What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-11 compared with 2021-11-10 · 187 added, 268 removed, 227 unchanged (67% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022 (the “Form 10-K”).

There have been no material changes as of October 3, 2021 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.

There have been no material changes as of April 3, 2022 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.

Certain statements we make under this Item 2 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.

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The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s Restaurants, LLC (“Wendy’s Restaurants”).

The principal 100% owned subsidiary of Wendy’s Restaurants is Wendy’s International, LLC and its subsidiaries (“Wendy’s”).

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

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

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

Wendy’s is primarily engaged in the business of operating, developing and franchising a system of distinctive quick-service restaurants serving high quality food.

Wendy’s opened its first restaurant in Columbus, Ohio in 1969.

Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the United States (the “U.S.”) based on traffic share, and the third largest globally with 6,891 restaurants in the U.S.

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

based on traffic share, and the third largest globally with 7,016 restaurants in the U.S.

and 31 foreign countries and U.S.

territories as of October 3, 2021.

Each Wendy’s restaurant offers an extensive menu specializing in hamburger sandwiches and featuring filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of condiments.

territories as of April 3, 2022.

Wendy’s menu also includes chicken nuggets, chili, french fries, baked potatoes, freshly prepared salads, soft drinks, Frosty ® desserts and kids’ meals.

In addition, Wendy’s restaurants sell a variety of promotional products on a limited time basis.

In March 2020, Wendy’s entered the breakfast daypart across the U.S.

Wendy’s breakfast menu features a variety of breakfast sandwiches, biscuits and croissants, sides such as seasoned potatoes, oatmeal bars and seasonal fruit, and a beverage platform that includes hot coffee, cold brew iced coffee and our vanilla and chocolate Frosty-ccino iced coffee.

Wendy’s also offers breakfast across the U.S.

system and in Canada.

Wendy’s breakfast menu features a variety of breakfast sandwiches such as the Breakfast Baconator ® , sides such as seasoned potatoes, and a beverage platform that includes our vanilla and chocolate Frosty-ccino TM iced coffee.

The Company is comprised of the following segments:

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Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company reports on the segment profit for each of the three segments described above.

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

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 Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31.

All three- and nine-month periods presented herein contain 13 weeks and 39 weeks, respectively.

All three-month periods presented herein contain 13 weeks.

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

Executive Overview

As of October 3, 2021, the Wendy’s restaurant system was comprised of 6,891 restaurants, with 5,901 Wendy’s restaurants in operation in the U.S.

As of April 3, 2022, the Wendy’s restaurant system was comprised of 7,016 restaurants, with 5,969 Wendy’s restaurants in operation in the U.S.

restaurants, 402 were operated by the Company and 5,567 were operated by a total of 226 franchisees.

In addition, at October 3, 2021, there were 990 Wendy’s restaurants in operation in 31 foreign countries and U.S.

Of the international restaurants, 988 were operated by franchisees and two were operated by the Company in the United Kingdom (the “U.K.”).

In addition, at April 3, 2022, there were 1,047 Wendy’s restaurants in operation in 31 foreign countries and U.S.

Of the international restaurants, 1,041 were operated by franchisees and six were operated by the Company in the United Kingdom (the “U.K.”).

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

(1) sales at Company-operated restaurants and (2) franchise-related revenues, including royalties, national advertising funds contributions, rents and franchise fees received from Wendy’s franchised restaurants.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of October 3, 2021.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of April 3, 2022.

Wendy’s operating results are impacted by a number of external factors, including commodity costs, labor costs, intense price competition, unemployment and consumer spending levels, general economic and market trends and weather.

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

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

expansion and accelerated international expansion through same-restaurant sales growth and net new restaurant development.

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

Key Business Measures

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• Same-Restaurant Sales - We report same-restaurant sales commencing after new restaurants have been open for 15 continuous months and as soon as reimaged restaurants reopen.

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

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

In fiscal 2020, same-restaurant sales compared the 52 weeks from December 30, 2019 through December 27, 2020 to the 52 weeks from December 31, 2018 through December 29, 2019.

For fiscal 2021, same-restaurant sales will compare the 52 weeks from January 4, 2021 through January 2, 2022 to the 52 weeks from January 6, 2020 through January 3, 2021.

This methodology is consistent with the metric used by our management for internal reporting and analysis.

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

The table summarizing same-restaurant sales below in “Results of Operations” provides the same-restaurant sales percent changes.

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

Third Quarter Financial Highlights

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

• Global same-restaurant sales increased 3.3%, U.S.

same-restaurant sales increased 2.1% and international same-restaurant sales increased 14.7% compared to the third quarter of 2020;

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

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

Year-to-Date Financial Highlights

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

First Quarter Financial Highlights

• Revenue increased 6.2% to $488.6 million in the first quarter of 2022 compared to $460.2 million in the first quarter of 2021;

• Global same-restaurant sales increased 2.4%, U.S.

same-restaurant sales increased 10.2% and international same-restaurant sales increased 17.4% compared to the first nine months of 2020;

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

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

COVID-19 Update

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

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

however, we cannot predict the ultimate duration, scope or severity of the COVID-19 pandemic or its ultimate impact on our results of operations, financial condition and prospects.

In response to the pandemic, in March 2020, Wendy’s updated its brand standard to include the closure of all dining rooms except where there were specific needs, or a drive-thru or pick-up window option was not available, subject to applicable federal, state and local requirements.

