What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-03-03 · 440 added, 547 removed, 1483 unchanged (40% of the section changed)

3 unchanged sentences

Glossary of Defined Terms 56

Report of Independent Registered Public Accounting Firm 63

Consolidated Balance Sheets as of January 3, 2021 and December 29, 2019 65

Consolidated Statements of Operations for the years ended January 3, 2021, December 29, 2019 and

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of January 2, 2022 and January 3, 2021

Consolidated Statements of Operations for the years ended January 2, 2022, January 3, 2021 and

December 29, 2019

Consolidated Statements of Comprehensive Income for the years ended January 3, 2021, December 29, 2019 and December 30, 2018 67

Consolidated Statements of Stockholders’ Equity for the years ended January 3, 2021, December 29, 2019 and December 30, 2018 68

Consolidated Statements of Cash Flows for the years ended January 3, 2021, December 29, 2019 and

Consolidated Statements of Comprehensive Income for the years ended January 2, 2022, January 3, 2021 and

December 29, 2019

Consolidated Statements of Stockholders’ Equity for the years ended January 2, 2022, January 3, 2021 and

December 29, 2019

Consolidated Statements of Cash Flows for the years ended January 2, 2022, January 3, 2021 and

December 29, 2019

Notes to Consolidated Financial Statements 66

1 unchanged sentence

(2) Revenue 74

(3) System Optimization Gains, Net 83

(3) Acquisitions 77

(4) System Optimization Gains, Net 78

(5) Reorganization and Realignment Costs 79

(6) Income Per Share 89

(6) Net Income Per Share 84

(7) Cash and Receivables 84

9 unchanged sentences

(17) Impairment of Long-Lived Assets 103

(18) Investment (Loss) Income, Net 110

(18) Investment Income (Loss), Net 103

(19) Retirement Benefit Plans 103

6 unchanged sentences

(26) Segment Information 111

(27) Quarterly Financial Information (Unaudited) 121

Defined Term Footnote Where Defined

2010 Plan (16) Share-Based Compensation

2018 ASR Agreement (15) Stockholders’ Equity

2019-1 Class A-1 Notes (12) Long-Term Debt

2 unchanged sentences

2020 Plan (16) Share-Based Compensation

2021-1 Class A-1 Notes (12) Long-Term Debt

2021 ASR Agreement (15) Stockholders’ Equity

401(k) Plan (19) Retirement Benefit Plans

Advertising Funds (1) Summary of Significant Accounting Policies

Arby’s (8) Investments

ARG Parent (8) Investments

Black-Scholes Model (1) Summary of Significant Accounting Policies

3 unchanged sentences

Class A-2 Notes (12) Long-Term Debt

Cloud Computing Arrangements (1) Summary of Significant Accounting Policies

Company (1) Summary of Significant Accounting Policies

2 unchanged sentences

EBITDA (26) Segment Information

Eligible Arby’s Employees (19) Retirement Benefit Plans

Equity Plans (1) Summary of Significant Accounting Policies

6 unchanged sentences

GAAP (1) Summary of Significant Accounting Policies

GILTI (14) Income Taxes

Graham Case (23) Legal and Environmental Matters

Indenture (12) Long-Term Debt

Inspire Brands (8) Investments

IRS (14) Income Taxes

13 unchanged sentences

Senior Notes (12) Long-Term Debt

Defined Term Footnote Where Defined

SERP (19) Retirement Benefit Plans

1 unchanged sentence

Target (16) Share-Based Compensation

Tax Act (14) Income Taxes

Defined Term Footnote Where Defined

The Wendy’s Company (1) Summary of Significant Accounting Policies

11 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Wendy’s Company and subsidiaries (the “Company”) as of January 3, 2021 and December 29, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended January 3, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 3, 2021 and December 29, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 3, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of The Wendy’s Company and subsidiaries (the “Company”) as of January 2, 2022 and January 3, 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended January 2, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2022 and January 3, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 2, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, during 2019, the Company adopted the Financial Accounting Standards Board’s (FASB) new standard related to leases using the modified retrospective approach.

Basis for Opinion

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The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

The Company used an income approach to estimate fair value of the global real estate and development operations reporting unit, which requires management to make significant estimates and assumptions including future sales growth, operating profit and the weighted average cost of capital (discount rate).

The Company used both an income approach and a market approach to estimate fair value of the global real estate and development operations reporting unit.

The income approach requires management to make significant estimates and assumptions including future sales growth, operating profit and the weighted average cost of capital (discount rate).

The market approach requires use of market price data of guideline public companies to estimate the fair value of the reporting unit.

Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

The goodwill balance was $751.0 million as of January 3, 2021, of which $122.5 million was allocated to the global real estate and development operations reporting unit.

The goodwill balance was $775.3 million as of January 2, 2022, of which $122.5 million was allocated to the

global real estate and development operations reporting unit.

The fair value of the global real estate and development operations reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized.

We identified the impairment evaluation of goodwill for the global real estate and development operations reporting unit as a critical audit matter because of the significant judgments made by management to estimate the fair value of this reporting unit.

We identified the Company’s income approach in the impairment evaluation of goodwill for the global real estate and development operations reporting unit as a critical audit matter because of the significant judgments made by management to estimate the fair value of this reporting unit.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions, particularly related to future sales growth, operating profit and the selection of the discount rate.

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We also considered the impact of changes in management’s forecasts from the annual measurement date in the fourth quarter to January 2, 2022.

• With the assistance of our fair value specialists, we evaluated the discount rate assumptions, including testing the underlying source information and the mathematical accuracy of the calculation, and by developing a range of independent estimates and comparing those to the discount rate selected by management.

• With the assistance of our fair value specialists, we evaluated the discount rate, including testing the underlying source information and the mathematical accuracy of the calculation, and by developing a range of independent estimates and comparing those to the discount rate selected by management.

/s/ Deloitte & Touche LLP

5 unchanged sentences

(In Thousands Except Par Value)

2021 December 29,

2022 January 3,

Current assets:

50 unchanged sentences

(In Thousands Except Per Share Amounts)

2021 December 29,

2022 January 3,

2021 December 29,

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Loss on early extinguishment of debt ( 17,917 ) — ( 8,496 )

Investment (loss) income, net ( 225 ) 25,598 450,736

Investment income (loss), net 39 ( 225 ) 25,598

Other income, net 681 1,449 7,771

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(In Thousands)

2021 December 29,

2022 January 3,

2021 December 29, 2019

Net income $ 200,392 $ 117,832 $ 136,940

Other comprehensive income (loss), net:

Other comprehensive income:

Foreign currency translation adjustment 1,441 4,187 7,845

Change in unrecognized pension loss:

Unrealized gains arising during the period

Income tax provision

Final settlement of pension liability

Other comprehensive income (loss), net 4,187 7,845 ( 15,475 )

Other comprehensive income 1,441 4,187 7,845

Comprehensive income $ 201,833 $ 122,019 $ 144,785

$ 122,019 $ 144,785 $ 444,640

See accompanying notes to consolidated financial statements.

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(In Thousands)

Stock Additional Paid-In

Capital Retained Earnings (Accumulated

Deficit) Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total

Stock Additional

Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total

Balance at December 30, 2018 $ 47,042 $ 2,884,696 $ 146,277 $ ( 2,367,893 ) $ ( 61,673 ) $ 648,449

Net income — — 136,940 — — 136,940

Other comprehensive loss, net — — — — ( 15,475 ) ( 15,475 )

Other comprehensive income, net — — — — 7,845 7,845

Cash dividends — — ( 96,364 ) — — ( 96,364 )

20 unchanged sentences

— ( 7,889 ) — 2,500 — ( 5,389 )

Cumulative effect of change in accounting principle

— — ( 1,105 ) — — ( 1,105 )

Other — 146 ( 17 ) 158 — 287

Balance at December 29,2019 47,042 2,874,001 185,725 ( 2,536,581 ) ( 53,828 ) 516,359

Balance at January 3, 2021 47,042 2,899,276 238,674 ( 2,585,755 ) ( 49,641 ) 549,596

Net income — — 200,392 — — 200,392

14 unchanged sentences

(In Thousands)

2021 December 29,

2022 January 3,

2021 December 29, 2019

6 unchanged sentences

Deferred income tax ( 13,781 ) 10,266 837

Non-cash rental expense (income), net 28,937 28,202 ( 17,043 )

Non-cash rental expense, net 40,596 28,937 28,202

Change in operating lease liabilities ( 45,606 ) ( 40,905 ) ( 41,911 )

21 unchanged sentences

Payments for investments ( 10,000 ) — —

Net cash (used in) provided by investing activities ( 68,250 ) ( 54,931 ) 362,911

Net cash used in investing activities ( 154,669 ) ( 68,250 ) ( 54,931 )

Cash flows from financing activities:

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( 4,511 ) ( 5,577 ) ( 8,820 )

Contingent consideration payment

— — ( 6,269 )

Net cash used in financing activities ( 242,742 ) ( 157,907 ) ( 365,296 )

Net cash provided by (used in) operations before effect of exchange rate changes on cash 58,204 ( 131,294 ) 281,377

Net cash (used in) provided by operations before effect of exchange rate changes on cash ( 51,639 ) 58,204 ( 131,294 )

Effect of exchange rate changes on cash 364 1,330 3,489

Net increase (decrease) in cash, cash equivalents and restricted cash 59,534 ( 127,805 ) 273,688

Net (decrease) increase in cash, cash equivalents and restricted cash ( 51,275 ) 59,534 ( 127,805 )

Cash, cash equivalents and restricted cash at beginning of period 418,241 358,707 486,512

3 unchanged sentences

(In Thousands)

2021 December 29,

2022 January 3,

2021 December 29,

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Finance leases 82,032 34,918 50,061

2021 December 29,

2022 January 3,

2021 December 29,

12 unchanged sentences

Wendy’s Restaurants is the parent company of Wendy’s International, LLC and its subsidiaries (“Wendy’s”).

Wendy’s franchises and operates Wendy’s quick-service restaurants specializing in hamburger sandwiches throughout the United States of America (“U.S.”) and also franchises Wendy’s quick-service restaurants in 30 foreign countries and U.S.

Wendy’s franchises and operates Wendy’s quick-service restaurants specializing in hamburger sandwiches throughout the United States of America (“U.S.”) and in 31 foreign countries and U.S.

At January 2, 2022, Wendy’s operated and franchised 408 and 6,541 restaurants, respectively.

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Actual results could differ materially from those estimates.

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.

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic.

We continue to monitor the dynamic nature of the COVID-19 pandemic on our business, results and financial condition;

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Certain reclassifications have been made to the prior year presentation to conform to the current year presentation.

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.

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The Company’s cash and cash equivalents principally consist of cash in bank and money market mutual fund accounts and are primarily not in Federal Deposit Insurance Corporation insured accounts.

THE WENDY’S COMPANY AND SUBSIDIARIES

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(In Thousands Except Per Share Amounts)

We believe that our vulnerability to risk concentrations in our cash equivalents is mitigated by (1) our policies restricting the eligibility, credit quality and concentration limits for our placements in cash equivalents and (2) insurance from the Securities Investor Protection Corporation of up to $ 500 per account, as well as supplemental private insurance coverage maintained by substantially all of our brokerage firms, to the extent our cash equivalents are held in brokerage accounts.

Securities Investor Protection Corporation of up to $ 500 per account, as well as supplemental private insurance coverage maintained by substantially all of our brokerage firms, to the extent our cash equivalents are held in brokerage accounts.

Restricted Cash

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Accounts and Notes Receivable, Net

Accounts and notes receivable, net, consist primarily of royalties, rents, property taxes and franchise fees due principally from franchisees, credit card receivables, insurance receivables and refundable income taxes.

Accounts and notes receivable, net, consist primarily of royalties, rents, property taxes and franchise fees due principally from franchisees, delivery-related receivables, credit card receivables, insurance receivables and refundable income taxes.

Reserve estimates include consideration of the likelihood of default expected over the estimated life of the receivable.

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Receivables are considered delinquent once they are contractually past due under the terms of the underlying agreements.

As of January 3, 2021, there were no material receivables more than one year past due.

See Note 7 for further information.

The Company’s inventories are stated at the lower of cost or net realizable value, with cost determined in accordance with the first-in, first-out method and consist primarily of restaurant food items and paper supplies.

Cloud Computing Arrangements (“CCA”)

The Company capitalizes implementation costs associated with its CCA consistent with costs capitalized for internal-use software.

Capitalized CCA implementation costs are included in “Prepaid expenses and other current assets” and “Other assets.” The CCA implementation costs are amortized over the term of the related hosting agreement, including renewal periods that are reasonably certain to be exercised.

Amortization expense of CCA implementation costs is recorded to “General and administrative.” The CCA implementation costs are included within operating activities in the Company’s consolidated statements of cash flows.

Properties and Depreciation and Amortization

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See “Impairment of Long-Lived Assets” below for further information.

The Company classifies assets as held for sale and ceases depreciation of the assets when there is a plan for disposal of the assets and those assets meet the held for sale criteria.

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

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

The Company classifies assets as held for sale and ceases depreciation of the assets when there is a plan for disposal of the assets and those assets meet the held for sale criteria.

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

Goodwill, representing the excess of the cost of an acquired entity over the fair value of the acquired net assets, is not amortized.

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The Company has significant influence over these investees.

Such investments are accounted for using the equity method, under which our results of operations include our share of the income (loss) of the investees in “Other operating income, net.” Other investments in equity securities, including investments in limited partnerships, in which the Company does not have significant influence, and for which there is not a readily determinable fair value, are recorded at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

Realized gains and losses are reported as income or loss in the period in which the securities are sold or otherwise disposed.

