What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-10 compared with 2022-05-11 · 175 added, 128 removed, 286 unchanged (51% 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 April 3, 2022 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 July 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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and 31 foreign countries and U.S.

territories as of April 3, 2022.

territories as of July 3, 2022.

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 toppings and condiments.

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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-month periods presented herein contain 13 weeks.

All three- and six-month periods presented herein contain 13 weeks and 26 weeks, respectively.

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

Executive Overview

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.

As of July 3, 2022, the Wendy’s restaurant system was comprised of 7,040 restaurants, with 5,983 Wendy’s restaurants in operation in the U.S.

restaurants, 403 were operated by the Company and 5,580 were operated by a total of 222 franchisees.

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.”).

In addition, at July 3, 2022, there were 1,057 Wendy’s restaurants in operation in 31 foreign countries and U.S.

Of the international restaurants, 1,049 were operated by franchisees and eight 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 April 3, 2022.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of July 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.

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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.

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;

Second Quarter Financial Highlights

• Revenue increased 9.0% to $537.8 million in the second quarter of 2022 compared to $493.3 million in the second quarter of 2021;

• Global same-restaurant sales increased 3.7%, U.S.

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.

same-restaurant sales increased 2.3% and international same-restaurant sales increased 15.2% compared to the second quarter of 2021;

• Company-operated restaurant margin was 14.5% in the second quarter of 2022, a decrease of 580 basis points compared to the second quarter of 2021;

• Net income decreased 26.7% to $48.2 million in the second quarter of 2022 compared to $65.7 million in the second quarter of 2021.

Year-to-Date Financial Highlights

• Revenue increased 7.6% to $1.0 billion in the first six months of 2022 compared to $953.5 million in the first six months of 2021;

• Global same-restaurant sales increased 3.1%, U.S.

same-restaurant sales increased 1.7% and international same-restaurant sales increased 14.7% compared to the first six months of 2021;

• Company-operated restaurant margin was 13.1% in the first six months of 2022, a decrease of 560 basis points from the first six months of 2021;

• Net income decreased 20.1% to $85.6 million in the first six months of 2022 compared to $107.1 million in the first six months of 2021.

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

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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.

breakfast sales representing approximately $2,600 per restaurant during the six months ended July 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%.

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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 10.6% of global systemwide sales during the three months ended April 3, 2022.

The Company’s digital business represented approximately 10.2% of global systemwide sales during the six months ended July 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.

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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.

During the six months ended July 3, 2022, the Company and its franchisees added 91 net new restaurants across the Wendy’s system.

During the second quarter of 2022, the Company reevaluated the development commitment by REEF Kitchens (“REEF”) and now anticipates that REEF will open 100 to 150 delivery kitchens by the end of 2025, primarily in Canada and the U.K.

As a result, the Company now expects net new restaurant growth of 3% to 4% in 2022 and expects to reach 8,000 to 8,500 systemwide restaurants by the end of 2025.

Debt Financing

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Results of Operations

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

First Quarter

2022 2021 Change

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

Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Sales $ 230.9 $ 193.5 $ 37.4 $ 440.1 $ 382.6 $ 57.5

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Interest expense, net (32.1) (28.2) (3.9) (58.5) (57.0) (1.5)

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

Investment income, net — — — 2.1 — 2.1

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Net income $ 48.2 $ 65.7 $ (17.5) $ 85.6 $ 107.1 $ (21.5)

First Quarter

Second Quarter Six Months

Total Revenues 2021 % of

Total Revenues 2022 % of

Total Revenues 2021 % of

Total Revenues

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$ 537.8 100.0 % $ 493.3 100.0 % $ 1,026.4 100.0 % $ 953.5 100.0 %

First Quarter

Second Quarter Six Months

Sales 2021 % of

Sales 2022 % of

Sales 2021 % of

Cost of sales:

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Total cost of sales $ 197.3 85.5 % $ 154.2 79.7 % $ 382.3 86.9 % $ 311.0 81.3 %

First Quarter

Second Quarter Six Months

Sales 2021 % of

Sales 2022 % of

Sales 2021 % of

Restaurant margin $ 33.6 14.5 % $ 39.3 20.3 % $ 57.8 13.1 % $ 71.6 18.7 %

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.

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

Key business measures:

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Franchised 2.2 % 15.6 % 1.6 % 14.6 %

2.3 % 16.1 % 1.7 % 14.9 %

International same-restaurant sales (a) 15.2 % 31.4 % 14.7 % 19.0 %

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

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

(b) During the second quarter of 2022 and 2021, global systemwide sales increased 5.6% and 22.9%, respectively, U.S.

systemwide sales increased 3.5% and 20.6%, respectively, and international systemwide sales increased 22.7% and 48.2%, respectively, on a constant currency basis.

First Quarter

During the first six months of 2022 and 2021, global systemwide sales increased 4.9% and 17.7%, respectively, U.S.

systemwide sales increased 3.0% and 16.9%, respectively, and international systemwide sales increased 21.1% and 25.6%, respectively, on a constant currency basis.

Second Quarter

Company-operated U.S.

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Restaurant count:

Restaurant count at April 3, 2022

402 5,567 6 1,041 7,016

Opened 3 26 2 16 47

Closed (a) (2) (13) — (8) (23)

Restaurant count at July 3, 2022

403 5,580 8 1,049 7,040

Company-operated U.S.

Franchised International Company-operated International Franchised Systemwide

Restaurant count at January 2, 2022

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

Restaurant count at April 3, 2022

Restaurant count at July 3, 2022

403 5,580 8 1,049 7,040

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(a) Excludes restaurants temporarily closed.

Sales First Quarter

2022 2021 Change

Sales Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Sales $ 230.9 $ 193.5 $ 37.4 $ 440.1 $ 382.6 $ 57.5

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.

The increase in sales for the second quarter and the first six months 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.

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

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

Franchise Royalty Revenue and Fees Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Franchise royalty revenue $ 125.0 $ 119.5 $ 5.5 $ 236.8 $ 227.9 $ 8.9

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$ 143.4 $ 136.6 $ 6.8 $ 272.4 $ 259.5 $ 12.9

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

The increase in franchise royalty revenue during the second quarter and the first six months of 2022 was primarily due to (1) a 3.7% and 3.1% increase in global franchise same-restaurant sales, respectively, and (2) a net increase in the number of franchise restaurants in operation during 2022 compared to 2021.

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

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

The increase in franchise fees during the second quarter and the first six months of 2022 was primarily due to higher fees for providing information technology services to franchisees.

The increase in franchise fees during the first six months of 2022 reflects 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 six months of 2021.

Franchise Rental Income Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Franchise rental income $ 58.6 $ 60.9 $ (2.3) $ 116.5 $ 119.7 $ (3.2)

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.

The decrease in franchise rental income during the second quarter and the first six months 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 Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Advertising funds revenue $ 104.9 $ 102.3 $ 2.6 $ 197.4 $ 191.7 $ 5.7

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

The increase in advertising funds revenue during the second quarter and the first six months 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 Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Food and paper 33.0 % 28.9 % 4.1 % 32.9 % 28.9 % 4.0 %

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85.5 % 79.7 % 5.8 % 86.9 % 81.3 % 5.6 %

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

The increase in cost of sales, as a percent of sales, during the second quarter and the first six months 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 higher average check.

Franchise Support and Other Costs Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Franchise support and other costs $ 9.9 $ 8.9 $ 1.0 $ 21.7 $ 16.6 $ 5.1

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

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

Franchise Rental Expense Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Franchise rental expense $ 32.1 $ 34.1 $ (2.0) $ 61.0 $ 66.6 $ (5.6)

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

The decrease in franchise rental expense during the second quarter and the first six months of 2022 was primarily due to (1) the impact of assigning certain leases to franchisees and (2) the impact of the Company’s acquisition of franchise-operated restaurants in Florida during the fourth quarter of 2021.

Advertising Funds Expense Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Advertising funds expense $ 111.0 $ 107.9 $ 3.1 $ 208.8 $ 202.1 $ 6.7

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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

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

General and Administrative Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Incentive compensation $ 6.7 $ 15.1 $ (8.4) $ 12.9 $ 22.5 $ (9.6)

Employee compensation and benefits 30.6 28.3 2.3 63.6 57.0 6.6

Professional fees 14.4 11.4 3.0 27.2 21.9 5.3

Travel-related expenses 3.0 1.5 1.5 5.2 2.0 3.2

Other, net 6.9 6.8 0.1 15.1 12.3 2.8

$ 61.6 $ 63.1 $ (1.5) $ 124.0 $ 115.7 $ 8.3

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

The decrease in general and administrative expenses during the second quarter of 2022 was primarily due to a decrease in incentive compensation accruals, reflecting higher operating performance as compared to plan in the first six months of 2021 compared to the first six months of 2022.

This decrease was partially offset by (1) an increase in employee compensation and related benefits, reflecting investments in resources to support the Company’s development and digital organizations, (2) higher professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning (“ERP”) implementation and (3) an increase in travel-related expenses.

The increase in general and administrative expenses during the first six months 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) higher professional fees, primarily as a result of costs associated with the Company’s ERP implementation and (3) an increase in travel-related expenses.

These increases were partially offset by a decrease in incentive compensation accruals, reflecting higher operating performance as compared to plan in the first six months of 2021 compared to the first six months of 2022.

Depreciation and Amortization Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Restaurants $ 21.3 $ 18.7 $ 2.6 $ 43.1 $ 38.1 $ 5.0

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$ 33.4 $ 30.8 $ 2.6 $ 66.7 $ 62.3 $ 4.4

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

The increase in depreciation and amortization during the second quarter and the first six months 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 Second Quarter Six Months

2022 2021 Change 2022 2021 Change

System optimization gains, net $ (0.2) $ (30.8) $ 30.6 $ (3.7) $ (31.3) $ 27.6

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

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

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

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

Reorganization and Realignment Costs Second Quarter Six Months

2022 2021 Change 2022 2021 Change

System optimization initiative $ 0.2 $ 0.9 $ (0.7) $ 0.5 $ 5.5 $ (5.0)

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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 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.

During the six months ended July 3, 2022, the Company recognized costs associated with its system optimization initiative totaling $0.5 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 six months ended July 4, 2021, the Company recognized costs totaling $5.5 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 $0.7 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.

Costs incurred under the Company’s other reorganization and realignment plans were not material during the three and six months ended months ended July 3, 2022 and July 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 Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Impairment of long-lived assets $ 1.9 $ 0.6 $ 1.3 $ 2.5 $ 1.3 $ 1.2

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

The change in impairment charges during the second quarter and the first six months of 2022 was primarily driven by higher impairment charges as a result of the deterioration in operating performance of certain Company-operated restaurants.

Other Operating Income, Net Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Gains on sales-type leases $ (1.7) $ (1.6) $ (0.1) $ (2.2) $ (3.5) $ 1.3

Lease buyout (1.3) (0.8) (0.5) (2.1) (0.9) (1.2)

Equity in earnings in joint ventures, net (2.5) (1.7) (0.8) (4.3) (3.3) (1.0)

Other, net (0.2) (0.2) — (0.1) — (0.1)

$ (5.7) $ (4.3) $ (1.4) $ (8.7) $ (7.7) $ (1.0)

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

The increase in other operating income, net during the second quarter and the first six months of 2022 was primarily due to (1) lease buyout activity and (2) an increase in the equity in earnings from our TimWen joint venture.

During the first six months of 2022, these increases were partially offset by lower gains on new and modified sales-type leases.

Interest Expense, Net Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Interest expense, net $ 32.1 $ 28.2 $ 3.9 $ 58.5 $ 57.0 $ 1.5

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

The increase in interest expense, net during the second quarter and the first six months of 2022 was primarily due to the impact of completing a debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022.

This increase was partially offset by the impact of completing the refinancing of a portion of the Company’s securitized financing facility in the second quarter of 2021.

Loss on Early Extinguishment of Debt Second Quarter Six Months

2022 2021 Change 2022 2021 Change

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

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

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

Investment Income, Net Second Quarter Six Months

2022 2021 Change 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

During the first six months 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.

Other Income, Net Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Other income, net $ 1.2 $ 0.2 $ 1.0 $ 1.4 $ 0.3 $ 1.1

The change in other income, net during the second quarter and the first six months of 2022 was primarily due to interest income earned on our cash equivalents, which increased as a result of cash received from our debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022.

Provision for Income Taxes Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Income before income taxes $ 65.4 $ 80.8 $ (15.4) $ 116.2 $ 135.3 $ (19.1)

3 unchanged sentences

26.4 % 18.6 % 7.8 % 26.4 % 20.8 % 5.6 %

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.

Our effective tax rates for the second quarter and the first six months 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 second quarter and the first six months of 2022 was primarily due to a decrease in the benefit from share-based compensation.

Segment Information

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

First Quarter

2022 2021 Change

Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Sales $ 227.9 $ 193.3 $ 34.6 $ 434.4 $ 382.4 $ 52.0

5 unchanged sentences

The increase in Wendy’s U.S.

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.

revenues during the second quarter and the first six months of 2022 was primarily due to (1) the Company’s acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021 and (2) an increase in same-restaurant sales.

The increase in Wendy’s U.S.

revenues during the first six months of 2022 was also driven by 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 second quarter and the first six months 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.

segment profit during the first six months 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

First Quarter

2022 2021 Change

Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Sales $ 3.0 $ 0.2 $ 2.8 $ 5.7 $ 0.2 $ 5.5

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Segment profit $ 9.4 $ 6.5 $ 2.9 $ 14.8 $ 14.2 $ 0.6

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.

The increase in Wendy’s International revenues during the second quarter and the first six months 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.

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

The increase in Wendy’s International segment profit during the second quarter and the first six months of 2022 was primarily due to higher revenues.

This increase was partially offset by (1) the Company’s investments to support the entry into the U.K.

market 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.

Global Real Estate & Development

First Quarter

2022 2021 Change

Second Quarter Six Months

2022 2021 Change 2022 2021 Change

Franchise fees $ 1.3 $ 1.3 $ — $ 1.8 $ 2.5 $ (0.7)

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Segment profit $ 27.3 $ 26.6 $ 0.7 $ 54.9 $ 52.8 $ 2.1

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

The decrease in Global Real Estate & Development revenues during the second quarter and the first six months 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 first quarter of 2022 was primarily due to a decrease in franchise rental expense, reflecting the impact of assigning certain leases to franchisees.

The increase in Global Real Estate & Development segment profit during the second quarter and the first six months of 2022 was primarily due to a decrease in franchise rental expense.

See “Franchise Rental Expense” above for further information.

This change was partially offset by lower revenues.

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• cash dividends aggregating approximately $53.2 million as discussed below in “Dividends;” and

• 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.”

• potential stock repurchases of up to $198.1 million, 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.

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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 three months of 2022 and 2021:

First Quarter

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

2022 2021 Change

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Effect of exchange rate changes on cash (2.4) 2.2 (4.6)

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

Net increase in cash, cash equivalents and restricted cash $ 429.7 $ 221.9 $ 207.8

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 $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.

Cash provided by operating activities was $98.2 million and $158.8 million in the first six months 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 receipt of franchisee rental payments and (3) cash paid for cloud computing arrangements, primarily related to the Company’s ERP implementation.

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

Investing Activities

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.

Cash (used in) provided by investing activities was $(28.8) million and $32.0 million in the first six months of 2022 and 2021, respectively.

The change was primarily due to (1) a decrease in proceeds from dispositions of $49.5 million, reflecting the sale of 47 Company-operated restaurants in New York during the second quarter of 2021, (2) an increase in capital expenditures of $6.9 million and (3) the net settlement of deposits associated with the Company’s consortium bid to acquire NPC’s Wendy’s restaurants of $4.9 million in the first quarter of 2021.

Financing Activities

Cash provided by (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.

Cash provided by financing activities was $362.7 million and $28.9 million in the first six months of 2022 and 2021, respectively.

The change was primarily due to (1) a net increase in cash provided by long-term debt activities of $339.7 million, reflecting the respective impacts of the completion of the Company’s debt financing transaction during the first quarter of 2022 and the debt refinancing transaction during the second quarter of 2021, and (2) a decrease in the repurchases of common stock of $31.7 million.

These changes were partially offset by an (1) a decrease in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of $22.7 million and (2) an increase in dividends of $11.3 million.

Long-Term Debt, Including Current Portion

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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.

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

The Company was in compliance with its debt covenants as of July 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, 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.

On March 15, 2022 and June 15, 2022, the Company paid quarterly cash dividends per share of $.125, aggregating $53.5 million.

On August 10, 2022, the Company announced a dividend of $.125 per share to be paid on September 15, 2022 to stockholders of record as of September 1, 2022.

If the Company pays regular quarterly cash dividends for the remainder of 2022 at the same rate as declared in the third quarter of 2022, the Company’s total cash requirement for dividends for the remainder of 2022 will be approximately $53.2 million based on the number of shares of its common stock outstanding at August 3, 2022.

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

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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”).

In February 2022, our Board of Directors authorized a repurchase program for 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.

During the six months ended July 3, 2022, the Company repurchased 2.8 million shares under the February 2022 Authorization with an aggregate purchase price of $51.9 million, excluding commissions.

As of July 3, 2022, the Company had $198.1 million of availability remaining under the February 2022 authorization.

Subsequent to July 3, 2022 through August 9, 2022, no shares were repurchased under the February 2022 Authorization.

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”).

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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.

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.

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.

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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.

The Company’s cash expenditures related to CCA amounted to $13.2 million during the six months ended July 3, 2022.

General Inflation, Commodities and Changing Prices

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.

Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during the six months ended July 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.

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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-Q

Item 2. Management’s Discussion and Analysis