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

During the second quarter of 2020, the Company began to implement its restaurant and dining room reopening

process through a phased approach in accordance with federal, state and local requirements, with customer and team member safety as its top priority.

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

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

however, as of October 3, 2021, substantially all restaurants were open across the Wendy’s system, and the majority of restaurants had dining rooms open.

Global systemwide same-restaurant sales during the first nine months of 2021 increased 10.9%, in part due to a significant increase in customer count compared with the adversely impacted fiscal months of March through June 2020.

same-restaurant sales increased 1.1% and international same-restaurant sales increased 14.1% compared to the first quarter of 2021;

• Company-operated restaurant margin was 11.6% in the first quarter of 2022, a decrease of 540 basis points compared to the first quarter of 2021;

• Net income decreased 9.6% to $37.4 million in the first quarter of 2022 compared to $41.4 million in the first quarter of 2021.

Wendy’s long-term growth opportunities include investing in accelerated global growth, which includes building upon our breakfast daypart.

Since the launch of breakfast across the U.S.

system on March 2, 2020, systemwide sales have benefited from this new daypart, with breakfast representing approximately 7.2% of U.S.

systemwide sales during the nine months ended October 3, 2021.

As previously disclosed, the Company expects to fund a total of $25.0 million of incremental advertising to support the breakfast daypart during 2021, which the Company expects will continue to drive trial and acceleration of the Company’s breakfast offering.

Wendy’s long-term growth opportunities include accelerating same-restaurant sales through continued implementation of consumer-facing digital platforms and technologies.

system in March 2020, systemwide sales have benefited from this new daypart, with average weekly U.S.

breakfast sales representing approximately $2,500 per restaurant during the three months ended April 3, 2022.

The Company launched breakfast in Canada on May 2, 2022, which has increased the percentage of global systemwide restaurants serving breakfast to approximately 95%.

The Company expects to fund a total of $16.0 million of incremental advertising during 2022 to support the breakfast daypart, which the Company expects will continue to drive trial and acceleration of the Company’s breakfast offering in the U.S.

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

The Company has invested significant resources to focus on consumer-facing technology, including activating mobile ordering via Wendy’s mobile app, launching the Wendy’s Rewards loyalty program and establishing delivery agreements with third-party vendors.

The Company’s digital business continues to grow and represented approximately 8.0% of global systemwide sales during the nine months ended October 3, 2021.

Debt Refinancing

In June 2021, the Company completed a refinancing transaction under which the Company issued fixed rate senior secured notes in the following 2021-1 series:

Class A-2-I with an interest rate of 2.370% and initial principal amount of $450.0 million and Class A-2-II with an interest rate of 2.775% and initial principal amount of $650.0 million (collectively, the “Series 2021-1 Class A-2 Notes”).

A portion of the net proceeds from the sale of the Series 2021-1 Class A-2 Notes were used to repay in full the Company’s outstanding Series 2015-1 Class A-2-III Notes and Series 2018-1 Class A-2-I Notes, including the payment of prepayment and transaction costs.

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

No amounts were borrowed under the Series 2021-1 Class A-1 Notes during the nine months ended October 3, 2021.

The Series 2021-1 Class A-1 Notes replaced the Company’s $150.0 million Series 2019-1 Class A-1 Notes and $100.0 million Series 2020-1 Class A-1 Notes, which were cancelled on the closing date.

As a result of the refinancing transaction, the Company incurred a loss on the early extinguishment of debt of $17.9 million, which was comprised of a specified make-whole payment of $9.6 million and the write-off of certain unamortized deferred financing costs of $8.3 million.

See “Liquidity and Capital Resources” below and Note 7 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information on the Company’s debt refinancing transaction.

The Company’s digital business continues to grow and represented approximately 10.6% of global systemwide sales during the three months ended April 3, 2022.

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

New Restaurant Development

REEF Kitchens Development Commitment

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

Strategic Build to Suit Development Fund

On August 11, 2021, the Company announced the creation o f a $100.0 million strategic build to suit development fund to drive additional new restaurant growth that is being funded by the additional cash that was obtained as part of the Company’s debt refinancing transaction completed in June 2021.

The Company expects the development fund to drive approximately 80 to 90 new franchise restaur ants from 2022 to 2025.

System Optimization Initiative

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

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

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

During the nine months ended October 3, 2021, the Company completed the sale of 47 Company-operated restaurants in New York (including Manhattan) to franchisees, resulting in net gains totaling $30.8 million.

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

NPC Quality Burgers, Inc.

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

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

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

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

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

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

Operations and Field Realignment

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

The Operations and Field Realignment Plan realigned the Company’s restaurant operations team, including transitioning from separate leaders of Company and franchise operations to a single leader of all U.S.

restaurant operations.

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

The Company expects to incur total costs aggregating approximately $5.5 million to $6.0 million, of which approximately $5.0 million to $5.5 million will be cash expenditures, related to the Operations and Field Realignment Plan.

Costs related to the Operations and Field Realignment Plan are recorded to “Reorganization and realignment costs.” During the nine months ended October 3, 2021, the Company recognized costs totaling $1.6 million, which primarily included third-party and other costs.

The Company expects to incur additional costs aggregating up to approximately $0.5 million, comprised primarily of third-party and other costs.

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

Wendy’s long-term growth opportunities include expanding the Company’s footprint through global restaurant expansion.

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

In addition, the Company has development agreements in place with a number of franchisees that contractually obligate such franchisees to open additional Wendy’s restaurants over a specified timeframe.