Cash distributions and dividends received that are determined to be returns of capital are recorded as a reduction of the carrying value of our investments and returns on our investments are recorded to “Investment (loss) income, net.”

Such investments are accounted for using the equity method, under which our results of operations include our share of the income (loss) of the investees in “Other operating income, net.” Cash distributions and dividends received that are determined to be returns of capital are recorded as a reduction of the carrying value of our investments and returns on our investments are recorded to “Investment income (loss), net.”

The difference between the carrying value of our TimWen equity investment and the underlying equity in the historical net assets of the investee is accounted for as if the investee were a consolidated subsidiary.

1 unchanged sentence

To the extent the carrying value difference represents goodwill, it is not amortized.

Other investments in equity securities in which the Company does not have significant influence, and for which there is not a readily determinable fair value, are recorded at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

Realized gains and losses are reported as income or loss in the period in which the securities are sold or otherwise disposed.

Share-Based Compensation

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Gift card payments are recorded as deferred income when received and are recognized as revenue upon redemption.

“Franchise royalty revenue and fees” includes royalties, new build technical assistance fees, renewal fees, franchisee-to- franchisee restaurant transfer (“Franchise Flip”) technical assistance fees, Franchise Flip advisory fees and development fees.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

Royalties from franchised restaurants are based on a percentage of sales of the franchised restaurant and are recognized as earned.

4 unchanged sentences

Franchise Flip advisory fees are paid by the seller and are recognized as revenue at closing of the Franchise Flip transaction.

Information technology and other fees are recognized as revenue as earned.

“Franchise rental income” includes rental income from properties owned and leased by the Company and leased or subleased to franchisees.

35 unchanged sentences

For properties used for Company-operated restaurants, the primary economic detriment relates to the existence of unamortized leasehold improvements which might be impaired if we choose not to exercise the available renewal options.

The lease term for properties leased or subleased to franchisees is determined based upon the economic detriment to the franchisee and includes consideration of the length of the franchise agreement, historical performance of the restaurant and the existence of bargain renewal options.

Lease terms for real estate are generally initially between 15 and 20 years and, in most cases, provide for rent escalations and renewal options.

13 unchanged sentences

(1) rental expense related to leases for Company-operated restaurants is recorded to “Cost of sales,” (2) rental expense for leased properties that are subsequently subleased to franchisees is recorded to “Franchise rental expense” and (3) rental expense related to leases for corporate offices and equipment is recorded to “General and administrative.”

Favorable and unfavorable lease amounts for operating leases where the Company is the lessor are recorded as components of “Other intangible assets” and “Other liabilities,” respectively.

Favorable and unfavorable lease amounts are amortized on a straight-line basis over the term of the leases.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

Favorable and unfavorable lease amounts for operating leases where the Company is the lessor are recorded as components of “Other intangible assets” and “Other liabilities,” respectively.

Favorable and unfavorable lease amounts are amortized on a straight-line basis over the term of the leases.

When the expected term of a lease is determined to be shorter than the original amortization period, the favorable or unfavorable lease balance associated with the lease is adjusted to reflect the revised lease term.

Rental income and favorable and unfavorable lease amortization for operating leases on properties leased or subleased to franchisees is recorded to “Franchise rental income.” Lessees’ variable payments to the Company for executory costs under operating leases are recognized on a gross basis as “Franchise rental income” with a corresponding expense recorded to “Franchise rental expense.”

operating leases are recognized on a gross basis as “Franchise rental income” with a corresponding expense recorded to “Franchise rental expense.”

Finance Leases

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However, if a disruption of service from any of our main in-line distributors was to occur, we could experience short-term increases in our costs while distribution channels were adjusted.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Wendy’s restaurants are principally located throughout the U.S.

8 unchanged sentences

dollar for our Canadian operations.

However, our exposure to Canadian dollar foreign currency risk is mitigated by the fact that there are no Company-operated restaurants in Canada and less than 10 % of Wendy’s franchised restaurants are in Canada.

However, our exposure to

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Canadian dollar foreign currency risk is mitigated by the fact that there are no Company-operated restaurants in Canada and less than 10 % of Wendy’s franchised restaurants are in Canada.

The Company is subject to credit risk through its accounts receivable consisting primarily of amounts due from franchisees for royalties, franchise fees and rent.

3 unchanged sentences

New Accounting Standards Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and the simplification of areas such as franchise taxes, transactions that result in a step-up in the tax basis of goodwill, separate entity financial statements and interim recognition of enactment of tax laws or tax rate changes.

The Company early adopted this amendment during the first quarter of 2020.

The adoption of this guidance did not have a material impact on our consolidated financial statements.

Fair Value Measurement

In August 2018, the FASB issued new guidance on disclosure requirements for fair value measurements.

The objective of the new guidance is to provide additional information about assets and liabilities measured at fair value in the statement of financial position or disclosed in the notes to financial statements.

New incremental disclosure requirements include the amount of fair value hierarchy level 3 changes in unrealized gains and losses and the range and weighted average used to develop significant unobservable inputs for level 3 fair value measurements.

The Company adopted this guidance during the first quarter of 2020.

The adoption of this guidance did not have a material impact on our consolidated financial statements.

Goodwill Impairment

In January 2017, the FASB issued new guidance that simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test.

The Company adopted this amendment during the first quarter of 2020.

The adoption of this guidance did not have a material impact on our consolidated financial statements.

Credit Losses

In June 2016, the FASB issued an amendment that requires the Company to use a current expected credit loss model that results in the immediate recognition of an estimate of credit losses that are expected to occur over the life of the financial instruments that are within the scope of the guidance, including trade receivables.

The Company adopted this amendment during the first quarter of 2020.

In July 2021, the Financial Accounting Standards Board (“FASB”) issued an amendment that addresses an issue related to a lessor’s accounting for certain leases with variable lease payments that could result in the recognition of a selling loss at lease commencement even if the lessor expects the arrangement to be profitable overall.

The amendment specifies lessors should classify and account for such a lease with variable lease payments as an operating lease, dependent upon meeting certain criteria, for which a selling profit or loss is not recognized.

The Company early adopted this amendment during the third quarter of 2021 by applying the guidance prospectively to leases that commence or are modified on or after the date of adoption.

The adoption of this guidance did not have a material impact on our consolidated financial statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

In February 2016, the FASB issued new guidance on leases, which outlines principles for the recognition, measurement, presentation and disclosure of leases applicable to both lessors and lessees.

The new guidance requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by finance and operating leases.

The Company adopted the new guidance during the first quarter of 2019 using the effective date as the date of initial application;

therefore, the comparative periods have not been adjusted and continue to be reported under the previous lease guidance.

The new standard provides a number of optional practical expedients in transition.

The Company elected the package of practical expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

For those leases that fall under the definition of a short-term lease, the Company elected the short-term lease recognition exemption.

Under this practical expedient, for those leases that qualify, we did not recognize ROU assets or liabilities, which included not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.

The Company also elected the practical expedient for lessees to account for lease components and nonlease components as a single lease component for all underlying classes of assets.

In addition, the Company elected the practical expedient for lessors to account for lease components and nonlease components as a single lease component in instances where the lease component is predominant, the timing and pattern of transfer for the lease component and nonlease component are the same and the lease component, if accounted for separately, would be classified as an operating lease.

The Company did not elect the use-of-hindsight practical expedient.

The standard had a material impact on our consolidated balance sheets and related disclosures.

Upon adoption at the beginning of 2019, we recognized operating lease liabilities of $ 1,011,000 based on the present value of the remaining minimum rental payments, with corresponding ROU assets of $ 934,000 .

The measurement of the operating lease ROU assets included, among other items, favorable lease amounts of $ 23,000 and unfavorable lease amounts of $ 30,000 , which were previously included in “Other intangible assets” and “Other liabilities,” respectively, as well as the excess of rent expense recognized on a straight-line basis over the minimum rents paid of $ 67,000 , which was previously included in “Other liabilities.” In addition, the standard requires lessors to recognize lessees’ payments to the Company for executory costs on a gross basis as revenue with a corresponding expense, which resulted in an increase of approximately $ 38,000 to our 2019 franchise rental income and expense.

The Company also recognized a decrease to retained earnings of $ 1,105 as a result of impairing newly recognized ROU assets upon transition to the new guidance.

The adoption of the guidance did not have a material impact on our consolidated statement of cash flows.

New Accounting Standards

Business Combinations

In October 2021, the FASB issued an amendment to improve the accounting for revenue contracts with customers acquired in a business combination.

The amendment requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with current revenue recognition guidance as if the acquirer had originated the contracts.

The standard is effective beginning with our 2023 fiscal year.

The Company does not expect the guidance to have a material impact on our consolidated financial statements.

Financial Instruments

3 unchanged sentences

The amendment is effective commencing with our 2022 fiscal year.

We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The Company does not expect the guidance to have a material impact on our consolidated financial statements.

Nature of Goods and Services

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The franchise agreement requires that the franchisee pay a royalty based on a percentage of sales at the franchised restaurant, as well as make contributions to the Advertising Funds based on a percentage of sales.

Wendy’s may offer development incentive programs from time to time that provide for a discount or lesser royalty amount or Advertising Fund contribution for a limited period of time.

Wendy’s may offer development incentive programs from time to time that provide for a discount or lesser royalty amount or Advertising Fund

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

contribution for a limited period of time.

The agreement also typically requires that the franchisee pay Wendy’s a technical assistance fee.

The technical assistance fee is used to defray some of the costs to Wendy’s for training, start-up and transitional services related to new and existing franchisees acquiring restaurants and in the development and opening of new restaurants.

The franchise agreement also requires that the franchisee pay an annual fee for technology services.

The technology fee is a flat fee dependent on each restaurant’s sales.

Wendy’s also enters into development agreements with certain franchisees.

5 unchanged sentences

Technical assistance fees and renewal fees are generally due upon execution of the related franchise agreement.

Annual technology fees are due in quarterly installments.

Rental income is due in accordance with the terms of each lease, which is generally at the beginning of each month.

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Total revenues $ 1,567,496 $ 86,369 $ 243,133 $ 1,896,998

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Wendy’s International Global Real Estate & Development Total

Sales at Company-operated restaurants $ 722,764 $ — $ — $ 722,764

4 unchanged sentences

Total revenues $ 1,431,382 $ 65,642 $ 236,801 $ 1,733,825

Wendy’s International Global Real Estate & Development Total

Sales at Company-operated restaurants $ 707,485 $ — $ — $ 707,485

4 unchanged sentences

Total revenues $ 1,404,307 $ 68,198 $ 236,497 $ 1,709,002

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Contract Balances

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

2021 (a) December 29,

2022 (a) January 3, 2021 (a)

Receivables, which are included in “Accounts and notes receivable, net” (b)

$ 49,168 $ 57,677

Receivables, which are included in “Advertising funds restricted assets”

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

(c) Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $ 8,691 and $ 89,094 as of January 3, 2021, respectively, and $ 8,899 and $ 91,790 as of December 29, 2019, respectively.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(c) Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $ 9,084 and $ 88,102 as of January 2, 2022, respectively, and $ 8,691 and $ 89,094 as of January 3, 2021, respectively.

Significant changes in deferred franchise fees are as follows:

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Thereafter 64,016

(3) System Optimization Gains, Net

The Company’s system optimization initiative included a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating Franchise Flips.

As of January 1, 2017, the Company completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5 % of the total system.

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

During 2020, 2019 and 2018, the Company facilitated 54 , 37 and 96 Franchise Flips, respectively.

Additionally, during 2020 and 2018, the Company completed the sale of one and three Company-operated restaurants to franchisees, respectively.

No Company-operated restaurants were sold to franchisees during 2019.

The Company expects to sell 43 Company-operated restaurants in New York to franchisees in the second quarter of 2021.

Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our consolidated statements of operations.

Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs,” which are further described in Note 5.

All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

THE WENDY’S COMPANY AND SUBSIDIARIES

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(In Thousands Except Per Share Amounts)

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

2020 2019 2018

Number of restaurants sold to franchisees 1 — 3

Proceeds from sales of restaurants $ 50 $ — $ 1,436

Net assets sold (a) ( 34 ) — ( 1,370 )

Goodwill related to sales of restaurants — — ( 208 )

Net favorable leases — — 220

Post-closing adjustments on sales of restaurants (b) 362 1,087 445

Gain on sales of restaurants, net 378 1,087 534

Gain (loss) on sales of other assets, net (c) 2,770 196 ( 71 )

System optimization gains, net $ 3,148 $ 1,283 $ 463

_______________

(a) Net assets sold consisted primarily of equipment.

(b) 2020, 2019 and 2018 include the recognition of deferred gains of $ 368 , $ 911 and $ 1,029 , respectively, as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

2018 also includes cash proceeds, net of payments, of $ 6 related to post-closing reconciliations with franchisees.

(c) During 2020, 2019 and 2018, Wendy’s received cash proceeds of $ 6,041 , $ 3,448 and $ 1,781 , respectively, primarily from the sale of surplus and other properties.

Assets Held for Sale

January 3, 2020 December 29, 2019

Number of restaurants classified as held for sale 43 —

Net restaurant assets held for sale (a) $ 20,587 $ —

Other assets held for sale (b) $ 1,732 $ 1,437

_______________

(a) Net restaurant assets held for sale include the New York Company-operated restaurants we expect to sell in the second quarter of 2021 and consist primarily of cash, inventory, property and an estimate of allocable goodwill.

