Wendy's Co 10-Q

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, 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 restaurants in the U.S. and 31 foreign countries and U.S. territories as of July 4, 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 periods presented herein contain 13 weeks and 26 weeks, respectively. All references to years, quarters and months relate to fiscal periods rather than calendar periods. 31 Executive Overview Our Business As of July 4, 2021, the Wendy’s restaurant system was comprised of 6,866 restaurants, with 5,895 Wendy’s restaurants in operation in the U.S. Of the U.S. restaurants, 314 were operated by the Company and 5,581 were operated by a total of 225 franchisees. In addition, at July 4, 2021, there were 971 Wendy’s restaurants in operation in 31 foreign countries and U.S. territories. Of the international restaurants, 970 were operated by franchisees and one was 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, 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 new restaurant development, including the Company’s plan to open additional Company-operated restaurants in the U.K. during 2021 and beyond. 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. 32 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 Quarter Financial Highlights • Revenue increased 22.6% to $493.3 million in the second quarter of 2021 compared to $402.3 million in the second quarter of 2020; • Global same-restaurant sales increased 17.4%, U.S. same-restaurant sales increased 16.1% and international same-restaurant sales increased 31.4% compared to the second quarter of 2020; • Company-operated restaurant margin was 20.3% in the second quarter of 2021, an increase of 590 basis points from the second quarter of 2020; and • Net income was $65.7 million in the second quarter of 2021 compared to $24.9 million in the second quarter of 2020. Year-to-Date Financial Highlights • Revenue increased 18.1% to $953.5 million in the first six months of 2021 compared to $807.3 million in the first six months of 2020; • Global same-restaurant sales increased 15.2%, U.S. same-restaurant sales increased 14.9% and international same-restaurant sales increased 19.0% compared to the first six months of 2020; • Company-operated restaurant margin was 18.7% in the first six months of 2021, an increase of 650 basis points from the first six months of 2020; and • Net income was $107.1 million in the first six months of 2021 compared to $39.3 million in the first six 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 33 safety as its top priority. Dining rooms have been re-opening at each restaurant owner’s discretion, subject to applicable regulatory restrictions. As of July 4, 2021, approximately 95% of dining rooms were open across the Wendy’s system offering carryout and, in many cases, dine in services. Global systemwide same-restaurant sales during the first six months of 2021 increased 15.2%, 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 months ended July 4, 2021. Subsequent to July 4, 2021, the Company revised its planned 2021 advertising expenses to include an additional $10.0 million of incremental advertising to support the breakfast daypart, resulting in an expected total 2021 incremental 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% of U.S. systemwide sales during the six months ended July 4, 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 months ended July 4, 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 o f a $100.0 million strategic build to suit development fund to drive additional new restaurant growth that is being funded by the additional cash that was obtained as part of the Company’s debt refinancing transaction completed in June 2021. The Company expects the development fund to drive approximately 80 to 90 new franchise restaurants from 2022 to 2025. 