During the three months ended April 3, 2022,

the Company and its franchisees added 67 net new restaurants across the Wendy’s system.

The Company expects net new restaurant growth of 5% to 6% in 2022 and expects to reach 8,500 to 9,000 systemwide restaurants by the end of 2025.

Debt Financing

On April 1, 2022, the Company completed a debt financing transaction under which the Company issued fixed rate senior secured notes in the following 2022-1 series:

Class A-2-I with an interest rate of 4.236% and initial principal amount of $100.0 million (the “Class A-2-I Notes”) and Class A-2-II with an interest rate of 4.535% and initial principal amount of $400.0 million (the “Class A-2-II Notes” and, collectively, the “Series 2022-1 Class A-2 Notes”).

The anticipated repayment dates of the Class A-2-I Notes and the Class A-2-II Notes will be March 2029 and March 2032, respectively.

Results of Operations

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

Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the first quarter of 2022 and 2021.

First Quarter

2022 2021 Change

Sales $ 209.3 $ 189.1 $ 20.2

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Interest expense, net (26.4) (28.8) 2.4

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

Investment income, net 2.1 — 2.1

Other income, net 0.2 0.2 —

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Net income $ 37.4 $ 41.4 $ (4.0)

Third Quarter Nine Months

Total Revenues 2020 % of

Total Revenues 2021 % of

First Quarter

Total Revenues 2021 % of

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$ 488.6 100.0 % $ 460.2 100.0 %

Third Quarter Nine Months

Sales 2020 % of

Sales 2021 % of

First Quarter

Sales 2021 % of

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Total cost of sales $ 185.1 88.4 % $ 156.9 83.0 %

Third Quarter Nine Months

Sales 2020 % of

Sales 2021 % of

First Quarter

Sales 2021 % of

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

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

Key business measures:

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Franchised 1.0 % 13.6 %

2.1 % 7.0 % 10.2 % 0.9 %

International same-restaurant sales (a) 14.1 % 7.9 %

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Systemwide (a) 2.4 % 13.0 %

Systemwide sales:

Systemwide sales (b):

Company-operated $ 206.5 $ 189.1

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

(b) During the third quarter of 2021 and 2020, global systemwide sales increased 5.3% and 6.7%, respectively, U.S.

systemwide sales increased 3.7% and 7.9%, respectively, and international systemwide sales increased 20.2% and decreased 3.5%, respectively, on a constant currency basis.

During the first nine months of 2021 and 2020, global systemwide sales increased 13.2% and 0.5%, respectively, U.S.

systemwide sales increased 12.1% and 1.6%, respectively, and international systemwide sales increased 23.6% and decreased 9.3%, respectively, on a constant currency basis.

Third Quarter

(b) During the first quarter of 2022 and 2021, global systemwide sales increased 4.2% and 12.5%, respectively, U.S.

systemwide sales increased 2.4% and 13.1%, respectively, and international systemwide sales increased 19.2% and 7.3%, respectively, on a constant currency basis.

First Quarter

Company-operated U.S.

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Restaurant count:

Restaurant count at July 4, 2021 314 5,581 1 970 6,866

Opened 1 26 1 20 48

Closed (a) (4) (17) — (2) (23)

Restaurant count at October 3, 2021

311 5,590 2 988 6,891

Company-operated U.S.

Franchised International Company-operated International Franchised Systemwide

Restaurant count at January 2, 2022

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Closed (a) (2) (12) — (12) (26)

Net (sold to) purchased by franchisees (48) 48 — — —

Restaurant count at October 3, 2021

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

Restaurant count at April 3, 2022

402 5,567 6 1,041 7,016

_______________

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

Sales Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

(a) Excludes restaurants temporarily closed.

Sales First Quarter

2022 2021 Change

Sales $ 209.3 $ 189.1 $ 20.2

The decrease in sales for the third quarter of 2021 was primarily due to the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021, partially offset by a 3.4% increase in Company-operated same-restaurant sales.

The increase in sales for the first quarter of 2022 was primarily due to (1) the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021, (2) a 2.9% increase in Company-operated same-restaurant sales and (3) net new restaurant development.

These increases were partially offset by the sale of 47 Company-operated restaurants in New York during the second quarter of 2021.

Company-operated same-restaurant sales increased due to higher average check, partially offset by a decrease in customer count.

The increase in sales for the first nine months of 2021 was primarily due to a 13.2% increase in Company-operated same-restaurant sales, partially offset by the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021.

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

Company-operated same-restaurant sales during the first nine months of 2021 benefited from (1) government stimulus payments to consumers during the first quarter of 2021 and (2) the positive impact from the breakfast daypart.

Franchise Royalty Revenue and Fees Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

Company-operated same-restaurant sales benefited from government stimulus payments to consumers during the first quarter of 2021, which did not recur in the first quarter of 2022.

Franchise Royalty Revenue and Fees First Quarter

2022 2021 Change

Franchise royalty revenue $ 111.7 $ 108.3 $ 3.4

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$ 128.9 $ 122.8 $ 6.1

The increase in franchise royalty revenue during the third quarter and the first nine months of 2021 was primarily due to (1) a 3.3% and 10.8% increase in global franchise same-restaurant sales, respectively, and (2) a net increase in the number of franchise restaurants in operation during 2021 compared to 2020.

Franchise same-restaurant sales during the third quarter of 2021 increased due to higher average check, partially offset by a decrease in customer count.

