)	$	282	$	38,770

_______________

(a)The three and ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~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.

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

As of ~~July 4,~~October 3, 2021, the accruals for the G&A realignment plan are included in “Accrued expenses and other current liabilities.” As of ~~June 28,~~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 ~~$2,705~~$1,705 and ~~$108,~~$18, respectively. The tables below present a rollforward of our accruals for the G&A Realignment Plan.


		Balance January 3, 2021		Charges		Payments		Balance July 4, 2021			Balance January 3, 2021		Charges		Payments		Balance October 3, 2021
Severance and related employee costs	Severance and related employee costs	$	932	$	(53)	$	(738)	$	141	Severance and related employee costs	$	932	$	(61)	$	(828)	$	43
Recruitment and relocation costs	Recruitment and relocation costs	0		0		0		0		Recruitment and relocation costs	—		1		(1)		—
Third-party and other costs	Third-party and other costs	0		0		0		0		Third-party and other costs	—		—		—		—
		$	932	$	(53)	$	(738)	$	141		$	932	$	(60)	$	(829)	$	43


		Balance December 29, 2019		Charges		Payments		Balance June 28, 2020			Balance December 29, 2019		Charges		Payments		Balance September 27, 2020
Severance and related employee costs	Severance and related employee costs	$	5,276	$	146	$	(2,671)	$	2,751	Severance and related employee costs	$	5,276	$	30	$	(3,627)	$	1,679
Recruitment and relocation costs	Recruitment and relocation costs	83		15		(36)		62		Recruitment and relocation costs	83		42		(81)		44
Third-party and other costs	Third-party and other costs	0		1		(1)		0		Third-party and other costs	—		10		(10)		—
		$	5,359	$	162	$	(2,708)	$	2,813		$	5,359	$	82	$	(3,718)	$	1,723

System Optimization Initiative

The Company recognizes costs related to acquisitions and dispositions under its system optimization initiative. During the ~~six~~nine months ended ~~July 4,~~October 3, 2021, the Company recognized costs totaling ~~$5,575,~~$5,870, which were primarily comprised of the write-off of certain lease assets and lease termination fees associated with the NPC bankruptcy sale process. See Note 3 for further information. The Company expects to recognize a gain of approximately $1,000 related to the 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)

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


		Three Months Ended				Six Months Ended				Total Incurred Since Inception			Three Months Ended				Nine Months Ended				Total Incurred Since Inception
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020					October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Severance and related employee costs	Severance and related employee costs	$	661	$	0	$	661	$	0	$	18,898	Severance and related employee costs	$	—	$	—	$	661	$	—	$	18,898
Professional fees	Professional fees	504		0		739		80		22,846		Professional fees	277		—		1,016		80		23,123
Other (a)	Other (a)	0		0		1,354		4		7,207		Other (a)	—		—		1,354		4		7,207
		1,165		0		2,754		84		48,951			277		—		3,031		84		49,228
Accelerated depreciation and amortization (b)	Accelerated depreciation and amortization (b)	0		0		0		0		25,398		Accelerated depreciation and amortization (b)	—		—		—		—		25,398
NPC lease termination costs (c)	NPC lease termination costs (c)	(268)		0		2,821		0		2,821		NPC lease termination costs (c)	18		—		2,839		—		2,839
Share-based compensation (d)	Share-based compensation (d)	0		0		0		0		5,013		Share-based compensation (d)	—		—		—		—		5,013
Total system optimization initiative	Total system optimization initiative	$	897	$	0	$	5,575	$	84	$	82,183	Total system optimization initiative	$	295	$	—	$	5,870	$	84	$	82,478

_______________

(a)The ~~six~~nine months ended ~~July 4,~~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 ~~six~~nine months ended ~~July 4,~~October 3, 2021 includes the write-off of lease assets of ~~$1,341~~$1,359 and lease termination fees paid of $1,480.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

(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 system optimization initiative.

The table below presents a rollforward of our accruals for 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 July 4, 2021			Balance January 3, 2021		Charges		Payments		Balance October 3, 2021
Severance and related employee costs	Severance and related employee costs	$	0	$	661	$	(661)	$	0	Severance and related employee costs	$	—	$	661	$	(661)	$	—
Professional fees	Professional fees	1,230		739		(1,969)		0		Professional fees	1,230		1,016		(2,246)		—
Other	Other	0		1,354		(1,354)		0		Other	—		1,354		(1,354)		—
		$	1,230	$	2,754	$	(3,984)	$	0		$	1,230	$	3,031	$	(4,261)	$	—

(6) Investments

Equity Method Investments

Wendy’s has a 50% share in a partnership in a Canadian restaurant real estate joint venture (“TimWen”) with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company that owns the Tim Hortons® brand. (Tim Hortons is a registered trademark of Tim Hortons USA Inc.) In addition, a wholly-owned subsidiary of Wendy’s has a 20% share in a joint venture for the operation of Wendy’s restaurants in Brazil (the “Brazil JV”). The Company has significant influence over these investees. Such investments are accounted for using the equity method of accounting, under which our results of operations include our share of the income (loss) of the investees in “Other operating income, net.”

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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


		Six Months Ended					Nine Months Ended
		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020
Balance at beginning of period	Balance at beginning of period	$	44,574	$	45,310	Balance at beginning of period	$	44,574	$	45,310

Equity in earnings for the period	Equity in earnings for the period	4,921		3,455		Equity in earnings for the period	8,005		6,113
Amortization of purchase price adjustments (a)	Amortization of purchase price adjustments (a)	(1,658)		(1,105)		Amortization of purchase price adjustments (a)	(2,392)		(1,671)
		3,263		2,350			5,613		4,442
Distributions received	Distributions received	(5,617)		(3,612)		Distributions received	(9,174)		(5,629)
Foreign currency translation adjustment included in “Other comprehensive income (loss)” and other		1,456		(1,631)
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	Balance at end of period	$	43,676	$	42,417	Balance at end of period	$	41,356	$	43,422

_______________

(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.

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

(7) Long-Term Debt

Long-term debt consisted of the following:


		July 4, 2021		January 3, 2021			October 3, 2021		January 3, 2021
Series 2021-1 Class A-2 Notes:	Series 2021-1 Class A-2 Notes:					Series 2021-1 Class A-2 Notes:
2.370% Series 2021-1 Class A-2-I Notes, anticipated repayment date 2029	2.370% Series 2021-1 Class A-2-I Notes, anticipated repayment date 2029	$	450,000	$	—	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	2.775% Series 2021-1 Class A-2-II Notes, anticipated repayment date 2031	650,000		—		2.775% Series 2021-1 Class A-2-II Notes, anticipated repayment date 2031	648,375		—
Series 2019-1 Class A-2 Notes:	Series 2019-1 Class A-2 Notes:					Series 2019-1 Class A-2 Notes:
3.783% Series 2019-1 Class A-2-I Notes, anticipated repayment date 2026	3.783% Series 2019-1 Class A-2-I Notes, anticipated repayment date 2026	378,000		386,000		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	4.080% Series 2019-1 Class A-2-II Notes, anticipated repayment date 2029	425,250		434,250		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:	Series 2018-1 Class A-2 Notes:					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	3.573% Series 2018-1 Class A-2-I Notes, repaid in connection with the June 2021 refinancing	0		436,500		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	3.884% Series 2018-1 Class A-2-II Notes, anticipated repayment date 2028	458,375		460,750		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:	Series 2015-1 Class A-2 Notes:					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	4.497% Series 2015-1 Class A-2-III Notes, repaid in connection with the June 2021 refinancing	0		473,750		4.497% Series 2015-1 Class A-2-III Notes, repaid in connection with the June 2021 refinancing	—		473,750
Canadian revolving credit facility	Canadian revolving credit facility	0		1,962		Canadian revolving credit facility	—		1,962
7% debentures, due in 2025	7% debentures, due in 2025	84,585		83,998		7% debentures, due in 2025	84,880		83,998
Unamortized debt issuance costs	Unamortized debt issuance costs	(39,850)		(30,085)		Unamortized debt issuance costs	(38,430)		(30,085)
		2,406,360		2,247,125			2,393,513		2,247,125
Less amounts payable within one year	Less amounts payable within one year	(32,750)		(28,962)		Less amounts payable within one year	(32,750)		(28,962)
Total long-term debt	Total long-term debt	$	2,373,610	$	2,218,163	Total long-term debt	$	2,360,763	$	2,218,163

Senior Notes

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

initial principal amount of $450,000 and Class A-2-II with an initial principal amount of $650,000 (collectively, the “Series 2021-1 Class A-2 Notes”). Interest and principal payments on the Series 2021-1 Class A-2 Notes are payable on a quarterly basis. The legal final maturity date of the Series 2021-1 Class A-2 Notes is in June 2051. If the Master Issuer has not repaid or refinanced the Series 2021-1 Class A-2 Notes prior to their respective anticipated repayment dates, additional interest will accrue pursuant to the indenture governing the Series 2021-1 Class A-2 Notes. 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. As a result of the refinancing, the Company recorded a loss on early extinguishment of debt of $17,917 during the ~~three~~nine months ended ~~July 4,~~October 3, 2021, which was comprised of a specified make-whole payment of $9,632 and the write-off of certain unamortized deferred financing costs of $8,285. The Series 2021-1 Class A-2 Notes have scheduled principal payments of $5,500 in 2021 (of which $2,750 was paid during the three months ended October 3, 2021), $11,000 annually from 2022 through 2028, $422,750 in 2029, $6,500 in 2030 and $588,250 in 2031.

In connection with the issuance of the Series 2021-1 Class A-2 Notes, the Master Issuer 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” and, together with the Series 2021-1 Class A-2 Notes, the “Series 2021-1 Senior Notes”), which allows for the drawing of up to $300,000 on a revolving basis using various credit instruments, including a letter of credit facility. ~~NaN~~No amounts were borrowed under the Series 2021-1 Class A-1 Notes during the ~~three~~nine months ended ~~July 4,~~October 3, 2021. The Series 2021-1 Class A-1 Notes replaced the Company’s $150,000 Series 2019-1 Class A-1 Notes and $100,000 Series 2020-1 Class A-1 Notes, which were canceled 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.

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

The Series 2021-1 Senior Notes are secured by substantially all of the assets of the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company that act as guarantors, except for certain real estate assets and subject to certain limitations. The Series 2021-1 Senior Notes are subject to substantially the same series of covenants and restrictions as the Company’s outstanding Series 2019-1 Class A-2 Notes and Series 2018-1 Class A-2 Notes.

During the ~~three and six~~nine months ended ~~July 4,~~October 3, 2021, the Company incurred debt issuance costs of $20,873 in connection with the issuance of the Series 2021-1 Senior Notes. The debt issuance costs will be amortized to “Interest expense, net” through the anticipated repayment dates of the Series 2021-1 Senior Notes utilizing the effective interest rate method.

