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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 2022

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission file number: 1-2207
THE WENDY’S COMPANY
(Exact name of registrant as specified in its charter)
Delaware38-0471180
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
One Dave Thomas Blvd.
Dublin,
Ohio43017
(Address of principal executive offices)(Zip Code)

(614) 764-3100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.10 par valueWENThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

There were 212,803,949 shares of The Wendy’s Company common stock outstanding as of August 3, 2022.



THE WENDY’S COMPANY AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.
THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Par Value)
July 3,
2022
January 2,
2022
ASSETS(Unaudited)
Current assets:
Cash and cash equivalents$700,813 $249,438 
Restricted cash33,997 27,535 
Accounts and notes receivable, net115,367 119,540 
Inventories6,456 5,934 
Prepaid expenses and other current assets35,548 30,584 
Advertising funds restricted assets151,741 159,818 
Total current assets1,043,922 592,849 
Properties890,423 906,867 
Finance lease assets238,878 244,279 
Operating lease assets783,645 812,620 
Goodwill774,703 775,278 
Other intangible assets1,262,762 1,280,791 
Investments50,195 49,870 
Net investment in sales-type and direct financing leases312,376 299,707 
Other assets158,677 139,130 
Total assets$5,515,581 $5,101,391 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities:  
Current portion of long-term debt$29,250 $24,250 
Current portion of finance lease liabilities17,034 15,513 
Current portion of operating lease liabilities47,482 47,315 
Accounts payable36,156 41,163 
Accrued expenses and other current liabilities112,144 140,783 
Advertising funds restricted liabilities156,757 157,901 
Total current liabilities398,823 426,925 
Long-term debt2,832,790 2,356,416 
Long-term finance lease liabilities567,082 559,587 
Long-term operating lease liabilities823,991 853,328 
Deferred income taxes274,511 267,710 
Deferred franchise fees89,246 88,102 
Other liabilities106,275 112,918 
Total liabilities5,092,718 4,664,986 
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized;
     470,424 shares issued; 212,781 and 215,849 shares outstanding, respectively
47,042 47,042 
Additional paid-in capital2,926,739 2,898,633 
Retained earnings376,187 344,198 
Common stock held in treasury, at cost; 257,643 and 254,575 shares, respectively
(2,872,568)(2,805,268)
Accumulated other comprehensive loss(54,537)(48,200)
Total stockholders’ equity422,863 436,405 
Total liabilities and stockholders’ equity$5,515,581 $5,101,391 

See accompanying notes to condensed consolidated financial statements.
4

THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)

Three Months EndedSix Months Ended
July 3,
2022
July 4,
2021
July 3,
2022
July 4,
2021
(Unaudited)
Revenues:
Sales$230,869 $193,525 $440,144 $382,582 
Franchise royalty revenue and fees143,436 136,661 272,412 259,491 
Franchise rental income58,610 60,868 116,481 119,744 
Advertising funds revenue104,868 102,283 197,389 191,723 
537,783 493,337 1,026,426 953,540 
Costs and expenses:
Cost of sales197,285 154,154 382,338 311,004 
Franchise support and other costs9,912 8,885 21,728 16,571 
Franchise rental expense32,076 34,068 61,012 66,634 
Advertising funds expense110,973 107,875 208,773 202,113 
General and administrative61,637 63,114 123,983 115,736 
Depreciation and amortization33,428 30,761 66,659 62,303 
System optimization gains, net(152)(30,766)(3,686)(31,282)
Reorganization and realignment costs156 2,102 620 7,036 
Impairment of long-lived assets1,860 630 2,476 1,265 
Other operating income, net(5,673)(4,232)(8,639)(7,708)
441,502 366,591 855,264 743,672 
Operating profit96,281 126,746 171,162 209,868 
Interest expense, net(32,125)(28,204)(58,490)(56,990)
Loss on early extinguishment of debt (17,917) (17,917)
Investment (loss) income, net(4)3 2,107 6 
Other income, net1,238 158 1,445 284 
Income before income taxes65,390 80,786 116,224 135,251 
Provision for income taxes(17,239)(15,062)(30,671)(28,161)
Net income$48,151 $65,724 $85,553 $107,090 
Net income per share:
Basic$.23 $.30 $.40 $.48 
Diluted.22 .29 .39 .47 

See accompanying notes to condensed consolidated financial statements.
5

THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)

Three Months EndedSix Months Ended
July 3,
2022
July 4,
2021
July 3,
2022
July 4,
2021
(Unaudited)
Net income$48,151 $65,724 $85,553 $107,090 
Other comprehensive (loss) income:
Foreign currency translation adjustment(7,455)3,347 (6,337)5,567 
Other comprehensive (loss) income(7,455)3,347 (6,337)5,567 
Comprehensive income $40,696 $69,071 $79,216 $112,657 

See accompanying notes to condensed consolidated financial statements.
6

THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands)

Common
Stock
Additional
Paid-In
Capital
Retained EarningsCommon Stock Held in TreasuryAccumulated Other Comprehensive LossTotal
(Unaudited)
Balance at January 2, 2022$47,042 $2,898,633 $344,198 $(2,805,268)$(48,200)$436,405 
Net income  37,402   37,402 
Other comprehensive income    1,118 1,118 
Cash dividends  (26,911)  (26,911)
Repurchases of common stock, including accelerated share repurchase 18,750  (18,750)  
Share-based compensation 6,348    6,348 
Common stock issued upon exercises of stock options
 237  1,354  1,591 
Common stock issued upon vesting of restricted shares
 (1,989) 459  (1,530)
Other 63 (8)57  112 
Balance at April 3, 2022$47,042 $2,922,042 $354,681 $(2,822,148)$(47,082)$454,535 
Net income  48,151   48,151 
Other comprehensive loss    (7,455)(7,455)
Cash dividends  (26,635)  (26,635)
Repurchases of common stock   (51,950) (51,950)
Share-based compensation 6,122    6,122 
Common stock issued upon exercises of stock options
 (300) 399  99 
Common stock issued upon vesting of restricted shares
 (1,178) 1,073  (105)
Other 53 (10)58  101 
Balance at July 3, 2022$47,042 $2,926,739 $376,187 $(2,872,568)$(54,537)$422,863 

See accompanying notes to condensed consolidated financial statements.

7

THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED
(In Thousands)
Common
Stock
Additional
Paid-In
Capital
Retained EarningsCommon Stock Held in TreasuryAccumulated Other Comprehensive LossTotal
(Unaudited)
Balance at January 3, 2021$47,042 $2,899,276 $238,674 $(2,585,755)$(49,641)$549,596 
Net income  41,366   41,366 
Other comprehensive income    2,220 2,220 
Cash dividends  (20,156)  (20,156)
Repurchases of common stock   (56,084) (56,084)
Share-based compensation 5,151    5,151 
Common stock issued upon exercises of stock options
 (20) 683  663 
Common stock issued upon vesting of restricted shares
 (2,996) 817  (2,179)
Other 49 (5)44  88 
Balance at April 4, 2021$47,042 $2,901,460 $259,879 $(2,640,295)$(47,421)$520,665 
Net income  65,724   65,724 
Other comprehensive income    3,347 3,347 
Cash dividends  (22,123)  (22,123)
Repurchases of common stock   (27,291) (27,291)
Share-based compensation 5,882    5,882 
Common stock issued upon exercises of stock options
 850  23,466  24,316 
Common stock issued upon vesting of restricted shares
 (959) 714  (245)
Other 41 (5)45  81 
Balance at July 4, 2021$47,042 $2,907,274 $303,475 $(2,643,361)$(44,074)$570,356 

See accompanying notes to condensed consolidated financial statements.
8

THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
July 3,
2022
July 4,
2021
(Unaudited)
Cash flows from operating activities:
Net income$85,553 $107,090 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization66,659 62,303 
Share-based compensation12,470 11,033 
Impairment of long-lived assets2,476 1,265 
Deferred income tax7,306 (2,137)
Non-cash rental expense, net16,684 20,075 
Change in operating lease liabilities(22,913)(23,074)
Net receipt of deferred vendor incentives5,039 3,332 
System optimization gains, net(3,686)(31,282)
Distributions received from joint ventures, net of equity in earnings1,108 2,354 
Long-term debt-related activities, net3,731 21,328 
Cloud computing arrangements expenditures(13,213)(2,412)
Changes in operating assets and liabilities and other, net(63,019)(11,124)
Net cash provided by operating activities98,195 158,751 
Cash flows from investing activities:  
Capital expenditures(30,941)(24,069)
Franchise development fund(1,312) 
Acquisitions 4,879 
Dispositions1,016 50,531 
Notes receivable, net2,445 611 
Net cash (used in) provided by investing activities(28,792)31,952 
Cash flows from financing activities:  
Proceeds from long-term debt500,000 1,100,000 
Repayments of long-term debt(12,125)(941,220)
Repayments of finance lease liabilities(9,495)(5,777)
Deferred financing costs(10,232)(20,873)
Repurchases of common stock(51,950)(83,658)
Dividends(53,546)(42,279)
Proceeds from stock option exercises1,959 25,933 
Payments related to tax withholding for share-based compensation(1,904)(3,197)
Net cash provided by financing activities362,707 28,929 
Net cash provided by operations before effect of exchange rate changes on cash432,110 219,632 
Effect of exchange rate changes on cash(2,428)2,283 
Net increase in cash, cash equivalents and restricted cash429,682 221,915 
Cash, cash equivalents and restricted cash at beginning of period366,966 418,241 
Cash, cash equivalents and restricted cash at end of period$796,648 $640,156 

See accompanying notes to condensed consolidated financial statements.
9

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements. In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of July 3, 2022, the results of our operations for the three and six months ended July 3, 2022 and July 4, 2021 and cash flows for the six months ended July 3, 2022 and July 4, 2021. The results of operations for the six months ended July 3, 2022 are not necessarily indicative of the results to be expected for the full 2022 fiscal year. The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022 (the “Form 10-K”).

In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic. We continue to monitor the dynamic nature of the COVID-19 pandemic on our business, results and financial condition; however, we cannot predict the ultimate duration, scope or severity of the COVID-19 pandemic or its ultimate impact on our results of operations, financial condition and prospects.

The principal 100% owned subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). The Company manages and internally reports its business in the following segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. See Note 18 for further information.

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to or on December 31. All three- and six-month periods presented herein contain 13 weeks and 26 weeks, respectively. All references to years, quarters and months relate to fiscal periods rather than calendar periods.

Our significant interim accounting policies include the recognition of advertising funds expense in proportion to advertising funds revenue.

Reclassifications

The Company has reclassified payments for cloud computing arrangements to “Cloud computing arrangements expenditures,” which were previously recorded to “Changes in operating assets and liabilities and other, net.” The prior period amounts in the condensed consolidated statement of cash flows reflect the reclassification of these cash flows to conform to the current year presentation. There was no impact to “Net cash provided by operating activities.”

The following table illustrates the reclassifications made to the condensed consolidated statement of cash flows for the six months ended July 4, 2021:
As Previously ReportedReclassificationsAs Currently Reported
Cloud computing arrangements expenditures$ $(2,412)$(2,412)
Changes in operating assets and liabilities and other, net(13,536)2,412 (11,124)

10

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


(2) Revenue

Disaggregation of Revenue

The following tables disaggregate revenue by segment and source:
Wendy’s U.S.Wendy’s InternationalGlobal Real Estate & DevelopmentTotal
Three Months Ended July 3, 2022
Sales at Company-operated restaurants$227,903 $2,966 $ $230,869 
Franchise royalty revenue108,872 16,141  125,013 
Franchise fees15,986 1,167 1,270 18,423 
Franchise rental income  58,610 58,610 
Advertising funds revenue97,679 7,189  104,868 
Total revenues$450,440 $27,463 $59,880 $537,783 
Six Months Ended July 3, 2022
Sales at Company-operated restaurants$434,404 $5,740 $ $440,144 
Franchise royalty revenue206,792 29,966  236,758 
Franchise fees31,391 2,438 1,825 35,654 
Franchise rental income  116,481 116,481 
Advertising funds revenue185,164 12,225  197,389 
Total revenues$857,751 $50,369 $118,306 $1,026,426 
Three Months Ended July 4, 2021
Sales at Company-operated restaurants$193,279 $246 $ $193,525 
Franchise royalty revenue106,006 13,560  119,566 
Franchise fees14,331 1,454 1,310 17,095 
Franchise rental income  60,868 60,868 
Advertising funds revenue96,227 6,056  102,283 
Total revenues$409,843 $21,316 $62,178 $493,337 
Six Months Ended July 4, 2021
Sales at Company-operated restaurants$382,336 $246 $ $382,582 
Franchise royalty revenue202,770 25,130  227,900 
Franchise fees26,261 2,897 2,433 31,591 
Franchise rental income  119,744 119,744 
Advertising funds revenue180,430 11,293  191,723 
Total revenues$791,797 $39,566 $122,177 $953,540 

11

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


Contract Balances

The following table provides information about receivables and contract liabilities (deferred franchise fees) from contracts with customers:
July 3,
2022 (a)
January 2, 2022 (a)
Receivables, which are included in “Accounts and notes receivable, net” (b)
$57,838 $49,168 
Receivables, which are included in “Advertising funds restricted assets”
66,918 65,497 
Deferred franchise fees (c)99,108 97,186 
_______________

(a)Excludes funds collected from the sale of gift cards, which are primarily reimbursed to franchisees upon redemption at franchised restaurants and do not ultimately result in the recognition of revenue in the Company’s condensed consolidated statements of operations.

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

(c)Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $9,862 and $89,246, respectively, as of July 3, 2022, and $9,084 and $88,102, respectively, as of January 2, 2022.

Significant changes in deferred franchise fees are as follows:
Six Months Ended
July 3,
2022
July 4,
2021
Deferred franchise fees at beginning of period$97,186 $97,785 
Revenue recognized during the period
(5,037)(6,845)
New deferrals due to cash received and other6,959 7,469 
Deferred franchise fees at end of period$99,108 $98,409 

Anticipated Future Recognition of Deferred Franchise Fees

The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period:
Estimate for fiscal year:
2022 (a)$6,831 
20236,440 
20246,260 
20256,084 
20265,975 
Thereafter67,518 
$99,108 
_______________

(a)Represents franchise fees expected to be recognized for the remainder of 2022, which includes development-related franchise fees expected to be recognized over a duration of one year or less.

12

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


(3) Acquisitions

The Company completed no significant acquisitions of restaurants from franchisees during the six months ended July 3, 2022 and July 4, 2021.

During 2021, the Company acquired 93 restaurants from a franchisee for total net cash consideration of $127,948. The fair values of the identifiable net assets related to the acquisition were provisional amounts as of January 2, 2022, pending final purchase accounting adjustments. The Company finalized the purchase price allocation during the three months ended April 3, 2022, which resulted in no adjustments to the fair values of the identifiable net assets related to the acquisition.

(4) System Optimization Gains, Net

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 franchisee-to-franchisee restaurant transfers (“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 move its ownership away from approximately 5% of the total system, the Company expects to continue to optimize the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, drive new restaurant development and accelerate reimages. During the six months ended July 3, 2022 and July 4, 2021, the Company facilitated 46 and 19 Franchise Flips, respectively. In addition, during the three months ended July 4, 2021, the Company completed the sale of 47 Company-operated restaurants in New York (including Manhattan) to franchisees. No Company-operated restaurants were sold to franchisees during the six months ended July 3, 2022.

Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our condensed consolidated statements of operations. Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs,” which are further described in Note 5. All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

The following is a summary of the disposition activity recorded as a result of our system optimization initiative:
Three Months EndedSix Months Ended
July 3,
2022
July 4,
2021
July 3,
2022
July 4,
2021
Number of restaurants sold to franchisees