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

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

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(3) Acquisitions

During 2021 and 2019, the Company acquired 93 restaurants and five restaurants from franchisees, respectively.

No restaurants were acquired from franchisees during 2020.

During 2019 and 2018, the Company acquired five restaurants and 16 restaurants from franchisees, respectively.

The Company did not incur any material acquisition-related costs associated with the acquisitions and such transactions were not significant to our consolidated financial statements.

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2021 (a) 2019

Restaurants acquired from franchisees 5 16

Restaurants acquired from franchisees (b) 93 5

Total consideration paid, net of cash received $ 127,948 $ 5,052

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Finance lease assets 25,547 5,350

Other assets — 621

Operating lease assets 44,282 —

Finance lease liabilities ( 25,059 ) ( 4,084 )

Unfavorable leases — ( 733 )

Operating lease liabilities ( 43,478 ) —

Other ( 9 ) ( 2,316 )

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_______________

(a) The fair values of the identifiable intangible assets related to restaurants acquired in 2018 were provisional amounts as of December 30, 2018, pending final purchase accounting adjustments.

The Company finalized the purchase price allocation during the three months ended March 31, 2019, which resulted in a decrease in the fair value of acquired franchise rights of $ 2,989 and an increase in deferred tax assets of $ 140 .

(a) The fair value of the assets acquired are provisional amounts as of January 2, 2022, pending final purchase accounting adjustments.

The Company utilized management estimates and consultation with an independent third-party valuation firm to assist in the valuation process.

(b) 2021 includes two restaurants under construction and not operating as of January 2, 2022.

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.

As previously announced, NPC, formerly the Company’s largest franchisee, filed for chapter 11 bankruptcy in July 2020 and commenced a process to sell all or substantially all of its assets, including its interest in approximately 393 Wendy’s restaurants across eight different markets, pursuant to a court-approved auction process.

On November 18, 2020, the Company submitted a consortium bid together with a group of pre-qualified franchisees to acquire NPC’s Wendy’s restaurants.

Under the terms of the consortium bid, several existing and new franchisees would have been the ultimate purchasers of seven of the NPC markets, while the Company would have acquired one market.

As part of the consortium bid, the Company submitted a deposit of $ 43,240 , which is included in “Prepaid expenses and other current assets” as of January 3, 2021.

As part of the consortium bid, the Company submitted a deposit of $ 43,240 , which was included in “Prepaid expenses and other current assets” as of January 3, 2021.

The deposit included $ 38,361 received from the group of prequalified franchisees, which was payable to the franchisees and included in “Accrued expenses and other current liabilities” as of January 3, 2021 pending resolution of the bankruptcy sale process.

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.

During the three months ended April 4, 2021, following a court-approved mediation process, NPC and certain affiliates of Flynn Restaurant Group (“FRG”) and the Company entered into separate asset purchase agreements under which all of NPC’s Wendy’s restaurants were sold to Wendy’s approved franchisees.

Under the transaction, FRG acquired approximately half of NPC’s Wendy’s restaurants in four markets, while several existing Wendy’s franchisees that were part of the Company’s consortium bid acquired the other half of NPC’s Wendy’s restaurants in the other four markets.

The Company did not acquire any restaurants as part of this transaction.

In addition, the deposits outstanding as of January 3, 2021 were settled during the three months ended April 4, 2021 upon resolution of the bankruptcy sale process.

The net settlement of deposits of $ 4,879 is included in “Acquisitions” in the consolidated statements of cash flows.

THE WENDY’S COMPANY AND SUBSIDIARIES

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(In Thousands Except Per Share Amounts)

(4) System Optimization Gains, Net

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, 2020 and 2019, the Company facilitated 34 , 54 and 37 Franchise Flips, respectively.

Additionally, during 2021, the Company completed the sale of 47 Company-operated restaurants in New York (including Manhattan) to franchisees and, during 2020, completed the sale of one Company-operated restaurant to a franchisee.

No Company-operated restaurants were sold to franchisees during 2019.

Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our consolidated statements of operations.

Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs,” which are further described in Note 5.

All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

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

2021 2020 2019

Number of restaurants sold to franchisees 47 1 —

Proceeds from sales of restaurants (a) $ 50,518 $ 50 $ —

Net assets sold (b) ( 16,939 ) ( 34 ) —

Goodwill related to sales of restaurants ( 4,847 ) — —

Net unfavorable leases (c) ( 2,939 ) — —

Gain on sales-type leases 7,156 — —

Other (d) ( 2,148 ) — —

Post-closing adjustments on sales of restaurants (e) (f) 1,218 362 1,087

Gain on sales of restaurants, net 32,019 378 1,087

Gain on sales of other assets, net (g) 1,526 2,770 196

System optimization gains, net $ 33,545 $ 3,148 $ 1,283

_______________

(a) In addition to the proceeds noted herein, the Company received cash proceeds of $ 39 during 2021 related to a note receivable issued in connection with the sale of the Manhattan Company-operated restaurants.

(b) Net assets sold consisted primarily of equipment.

(c) During 2021, the Company recorded favorable lease assets of $ 3,799 and unfavorable lease liabilities of $ 6,738 as a result of leasing and/or subleasing land, buildings and/or leasehold improvements to franchisees, in connection with the sale of the New York Company-operated restaurants (including Manhattan).

(d) 2021 includes a deferred gain of $ 3,500 as a result of certain contingencies related to the extension of lease terms.

(e) 2021 includes a gain on sales-type leases of $ 1,625 and the write-off of certain lease assets of $ 927 as a result of an amendment to lease terms in connection with a Manhattan Company-operated restaurant previously sold to a franchisee.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(f) 2021, 2020 and 2019 include the recognition of deferred gains of $ 515 , $ 368 and $ 911 , respectively, as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

(g) During 2021, 2020 and 2019, Wendy’s received cash proceeds of $ 4,561 , $ 6,041 and $ 3,448 , respectively, primarily from the sale of surplus and other properties.

Assets Held for Sale

January 2, 2022 January 3, 2021

Number of restaurants classified as held for sale — 43

Net restaurant assets held for sale (a) $ — $ 20,587

Other assets held for sale (b) $ 3,541 $ 1,732

_______________

(a) Net restaurant assets held for sale as of January 3, 2021 included New York Company-operated restaurants (excluding Manhattan) and consisted primarily of cash, inventory, property and an estimate of allocable goodwill.

During the three months ended April 4, 2021, the Company also classified its four Manhattan restaurants as held for sale.

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

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

(5) Reorganization and Realignment Costs

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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.

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.

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 $ 7,000 to $ 9,000 related to the Operations and Field Realignment Plan.

During 2020, the Company recognized costs totaling $ 3,801 , which primarily included severance and related employee costs and share-based compensation.

The Company expects to incur additional costs aggregating approximately $ 3,000 to $ 5,000 , comprised primarily of third-party and other costs.

The Company expects to recognize the majority of the remaining costs associated with the Operations and Field Realignment Plan during 2021.

The Operations and Field Realignment Plan also included contract terminations, including the closure of certain field offices.

During 2021 and 2020, the Company recognized costs totaling $ 1,758 and $ 3,801 , respectively, which primarily included third-party and other costs in 2021 and severance and related employee costs and share-based compensation in 2020.

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

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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

Year Ended Total Incurred Since Inception

Severance and related employee costs $ 270 $ 3,113 $ 3,383

Third-party and other costs 1,488 67 1,555

1,758 3,180 4,938

Share-based compensation (a) — 621 621

2 unchanged sentences

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

The accruals for the Operations and Field Realignment Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 2,487 and $ 113 as of January 3, 2021.

The table below presents a rollforward of our accruals for the Operations and Field Realignment Plan.

As of January 2, 2022, the accruals for the Operations and Field Realignment Plan are included in “Accrued expenses and other current liabilities.” As of January 3, 2021, the accruals for the Operations and Field Realignment Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 2,487 and $ 113 , respectively.

The tables below present a rollforward of our accruals for the Operations and Field Realignment Plan.

Balance January 3, 2021 Charges Payments Balance January 2, 2022

Severance and related employee costs $ 2,600 $ 270 $ ( 2,715 ) $ 155

Third-party and other costs — 1,488 ( 1,477 ) 11

$ 2,600 $ 1,758 $ ( 4,192 ) $ 166

Balance December 29, 2019 Charges Payments Balance January 3, 2021

2 unchanged sentences

$ — $ 3,180 $ ( 580 ) $ 2,600

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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 Company has partnered with a third-party global IT consultant on this new structure to leverage their global capabilities, enabling a more seamless integration between its digital and corporate IT assets.

The IT Realignment Plan has reduced certain employee compensation and other related costs that the Company has reinvested back into IT to drive additional capabilities and capacity across all of its technology platforms.

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

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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

Year Ended Total Incurred Since Inception

Severance and related employee costs $ 843 $ 7,548 $ 8,391

2021 2020 2019

Severance and related employee costs (a) $ ( 165 ) $ 843 $ 7,548 $ 8,226

Recruitment and relocation costs 146 1,296 — 1,442

1 unchanged sentence

( 10 ) 7,288 8,934 16,212

Share-based compensation (a) — 193 193

Share-based compensation (b) — — 193 193

Total IT realignment $ ( 10 ) $ 7,288 $ 9,127 $ 16,405

_______________

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

As of January 3, 2021, the accruals for our IT Realignment Plan are included in “Accrued expenses and other current liabilities.” As of December 29, 2019, the accruals for our IT Realignment Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 8,025 and $ 599 , respectively.

The tables below present a rollforward of our accruals for the IT Realignment Plan:

Balance December 29, 2019 Charges Payments Balance January 3, 2021

(a) 2021 includes a reversal of an accrual as a result of a change in estimate.

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

The tables below present a rollforward of our accruals for the IT Realignment Plan, which are included in “Accrued expenses and other current liabilities” as of January 2, 2022 and January 3, 2021.

Balance January 3, 2021 Charges Payments Balance January 2, 2022

Severance and related employee costs $ 1,508 $ ( 165 ) $ ( 1,250 ) $ 93

2 unchanged sentences

$ 1,508 $ ( 10 ) $ ( 1,405 ) $ 93

Balance December 30, 2018 Charges Payments Balance December 29, 2019

Balance December 29, 2019 Charges Payments Balance January 3, 2021

Severance and related employee costs $ 7,548 $ 843 $ ( 6,883 ) $ 1,508

2 unchanged sentences

$ 8,624 $ 7,288 $ ( 14,404 ) $ 1,508

General and Administrative ( “ G&A ”) Realignment

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

Additionally, in May 2019, the Company announced changes to its management and operating structure that included the creation of two new positions, a President, U.S.

and Chief Commercial Officer and a President, International and Chief Development Officer, and the elimination of the Chief Operations Officer position.

During 2020 and 2019, the Company recognized costs totaling $ 614 and $ 7,749 , respectively, which primarily included recruitment and relocation costs and share-based compensation in 2020 and severance and related employee costs and share-based compensation in 2019.

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

THE WENDY’S COMPANY AND SUBSIDIARIES

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(In Thousands Except Per Share Amounts)

General and Administrative ( “ G&A ”) Realignment

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

Additionally, in May 2019, the Company announced changes to its management and operating structure that included the creation of two new positions, a President, U.S and Chief Commercial Officer and a President, International and Chief Development Officer, and the elimination of the Chief Operations Officer position.

During 2020, 2019 and 2018, the Company recognized costs related to the plan totaling $ 614 , $ 7,749 and $ 8,785 , respectively, which primarily included recruitment and relocation costs and share-based compensation in 2020 and severance and related employee costs and share-based compensation in 2019 and 2018.

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

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

2 unchanged sentences

2021 2020 2019

Severance and related employee costs $ 28 $ 5,485 $ 3,797 $ 24,266

Severance and related employee costs (a) $ ( 74 ) $ 28 $ 5,485 $ 24,192

Recruitment and relocation costs 1 360 950 2,877

1 unchanged sentence

( 71 ) 401 6,535 29,294

Share-based compensation (a) 213 1,214 1,557 8,111

Termination of defined benefit plans (b) — — 1,335 1,335

Share-based compensation (b) 19 213 1,214 8,130

Termination of defined benefit plans — — — 1,335

Total G&A realignment $ ( 52 ) $ 614 $ 7,749 $ 38,759

_______________

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

(b) During 2018, the Company terminated two frozen defined benefit plans.

See Note 19 for further information.

As of January 3, 2021, the accruals for the G&A Realignment Plan are included in “Accrued expenses and other current liabilities.” As of December 29, 2019, the accruals for the G&A Realignment Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 4,504 and $ 855 , respectively.

The tables below present a rollforward of our accruals for the G&A Realignment Plan.

(a) 2021 includes a reversal of an accrual as a result of a change in estimate.

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

The tables below present a rollforward of our accruals for the G&A Realignment Plan, which are included in “Accrued expenses and other current liabilities” as of January 2, 2022 and January 3, 2021.

2021 Charges Payments Balance

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$ 5,359 $ 401 $ ( 4,828 ) $ 932

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

System Optimization Initiative

The Company recognizes costs related to acquisitions and dispositions under its system optimization initiative.

During 2020, the Company recognized costs totaling $ 4,327 , which were primarily comprised of professional fees related to the NPC bankruptcy sale process.

During 2021, the Company recognized costs totaling $ 6,852 , 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 totaling $ 4,327 , which primarily included professional fees related to the NPC bankruptcy sale process.

See Note 3 for further information.

The Company expects to incur additional costs of approximately $ 3,000 related to the NPC bankruptcy sale process during 2021.