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

Franchise same-restaurant sales during the first nine months of 2021

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

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

Franchise Rental Income Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

The increase in franchise royalty revenue during the first quarter of 2022 was primarily due to (1) a 2.4% increase in global franchise same-restaurant sales and (2) a net increase in the number of franchise restaurants in operation during the first quarter of 2022 compared to the first quarter of 2021.

Franchise same-restaurant sales increased during the first quarter of 2022 due to higher average check, partially offset by a decrease in customer count.

Franchise same-restaurant sales benefited from government stimulus payments to consumers during the first quarter of 2021, which did not recur in the first quarter of 2022.

The increase in franchise fees during the first quarter of 2022 was primarily due to higher fees for providing information technology services to franchisees, reflecting the one-month waiver of technology fees during the first quarter of 2021, partially offset by the accelerated recognition of franchise fees associated with canceled development agreements during the first quarter of 2021.

Franchise Rental Income First Quarter

2022 2021 Change

Franchise rental income $ 57.9 $ 58.9 $ (1.0)

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

Advertising Funds Revenue Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

The decrease in franchise rental income during the first quarter of 2022 was primarily due to the impact of terminating existing leases where the Company was lessor in connection with the Company’s acquisition of franchise-operated restaurants in Florida during the fourth quarter of 2021.

This decrease was partially offset by the impact of the sale of Company-operated restaurants in New York during the second quarter of 2021.

Advertising Funds Revenue First Quarter

2022 2021 Change

Advertising funds revenue $ 92.5 $ 89.4 $ 3.1

The Company maintains two national advertising funds established to collect and administer funds contributed for use in advertising and promotional programs for Company-operated and franchised restaurants in the U.S.

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

The increase in advertising funds revenue during the third quarter and the first nine months of 2021 was primarily due to (1) an increase in franchise same-restaurant sales in the U.S.

and Canada and (2) the prior year abatement of national advertising fund contributions on breakfast sales.

Cost of Sales, as a Percent of Sales Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

The increase in advertising funds revenue during the first quarter of 2022 was primarily due to an increase in franchise same-restaurant sales in the U.S.

Cost of Sales, as a Percent of Sales First Quarter

2022 2021 Change

Food and paper 32.6 % 29.0 % 3.6 %

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88.4 % 83.0 % 5.4 %

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

These impacts were partially offset by higher average check.

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

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

Franchise Support and Other Costs Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

The increase in cost of sales, as a percent of sales, during the first quarter of 2022 was primarily due to (1) higher commodity costs, (2) an increase in restaurant labor rates, (3) a decrease in customer count and (4) the impact of the Company’s investments to support the entry into the U.K.

These impacts were partially offset by (1) higher average check and (2) the net favorable impact of the Company’s acquisition and disposition of restaurants during 2021.

Franchise Support and Other Costs First Quarter

2022 2021 Change

Franchise support and other costs $ 11.8 $ 7.7 $ 4.1

The increase in franchise support and other costs during the third quarter and the first nine months of 2021 was primarily due to an increase in costs incurred to provide information technology and other services to our franchisees.

The increases in the first nine months were partially offset by investments made in 2020 to support U.S.

franchisees in preparation of the national launch of breakfast on March 2, 2020.

Franchise Rental Expense Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

The increase in franchise support and other costs during the first quarter of 2022 was primarily due to an increase in costs incurred to provide information technology and other services to franchisees.

Franchise Rental Expense First Quarter

2022 2021 Change

Franchise rental expense $ 28.9 $ 32.6 $ (3.7)

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

Franchise rental expense for the first nine months of 2021 also increased due to the impact of assigning certain leases to a franchisee in 2020.

Advertising Funds Expense Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

The decrease in franchise rental expense during the first quarter of 2022 was primarily due to the impact of assigning certain leases to franchisees.

Advertising Funds Expense First Quarter

2022 2021 Change

Advertising funds expense $ 97.8 $ 94.2 $ 3.6

On an interim basis, advertising funds expense is recognized in proportion to advertising funds revenue.

The Company expects advertising funds expense to exceed advertising funds revenue by approximately $31.0 million for 2021, which includes (1) the Company’s previously announced decision to fund up to $25.0 million of incremental advertising and (2) the amount by which advertising funds revenue exceeded advertising funds expense in 2020 (excluding the Company’s funding of $14.6 million of incremental advertising) and 2019 of approximately $6.0 million.

During the third quarter and the first nine months of 2021, advertising funds expense increased due to (1) an increase in franchise same-restaurant sales in the U.S.

and Canada and (2) an increase of $3.3 million and $9.0 million, respectively, in the recognition of the expected advertising spend in excess of advertising funds revenue compared with the prior year.

General and Administrative Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

Incentive compensation $ 11.0 $ 4.2 $ 6.8 33.5 13.2 20.3

Professional fees 11.7 8.0 3.7 29.4 20.8 8.6

Share-based compensation 5.7 5.2 0.5 16.7 14.4 2.3

The Company expects advertising funds expense to exceed advertising funds revenue by approximately $21.0 million for 2022, which includes (1) the Company’s previously announced decision to fund up to $16.0 million of incremental advertising and (2) the amount by which advertising funds revenue exceeded advertising funds expense in prior years (excluding the Company’s funding of incremental advertising) of approximately $5.0 million.

During the first quarter of 2022, advertising funds expense increased due to an increase in franchise same-restaurant sales in the U.S.

General and Administrative First Quarter

2022 2021 Change

Employee compensation and related benefits $ 33.0 $ 28.6 $ 4.4

Travel-related expenses 2.2 0.5 1.7

Share-based compensation 6.3 5.1 1.2

Professional fees 9.6 8.7 0.9

Other, net 11.2 9.7 1.5

$ 62.3 $ 52.6 $ 9.7

The increase in general and administrative expenses during the third quarter and the first nine months of 2021 was primarily due to (1) an increase in incentive compensation accruals and higher share-based compensation, reflecting higher operating performance as compared to plan in the first nine months of 2021 versus the first nine months of 2020, and (2) higher professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning implementation.

General and administrative expenses also increased during the third quarter of 2021 due to higher travel-related expenses.

Depreciation and Amortization Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

The increase in general and administrative expenses during the first quarter of 2022 was primarily due to (1) an increase in employee compensation and related benefits, reflecting investments in resources to support the Company’s development and digital organizations, (2) an increase in travel-related expenses, (3) higher share-based compensation and (4) higher professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning (“ERP”) implementation.

Depreciation and Amortization First Quarter

2022 2021 Change

Restaurants $ 21.8 $ 19.4 $ 2.4

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$ 33.2 $ 31.5 $ 1.7

The decrease in depreciation and amortization during the third quarter and the first nine months of 2021 was primarily due to assets becoming fully depreciated, partially offset by an increase in depreciation and amortization for technology investments.

Depreciation and amortization during the first nine months of 2021 also decreased due to the impact of a prior year change in useful lives for certain asset categories.

System Optimization Gains, Net Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

The increase in depreciation and amortization during the first quarter of 2022 was primarily due to depreciation and amortization on assets acquired from a franchisee in Florida during the fourth quarter of 2021.

System Optimization Gains, Net First Quarter

2022 2021 Change

System optimization gains, net $ (3.5) $ (0.5) $ (3.0)

System optimization gains, net for the third quarter of 2021 were primarily comprised of gains on the sale of surplus and other properties.

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

See Note 4 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information on the sale of the Company-operated restaurants in New York.

Reorganization and Realignment Costs Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

Operations and field realignment $ 0.1 $ 3.0 $ (2.9) $ 1.6 $ 3.0 $ (1.4)

IT realignment — 0.4 (0.4) — 6.8 (6.8)

G&A realignment — — — — 0.3 (0.3)

System optimization gains, net for the first quarter of 2022 and 2021 were primarily comprised of post-closing adjustments on previous sales of restaurants.

See Note 4 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.

Reorganization and Realignment Costs First Quarter

2022 2021 Change

System optimization initiative $ 0.4 $ 4.7 $ (4.3)

Other reorganization and realignment plans 0.1 0.2 (0.1)

$ 0.5 $ 4.9 $ (4.4)

In September 2020, the Company initiated the Operations and Field Realignment Plan.

restaurant operations.

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

During the first nine months of 2021, the Company recognized costs totaling $1.6 million, which primarily included third-party and other costs.

The Company expects to incur additional costs aggregating up to approximately $0.5 million, comprised primarily of third-party and other costs.

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

As part of the Company’s system optimization initiative, the Company expects to continue to optimize the Wendy’s system through strategic restaurant acquisitions and dispositions, as well as by facilitating Franchise Flips.

During the nine months ended October 3, 2021, the Company recognized costs associated with its system optimization initiative totaling $5.8 million, which were primarily comprised of the write-off of certain lease assets, lease termination fees and transaction fees associated with the NPC bankruptcy sale process.

The Company expects to recognize a gain of approximately $1.0 million related to the write-off of certain NPC-related lease liabilities upon final termination of the leases.

Impairment of Long-Lived Assets Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

During the three months ended April 3, 2022, the Company recognized costs associated with its system optimization initiative totaling $0.4 million, which were primarily comprised of professional fees and other costs associated with the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021.

During the three months ended April 4, 2021, the Company recognized costs totaling $4.7 million, which were primarily comprised of the write-off of certain lease assets and lease termination fees associated with the bankruptcy sale process of NPC Quality Burgers, Inc.

The Company expects to recognize a gain of approximately $0.9 million, primarily related to the write-off of certain NPC-related lease liabilities upon final termination of the leases.

See Note 5 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information regarding the NPC bankruptcy sale process.

Costs incurred under the Company’s other reorganization and realignment plans were not material during the three months ended April 3, 2022 and April 4, 2021.

The Company does not expect to incur any material additional costs under these plans.

Impairment of Long-Lived Assets First Quarter

2022 2021 Change

Impairment of long-lived assets $ 0.6 $ 0.6 $ —

The change in impairment charges during the third quarter of 2021 was primarily driven by impairment charges as a result of the deterioration in operating performance of certain Company-operated restaurants when compared to the third quarter of 2020.

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

Other Operating Income, Net Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

Impairment charges for the first quarter of 2022 and 2021 primarily reflected the deterioration in operating performance of certain Company-operated restaurants.

Other Operating Income, Net First Quarter

2022 2021 Change

Gains on sales-type leases $ (0.5) $ (1.9) $ 1.4

Equity in earnings in joint ventures, net (2.3) (2.1) (0.2) (5.6) (4.4) (1.2)

Lease buyout (0.8) — (0.8)

Other, net (1.7) (1.5) (0.2)

$ (3.0) $ (3.4) $ 0.4

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

Interest Expense, Net Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

The decrease in other operating income, net during the first quarter of 2022 was primarily due to lower gains on new and modified sales-type leases, partially offset by lease buyout activity.

Interest Expense, Net First Quarter

2022 2021 Change

Interest expense, net $ 26.4 $ 28.8 $ (2.4)

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

Loss on Early Extinguishment of Debt Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

Loss on early extinguishment of debt $ — $ — $ — $ 17.9 $ — $ 17.9

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

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

Other Income, Net Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

Other income, net $ 0.2 $ 0.2 $ — $ 0.4 $ 1.2 $ (0.8)

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

Provision for Income Taxes Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

Interest expense, net decreased during the first quarter of 2022 primarily due to the impact of completing the refinancing of a portion of the Company’s securitized financing facility in the second quarter of 2021.

Investment Income, Net First Quarter

2022 2021 Change

Investment income, net $ 2.1 $ — $ 2.1

During the first quarter of 2022, the Company recognized a gain of $2.1 million on an investment in equity securities as a result of an observable price change.

Provision for Income Taxes First Quarter

2022 2021 Change

Income before income taxes $ 50.8 $ 54.5 $ (3.7)

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26.4 % 24.1 % 2.3 %

Our effective tax rates for the third quarter and the first nine months of 2021 and 2020 were impacted by variations in income before income taxes, including uncertainty in 2020 income before income taxes arising from the COVID-19 pandemic, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The increase in the effective tax rate for the third quarter of 2021 compared with the third quarter of 2020 was primarily due to a decrease in the tax benefit from share-based compensation.

The decrease in the effective tax rate for the first nine months of 2021 compared with the first nine months of 2020 was primarily due to a decrease in the tax effects of our foreign operations and an increase in the tax benefit from share-based compensation.

Our effective tax rates for the first quarter of 2022 and 2021 were impacted by variations in income before income taxes, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The increase in the effective tax rate for the first quarter of 2022 compared with the first quarter of 2021 was primarily due to an increase in state income taxes, including discrete changes to state deferred taxes.

Segment Information

See Note 18 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information regarding the Company’s segments.

Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

First Quarter

2022 2021 Change

Sales $ 206.5 $ 189.1 $ 17.4

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The increase in Wendy’s U.S.

revenues during the third quarter and the first nine months of 2021 was primarily due to (1) an increase in systemwide same-restaurant sales and (2) higher franchise fees, reflecting an increase in fees for providing information technology services to franchisees.

Same-restaurant sales increased during the third quarter and the first nine months of 2021 primarily due to higher average check.

Same-restaurant sales during the first nine months of 2021 also benefited from (1) an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic, and (2) the positive impact from the breakfast daypart.

These increases were partially offset by the impact of the sale of 47 Company-operated restaurants in New York during the second quarter of 2021.

The increase in Wendy’s U.S.

segment profit during the third quarter of 2021 was primarily due to higher revenues, partially offset by (1) higher cost of sales, as a percent of sales, for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales,” (2) higher franchise support and other costs, (3) higher general and administrative expenses and (4) higher advertising fund expense, reflecting the Company’s decision to fund incremental advertising to support the breakfast daypart.

The increase in Wendy’s U.S.

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

revenues during the first quarter of 2022 was primarily due to (1) the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021, (2) an increase in same-restaurant sales and (3) higher fees for providing information technology services to franchisees, reflecting the one-month waiver of technology fees during the first quarter of 2021.

Same-restaurant sales increased during the first quarter of 2022 primarily due to higher average check, partially offset by a decrease in customer count.

These increases were partially offset by the sale of 47 Company-operated restaurants in New York during the second quarter of 2021.

The decrease in Wendy’s U.S.

segment profit during the first quarter of 2022 was primarily due to higher cost of sales, as a percent of sales for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales” (excluding the impact of the U.K.

These impacts were partially offset by higher revenues.

Wendy’s International

Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

First Quarter

2022 2021 Change

Sales $ 2.8 $ — $ 2.8

4 unchanged sentences

Segment profit $ 5.5 $ 7.7 $ (2.2)

The increase in Wendy’s International revenues during the third quarter and the first nine months of 2021 was primarily due to an increase in same-restaurant sales.

Same-restaurant sales increased during the third quarter and the first nine months of 2021 due to an increase in customer count, reflecting the prior year impact of the COVID-19 pandemic.

The increase in Wendy’s International segment profit during the third quarter and the first nine months of 2021 was primarily due to higher revenues, partially offset by higher general and administrative expenses.

The increase in Wendy’s International revenues during the first quarter of 2022 was primarily due to (1) the opening of Company-operated restaurants in the U.K.

beginning in the second quarter of 2021 and (2) an increase in same-restaurant sales.

Same-restaurant sales increased during the first quarter of 2022 due to (1) an increase in customer count and (2) higher average check.

The decrease in Wendy’s International segment profit during the first quarter of 2022 was primarily due to (1) higher general and administrative expenses and (2) higher advertising fund expense, reflecting the Company’s funding of incremental advertising to support the launch of breakfast in Canada on May 2, 2022.

These changes were partially offset by higher revenues.

Global Real Estate & Development

Third Quarter Nine Months

2021 2020 Change 2021 2020 Change

First Quarter

2022 2021 Change

Franchise fees $ 0.5 $ 1.1 $ (0.6)

2 unchanged sentences

Segment profit $ 27.6 $ 26.3 $ 1.3

The increase in Global Real Estate & Development revenues during the third quarter and the first nine months of 2021 was primarily due to higher franchise rental income.

The decrease in Global Real Estate & Development revenues during the first quarter of 2022 was primarily due to lower franchise rental income.

See “Franchise Rental Income” above for further information.

The increase in Global Real Estate & Development segment profit during the third quarter of 2021 was primarily due to an increase in net rental income, reflecting the impact of the sale of 47 Company-operated restaurants in New York to franchisees during the second quarter of 2021.

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

The increase in Global Real Estate & Development segment profit during the first quarter of 2022 was primarily due to a decrease in franchise rental expense, reflecting the impact of assigning certain leases to franchisees.

This change was partially offset by lower revenues.

Liquidity and Capital Resources

4 unchanged sentences

• cash dividends aggregating approximately $80.3 million as discussed below in “Dividends;” and

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

• potential stock repurchases of up to $250.0 million, of which $23.5 million was repurchased subsequent to April 3, 2022 through May 4, 2022, as discussed below in “Stock Repurchases.”

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

1 unchanged sentence

However, there can be no assurance that additional liquidity will be readily available or available on terms acceptable to us.

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

The table below summarizes our cash flows from operating, investing and financing activities for the first three months of 2022 and 2021:

First Quarter

2022 2021 Change

4 unchanged sentences

Effect of exchange rate changes on cash 0.2 0.9 (0.7)

Net increase in cash, cash equivalents and restricted cash $ 234.4 $ 47.7 $ 186.7

Net increase (decrease) in cash, cash equivalents and restricted cash $ 461.0 $ (10.1) $ 471.1

Operating Activities

Cash provided by operating activities consists primarily of net income, adjusted for non-cash expenses such as depreciation and amortization, deferred income tax and share-based compensation, and the net change in operating assets and liabilities.

Cash provided by operating activities was $276.7 million and $205.8 million in the first nine months of 2021 and 2020, respectively.

The increase was primarily due to (1) higher net income, adjusted for non-cash expenses, (2) a cash payment of $24.7 million related to the settlement of the financial institutions class action in January 2020, (3) the timing of receipt of franchisee rental payments and (4) a decrease in payments for incentive compensation for the 2020 fiscal year paid in 2021.

These increases were partially offset by (1) the timing of payments for marketing expenses of the national advertising funds and (2) an increase in cash paid for income taxes.

Cash provided by operating activities was $21.0 million and $85.8 million in the first quarter of 2022 and 2021, respectively.

The change was primarily due to (1) an increase in payments for incentive compensation for the 2021 fiscal year paid in 2022, (2) the timing of payments for marketing expenses of the national advertising funds, (3) lower net income, adjusted for non-cash expenses and (4) cash paid for cloud computing arrangements, primarily related to the Company’s ERP implementation.

Investing Activities

Cash provided by (used in) investing activities was $15.0 million and $(41.0) million in the first nine months of 2021 and 2020, respectively.

The change was primarily due to (1) an increase in proceeds from dispositions of $49.1 million, reflecting the sale of 47 Company-operated restaurants in New York during the second quarter of 2021, (2) the net settlement of deposits associated with the Company’s consortium bid to acquire NPC’s Wendy’s restaurants of $4.9 million in the first quarter of 2021 and (3) a decrease in capital expenditures of $1.5 million.

Cash used in investing activities was $13.0 million and $5.1 million in the first quarter of 2022 and 2021, respectively.

The change was primarily due to (1) the net settlement of deposits associated with the Company’s consortium bid to acquire NPC’s Wendy’s restaurants of $4.9 million in the first quarter of 2021 and (2) an increase in capital expenditures of $2.1 million.

Financing Activities

Cash used in financing activities was $57.5 million and $115.3 million in the first nine months of 2021 and 2020, respectively.

The change was primarily due to (1) a net increase in cash provided by long-term debt activities of $147.1 million, reflecting the impact of the completion of the Company’s debt refinancing transaction during the second quarter of 2021, and (2) an increase in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of $12.7 million.

These changes were partially offset by (1) an increase in repurchases of common stock of $79.0 million and (2) an increase in dividends of $19.8 million.

Cash provided by (used in) financing activities was $452.8 million and $(91.7) million in the first quarter of 2022 and 2021, respectively.

The change was primarily due to (1) a net increase in cash provided by long-term debt activities of $495.6 million, reflecting the impact of the completion of the Company’s debt financing transaction during the first quarter of 2022 and (2) a decrease in the repurchases of common stock of $55.6 million.

These changes were partially offset by an increase in dividends of $6.8 million.

Long-Term Debt, Including Current Portion

Wendy’s Funding, LLC, a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of The Wendy’s Company, is the master issuer (the “Master Issuer”) of outstanding senior secured notes under a securitized financing facility that was entered into in June 2015.

In June 2021, the Master Issuer completed a refinancing transaction with respect to this facility under which the Master Issuer issued the Series 2021-1 Class A-2 Notes with initial principal amounts totaling $1.1 billion.

The net proceeds from the sale of the Series 2021-1 Class A-2 Notes were used to repay in full the Master Issuer’s outstanding Series 2015-1 Class A-2-III Notes and Series 2018-1 Class A-2-I Notes, including the payment of prepayment and transaction costs.

The remaining funds will be used for general corporate purposes, which may include funding for growth initiatives, return of capital to shareholders, or additional debt retirement.

In connection with the issuance of the Series 2021-1 Class A-2 Notes, the Master Issuer also issued the Series 2021-1 Class A-1 Notes, which allow for the drawing of up to $300.0 million on a revolving basis using various credit instruments, including a letter of credit facility.

No amounts were borrowed under the Series 2021-1 Class A-1 Notes during the nine months ended October 3, 2021.

The Series 2021-1 Class A-1 Notes replaced the Company’s $150.0 million Series 2019-1 Class A-1 Notes and $100.0 million Series 2020-1 Class A-1 Notes, which were cancelled on the closing date, and the letters of credit outstanding against the Series 2019-1 Class A-1 Notes were transferred to the Series 2021-1 Class A-1 Notes.

On April 1, 2022, the Master Issuer completed a financing transaction with respect to this facility under which the Master Issuer issued the Series 2022-1 Class A-2 Notes with initial principal amounts totaling $500.0 million.

The net proceeds from the sale of the Series 2022-1 Class A-2 Notes will be used for general corporate purposes, which may include funding for growth initiatives, return of capital to shareholders and debt retirement.

Under the securitized financing facility, the Master Issuer has issued outstanding Series 2021-1 Variable Funding Senior Secured Notes, Class A-1 (the “Class A-1 Notes”), which allow for the drawing of up to $300.0 million on a revolving basis using various credit instruments, including a letter of credit facility.

No amounts were borrowed under the Class A-1 Notes during the three months ended April 3, 2022.

Except as described above, there were no material changes to the terms of any debt obligations since January 2, 2022.

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

The Company was in compliance with its debt covenants as of April 3, 2022.

See Note 7 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information related to our long-term debt obligations.

On March 15, 2021, June 15, 2021 and September 15, 2021, the Company paid quarterly cash dividends per share of $.09, $0.10 and $.12, respectively, aggregating $69.0 million.

On November 10, 2021, the Company announced a dividend of $.12 per share to be paid on December 15, 2021 to stockholders of record as of December 1, 2021.

As a result of the November 10 announcement, the Company expects that its total cash requirement for the fourth quarter of 2021 will be approximately $26.5 million based on the number of shares of its common stock outstanding at November 3, 2021.

On March 15, 2022, the Company paid quarterly cash dividends per share of $.125, aggregating $26.9 million.

On May 11, 2022, the Company announced a dividend of $.125 per share to be paid on June 15, 2022 to stockholders of record as of June 1, 2022.

If the Company pays regular quarterly cash dividends for the remainder of 2022 at the same rate as declared in the second quarter of 2022, the Company’s total cash requirement for dividends for the remainder of 2022 will be approximately $80.3 million based on the number of shares of its common stock outstanding at May 4, 2022.

The Company currently intends to continue to declare and pay quarterly cash dividends;

1 unchanged sentence

Stock Repurchases

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

On April 1, 2022, the Company’s Board of Directors approved an increase of $150.0 million to the February 2022 Authorization, resulting in an aggregate authorization of $250.0 million that continues to expire on February 28, 2023.

During the three months ended April 3, 2022, no shares were repurchased under the February 2022 Authorization.

Subsequent to April 3, 2022 through May 4, 2022, the Company repurchased 1.2 million shares under the February 2022 Authorization with an aggregate purchase price of $23.5 million, excluding commissions.

In February 2020, our Board of Directors authorized a repurchase program for up to $100.0 million of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally permissible (the “February 2020 Authorization”).

As previously announced, beginning in March 2020, the Company temporarily suspended all share repurchase activity under the February 2020 authorization in connection with the Company’s response to the COVID-19 pandemic.

In July 2020, the Company’s Board of Directors approved an extension of the February 2020 authorization by one year, through February 28, 2022, when and if market and economic conditions warrant and to the extent legally permissible.

The Company resumed share repurchases in August 2020.

In addition, in May 2021 and August 2021, the Board of Directors approved increases of $50.0 million and $70.0 million, respectively, to the February 2020 authorization, resulting in an aggregate authorization of $220.0 million that continues to expire on February 28, 2022.

During the nine months ended October 3, 2021, the Company repurchased 5.9 million shares under the February 2020 authorization with an aggregate purchase price of $127.2 million, of which $2.3 million was accrued at October 3, 2021, and excluding commissions of $0.1 million.

As of October 3, 2021, the Company had $60.6 million of availability remaining under the February 2020 authorization.

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

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

The Company also announced in November 2021 its intention to launch a $125.0 million accelerated share repurchase transaction during the fourth quarter of 2021 as part of the February 2020 authorization.

The Company has availability of $125.1 million remaining under the February 2020 authorization as of November 10, 2021.

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

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

In November 2021, the Company entered into an accelerated share repurchase agreement (the “2021 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the February 2020 Authorization.

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

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

The total number of shares of common stock ultimately purchased by the Company under the 2021

ASR Agreement was based on the average of the daily volume-weighted average prices of the common stock during the term of the 2021 ASR Agreement, less an agreed upon discount.

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

With the completion of the 2021 ASR Agreement in February 2022 as described above, the Company completed the February 2020 Authorization.

Cloud Computing Arrangements

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

The Company’s cash expenditures related to CCA amounted to $4.7 million during the three months ended April 3, 2022.

General Inflation, Commodities and Changing Prices

We believe that general inflation did not have a significant effect on our consolidated results of operations.

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

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

Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during the three months ended April 3, 2022, and we expect this to continue throughout the remainder of 2022.

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

Delays in implementing such menu price increases, competitive pressures, consumer spending levels and other factors may limit our ability to recover such cost increases in the future.

Inherent volatility experienced in certain commodity markets, such as those for beef, chicken, pork, cheese and grains, could have a significant effect on our results of operations and may have an adverse effect on us in the future.

4 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis