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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-03 · 233 added, 344 removed, 369 unchanged (61% of the section changed)

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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 Restaurants is the parent company of Wendy’s International, LLC (formerly known as Wendy’s International, Inc).

Wendy’s International, LLC is the indirect parent company of (1) Quality Is Our Recipe, LLC (“Quality”), which is the owner and franchisor of the Wendy’s restaurant system in the United States (the “U.S.”) and all international jurisdictions except for Canada, and (2) Wendy’s Restaurants of Canada Inc., which is the owner and franchisor of the Wendy’s restaurant system in Canada.

As used herein, unless the context requires otherwise, the term “Company” refers to The Wendy’s Company and its direct and indirect subsidiaries, and “Wendy’s” refers to Quality when the context relates to the ownership or franchising of the Wendy’s restaurant system and to Wendy’s International, LLC when the context refers to the Wendy’s brand.

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 #2 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 6,828 restaurants in the U.S and 30 foreign countries and U.S.

Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the U.S.

based on traffic share, and the third largest globally with 6,949 restaurants in the U.S.

and 31 foreign countries and U.S.

territories as of January 2, 2022.

(*Based on The NPD Group CREST ® data for the twelve months ended December 2020.)

The Company is comprised of the following segments:

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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 franchising of Wendy’s restaurants in countries and territories other than the U.S.

and derives its revenues from 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.

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“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.

The Company measures segment profit using segment adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”).

Segment adjusted EBITDA excludes certain unallocated general and administrative expenses and other items that vary from period to period without correlation to the

Company’s core operating performance.

See “Results of Operations” below and Note 26 of the Financial Statements and Supplementary Data contained in Item 8 herein for segment financial information.

The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31 and are referred to herein as (1) “the year ended January 3, 2021” or “2020,” which consisted of 53 weeks, (2) “the year ended December 29, 2019” or “2019,” which consisted of 52 weeks, and (3) “the year ended December 30, 2018” or “2018,” which consisted of 52 weeks.

The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31 and are referred to herein as (1) “the year ended January 2, 2022” or “2021,” which consisted of 52 weeks, (2) “the year ended January 3, 2021” or “2020,” which consisted of 53 weeks, and (3) “the year ended December 29, 2019” or “2019,” which consisted of 52 weeks.

All references to years, quarters and months relate to fiscal periods rather than calendar periods.

We adopted the new accounting guidance for leases effective December 31, 2018, which had a material impact on our consolidated financial statements.

Beginning with the first quarter of 2019, our financial condition and results of operations reflect adoption of this guidance;

however, prior period results were not restated.

See Note 1 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information.

Executive Overview

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In addition, at January 2, 2022, there were 1,011 Wendy’s restaurants in operation in 31 foreign countries and U.S.

territories, all of which were franchised.

Of the international restaurants, 1,006 were operated by franchisees and five were operated by the Company in the United Kingdom (the “U.K.”).

The revenues from our restaurant business are derived from two principal sources:

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The COVID-19 pandemic has had and may continue to have the effect of heightening the impact of many of these factors.

See “Sales Trends and COVID-19 Update” below and “Special Note Regarding Forward-Looking Statements and Projections” in “Part I” preceding “Item 1 - Business” for additional information.

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 Company-operated restaurants in the United Kingdom (“U.K.”) in the first half of 2021.

See “COVID-19 Update” below and “Special Note Regarding Forward-Looking Statements and Projections” in “Part I” preceding “Item 1 - Business” for additional information.

Wendy’s long-term growth opportunities include investing in accelerated global growth through (1) building our breakfast daypart, (2) accelerating our implementation of consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint through targeted U.S.

restaurant expansion and accelerated international restaurant expansion.

Key Business Measures

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• 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.

Same-restaurant sales exclude the impact of the 53 rd week of 2020.

For 2020, same-restaurant sales compares 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.

Restaurants temporarily closed for more than one week are excluded from same-restaurant sales.

For 2020, same-restaurant sales excluded the impact of a 53 rd operating week.

For 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 2021, same-restaurant sales compared 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.

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The Company’s consolidated financial statements do not include sales by franchised restaurants to their customers.

The Company’s royalty 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 revenues and profitability.

The Company’s royalty and advertising

funds revenues are computed as percentages of sales made by Wendy’s franchisees.

As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty and advertising funds revenues and profitability.

• Average Unit Volumes - We calculate Company-operated restaurant average unit volumes by summing the average weekly sales of all Company-operated restaurants which reported sales during the week.

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The Company believes excluding the impact of foreign currency translation provides better year over year comparability.

Same-restaurant sales and systemwide sales exclude sales from Venezuela and, beginning in the third quarter of 2018, exclude sales from Argentina due to the highly inflationary economies of those countries.

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, systemwide sales and average unit volumes provide a meaningful perspective of the underlying operating performance of the Company’s current business and enables investors to better understand and evaluate the Company’s historical and prospective operating performance.

The Company believes its presentation of same-restaurant sales, restaurant margin, systemwide sales and average unit volumes, including franchised restaurant average unit volumes, provide a meaningful perspective of the underlying operating performance of the Company’s current business and enables investors to better understand and evaluate 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.

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Because all companies do not calculate non-GAAP financial measures in the same way, these measures as used by other companies may not be consistent with the way the Company calculates such measures.

Sales Trends and COVID-19 Update

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide.

2021 Financial Highlights

• Revenue increased 9.4% to $1.9 billion in 2021 compared to $1.7 billion in 2020;

• Global same-restaurant sales increased 10.0%, U.S.

same-restaurant sales increased 9.2% and international same-restaurant sales increased 17.6% compared to 2020;

• Company-operated restaurant margin was 16.7% in 2021, an increase of 180 basis points compared to 2020;

• Net income increased 70.1% to $200.4 million in 2021 compared to $117.8 million in 2020.

COVID-19 Update

In March 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.

federal, state and local requirements.

Substantially all Wendy’s restaurants continued to offer drive-thru and delivery service to our customers.

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Dining rooms have been re-opening at each restaurant owner’s discretion, subject to applicable regulatory restrictions.

As of January 3, 2021, approximately 75% of dining rooms were open across the Wendy’s system offering carryout and, in some cases, dine in services.

The COVID-19 pandemic has resulted in the temporary closure of certain restaurants across the Wendy’s system.

As of January 3, 2021, systemwide temporary restaurant closures totaled 17 and 45 in the U.S.

and internationally, respectively, which represents less than 1% of all system restaurants.

The following table shows same-restaurant sales for the fiscal months of January through June and the third and fourth quarters of 2020:

January through February March April May June Third

Quarter Fourth

Same-restaurant sales:

systemwide 3.7 % (7.7) % (14.0) % (1.9) % 5.1 % 7.0 % 5.5 %

International 5.4 % (17.0) % (28.3) % (15.7) % (10.7) % (2.1) % (2.3) %

Global systemwide 3.9 % (8.6) % (15.3) % (3.3) % 3.4 % 6.1 % 4.7 %

________________

(a) Excludes the impact of the 53 rd week in 2020.

As a result of the COVID-19 pandemic, global systemwide same-restaurant sales began to be materially adversely impacted in the fiscal month of March, with the fiscal month of April seeing the greatest impact.

The decrease in same-restaurant sales was driven by a significant decline in customer count, partially offset by an increase in average check.

Subsequently, global same-restaurant sales improved beginning in May, turned positive to 3.4% growth in June and increased 6.1% and 4.7% during the third and fourth quarters, respectively.

Through the week ended February 21, 2021, U.S.

and global systemwide same-restaurant sales increased approximately 6.0% and 5.0%, respectively.

The improvement in same-restaurant sales since the lows seen in March and April has been primarily driven by a significant increase in customer counts since that time.

Breakfast Launch

During 2021, restaurant operations have been impacted by increased pressure on labor availability brought about by both the COVID-19 pandemic and other macroeconomic factors;

however, as of January 2, 2022, substantially all restaurants were open across the Wendy’s system, and the majority of restaurants had dining rooms open.

Global systemwide same-restaurant sales during 2021 increased 10.0%, in part due to a significant increase in customer count compared with the adversely impacted fiscal months of March through June 2020.

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, same-restaurant sales have benefited from this new daypart, with breakfast contributing 6.2%, 6.4% and 6.3% to U.S.

systemwide same-restaurant sales during the second, third and fourth quarters of 2020, respectively.

The Company funded $14.6 million of incremental advertising to support the breakfast daypart during 2020.

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 for Wendy’s U.S.

and Canadian restaurants.

The Company’s digital business continues to grow and represented approximately 5% of U.S.

systemwide sales during 2020, which is more than double the amount in 2019.

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 realigns 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.

We also expect to incur contract termination charges, including the planned closure of certain field offices.

The Company expects to incur total costs aggregating approximately $7.0 million to $9.0 million, of which approximately $6.5 million to $8.5 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 2020, the Company recognized costs totaling $3.8 million, which primarily included severance and related employee costs and share-based compensation.

The Company expects to incur additional costs aggregating approximately $3.0 million to $5.0 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 2021.

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, which will enable 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.

Costs related to the IT Realignment Plan are recorded to “Reorganization and realignment costs.” During 2020 and 2019, the Company recognized costs totaling $7.3 million and $9.1 million, respectively, which primarily included third-party and other costs and recruitment and relocation costs in 2020 and severance and related employee costs and third-party and other costs in 2019.

The Company does not expect to incur any material additional costs under the IT Realignment Plan.

NPC Quality Burgers, Inc.

As previously announced, NPC, 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.

On January 7, 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 will be sold to Wendy’s approved franchisees.

Under the proposed transaction, FRG will acquire 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 will acquire the other half of NPC’s Wendy’s restaurants in the other four markets.

The Company does not expect to acquire and operate any restaurants as part of this transaction.

The Company expects that the sale of the restaurants will be completed in the late first quarter or early second quarter of 2021, subject to the satisfaction of various closing conditions specified in the asset purchase agreements.

system in March 2020, systemwide sales have benefited from this new daypart, with breakfast representing approximately 7.3% of U.S.

systemwide sales during 2021 and 7.8% during the fourth quarter of 2021.

The Company funded $25.0 million of incremental advertising to support the breakfast daypart during 2021, which continued to drive trial and acceleration of the Company’s breakfast offering.

The Company recently announced plans to launch breakfast in Canada in the second quarter of 2022, which will increase the percentage of global systemwide restaurants serving breakfast to approximately 95%.

Wendy’s long-term growth opportunities include accelerated implementation of consumer-facing digital platforms and technologies.

The Company’s digital business continues to grow and represented approximately 8.5% of global systemwide sales during 2021, with the fourth quarter of 2021 reaching approximately 9.5%.

The Company is also partnering with key technology providers to help execute our digital, restaurant technology and enterprise technology initiatives and support our technology innovation and growth.

New Restaurant Development

Wendy’s long-term growth opportunities include expanding the Company’s footprint through targeted U.S.

restaurant expansion and accelerated international restaurant expansion.

To promote new restaurant development, the Company has provided franchisees with certain incentive programs for qualifying new restaurants, including technical assistance fee waivers and reductions in royalty and national advertising payments.

During 2021, the Company and its franchisees added 121 net new restaurants across the Wendy’s system.

The Company expects to reach 8,500 to 9,000 systemwide restaurants by the end of 2025.

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 a five-year period across the U.S., Canada and the U.K.

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 restaur ants from 2022 to 2025.

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 achieved its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total system.

While the Company has no plans to move its ownership away from approximately 5% of the total system, 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 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 consolidated statements of operations.

See Note 4 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information on the dispositions.

In addition, during 2021, the Company completed a transaction to acquire 93 franchise-operated restaurants in Florida for $127.9 million.

See Note 3 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information on the acquisition.

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 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 Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information on the Company’s debt refinancing transaction.

This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.

For discussion related to 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K, please refer to Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Form 10-K, filed with the United States Securities and Exchange Commission on February 26, 2020.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Form 10-K, filed with the United States Securities and Exchange Commission on March 3, 2021.

Results of Operations

The tables included throughout this Results of Operations section set forth in millions (except as otherwise indicated) the Company’s consolidated results of operations for the years ended January 3, 2021, December 29, 2019 and December 30, 2018.

Except as noted below, the Company’s consolidated results of operations described below includes the benefit of the 53 rd week in 2020.

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Loss on early extinguishment of debt (17.9) (17.9) — 8.5 (8.5)

Investment (loss) income, net (0.2) (25.8) 25.6 (425.1) 450.7

Investment income (loss), net — 0.2 (0.2) (25.8) 25.6

Other income, net 0.7 (0.7) 1.4 (6.4) 7.8

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Occupancy, advertising and other operating costs 156.1 21.3 % 159.5 22.1 % 160.0 22.7 %

159.5 22.1 % 160.0 22.7 % 147.2 22.6 %

Total cost of sales $ 611.7 83.3 % $ 614.9 85.1 % $ 597.5 84.5 %

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Restaurant margin $ 122.4 16.7 % $ 107.9 14.9 % $ 110.0 15.5 %

The tables below present certain of the Company’s key business measures, which are defined and further discussed in the “Executive Overview” section included herein.

The table below presents certain of the Company’s key business measures, which are defined and further discussed in the “Executive Overview” section included herein.

2021 2020 2019

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same-restaurant sales (a):

Company-operated restaurants (0.7) % 3.1 % 1.3 %

Franchised restaurants 2.3 % 2.9 % 0.5 %

Company-operated 11.9 % (0.7) % 3.1 %

Franchised 9.0 % 2.3 % 2.9 %

Systemwide 9.2 % 2.0 % 2.9 %

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Global same-restaurant sales (a):

Company-operated restaurants (0.7) % 3.1 % 1.3 %

Franchised restaurants (b) 1.4 % 2.9 % 1.0 %

Company-operated 11.9 % (0.7) % 3.1 %

Franchised (b) 9.9 % 1.4 % 2.9 %

Systemwide (b) 10.0 % 1.2 % 2.9 %

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(a) Excludes the impact of the 53 rd week in 2020.

(b) Includes international franchised restaurants same-restaurant sales (excluding Venezuela, and excluding Argentina beginning in the third quarter of 2018, due to the impact of the highly inflationary economies of those countries).

2020 2019 2018

Key business measures (continued):

Systemwide sales:

Systemwide sales (c):

Company-operated $ 730.4 $ 722.8 $ 707.5

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systemwide 11,110.7 10,231.3 9,762.7

International Company-operated 3.7 — —

International franchised (b) 1,392.9 1,107.2 1,181.6

Global systemwide $ 11,338.5 $ 10,944.3 $ 10,512.6

Restaurant average unit volumes (in thousands):

International systemwide (b) 1,396.6 1,107.2 1,181.6

Global systemwide (b) $ 12,507.3 $ 11,338.5 $ 10,944.3

Restaurant average unit volumes (in thousands) (a):

Company-operated $ 2,172.4 $ 1,978.5 $ 1,989.6

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systemwide 1,895.3 1,725.5 1,684.0

International franchised (b) 1,199.5 1,357.5 1,359.2

Global systemwide $ 1,654.7 $ 1,641.4 $ 1,596.1

International systemwide (b) 1,448.1 1,199.5 1,357.5

Global systemwide (b) $ 1,832.1 $ 1,654.7 $ 1,641.4

________________

(a) During 2020 and 2019, global systemwide sales increased 3.7% and 4.4%, respectively, U.S.

systemwide sales increased 4.8% and 4.2%, respectively, and international franchised sales decreased 5.5% and increased 6.7%, respectively, on a constant currency basis.

2020 systemwide sales growth percentages include a positive impact of approximately 2.0% for the 53 rd week in 2020.

(b) Excludes Venezuela, and excludes Argentina beginning in the third quarter of 2018, due to the impact of the highly inflationary economies of those countries.

(a) Excludes the impact of the 53 rd week in 2020.

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

systemwide sales increased 8.6% and 4.8%, respectively, and international systemwide sales increased 20.7% and decreased 5.5%, respectively, on a constant currency basis.

2020 systemwide sales growth percentages included a positive impact of approximately 2% for the 53 rd week in 2020.

The table below presents details regarding the change in restaurant counts of the Wendy’s system from 2019 to 2021.

Company-operated U.S.

Franchised International Franchised Systemwide

Franchised International Company-operated International Franchised Systemwide

Restaurant count:

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Opened 7 91 — 49 147

Closed (3) (62) (40) (105)

Net purchased from (sold by) franchisees 5 (5) — —

Restaurant count at December 29, 2019

Closed (a) (2) (67) — (38) (107)

Net (sold to) purchased by franchisees (1) 1 — — —

Restaurant count at January 3, 2021

361 5,520 — 947 6,828

Opened 7 116 5 82 210

Closed (2) (67) (38) (107)

Net (sold to) purchased by franchisees (1) 1 — —

Closed (a) (8) (58) — (23) (89)

Net purchased from (sold by) franchisees 43 (43) — — —

Restaurant count at January 2, 2022

403 5,535 5 1,006 6,949

_______________

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

Sales 2021 2020 2019

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Sales $ 734.1 $ 11.3 $ 722.8 $ 15.3 $ 707.5

The increase in sales during 2020 was primarily due to (1) sales during the 53 rd week of 2020 of approximately $13.7 million and (2) a net increase in the number of Company-operated restaurants in operation during 2020 compared to 2019.