The Company expects to recognize a gain of approximately $ 800 , primarily related to the write-off of certain NPC-related lease liabilities upon final termination of the leases.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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

3 unchanged sentences

Professional fees 1,570 4,323 72 23,677

Other 4 17 19 5,853

Other (a) 1,765 4 17 7,618

3,996 4,327 89 50,193

Accelerated depreciation and amortization (a) — — — 25,398

Share-based compensation (b) — — — 5,013

Accelerated depreciation and amortization (b) — — — 25,398

NPC lease termination costs (c) 2,856 — — 2,856

Share-based compensation (d) — — — 5,013

Total system optimization initiative $ 6,852 $ 4,327 $ 89 $ 83,460

_______________

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

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

The table below presents a rollforward of our accruals for our system optimization initiative, which are included in “Accrued expenses and other current liabilities.”

(a) 2021 includes transaction fees of $ 1,350 associated with the NPC bankruptcy sale process.

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

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

The tables below present a rollforward of our accruals for our system optimization initiative, which were included in “Accrued expenses and other current liabilities” as of January 3, 2021.

January 3, 2021 Charges Payments Balance

January 2, 2022

Severance and related employee costs $ — $ 661 $ ( 661 ) $ —

Professional fees 1,230 1,570 ( 2,800 ) —

Other — 1,765 ( 1,765 ) —

$ 1,230 $ 3,996 $ ( 5,226 ) $ —

December 29, 2019 Charges Payments Balance

3 unchanged sentences

$ — $ 4,327 $ ( 3,097 ) $ 1,230

(6) Income Per Share

Basic income per share for 2020, 2019 and 2018 was computed by dividing net income amounts by the weighted average number of common shares outstanding.

The weighted average number of shares used to calculate basic and diluted income per share were as follows:

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(6) Net Income Per Share

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

2021 2020 2019

Net income $ 200,392 $ 117,832 $ 136,940

Common stock:

2 unchanged sentences

Weighted average diluted shares outstanding 224,405 228,014 235,075

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Net income per share:

Basic $ .91 $ .53 $ .60

Diluted $ .89 $ .52 $ .58

Basic net income per share for 2021, 2020 and 2019 was computed by dividing net income amounts by the weighted average number of shares of common stock outstanding.

Diluted net income per share was computed by dividing net income by the weighted average number of basic shares outstanding plus the potential common share effect of dilutive stock options and restricted shares.

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(7) Cash and Receivables

January 3, 2021 December 29, 2019

January 2, 2022 January 3, 2021

Cash and cash equivalents

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(a) Included in “Advertising funds restricted assets.”

January 3, 2021 December 29, 2019

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

January 2, 2022 January 3, 2021

Gross Allowance for Doubtful Accounts Net Gross Allowance for Doubtful Accounts Net

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_______________

(a) Includes income tax refund receivables of $ 5,399 and $ 13,555 as of January 3, 2021 and December 29, 2019, respectively.

Additionally, 2019 includes receivables of $ 25,350 related to insurance coverage for the financial institutions class action.

See Note 11 for further information on our legal reserves.

(b) During 2020, rent receivables increased by $ 5,226 due to actions taken by the Company in response to the COVID-19 pandemic, which included offering to defer base rent payments on properties owned by Wendy’s and leased to franchisees by 50% and offering to pass along any deferrals that were obtained on properties leased by Wendy’s and subleased to franchisees by up to 100%, beginning in May for a three month period, which are being repaid over a 12 month period beginning in August 2020.

(c) Includes the current portion of sales-type and direct financing lease receivables of $ 5,965 and $ 3,146 as of January 3, 2021 and December 29, 2019, respectively.

(a) Includes income tax refund receivables of $ 11,901 and $ 5,399 as of January 2, 2022 and January 3, 2021, respectively.

(b) As of January 3, 2021, included incremental rent receivables of $ 5,226 due to actions taken by the Company in response to the COVID-19 pandemic, which included offering to defer base rent payments on properties owned by Wendy’s and leased to franchisees by 50% and offering to pass along any deferrals that were obtained on properties leased by Wendy’s and subleased to franchisees by up to 100%, beginning in May for a three month period, which were substantially repaid over a 12 month period beginning in August 2020.

(c) Includes the current portion of sales-type and direct financing lease receivables of $ 6,266 and $ 5,965 as of January 2, 2022 and January 3, 2021, respectively.

See Note 20 for further information.

(d) Includes a note receivable from a franchisee in India, of which $ 335 and $ 356 are included in current notes receivable and $ 315 and $ 629 are included in non-current notes receivable as of January 2, 2022 and January 3, 2021, respectively.

As of January 2, 2022 and January 3, 2021, the Company had reserves of $ 650 and $ 985 , respectively, on the loan outstanding to the franchisee in India.

Includes a note receivable from a franchisee in Indonesia, of which $ 1,795 and $ 831 are included in current notes receivable as of January 2, 2022 and January 3, 2021, respectively, and $ 1,780 which is included in non-current notes receivable as of January 3, 2021.

Includes notes receivable related to the Brazil JV, of which $ 12,925 and $ 12,775 are included in current notes receivable and $ 4,200 and $ 4,350 are included in non-current notes receivable as of January 2, 2022 and January 3, 2021, respectively.

As of both January 2, 2022 and January 3, 2021, the Company had reserves of $ 4,640 on the loans outstanding related to the Brazil JV.

See Note 8 for further information.

(e) Included in “Other assets.”

THE WENDY’S COMPANY AND SUBSIDIARIES

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(In Thousands Except Per Share Amounts)

Included a note receivable from a U.S.

franchisee totaling $ 1,000 as of December 29, 2019.

The note was repaid during 2020.

(d) Includes a note receivable from a franchisee in India, of which $ 356 and $ 1,000 are included in current notes receivable as of January 3, 2021 and December 29, 2019, respectively, and $ 629 which is included in non-current notes receivable as of January 3, 2021.

As of January 3, 2021 and December 29, 2019, the Company had a reserve of $ 985 on the loan outstanding to the franchisee in India.

Includes a note receivable from a franchisee in Indonesia, of which $ 831 and $ 1,262 are included in current notes receivable and $ 1,780 and $ 1,617 are included in non-current notes receivable as of January 3, 2021 and December 29, 2019, respectively.

Includes notes receivable related to the Brazil JV, of which $ 12,775 and $ 15,920 are included in current notes receivable as of January 3, 2021 and December 29, 2019, respectively, and $ 4,350 is included in non-current notes receivable as of January 3, 2021.

As of January 3, 2021 and December 29, 2019, the Company had reserves of $ 4,640 and $ 5,720 , respectively, on the loans outstanding related to the Brazil JV.

See Note 8 for further information.

(e) Included in “Other assets.”

The following is an analysis of the allowance for doubtful accounts:

Accounts Receivable Notes Receivable Total

Balance at December 29, 2019

Balance at January 3, 2021

$ 3,739 $ 5,625 $ 9,364

7 unchanged sentences

Uncollectible accounts written off, net of recoveries ( 222 ) ( 1,286 ) ( 1,508 )

Balance at December 29, 2019

Balance at January 3, 2021

$ 3,739 $ 5,625 $ 9,364

Balance at December 30, 2018

$ 4,939 $ 2,000 $ 6,939

Provision for doubtful accounts ( 1,618 ) 4,912 3,294

2 unchanged sentences

$ 3,314 $ 6,705 $ 10,019

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(8) Investments

The following is a summary of the carrying value of our investments:

2021 December 29,

2022 January 3,

Equity method investments $ 39,870 $ 44,574

8 unchanged sentences

The Company did not receive any distributions and our share of the Brazil JV’s net losses was $ 417 and $ 1,022 during 2020 and 2019, respectively.

A wholly-owned subsidiary of Wendy’s has loans outstanding related to the Brazil JV totaling $ 17,125 and $ 15,920 as of January 3, 2021 and December 29, 2019, respectively.

The Brazil JV has ceased operations and no income or loss was recorded during 2021.

A wholly-owned subsidiary of Wendy’s has loans outstanding related to the Brazil JV totaling $ 17,125 as of both January 2, 2022 and January 3, 2021.

The loans are denominated in U.S.

2 unchanged sentences

The loans bear interest at rates ranging from 3.25 % to 6.5 % per year.

Of the total loans outstanding as of January 3, 2021, $ 12,775 was due primarily in the fourth quarter of 2020 and $ 4,350 is due in 2024.

As of January 3, 2021 and December 29, 2019, the Company had reserves of $ 4,640 on the past due loans and $ 5,720 on the current loans outstanding, respectively, related to the Brazil JV.

Of the total loans outstanding as of January 2, 2022, $ 12,775 was due primarily in the fourth quarter of 2020 and $ 4,350 is due primarily in 2024.

As of January 2, 2022 and January 3, 2021, the Company had reserves of $ 4,640 on the past due loans related to the Brazil JV.

The Company is currently pursuing collection of certain of the past due amounts.

See Note 7 for further information.

The carrying value of our investment in TimWen exceeded our interest in the underlying equity of the joint venture by $ 23,433 and $ 25,160 as of January 3, 2021 and December 29, 2019, respectively, primarily due to purchase price adjustments from the 2008 merger of Triarc Companies, Inc.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The carrying value of our investment in TimWen exceeded our interest in the underlying equity of the joint venture by $ 20,532 and $ 23,433 as of January 2, 2022 and January 3, 2021, respectively, primarily due to purchase price adjustments from the 2008 merger of Triarc Companies, Inc.

and Wendy’s International, Inc.

(the “Wendy’s Merger”).

Presented below is activity related to our portion of TimWen and the Brazil JV included in our consolidated balance sheets and consolidated statements of operations as of and for the years ended January 3, 2021, December 29, 2019 and December 30, 2018.

2021 2020 2019

Balance at beginning of period $ 44,574 $ 45,310 $ 47,021

Investment — — 13

Equity in earnings for the period 14,329 8,389 10,943

3 unchanged sentences

Foreign currency translation adjustment included in

“Other comprehensive income (loss), net” and other

“Other comprehensive income” and other

430 1,544 3,016

1 unchanged sentence

_______________

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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

Indirect Investment in Inspire Brands

In connection with the sale of Arby’s Restaurant Group, Inc.

(“Arby’s”) during 2011, Wendy’s Restaurants obtained an 18.5 % equity interest in ARG Holding Corporation (“ARG Parent”) (through which Wendy’s Restaurants indirectly retained an 18.5 % interest in Arby’s).

The carrying value of our investment was reduced to zero during 2013 in connection with the receipt of a dividend that was determined to be a return of our investment.

Our 18.5 % equity interest was diluted to 12.3 % in February 2018, when a subsidiary of ARG Parent acquired Buffalo Wild Wings, Inc.

As a result of the acquisition, our diluted ownership interest included both the Arby’s and Buffalo Wild Wings brands under the newly formed combined company, Inspire Brands, Inc.

(“Inspire Brands”).

In August 2018, the Company sold its remaining 12.3 % ownership interest to Inspire Brands for $ 450,000 and incurred transaction costs of $ 55 , which were recorded to “Investment (loss) income, net.” The Company recorded income tax expense of $ 97,501 on the transaction, of which $ 95,038 was paid during the fourth quarter of 2018.

Other Investments in Equity Securities

During 2021, the Company made an investment in equity securities of $ 10,000 .

In October 2019, the Company received a $ 25,000 cash settlement related to a previously held investment.

As a result, the Company recorded $ 24,366 to “Investment (loss) income, net” and $ 634 to “General and administrative” for the reimbursement of related costs during the fourth quarter of 2019.

As a result, the Company recorded $ 24,366 to “Investment income (loss), net” and $ 634 to “General and administrative” for the reimbursement of related costs during the fourth quarter of 2019.

(9) Properties

January 3, 2021 December 29, 2019

January 2, 2022 January 3, 2021

Land $ 370,742 $ 372,473

17 unchanged sentences

Changes in goodwill:

Restaurant acquisitions (b) 6,931 — — 6,931

Currency translation adjustment — 1,096 — 1,096

Balance at December 29, 2019:

Restaurant dispositions (b) ( 5,394 ) — — ( 5,394 )

Currency translation adjustment and other ( 223 ) 755 — 532

Balance at January 3, 2021:

Goodwill, gross 596,874 41,024 122,548 760,446

2 unchanged sentences

Changes in goodwill:

Restaurant dispositions (c) ( 5,394 ) — — ( 5,394 )

Restaurant acquisitions 23,442 — — 23,442

Restaurant dispositions (b) 547 — — 547

Currency translation adjustment and other — 240 — 240

5 unchanged sentences

(a) Accumulated impairment losses resulted from the full impairment of goodwill of the Wendy’s international franchise restaurants during the fourth quarter of 2013.

(b) Includes an adjustment to the fair value of net assets acquired in connection with the acquisition of franchised restaurants during 2018.

See Note 4 for further information.

(c) During 2020, in connection with the Company’s plan to sell 43 Company-operated restaurants in New York in the second quarter of 2021, goodwill of $ 5,394 was reclassified to assets held for sale.

(b) During 2020, in connection with the Company’s plan to sell 43 Company-operated restaurants in New York (excluding Manhattan) in the second quarter of 2021, goodwill of $ 5,394 was reclassified to assets held for sale.

The goodwill allocated to the sale was decreased by $ 568 during 2021 upon final disposition of the restaurants.

In addition, during 2021, goodwill of $ 21 was reclassified to assets held for sale in connection with the Company’s sale of its four Manhattan restaurants.

See Note 4 for further information.