Other Long-Term Debt

A Canadian subsidiary of Wendy’s has a revolving credit facility of C$6,000, which bears interest at the Bank of Montreal Prime Rate. Borrowings under the facility are guaranteed by Wendy’s. In March 2020, the Company drew down C$5,500 under the revolving credit facility, which the Company fully repaid through repayments of C$3,000 in the fourth quarter of 2020 and C$2,500 in the first quarter of 2021. As a result, as of ~~July 4,~~October 3, 2021, the Company had 0no outstanding borrowings under the Canadian revolving credit facility.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(8) Fair Value Measurements

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

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

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

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

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Financial Instruments

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


		July 4, 2021				January 3, 2021						October 3, 2021				January 3, 2021
		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements
Financial assets	Financial assets										Financial assets
Cash equivalents	Cash equivalents	$	125,037	$	125,037	$	75,067	$	75,067	Level 1	Cash equivalents	$	125,042	$	125,042	$	75,067	$	75,067	Level 1

Financial liabilities	Financial liabilities										Financial liabilities
Series 2021-1 Class A-2-I Notes (a)	Series 2021-1 Class A-2-I Notes (a)	450,000		453,105		0		0		Level 2	Series 2021-1 Class A-2-I Notes (a)	448,875		454,441		—		—		Level 2
Series 2021-1 Class A-2-II Notes (a)	Series 2021-1 Class A-2-II Notes (a)	650,000		658,190		0		0		Level 2	Series 2021-1 Class A-2-II Notes (a)	648,375		663,806		—		—		Level 2
Series 2019-1 Class A-2-I Notes (a)	Series 2019-1 Class A-2-I Notes (a)	378,000		402,570		386,000		409,778		Level 2	Series 2019-1 Class A-2-I Notes (a)	373,000		395,641		386,000		409,778		Level 2
Series 2019-1 Class A-2-II Notes (a)	Series 2019-1 Class A-2-II Notes (a)	425,250		466,669		434,250		469,555		Level 2	Series 2019-1 Class A-2-II Notes (a)	419,625		454,874		434,250		469,555		Level 2
Series 2018-1 Class A-2-I Notes (a)	Series 2018-1 Class A-2-I Notes (a)	0		0		436,500		450,381		Level 2	Series 2018-1 Class A-2-I Notes (a)	—		—		436,500		450,381		Level 2
Series 2018-1 Class A-2-II Notes (a)	Series 2018-1 Class A-2-II Notes (a)	458,375		489,407		460,750		491,021		Level 2	Series 2018-1 Class A-2-II Notes (a)	457,188		486,037		460,750		491,021		Level 2
Series 2015-1 Class A-2-III Notes (a)	Series 2015-1 Class A-2-III Notes (a)	0		0		473,750		481,851		Level 2	Series 2015-1 Class A-2-III Notes (a)	—		—		473,750		481,851		Level 2
Canadian revolving credit facility	Canadian revolving credit facility	0		0		1,962		1,962		Level 2	Canadian revolving credit facility	—		—		1,962		1,962		Level 2
7% debentures, due in 2025 (a)	7% debentures, due in 2025 (a)	84,585		101,250		83,998		98,775		Level 2	7% debentures, due in 2025 (a)	84,880		100,800		83,998		98,775		Level 2

_______________

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

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Non-Recurring Fair Value Measurements

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

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

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Total impairment losses may also include the impact of remeasuring long-lived assets held for sale. The fair values of long-lived assets held for sale presented in the tables below represent the remaining carrying value and were estimated based on current market values. See Note 9 for further information on impairment of our long-lived assets.


				Fair Value Measurements									Fair Value Measurements
		July 4, 2021		Level 1		Level 2		Level 3			October 3, 2021		Level 1		Level 2		Level 3
Held and used	Held and used	$	718	$	0	$	0	$	718	Held and used	$	1,256	$	—	$	—	$	1,256
Held for sale	Held for sale	340		0		0		340		Held for sale	340		—		—		340
Total	Total	$	1,058	$	0	$	0	$	1,058	Total	$	1,596	$	—	$	—	$	1,596


				Fair Value Measurements									Fair Value Measurements
		January 3, 2021		Level 1		Level 2		Level 3			January 3, 2021		Level 1		Level 2		Level 3
Held and used	Held and used	$	2,653	$	0	$	0	$	2,653	Held and used	$	2,653	$	—	$	—	$	2,653
Held for sale	Held for sale	855		0		0		855		Held for sale	855		—		—		855
Total	Total	$	3,508	$	0	$	0	$	3,508	Total	$	3,508	$	—	$	—	$	3,508

(9) Impairment of Long-Lived Assets

The Company records impairment charges as a result of (1) the deterioration in operating performance of certain Company-operated restaurants, (2) the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of Company-operated restaurants, including any subsequent lease modifications, and (3) closing Company-operated restaurants and classifying such surplus properties as held for sale. Impairment charges during the ~~six~~nine months ended ~~June 28,~~September 27, 2020 were primarily due to the expected deterioration in operating performance of certain Company-operated restaurants as a result of the COVID-19 pandemic.

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

Three Months Ended Six Months Ended
July 4,
2021 June 28,
2020 July 4,
2021 June 28,
2020
Company-operated restaurants $ 488 $ 0 $ 934 $ 4,395
Restaurants leased or subleased to franchisees 0 0 189 0
Surplus properties 142 117 142 309
$ 630 $ 117 $ 1,265 $ 4,704

~~(10) Income Taxes~~

The Company’s effective tax rate for the three months ended July 4, 2021 and June 28, 2020 was 18.6% and 20.8%, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21% for the three months ended July 4, 2021 primarily due to a reduction for the benefit of share-based compensation, partially offset by an increase due to state income taxes.

The Company’s effective tax rate for the six months ended July 4, 2021 and June 28, 2020 was 20.8% and 25.4%, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21% for the six months ended July 4, 2021 primarily due to a reduction for the benefit of share-based compensation, partially offset by an increase due to state income taxes, including discrete changes to state deferred taxes.

There were no significant changes to the unrecognized tax benefits or related interest and penalties for the three and six months ended July 4, 2021. During the next twelve months, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $2,016 due primarily to the lapse of statutes of limitations and expected settlements.


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Company-operated restaurants	$	566	$	—	$	1,500	$	4,395
Restaurants leased or subleased to franchisees	—		—		189		—
Surplus properties	—		23		142		332
	$	566	$	23	$	1,831	$	4,727

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(10) Income Taxes

The Company’s effective tax rate for the three months ended October 3, 2021 and September 27, 2020 was 24.3% and 24.2%, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21% for the three months ended October 3, 2021 primarily due to state income taxes, partially offset by a benefit related to the filing of our 2020 federal income tax return.

The Company’s effective tax rate for the nine months ended October 3, 2021 and September 27, 2020 was 21.8% and 24.8%, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21% for the nine months ended October 3, 2021 primarily due to state income taxes, including discrete changes to state deferred taxes, partially offset by the tax benefit from share-based compensation.

Unrecognized tax benefits for the Company decreased $1,874 and $2,019 during the three and nine months ended October 3, 2021, respectively. The decrease was primarily related to settlements with various taxing jurisdictions. During the next twelve months, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $66 due primarily to the lapse of statutes of limitations and expected settlements.

The current portion of refundable income taxes was ~~$4,528~~$1,813 and $5,399 as of ~~July 4,~~October 3, 2021 and January 3, 2021, respectively, and is included in “Accounts and notes receivable, net.” There were 0no long-term refundable income taxes as of ~~July 4,~~October 3, 2021 and January 3, 2021.

(11) Net Income Per Share

The calculation of basic and diluted net income per share was as follows:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Net income	Net income	$	65,724	$	24,904	$	107,090	$	39,345	Net income	$	41,171	$	39,753	$	148,261	$	79,098

Common stock:	Common stock:									Common stock:
Weighted average basic shares outstanding	Weighted average basic shares outstanding	221,874		223,123		222,604		223,329		Weighted average basic shares outstanding	222,373		223,907		222,527		223,521
Dilutive effect of stock options and restricted shares	Dilutive effect of stock options and restricted shares	3,526		4,051		3,459		4,262		Dilutive effect of stock options and restricted shares	2,685		4,410		3,201		4,312
Weighted average diluted shares outstanding	Weighted average diluted shares outstanding	225,400		227,174		226,063		227,591		Weighted average diluted shares outstanding	225,058		228,317		225,728		227,833

Net income per share:	Net income per share:									Net income per share:
Basic	Basic	$	.30	$	.11	$	.48	$	.18	Basic	$	.19	$	.18	$	.67	$	.35
Diluted	Diluted	$	.29	$	.11	$	.47	$	.17	Diluted	$	.18	$	.17	$	.66	$	.35

Basic net income per share for the three and ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020 was computed by dividing net income amounts by the weighted average number of shares of common stock outstanding. Diluted net income per share for the three and ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020 was computed by dividing net income by the weighted average number of basic shares outstanding plus the potential common share effect of dilutive stock options and restricted shares. We excluded potential common shares of ~~1,825~~2,746 and ~~1,847~~2,147 for the three and ~~six~~nine months ended ~~July 4,~~October 3, 2021, respectively, and ~~2,636~~1,049 and ~~2,652~~2,117 for the three and ~~six~~nine months ended ~~June 28,~~September 27, 2020, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(12) Stockholders’ Equity

Dividends

During the first, second and ~~second~~third quarter of 2021, the Company paid dividends per share of $.09, $.10 and ~~$.10,~~$.12, respectively. During the first, second and ~~second~~third quarter of 2020, the Company paid dividends per share of $.12, $.05 and $.05, respectively.

Repurchases of Common Stock

In February 2020, our Board of Directors authorized a repurchase program for up to $100,000 of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally ~~permissible.~~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 the Board of Directors approved an increase of $50,000 to the February 2020 authorization, resulting in an aggregate authorization of $150,000 that continues to expire on February 28, 2022. During the six months ended July 4, 2021, the Company repurchased 3,956 shares under the February 2020 repurchase authorization with an aggregate purchase price of $83,320, of which $440 was accrued at July 4, 2021, and excluding commissions of $55. As of July 4, 2021, the Company had $34,396 of availability remaining under its February 2020 authorization. Subsequent to July 4, 2021 through August 4, 2021, the Company repurchased 193 shares under the February 2020 authorization with an aggregate purchase price of $4,396, excluding commissions of $2. In addition, in August 2021, the Board of Directors approved ~~an increase~~increases of $50,000 and $70,000, respectively, to the February 2020 authorization, resulting in an aggregate authorization of $220,000 that continues to

~~Table~~ expire on February 28, 2022. During the nine months ended October 3, 2021, the Company repurchased 5,876 shares under the February 2020 authorization with an aggregate purchase price of ~~Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

($127,150, of which $2,299 was accrued at October 3, 2021, and excluding commissions of $82. As of October 3, 2021, the Company had $60,566 of availability remaining under the February 2020 authorization. Subsequent to October 3, 2021 through November 3, 2021, the Company repurchased 697 shares under the February 2020 authorization with an aggregate purchase price of $15,494, excluding commissions of $10. In ~~Thousands Except Per Share Amounts)~~

addition, in November 2021, the Board of Directors approved an increase of $80,000 to the February 2020 authorization, resulting in an aggregate authorization of $300,000 that continues to expire on February 28, 2022. The Company also announced in November 2021 its intention to launch a $125,000 accelerated share repurchase transaction during the fourth quarter of 2021 as part of the February 2020 authorization. The Company has availability of ~~$100,000~~$125,072 remaining under the February 2020 authorization as of ~~August 11,~~November 10, 2021.

In February 2019, our Board of Directors authorized a repurchase program for up to $225,000 of our common stock through March 1, 2020, when and if market conditions warranted and to the extent legally ~~permissible.~~permissible (the February 2019 authorization”). In November 2019, the Company entered into an accelerated share repurchase agreement (the “2019 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the ~~Company’s existing share repurchase program.~~February 2019 authorization. Under the 2019 ASR Agreement, the Company paid the financial institution an initial purchase price of $100,000 in cash and received an initial delivery of 4,051 shares of common stock, representing an estimated 85% of the total shares expected to be delivered under the 2019 ASR Agreement. In February 2020, the Company completed the 2019 ASR Agreement and received an additional 628 shares of common stock at an average purchase price of $23.89. The total number of shares of common stock ultimately purchased by the Company under the 2019 ASR Agreement was based on the average of the daily volume-weighted average prices of the common stock during the term of the 2019 ASR Agreement, less an agreed upon discount. In total, 4,679 shares were delivered under the 2019 ASR Agreement at an average purchase price of $21.37 per share.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during the ~~six~~nine months ended ~~June 28,~~September 27, 2020, the Company repurchased ~~2,091~~2,172 shares with an aggregate purchase price of ~~$43,307,~~$45,014, excluding commissions of ~~$29,~~$30, under the February 2020 authorization and the February 2019 authorization. After taking into consideration these repurchases, with the completion of the 2019 ASR Agreement in February 2020, the Company completed ~~its~~the February 2019 authorization.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Accumulated Other Comprehensive Loss

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


		Six Months Ended					Nine Months Ended
		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020
Balance at beginning of period	Balance at beginning of period	$	(49,641)	$	(53,828)	Balance at beginning of period	$	(49,641)	$	(53,828)
Foreign currency translation	Foreign currency translation	5,567		(8,358)		Foreign currency translation	908		(5,138)
Balance at end of period	Balance at end of period	$	(44,074)	$	(62,186)	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 owns sites and leases sites from third parties, which it leases and/or subleases to franchisees. At ~~July 4,~~October 3, 2021, Wendy’s and its franchisees operated ~~6,866~~6,891 Wendy’s restaurants. Of the ~~315~~313 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for ~~138~~136 restaurants, owned the building and held long-term land leases for ~~120~~117 restaurants and held leases covering the land and building for 5760 restaurants. Wendy’s also owned 510 and leased ~~1,276~~1,275 properties that were either leased or subleased principally to franchisees. The Company also leases restaurant, office and transportation equipment.