These increases were partially offset by a 0.7% decrease in Company-operated same-restaurant sales.

Company-operated same-restaurant sales declined due to a decrease in customer count as a result of the COVID-19 pandemic, partially offset by (1) the positive impact from the launch of breakfast and (2) higher average check.

The increase in sales during 2021 was primarily due to (1) an 11.9% increase in Company-operated same-restaurant sales, (2) net new restaurant development and (3) the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021.

These increases were partially offset by (1) the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021 and (2) Company-operated sales during the 53 rd week of 2020 of approximately $13.7 million.

Company-operated same-restaurant sales increased due to (1) higher average check and (2) an increase in customer count, reflecting the positive impact from the breakfast daypart and the prior year impact of the COVID-19 pandemic.

Company-operated same-restaurant sales during 2021 benefited from government stimulus payments to consumers during the first quarter of 2021.

Franchise Royalty Revenue and Fees 2021 2020 2019

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$ 536.7 $ 92.0 $ 444.7 $ 15.7 $ 429.0

The increase in franchise royalty revenue during 2020 was primarily due to (1) royalties earned during the 53 rd week of 2020 of approximately $7.8 million, (2) a 1.4% increase in global franchise same-restaurant sales and (3) a net increase in the number of franchise restaurants in operation during 2020 compared to 2019.

The increase in franchise same-restaurant sales reflects (1) the positive impact from the launch of breakfast in the U.S.

and (2) higher average check, partially offset by a decrease in customer count as a result of the COVID-19 pandemic.

The increase in franchise royalty revenue during 2021 was primarily due to (1) a 9.9% increase in global franchise same-restaurant sales and (2) a net increase in the number of franchise restaurants in operation during 2021 compared to 2020.

These increases were partially offset by royalties earned during the 53 rd week of 2020 of approximately $7.8 million.

Franchise same-restaurant sales increased due to (1) higher average check and (2) an increase in customer count, reflecting the positive impact from the breakfast daypart and the prior year impact of the COVID-19 pandemic.

Franchise same-restaurant sales during 2021 benefited from government stimulus payments to consumers during the first quarter of 2021.

The increase in franchise fees during 2021 was primarily due to (1) an increase in fees for providing information technology services to franchisees and (2) the accelerated recognition of franchise agreement revenue as a result of franchisee-to-franchisee restaurant transfers.

Franchise Rental Income 2021 2020 2019

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Franchise rental income $ 236.7 $ 4.1 $ 232.6 $ (0.5) $ 233.1

The decrease in franchise rental income during 2020 was primarily due to assigning certain leases to franchisees during 2019.

The increase in franchise rental income during 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.

These increases were partially offset by the impact of terminating existing leases where the Company was lessor in connection with the Company’s acquisition of franchise-operated restaurants in Florida during the fourth quarter of 2021.

Advertising Funds Revenue 2021 2020 2019

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Franchisees make contributions to the national advertising funds based on a percentage of sales of the franchised restaurants.

The decrease in advertising funds revenue during 2020 was primarily due to the impact of the COVID-19 pandemic.

The positive impact from the launch of breakfast did not impact advertising funds revenue due to the Company’s decision in March 2020 to abate national advertising fund contributions on breakfast sales for the remainder of 2020 in response to the COVID-19 pandemic.

The decrease in advertising funds revenue was partially offset by revenues earned during the 53 rd week of 2020 of approximately $6.4 million.

The increase in advertising funds revenue during 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.

These increases were partially offset by revenues earned during the 53 rd week of 2020 of approximately $6.4 million.

Cost of Sales, as a Percent of Sales 2021 2020 2019

4 unchanged sentences

83.3 % (1.8) % 85.1 % 0.6 % 84.5 %

The increase in cost of sales, as a percent of sales, during 2020 was primarily due to (1) a decrease in customer count, reflecting the impact of the COVID-19 pandemic, (2) restaurant labor cost increases, which included incremental recognition pay during April and May, and (3) an increase in commodity costs.

These impacts were partially offset by (1) higher average check and (2) lower insurance costs.

The decrease in cost of sales, as a percent of sales, during 2021 was primarily due to (1) higher average check, (2) an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic, and (3) incremental recognition pay during April and May of 2020.

These impacts were partially offset by (1) an increase in restaurant labor rates and (2) higher commodity costs.

Franchise Support and Other Costs 2021 2020 2019

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Franchise support and other costs $ 42.9 $ 16.4 $ 26.5 $ (17.2) $ 43.7

The decrease in franchise support and other costs during 2020 was primarily due to (1) the prior year investments of $16.4 million to support U.S.

franchisees in preparation of the launch of breakfast and (2) the prior year purchase of digital scanning equipment for franchisees of $5.3 million.

These decreases were partially offset by further investments made in 2020 to support U.S.

franchisees in preparation of the launch of breakfast.

The increase in franchise support and other costs during 2021 was primarily due to an increase in costs incurred to provide information technology and other services to franchisees, partially offset by investments made in 2020 to support U.S.

franchisees in preparation of the national launch of breakfast in March 2020.

Franchise Rental Expense 2021 2020 2019

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Franchise rental expense $ 132.4 $ 6.8 $ 125.6 $ 1.7 $ 123.9

The increase in franchise rental expense during 2020 was primarily due to the impact of assigning certain leases to franchisees in 2019.

The increase in franchise rental expense during 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 to franchisees during the second quarter of 2021.

Advertising Funds Expense 2021 2020 2019

1 unchanged sentence

Advertising funds expense $ 411.8 $ 66.4 $ 345.4 $ 7.3 $ 338.1

The increase in advertising funds expense during 2020 was primarily due to the Company’s funding of $14.6 million of incremental advertising to support the breakfast daypart.

This increase was partially offset by the impact of the COVID-19 pandemic.

The increase in advertising funds expense during 2021 was primarily due to the same factors as described above for “Advertising Funds Revenue.” Advertising funds expense also increased during 2021 due to the Company’s funding of $25.0 million of incremental advertising to support the breakfast daypart, compared with the Company’s funding of $14.6 million in 2020.

General and Administrative 2021 2020 2019

Amount Change Amount Change Amount

Incentive compensation $ 46.5 $ 23.5 $ 23.0 $ (3.0) $ 26.0

Professional fees 41.0 8.7 32.3 12.8 19.5

Legal reserves 0.2 2.7 (2.5) (30.1) 27.6

Share-based compensation 22.0 3.9 18.1 0.8 17.3

Travel-related expenses 6.1 0.3 5.8 (6.6) 12.4

Incentive compensation 23.0 (3.0) 26.0 10.4 15.6

Other, net 127.4 (0.3) 127.7 2.7 125.0

$ 243.0 $ 36.1 $ 206.9 $ 6.7 $ 200.2

The increase in general and administrative expenses during 2020 was primarily due to (1) an increase in professional fees, reflecting higher IT-related costs, and (2) the prior year reduction in legal reserves as a result of an increase in anticipated insurance proceeds available for use related to the settlement of the financial institutions class action.

These increases were partially offset by (1) a decrease in travel-related expenses as a result of reduced travel during the COVID-19 pandemic and (2) a decrease in incentive compensation accruals due to lower operating performance in 2020 compared to 2019.

The increase in general and administrative expenses during 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 2021, and (2) higher professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning (“ERP”) implementation.

Depreciation and Amortization 2021 2020 2019

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Restaurants $ 76.4 $ (8.5) $ 84.9 $ (0.9) $ 85.8

Corporate and other 47.9 2.0 45.9 (0.1) 46.0

Technology support, corporate and other 49.1 1.2 47.9 2.0 45.9

$ 125.5 $ (7.3) $ 132.8 $ 1.1 $ 131.7

The increase in depreciation and amortization during 2020 was primarily due to (1) changes in useful lives for certain asset categories, (2) the impact of the 53rd week in 2020, (3) the assignment of certain leases to a franchisee in 2019, resulting in the write-off of the related net investment in the leases, and (4) an increase in depreciation on assets newly added as part of our Image Activation program.

These increases were partially offset by (1) assets becoming fully depreciated and (2) a decrease in depreciation on assets classified as held for sale resulting from the expected sale of 43 restaurants in New York to franchisees in the second quarter of 2021.

The decrease in depreciation and amortization during 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 2021 2020 2019

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System optimization gains, net $ (33.5) $ (30.4) $ (3.1) $ (1.8) $ (1.3)

System optimization gains, net during 2021 were primarily comprised of a gain on the sale of 47 Company-operated restaurants in New York.

See Note 4 of the Financial Statements and Supplementary Data contained in Item 8 herein for further discussion.

System optimization gains, net during 2020 were primarily comprised of gains on the sale of surplus and other properties.