3 unchanged sentences

The following is a summary of the components of other intangible assets and the related amortization expense:

January 3, 2021 December 29, 2019

January 2, 2022 January 3, 2021

Cost Accumulated Amortization Net Cost Accumulated Amortization Net

15 unchanged sentences

(11) Accrued Expenses and Other Current Liabilities

January 3, 2021 December 29, 2019

Legal reserves (a) $ 2,006 $ 52,272

January 2, 2022 January 3, 2021

Accrued compensation and related benefits $ 63,835 $ 44,264

Accrued taxes 28,142 27,162

NPC consortium bid (b) 38,361 —

NPC consortium bid (a) — 38,361

Other 48,806 45,534

1 unchanged sentence

_______________

(a) Included a legal reserve of $ 50,000 as of December 29, 2019 for a settlement of the financial institutions class action.

The Company maintains insurance coverage for legal settlements, receivables for which are included in “Accounts and notes receivable, net.” See Note 7 for further information.

After exhaustion of applicable insurance receivables of $ 25,350 , the Company made a payment of $ 24,650 for the settlement of the financial institutions class action in January 2020.

(a) Represented amounts received from franchisees as part of the consortium bid to acquire NPC’s Wendy’s restaurants.

See Note 3 for further information.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

(b) Represents amounts received from franchisees as part of the consortium bid to acquire NPC’s Wendy’s restaurants.

See Note 4 for further information.

(12) Long-Term Debt

Long-term debt consisted of the following:

2021 December 29,

2022 January 3,

Series 2021-1 Class A-2 Notes:

2 unchanged sentences

2.775 % Series 2021-1 Class A-2-II Notes, anticipated repayment date 2031

434,250 447,750

Series 2019-1 Class A-2 Notes:

4 unchanged sentences

Series 2018-1 Class A-2 Notes:

4.497 % Series 2015-1 Class A-2-III Notes, anticipated repayment date 2025

3.573 % Series 2018-1 Class A-2-I Notes, repaid in connection with the June 2021 refinancing

3.884 % Series 2018-1 Class A-2-II Notes, anticipated repayment date 2028

456,000 460,750

Series 2015-1 Class A-2 Notes:

4.497 % Series 2015-1 Class A-2-III Notes, repaid in connection with the June 2021 refinancing

Canadian revolving credit facility — 1,962

14 unchanged sentences

(iv) 2019-1 Class A-2-II with an initial principal amount of $ 450,000 ;

and (v) 2015-1 Class A-2-III with an initial principal amount of $ 500,000 (collectively, the “Class A-2 Notes”).

The Master Issuer also issued outstanding Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “2019-1 Class A-1 Notes”), which allow for the borrowing of up to $ 150,000 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 $ 120,000 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 Series 2020-1 Variable Funding Senior Secured Notes, Class A-1 (the “2020-1 Class A-1 Notes”), which allow for the borrowing of up to $ 100,000 from time to time on a revolving basis using various credit

and (v) 2018-1 Class A-2-II with an initial principal amount of $ 475,000 (collectively, the “Class A-2 Notes”).

In connection with the issuance of the Series 2021-1 Class A-2 Notes, the Master Issuer also entered into a revolving financing facility of Series 2021-1 Variable Funding Senior Secured Notes, Class A-1 (the “2021-1 Class A-1 Notes”), which allows for the drawing of up to $ 300,000 on a revolving basis using various credit

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

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

The drawdown of the 2019-1 Class A-1 Notes in March 2020 and the issuance of the 2020-1 Class A-1 Notes in June 2020 were taken as precautionary measures to provide enhanced financial flexibility considering the uncertain market conditions arising from the COVID-19 pandemic.

The 2019-1 Class A-1 Notes and the 2020-1 Class A-1 Notes are collectively the “Class A-1 Notes,” and the Class A-1 Notes and the Class A-2 Notes are collectively the “Senior Notes.”

instruments, including a letter of credit facility.

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

The Class A-2 Notes and the 2021-1 Class A-1 Notes are collectively referred to as the “Senior Notes.”

The Master Issuer’s issuance of the 2021-1 Class A-1 Notes in June 2021 replaced the Company’s previous $ 150,000 Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “2019-1 Class A-1 Notes”) and $ 100,000 Series 2020-1 Variable Funding Senior Secured Notes, Class A-1 (the “2020-1 Class A-1 Notes”).

In March 2020, the Company drew down $ 120,000 under the Series 2019-1 Class A-1 Notes, which was fully repaid in July 2020.

In June 2020, the Master Issuer issued the Series 2020-1 Class A-1 Notes.

The Senior Notes are secured by a security interest in substantially all of the assets of the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company that act as guarantors (collectively, the “Securitization Entities”), except for certain real estate assets and subject to certain limitations as set forth in the indenture governing the Senior Notes (the “Indenture”) and the related guarantee and collateral agreements.

6 unchanged sentences

Dollars or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin and as specified in the respective purchase agreements for the 2021-1 Class A-1 Notes.

There is a commitment fee on the unused portions of the Class A-1 Notes, which ranges from 0.40 % to 0.75 % based on utilization for the 2019-1 Class A-1 Notes, and is 1.50 % for the 2020-1 Class A-1 Notes.

As of January 3, 2021, $ 26,228 of letters of credit were outstanding against the 2019-1 Class A-1 Notes, which relate primarily to interest reserves required under the Indenture governing the 2019-1 Class A-1 Notes.

There is a commitment fee on the unused portions of the 2021-1 Class A-1 Notes, which ranges from 0.40 % to 0.75 % based on utilization.

As of January 2, 2022, $ 21,888 of letters of credit were outstanding against the 2021-1 Class A-1 Notes, which relate primarily to interest reserves required under the Indenture.

Covenants and Restrictions

4 unchanged sentences

In accordance with the Indenture, certain cash accounts have been established with the Indenture trustee for the benefit of the trustee and the noteholders, and are restricted in their use.

As of January 3, 2021 and December 29, 2019, Wendy’s Funding had restricted cash of $ 33,635 and $ 34,209 , respectively, which primarily represents cash collections and cash reserves held by the trustee to be used for payments of principal, interest and commitment fees required for the Class A-2 Notes.

As of January 2, 2022 and January 3, 2021, Wendy’s Funding had restricted cash of $ 27,188 and $ 33,635 , respectively, which primarily represents cash collections and cash reserves held by the trustee to be used for payments of principal, interest and commitment fees required for the Class A-2 Notes.

THE WENDY’S COMPANY AND SUBSIDIARIES

3 unchanged sentences

In June 2021, the Master Issuer completed a refinancing transaction under which the Master Issuer issued the Series 2021-1 Class A-2-I Notes and the Series 2021-1 Class A-2-II 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 Master Issuer’s outstanding Series 2015-1 Class A-2-III Notes and Series 2018-1 Class A-2-I Notes, including the payment of prepayment and transaction costs.

As a result of the refinancing, the Company recorded a loss on early extinguishment of debt of $ 17,917 during 2021, which was comprised of a specified make-whole payment of $ 9,632 and the write-off of certain unamortized deferred financing costs of $ 8,285 .

As part of the June 2021 refinancing transaction, the Master Issuer also issued the 2021-1 Class A-1 Notes.

The Series 2021-1 Class A-1 Notes replaced the Company’s $ 150,000 Series 2019-1 Class A-1 Notes and $ 100,000 Series 2020-1 Class A-1 Notes, which were canceled on the closing date, and the letters of credit outstanding against the Series 2019-1 Class A-1 Notes were transferred to the Series 2021-1 Class A-1 Notes.

In June 2019, the Master Issuer completed a refinancing transaction under which the Master Issuer issued the Series 2019-1 Class A-2-I Notes and the Series 2019-1 Class A-2-II Notes.

The Master Issuer’s outstanding Series 2015-1 Class A-2-II Notes were redeemed as part of the transaction.

As a result, the Company recorded a loss on early extinguishment of debt of $ 7,150 during 2019, which was comprised of the write-off of certain unamortized deferred financing costs.

As part of the June 2019 refinancing transaction, the Master Issuer also issued the 2019-1 Class A-1 Notes.

The Company’s previous Series 2018-1 Class A-1 Notes were canceled on the closing date and the letters of credit outstanding against the Series 2018-1 Class A-1 Notes were transferred to the 2019-1 Class A-1 Notes.

In January 2018, the Master Issuer completed a refinancing transaction under which the Master Issuer issued the Series 2018-1 Class A-2-I Notes and the Series 2018-1 Class A-2-II Notes.

The net proceeds from the sale of the notes were used to redeem the Master Issuer’s outstanding Series 2015-1 Class A-2-I Notes, to pay prepayment and transaction costs and for general corporate purposes.

As a result, the Company recorded a loss on early extinguishment of debt of $ 11,475 during 2018, which was comprised of the write-off of certain deferred financing costs and a specified make-whole payment.

Debt Issuance Costs

During 2020, 2019 and 2018, the Company incurred debt issuance costs of $ 2,122 , $ 14,008 and $ 17,580 in connection with the issuance of the 2020-1 Class A-1 Notes and the June 2019 and January 2018 refinancing transactions, respectively.

During 2021, 2020 and 2019, the Company incurred debt issuance costs of $ 20,873 , $ 2,122 and $ 14,008 in connection with the June 2021 refinancing transaction, the issuance of the 2020-1 Class A-1 Notes and the June 2019 refinancing transaction, respectively.

The debt issuance costs are being amortized to “Interest expense, net” through the anticipated repayment dates of the Class A-2 Notes utilizing the effective interest rate method.

As of January 3, 2021, the effective interest rates, including the amortization of debt issuance costs, were 4.7 %, 3.9 %, 4.1 %, 4.0 % and 4.2 % for the Series 2015-1 Class A-2-III Notes, Series 2018-1 Class A-2-I Notes, Series 2018-1 Class A-2-II Notes, Series 2019-1 Class A-2-I Notes and Series 2019-1 Class A-2-II Notes, respectively.

As of January 2, 2022, the effective interest rates, including the amortization of debt issuance costs, were 4.1 %, 4.0 %, 4.2 %, 2.6 % and 2.9 % for the Series 2018-1 Class A-2-II Notes, Series 2019-1 Class A-2-I Notes, Series 2019-1 Class A-2-II Notes, Series 2021-1 Class A-2-I Notes and Series 2021 Class A-2-II Notes, respectively.

Other Long-Term Debt

6 unchanged sentences

Borrowings under the facility are guaranteed by Wendy’s.

In March 2020, the Company drew down C$ 5,500 under the revolving credit facility, of which the Company repaid C$ 1,000 in October 2020 and C$ 2,000 in December 2020.

As a result, as of January 3, 2021, the Company had outstanding borrowings of C$ 2,500 under the revolving credit facility.

Subsequent to January 3, 2021, the Company repaid the C$ 2,500 outstanding balance under the Canadian revolving credit facility.

In March 2020, the Company drew down C$ 5,500 under the revolving credit facility, which the Company fully repaid through repayments of C$ 3,000 in the fourth quarter of 2020 and C$ 2,500 in the first quarter of 2021.

As of January 2, 2022, the Company had no outstanding borrowings under the Canadian revolving credit facility.

advertising fund has a revolving line of credit of $ 25,000 , which was established to support the advertising fund operations and bears interest at LIBOR plus 2.15 %.

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

In February 2020, the Company drew down $ 4,397 under the revolving line of credit, which the Company fully repaid in February 2020.

In March 2020, the Company drew down $ 25,000 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 were taken as precautionary measures to provide enhanced financial flexibility considering the uncertain market conditions arising from the COVID-19 pandemic.

During 2020, the Company borrowed and repaid $ 29,397 under the revolving line of credit.

There were no borrowings or repayments under the line of credit during 2021.

As of January 2, 2022, the Company had no outstanding borrowings under the revolving line of credit.

The increased borrowings in 2020 were taken as precautionary measures to provide enhanced financial flexibility considering the uncertain market conditions arising from the COVID-19 pandemic.

Interest Expense

27 unchanged sentences

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

January 3, 2021 December 29, 2019

January 2, 2022 January 3, 2021

Value Carrying

8 unchanged sentences

Series 2019-1 Class A-2-II Notes (b) 414,000 439,792 434,250 469,555 Level 2

Series 2018-1 Class A-2-I Notes (b) — — 436,500 450,381 Level 2

Series 2018-1 Class A-2-II Notes (b) 456,000 473,693 460,750 491,021 Level 2

Series 2015-1 Class A-2-III Notes (b) — — 473,750 481,851 Level 2

Canadian revolving credit facility — — 1,962 1,962 Level 2

7% debentures, due in 2025 (b) 83,998 98,775 82,837 94,838 Level 2

7 % debentures, due in 2025 (b)

85,175 101,142 83,998 98,775 Level 2

_______________

(a) The fair values of our investments were not significant and were based on our review of information provided by the investment managers or investees, which was based on (1) valuations performed by the investment managers or investees, (2) quoted market or broker/dealer prices for similar investments and (3) quoted market or broker/dealer prices adjusted by the investment managers for legal or contractual restrictions, risk of nonperformance or lack of marketability, depending upon the underlying investments.

In June 2020, the Company impaired a miscellaneous investment due to the deterioration in operating performance of the underlying assets.

In July 2020, the Company sold its remaining interest in this investment.

(a) The fair value of our other investments in equity securities is based on our review of information provided by the investment manager, which is based on observable price changes in orderly transactions for an identical or similar investment of the same issuer.

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

9 unchanged sentences

(In Thousands Except Per Share Amounts)

Total impairment losses may also include the impact of remeasuring long-lived assets held for sale, which primarily include surplus properties.

Total impairment losses may also include the impact of remeasuring long-lived assets held for sale.

The fair values of long-lived assets held for sale presented in the tables below represent the remaining carrying value and were estimated based on current market values.