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Company as Lessee

The components of lease cost are as follows:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Finance lease cost:	Finance lease cost:									Finance lease cost:
Amortization of finance lease assets	Amortization of finance lease assets	$	3,251	$	3,338	$	6,759	$	6,524	Amortization of finance lease assets	$	3,543	$	3,471	$	10,302	$	9,995
Interest on finance lease liabilities	Interest on finance lease liabilities	10,267		10,160		20,560		20,218		Interest on finance lease liabilities	10,371		10,244		30,931		30,462
		13,518		13,498		27,319		26,742			13,914		13,715		41,233		40,457
Operating lease cost	Operating lease cost	23,012		23,969		46,373		45,134		Operating lease cost	22,388		23,170		68,761		68,304
Variable lease cost (a)	Variable lease cost (a)	16,583		13,848		31,771		28,218		Variable lease cost (a)	16,635		15,548		48,406		43,766
Short-term lease cost	Short-term lease cost	1,270		991		2,596		2,321		Short-term lease cost	1,125		1,006		3,721		3,327
Total operating lease cost (b)	Total operating lease cost (b)	40,865		38,808		80,740		75,673		Total operating lease cost (b)	40,148		39,724		120,888		115,397
Total lease cost	Total lease cost	$	54,383	$	52,306	$	108,059	$	102,415	Total lease cost	$	54,062	$	53,439	$	162,121	$	155,854

_______________

(a)Includes expenses for executory costs of ~~$10,087~~$10,016 and ~~$9,457~~$9,326 for the three months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020, respectively, and ~~$20,150~~$30,166 and ~~$19,200~~$28,526 for the ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020, respectively, for which the Company is reimbursed by sublessees.

(b)Includes ~~$34,063~~$34,396 and ~~$31,263~~$32,421 for the three months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020, respectively, and ~~$66,615~~$101,011 and ~~$60,554~~$92,975 for the ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees. Also includes ~~$6,111~~$5,213 and ~~$6,831~~$6,651 for the three months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020, respectively, and ~~$12,792~~$18,005 and ~~$13,664~~$20,315 for the ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

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

Six Months Ended
July 4,
2021 June 28,
2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 20,957 $ 18,853
Operating cash flows from operating leases 46,879 40,582
Financing cash flows from finance leases 5,777 3,707
Right-of-use assets obtained in exchange for lease obligations:
Finance lease liabilities 30,863 12,962
Operating lease liabilities 4,577 13,380

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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

The following table includes supplemental information related to leases:


		July 4, 2021			January 3, 2021				October 3, 2021			January 3, 2021
Weighted-average remaining lease term (years):	Weighted-average remaining lease term (years):							Weighted-average remaining lease term (years):
Finance leases	Finance leases	16.0			16.2			Finance leases	15.8			16.2
Operating leases	Operating leases	14.3			14.6			Operating leases	14.2			14.6

Weighted average discount rate:	Weighted average discount rate:							Weighted average discount rate:
Finance leases	Finance leases	9.29		%	9.54		%	Finance leases	9.19		%	9.54		%
Operating leases	Operating leases	5.03		%	5.06		%	Operating leases	5.01		%	5.06		%

Supplemental balance sheet information:	Supplemental balance sheet information:							Supplemental balance sheet information:
Finance lease assets, gross	Finance lease assets, gross	$	264,824		$	261,308		Finance lease assets, gross	$	271,075		$	261,308
Accumulated amortization	Accumulated amortization	(58,238)			(55,155)			Accumulated amortization	(60,415)			(55,155)
Finance lease assets	Finance lease assets	206,586			206,153			Finance lease assets	210,660			206,153
Operating lease assets	Operating lease assets	791,924			821,480			Operating lease assets	783,986			821,480

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of ~~July 4,~~October 3, 2021:


		Finance Leases				Operating Leases					Finance Leases				Operating Leases
Fiscal Year	Fiscal Year	Company-Operated		Franchise and Other		Company-Operated		Franchise and Other		Fiscal Year	Company-Operated		Franchise and Other		Company-Operated		Franchise and Other
2021 (a) (b)	2021 (a) (b)	$	2,229	$	25,786	$	6,989	$	36,993	2021 (a) (b)	$	1,398	$	13,934	$	3,504	$	18,313
2022	2022	3,476		51,490		14,240		74,000		2022	3,699		51,912		14,412		73,572
2023	2023	3,422		53,175		14,401		73,794		2023	3,644		53,569		14,726		73,226
2024	2024	3,489		53,608		14,462		73,761		2024	3,712		54,001		14,738		73,145
2025	2025	3,564		54,098		14,357		73,455		2025	3,787		54,496		14,633		72,829
Thereafter	Thereafter	42,705		671,835		133,387		733,429		Thereafter	46,140		682,798		141,258		732,276
Total minimum payments	Total minimum payments	$	58,885	$	909,992	$	197,836	$	1,065,432	Total minimum payments	$	62,380	$	910,710	$	203,271	$	1,043,361
Less interest	Less interest	(21,909)		(410,813)		(57,308)		(322,106)		Less interest	(22,694)		(405,706)		(58,455)		(312,148)
Present value of minimum lease payments (c) (d)	Present value of minimum lease payments (c) (d)	$	36,976	$	499,179	$	140,528	$	743,326	Present value of minimum lease payments (c) (d)	$	39,686	$	505,004	$	144,816	$	731,213

_______________

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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 ~~$2,175~~$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 ~~$14,547~~$15,915 and ~~$521,608~~$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 ~~$45,269~~$45,541 and ~~$838,585~~$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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~Company as Lessor~~

~~The components of lease income are as follows:~~

Three Months Ended Six Months Ended
July 4,
2021 June 28,
2020 July 4,
2021 June 28,
2020
Sales-type and direct-financing leases:
Selling profit $ 1,627 $ 569 $ 3,539 $ 1,197
Interest income (a) 7,586 7,260 15,075 14,508
Operating lease income 44,356 43,052 88,478 87,004
Variable lease income 16,512 13,805 31,266 27,709
Franchise rental income (b) $ 60,868 $ 56,857 $ 119,744 $ 114,713

~~_______________~~

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

~~(b)~~Includes sublease income of $45,245 and $41,489 for the three months ended July 4, 2021 and June 28, 2020, respectively, and $88,495 and $83,531 for the six months ended July 4, 2021 and June 28, 2020, respectively. Sublease income includes lessees’ variable payments to the Company for executory costs of $10,195 and $9,450 for the three months ended July 4, 2021 and June 28, 2020, respectively, and $20,069 and $19,159 for the six months ended July 4, 2021 and June 28, 2020, respectively.

The following table illustrates the Company’s future minimum rental receipts for non-cancelable leases and subleases as of ~~July 4,~~October 3, 2021:


		Sales-Type and Direct Financing Leases				Operating Leases					Sales-Type and Direct Financing Leases				Operating Leases
Fiscal Year	Fiscal Year	Subleases		Owned Properties		Subleases		Owned Properties		Fiscal Year	Subleases		Owned Properties		Subleases		Owned Properties
2021 (a) (b)	2021 (a) (b)	$	16,720	$	2,040	$	57,923	$	27,709	2021 (a) (b)	$	8,409	$	1,407	$	28,841	$	13,942
2022	2022	33,942		2,612		116,647		56,397		2022	34,188		2,610		116,068		56,305
2023	2023	35,003		2,658		117,448		56,707		2023	35,247		2,656		116,795		56,614
2024	2024	37,004		2,669		117,667		57,816		2024	37,248		2,667		116,962		57,720
2025	2025	35,907		2,787		117,156		58,421		2025	36,149		2,784		116,443		58,323
Thereafter	Thereafter	474,723		35,676		1,172,618		750,148		Thereafter	479,695		32,057		1,172,444		748,781
Total future minimum receipts	Total future minimum receipts	633,299		48,442		$	1,699,459	$	1,007,198	Total future minimum receipts	630,936		44,181		$	1,667,553	$	991,685
Unearned interest income	Unearned interest income	(346,389)		(26,004)						Unearned interest income	(341,031)		(21,892)
Net investment in sales-type and direct financing leases (c)	Net investment in sales-type and direct financing leases (c)	$	286,910	$	22,438					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 ~~$1,088~~$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 ~~$6,654~~$6,952 and ~~$302,694~~$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 unguaranteed residual assets of ~~$521.~~$535.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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


		July 4, 2021		January 3, 2021			October 3, 2021		January 3, 2021
Land	Land	$	280,879	$	279,956	Land	$	280,767	$	279,956
Buildings and improvements	Buildings and improvements	307,834		309,605		Buildings and improvements	307,593		309,605
Restaurant equipment	Restaurant equipment	1,701		1,701		Restaurant equipment	1,701		1,701
		590,414		591,262			590,061		591,262
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(176,125)		(170,722)		Accumulated depreciation and amortization	(179,439)		(170,722)
		$	414,289	$	420,540		$	410,622	$	420,540

(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 ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020, Wendy’s paid TimWen ~~$8,817~~$13,994 and ~~$7,408,~~$11,970, respectively, under these lease agreements. In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of ~~$110~~$165 and ~~$101~~$152 during the ~~six~~nine months ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020, respectively, which has been included as a reduction to “General and administrative.”

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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 ~~July 4,~~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 ~~six~~nine months ended ~~July 4,~~October 3, 2021, the Company recognized ~~$4,353~~$7,016 in royalty, advertising fund, lease and other income from Yellow Cab and related entities. As of ~~July 4,~~October 3, 2021, ~~$883~~$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

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.

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 ~~$95,160~~$89,574 as of ~~July 4,~~October 3, 2021. These leases extend through 2045. We have had no judgments against us as guarantor of these leases as of ~~July 4,~~October 3, 2021. In the event of default by a franchise

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

owner, Wendy’s generally retains the right to acquire possession of the related restaurant locations. The liability recorded for our probable exposure associated with these lease guarantees was not material as of ~~July 4,~~October 3, 2021.

Letters of Credit

As of ~~July 4,~~October 3, 2021, the Company had outstanding letters of credit with various parties totaling ~~$26,579.~~$23,569. Substantially all of the outstanding letters of credit include amounts outstanding against the 2021-1 Class A-1 Notes. We do not expect any material loss to result from these letters of credit.

(16) Legal and Environmental Matters

The Company is involved in litigation and claims incidental to our business. We provide accruals for such litigation and claims when payment is probable and reasonably estimable. We believe we have adequate accruals for all of our legal and environmental matters. We cannot estimate the aggregate possible range of loss for our existing litigation and claims for various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and/or significant factual matters unresolved. 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 and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period.

We previously described certain legal proceedings in the Form 10-K. Except as set forth below, there were no material developments in those legal proceedings as of ~~July 4,~~October 3, 2021.

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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”).