34 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 months ended July 4, 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”) 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 eight 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 seven of the NPC markets, while the Company would have acquired one market. During the three months ended April 4, 2021, following a court-approved mediation process, NPC and certain affiliates of Flynn Restaurant Group (“FRG”) and the Company entered into separate asset purchase agreements under which all of NPC’s Wendy’s restaurants were sold to Wendy’s approved franchisees. Under the transaction, FRG acquired approximately half of NPC’s Wendy’s restaurants in four 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 four markets. The Company did not acquire any restaurants as part of this transaction. 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 million to $8.0 million, of which approximately $5.5 million to $7.5 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 months ended July 4, 2021, the Company recognized costs totaling $1.5 million, which primarily included third-party and other costs. The Company expects to incur additional costs aggregating approximately $1.0 million to $3.0 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. 35 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 quarter and the first six months of 2021 and 2020. Second Quarter Six Months 2021 2020 Change 2021 2020 Change Revenues: Sales $ 193.5 $ 164.2 $ 29.3 $ 382.6 $ 331.0 $ 51.6 Franchise royalty revenue and fees 136.6 103.1 33.5 259.5 204.9 54.6 Franchise rental income 60.9 56.9 4.0 119.7 114.7 5.0 Advertising funds revenue 102.3 78.1 24.2 191.7 156.7 35.0 493.3 402.3 91.0 953.5 807.3 146.2 Costs and expenses: Cost of sales 154.2 140.6 13.6 311.0 290.6 20.4 Franchise support and other costs 8.9 5.5 3.4 16.6 13.5 3.1 Franchise rental expense 34.1 31.3 2.8 66.6 60.6 6.0 Advertising funds expense 107.9 81.3 26.6 202.1 161.3 40.8 General and administrative 63.1 48.6 14.5 115.7 100.2 15.5 Depreciation and amortization 30.8 34.7 (3.9) 62.3 65.8 (3.5) System optimization gains, net (30.8) (2.0) (28.8) (31.3) (2.3) (29.0) Reorganization and realignment costs 2.1 2.9 (0.8) 7.0 6.8 0.2 Impairment of long-lived assets 0.6 0.1 0.5 1.3 4.7 (3.4) Other operating income, net (4.3) (1.4) (2.9) (7.7) (3.3) (4.4) 366.6 341.6 25.0 743.6 697.9 45.7 Operating profit 126.7 60.7 66.0 209.9 109.4 100.5 Interest expense, net (28.2) (29.1) 0.9 (57.0) (57.6) 0.6 Loss on early extinguishment of debt (17.9) — (17.9) (17.9) — (17.9) Other income (expense), net 0.2 (0.2) 0.4 0.3 0.9 (0.6) Income before income taxes 80.8 31.4 49.4 135.3 52.7 82.6 Provision for income taxes (15.1) (6.5) (8.6) (28.2) (13.4) (14.8) Net income $ 65.7 $ 24.9 $ 40.8 $ 107.1 $ 39.3 $ 67.8 36 Second Quarter Six Months 2021 % of Total Revenues 2020 % of Total Revenues 2021 % of Total Revenues 2020 % of Total Revenues Revenues: Sales $ 193.5 39.2 % $ 164.2 40.8 % $ 382.6 40.1 % $ 331.0 41.0 % Franchise royalty revenue and fees: Franchise royalty revenue 119.5 24.2 % 97.2 24.2 % 227.9 23.9 % 192.6 23.9 % Franchise fees 17.1 3.5 % 5.9 1.4 % 31.6 3.3 % 12.3 1.5 % Total franchise royalty revenue and fees 136.6 27.7 % 103.1 25.6 % 259.5 27.2 % 204.9 25.4 % Franchise rental income 60.9 12.4 % 56.9 14.2 % 119.7 12.6 % 114.7 14.2 % Advertising funds revenue 102.3 20.7 % 78.1 19.4 % 191.7 20.1 % 156.7 19.4 % Total revenues $ 493.3 100.0 % $ 402.3 100.0 % $ 953.5 100.0 % $ 807.3 100.0 % Second Quarter Six Months 2021 % of Sales 2020 % of Sales 2021 % of Sales 2020 % of Sales Cost of sales: Food and paper $ 55.8 28.9 % $ 49.3 30.0 % $ 110.7 28.9 % $ 101.8 30.8 % Restaurant labor 58.7 30.3 % 54.0 32.9 % 118.7 31.0 % 111.0 33.5 % Occupancy, advertising and other operating costs 39.7 20.5 % 37.3 22.7 % 81.6 21.4 % 77.8 23.5 % Total cost of sales $ 154.2 79.7 % $ 140.6 85.6 % $ 311.0 81.3 % $ 290.6 87.8 % 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 % 37 The table below presents certain of the Company’s key business measures, which are defined and further discussed in the “Executive Overview” section included herein. Second Quarter Six Months 2021 2020 2021 2020 Key business measures: U.S. same-restaurant sales: Company-operated 23.9 % (10.0) % 18.3 % (5.5) % Franchised 15.6 % (4.0) % 14.6 % (2.0) % Systemwide 16.1 % (4.4) % 14.9 % (2.3) % International same-restaurant sales (a) 31.4 % (18.4) % 19.0 % (10.1) % Global same-restaurant sales: Company-operated 23.9 % (10.0) % 18.3 % (5.5) % Franchised (a) 17.0 % (5.5) % 15.0 % (2.9) % Systemwide (a) 17.4 % (5.8) % 15.2 % (3.1) % Systemwide sales: (b) U.S. Company-operated $ 193.3 $ 164.2 $ 382.4 $ 331.0 U.S. franchised 2,704.1 2,239.2 5,162.4 4,413.4 U.S. systemwide 2,897.4 2,403.4 5,544.8 4,744.4 International Company-operated 0.2 — 0.2 — International franchised (a) 353.4 220.2 657.0 492.8 International systemwide (a) 353.6 220.2 657.2 492.8 Global systemwide (a) $ 3,251.0 $ 2,623.6 $ 6,202.0 $ 5,237.2 ________________ (a) Excludes Argentina and Venezuela due to the impact of the highly inflationary economies of those countries. (b) During the second quarter of 2021 and 2020, global systemwide sales increased 22.9% and decreased 6.2%, respectively, U.S. systemwide sales increased 20.6% and decreased 4.0%, respectively, and international systemwide sales increased 48.2% and decreased 24.5%, respectively, on a constant currency basis. During the first six months of 2021 and 2020, global systemwide sales increased 17.7% and decreased 2.7%, respectively, U.S. systemwide sales increased 16.9% and decreased 1.6%, respectively, and international systemwide sales increased 25.6% and decreased 12.4%, respectively, on a constant currency basis. 38 Second Quarter U.S. Company-operated U.S. Franchised International Company-operated International Franchised Systemwide Restaurant count: Restaurant count at April 4, 2021 362 5,523 — 953 6,838 Opened 1 21 1 20 43 Closed (a) (1) (11) — (3) (15) Net (sold to) purchased by franchisees (48) 48 — — — Restaurant count at July 4, 2021 314 5,581 1 970 6,866 Six Months U.S. Company-operated U.S. Franchised International Company-operated International Franchised Systemwide Restaurant count at January 3, 2021 361 5,520 — 947 6,828 Opened 3 39 1 38 81 Closed (a) (2) (26) — (15) (43) Net (sold to) purchased by franchisees (48) 48 — — — Restaurant count at July 4, 2021 314 5,581 1 970 6,866 ________________ (a) Excludes restaurants temporarily closed due to the impact of the COVID-19 pandemic. Sales Second Quarter Six Months 2021 2020 Change 2021 2020 Change Sales $ 193.5 $ 164.2 $ 29.3 $ 382.6 $ 331.0 $ 51.6 The increase in sales for the second quarter and the first six months of 2021 was primarily due to a 23.9% and 18.3% 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) an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic, and (2) higher average check. Company-operated same-restaurant sales during the first six 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 Second Quarter Six Months 2021 2020 Change 2021 2020 Change Franchise royalty revenue $ 119.5 $ 97.2 $ 22.3 $ 227.9 $ 192.6 $ 35.3 Franchise fees 17.1 5.9 11.2 31.6 12.3 19.3 $ 136.6 $ 103.1 $ 33.5 $ 259.5 $ 204.9 $ 54.6 The increase in franchise royalty revenue during the second quarter and the first six months of 2021 was primarily due to (1) a 17.0% and 15.0% 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 increased due to (1) an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic, and (2) higher average check. Franchise same-restaurant sales during the first six 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 quarter and the first six months of 2021 was primarily due to an increase in fees for providing information technology services to franchisees. Franchise fees during the first six months of 2021 also 39 benefited from the accelerated recognition of fees associated with development agreements that were canceled primarily as a result of the NPC bankruptcy sale process. Franchise Rental Income Second Quarter Six Months 2021 2020 Change 2021 2020 Change Franchise rental income $ 60.9 $ 56.9 $ 4.0 $ 119.7 $ 114.7 $ 5.0 The increase in franchise rental income during the second quarter and the first six 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 Second Quarter Six Months 2021 2020 Change 2021 2020 Change Advertising funds revenue $ 102.3 $ 78.1 $ 24.2 $ 191.7 $ 156.7 $ 35.0 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 quarter and the first six 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 Second Quarter Six Months 2021 2020 Change 2021 2020 Change Food and paper 28.9 % 30.0 % (1.1) % 28.9 % 30.8 % (1.9) % Restaurant labor 30.3 % 32.9 % (2.6) % 31.0 % 33.5 % (2.5) % Occupancy, advertising and other operating costs 20.5 % 22.7 % (2.2) % 21.4 % 23.5 % (2.1) % 79.7 % 85.6 % (5.9) % 81.3 % 87.8 % (6.5) % The decrease in cost of sales, as a percent of sales, during the second quarter and the first six months of 2021 was primarily due to (1) 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 restaurant labor rate increases. In addition, cost of sales, as a percent of sales, during the second quarter of 2021 was negatively impacted by higher commodity costs. Franchise Support and Other Costs Second Quarter Six Months 2021 2020 Change 2021 2020 Change Franchise support and other costs $ 8.9 $ 5.5 $ 3.4 $ 16.6 $ 13.5 $ 3.1 The increase in franchise support and other costs during the second quarter and the first six months of 2021 was primarily due to an increase in costs incurred to provide information technology and other services to our franchisees. These increases were partially offset by investments made during the first six months of 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 The increase in franchise rental expense during the second quarter and the first six months of 2021 was primarily due to an increase in percent rent, reflecting higher systemwide sales compared with 2020. Franchise rental expense for the first six months of 2021 also increased due to the impact of assigning certain leases to a franchisee in 2020. 40 Advertising Funds Expense Second Quarter Six Months 2021 2020 Change 2021 2020 Change Advertising funds expense $ 107.9 $ 81.3 $ 26.6 $ 202.1 $ 161.3 $ 40.8 On an interim basis, advertising funds expense is recognized in proportion to advertising funds revenue. As of July 4, 2021, the Company expected advertising funds expense to exceed advertising funds revenue by approximately $21.0 million for 2021, which includes (1) the Company’s decision to fund up to $15.0 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 quarter and the first six 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 of $5.6 million and $10.4 million, respectively, of the expected advertising spend in excess of advertising funds revenue. Subsequent to July 4, 2021, 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. General and Administrative Second Quarter Six Months 2021 2020 Change 2021 2020 Change Incentive compensation $ 15.1 $ 6.0 $ 9.1 22.5 9.0 13.5 Professional fees 9.1 6.5 2.6 17.8 12.8 5.0 Share-based compensation 5.9 4.7 1.2 11.0 9.2 1.8 Travel-related expenses 1.5 0.8 0.7 2.0 3.9 (1.9) Other, net 31.5 30.6 0.9 62.4 65.3 (2.9) $ 63.1 $ 48.6 $ 14.5 $ 115.7 $ 100.2 $ 15.5 The increase in general and administrative expenses during the second quarter and the first six months of 2021 was primarily due to (1) an increase in incentive compensation accruals and higher share-based compensation, reflecting higher operating performance in the first six months of 2021 compared to the first six months of 2020, and (2) higher professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning implementation. During the first six months of 2021, these increases were partially offset by a decrease in travel-related expenses as a result of reduced travel. Depreciation and Amortization Second Quarter Six Months 2021 2020 Change 2021 2020 Change Restaurants $ 18.7 $ 23.0 $ (4.3) $ 38.1 $ 42.5 $ (4.4) Technology support, corporate and other 12.1 11.7 0.4 24.2 23.3 0.9 $ 30.8 $ 34.7 $ (3.9) $ 62.3 $ 65.8 $ (3.5) The decrease in depreciation and amortization during the second quarter and the first six months of 2021 was primarily due to (1) assets becoming fully depreciated and (2) 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 Second Quarter Six Months 2021 2020 Change 2021 2020 Change System optimization gains, net $ (30.8) $ (2.0) $ (28.8) $ (31.3) $ (2.3) $ (29.0) System optimization gains, net for the second quarter and the first six 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. 