33 unchanged sentences

Deferred tax assets (liabilities) are set forth below:

January 3, 2021 December 29, 2019

January 2, 2022 January 3, 2021

Deferred tax assets:

1 unchanged sentence

Net operating loss and credit carryforwards 60,620 62,210

Unfavorable leases 23,511 26,020

Deferred revenue 23,636 24,303

Unfavorable leases 19,060 23,511

Accrued compensation and related benefits 18,487 16,443

Accrued expenses and reserves 6,763 7,673

Deferred rent — 492

Other 7,586 5,869

14 unchanged sentences

Foreign tax credits of non-U.S.

subsidiaries 4,125 Not applicable

subsidiaries 4,159 Indefinite

Total $ 20,061

Net operating loss carryforwards:

State and local net operating loss carryforwards $ 1,182,774 2021-2035

Foreign net operating loss carryforwards 1,044 Not applicable

Net operating loss carryforwards (pre-tax):

State and local net operating loss carryforwards $ 1,131,604 2022-Indefinite

Foreign net operating loss carryforwards 6,962 Indefinite

Total $ 1,138,566

The Company’s valuation allowances of $ 49,968 and $ 45,183 as of January 3, 2021 and December 29, 2019, respectively, relate to foreign and state tax credit and net operating loss carryforwards.

Valuation allowances increased $ 4,785 and $ 3,008 during 2020 and 2019, respectively, and decreased $ 5,120 during 2018.

The relative presence of Company-operated restaurants in various states impacts expected future state taxable income available to utilize state net operating loss carryforwards.

The Company’s valuation allowances of $ 38,277 and $ 49,968 as of January 2, 2022 and January 3, 2021, respectively, relate primarily to foreign and state tax credit and net operating loss carryforwards.

Valuation allowances decreased $ 11,691 during 2021 and increased $ 4,785 and $ 3,008 during 2020 and 2019, respectively.

The decrease in 2021 resulted primarily from a 2021 change in state tax law, which resulted in a one-time reduction in previously recorded valuation allowances against our deferred state tax assets of $ 12,606 .

Additionally, the relative presence of Company-operated restaurants in various states impacts expected future state taxable income available to utilize state net operating loss carryforwards.

The current portion of refundable income taxes was $ 11,901 and $ 5,399 as of January 2, 2022 and January 3, 2021, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of January 2, 2022 and January 3, 2021.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

Major Tax Legislation

On December 22, 2017, the U.S.

government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).

The Tax Act made broad and complex changes to the U.S.

tax code that affects 2017 and subsequent years, including but not limited to (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, (2) bonus depreciation that will allow for full expensing of qualified property, (3) reducing the U.S.

federal corporate tax rate from 35 % to 21 % in years 2018 and forward, (4) a tax on global intangible low-taxed income (“GILTI”) and (5) limitations on the deductibility of certain executive compensation.

In 2018, we recorded a net tax expense of $ 2,159 related to the Tax Act consisting of $ 2,454 related to the impact of the corporate rate reduction on our net deferred tax liabilities and state taxes and a net expense of $ 991 related to the limitations on the deductibility of certain executive compensation, partially offset by $ 1,286 for the net benefit of foreign tax credits.

_______________

The current portion of refundable income taxes was $ 5,399 and $ 13,555 as of January 3, 2021 and December 29, 2019, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of January 3, 2021 and December 29, 2019.

The reconciliation of income tax computed at the U.S.

federal statutory rate of 21 % to reported income tax is set forth below:

2020 2019 2018 (a)

2021 2020 2019

Income tax provision at the U.S.

2 unchanged sentences

federal income tax effect ( 6,256 ) ( 4,664 ) ( 6,470 )

Prior years’ tax matters (b) 1,761 6,135 ( 9,970 )

Prior years’ tax matters (a) 1,820 1,761 6,135

Excess federal tax benefits from share-based compensation 7,160 5,338 5,841

1 unchanged sentence

tax effects of foreign operations ( 5 ) ( 397 ) 250

Valuation allowances ( 4,593 ) ( 2,833 ) 5,120

Valuation allowances (b) 11,807 ( 4,593 ) ( 2,833 )

Non-deductible goodwill (c) ( 947 ) — —

5 unchanged sentences

_______________

(a) 2018 includes the following impacts associated with the Tax Act:

(1) a net expense of $ 2,426 related to the impact of the corporate rate reduction on our net deferred tax liabilities, (2) a net expense of $ 991 related to the limitations on the deductibility of certain executive compensation, (3) a net expense of $ 28 of state income tax and (4) a net benefit of $ 1,286 related to foreign tax credits.

(b) 2019 primarily relates to a reduction in unrecognized tax benefits due to a lapse of statute of limitations.

2018 includes expense of $ 9,542 related to the Tax Act, which was partially offset by a $ 7,535 benefit reported in “Valuation allowances.”

(c) Substantially all of the goodwill included in the net gain (loss) on sales of restaurants in 2018 under our system optimization initiative was non-deductible for tax purposes.

(a) 2019 primarily relates to a reduction in unrecognized tax benefits due to a lapse of statute of limitations.

(b) 2021 primarily relates to the $ 12,606 benefit resulting from the state tax law change described above.

The effect of the tax law change also included $ 840 of additional deferred tax expense included in the State income tax provision line item, for a total of $ 11,766 .

See Note 4 for further information.

2 unchanged sentences

As such, our tax returns for fiscal years 2009 through 2019 have been settled.

The statute of limitations for the Company’s state tax returns vary, but generally the Company’s state income tax returns from its 2017 fiscal year and forward

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

remain subject to examination.

The statute of limitations for the Company’s state tax returns vary, but generally the Company’s state income tax returns from its 2018 fiscal year and forward remain subject to examination.

We believe that adequate provisions have been made for any liabilities, including interest and penalties that may result from the completion of these examinations.

2 unchanged sentences

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

2021 December 29,

2019 December 30,

2021 2020 2019

Beginning balance $ 20,973 $ 22,323 $ 27,632

5 unchanged sentences

Ending balance $ 18,849 $ 20,973 $ 22,323

The reductions in unrecognized tax benefits in 2020 was primarily related to decreases as a result of settlements with various taxing jurisdictions.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The reductions in unrecognized tax benefits in 2021 and 2020 were primarily related to decreases as a result of settlements with various taxing jurisdictions.

The additions in unrecognized tax benefits in 2019 was primarily related to the uncertainty of the income tax consequences of a cash settlement related to a previously held investment.

The addition of unrecognized tax benefits in 2018 was primarily related to the sale of our ownership interest in Inspire Brands, and the reduction of unrecognized benefits in 2018 was primarily related to settlements with various taxing jurisdictions, including amended returns that were filed in 2017.

During 2022, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $ 98 due primarily to the lapse of statutes of limitations and expected settlements.

During 2021, 2020 and 2019, the Company recognized $ 138 , $ 159 and $( 489 ) of expense (income) for interest and $ 37 , $ 81 and $ 81 of income for penalties, respectively, related to uncertain tax positions.

The Company has $ 873 and $ 946 accrued for interest and $ 37 and $ 118 accrued for penalties as of January 3, 2021 and December 29, 2019, respectively.

The Company has $ 975 and $ 873 accrued for interest and $ 0 and $ 37 accrued for penalties as of January 2, 2022 and January 3, 2021, respectively.

(15) Stockholders’ Equity

During 2021, 2020 and 2019, the Company paid dividends per share of $ 0.43 , $ 0.29 and $ 0.42 , respectively.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Treasury Stock

1 unchanged sentence

Treasury stock activity for 2021, 2020 and 2019 was as follows:

Treasury Stock

2021 2020 2019

10 unchanged sentences

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 1,572 shares under the February 2020 repurchase authorization with an aggregate purchase price of $ 32,285 , of which $ 723 was accrued at January 3, 2021, and excluding commissions of $ 22 .

As of January 3, 2021, the Company had $ 67,715 of availability remaining under its February 2020 authorization.

Subsequent to January 3, 2021 through February 23, 2021, the Company repurchased 457 shares under the February 2020 authorization with an aggregate purchase price of $ 9,570 , excluding commissions of $ 6 .

In February 2019, our Board of Directors authorized a repurchase program for up to $ 225,000 of our common stock through March 1, 2020, when and if market conditions warranted and to the extent legally permissible.

In addition, in May 2021, August 2021, and November 2021, the Board of Directors approved increases of $ 50,000 , $ 70,000 and $ 80,000 , respectively, to the February 2020 authorization, resulting in an aggregate authorization of $ 300,000 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 2021 ASR Agreement, the Company paid the financial institution an initial purchase price of $ 125,000 in cash and received an initial delivery of 4,910 shares of common stock, representing an estimated 85 % of the total shares expected to be delivered under the 2021 ASR Agreement.

In February 2020, the Company completed the 2019 ASR Agreement and received an additional 628 shares of common stock at an average purchase price of $ 23.89 .

In February 2022, the Company completed the 2021 ASR Agreement and received an additional 715 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 total, 5,625 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 2019 ASR Agreement, during 2020, the Company repurchased 1,312 shares with an aggregate purchase price of $ 28,770 , excluding commissions of $ 18 , 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 6,107 shares with an aggregate purchase price of $ 117,685 , of which $ 1,801 was accrued at December 29, 2019, and excluding commissions of $ 86 , under the February 2019 authorization and the Company’s November 2018 authorization referenced below.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

In addition to the shares repurchased in connection with the 2021 ASR Agreement, during 2021, the Company repurchased 6,577 shares with an aggregate purchase price of $ 142,715 , excluding commissions of $ 93 , 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 $ 100,000 of our common stock through February 28, 2023, when and if market conditions warrant and to the extent legally permissible.

In November 2018, our Board of Directors approved an additional share repurchase program for up to $ 220,000 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.

In November 2019, the Company entered into an accelerated share repurchase agreement (the “2019 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the Company’s existing share repurchase program.

Under the 2019 ASR Agreement, the Company paid the financial institution an initial purchase price of $ 100,000 in cash and received an initial delivery of 4,051 shares of common stock, representing an estimated 85 % of the total shares expected to be delivered under the 2019 ASR Agreement.

In December 2018, the Company completed the 2018 ASR Agreement and received an additional 720 shares of common stock.

In February 2020, the Company completed the 2019 ASR Agreement and received an additional 628 shares of common stock.

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 addition to the shares repurchased in connection with the 2018 ASR Agreement, during 2018, the Company repurchased 10,058 shares under the February 2018 and November 2018 authorizations with an aggregate purchase price of $ 172,584 , of which $ 1,827 was accrued at December 30, 2018, and excluding commissions of $ 141 .

In February 2017, our Board of Directors authorized a repurchase program for up to $ 150,000 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 1,385 shares with an aggregate purchase price of $ 22,633 , excluding commissions of $ 19 .

In total, 4,679 shares were delivered under the 2019 ASR Agreement at an average purchase price of $ 21.37 per share.

After taking into consideration these repurchases, with the completion of the 2019 ASR Agreement in February 2020, the Company completed its February 2019 authorization.

Preferred Stock

1 unchanged sentence

Accumulated Other Comprehensive Loss

The following table provides a rollforward of the components of accumulated other comprehensive income (loss), net of tax as applicable:

Foreign Currency Translation Pension (a) Total

Balance at December 31, 2017 $ ( 45,149 ) $ ( 1,049 ) $ ( 46,198 )

Current-period other comprehensive (loss) income ( 16,524 ) 1,049 ( 15,475 )

Balance at December 30, 2018 ( 61,673 ) — ( 61,673 )

Current-period other comprehensive income 7,845 — 7,845

Balance at December 29, 2019 ( 53,828 ) — ( 53,828 )

Current-period other comprehensive income 4,187 — 4,187

Balance at January 3, 2021 $ ( 49,641 ) $ — $ ( 49,641 )

The following table provides a rollforward of accumulated other comprehensive loss, which is entirely comprised of foreign currency translation:

2021 2020 2019

(a) During 2018, the Company terminated two frozen defined benefit plans.

See Note 19 for further information.

Balance at beginning of period $ ( 49,641 ) $ ( 53,828 ) $ ( 61,673 )

Foreign currency translation 1,441 4,187 7,845

Balance at end of period $ ( 48,200 ) $ ( 49,641 ) $ ( 53,828 )

(16) Share-Based Compensation

2 unchanged sentences

The Company’s previous 2010 Omnibus Award Plan (as amended, the “2010 Plan”) expired in accordance with its terms in 2020.

Equity grants in 2020 were issued from both the 2020 Plan and the 2010 Plan.

All equity grants during 2019 and 2018 were issued from the 2010 Plan.

The 2020 Plan is currently the only equity plan from which future equity awards may be granted, but outstanding awards granted under the 2010 Plan will continue to be governed by the terms of the 2010 Plan.

As of January 3, 2021, there were approximately 26,691 shares of common stock available for future grants under the 2020 Plan.

During the periods presented in

All equity grants in 2021

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

the consolidated financial statements, the Company settled all exercises of stock options and vesting of restricted shares, including performance shares, with treasury shares.

were issued from the 2020 Plan.

Equity grants in 2020 were issued from both the 2020 Plan and the 2010 Plan.

All equity grants during 2019 were issued from the 2010 Plan.

As of January 2, 2022, there were approximately 22,425 shares of common stock available for future grants under the 2020 Plan.

During the periods presented in the consolidated financial statements, the Company settled all exercises of stock options and vesting of restricted shares, including performance shares, with treasury shares.

Stock Options

7 unchanged sentences

Life in Years Aggregate

Outstanding at December 29, 2019 11,937 $ 13.92

Outstanding at January 3, 2021

11,242 $ 16.06

Granted 1,435 23.70

2 unchanged sentences

Outstanding at January 2, 2022

9,858 $ 18.44 6.94 $ 55,337

Vested or expected to vest at January 2, 2022 9,727 $ 18.38 6.91 $ 53,197

Exercisable at January 2, 2022

6,514 $ 16.43 6.00 $ 48,372

The total intrinsic value of options exercised during 2021, 2020 and 2019 was $ 39,522 , $ 28,111 and $ 26,947 , respectively.

23 unchanged sentences

Grant Date Fair Value

Non-vested at December 29, 2019 1,071 $ 16.46

Non-vested at January 3, 2021

1,089 $ 19.01

Granted 365 23.27

2 unchanged sentences

Non-vested at January 2, 2022

1,094 $ 20.09

The total fair value of Restricted Shares that vested in 2021, 2020 and 2019 was $ 7,048 , $ 8,634 and $ 9,996 , respectively.

24 unchanged sentences

Grant Date Fair Value

Non-vested at December 29, 2019 439 $ 15.75 362 $ 19.09

Non-vested at January 3, 2021

429 $ 19.06 346 $ 23.65

Granted 209 20.21 187 22.96

4 unchanged sentences

505 $ 20.48 422 $ 24.52

_______________

(a) Dividend equivalent units are issued in lieu of cash dividends for non-vested performance shares.

4 unchanged sentences

Modifications of Share-Based Awards

During 2020, 2019 and 2018, the Company modified the terms of awards granted to seven , ten and eight employees, respectively, in connection with its Operations and Field Realignment Plan, IT Realignment Plan and G&A Realignment Plan discussed in Note 5.

During 2020 and 2019, the Company modified the terms of awards granted to seven and ten employees, respectively, in connection with its Operations and Field Realignment Plan, IT Realignment Plan and G&A Realignment Plan discussed in Note 5.

These modifications resulted in the accelerated vesting of certain stock options in connection with the termination of such employees.

As a result, during 2020, 2019 and 2018, the Company recognized an increase in share-based compensation of $ 621 , $ 1,011 and $ 1,238 , respectively, which was included in “Reorganization and realignment costs.”

As a result, during 2020 and 2019, the Company recognized an increase in share-based compensation of $ 621 and $ 1,011 , respectively, which was included in “Reorganization and realignment costs.” The Company did not modify the terms of any awards during 2021.

Share-Based Compensation

19 unchanged sentences

Impairment charges during 2020 were primarily due to the deterioration in operating performance of certain Company-operated restaurants as a result of the COVID-19 pandemic.

Additional impairment charges may be recognized by the Company in the event of further deterioration in operating performance of Company-operated restaurants.

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

4 unchanged sentences

$ 2,251 $ 8,037 $ 6,999

(18) Investment (Loss) Income, Net

(18) Investment Income (Loss), Net

2021 2020 2019

Gain on sale of investments, net (a) (b) $ — $ 24,496 $ 450,000

Gain on sale of investments, net (a) $ 63 $ — $ 24,496

Impairment loss on other investments in equity securities — ( 471 ) —

3 unchanged sentences

(a) In October 2019, the Company received a $ 25,000 cash settlement related to a previously held investment.

As a result, the Company recorded $ 24,366 to “Investment (loss) income, net” and $ 634 to “General and administrative” for the reimbursement of related costs.

(b) During 2018, the Company sold its remaining ownership interest in Inspire Brands for $ 450,000 .

See Note 8 for further information.

As a result, the Company recorded $ 24,366 to “Investment income (loss), net” and $ 634 to “General and administrative” for the reimbursement of related costs.

(19) Retirement Benefit Plans

2 unchanged sentences

In connection with the matching and profit sharing contributions, the Company recognized compensation expense of $ 4,583 , $ 5,175 and $ 4,631 in 2021, 2020 and 2019, respectively.

Wendy’s Executive Plans

In conjunction with the Wendy’s Merger, amounts due under supplemental executive retirement plans (collectively, the “SERP”) were funded into a restricted account.

As of January 1, 2011, participation in the SERP was frozen to new entrants

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

Pension Plans

The Company maintained two domestic qualified defined benefit plans, the benefits under which were frozen in 1988 and for which the Company had no unrecognized prior service cost.

Arby’s employees who were eligible to participate through 1988 (the “Eligible Arby’s Employees”) were covered under one of these plans.

Pursuant to the terms of the Arby’s sale agreement, Wendy’s Restaurants retained the liabilities related to the Eligible Arby’s Employees under these plans and received $ 400 from the buyer for the unfunded liability related to the Eligible Arby’s Employees.

The measurement date used by the Company in determining amounts related to its defined benefit plans was the same as the Company’s fiscal year end.

During 2018, the Company terminated the defined benefit plans, resulting in a settlement loss of $ 1,335 recorded to “Reorganization and realignment costs.”

Wendy’s Executive Plans

In conjunction with the Wendy’s Merger, amounts due under supplemental executive retirement plans (collectively, the “SERP”) were funded into a restricted account.

As of January 1, 2011, participation in the SERP was frozen to new entrants and future contributions, and existing participants’ balances only earn annual interest.

The corresponding SERP liabilities are included in “Accrued expenses and other current liabilities” and “Other liabilities” and, in the aggregate, were $ 432 and $ 662 as of January 3, 2021 and December 29, 2019, respectively.

Effective January 1, 2017, the Company implemented a non-qualified, unfunded deferred compensation plan for management and highly compensated employees, whereby participants may defer all or a portion of their base compensation and certain incentive awards on a pre-tax basis.

and future contributions, and existing participants’ balances only earn annual interest.

The corresponding SERP liabilities are included in “Accrued expenses and other current liabilities” and “Other liabilities” and, in the aggregate, were $ 294 and $ 432 as of January 2, 2022 and January 3, 2021, respectively.

The Company has a non-qualified, unfunded deferred compensation plan for management and highly compensated employees, whereby participants may defer all or a portion of their base compensation and certain incentive awards on a pre-tax basis.

The Company credits the amounts deferred with earnings based on the investment options selected by the participants.

The Company may also make discretionary contributions to the plan.

The total of participant deferrals was $ 1,108 and $ 774 at January 3, 2021 and December 29, 2019, respectively, which are included in “Other liabilities.”

The total of participant deferrals was $ 1,455 and $ 1,108 at January 2, 2022 and January 3, 2021, respectively, which are included in “Other liabilities.”

Nature of Leases

7 unchanged sentences

The components of lease cost for 2021, 2020 and 2019 are as follows:

2021 2020 2019

Finance lease cost:

8 unchanged sentences

_______________

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(a) Includes expenses for executory costs of $ 39,646 , $ 38,652 , and $ 37,758 for 2021, 2020 and 2019, respectively, for which the Company is reimbursed by sublessees.

1 unchanged sentence

Also includes $ 23,558 , $ 26,866 and $ 27,419 for 2021, 2020 and 2019, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

The components of rental expense for operating leases for 2018, as accounted for under previous guidance, were as follows:

Rental expense:

Minimum rentals $ 95,749

Contingent rentals 18,971

Total rental expense (a) $ 114,720

_______________

(a) Includes rental expense related to (1) leases for Company-operated restaurants recorded to “Cost of sales,” (2) leased properties that are subsequently leased to franchisees recorded to “Franchise rental expense” and (3) leases for corporate offices and equipment recorded to “General and administrative.”

Amortization of finance lease assets was $ 11,603 for 2018.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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

2021 2020 2019

Cash paid for amounts included in the measurement of lease liabilities:

5 unchanged sentences

Operating lease liabilities 58,770 18,327 15,411

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following table includes supplemental information related to leases:

January 3, 2021 December 29,

January 2, 2022 January 3,

Weighted-average remaining lease term (years):

9 unchanged sentences

Operating lease assets 812,620 821,480

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of January 2, 2022:

2 unchanged sentences

and Other Company-Operated Franchise

2021 (a) $ 4,779 $ 47,503 $ 19,195 $ 70,730

2022 $ 6,361 $ 51,720 $ 20,521 $ 69,692

2 unchanged sentences

2025 6,610 53,876 20,745 68,910

2026 6,754 55,117 21,198 68,093

Thereafter 84,693 624,335 192,250 630,404

2 unchanged sentences

( 41,554 ) ( 391,879 ) ( 82,860 ) ( 288,546 )

Present value of minimum lease payments (b) (c) $ 53,264 $ 464,917 $ 185,471 $ 725,200

Present value of minimum lease payments (a) (b) $ 75,591 $ 499,509 $ 213,799 $ 686,844

_______________

(a) In addition to the 2021 future minimum rental payments, the Company expects to pay $ 5,439 primarily during 2021 related to rent deferrals obtained due to the COVID-19 pandemic.

The related payable is included in “Accrued expenses and other current liabilities.” See Note 7 for further information.

(b) The present value of minimum finance lease payments of $ 12,105 and $ 506,076 are included in “Current portion of finance lease liabilities” and “Long-term finance lease liabilities,” respectively.

(c) The present value of minimum operating lease payments of $ 45,346 and $ 865,325 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(a) The present value of minimum finance lease payments of $ 15,513 and $ 559,587 are included in “Current portion of finance lease liabilities” and “Long-term finance lease liabilities,” respectively.

(b) The present value of minimum operating lease payments of $ 47,315 and $ 853,328 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively.

Company as Lessor

The components of lease income for 2021, 2020 and 2019 are as follows:

2021 2020 2019

Sales-type and direct-financing leases:

8 unchanged sentences

Sublease income includes lessees’ variable payments to the Company for executory costs of $ 39,650 , $ 38,636 and $ 37,739 for 2021, 2020 and 2019, respectively.

The components of rental income for operating leases and subleases for 2018, as accounted for under previous guidance, were as follows:

Rental income:

Minimum rentals $ 184,154

Contingent rentals 19,143

Total rental income (a) $ 203,297

_______________

(a) Includes sublease income of $ 138,363 .

During 2018, the Company recognized $ 27,638 in interest income related to our direct financing leases, which is included in “Interest expense, net.”

THE WENDY’S COMPANY AND SUBSIDIARIES

5 unchanged sentences

Fiscal Year Subleases Owned Properties Subleases Owned Properties

2021 (a) $ 31,128 $ 3,573 $ 110,920 $ 54,543

2022 $ 33,883 $ 2,543 $ 110,714 $ 53,076

2 unchanged sentences

2025 35,803 2,717 111,102 55,086

2026 36,950 2,887 110,537 56,845

Thereafter 438,518 31,876 1,020,240 647,591

1 unchanged sentence

Unearned interest income ( 331,403 ) ( 24,851 )

Net investment in sales-type and direct financing leases (b) $ 256,994 $ 17,192

Net investment in sales-type and direct financing leases (a) $ 285,613 $ 20,360

_______________

(a) In addition to the 2021 future minimum rental receipts, the Company expects to collect $ 5,226 primarily during 2021 related to the offer to defer base rent payments in response to the COVID-19 pandemic.

The related receivable is included in “Accounts and notes receivable, net.” See Note 7 for further information.

(b) The present value of minimum direct financing rental receipts of $ 5,965 and $ 268,221 are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively.

The present value of minimum direct financing rental receipts includes a net investment in unguaranteed residual assets of $ 215 .

(a) The present value of minimum sales-type and direct financing rental receipts of $ 6,266 and $ 299,707 are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively.

The present value of minimum sales-type and direct financing rental receipts includes a net investment in unguaranteed residual assets of $ 549 .

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

January 3, 2021 December 29, 2019

January 2, 2022 January 3, 2021

Land $ 258,513 $ 279,956

9 unchanged sentences

In addition, Wendy’s has a restaurant development incentive program that provides for incremental reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants for existing franchisees that sign up for the program under a new development agreement, or through an extension of their existing development agreement, and commit to incremental development of new Wendy’s restaurants.

Under any extended development agreements, franchisees are also eligible for technical assistance fee waivers for restaurants opened one year in advance of their original development schedule so long as

Wendy’s also provides franchisees with the option of an early 20 -year or 25 -year renewal of their franchise agreement upon completion of reimaging utilizing certain approved Image Activation reimage designs.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

the restaurants are opened prior to December 31, 2022.

Wendy’s also had incentive programs for 2017 available to franchisees that commenced Image Activation restaurant remodels by December 15, 2017.

The remodel incentive programs provided for reductions in royalty payments for one year after the completion of construction.

Lease Guarantees

2 unchanged sentences

We have had no judgments against us as guarantor of these leases as of January 2, 2022.

In the event of default by a franchise owner, Wendy’s generally retains the right to acquire possession of the related restaurant locations.

In the event of default by a franchise owner where Wendy’s is called upon to perform under its guarantee, Wendy’s has the ability to pursue repayment from the franchise owner.

The liability recorded for our probable exposure associated with these lease guarantees was not material as of January 2, 2022.

16 unchanged sentences

Beverage purchases made by the Company under this agreement during 2021, 2020 and 2019 were $ 9,709 , $ 10,986 and $ 11,440 , respectively.

The Company estimates future annual purchases to be approximately $ 10,000 in 2021, $ 10,500 in 2022, $ 11,000 in 2023, $ 11,400 in 2024 and $ 11,900 in 2025 based on current pricing and the expected ratio of usage at Company-operated restaurants to franchised restaurants.

The Company estimates future annual purchases to be approximately $ 10,700 in 2022, $ 10,800 in 2023, $ 11,100 in 2024 and $ 11,400 in 2025 based on current pricing and the expected ratio of usage at Company-operated restaurants to franchised restaurants.

As of January 2, 2022, $ 4,325 is due to the beverage vendor and is included in “Accounts payable,” principally for annual estimated payments that exceeded usage under this agreement.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

IT Services Agreement

1 unchanged sentence

Costs incurred by the Company under this agreement were $ 20,053 , $ 16,961 and $ 1,386 during 2021, 2020 and 2019, respectively.

The Company’s unconditional purchase obligations under the agreement are approximately $ 17,200 in 2021, $ 15,400 in 2022, $ 13,000 in 2023, $ 12,200 in 2024 and $ 6,600 in 2025.

The Company’s unconditional purchase obligations under the agreement are approximately $ 17,100 in 2022, $ 14,700 in 2023, $ 13,800 in 2024 and $ 7,100 in 2025.

As of January 2, 2022, $ 1,899 is due to the consultant and is included in “Accrued expenses and other current liabilities.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Marketing Agreement

The Company has an agreement with two national broadcasters that grants the Company certain marketing and media rights.

Costs incurred by the Company under this agreement were approximately $ 11,000 in each of 2019 and 2018, which are included in “Advertising funds expense.” No costs were incurred under this agreement in 2020.

The Company’s unconditional purchase obligations under the agreement are approximately $ 15,400 in 2021, $ 12,900 in 2022, $ 13,400 in 2023 and $ 12,700 in 2024.

Costs incurred by the Company under this agreement were approximately $ 15,000 and $ 11,000 in 2021 and 2019, respectively, which are included in “Advertising funds expense.” No costs were incurred under this agreement in 2020.

The Company’s unconditional purchase obligations under the agreement are approximately $ 12,900 in 2022, $ 13,400 in 2023 and $ 12,700 in 2024.

(22) Transactions with Related Parties

3 unchanged sentences

Wendy’s Co-op (a) $ 279 $ — $ 504

Lease income (b) ( 217 ) ( 217 ) ( 215 )

Rental receipts (b) 217 217 217

TimWen lease and management fee payments (c) $ 18,687 $ 16,130 $ 16,660

10 unchanged sentences

Wendy’s recorded its share of patronage dividends of $ 279 and $ 504 in 2021 and 2019, respectively, which are included as a reduction of “Cost of sales.” There were no patronage dividends recorded during 2020.

(b) Pursuant to a lease agreement entered into on January 1, 2017, Wendy’s leased 14,333 square feet of office space to QSCC for an annual base rental of $ 215 .

In November 2018, the lease agreement was amended to increase the leased square footage to 14,493 and to increase the annual base rental to $ 217 .

The lease was further amended in December 2020 to extend the lease term by one year to December 31, 2021.

The Company received $ 217 , $ 217 and $ 215 of lease income from QSCC during 2020, 2019 and 2018, respectively, which has been recorded to “Franchise rental income.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(b) Pursuant to a lease agreement, Wendy’s leased 14,493 square feet of office space to QSCC for an annual base rental of $ 217 .

The lease was amended in June 2021 to increase both the leased square footage to 18,774 and the annual base rental to $ 250 , subject to annual increases, and to extend the lease term through January 31, 2027.

The Company received $ 217 of lease payments from QSCC during each of 2021, 2020 and 2019, which has been recorded to “Franchise rental income.”

TimWen Lease and Management Fee Payments

2 unchanged sentences

In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 219 , $ 209 and $ 207 during 2021, 2020 and 2019, respectively, which has been included as a reduction to “General and administrative.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Transactions with Yellow Cab

1 unchanged sentence

Nelson Peltz, our Chairman, and Mr.

Peter May, our Vice Chairman, as well as Mr.

Matthew Peltz, a director of the Company, hold indirect, minority ownership interests in operating companies managed by Yellow Cab Holdings, LLC (“Yellow Cab”), a Wendy’s franchisee, that as of January 3, 2021 owned and operated 24 Wendy’s restaurants.

During the three months ended January 3, 2021, the Company recognized $ 1,090 in royalty, advertising fund, lease and other income from Yellow Cab and related entities.

As of January 3, 2021, $ 298 was due from Yellow Cab for such payments, which is included in “Accounts and notes receivable, net.”

In November 2020, the Company submitted a consortium bid together with a group of pre-qualified franchisees (of which Yellow Cab was a member) to acquire the Wendy’s restaurants owned by NPC, the Company’s largest franchisee, which filed for chapter 11 bankruptcy in July 2020.

Peter May, our Senior Vice Chairman, as well as Mr.

Matthew Peltz, our Vice Chairman, hold indirect, minority ownership interests in operating companies managed by Yellow Cab Holdings, LLC (“Yellow Cab”), a Wendy’s franchisee, that as of January 2, 2022 owned and operated 84 Wendy’s restaurants (including 54 restaurants acquired from NPC during the first quarter of 2021 as described below).

During 2021 and the fourth quarter of 2020, the Company recognized $ 9,869 and $ 1,090 , respectively, in royalty, advertising fund, lease and other income from Yellow Cab and related entities.

As of January 2, 2022, $ 974 was due from Yellow Cab for such income, which is included in “Accounts and notes receivable, net” and “Advertising funds restricted assets.”

In November 2020, the Company submitted a consortium bid together with a group of pre-qualified franchisees (of which Yellow Cab was a member) to acquire the Wendy’s restaurants owned by NPC, formerly the Company’s largest franchisee, which filed for chapter 11 bankruptcy in July 2020.

As part of the consortium bid, in November 2020, the Company received deposits from each of the pre-qualified franchisees (including Yellow Cab), which amounts were transferred to a third-party escrow account pending resolution of the bankruptcy sale process.

The Yellow Cab deposit is included in “Accrued expenses and other current liabilities” and an amount equal to that deposit is being held in escrow and is included in “Prepaid expenses and other current assets” as of January 3, 2021.

On January 7, 2021, following a court-approved mediation process, Yellow Cab was selected as the purchaser for 54 of NPC’s Wendy’s restaurants and, at closing, its deposit will be applied against the purchase price for the restaurants.

On January 7, 2021, following a court-approved mediation process, Yellow Cab was selected as the purchaser for 54 of NPC’s Wendy’s restaurants.

In March 2021, Yellow Cab closed on its acquisition of these restaurants and its deposit was applied against the purchase price for the restaurants.

See Note 3 for further information.

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The Company is involved in litigation and claims incidental to our business.

We provide accruals for such litigation and claims when payment is probable and reasonably estimable.

We believe we have adequate accruals for continuing operations for all of our legal and environmental matters.

We provide accruals for such litigation and claims when we determine it is probable that a liability has been incurred and the loss is reasonably estimable.

We believe we have adequate accruals for all of our legal and environmental matters.

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

In addition, most cases seek an indeterminate amount of damages and many involve multiple parties.

Predicting the outcomes of settlement discussions or judicial or arbitral decisions is inherently difficult and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period.

Certain of the Company’s present and former directors have been named in two putative shareholder derivative complaints arising out of the cybersecurity incidents that affected certain of our franchisees in 2015 and 2016.

Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period.

Certain of the Company’s present and former directors have been named in two putative stockholder derivative complaints arising out of the cybersecurity incidents that affected certain of our franchisees in 2015 and 2016.

The first case, brought by James Graham in the U.S.

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Collectively, the plaintiffs seek a judgment on behalf of the Company for all damages incurred or that will be incurred as a result of the alleged wrongful acts or omissions, a judgment ordering disgorgement of all profits, benefits, and other compensation obtained by the named individual defendants, a judgment directing the Company to reform its governance and internal procedures, attorneys’ fees and other costs.

The Graham Case and the Caracci Case have been consolidated and on December 21, 2018, the court issued an order naming Graham and his counsel as lead in the case.

On January 31, 2019, Graham filed a consolidated verified shareholder derivative complaint with the court.

On January 24, 2020, the court granted preliminary approval of the settlement filed in this case.

The settlement is subject to the notice and objection provisions set forth therein, and to final approval by the court.

If approved, the settlement will resolve and dismiss the claims asserted in these actions.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The Graham Case and the Caracci Case were consolidated and on December 21, 2018, the court issued an order naming Graham and his counsel as lead in the case.

On January 31, 2019, Graham filed a consolidated verified stockholder derivative complaint with the court.

On January 24, 2020, the court issued an order granting preliminary approval of the settlement, which consists of certain corporate governance undertakings and the payment of plaintiffs’ attorneys’ fees and expenses up to $ 950 (covered by applicable insurance).

On September 15, 2021, the court issued an order granting final approval of the settlement, with the final judgment entered on September 24, 2021.

On October 20, 2021, Thomas Caracci filed a Notice of Appeal.

(24) Advertising Costs and Funds

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In addition to the contributions to the Advertising Funds, Company-operated and franchised restaurants make additional contributions to other local and regional advertising programs.

Restricted assets and related liabilities of the Advertising Funds at January 3, 2021 and December 29, 2019 are as follows:

January 3, 2021 December 29, 2019

Cash and cash equivalents (a) $ 77,279 $ 23,973

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Restricted assets and related liabilities of the Advertising Funds at January 2, 2022 and January 3, 2021 are as follows:

January 2, 2022 January 3, 2021

Cash and cash equivalents $ 89,993 $ 77,279

Accounts receivable, net 65,497 63,252

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Advertising funds restricted assets $ 159,818 $ 142,306

Accounts payable (a) $ 123,064 $ 66,749

Accounts payable $ 136,043 $ 123,064

Accrued expenses and other current liabilities 21,858 17,447

Advertising funds restricted liabilities $ 157,901 $ 140,511

_______________

(a) Increases during 2020 are due to the timing of payments to vendors.

Advertising expenses included in “Cost of sales” totaled $ 31,617 , $ 29,671 and $ 29,954 in 2021, 2020 and 2019, respectively.

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Properties 941,607 35,393 977,000

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(26) Segment Information

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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.

In addition, Global Real Estate & Development earns fees from facilitating Franchise Flips and providing other development-related services to franchisees.

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

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.

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The accounting policies of the Company’s segments are the same as those described in Note 1.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Revenues by segment are as follows:

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Total segment profit 583,616 514,164 496,555

Unallocated franchise support and other costs ( 753 ) — —

Advertising funds surplus 2,770 2,904 1,337

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Loss on early extinguishment of debt ( 17,917 ) — ( 8,496 )

Investment (loss) income, net ( 225 ) 25,598 450,736

Investment income (loss), net 39 ( 225 ) 25,598

Other income, net 681 1,449 7,771

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_______________

(a) 2020 includes advertising funds expense of $ 14,600 related to the Company funding of incremental advertising.

(a) Includes advertising funds expense of $ 25,000 and $ 14,600 for 2021 and 2020, respectively, related to the Company funding of incremental advertising to support the breakfast daypart.

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

2018 also includes the impact of legal reserves for a settlement of the financial institutions class action of $ 27,500 .

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Net income (loss) of our equity method investments for the Brazil JV and TimWen are included in segment profit for the Wendy’s International and Global Real Estate & Development segments, respectively.

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Total net income of equity method investments $ 11,203 $ 6,096 $ 8,673

(27) Quarterly Financial Information (Unaudited)

The tables below set forth summary unaudited consolidated quarterly financial information for 2020 and 2019.

The Company reports on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31.

During 2020, the Company’s first, second and third fiscal quarters contained 13 weeks and the Company’s fourth quarter contained 14 weeks.

All of the Company’s fiscal quarters in 2019 contained 13 weeks.

2020 Quarter Ended (a)

March 29 June 28 September 27 January 3

Revenues $ 404,960 $ 402,306 $ 452,242 $ 474,317

Cost of sales 149,999 140,626 159,545 164,737

Operating profit 48,732 60,661 81,348 78,567

Net income $ 14,441 $ 24,904 $ 39,753 $ 38,734

Basic income per share

$ .06 $ .11 $ .18 $ .17

Diluted income per share

$ .06 $ .11 $ .17 $ .17

2019 Quarter Ended (b)

March 31 June 30 September 29 December 29

Revenues $ 408,583 $ 435,348 $ 437,880 $ 427,191

Cost of sales 142,579 151,092 152,425 151,434

Operating profit 66,266 80,573 79,023 36,717

$ 31,894 $ 32,386 $ 46,127 $ 26,533

Basic income per share

$ .14 $ .14 $ .20 $ .12

Diluted income per share

$ .14 $ .14 $ .20 $ .11

_______________

(a) The Company’s consolidated statements of operation in fiscal 2020 were significantly impacted by the advertising funds deficit and reorganization and realignment costs.

The pre-tax impact of the advertising funds deficit for the first, second and third quarters was $ 1,387 , $ 3,205 and $ 7,293 , respectively.

The pre-tax impact of reorganization and realignment costs for the first, second, third, and fourth quarters was $ 3,910 , $ 2,911 , $ 3,375 and $ 5,834 , respectively (see Note 5 for further information).

(b) The Company’s consolidated statements of operations in fiscal 2019 were significantly impacted by investment income, net, franchise support and other costs, reorganization and realignment costs and loss on early extinguishment of debt.

The pre-tax impact of investment income, net for the fourth quarter was $ 24,599 (see Note 8 for further information).

The pre-tax impact of franchise support and other costs for the fourth quarter included approximately $ 16,400 to support U.S.

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

system on March 2, 2020.

The pre-tax impact of reorganization and realignment costs for the fourth quarter was $ 12,194 (see Note 5 for further information).

The pre-tax impact of loss on early extinguishment of debt for the second and fourth quarters was $ 7,150 and $ 1,346 , respectively (see Note 12 for further information).

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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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 8. Financial Statements and Supplementary Data