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 order granting preliminary approval of the Settlement, which consists of certain corporate governance undertakings and the payment of plaintiffs’ attorneys’ fees and expenses up to ~~$950. Pursuant to~~$950 (covered by applicable insurance). On September 15, 2021, the Court issued an order ~~issued by the Court on June 3, 2021, a hearing to determine whether the Court should issue a~~granting final order approving the Settlement has been scheduled for September 2, 2021. If the Settlement is approved by the Court, the Derivative Lawsuit will be dismissed with prejudice subject to any appeal, and the Company expects the monetary termsapproval of the Settlement, ~~to be covered by applicable insurance.~~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				Six Months Ended					Three Months Ended				Nine Months Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Wendy’s U.S.	Wendy’s U.S.	$	409,843	$	331,258	$	791,797	$	662,299	Wendy’s U.S.	$	383,804	$	374,895	$	1,175,601	$	1,037,194
Wendy’s International	Wendy’s International	21,316		14,003		39,566		29,475		Wendy’s International	22,674		17,264		62,240		46,739
Global Real Estate & Development	Global Real Estate & Development	62,178		57,045		122,177		115,492		Global Real Estate & Development	63,777		60,083		185,954		175,575
Total revenues	Total revenues	$	493,337	$	402,306	$	953,540	$	807,266	Total revenues	$	470,255	$	452,242	$	1,423,795	$	1,259,508

The following table reconciles profit by segment to the 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

_______________

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~The following table reconciles profit by segment to the Company’s consolidated income before income taxes:~~

Three Months Ended Six Months Ended
July 4,
2021 June 28,
2020 July 4,
2021 June 28,
2020
Wendy’s U.S. (a) $ 126,650 $ 93,136 $ 238,737 $ 174,964
Wendy’s International 6,528 3,594 14,212 8,689
Global Real Estate & Development 26,569 23,711 52,822 50,201
Total segment profit $ 159,747 $ 120,441 $ 305,771 $ 233,854
Advertising funds deficit (1,602) (1,020) (2,866) (2,407)
Unallocated general and administrative (b) (28,864) (23,051) (53,971) (47,170)
Depreciation and amortization (30,761) (34,714) (62,303) (65,760)
System optimization gains, net 30,766 1,987 31,282 2,310
Reorganization and realignment costs (2,102) (2,911) (7,036) (6,821)
Impairment of long-lived assets (630) (117) (1,265) (4,704)
Unallocated other operating income, net 192 46 256 91
Interest expense, net (28,204) (29,085) (56,990) (57,610)
Loss on early extinguishment of debt (17,917) 0 (17,917) 0
Other income (expense), net 161 (144) 290 932
Income before income taxes $ 80,786 $ 31,432 $ 135,251 $ 52,715

~~_______________~~

(a)Includes advertising funds expense of ~~$3,990~~$8,979 and ~~$7,524~~$16,503 for the three and ~~six~~nine months ended ~~July 4,~~October 3, 2021, respectively, and ~~$2,185~~$6,153 and $8,338 for the three and ~~six~~nine months ended ~~June 28,~~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

In July 2021, the Financial Accounting Standards Board issued an amendment that addresses an issue related to a lessor’s accounting for certain leases with variable lease payments that could result in the recognition of a selling loss at lease commencement even if the lessor expects the arrangement to be profitable overall. The amendment specifies lessors should classify and account for such a lease with variable lease payments as an operating lease, dependent upon meeting certain criteria, for which a selling profit or loss is not recognized. The Company early adopted this amendment ~~is effective commencing with our 2022 fiscal year. We~~during the three months ended October 3, 2021 by applying the guidance prospectively to leases that commence or are ~~currently evaluating~~modified on or after the ~~impact~~date of ~~the~~adoption. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

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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 3, 2021 (the “Form 10-K”). There have been no material changes as of ~~July 4,~~October 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. Other Information” 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 is primarily engaged in the business of operating, developing and franchising a system of distinctive quick-service restaurants serving high quality food. Wendy’s opened its first restaurant in Columbus, Ohio in 1969. Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the United States (the “U.S.”) based on traffic share, and the third largest globally with ~~6,866~~6,891 restaurants in the U.S. and 31 foreign countries and U.S. territories as of ~~July 4,~~October 3, 2021.

Each Wendy’s restaurant offers an extensive menu specializing in hamburger sandwiches and featuring filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of 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, 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 is comprised of the following segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. Wendy’s U.S. includes the operation and franchising of Wendy’s restaurants in the U.S. and derives its revenues from sales at Company-operated restaurants and royalties, fees and advertising fund collections from franchised restaurants. Wendy’s International includes the operation and franchising of Wendy’s restaurants in countries and territories other than the U.S. and derives its revenues from sales at Company-operated restaurants and royalties, fees and advertising fund collections from franchised restaurants. Global Real Estate & Development includes real estate activity for owned sites and sites leased from third parties, which are leased and/or subleased to franchisees, and also includes our share of the income of our TimWen real estate joint venture. In addition, Global Real Estate & Development earns fees from facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”) and providing other development-related services to franchisees. In this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company reports on the segment profit for each of the three segments described above. The Company measures segment profit 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 reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31. All three- and ~~six-month~~nine-month periods presented herein contain 13 weeks and 2639 weeks, respectively. All references to years, quarters and months relate to fiscal periods rather than calendar periods.

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Executive Overview

Our Business

As of ~~July 4,~~October 3, 2021, the Wendy’s restaurant system was comprised of ~~6,866~~6,891 restaurants, with ~~5,895~~5,901 Wendy’s restaurants in operation in the U.S. Of the U.S. restaurants, ~~314~~311 were operated by the Company and ~~5,581~~5,590 were operated by a total of 225 franchisees. In addition, at ~~July 4,~~October 3, 2021, there were ~~971~~990 Wendy’s restaurants in operation in 31 foreign countries and U.S. territories. Of the international restaurants, ~~970~~988 were operated by franchisees and ~~one was~~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 and (2) franchise-related revenues, including royalties, national advertising funds contributions, rents and franchise fees received from Wendy’s franchised restaurants. Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of ~~July 4,~~October 3, 2021.

Wendy’s operating results are impacted by a number of external factors, including commodity costs, labor costs, intense price competition, unemployment and consumer spending levels, general economic and market trends and weather. 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 include investing in accelerated global growth through (1) building our breakfast daypart, (2) continued implementation of consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint through targeted U.S. expansion and accelerated international expansion through same-restaurant sales growth and net new restaurant ~~development, including the Company’s plan to open additional Company-operated restaurants in the U.K. during 2021 and beyond.~~development.

Key Business Measures

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

•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 price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, fluctuations in food and labor costs, restaurant openings, remodels and closures and the level of our fixed and semi-variable costs.

•Systemwide Sales - Systemwide sales is a non-GAAP financial measure, which includes sales by both Company-operated restaurants and franchised restaurants. Franchised restaurants’ sales are reported by our franchisees and represent their revenues from sales at franchised Wendy’s restaurants. The Company’s consolidated financial statements do not include sales by franchised restaurants to their customers. The Company’s royalty and advertising funds revenues are computed as percentages of sales made by Wendy’s franchisees. As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty and advertising funds revenues and profitability.

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

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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.

~~Second~~Third Quarter Financial Highlights

•Revenue increased ~~22.6%~~4.0% to ~~$493.3~~$470.3 million in the ~~second~~third quarter of 2021 compared to ~~$402.3~~$452.2 million in the ~~second~~third quarter of 2020;

•Global same-restaurant sales increased ~~17.4%~~3.3%, U.S. same-restaurant sales increased ~~16.1%~~2.1% and international same-restaurant sales increased ~~31.4%~~14.7% compared to the ~~second~~third quarter of 2020;

•Company-operated restaurant margin was ~~20.3%~~14.4% in the ~~second~~third quarter of 2021, ~~an increase~~a decrease of ~~590~~250 basis points from the ~~second~~third quarter of 2020; and

•Net income ~~was $65.7~~increased 3.6% to $41.2 million in the ~~second~~third quarter of 2021 compared to ~~$24.9~~$39.8 million in the ~~second~~third quarter of 2020.

Year-to-Date Financial Highlights

•Revenue increased ~~18.1%~~13.0% to ~~$953.5 million~~$1.4 billion in the first ~~six~~nine months of 2021 compared to ~~$807.3 million~~$1.3 billion in the first ~~six~~nine months of 2020;

•Global same-restaurant sales increased ~~15.2%~~10.9%, U.S. same-restaurant sales increased ~~14.9%~~10.2% and international same-restaurant sales increased ~~19.0%~~17.4% compared to the first ~~six~~nine months of 2020;

•Company-operated restaurant margin was ~~18.7%~~17.4% in the first ~~six~~nine months of 2021, an increase of ~~650~~350 basis points from the first ~~six~~nine months of 2020; and

•Net income ~~was $107.1~~increased 87.4% to $148.3 million in the first ~~six~~nine months of 2021 compared to ~~$39.3~~$79.1 million in the first ~~six~~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. AsDuring the third quarter and the first nine months of ~~July 4,~~ 2021, ~~approximately 95%~~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 ~~dining rooms~~October 3, 2021, substantially all restaurants were open across the Wendy’s system, ~~offering carryout~~ and ~~in many cases, dine in services.~~the majority of restaurants had dining rooms open. Global systemwide same-restaurant sales during the first ~~six~~nine months of 2021 increased ~~15.2%~~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 ~~six~~nine months ended ~~July 4,~~October 3, 2021. ~~Subsequent to July 4, 2021,~~As previously disclosed, the Company ~~revised its planned 2021 advertising expenses~~expects to ~~include an additional $10.0~~fund a total of $25.0 million of incremental advertising to support the breakfast daypart ~~resulting in an expected total~~during 2021, ~~incremental~~which the Company ~~investment of $25.0 million. The Company~~ expects ~~this incremental investment~~ 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 ~~7.5%~~8.0% of ~~U.S.~~global systemwide sales during the ~~six~~nine months ended ~~July 4,~~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 ~~three~~nine months ended ~~July 4,~~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. ~~The Company expects that REEF will open approximately 50 delivery kitchens in 2021 with the remainder to be opened in 2022 through 2025.~~

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 restaur ~~franchise restaurants~~ants from 2022 to 2025.

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System Optimization Initiative

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 Franchise Flips. As of January 1, 2017, the Company completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total system. While the Company has no plans to reduce its ownership below the approximately 5% level, the Company expects to continue to optimize the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, drive new restaurant development and accelerate reimages.

During the ~~three~~nine months ended ~~July 4,~~October 3, 2021, the Company completed the sale of 47 Company-operated restaurants in New York (including Manhattan) to franchisees, resulting in net gains totaling $30.8 million. Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our condensed consolidated statements of operations.

NPC Quality Burgers, Inc. (“NPC”)

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 ~~$6.0~~$5.5 million to ~~$8.0~~$6.0 million, of which approximately ~~$5.5~~$5.0 million to ~~$7.5~~$5.5 million will be cash expenditures, related to the Operations and Field Realignment Plan. Costs related to the Operations and Field Realignment Plan are recorded to “Reorganization and realignment costs.” During the ~~six~~nine months ended ~~July 4,~~October 3, 2021, the Company recognized costs totaling ~~$1.5~~$1.6 million, which primarily included third-party and other costs. The Company expects to incur additional costs aggregating up to approximately ~~$1.0 million to $3.0~~$0.5 million, comprised primarily of third-party and other costs. The Company expects to recognize the majority of the remaining costs and make the majority of the remaining cash expenditures associated with the Operations and Field Realignment Plan during the remainder of 2021.

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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 ~~second~~third quarter and the first ~~six~~nine months of 2021 and 2020.


		Second Quarter						Six Months							Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Revenues:	Revenues:													Revenues:
Sales	Sales	$	193.5	$	164.2	$	29.3	$	382.6	$	331.0	$	51.6	Sales	$	171.1	$	191.9	$	(20.8)	$	553.7	$	523.0	$	30.7
Franchise royalty revenue and fees	Franchise royalty revenue and fees	136.6		103.1		33.5		259.5		204.9		54.6		Franchise royalty revenue and fees	138.8		116.8		22.0		398.2		321.6		76.6
Franchise rental income	Franchise rental income	60.9		56.9		4.0		119.7		114.7		5.0		Franchise rental income	62.4		58.7		3.7		182.2		173.4		8.8
Advertising funds revenue	Advertising funds revenue	102.3		78.1		24.2		191.7		156.7		35.0		Advertising funds revenue	98.0		84.8		13.2		289.7		241.5		48.2
		493.3		402.3		91.0		953.5		807.3		146.2			470.3		452.2		18.1		1,423.8		1,259.5		164.3
Costs and expenses:	Costs and expenses:													Costs and expenses:
Cost of sales	Cost of sales	154.2		140.6		13.6		311.0		290.6		20.4		Cost of sales	146.4		159.5		(13.1)		457.4		450.2		7.2
Franchise support and other costs	Franchise support and other costs	8.9		5.5		3.4		16.6		13.5		3.1		Franchise support and other costs	10.5		6.0		4.5		27.1		19.4		7.7
Franchise rental expense	Franchise rental expense	34.1		31.3		2.8		66.6		60.6		6.0		Franchise rental expense	34.4		32.4		2.0		101.1		93.0		8.1
Advertising funds expense	Advertising funds expense	107.9		81.3		26.6		202.1		161.3		40.8		Advertising funds expense	108.5		92.0		16.5		310.6		253.4		57.2
General and administrative	General and administrative	63.1		48.6		14.5		115.7		100.2		15.5		General and administrative	62.8		47.3		15.5		178.6		147.6		31.0
Depreciation and amortization	Depreciation and amortization	30.8		34.7		(3.9)		62.3		65.8		(3.5)		Depreciation and amortization	30.9		33.0		(2.1)		93.2		98.7		(5.5)
System optimization gains, net	System optimization gains, net	(30.8)		(2.0)		(28.8)		(31.3)		(2.3)		(29.0)		System optimization gains, net	(1.4)		—		(1.4)		(32.7)		(2.3)		(30.4)
Reorganization and realignment costs	Reorganization and realignment costs	2.1		2.9		(0.8)		7.0		6.8		0.2		Reorganization and realignment costs	0.4		3.4		(3.0)		7.4		10.2		(2.8)
Impairment of long-lived assets	Impairment of long-lived assets	0.6		0.1		0.5		1.3		4.7		(3.4)		Impairment of long-lived assets	0.6		—		0.6		1.8		4.7		(2.9)
Other operating income, net	Other operating income, net	(4.3)		(1.4)		(2.9)		(7.7)		(3.3)		(4.4)		Other operating income, net	(3.0)		(2.7)		(0.3)		(10.8)		(6.1)		(4.7)
		366.6		341.6		25.0		743.6		697.9		45.7			390.1		370.9		19.2		1,133.7		1,068.8		64.9
Operating profit	Operating profit	126.7		60.7		66.0		209.9		109.4		100.5		Operating profit	80.2		81.3		(1.1)		290.1		190.7		99.4
Interest expense, net	Interest expense, net	(28.2)		(29.1)		0.9		(57.0)		(57.6)		0.6		Interest expense, net	(26.0)		(29.1)		3.1		(83.0)		(86.7)		3.7
Loss on early extinguishment of debt	Loss on early extinguishment of debt	(17.9)		—		(17.9)		(17.9)		—		(17.9)		Loss on early extinguishment of debt	—		—		—		(17.9)		—		(17.9)
Other income (expense), net		0.2		(0.2)		0.4		0.3		0.9		(0.6)
Other income, net														Other income, net	0.2		0.2		—		0.4		1.2		(0.8)
Income before income taxes	Income before income taxes	80.8		31.4		49.4		135.3		52.7		82.6		Income before income taxes	54.4		52.4		2.0		189.6		105.2		84.4
Provision for income taxes	Provision for income taxes	(15.1)		(6.5)		(8.6)		(28.2)		(13.4)		(14.8)		Provision for income taxes	(13.2)		(12.6)		(0.6)		(41.3)		(26.1)		(15.2)
Net income	Net income	$	65.7	$	24.9	$	40.8	$	107.1	$	39.3	$	67.8	Net income	$	41.2	$	39.8	$	1.4	$	148.3	$	79.1	$	69.2

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		Second Quarter								Six Months									Third Quarter								Nine Months
		2021		% of Total Revenues		2020		% of Total Revenues		2021		% of Total Revenues		2020		% of Total Revenues			2021		% of Total Revenues		2020		% of Total Revenues		2021		% of Total Revenues		2020		% of Total Revenues
Revenues:	Revenues:																	Revenues:
Sales	Sales	$	193.5	39.2	%	$	164.2	40.8	%	$	382.6	40.1	%	$	331.0	41.0	%	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 and fees:																	Franchise royalty revenue and fees:
Franchise royalty revenue	Franchise royalty revenue	119.5		24.2	%	97.2		24.2	%	227.9		23.9	%	192.6		23.9	%	Franchise royalty revenue	116.6		24.8	%	109.3		24.2	%	344.4		24.2	%	301.9		24.0	%
Franchise fees	Franchise fees	17.1		3.5	%	5.9		1.4	%	31.6		3.3	%	12.3		1.5	%	Franchise fees	22.2		4.7	%	7.5		1.6	%	53.8		3.8	%	19.7		1.5	%
Total franchise royalty revenue and fees	Total franchise royalty revenue and fees	136.6		27.7	%	103.1		25.6	%	259.5		27.2	%	204.9		25.4	%	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	Franchise rental income	60.9		12.4	%	56.9		14.2	%	119.7		12.6	%	114.7		14.2	%	Franchise rental income	62.4		13.3	%	58.7		13.0	%	182.2		12.8	%	173.4		13.8	%
Advertising funds revenue	Advertising funds revenue	102.3		20.7	%	78.1		19.4	%	191.7		20.1	%	156.7		19.4	%	Advertising funds revenue	98.0		20.8	%	84.8		18.8	%	289.7		20.3	%	241.5		19.2	%
Total revenues	Total revenues	$	493.3	100.0	%	$	402.3	100.0	%	$	953.5	100.0	%	$	807.3	100.0	%	Total revenues	$	470.3	100.0	%	$	452.2	100.0	%	$	1,423.8	100.0	%	$	1,259.5	100.0	%

		Second Quarter								Six Months									Third Quarter								Nine Months
		2021		% of Sales		2020		% of Sales		2021		% of Sales		2020		% of Sales			2021		% of Sales		2020		% of Sales		2021		% of Sales		2020		% of Sales
Cost of sales:	Cost of sales:																	Cost of sales:
Food and paper	Food and paper	$	55.8	28.9	%	$	49.3	30.0	%	$	110.7	28.9	%	$	101.8	30.8	%	Food and paper	$	54.8	32.0	%	$	59.6	31.1	%	$	165.5	29.9	%	$	161.4	30.9	%
Restaurant labor	Restaurant labor	58.7		30.3	%	54.0		32.9	%	118.7		31.0	%	111.0		33.5	%	Restaurant labor	54.8		32.0	%	59.4		30.9	%	173.5		31.3	%	170.3		32.6	%
Occupancy, advertising and other operating costs	Occupancy, advertising and other operating costs	39.7		20.5	%	37.3		22.7	%	81.6		21.4	%	77.8		23.5	%	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	Total cost of sales	$	154.2	79.7	%	$	140.6	85.6	%	$	311.0	81.3	%	$	290.6	87.8	%	Total cost of sales	$	146.4	85.6	%	$	159.5	83.1	%	$	457.4	82.6	%	$	450.2	86.1	%

Second Quarter Six Months
2021 % of
Sales 2020 % of
Sales 2021 % of
Sales 2020 % of
Sales
Restaurant margin $ 39.3 20.3 % $ 23.6 14.4 % $ 71.6 18.7 % $ 40.4 12.2 %


	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	%

3738

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.


		Second Quarter						Six Months							Third Quarter						Nine Months
		2021			2020			2021			2020				2021			2020			2021			2020
Key business measures:	Key business measures:													Key business measures:
U.S. same-restaurant sales:	U.S. same-restaurant sales:													U.S. same-restaurant sales:
Company-operated	Company-operated	23.9		%	(10.0)		%	18.3		%	(5.5)		%	Company-operated	3.4		%	4.2		%	13.2		%	(2.2)		%
Franchised	Franchised	15.6		%	(4.0)		%	14.6		%	(2.0)		%	Franchised	2.0		%	7.2		%	10.0		%	1.1		%
Systemwide	Systemwide	16.1		%	(4.4)		%	14.9		%	(2.3)		%	Systemwide	2.1		%	7.0		%	10.2		%	0.9		%

International same-restaurant sales (a)	International same-restaurant sales (a)	31.4		%	(18.4)		%	19.0		%	(10.1)		%	International same-restaurant sales (a)	14.7		%	(2.1)		%	17.4		%	(7.3)		%

Global same-restaurant sales:	Global same-restaurant sales:													Global same-restaurant sales:
Company-operated	Company-operated	23.9		%	(10.0)		%	18.3		%	(5.5)		%	Company-operated	3.4		%	4.2		%	13.2		%	(2.2)		%
Franchised (a)	Franchised (a)	17.0		%	(5.5)		%	15.0		%	(2.9)		%	Franchised (a)	3.3		%	6.2		%	10.8		%	0.2		%
Systemwide (a)	Systemwide (a)	17.4		%	(5.8)		%	15.2		%	(3.1)		%	Systemwide (a)	3.3		%	6.1		%	10.9		%	—		%

Systemwide sales: (b)	Systemwide sales: (b)													Systemwide sales: (b)
U.S. Company-operated	U.S. Company-operated	$	193.3		$	164.2		$	382.4		$	331.0		U.S. Company-operated	$	170.0		$	191.9		$	552.3		$	523.0
U.S. franchised	U.S. franchised	2,704.1			2,239.2			5,162.4			4,413.4			U.S. franchised	2,621.2			2,499.7			7,783.6			6,913.1
U.S. systemwide	U.S. systemwide	2,897.4			2,403.4			5,544.8			4,744.4			U.S. systemwide	2,791.2			2,691.6			8,335.9			7,436.1
International Company-operated	International Company-operated	0.2			—			0.2			—			International Company-operated	1.1			—			1.4			—
International franchised (a)	International franchised (a)	353.4			220.2			657.0			492.8			International franchised (a)	361.3			291.3			1,018.3			784.1
International systemwide (a)	International systemwide (a)	353.6			220.2			657.2			492.8			International systemwide (a)	362.4			291.3			1,019.7			784.1
Global systemwide (a)	Global systemwide (a)	$	3,251.0		$	2,623.6		$	6,202.0		$	5,237.2		Global systemwide (a)	$	3,153.6		$	2,982.9		$	9,355.6		$	8,220.2

________________

(a)Excludes Argentina and Venezuela due to the impact of the highly inflationary economies of those countries.

(b)During the ~~second~~third quarter of 2021 and 2020, global systemwide sales increased ~~22.9%~~5.3% and ~~decreased 6.2%~~6.7%, respectively, U.S. systemwide sales increased ~~20.6%~~3.7% and ~~decreased 4.0%~~7.9%, respectively, and international systemwide sales increased ~~48.2%~~20.2% and decreased ~~24.5%~~3.5%, respectively, on a constant currency basis. During the first ~~six~~nine months of 2021 and 2020, global systemwide sales increased ~~17.7%~~13.2% and ~~decreased 2.7%~~0.5%, respectively, U.S. systemwide sales increased ~~16.9%~~12.1% and ~~decreased~~ 1.6%, respectively, and international systemwide sales increased ~~25.6%~~23.6% and decreased ~~12.4%~~9.3%, respectively, on a constant currency basis.

3839


		Second Quarter						Third Quarter
		U.S. Company-operated	U.S. Franchised	International Company-operated	International Franchised	Systemwide		U.S. Company-operated	U.S. Franchised	International Company-operated	International Franchised	Systemwide
Restaurant count:	Restaurant count:						Restaurant count:
Restaurant count at April 4, 2021		362	5,523	—	953	6,838
Restaurant count at July 4, 2021							Restaurant count at July 4, 2021	314	5,581	1	970	6,866
Opened	Opened	1	21	1	20	43	Opened	1	26	1	20	48
Closed (a)	Closed (a)	(1)	(11)	—	(3)	(15)	Closed (a)	(4)	(17)	—	(2)	(23)
Net (sold to) purchased by franchisees		(48)	48	—	—	—
Restaurant count at July 4, 2021		314	5,581	1	970	6,866

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

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

Restaurant count at January 3, 2021	Restaurant count at January 3, 2021	361	5,520	—	947	6,828	Restaurant count at January 3, 2021	361	5,520	—	947	6,828
Opened	Opened	3	39	1	38	81	Opened	4	65	2	58	129
Closed (a)	Closed (a)	(2)	(26)	—	(15)	(43)	Closed (a)	(6)	(43)	—	(17)	(66)
Net (sold to) purchased by franchisees	Net (sold to) purchased by franchisees	(48)	48	—	—	—	Net (sold to) purchased by franchisees	(48)	48	—	—	—
Restaurant count at July 4, 2021		314	5,581	1	970	6,866
Restaurant count at October 3, 2021							Restaurant count at October 3, 2021	311	5,590	2	988	6,891

________________

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


Sales	Sales	Second Quarter						Six Months						Sales	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Sales	Sales	$	193.5	$	164.2	$	29.3	$	382.6	$	331.0	$	51.6	Sales	$	171.1	$	191.9	$	(20.8)	$	553.7	$	523.0	$	30.7

The decrease in sales for the third quarter of 2021 was primarily due to the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021, partially offset by a 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 ~~second quarter and the~~ first ~~six~~nine months of 2021 was primarily due to a ~~23.9% and 18.3%~~13.2% increase in Company-operated same-restaurant sales, ~~respectively,~~ 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 (2) an increase in customer count, reflecting the prior year impact of the COVID-19 ~~pandemic, and (2) higher average check.~~pandemic. Company-operated same-restaurant sales during the first ~~six~~nine months of 2021 ~~also~~ 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	Franchise Royalty Revenue and Fees	Second Quarter						Six Months						Franchise Royalty Revenue and Fees	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Franchise royalty revenue	Franchise royalty revenue	$	119.5	$	97.2	$	22.3	$	227.9	$	192.6	$	35.3	Franchise royalty revenue	$	116.6	$	109.3	$	7.3	$	344.4	$	301.9	$	42.5
Franchise fees	Franchise fees	17.1		5.9		11.2		31.6		12.3		19.3		Franchise fees	22.2		7.5		14.7		53.8		19.7		34.1
		$	136.6	$	103.1	$	33.5	$	259.5	$	204.9	$	54.6		$	138.8	$	116.8	$	22.0	$	398.2	$	321.6	$	76.6

The increase in franchise royalty revenue during the ~~second~~third quarter and the first ~~six~~nine months of 2021 was primarily due to (1) a ~~17.0%~~3.3% and ~~15.0%~~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 2021 increased due to higher average check, partially offset by a decrease in customer count. Franchise same-restaurant sales during the first nine months of 2021 increased due to (1) higher average check and (2) an increase in customer count, reflecting the prior year impact of the COVID-19 ~~pandemic, and (2) higher average check.~~pandemic. Franchise same-restaurant sales during the first ~~six~~nine months of 2021 ~~also~~

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 ~~second~~third quarter and the first ~~six~~nine months of 2021 was primarily due to (1) an increase in fees for providing information technology services to ~~franchisees. Franchise fees during the first six months of 2021 also~~

~~benefited from~~franchisees and (2) the accelerated recognition of ~~fees associated with development agreements that were canceled primarily~~franchise agreement revenue as a result of ~~the NPC bankruptcy sale process.~~franchisee-to-franchisee restaurant transfers.


Franchise Rental Income	Franchise Rental Income	Second Quarter						Six Months						Franchise Rental Income	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Franchise rental income	Franchise rental income	$	60.9	$	56.9	$	4.0	$	119.7	$	114.7	$	5.0	Franchise rental income	$	62.4	$	58.7	$	3.7	$	182.2	$	173.4	$	8.8

The increase in franchise rental income during the ~~second~~third quarter and the first ~~six~~nine months of 2021 was primarily due to (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 during the second quarter of 2021.


Advertising Funds Revenue	Advertising Funds Revenue	Second Quarter						Six Months						Advertising Funds Revenue	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Advertising funds revenue	Advertising funds revenue	$	102.3	$	78.1	$	24.2	$	191.7	$	156.7	$	35.0	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 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 ~~second~~third quarter and the first ~~six~~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	Cost of Sales, as a Percent of Sales	Second Quarter						Six Months						Cost of Sales, as a Percent of Sales	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Food and paper	Food and paper	28.9	%	30.0	%	(1.1)	%	28.9	%	30.8	%	(1.9)	%	Food and paper	32.0	%	31.1	%	0.9	%	29.9	%	30.9	%	(1.0)	%
Restaurant labor	Restaurant labor	30.3	%	32.9	%	(2.6)	%	31.0	%	33.5	%	(2.5)	%	Restaurant labor	32.0	%	30.9	%	1.1	%	31.3	%	32.6	%	(1.3)	%
Occupancy, advertising and other operating costs	Occupancy, advertising and other operating costs	20.5	%	22.7	%	(2.2)	%	21.4	%	23.5	%	(2.1)	%	Occupancy, advertising and other operating costs	21.6	%	21.1	%	0.5	%	21.4	%	22.6	%	(1.2)	%
		79.7	%	85.6	%	(5.9)	%	81.3	%	87.8	%	(6.5)	%		85.6	%	83.1	%	2.5	%	82.6	%	86.1	%	(3.5)	%

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

The decrease in cost of sales, as a percent of sales, during the ~~second quarter and the~~ first ~~six~~nine months of 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, ~~(2) higher average check~~ and (3) incremental recognition pay during April and May of 2020. These impacts were partially offset by (1) an increase in restaurant labor ~~rate increases. In addition, cost of sales, as a percent of sales, during the second quarter of 2021 was negatively impacted by~~rates and (2) higher commodity costs.


Franchise Support and Other Costs	Franchise Support and Other Costs	Second Quarter						Six Months						Franchise Support and Other Costs	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Franchise support and other costs	Franchise support and other costs	$	8.9	$	5.5	$	3.4	$	16.6	$	13.5	$	3.1	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 ~~second~~third quarter and the first ~~six~~nine months of 2021 was primarily due to an increase in costs incurred to provide information technology and other services to our franchisees. ~~These~~The increases in the first nine months were partially offset by investments made ~~during the first six months of~~in 2020 to support U.S. franchisees in preparation of the national launch of breakfast on March 2, 2020.

Franchise Rental Expense Second Quarter Six Months
2021 2020 Change 2021 2020 Change
Franchise rental expense $ 34.1 $ 31.3 $ 2.8 $ 66.6 $ 60.6 $ 6.0


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

The increase in franchise rental expense during the ~~second~~third quarter and the first ~~six~~nine months of 2021 was primarily due to (1) an increase in percent rent, reflecting higher systemwide sales compared with ~~2020.~~2020 and (2) the impact of the sale of 47 Company-operated restaurants in New York to franchisees during the second quarter of 2021. Franchise rental expense for the first ~~six~~nine months of 2021 also increased due to the impact of assigning certain leases to a franchisee in 2020.


Advertising Funds Expense	Advertising Funds Expense	Second Quarter						Six Months						Advertising Funds Expense	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Advertising funds expense	Advertising funds expense	$	107.9	$	81.3	$	26.6	$	202.1	$	161.3	$	40.8	Advertising funds expense	$	108.5	$	92.0	$	16.5	$	310.6	$	253.4	$	57.2

On an interim basis, advertising funds expense is recognized in proportion to advertising funds revenue. ~~As of July 4, 2021, the~~The Company ~~expected~~expects advertising funds expense to exceed advertising funds revenue by approximately ~~$21.0~~$31.0 million for 2021, which includes (1) the Company’s previously announced decision to fund up to ~~$15.0~~$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 ~~second~~third quarter and the first ~~six~~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) ~~the recognition~~an increase of ~~$5.6~~$3.3 million and ~~$10.4~~$9.0 million, respectively, in the recognition of the expected advertising spend in excess of advertising funds ~~revenue. Subsequent to July 4, 2021,~~revenue compared with the Company revised its planned 2021 advertising expenses to include an additional $10.0 million of incremental advertising, resulting in an expected total 2021 incremental Company investment of $25.0 million.prior year.


General and Administrative	General and Administrative	Second Quarter						Six Months						General and Administrative	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Incentive compensation	Incentive compensation	$	15.1	$	6.0	$	9.1	22.5		9.0		13.5		Incentive compensation	$	11.0	$	4.2	$	6.8	33.5		13.2		20.3
Professional fees	Professional fees	9.1		6.5		2.6		17.8		12.8		5.0		Professional fees	11.7		8.0		3.7		29.4		20.8		8.6
Share-based compensation	Share-based compensation	5.9		4.7		1.2		11.0		9.2		1.8		Share-based compensation	5.7		5.2		0.5		16.7		14.4		2.3
Travel-related expenses	Travel-related expenses	1.5		0.8		0.7		2.0		3.9		(1.9)		Travel-related expenses	1.9		0.8		1.1		3.9		4.7		(0.8)
Other, net	Other, net	31.5		30.6		0.9		62.4		65.3		(2.9)		Other, net	32.5		29.1		3.4		95.1		94.5		0.6
		$	63.1	$	48.6	$	14.5	$	115.7	$	100.2	$	15.5		$	62.8	$	47.3	$	15.5	$	178.6	$	147.6	$	31.0

The increase in general and administrative expenses during the ~~second~~third quarter and the first ~~six~~nine months of 2021 was primarily due to (1) an increase in incentive compensation accruals and higher share-based compensation, reflecting higher operating performance as compared to plan in the first ~~six~~nine months of 2021 ~~compared to~~versus the first ~~six~~nine months of 2020, and (2) higher professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning implementation. ~~During~~General and administrative expenses also increased during the ~~first six months~~third quarter of 2021 ~~these increases were partially offset by a decrease in~~due to higher travel-related ~~expenses as a result of reduced travel.~~expenses.


Depreciation and Amortization	Depreciation and Amortization	Second Quarter						Six Months						Depreciation and Amortization	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Restaurants	Restaurants	$	18.7	$	23.0	$	(4.3)	$	38.1	$	42.5	$	(4.4)	Restaurants	$	18.4	$	21.2	$	(2.8)	$	56.5	$	63.7	$	(7.2)
Technology support, corporate and other	Technology support, corporate and other	12.1		11.7		0.4		24.2		23.3		0.9		Technology support, corporate and other	12.5		11.8		0.7		36.7		35.0		1.7
		$	30.8	$	34.7	$	(3.9)	$	62.3	$	65.8	$	(3.5)		$	30.9	$	33.0	$	(2.1)	$	93.2	$	98.7	$	(5.5)

The decrease in depreciation and amortization during the ~~second~~third quarter and the first ~~six~~nine months of 2021 was primarily due to ~~(1)~~ assets becoming fully depreciated, partially offset by an increase in depreciation and ~~(2)~~amortization for technology investments. Depreciation and amortization during the first nine months of 2021 also decreased due to the impact of a prior year change in useful lives for certain asset categories. ~~These decreases were partially offset by an increase in depreciation and amortization for technology investments.~~


System Optimization Gains, Net	System Optimization Gains, Net	Second Quarter						Six Months						System Optimization Gains, Net	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
System optimization gains, net	System optimization gains, net	$	(30.8)	$	(2.0)	$	(28.8)	$	(31.3)	$	(2.3)	$	(29.0)	System optimization gains, net	$	(1.4)	$	—	$	(1.4)	$	(32.7)	$	(2.3)	$	(30.4)

System optimization gains, net for the ~~second~~third quarter of 2021 were primarily comprised of gains on the sale of surplus and other properties. System optimization gains, net for the first ~~six~~nine months of 2021 were primarily comprised of a gain on the sale of 47 Company-operated restaurants in New York. ~~System optimization gains, net for the second quarter and first six months of 2020 were primarily comprised of gains on the sale of surplus and other properties.~~ 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	Reorganization and Realignment Costs	Second Quarter						Six Months						Reorganization and Realignment Costs	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Operations and field realignment	Operations and field realignment	$	1.2	$	—	$	1.2	$	1.5	$	—	$	1.5	Operations and field realignment	$	0.1	$	3.0	$	(2.9)	$	1.6	$	3.0	$	(1.4)
IT realignment	IT realignment	—		2.8		(2.8)		—		6.4		(6.4)		IT realignment	—		0.4		(0.4)		—		6.8		(6.8)
G&A realignment	G&A realignment	—		0.1		(0.1)		—		0.3		(0.3)		G&A realignment	—		—		—		—		0.3		(0.3)
System optimization initiative	System optimization initiative	0.9		—		0.9		5.5		0.1		5.4		System optimization initiative	0.3		—		0.3		5.8		0.1		5.7
		$	2.1	$	2.9	$	(0.8)	$	7.0	$	6.8	$	0.2		$	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 ~~second quarter and the~~ first ~~six~~nine months of 2021, the Company recognized costs totaling ~~$1.2~~$1.6 million, ~~and $1.5 million, respectively,~~ which primarily included third-party and other costs. The Company expects to incur additional costs aggregating up to approximately ~~$1.0 million to $3.0~~$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.

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 ~~second quarter of~~nine months ended October 3, 2021, the Company recognized costs associated with its system optimization initiative totaling $0.9 million, which were primarily comprised of severance and related employee costs and professional fees associated with the sale of 47 Company-operated restaurants in New York. During the six months ended July 4, 2021, the Company recognized costs associated with its system optimization initiative totaling $5.5$5.8 million, which were primarily comprised of the write-off of certain lease assets, ~~and~~ lease termination fees and transaction fees associated with the NPC bankruptcy sale process. The Company expects to recognize a gain of approximately $1.0 million related to the write-off of certain NPC-related lease liabilities upon final termination of the leases.


Impairment of Long-Lived Assets	Impairment of Long-Lived Assets	Second Quarter						Six Months						Impairment of Long-Lived Assets	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Impairment of long-lived assets	Impairment of long-lived assets	$	0.6	$	0.1	$	0.5	$	1.3	$	4.7	$	(3.4)	Impairment of long-lived assets	$	0.6	$	—	$	0.6	$	1.8	$	4.7	$	(2.9)

The change in impairment charges during the ~~second~~third quarter of 2021 was primarily driven by ~~higher~~ impairment charges as a result of the deterioration in operating performance of certain Company-operated restaurants when compared to the ~~second~~third quarter of 2020. The change in impairment charges during the first ~~six~~nine months of 2021 was primarily driven by the expected deterioration in operating performance of certain Company-operated restaurants in the first ~~six~~nine months of 2020 as a result of the COVID-19 pandemic.


Other Operating Income, Net	Other Operating Income, Net	Second Quarter						Six Months						Other Operating Income, Net	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Gains on sales-type leases	Gains on sales-type leases	$	(1.6)	$	(0.6)	$	(1.0)	$	(3.5)	$	(1.2)	$	(2.3)	Gains on sales-type leases	$	(0.7)	$	(0.2)	$	(0.5)	$	(4.2)	$	(1.4)	$	(2.8)
Lease buyout		(0.8)		0.1		(0.9)		(0.9)		0.1		(1.0)
Equity in earnings in joint ventures, net	Equity in earnings in joint ventures, net	(1.7)		(0.9)		(0.8)		(3.3)		(2.4)		(0.9)		Equity in earnings in joint ventures, net	(2.3)		(2.1)		(0.2)		(5.6)		(4.4)		(1.2)

Other, net	Other, net	(0.2)		—		(0.2)		—		0.2		(0.2)		Other, net	—		(0.4)		0.4		(1.0)		(0.3)		(0.7)
		$	(4.3)	$	(1.4)	$	(2.9)	$	(7.7)	$	(3.3)	$	(4.4)		$	(3.0)	$	(2.7)	$	(0.3)	$	(10.8)	$	(6.1)	$	(4.7)

The change in other operating income, net during the ~~second~~third quarter and the first ~~six~~nine months of 2021 was primarily due to (1) gains on new and modified sales-type leases ~~(2) lease buyout activity~~ and ~~(3)~~(2) an increase in the equity in earnings from our TimWen joint venture.

4243

Interest Expense, Net Second Quarter Six Months
2021 2020 Change 2021 2020 Change
Interest expense, net $ 28.2 $ 29.1 $ (0.9) $ 57.0 $ 57.6 $ (0.6)


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 ~~second~~third quarter and the first ~~six~~nine months of 2021 primarily due to the 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	Loss on Early Extinguishment of Debt	Second Quarter						Six Months						Loss on Early Extinguishment of Debt	Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Loss on early extinguishment of debt	Loss on early extinguishment of debt	$	17.9	$	—	$	17.9	$	17.9	$	—	$	17.9	Loss on early extinguishment of debt	$	—	$	—	$	—	$	17.9	$	—	$	17.9

During the second quarter of 2021, in connection with the refinancing of a portion of the Company’s securitized financing facility, the Company incurred a loss on the early extinguishment of debt as a result of repaying the outstanding 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 (Expense), Net Second Quarter Six Months
2021 2020 Change 2021 2020 Change
Other income (expense), net $ 0.2 $ (0.2) $ 0.4 $ 0.3 $ 0.9 $ (0.6)


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, ~~(expense),~~ net during the ~~second quarter and the~~ first ~~six~~nine months of 2021 was primarily due to fluctuations in interest income earned on our cash equivalents.


Provision for Income Taxes	Provision for Income Taxes	Second Quarter									Six Months									Provision for Income Taxes	Third Quarter									Nine Months
		2021			2020			Change			2021			2020			Change				2021			2020			Change			2021			2020			Change
Income before income taxes	Income before income taxes	$	80.8		$	31.4		$	49.4		$	135.3		$	52.7		$	82.6		Income before income taxes	$	54.4		$	52.4		$	2.0		$	189.6		$	105.2		$	84.4
Provision for income taxes	Provision for income taxes	(15.1)			(6.5)			(8.6)			(28.2)			(13.4)			(14.8)			Provision for income taxes	(13.2)			(12.6)			(0.6)			(41.3)			(26.1)			(15.2)
Effective tax rate on income	Effective tax rate on income	18.6		%	20.8		%	(2.2)		%	20.8		%	25.4		%	(4.6)		%	Effective tax rate on income	24.3		%	24.2		%	0.1		%	21.8		%	24.8		%	(3.0)		%

Our effective tax rates for the ~~second~~third quarter and the first ~~six~~nine months of 2021 and 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. The ~~decrease~~increase in the effective tax rate for the ~~second~~third quarter of 2021 compared with the ~~second~~third quarter of 2020 was primarily due to ~~an increase~~a decrease in the tax benefit offrom share-based ~~compensation, partially offset by an increase due to state income taxes, including discrete changes to state deferred taxes.~~compensation. The decrease in the effective tax rate for the first ~~six~~nine months of 2021 compared with the first ~~six~~nine months of 2020 was primarily due to a decrease in the tax effects of our foreign operations ~~partially offset by~~and an increase ~~due to state income taxes, including discrete changes to state deferred taxes.~~in the tax benefit from share-based compensation.

4344

Segment Information

See Note 17 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information regarding the Company’s segments.

Wendy’s U.S.


		Second Quarter						Six Months							Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Sales	Sales	$	193.3	$	164.2	$	29.1	$	382.4	$	331.0	$	51.4	Sales	$	170.0	$	191.9	$	(21.9)	$	552.3	$	523.0	$	29.3
Franchise royalty revenue	Franchise royalty revenue	106.0		88.1		17.9		202.8		173.0		29.8		Franchise royalty revenue	102.6		98.1		4.5		305.4		271.1		34.3
Franchise fees	Franchise fees	14.3		5.4		8.9		26.2		10.6		15.6		Franchise fees	19.7		5.7		14.0		46.0		16.2		29.8
Advertising fund revenue	Advertising fund revenue	96.2		73.6		22.6		180.4		147.7		32.7		Advertising fund revenue	91.5		79.2		12.3		271.9		226.9		45.0
Total revenues	Total revenues	$	409.8	$	331.3	$	78.5	$	791.8	$	662.3	$	129.5	Total revenues	$	383.8	$	374.9	$	8.9	$	1,175.6	$	1,037.2	$	138.4
Segment profit	Segment profit	$	126.7	$	93.1	$	33.6	$	238.7	$	175.0	$	63.7	Segment profit	$	108.9	$	108.3	$	0.6	$	347.6	$	283.3	$	64.3

The increase in Wendy’s U.S. revenues during the ~~second~~third quarter and the first ~~six~~nine months of 2021 was primarily due to (1) an increase in systemwide same-restaurant sales and (2) higher franchise fees, reflecting an increase in fees for providing information technology services to franchisees. Same-restaurant sales increased during the third quarter and the first nine months of 2021 primarily due to higher average check. Same-restaurant sales during the first nine months of 2021 also benefited from (1) an increase in customer count, reflecting the prior year impact of the 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. Same-restaurant sales increased due to (1) an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic, and (2) higher average check. Same-restaurant sales during the first six months of 2021 also benefited from the positive impact from the breakfast daypart. In addition, during the second quarter and the first six months of 2021, Wendy’s U.S. revenues benefited from higher franchise fees, primarily due to an increase in fees for providing information technology services to franchisees.

The increase in Wendy’s U.S. segment profit during the ~~second~~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 ~~six~~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.~~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


		Second Quarter						Six Months							Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Sales	Sales	$	0.2	$	—	$	0.2	$	0.2	$	—	$	0.2	Sales	$	1.1	$	—	$	1.1	$	1.4	$	—	$	1.4
Franchise royalty revenue	Franchise royalty revenue	13.6		9.1		4.5		25.1		19.6		5.5		Franchise royalty revenue	13.9		11.2		2.7		39.0		30.8		8.2
Franchise fees	Franchise fees	1.4		0.4		1.0		3.0		0.9		2.1		Franchise fees	1.2		0.5		0.7		4.0		1.3		2.7
Advertising fund revenue	Advertising fund revenue	6.1		4.5		1.6		11.3		9.0		2.3		Advertising fund revenue	6.5		5.6		0.9		17.8		14.6		3.2
Total revenues	Total revenues	$	21.3	$	14.0	$	7.3	$	39.6	$	29.5	$	10.1	Total revenues	$	22.7	$	17.3	$	5.4	$	62.2	$	46.7	$	15.5
Segment profit	Segment profit	$	6.5	$	3.6	$	2.9	$	14.2	$	8.7	$	5.5	Segment profit	$	6.9	$	6.6	$	0.3	$	21.2	$	15.3	$	5.9

The increase in Wendy’s International revenues during the ~~second~~third quarter and the first ~~six~~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 ~~(1)~~ an increase in customer count, reflecting the prior year impact of the COVID-19 ~~pandemic, and (2) higher average check.~~pandemic. The increase in Wendy’s International segment profit during the ~~second~~third quarter and the first ~~six~~nine months of 2021 was primarily due to higher revenues, partially offset by higher general and administrative expenses.

4445

Global Real Estate & Development


		Second Quarter						Six Months							Third Quarter						Nine Months
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
Franchise fees	Franchise fees	$	1.3	$	0.1	$	1.2	$	2.5	$	0.8	$	1.7	Franchise fees	$	1.4	$	1.4	$	—	$	3.8	$	2.2	$	1.6
Franchise rental income	Franchise rental income	60.9		56.9		4.0		119.7		114.7		5.0		Franchise rental income	62.4		58.7		3.7		182.2		173.4		8.8
Total revenues	Total revenues	$	62.2	$	57.0	$	5.2	$	122.2	$	115.5	$	6.7	Total revenues	$	63.8	$	60.1	$	3.7	$	186.0	$	175.6	$	10.4
Segment profit	Segment profit	$	26.6	$	23.7	$	2.9	$	52.8	$	50.2	$	2.6	Segment profit	$	27.0	$	25.3	$	1.7	$	79.8	$	75.5	$	4.3

The increase in Global Real Estate & Development revenues during the ~~second~~third quarter and the first ~~six~~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 ~~and~~of 2021. The increase in Global Real Estate & Development segment profit during the first ~~six~~nine months of 2021 was primarily due to (1) gains on new and modified sales-type leases ~~(2) lease buyout activity~~ and ~~(3)~~(2) an increase in the equity in earnings from the TimWen joint venture. ~~These increases were partially offset by higher general and administrative expenses.~~

Liquidity and Capital Resources

Cash Flows

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under our securitized financing facility. Our principal uses of cash are operating expenses, capital expenditures, repurchases of common stock and dividends to stockholders.

Our anticipated cash requirements for the remainder of 2021, exclusive of operating cash flow requirements, consist principally of:

•capital expenditures of approximately ~~$55.0~~$30.0 million to ~~$65.0~~$40.0 million, resulting in total anticipated cash capital expenditures for the year of approximately ~~$80.0~~$75.0 million to ~~$90.0~~$85.0 million;

•cash dividends aggregating approximately ~~$53.5~~$26.5 million as discussed below in “Dividends;” and

•potential stock repurchases of up to ~~$104.4~~$140.6 million, of which ~~$4.4~~$15.5 million was repurchased subsequent to ~~July 4,~~October 3, 2021 through ~~August 4,~~November 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 ~~six~~nine months of 2021 and 2020:


		Six Months							Nine Months
		2021		2020		Change			2021		2020		Change
Net cash provided by (used in):	Net cash provided by (used in):							Net cash provided by (used in):
Operating activities	Operating activities	$	158.8	$	30.6	$	128.2	Operating activities	$	276.7	$	205.8	$	70.9
Investing activities	Investing activities	32.0		(24.9)		56.9		Investing activities	15.0		(41.0)		56.0
Financing activities	Financing activities	28.9		48.3		(19.4)		Financing activities	(57.5)		(115.3)		57.8
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	2.2		(3.2)		5.4		Effect of exchange rate changes on cash	0.2		(1.8)		2.0
Net increase in cash, cash equivalents and restricted cash	Net increase in cash, cash equivalents and restricted cash	$	221.9	$	50.8	$	171.1	Net increase in cash, cash equivalents and restricted cash	$	234.4	$	47.7	$	186.7

4546

Operating Activities

Cash provided by operating activities consists primarily of net income, adjusted for non-cash expenses such as depreciation and amortization, deferred income tax and share-based compensation, and the net change in operating assets and liabilities. Cash provided by operating activities was ~~$158.8~~$276.7 million and ~~$30.6~~$205.8 million in the first ~~six~~nine months of 2021 and 2020, respectively. The increase was primarily due to (1) higher net income, adjusted for non-cash expenses, (2) ~~the prior year extension of payment terms for royalties beginning in April 2020 for a three month period, (3)~~ a cash payment of $24.7 million related to the settlement of the financial institutions class action in January 2020, ~~(4)~~(3) the timing of receipt of franchisee rental payments and ~~(5)~~(4) a decrease in payments for incentive compensation for the 2020 fiscal 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 provided by (used in) investing activities was ~~$32.0~~$15.0 million and ~~$(24.9)~~$(41.0) million in the first ~~six~~nine months of 2021 and 2020, respectively. The change was primarily due to (1) an increase in proceeds from dispositions of ~~$46.2~~$49.1 million, ~~associated with~~reflecting the sale of 47 Company-operated restaurants in New York during the second quarter of 2021, (2) ~~a decrease in capital expenditures of $5.3 million and (3)~~ 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.~~2021 and (3) a decrease in capital expenditures of $1.5 million.

Financing Activities

Cash ~~provided by~~used in financing activities was ~~$28.9~~$57.5 million and ~~$48.3~~$115.3 million in the first ~~six~~nine months of 2021 and 2020, respectively. The ~~decrease~~change was primarily due to (1) ana net increase in ~~repurchases~~cash provided by long-term debt activities of ~~common stock~~$147.1 million, reflecting the impact of ~~$38.5 million~~the completion of the Company’s debt refinancing transaction during the second quarter of 2021, and (2) ~~an increase in dividends of $4.3 million. These changes were partially offset by (1)~~ an increase in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of ~~$14.6~~$12.7 million. These changes were partially offset by (1) an increase in repurchases of common stock of $79.0 million and (2) ~~a net~~an increase in ~~cash provided by long-term debt activities~~dividends of $11.0 million, reflecting the respective impacts of the completion of the Company’s debt refinancing transaction during the second quarter of 2021 and the draw downs under the 2019-1 Class A-1 Notes and the Company’s other lines of credit in the first quarter of 2020.$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 ~~three~~nine months ended ~~July 4,~~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 ~~July 4,~~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.

4647

Dividends

On March 15, 2021, June 15, 2021 and ~~June~~September 15, 2021, the Company paid quarterly cash dividends per share of $.09, $0.10 and ~~$0.10,~~$.12, respectively, aggregating ~~$42.3~~$69.0 million. On ~~August 11,~~November 10, 2021, the Company announced a dividend of $.12 per share to be paid on ~~September~~December 15, 2021 to stockholders of record as of ~~September~~December 1, 2021. IfAs a result of the November 10 announcement, the Company ~~pays regular quarterly cash dividends for the remainder of 2021 at the same rate as declared in the third quarter of 2021, the Company’s~~expects that its total cash requirement for ~~dividends for~~ the ~~remainder~~fourth quarter of 2021 will be approximately ~~$53.5~~$26.5 million based on the number of shares of its common stock outstanding at ~~August 4,~~November 3, 2021. The Company currently intends to continue to declare and pay quarterly cash dividends; however, there can be no assurance that any additional quarterly dividends will be declared or paid or of the amount or timing of such dividends, if any.

Stock Repurchases

In February 2020, our Board of Directors authorized a repurchase program for up to $100.0 million of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally ~~permissible.~~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 the Board of Directors approved an increase of $50.0 million to the February 2020 authorization, resulting in an aggregate authorization of $150.0 million that continues to expire on February 28, 2022. During the six months ended July 4, 2021, the Company repurchased 4.0 million shares under the February 2020 repurchase authorization with an aggregate purchase price of $83.3 million, of which $0.4 million was accrued at July 4, 2021, and excluding commissions of $0.1 million. As of July 4, 2021, the Company had $34.4 million of availability remaining under its February 2020 authorization. Subsequent to July 4, 2021 through August 4, 2021, the Company repurchased 0.2 million shares under the February 2020 authorization with an aggregate purchase price of $4.4 million, excluding commissions. In addition, in August 2021, the Board of Directors approved ~~an increase~~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 3, 2021, the Company repurchased 5.9 million shares under the February 2020 authorization with an aggregate purchase price of $127.2 million, of which $2.3 million was accrued at October 3, 2021, and excluding commissions of $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 ~~$100.0~~$125.1 million remaining under the February 2020 authorization as of ~~August 11,~~November 10, 2021.

General Inflation, Commodities and Changing Prices

We believe that general inflation did not have a significant effect on our consolidated results of operations. We attempt to manage any inflationary costs and commodity price increases 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, pork, cheese and grains, could have a significant effect on our results of operations and may have an adverse effect on us in the future. The extent of any impact will depend on our ability to manage such volatility through product mix and selective menu price increases.

Seasonality

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

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 ~~July 4,~~October 3, 2021, there were no material changes from the information contained in the Form 10-K, except as described below.

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Interest Rate Risk

Following the Company’s debt refinancing transaction, our long-term debt, including the current portion, aggregated ~~$2,451.6~~$2,437.1 million as of ~~July 4,~~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 ~~July 4,~~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 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 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 ~~July 4,~~October 3, 2021. Based on such evaluations, the Chief Executive Officer and Chief Financial Officer concluded that as of ~~July 4,~~October 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 ~~second~~third quarter of 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 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.

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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 “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). 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, strategies or initiatives, future efficiencies or savings, anticipated costs or charges, future capitalization, anticipated 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. 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. 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 cause those results to differ materially from those expressed in or implied by our forward-looking statements. Such factors include, but are not limited to, the following:

•the disruption to our business from the novel coronavirus (COVID-19) pandemic and the impact of the pandemic on our results of operations, financial condition and prospects;

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

•economic disruptions, including in regions with a high concentration of Wendy’s restaurants;

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

•impacts to our corporate reputation or the value and perception of our brand;

•the effectiveness of our marketing and advertising programs and new product development;

•our ability to 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 our Image Activation program;

•our ability to effectively manage the acquisition and disposition of restaurants or 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 and other operating costs;

•shortages or interruptions in the supply or distribution of our products and other risks associated with our independent

supply chain purchasing co-op;

•the impact of increased labor costs or labor shortages;

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

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

•our dependence on computer systems and information technology, including risks associated with the failure, misuse, interruption or breach of our systems or technology or other cyber incidents or deficiencies;

•risks associated with our securitized financing facility and other debt agreements, including compliance with operational and financial covenants, restrictions on our ability to raise additional capital, the impact of our overall debt levels and our ability to generate sufficient cash flow to meet our debt service obligations and operate our business;

•risks associated with our capital allocation policy, including the amount and timing of equity and debt repurchases 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 availability and cost of insurance, changes in accounting standards, the recognition of impairment or other charges, the impact of ~~realignment~~reorganization and ~~reorganization~~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 filed with the 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 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, although we may do so from time to time. We do not endorse any projections regarding future performance that may be made by third parties.

Item 1. Legal Proceedings.

The Company is involved in litigation and claims incidental to our business. We provide accruals for such litigation and claims when payment is probable and reasonably estimable. The Company believes it has adequate accruals for all of its legal and environmental matters. We cannot estimate the aggregate possible range of loss for our existing litigation and claims for various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and/or significant factual matters unresolved. 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 and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period.

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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 ~~second~~third quarter of 2021:

Issuer Repurchases of Equity Securities

Period Total Number of Shares Purchased (1) Average
Price Paid
per Share Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans (2)
April 5, 2021
through
May 9, 2021 528,908 $22.08 528,908 $38
May 10, 2021
through
June 6, 2021 476,284 $23.43 466,718 $39,065,340
June 7, 2021
through
July 4, 2021 254,385 $24.38 197,748 $34,395,558
Total 1,259,577 $23.05 1,193,374 $34,395,558


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

(1)Includes ~~66,203~~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.

(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 the Board of Directors approved an increase of $50.0 million to the February 2020 authorization, resulting in an aggregate authorization of $150.0 million that continues to expire on February 28, 2022.

Subsequent to July 4, 2021 through August 4, 2021, the Company repurchased 0.2 million shares under the February 2020 authorization with an aggregate purchase price of $4.4 million, excluding commissions. In addition, inand August 2021, the Board of Directors approved ~~an increase~~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.

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.

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Item 6. Exhibits.


EXHIBIT NO.			DESCRIPTION

~~4.1~~3.1			~~Series 2021-1 Supplement to Base Indenture, dated as~~By-Laws of ~~June 22, 2021, by~~The Wendy’s Company (a s amended and ~~between Wendy’s Funding, LLC, as Master Issuer of the Series 2021-1 fixed rate senior secured notes, Class A-2, and Series 2021-1 variable funding senior notes, Class A-1, and Citibank, N.A.~~restated through November 4, 2021), ~~as Trustee and Series 2021-1 Securities Intermediary,~~ incorporated herein by reference to Exhibit ~~4.1~~3.1 of The Wendy’s Company Current Report on Form 8-K filed on ~~June 23,~~November 8, 2021 (SEC ~~file no. 001-02207).~~
~~4.2~~			Seventh Supplement to the Base Indenture, dated as of June 22, 2021, by and between Wendy’s Funding, LLC, as Master Issuer, and Citibank, N.A., as Trustee and Securities Intermediary, incorporated herein by reference to Exhibit 4.2 of The Wendy’s Company Current Report on Form 8-K filed on June 23, 2021 (SEC file no. 001-02207).f
~~10.1~~			2021-1 Class A-2 Note Purchase Agreement, dated as of June 15, 2021, by and among The Wendy’s Company, the subsidiaries of The Wendy’s Company party thereto and Guggenheim Securities, LLC and Jefferies LLC, each acting on behalf of itself and as the representatives of the initial purchasers, incorporated herein by reference to Exhibit 10.1 of The Wendy’s Company Current Report on Form 8-K filed on June 16, 2021 (SEC file no. 001-02207).
~~10.2~~			Class A-1 Note Purchase Agreement, dated as of June 22, 2021, by and among Wendy’s Funding, LLC, as Master Issuer, each of Quality Is Our Recipe, LLC, Wendy’s Properties, LLC and Wendy’s SPV Guarantor, LLC, as Guarantors, Wendy’s International, LLC, as Manager, the conduit investors party thereto, the financial institutions party thereto, certain funding agents, and Coöperatieve Rabobank, U.A., New York Branch, as L/C Provider, Swingline Lender and Administrative Agent, incorporated herein by reference to Exhibit 10.1 of The Wendy’s Company Current Report on Form 8-K filed on June 23, 2021 (SEC file no. 001-02207).
~~10.3~~			Fourth Amendment to the Management Agreement, dated as of June 22, 2021, by and among Wendy’s Funding, LLC, as Master Issuer, certain subsidiaries of Wendy’s Funding, LLC party thereto, Wendy’s International, LLC, as Manager, and Citibank, N.A., as Trustee, incorporated herein by reference to Exhibit 10.2 of The Wendy’s Company Current Report on Form 8-K filed on June 23, 2021 (SEC fileile 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			The following financial information from The Wendy’s Company’s Quarterly Report on Form 10-Q for the quarter ended ~~July 4,~~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.
104			The cover page from The Wendy’s Company’s Quarterly Report on Form 10-Q for the quarter ended ~~July 4,~~October 3, 2021, formatted in Inline XBRL and contained in Exhibit 101.

____________________


*			Filed herewith.

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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: ~~August 11,~~November 10, 2021			By: /s/ Gunther Plosch
			Gunther Plosch
			Chief Financial Officer
			(On behalf of the registrant)

Date: ~~August 11,~~November 10, 2021			By: /s/ Leigh A. Burnside
			Leigh A. Burnside
			Senior Vice President, Finance and
			Chief Accounting Officer
			(Principal Accounting Officer)

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