41 Reorganization and Realignment Costs Second Quarter Six Months 2021 2020 Change 2021 2020 Change Operations and field realignment $ 1.2 $ — $ 1.2 $ 1.5 $ — $ 1.5 IT realignment — 2.8 (2.8) — 6.4 (6.4) G&A realignment — 0.1 (0.1) — 0.3 (0.3) System optimization initiative 0.9 — 0.9 5.5 0.1 5.4 $ 2.1 $ 2.9 $ (0.8) $ 7.0 $ 6.8 $ 0.2 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 months of 2021, the Company recognized costs totaling $1.2 million and $1.5 million, respectively, which primarily included third-party and other costs. The Company expects to incur additional costs aggregating approximately $1.0 million to $3.0 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 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 million, which were primarily comprised of the write-off of certain lease assets and lease termination 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 Second Quarter Six Months 2021 2020 Change 2021 2020 Change Impairment of long-lived assets $ 0.6 $ 0.1 $ 0.5 $ 1.3 $ 4.7 $ (3.4) The change in impairment charges during the second 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 quarter of 2020. The change in impairment charges during the first six months of 2021 was primarily driven by the expected deterioration in operating performance of certain Company-operated restaurants in the first six months of 2020 as a result of the COVID-19 pandemic. Other Operating Income, Net Second Quarter Six Months 2021 2020 Change 2021 2020 Change Gains on sales-type leases $ (1.6) $ (0.6) $ (1.0) $ (3.5) $ (1.2) $ (2.3) Lease buyout (0.8) 0.1 (0.9) (0.9) 0.1 (1.0) Equity in earnings in joint ventures, net (1.7) (0.9) (0.8) (3.3) (2.4) (0.9) Other, net (0.2) — (0.2) — 0.2 (0.2) $ (4.3) $ (1.4) $ (2.9) $ (7.7) $ (3.3) $ (4.4) The change in other operating income, net during the second quarter and the first six months of 2021 was primarily due to (1) gains on new and modified sales-type leases, (2) lease buyout activity and (3) an increase in the equity in earnings from our TimWen joint venture. 42 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 decreased during the second quarter and the first six 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 Second Quarter Six Months 2021 2020 Change 2021 2020 Change Loss on early extinguishment of debt $ 17.9 $ — $ 17.9 $ 17.9 $ — $ 17.9 During the second quarter of 2021, in connection with the refinancing of a portion of the Company’s securitized financing facility, the Company incurred a loss on the early extinguishment of debt as a result of repaying the outstanding 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) The change in other income (expense), net during the second quarter and the first six months of 2021 was primarily due to fluctuations in interest income earned on our cash equivalents. Provision for Income Taxes Second Quarter Six Months 2021 2020 Change 2021 2020 Change Income before income taxes $ 80.8 $ 31.4 $ 49.4 $ 135.3 $ 52.7 $ 82.6 Provision for income taxes (15.1) (6.5) (8.6) (28.2) (13.4) (14.8) Effective tax rate on income 18.6 % 20.8 % (2.2) % 20.8 % 25.4 % (4.6) % Our effective tax rates for the second quarter and the first six 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 in the effective tax rate for the second quarter of 2021 compared with the second quarter of 2020 was primarily due to an increase in the benefit of share-based compensation, partially offset by an increase due to state income taxes, including discrete changes to state deferred taxes. The decrease in the effective tax rate for the first six months of 2021 compared with the first six months of 2020 was primarily due to a decrease in the tax effects of our foreign operations, partially offset by an increase due to state income taxes, including discrete changes to state deferred taxes. 43 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 2021 2020 Change 2021 2020 Change Sales $ 193.3 $ 164.2 $ 29.1 $ 382.4 $ 331.0 $ 51.4 Franchise royalty revenue 106.0 88.1 17.9 202.8 173.0 29.8 Franchise fees 14.3 5.4 8.9 26.2 10.6 15.6 Advertising fund revenue 96.2 73.6 22.6 180.4 147.7 32.7 Total revenues $ 409.8 $ 331.3 $ 78.5 $ 791.8 $ 662.3 $ 129.5 Segment profit $ 126.7 $ 93.1 $ 33.6 $ 238.7 $ 175.0 $ 63.7 The increase in Wendy’s U.S. revenues during the second quarter and the first six months of 2021 was primarily due to an increase in systemwide same-restaurant sales, partially offset by the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021. 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 quarter and the first six 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 higher general and administrative expenses. Wendy’s International Second Quarter Six Months 2021 2020 Change 2021 2020 Change Sales $ 0.2 $ — $ 0.2 $ 0.2 $ — $ 0.2 Franchise royalty revenue 13.6 9.1 4.5 25.1 19.6 5.5 Franchise fees 1.4 0.4 1.0 3.0 0.9 2.1 Advertising fund revenue 6.1 4.5 1.6 11.3 9.0 2.3 Total revenues $ 21.3 $ 14.0 $ 7.3 $ 39.6 $ 29.5 $ 10.1 Segment profit $ 6.5 $ 3.6 $ 2.9 $ 14.2 $ 8.7 $ 5.5 The increase in Wendy’s International revenues during the second quarter and the first six months of 2021 was primarily due to an increase in same-restaurant sales. 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. The increase in Wendy’s International segment profit during the second quarter and the first six months of 2021 was primarily due to higher revenues, partially offset by higher general and administrative expenses. 44 Global Real Estate & Development Second Quarter Six Months 2021 2020 Change 2021 2020 Change Franchise fees $ 1.3 $ 0.1 $ 1.2 $ 2.5 $ 0.8 $ 1.7 Franchise rental income 60.9 56.9 4.0 119.7 114.7 5.0 Total revenues $ 62.2 $ 57.0 $ 5.2 $ 122.2 $ 115.5 $ 6.7 Segment profit $ 26.6 $ 23.7 $ 2.9 $ 52.8 $ 50.2 $ 2.6 The increase in Global Real Estate & Development revenues during the second quarter and the first six 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 second quarter and the first six months of 2021 was primarily due to (1) gains on new and modified sales-type leases, (2) lease buyout activity and (3) 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 million to $65.0 million, resulting in total anticipated cash capital expenditures for the year of approximately $80.0 million to $90.0 million; • cash dividends aggregating approximately $53.5 million as discussed below in “Dividends;” and • potential stock repurchases of up to $104.4 million, of which $4.4 million was repurchased subsequent to July 4, 2021 through August 4, 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 months of 2021 and 2020: Six Months 2021 2020 Change Net cash provided by (used in): Operating activities $ 158.8 $ 30.6 $ 128.2 Investing activities 32.0 (24.9) 56.9 Financing activities 28.9 48.3 (19.4) Effect of exchange rate changes on cash 2.2 (3.2) 5.4 Net increase in cash, cash equivalents and restricted cash $ 221.9 $ 50.8 $ 171.1 45 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 million and $30.6 million in the first six 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) the timing of receipt of franchisee rental payments and (5) 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 million and $(24.9) million in the first six months of 2021 and 2020, respectively. The change was primarily due to (1) an increase in proceeds from dispositions of $46.2 million associated with 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. Financing Activities Cash provided by financing activities was $28.9 million and $48.3 million in the first six months of 2021 and 2020, respectively. The decrease was primarily due to (1) an increase in repurchases of common stock of $38.5 million 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 million and (2) a net increase in cash provided by long-term debt activities 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. 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 months ended July 4, 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, 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. 46 Dividends On March 15, 2021 and June 15, 2021, the Company paid quarterly cash dividends per share of $.09 and $0.10, respectively, aggregating $42.3 million. On August 11, 2021, the Company announced a dividend of $.12 per share to be paid on September 15, 2021 to stockholders of record as of September 1, 2021. If 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 total cash requirement for dividends for the remainder of 2021 will be approximately $53.5 million based on the number of shares of its common stock outstanding at August 4, 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. 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 of $70.0 million to the February 2020 authorization, resulting in an aggregate authorization of $220.0 million that continues to expire on February 28, 2022. The Company has availability of $100.0 million remaining under the authorization as of August 11, 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.