System optimization gains, net during 2019 were primarily comprised of post-closing adjustments on previous sales of restaurants.

Reorganization and Realignment Costs 2021 2020 2019

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$ 8.5 $ (7.5) $ 16.0 $ (1.0) $ 17.0

In September 2020, the Company initiated the Operations and Field Realignment Plan to reallocate resources to better support the long-term growth strategies for Company and franchise operations.

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 included contract terminations, including the closure of certain field offices.

During 2021, the Company recognized costs associated with the Operations and Field Realignment Plan totaling $1.7 million, which primarily included third-party and other costs.

During 2020, the Company recognized costs associated with the Operations and Field Realignment Plan totaling $3.8 million, which included severance and related employee costs of $3.1 million and share-based compensation of $0.6 million.

In December 2019, the Company’s Board of Directors approved the IT Realignment Plan to realign and reinvest resources in its IT organization to strengthen its ability to accelerate growth.

Additionally, in June 2020, the Company made changes to its leadership structure that included the creation of a Chief Information Officer position and the elimination of the Chief Digital Experience Officer position.

The Company does not expect to incur any material additional costs under the Operations and Field Realignment Plan.

In December 2019, the Company’s 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”).

During 2020, the Company recognized costs associated with the IT Realignment Plan totaling $7.3 million, which included third-party and other costs of $5.2 million, recruitment and relocation costs of $1.3 million and severance and related employee costs of $0.8 million.

During 2019, the Company recognized costs associated with the IT Realignment Plan totaling $9.1 million, which primarily included severance and related employee costs of $7.5 million and third-party and other costs of $1.4 million.

In May 2017, the Company initiated a plan to further reduce its G&A expenses (the “G&A Realignment Plan”).

In addition, in May 2019, the Company announced changes to its management and operating structure.

The Company does not expect to incur any material additional costs under the IT Realignment Plan.

In May 2017, the Company initiated a plan to reduce its general and administrative expenses (the “G&A Realignment Plan”).

Additionally, in May 2019, the Company announced changes to its management and operating structure.

G&A realignment costs for 2020 were primarily comprised of share-based compensation.

G&A realignment costs for 2019 were primarily comprised of severance and related employee costs and share-based compensation.

The Company does not expect to incur any material additional costs under the G&A Realignment Plan.

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 franchisee-to-franchisee restaurant transfers.

During 2021, the Company recognized costs associated with its system optimization initiative totaling $6.9 million, which were primarily comprised of the write-off of certain lease assets, lease termination fees and transaction fees associated with the NPC bankruptcy sale process, as well as professional fees and transaction fees associated with the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021.

During 2020, the Company recognized costs associated with its system optimization initiative totaling $4.3 million, which primarily included professional fees related to the NPC bankruptcy sale process.

The Company expects to recognize a gain of approximately $0.8 million, primarily related to the write-off of certain NPC-related lease liabilities upon final termination of the leases.

See Note 3 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information regarding the NPC bankruptcy sale process.

Impairment of Long-Lived Assets 2021 2020 2019

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Impairment of long-lived assets $ 2.3 $ (5.7) $ 8.0 $ 1.0 $ 7.0

The increase in impairment charges during 2020 was primarily driven by the deterioration in operating performance of certain Company-operated restaurants as a result of the COVID-19 pandemic.

The change in impairment charges during 2021 was primarily driven by the deterioration in operating performance of certain Company-operated restaurants in 2020 as a result of the COVID-19 pandemic.

Other Operating Income, Net 2021 2020 2019

Amount Change Amount Change Amount

Equity in earnings in joint ventures, net $ (6.1) $ 2.6 $ (8.7) $ (0.6) $ (8.1)

Gains on sales-type leases $ (4.2) $ (2.2) $ (2.0) $ 0.3 $ (2.3)

Equity in earnings in joint ventures, net (11.2) (5.1) (6.1) 2.6 (8.7)

Other, net 0.8 1.2 (0.4) — (0.4)

$ (14.6) $ (6.1) $ (8.5) $ 2.9 $ (11.4)

The change in other operating income, net during 2020 was primarily due to a decrease in the equity in earnings from our TimWen joint venture.

The increase in other operating income, net during 2021 was primarily due to (1) an increase in the equity in earnings from our TimWen joint venture, which included a gain on the sale of a parcel of land during 2021, and (2) gains on new and modified sales-type leases.

Interest Expense, Net 2021 2020 2019

1 unchanged sentence

Interest expense, net $ 109.2 $ (8.5) $ 117.7 $ 1.7 $ 116.0

Interest expense, net increased during 2020 primarily due to the impact of the 53 rd week in 2020 of approximately $1.9 million.

Interest expense, net decreased during 2021 primarily due to (1) the impact of completing the refinancing of a portion of the Company’s securitized financing facility in the second quarter of 2021 and (2) the impact of the 53 rd week in 2020 of approximately $1.9 million.

Loss on Early Extinguishment of Debt 2021 2020 2019

1 unchanged sentence

Loss on early extinguishment of debt $ 17.9 $ 17.9 $ — $ (8.5) $ 8.5

The change in loss on early extinguishment of debt was due to the Company refinancing a portion of its securitized financing facility in the prior year, in which the Company incurred a loss on the early extinguishment of debt of $7.2 million resulting from the write-off of certain deferred financing costs.

In addition, the Company recognized a loss on early extinguishment of debt of $1.3 million during the fourth quarter of 2019 due to the repurchase of a portion of the Company’s 7% debentures.

Investment (Loss) Income, Net 2020 2019 2018

Amount Change Amount Change Amount

Investment (loss) income, net $ (0.2) $ (25.8) $ 25.6 $ (425.1) $ 450.7

The change in investment (loss) income, net during 2020 was due to a prior year $25.0 million cash settlement related to a previously held investment received in October 2019, of which $24.4 million was recorded to investment (loss) income, net.

See Note 8 of the Financial Statements and Supplementary Data contained in Item 8 herein for further discussion.

During the second quarter of 2021, in connection with the refinancing of a portion of the Company’s securitized financing facility, the Company incurred a loss on the early extinguishment of debt as a result of repaying the outstanding Series 2015-1 Class A-2-III Notes and Series 2018-1 Class A-2-I Notes with the proceeds from the issuance of its Series 2021-1 Class A-2 Notes.

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

Other Income, Net 2021 2020 2019

1 unchanged sentence

Other income, net $ 0.7 $ (0.7) $ 1.4 $ (6.4) $ 7.8

Other income, net decreased during 2020 primarily due to lower interest income earned on the Company’s cash equivalents.

Other income, net decreased during 2021 primarily due to fluctuations in interest income earned on our cash equivalents.

Provision for Income Taxes 2021 2020 2019

4 unchanged sentences

Effective tax rate on income 16.7 % (6.2) % 22.9 % 2.8 % 20.1 %

The increase in the provision for income taxes from 2019 to 2020 was primarily due to a $6.1 million nonrecurring benefit for the reduction in uncertain tax benefits recorded in 2019, partially offset by lower income before income taxes during 2020.

The increase in the effective tax rate in 2020 resulted from the $6.1 million nonrecurring benefit for the reduction in uncertain tax benefits in 2019, partially offset by changes to our deferred state taxes and valuation allowances on state net operating losses resulting from our system optimization initiative.

The increase in the provision for income taxes during 2021 was primarily due to higher income before income taxes in 2021, partially offset by (1) the tax benefit for changes in state deferred income taxes and (2) an increase in the tax benefit from share-based compensation.

The 2021 tax benefit for changes in state deferred income taxes was primarily due to a 2021 change in tax law, which resulted in a one-time release of a previously recorded valuation allowance against our deferred tax assets.

The decrease in the effective tax rate in 2021 was primarily due to the tax benefit for changes in state deferred income taxes described above and a decrease in the tax effect of our foreign operations.

Segment Information

9 unchanged sentences

The increase in Wendy’s U.S.

revenues during 2020 was primarily due to (1) sales and royalty revenue during the 53 rd week of 2020 of approximately $13.7 million and $7.0 million, respectively, (2) a net increase in the number of Company-operated and franchise restaurants in operation during 2020 compared to 2019 and (3) an increase in same-restaurant sales.

The increase in same-restaurant sales reflects the positive impact from the launch of breakfast across the U.S.

system and higher average check, partially offset by a decrease in customer count as a result of the COVID-19 pandemic.

revenues during 2021 was primarily due to (1) an increase in systemwide same-restaurant sales, (2) higher franchise fees, reflecting an increase in fees for providing information technology services to franchisees, (3) net new restaurant development and (4) the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021.

Same-restaurant sales increased during 2021 primarily due to (1) higher average check and (2) an increase in customer count, reflecting the positive impact from the breakfast daypart and the prior year impact of the COVID-19 pandemic.

These increases were partially offset by (1) the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021 and (2) sales and royalty revenue during the 53 rd week of 2020 of approximately $13.7 million and $7.0 million, respectively.

The increase in Wendy’s U.S.

segment profit during 2020 was primarily due to (1) higher royalty revenue, (2) a decrease in franchise support and other costs, reflecting the Company’s investments in 2019 to support U.S.

franchisees in preparation of the launch of breakfast across the U.S.

system and the purchase of digital scanning equipment for franchisees, and (3) lower general and administrative expenses.

These changes were partially offset by the Company’s funding of $14.6 million of incremental advertising during 2020.

segment profit during 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 franchise support and other costs, (2) higher advertising fund expense, reflecting the Company’s funding of $25.0 million of incremental advertising to support the breakfast daypart, and (3) higher general and administrative expenses.

Wendy’s International

1 unchanged sentence

Amount Change Amount Change Amount

Sales $ 3.7 $ 3.7 $ — $ — $ —

Franchise royalty revenue 53.4 10.1 43.3 (1.7) 45.0

3 unchanged sentences

Segment profit $ 27.4 $ 7.3 $ 20.1 $ (0.1) $ 20.2

The decrease in Wendy’s International revenues during 2020 was primarily due to a decrease in same-restaurant sales and the temporary closure of restaurants resulting from the impact of the COVID-19 pandemic.

The decrease in same-restaurant sales was driven by a decrease in customer count, partially offset by higher average check.

This decrease was partially offset by royalties during the 53 rd week of 2020 of approximately $0.8 million.

The decrease in Wendy’s International segment profit during 2020 was primarily due to lower royalty revenue, partially offset by a decrease in travel-related expenses as a result of reduced travel during the COVID-19 pandemic.

The increase in Wendy’s International revenues during 2021 was primarily due to (1) an increase in same-restaurant sales, (2) the opening of Company-operated restaurants in the U.K and (3) higher franchise fees, reflecting an increase in fees for providing information technology services to franchisees.

Same-restaurant sales increased during 2021 due to (1) an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic, and (2) higher average check.

The increase in Wendy’s International segment profit during 2021 was primarily due to higher revenues, partially offset by (1) higher general and administrative expenses and (2) higher franchise support and other costs.

Global Real Estate & Development

5 unchanged sentences

Segment profit $ 106.1 $ 5.4 $ 100.7 $ (6.4) $ 107.1

The increase in Global Real Estate & Development revenues during 2020 was primarily due to higher other miscellaneous franchise fees, partially offset by lower franchise rental income.

See “Franchise Rental Income” above for further information.

The decrease in Global Real Estate & Development segment profit during 2020 was primarily due to (1) a decrease in equity in earnings from the TimWen joint venture and (2) a decrease in net rental income, reflecting the impact of assigning certain leases to franchisees during 2019.

The increase in Global Real Estate & Development revenues during 2021 was primarily due to (1) higher franchise rental income (see “Franchise Rental Income” above for further information) and (2) the accelerated recognition of franchise agreement revenue as a result of franchisee-to-franchisee restaurant transfers.

The increase in Global Real Estate & Development segment profit during 2021 was primarily due to (1) an increase in the equity in earnings from the TimWen joint venture and (2) gains on new and modified sales-type leases.

These increases were partially offset by a decrease in net rental income, reflecting the impact of terminating existing leases where the Company was lessor in connection with the Company’s acquisition of franchise-operated restaurants in Florida during the fourth quarter of 2021.

Consolidated Outlook for 2022

We expect sales at our Company-operated restaurants to be favorably impacted primarily by (1) an increase in customer counts as a result of the expected recovery from the COVID-19 pandemic, (2) a full year of operating in the breakfast daypart across the U.S.

system, (3) a net increase in the number of Company-operated restaurants, including the Company’s plan to open Company-operated restaurants in the U.K in the first half of 2021, (4) our “Fast Food Done Right” strategy, which includes continuing core menu improvements, product innovation and strategic price increases on our menu items, (5) focused execution of operational excellence and (6) continued implementation of consumer-facing digital platforms and technologies.

Sales at our Company-operated restaurants are expected to be negatively impacted by (1) the anticipated sale of certain Company-operated restaurants in New York to franchisees in the second quarter of 2021 and (2) lapping the impact of the 53 rd week of 2020.

We expect sales at our Company-operated restaurants to be favorably impacted primarily by (1) a net increase in the number of Company-operated restaurants, including the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021 and the Company’s continued expansion in the U.K., (2) continued growth of our breakfast daypart, (3) our “Fast Food Done Right” strategy, which includes continuing core menu improvements, product innovation and strategic price increases on our menu items to partially offset commodity and labor inflation pressures, and (4) continued growth of our digital business.

We expect these favorable impacts to be partially offset by lapping the sale of 47 Company-operated restaurants in New York during the second quarter of 2021.

Franchise Royalty Revenue and Fees

We expect sales at franchised restaurants to generally benefit from the factors described above under “Sales.” In addition, we expect franchise royalty revenue and fees to be favorably impacted by (1) an increase in the number of franchise restaurants in operation due to new restaurant development, (2) an increase in IT-related franchise fees and (3) the anticipated sale of certain Company-operated restaurants in New York to franchisees in the second quarter of 2021.

We expect sales at franchised restaurants to generally benefit from many of the factors described above under “Sales.” In addition, we expect franchise royalty revenue and fees to be favorably impacted by (1) a net increase in the number of franchise restaurants in operation due to net new restaurant development, (2) the sale of 47 Company-operated restaurants in New York during the second quarter of 2021 and (3) the Company’s recently announced plans to launch breakfast in Canada in the second quarter of 2022.

We expect these favorable impacts to be partially offset by the Company’s acquisition of 93 franchise-owned restaurants in Florida during the fourth quarter of 2021.

Cost of Sales

We expect cost of sales, as a percent of sales to be favorably impacted by the same factors described above under “Sales,” and to also benefit from productivity initiatives.

We expect these favorable impacts to be partially offset by higher restaurant labor-related costs, primarily due to increases in wages and investments in the U.K.

as we plan to launch that market in the first half of 2021.

Franchise Support and Other Costs

We expect franchise support and other costs to increase primarily due to costs incurred to provide IT services to our franchisees, partially offset by the investments made in 2020 to support U.S.

franchisees in preparation of the launch of breakfast.

We expect cost of sales, as a percent of sales to be negatively impacted by (1) higher restaurant labor rates and (2) an increase in commodity costs.

We expect cost of sales, as a percent of sales to be favorably impacted by many of the same factors described above under “Sales,” and to also benefit from productivity initiatives.

Advertising Funds Revenue and Expense

We expect advertising funds expense to exceed advertising funds revenue as the Company plans to fund an incremental $15.0 million in advertising to continue to drive growth in our breakfast daypart.

We expect advertising funds expense to exceed advertising funds revenue due to the Company’s plans to fund $16.0 million of incremental advertising in 2022 to continue to drive growth in our breakfast daypart.

General and Administrative

We expect general and administrative expense to be higher primarily due to increases in IT-related costs and travel-related expenses.

We expect general and administrative expenses to be higher primarily due to increases in (1) IT-related costs, primarily related to our ERP implementation, (2) IT and development headcount investments and (3) travel-related expenses.

We expect these increases to be partially offset by lower incentive compensation.

Liquidity and Capital Resources

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Our principal uses of cash are operating expenses, capital expenditures, repurchases of common stock and dividends to stockholders.

During 2020, the Company made a payment of $24.7 million related to the settlement of the financial institutions class action.

See Note 11 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information.

COVID-19 Actions

In response to the COVID-19 pandemic, the Company has taken the following actions impacting its liquidity and capital resources during 2020:

Long-Term Debt.

The Company increased its cash position in March 2020 by drawdowns of its Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “2019-1 Class A-1 Notes”), its U.S.

advertising fund revolving line of credit and its Canadian revolving credit facility.

The Company fully repaid the drawdowns of the 2019-1 Class A-1 Notes and the U.S.

advertising fund revolving line of credit in July 2020 and September 2020, respectively.

The Company made partial repayments of the drawdown of the Canadian revolving credit facility in October 2020 and December 2020.

In addition, the Company enhanced its debt capacity in June 2020 by issuing $100.0 million of Series 2020-1 Variable Funding Senior Secured Notes, Class A-1 (the “2020-1 Class A-1 Notes”).

See “Long-Term Debt, Including Current Portion” below for additional information.

The Company reduced its quarterly cash dividend from $.12 per share in the first quarter of 2020 to $.05 per share in the second and third quarters of 2020 and $.07 per share in the fourth quarter of 2020.

See “Dividends” below for additional information.

Stock Repurchases.

The Company temporarily suspended all share repurchase activity beginning in March 2020 under the February 2020 share repurchase authorization.

The Company resumed share repurchases in August 2020 as discussed below in “Stock Repurchases.”

G&A and Capital Expenditures.

In the first quarter of 2020, the Company evaluated its planned 2020 general and administrative expenses and capital expenditures and identified savings of approximately $10.0 million and $20.0 million, respectively, for a total of $30.0 million in savings.

The Company ultimately realized approximately $5.0 million of the previously identified general and administrative expense savings, primarily as a result of a higher incentive compensation accrual, and approximately $5.0 million of the previously identified capital expenditures savings, primarily due to a decision to increase capital expenditures for new and existing Company-operated restaurants in light of our improved liquidity position.

Advertising Expenditures.

The Company revised its planned 2020 advertising expenses in March 2020 to eliminate Company funding of incremental advertising.

In June 2020, the Company reevaluated its marketing plans and funded $14.6 million of incremental advertising during 2020 to drive additional growth.

Franchise and System Support.

To support the franchise system, the Company (1) extended payment terms for royalties and national advertising funds contributions by 45 days beginning in April for a three month period, (2) abated national advertising fund contributions on breakfast sales for the remainder of 2020, (3) offered to defer base rent payments on properties owned by Wendy’s and leased to franchisees by 50% beginning in May for a three month period, which are being repaid over a 12 month period beginning in August 2020, and (4) extended Image Activation and new restaurant development requirements by one year.

As of January 3, 2021, substantially all franchisees are current on royalties and national advertising funds contributions due to the Company.

To support the health and well-being of our Company-operated restaurant employees, the Company (1) implemented a new emergency paid sick leave policy with up to 14 days paid leave in the event an employee is unable to work as a result of the COVID-19 pandemic and (2) increased hourly pay by 10% for the months of April and May for hourly crew members, shift managers and assistant general managers, and protected part of the monthly bonus through September for general managers and district managers.

The Company deferred payment of the Company’s share of Social Security payroll taxes as permitted under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which allows for the deferral of these payments through the end of 2020 and requires repayment of the deferred amounts in 2021 and 2022.

The Company ceased the deferral of payments in August 2020 and fully repaid the deferred amounts during the fourth quarter of 2020.

In addition, the Company expects to benefit from the technical amendments under the CARES Act by treating qualified improvement property (“QIP”) as 15-year property and allowing such property to be eligible for the 100 percent bonus depreciation for QIP placed in service after December 31, 2017.

Anticipated Cash Requirements

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

• capital expenditures of approximately $80.0 million to $90.0 million as discussed below in “Capital Expenditures;”

• quarterly cash dividends aggregating approximately $80.6 million as discussed below in “Dividends;” and

• stock repurchases of up to $67.7 million under our February 2020 authorization as discussed below in “Stock Repurchases.”

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

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.

Cash Flows from Operating, Investing and Financing Activities

7 unchanged sentences

Effect of exchange rate changes on cash 0.3 (1.0) 1.3 (2.2) 3.5

Net increase (decrease) in cash, cash equivalents and restricted cash $ 59.5 $ 187.3 $ (127.8) $ (401.5) $ 273.7

Net (decrease) increase in cash, cash equivalents and restricted cash $ (51.3) $ (110.8) $ 59.5 $ 187.3 $ (127.8)

Operating Activities

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Cash provided by operating activities was $345.8 million and $284.4 million in 2021 and 2020, respectively.

The change was primarily due to (1) a cash payment of $24.7 million related to the settlement of the financial institutions class action in January 2020, (2) an increase in payments related to the Company’s reorganization and realignment plans, (3) an increase in payments for incentive compensation for the 2019 fiscal year paid in 2020 and (4) the timing of rental payments.

These changes were partially offset by the timing of payments for marketing expenses of the national advertising funds.

The increase was primarily due to (1) higher net income, adjusted for non-cash expenses, (2) a cash payment of $24.7 million related to the settlement of the financial institutions class action in January 2020, (3) the timing of the collection of royalty receivables and (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, (2) an increase in cash paid for income taxes and (3) cash paid for cloud computing arrangements, primarily related to the Company’s ERP implementation.

Investing Activities

Cash used in investing activities was $154.7 million and $68.3 million in 2021 and 2020, respectively.

The change was primarily due to a cash settlement received during 2019 related to a previously held investment of $24.4 million, which was partially offset by (1) a decrease in capital expenditures of $5.5 million, (2) a decrease in new notes receivable to franchisees of $2.7 million (3) and increase in proceeds from dispositions of $2.6 million.

The change was primarily due to (1) an increase in payments for acquisitions of $118.2 million compared to the prior year, reflecting the impact of the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021, (2) a payment for an investment in equity securities of $10.0 million during 2021 and (3) an increase in capital expenditures of $9.0 million.

These changes were partially offset by an increase in proceeds from dispositions of $49.0 million, reflecting the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021.

Financing Activities

Cash used in financing activities was $242.7 million and $157.9 million in 2021 and 2020, respectively.

The change was primarily due to (1) a decrease in repurchases of common stock of $155.6 million, (2) a decrease in dividends of $31.5 million and (3) a net decrease in cash used in long-term debt activities of $23.5 million, reflecting the impact of the completion of a debt refinancing transaction during 2019.

Capitalization

Long-term debt, including current portion $ 2,247.1 $ 2,280.3

Stockholders’ equity 549.6 516.4

$ 2,796.7 $ 2,796.7

The Company’s total capitalization at January 3, 2021 was flat compared to December 29, 2019 and was impacted principally by the following:

• dividends paid of $64.9 million;

• stock repurchases, including the impact of the 2019 ASR Agreement, of $61.1 million;

• a net decrease in long-term debt, including current portion, of $33.2 million;

• comprehensive income of $122.0 million;

• treasury share issuances of $26.8 million for exercises and vesting of share-based compensation awards.

Long-Term Debt, Including Current Portion

Series 2019-1 Class A-2-I Notes $ 386.0

Series 2019-1 Class A-2-II Notes 434.3

Series 2018-1 Class A-2-I Notes 436.5

Series 2018-1 Class A-2-II Notes 460.8

Series 2015-1 Class A-2-III Notes 473.7

Canadian revolving credit facility 2.0

7% debentures 84.0

Unamortized debt issuance costs (30.2)

Total long-term debt, including current portion $ 2,247.1

Except as described below, there were no material changes to the terms of any debt obligations since December 29, 2019.

The Company was in compliance with its debt covenants as of January 3, 2021.

See Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information related to our long-term debt obligations.

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.

Under this facility, in June 2019, the Master Issuer issued outstanding 2019-1 Class A-1 Notes, which allow for the borrowing of up to $150.0 million from time to time on a revolving basis using various credit instruments, including a letter of credit facility.

In March 2020, the Company drew down $120.0 million under the 2019-1 Class A-1 Notes, which the Company fully repaid in July 2020.

As a result, as of January 3, 2021, the Company had no outstanding borrowings under the 2019-1 Class A-1 Notes.

In June 2020, the Master Issuer also issued outstanding 2020-1 Class A-1 Notes, which allow for the borrowing of up to $100.0 million from time to time on a revolving basis using various credit instruments.

The Company had no outstanding borrowings under the 2020-1 Class A-1 Notes as of January 3, 2021.

A Canadian subsidiary of Wendy’s has a revolving credit facility of C$6.0 million.

In March 2020, the Company drew down C$5.5 million under the revolving credit facility, of which the Company repaid C$1.0 million in October 2020 and C$2.0 million in December 2020.

As a result, as of January 3, 2021, the Company had outstanding borrowings of C$2.5 million under the revolving credit facility.

Subsequent to January 3, 2021, the Company repaid the C$2.5 million outstanding balance under the Canadian revolving credit facility.

advertising fund has a revolving line of credit of $25.0 million, which was established to support the advertising fund operations.

Borrowings under the line of credit are guaranteed by Wendy’s.

In February 2020, the Company drew down $4.4 million under the revolving line of credit, which the Company fully repaid in February 2020.

In March 2020, the Company drew down $25.0 million under the revolving line of credit, which the Company fully repaid in September 2020.

As a result, as of January 3, 2021, the Company had no outstanding borrowings under the revolving line of credit.

The increased borrowings and other actions described above were taken as precautionary measures to provide enhanced financial flexibility considering the uncertain market conditions arising from the COVID-19 pandemic.

We may from time to time seek to repurchase additional portions of our outstanding long-term debt, including our 7% debentures and/or our senior secured notes, through open market purchases, privately negotiated transactions or otherwise.

Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Whether or not we elect to repurchase any debt and the size and timing of any such repurchases will be determined at our discretion.

Contractual Obligations

The following table summarizes the expected payments under our outstanding contractual obligations at January 3, 2021:

2021 2022-2023 2024-2025 After 2025 Total

Long-term debt obligations (a) $ 124.7 $ 234.3 $ 1,162.1 $ 1,320.0 $ 2,841.1

Finance lease obligations (b) 52.3 109.5 112.6 687.3 961.7

Operating lease obligations (c) 89.9 179.1 178.5 867.2 1,314.7

Purchase obligations (d) 73.9 83.2 55.4 28.7 241.2

Other 6.5 0.2 — — 6.7

Total (e) $ 347.3 $ 606.3 $ 1,508.6 $ 2,903.2 $ 5,365.4

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(a) Includes interest of approximately $557.9 million.

These amounts exclude the fair value adjustment related to Wendy’s 7% debentures assumed in the Wendy’s Merger.

(b) Includes interest of approximately $443.5 million.

(d) Includes purchase obligations related to (1) the Company’s arrangement with a third-party global IT consultant and (2) the remaining beverage purchase requirement under a beverage agreement.

Also includes other purchase obligations related primarily to marketing and information technology.

(e) Excludes obligation for unrecognized tax benefits, including interest and penalties, of $21.9 million.

We are unable to predict when or if cash payments will be required.

The change was primarily due to (1) an increase in repurchases of common stock of $206.4 million and (2) an increase in dividends of $30.0 million.

These changes were partially offset by (1) a net increase in cash provided by long-term debt activities of $149.1 million, reflecting the impact of the completion of the Company’s debt refinancing transaction during the second quarter of 2021, and (2) an increase in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of $7.7 million.

Material Cash Requirements

Our anticipated cash requirements for 2022, exclusive of operating cash flow requirements, consist principally of:

• capital expenditures of approximately $90.0 million to $100.0 million as discussed below in “Capital Expenditures;”

• quarterly cash dividends aggregating approximately $107.6 million as discussed below in “Dividends;” and

• stock repurchases of up to $100.0 million under our February 2022 authorization as discussed below in “Stock Repurchases.”

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.

As previously announced, the Company is evaluating, subject to market and other conditions, a potential debt raise transaction within its securitized debt facility during 2022.

If the Company proceeds with the transaction and the transaction is completed, the Company expects to use the net proceeds from the transaction in accordance with its capital allocation policy, including investments to support the growth of the Wendy’s brand or the return of capital to stockholders through dividends and share repurchases.

Capital Expenditures

In 2021, cash capital expenditures amounted to $78.0 million.

In 2021, we expect that cash capital expenditures will amount to approximately $80.0 million to $90.0 million, principally relating to (1) the opening of new Company-operated restaurants and the reimaging of existing Company-operated restaurants, (2) technology investments, including consumer-facing digital technology, (3) maintenance capital expenditures for our Company-operated restaurants and (4) various other capital projects.

As of January 3, 2021, the Company had $3.7 million of outstanding commitments, included in “Accounts payable,” for capital expenditures expected to be paid in 2021.

In 2022, we expect that cash capital expenditures will amount to approximately $90.0 million to $100.0 million, principally relating to (1) the opening of new Company-operated restaurants and the reimaging of existing Company-operated restaurants, (2) technology investments, including consumer-facing digital technology, (3) restaurant equipment investments, (4) maintenance capital expenditures for Company-operated restaurants and (5) various other capital projects.

In addition to the capital expenditures noted above, the Company expects to spend approximately $30.0 million in 2022 on cloud computing arrangements (“CCA”), primarily related to the Company’s ERP implementation.

See Note 1 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information related to our accounting policy for CCA.

On March 15, 2021, June 15, 2021, September 15, 2021 and December 15, 2021, the Company paid quarterly cash dividends per share of $.09, $.10, $.12 and $.12, respectively, aggregating $94.8 million.

On February 23, 2021, the Company announced a dividend of $0.09 per share to be paid on March 15, 2021 to shareholders of record as of March 5, 2021.

On February 23, 2022, the Company announced a dividend of $0.125 per share to be paid on March 15, 2022 to stockholders of record as of March 7, 2022.

If the Company pays regular quarterly cash dividends for the remainder of 2022 at the same rate as declared in the first quarter of 2022, the Company’s total cash requirement for dividends for all of 2022 would be approximately $107.6 million based on the number of shares of its common stock outstanding at February 22, 2022.

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Stock Repurchases

The following table summarizes the Company’s repurchases of common stock for 2020, 2019 and 2018:

2020 2019 2018

Repurchases of common stock (a) (b) (c) $ 76.1 $ 202.7 $ 270.2

Number of shares repurchased 3.5 10.2 15.8

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(a) Excludes commissions of $0.04 million, $0.1 million and $0.2 million for 2020, 2019 and 2018, respectively.

(b) 2019 includes repurchases of $85.0 million under the 2019 ASR Agreement, representing 85% of the initial purchase price of $100.0 million.

2020 includes the remaining repurchases of $15.0 million under the 2019 ASR Agreement.

(c) In addition to the ASR repurchase activity, 2020 includes $32.3 million and $28.8 million, excluding commissions, of repurchases under the February 2020 and February 2019 repurchase authorizations, respectively.

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.

In July 2020, the Company’s Board of Directors approved an extension of the February 2020 authorization by one year, through February 28, 2022.

The Company resumed share repurchases in August 2020.

During 2020, the Company repurchased 1.6 million shares under the February 2020 repurchase authorization with an aggregate purchase price of $32.3 million, of which $0.7 million was accrued at January 3, 2021, and excluding commissions.

As of January 3, 2021, the Company had $67.7 million of availability remaining under its February 2020 authorization.

Subsequent to January 3, 2021 through February 23, 2021, the Company repurchased 0.5 million shares under the February 2020 authorization with an aggregate purchase price of $9.6 million, excluding commissions.

In February 2019, our Board of Directors authorized a repurchase program for up to $225.0 million of our common stock through March 1, 2020, when and if market conditions warranted and to the extent legally permissible.

In addition, in May 2021, August 2021 and November 2021 the Board of Directors approved increases of $50.0 million, $70.0 million and $80.0 million, respectively, to the February 2020 authorization, resulting in an aggregate authorization of $300.0 million that continued to expire on February 28, 2022.

In November 2021, the Company entered into an accelerated share repurchase agreement (the “2021 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the Company’s existing share repurchase program.

Under the 2019 ASR Agreement, the Company paid the financial institution an initial purchase price of $100.0 million in cash and received an initial

delivery of 4.1 million 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 0.6 million 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, 4.7 million 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 2020, the Company repurchased 1.3 million shares with an aggregate purchase price of $28.8 million, excluding commissions, under 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 February 2019 authorization.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during 2019, the Company repurchased 6.1 million shares with an aggregate purchase price of $117.7 million, of which $1.8 million was accrued at December 29, 2019, and excluding commissions of $0.1 million, under the February 2019 authorization and the Company’s November 2018 authorization referenced below.

In February 2018, our Board of Directors authorized a repurchase program for up to $175.0 million of our common stock through March 3, 2019, when and if market conditions warranted and to the extent legally permissible.

In November 2018, our Board of Directors approved an additional share repurchase program for up to $220.0 million of our common stock through December 27, 2019, when and if market conditions warranted and to the extent legally permissible.

In November 2018, the Company entered into an accelerated share repurchase agreement (the “2018 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the Company’s existing share repurchase programs.

Under the 2021 ASR Agreement, the Company paid the financial institution an initial purchase price of $125.0 million in cash and received an initial delivery of 4.9 million shares of common stock, representing an estimated 85% of the total shares expected to be delivered under the 2021 ASR Agreement.

In December 2018, the Company completed the 2018 ASR Agreement and received an additional 0.7 million shares of common stock.

In February 2022, the Company completed the 2021 ASR Agreement and received an additional 0.7 million shares of common stock.

The total number of shares of common stock ultimately purchased by the Company under the 2021 ASR Agreement was based on the average of the daily volume-weighted average prices of the common stock during the term of the 2021 ASR Agreement, less an agreed upon discount.

In addition to the shares repurchased in connection with the 2018 ASR Agreement, during 2018, the Company repurchased 10.1 million shares under the February 2018 and November 2018 authorizations with an aggregate purchase price of $172.6 million, of which $1.8 million was accrued at December 30, 2018, and excluding commissions of $0.1 million.

In February 2017, our Board of Directors authorized a repurchase program for up to $150.0 million of our common stock through March 4, 2018, when and if market conditions warranted and to the extent legally permissible.

The Company completed the February 2017 authorization during 2018 with the repurchase of 1.4 million shares with an aggregate purchase price of $22.6 million, excluding commissions.

In total, 5.6 million shares were delivered under the 2021 ASR Agreement at an average purchase price of $22.22 per share.

In addition to the shares repurchased in connection with the 2021 ASR Agreement, during 2021, the Company repurchased 6.6 million shares with an aggregate purchase price of $142.7 million, excluding commissions of $0.1 million, under the February 2020 repurchase authorization.

After taking into consideration these repurchases, with the completion of the 2021 ASR Agreement in February 2022 described above, the Company completed the February 2020 authorization.

In February 2022, our Board of Directors authorized the repurchase of up to $100.0 million of our common stock through February 28, 2023, when and if market conditions warrant and to the extent legally permissible.

Long-Term Debt, Including Current Portion

As of January 2, 2022, the Company’s long-term debt obligations totaled $2,380.7 million, including $24.3 million payable within 12 months.

In addition, the Company is party to a revolving financing facility of Series 2021-1 Variable Funding Senior Secured Notes, Class A-1 (the “Class A-1 Notes”), which allows for the drawing of up to $300.0 million on a revolving basis using various credit instruments, including a letter of credit facility.

No amounts were borrowed under the Class A-1 Notes during 2021.

See Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information related to our long-term debt obligations and the timing of expected payments.

The Company operates restaurants that are located on sites owned by us and sites leased by us from third parties.

In addition, the Company owns sites and leases sites from third parties, which it leases and/or subleases to franchisees.

The Company also leases restaurant, office and transportation equipment.

As of January 2, 2022, the Company’s future minimum rental payments for non-cancelable leases were $2,280.6 million, including $148.3 million payable within 12 months.

See Note 20 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information related to our finance and operating lease obligations and the timing of expected payments.

Purchase Obligations

The Company’s purchase obligations include payment obligations to a third-party global IT consultant, purchase requirements under a beverage agreement and other obligations related primarily to marketing and information technology.

As of January 2, 2022, the Company’s purchase obligations were $210.1 million, including $68.0 million payable within 12 months.

Guarantees and Other Contingencies

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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.

Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during 2021, and we expect this to continue into 2022.

We attempt to manage any inflationary costs and commodity price increases through selective menu price increases and product mix.

Delays in implementing such menu price increases and competitive pressures may limit our ability to recover such cost increases in the future.

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The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in applying our critical accounting policies that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period.

Our estimates and assumptions affect, among other things, impairment of goodwill and indefinite-lived intangible assets, impairment of long-lived assets, realizability of deferred tax assets, federal and state income tax uncertainties and legal and environmental accruals.

We evaluate those estimates and assumptions on an ongoing basis based on historical experience and on various other factors which we believe are reasonable under the circumstances.

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• Impairment of goodwill and indefinite-lived intangible assets:

Our goodwill totaled $775.3 million as of January 2, 2022, of which $620.9 million, $31.9 million and $122.5 million was allocated to our U.S.

Company-operated and franchise restaurants reporting unit, Canada franchise restaurants reporting unit and global real estate and development operations reporting unit, respectively.

We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired.

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The result of applying the guideline company approach is adjusted based on the incremental value associated with a controlling interest in the business.

This “control premium” represents the amount a new controlling shareholder would pay for the benefits resulting from synergies and other potential benefits derived from controlling the enterprise.

The negative impacts of the COVID-19 pandemic, including the decline in same-restaurant sales described in “Sales Trends and COVID-19 Update” above and the volatility in the price of our common stock, resulted in the Company performing a quantitative goodwill impairment test in March 2020.

The Company’s goodwill impairment test in March 2020 included three reporting units, which were comprised of its (1) U.S.

Company-operated and franchise restaurants, (2) Canada franchise restaurants and (3) global real estate and development operations.

Based on the results of our goodwill impairment test, we determined the fair values of our U.S.

Company-operated and franchise restaurants and our Canada franchise restaurants reporting units significantly exceeded their carrying values.

The goodwill impairment test for our global real estate and development operations also indicated the fair value of the reporting unit exceeded its carrying value;

however, the fair value exceeded the carrying value of the reporting unit by only a nominal amount.

Given the limited excess of the fair value over carrying value, this reporting unit is more sensitive to changes in assumptions regarding its fair value.

As of the date of our analysis in the first quarter of 2020, a 50 basis point increase in the discount rate, or a moderate decline in estimated future cash flows, would have resulted in the fair value of the reporting unit being less than its carrying value.

This “control premium” represents the amount a new controlling stockholder would pay for the benefits resulting from synergies and other potential benefits derived from controlling the enterprise.

For the annual goodwill impairment test in the fourth quarter of 2021, we elected to perform a qualitative assessment for the U.S.

Company-operated and franchise restaurants and the Canada franchise restaurants, and we performed a quantitative goodwill impairment test for the global real estate and development operations.

The qualitative assessment indicated the fair value of goodwill of our U.S.

Company-operated and franchise restaurants and the Canada franchise restaurants was more likely than not greater than the carrying amount.

The qualitative assessment indicated the fair value of our U.S.

Company-operated and franchise restaurants and our Canada franchise restaurants reporting units was more likely than not greater than the carrying amount.

Our quantitative goodwill impairment test for our global real estate and development operations indicated that there had been no impairment and the fair value of this reporting unit of $1,586.0 million was approximately 33% in excess of its carrying value.

A 100 basis point increase in the discount rate, or a moderate decline in estimated future cash flows, would have resulted in the fair value of the reporting unit being less than its carrying value.

As of January 3, 2021, the goodwill balance associated with our global real estate and development operations was $122.5 million.

Our indefinite-lived intangible assets represent trademarks and totaled $903.0 million as of January 2, 2022.

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Our critical estimates in the determination of the fair value of our indefinite-lived intangible assets include the anticipated future revenues of Company-operated and franchised restaurants and the resulting cash flows.

The Company performed a quantitative impairment test of our indefinite-lived intangible assets in March 2020 as a result of the negative impacts of the COVID-19 pandemic.

Based on the results of our impairment test, we determined the fair value of our indefinite-lived intangible assets significantly exceeded their carrying value.

For the annual impairment test of our indefinite-lived intangible assets in the fourth quarter of 2021, we elected to perform a qualitative assessment.

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If the carrying amount of the long-lived asset group is not recoverable on an undiscounted cash flow basis, then impairment is recognized to the extent that the carrying amount exceeds its fair value and is included in “Impairment of long-lived assets.” Our critical estimates in this review process include the anticipated future cash flows from leases and/or subleases or individual Company-operated restaurants, which is used in assessing the recoverability of the respective long-lived assets.

Our impairment losses principally reflect impairment charges resulting from the deterioration in operating performance of certain Company-operated restaurants as a result of the COVID-19 pandemic.

Our impairment losses principally reflect impairment charges resulting from the deterioration in operating performance of certain Company-operated restaurants.

Our fair value estimates are subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment.

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When considered necessary, a valuation allowance is recorded to reduce the carrying amount of the deferred tax assets to their anticipated realizable value.

Our evaluation of the realizability of our deferred tax assets is subject to change as a result of many factors including, among others, any changes in our business plans, changing economic

conditions, the competitive environment and the effect of future tax legislation.

Our evaluation of the realizability of our deferred tax assets is subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions, the competitive environment and the effect of future tax legislation.

Should future taxable income vary from projected taxable income, we may be required to adjust our valuation allowance in future years.

Net operating loss and credit carryforwards are subject to various limitations and carryforward periods.

As of January 3, 2021, we have foreign tax credits of $17.8 million and state tax credits of $0.7 million, which will begin to expire in 2022 and 2021, respectively.

As of January 2, 2022, we have foreign tax credits of $19.5 million and state tax credits of $0.6 million, both of which will begin to expire in 2022.

In addition, as of January 2, 2022, we have deferred tax assets for foreign net operating loss carryforwards of $1.4 million, as well as state and local net operating loss carryforwards of $39.1 million that will begin to expire in 2022.

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A tax position that meets the more-likely-than-not recognition threshold is then measured, for purposes of financial statement recognition, as the largest amount that has a greater than 50% likelihood of being realized upon effective settlement.

We have unrecognized tax benefits of $21.0 million, which if resolved favorably would reduce our tax expense by $16.6 million at January 3, 2021.

We accrue interest related to uncertain tax positions in “Interest expense, net” and penalties in “General and administrative.” At January 3, 2021, we had $0.9 million accrued for interest and $0.04 million accrued for penalties.

We have unrecognized tax benefits of $18.8 million, which if resolved favorably would reduce our tax expense by $14.9 million as of January 2, 2022.

We accrue interest related to uncertain tax positions in “Interest expense, net.” As of January 2, 2022, we had $1.0 million accrued for interest.

The Company participates in the Internal Revenue Service (the “IRS”) Compliance Assurance Process (“CAP”).

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis