Wendy's Co [WEN] Filings

10-Q 1 wen-20220403.htm 10-Q wen-20220403

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 April 3, 2022


☐						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)


Delaware		38-0471180
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Dave Thomas Blvd.
Dublin,	Ohio	43017
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.10 par value	WEN	The 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 214,246,760 shares of The Wendy’s Company common stock outstanding as of May 4, 2022.

THE WENDY’S COMPANY AND SUBSIDIARIES

INDEX TO FORM 10-Q


			Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements			4
Unaudited Condensed Consolidated Balance Sheets as of April 3, 2022 and January 2 , 20 2 2			4
Unaudited Condensed Consolidated Statements of Operations for the three months ended April 3, 2022 and April 4, 2021			5
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended April 3, 2022 and April 4, 2021			6
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended April 3, 2022 and April 4, 2021			7
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended Ap ril 3, 2022 and April 4, 2021			8
Notes to Condensed Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures about Market Risk			37
Item 4. Controls and Procedures			38

PART II: OTHER INFORMATION			39
Item 1. Legal Proceedings			40
Item 1A. Risk Factors			41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			41
Item 6. Exhibits			42
Signatures			43

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands Except Par Value)


	April 3, 2022		January 2, 2022
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	741,216	$	249,438
Restricted cash	32,627		27,535
Accounts and notes receivable, net	118,151		119,540
Inventories	5,945		5,934
Prepaid expenses and other current assets	32,101		30,584
Advertising funds restricted assets	149,787		159,818
Total current assets	1,079,827		592,849
Properties	895,684		906,867
Finance lease assets	242,917		244,279
Operating lease assets	793,727		812,620
Goodwill	775,534		775,278
Other intangible assets	1,273,006		1,280,791
Investments	51,453		49,870
Net investment in sales-type and direct financing leases	302,783		299,707
Other assets	148,168		139,130
Total assets	$	5,563,099	$	5,101,391

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	29,250	$	24,250
Current portion of finance lease liabilities	17,211		15,513
Current portion of operating lease liabilities	47,178		47,315
Accounts payable	33,152		41,163
Accrued expenses and other current liabilities	129,168		140,783
Advertising funds restricted liabilities	151,690		157,901
Total current liabilities	407,649		426,925
Long-term debt	2,836,838		2,356,416
Long-term finance lease liabilities	561,238		559,587
Long-term operating lease liabilities	833,466		853,328
Deferred income taxes	271,627		267,710
Deferred franchise fees	88,476		88,102
Other liabilities	109,270		112,918
Total liabilities	5,108,564		4,664,986
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 215,375 and 215,849 shares outstanding, respectively	47,042		47,042
Additional paid-in capital	2,922,042		2,898,633
Retained earnings	354,681		344,198
Common stock held in treasury, at cost; 255,049 and 254,575 shares, respectively	(2,822,148)		(2,805,268)
Accumulated other comprehensive loss	(47,082)		(48,200)
Total stockholders’ equity	454,535		436,405
Total liabilities and stockholders’ equity	$	5,563,099	$	5,101,391

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Amounts)


	Three Months Ended
	April 3, 2022		April 4, 2021
	(Unaudited)
Revenues:
Sales	$	209,275	$	189,057
Franchise royalty revenue and fees	128,976		122,830
Franchise rental income	57,871		58,876
Advertising funds revenue	92,521		89,440
	488,643		460,203
Costs and expenses:
Cost of sales	185,053		156,850
Franchise support and other costs	11,816		7,686
Franchise rental expense	28,936		32,566
Advertising funds expense	97,800		94,238
General and administrative	62,346		52,622
Depreciation and amortization	33,231		31,542
System optimization gains, net	(3,534)		(516)
Reorganization and realignment costs	464		4,934
Impairment of long-lived assets	616		635
Other operating income, net	(2,966)		(3,476)
	413,762		377,081
Operating profit	74,881		83,122
Interest expense, net	(26,365)		(28,786)

Investment income, net	2,111		3
Other income, net	207		126
Income before income taxes	50,834		54,465
Provision for income taxes	(13,432)		(13,099)
Net income	$	37,402	$	41,366

Net income per share:
Basic	$	.17	$	.19
Diluted	.17		.18

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)


	Three Months Ended
	April 3, 2022		April 4, 2021
	(Unaudited)
Net income	$	37,402	$	41,366
Other comprehensive income:
Foreign currency translation adjustment	1,118		2,220
Other comprehensive income	1,118		2,220
Comprehensive income	$	38,520	$	43,586

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands)


	Common Stock		Additional Paid-In Capital		Retained Earnings		Common Stock Held in Treasury		Accumulated Other Comprehensive Loss		Total

	(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





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

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	Three Months Ended
	April 3, 2022		April 4, 2021
	(Unaudited)
Cash flows from operating activities:
Net income	$	37,402	$	41,366
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	33,231		31,542
Share-based compensation	6,348		5,151
Impairment of long-lived assets	616		635
Deferred income tax	4,527		(1,116)
Non-cash rental expense, net	6,874		10,152
Change in operating lease liabilities	(11,615)		(11,607)
Net receipt of deferred vendor incentives	7,711		6,522
System optimization gains, net	(3,534)		(516)
Distributions received from joint ventures, net of equity in earnings	898		1,409
Long-term debt-related activities, net	1,717		1,677
Cloud computing arrangements expenditures	(4,656)		—
Changes in operating assets and liabilities and other, net	(58,537)		615
Net cash provided by operating activities	20,982		85,830
Cash flows from investing activities:
Capital expenditures	(12,496)		(10,364)
Franchise development fund	(955)		—
Acquisitions	—		4,879
Dispositions	263		3

Notes receivable, net	141		397
Net cash used in investing activities	(13,047)		(5,085)
Cash flows from financing activities:
Proceeds from long-term debt	500,000		—
Repayments of long-term debt	(6,063)		(11,900)
Repayments of finance lease liabilities	(4,076)		(2,659)
Deferred financing costs	(10,209)		—
Repurchases of common stock	—		(55,611)
Dividends	(26,911)		(20,156)
Proceeds from stock option exercises	1,591		972
Payments related to tax withholding for share-based compensation	(1,530)		(2,308)
Net cash provided by (used in) financing activities	452,802		(91,662)
Net cash provided by (used in) operations before effect of exchange rate changes on cash	460,737		(10,917)
Effect of exchange rate changes on cash	305		823
Net increase (decrease) in cash, cash equivalents and restricted cash	461,042		(10,094)
Cash, cash equivalents and restricted cash at beginning of period	366,966		418,241
Cash, cash equivalents and restricted cash at end of period	$	828,008	$	408,147

See accompanying notes to condensed consolidated financial statements.

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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 April 3, 2022 and the results of our operations and cash flows for the three months ended April 3, 2022 and April 4, 2021. The results of operations for the three months ended April 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-month periods presented herein contain 13 weeks. 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.

(2) Revenue

Disaggregation of Revenue

The following tables disaggregate revenue by segment and source:


	Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total
Three Months Ended April 3, 2022
Sales at Company-operated restaurants	$	206,501	$	2,774	$	—	$	209,275
Franchise royalty revenue	97,920		13,825		—		111,745
Franchise fees	15,405		1,271		555		17,231
Franchise rental income	—		—		57,871		57,871
Advertising funds revenue	87,485		5,036		—		92,521
Total revenues	$	407,311	$	22,906	$	58,426	$	488,643

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)


	Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total








Three Months Ended April 4, 2021
Sales at Company-operated restaurants	$	189,057	$	—	$	—	$	189,057
Franchise royalty revenue	96,764		11,570		—		108,334
Franchise fees	11,930		1,443		1,123		14,496
Franchise rental income	—		—		58,876		58,876
Advertising funds revenue	84,203		5,237		—		89,440
Total revenues	$	381,954	$	18,250	$	59,999	$	460,203

Contract Balances

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


	April 3, 2022 (a)		January 2, 2022 (a)
Receivables, which are included in “Accounts and notes receivable, net” (b)	$	52,032	$	49,168
Receivables, which are included in “Advertising funds restricted assets”	59,596		65,497
Deferred franchise fees (c)	98,429		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 $9,953 and $88,476, respectively, as of April 3, 2022, and $9,084 and $88,102, respectively, as of January 2, 2022.

Significant changes in deferred franchise fees are as follows:


	Three Months Ended
	April 3, 2022		April 4, 2021
Deferred franchise fees at beginning of period	$	97,186	$	97,785
Revenue recognized during the period	(2,283)		(4,337)
New deferrals due to cash received and other	3,526		1,799
Deferred franchise fees at end of period	$	98,429	$	95,247

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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)	$	8,550
2023	6,367
2024	6,184
2025	5,999
2026	5,886
Thereafter	65,443
	$	98,429

_______________

(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.

(3) Acquisitions

The Company completed no significant acquisitions of restaurants from franchisees during the three months ended April 3, 2022 and April 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 three months ended April 3, 2022, the Company facilitated five Franchise Flips. During the three months ended April 4, 2021, the Company facilitated no Franchise Flips.

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.”

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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


	Three Months Ended
	April 3, 2022		April 4, 2021
Post-closing adjustments on sales of restaurants (a)	$	3,447	$	515
Gain on sales of other assets, net (b)	87		1
System optimization gains, net	$	3,534	$	516

_______________

(a)Represents the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

(b)During the three months ended April 3, 2022 and April 4, 2021, the Company received net cash proceeds of $168 and $3, respectively, primarily from the sale of surplus and other properties.

The Company also received cash proceeds of $95 during the three months ended April 3, 2022 related to a note receivable issued in connection with the sale of the Manhattan Company-operated restaurants during 2021.

Assets Held for Sale

As of April 3, 2022 and January 2, 2022, the Company had assets held for sale of $3,485 and $3,541, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”

(5) Reorganization and Realignment Costs

The following is a summary of the initiatives included in “Reorganization and realignment costs:”


	Three Months Ended
	April 3, 2022		April 4, 2021
System optimization initiative	$	407	$	4,678
Other reorganization and realignment plans	57		256
Reorganization and realignment costs	$	464	$	4,934

System Optimization Initiative

The Company recognizes costs related to acquisitions and dispositions under its system optimization initiative. During the three months ended April 3, 2022, the Company recognized costs totaling $407, 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 $4,678, 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. (“NPC”). As previously announced, NPC, formerly the Company’s largest franchisee, filed for chapter 11 bankruptcy in July 2020 and completed a process during the three months ended April 4, 2021 under which all of NPC’s Wendy’s restaurants were sold to Wendy’s approved franchisees. The Company expects to recognize a gain of approximately $900, primarily related to the write-off of certain NPC-related lease liabilities, upon final termination of the leases.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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


	Three Months Ended				Total Incurred Since Inception
	April 3, 2022		April 4, 2021
Severance and related employee costs	$	—	$	—		$	18,898
Professional fees	294		235			23,971
Other (a)	96		1,354			7,714
	390		1,589			50,583
Accelerated depreciation and amortization (b)	—		—			25,398
NPC lease termination costs (c)	17		3,089			2,873
Share-based compensation (d)	—		—			5,013
Total system optimization initiative	$	407	$	4,678		$	83,867

_______________

(a)The three months ended April 4, 2021 includes transaction fees of $1,350 associated with the NPC bankruptcy sale process.

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

(c)The three months ended April 4, 2021 includes the write-off of lease assets of $1,609 and lease termination fees paid of $1,480.

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

The table below presents a rollforward of our accruals for our system optimization initiative, which were included in “Accrued expenses and other current liabilities” as of April 4, 2021.


	Balance January 2, 2022		Charges		Payments		Balance April 3, 2022
Professional fees	—		294		(294)		—
Other	—		96		(96)		—
	$	—	$	390	$	(390)	$	—


	Balance January 3, 2021		Charges		Payments		Balance April 4, 2021
Professional fees	$	1,230	235		(1,461)		$	4
Other	—		1,354		(1,354)		—
	$	1,230	$	1,589	$	(2,815)	$	4

Other Reorganization and Realignment Plans

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.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(6) Investments

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


	April 3, 2022		January 2, 2022
Equity method investments	$	39,346	$	39,870
Other investments in equity securities	12,107		10,000
	$	51,453	$	49,870

Equity Method Investments

Wendy’s has a 50% share in a partnership in a Canadian restaurant real estate joint venture (“TimWen”) with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company that owns the Tim Hortons® brand (Tim Hortons is a registered trademark of Tim Hortons USA Inc.). In addition, the Company has a 20% share in a joint venture in Brazil (the “Brazil JV”). The Company has significant influence over these investees. Such investments are accounted for using the equity method, under which our results of operations include our share of the income (loss) of the investees in “Other operating income, net.”

Presented below is activity related to our investment in TimWen and the Brazil JV included in our condensed consolidated financial statements:


	Three Months Ended
	April 3, 2022		April 4, 2021
Balance at beginning of period	$	39,870	$	44,574

Equity in earnings for the period	2,508		2,167
Amortization of purchase price adjustments (a)	(731)		(595)
	1,777		1,572
Distributions received	(2,675)		(2,981)
Foreign currency translation adjustment included in “Other comprehensive income” and other	374		578
Balance at end of period	$	39,346	$	43,743

_______________

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

Other Investments in Equity Securities

During 2021, the Company made an investment in equity securities of $10,000. During the three months ended April 3, 2022, the Company recognized a gain of $2,107 as a result of an observable price change for a similar investment of the same issuer.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(7) Long-Term Debt

Long-term debt consisted of the following:


	April 3, 2022		January 2, 2022
Series 2022-1 Class A-2 Notes:
4.236% Series 2022-1 Class A-2-I Notes, anticipated repayment date 2029	$	100,000	$	—
4.535% Series 2022-1 Class A-2-II Notes, anticipated repayment date 2032	400,000		—
Series 2021-1 Class A-2 Notes:
2.370% Series 2021-1 Class A-2-I Notes, anticipated repayment date 2029	446,625		447,750
2.775% Series 2021-1 Class A-2-II Notes, anticipated repayment date 2031	645,125		646,750
Series 2019-1 Class A-2 Notes:
3.783% Series 2019-1 Class A-2-I Notes, anticipated repayment date 2026	367,000		368,000
4.080% Series 2019-1 Class A-2-II Notes, anticipated repayment date 2029	412,875		414,000
Series 2018-1 Class A-2 Notes:
3.884% Series 2018-1 Class A-2-II Notes, anticipated repayment date 2028	454,813		456,000
7% debentures, due in 2025	85,472		85,175
Unamortized debt issuance costs	(45,822)		(37,009)
	2,866,088		2,380,666
Less amounts payable within one year	(29,250)		(24,250)
Total long-term debt	$	2,836,838	$	2,356,416

Senior Notes

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. On April 1, 2022, the Master Issuer completed a financing transaction with respect to this facility under which the Master Issuer issued fixed rate senior secured notes in the following 2022-1 series: Class A-2-I with an initial principal amount of $100,000 and Class A-2-II with an initial principal amount of $400,000 (collectively, the “Series 2022-1 Class A-2 Notes”). Interest and principal payments on the Series 2022-1 Class A-2 Notes are payable on a quarterly basis. The legal final maturity date of the Series 2022-1 Class A-2 Notes is March 2052. If the Master Issuer has not repaid or refinanced the Series 2022-1 Class A-2 Notes prior to their respective anticipated repayment dates, additional interest will accrue pursuant to the indenture governing the Series 2022-1 Class A-2 Notes. 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. The Series 2022-1 Class A-2 Notes have scheduled principal payments of $2,500 in 2022, $5,000 annually from 2023 through 2028, $97,500 in 2029, $4,000 annually from 2030 through 2031 and $362,000 in 2032.

The Series 2022-1 Class A-2 Notes are secured by a security interest in substantially all of the assets of the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company that act as guarantors, except for certain real estate assets and subject to certain limitations. The Series 2022-1 Class A-2 Notes are subject to substantially the same series of covenants and restrictions as the Company’s outstanding Series 2021-1 Class A-2 Notes, Series 2019-1 Class A-2 Notes and Series 2018-1 Class A-2 Notes.

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 $300,000 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.

During the three months ended April 3, 2022, the Company incurred debt issuance costs of $10,232 in connection with the issuance of the Series 2022-1 Class A-2 Notes. The debt issuance costs will be amortized to “Interest expense, net” through the anticipated repayment dates of the Series 2022-1 Class A-2 Notes utilizing the effective interest rate method.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(8) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. These inputs are classified into the following hierarchy:

•Level 1 Inputs - Quoted prices for identical assets or liabilities in active markets.

•Level 2 Inputs - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

•Level 3 Inputs - Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation.

Financial Instruments

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


	April 3, 2022				January 2, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements
Financial assets
Cash equivalents	$	415,000	$	415,000	$	—	$	—	Level 1
Other investments in equity securities (a)	12,107		12,107		10,000		10,000		Level 2

Financial liabilities
Series 2022-1 Class A-2-I Notes (b)	100,000		99,320		—		—		Level 2
Series 2022-1 Class A-2-II Notes (b)	400,000		398,680		—		—		Level 2
Series 2021-1 Class A-2-I Notes (b)	446,625		395,442		447,750		439,283		Level 2
Series 2021-1 Class A-2-II Notes (b)	645,125		565,517		646,750		642,352		Level 2
Series 2019-1 Class A-2-I Notes (b)	367,000		358,853		368,000		381,579		Level 2
Series 2019-1 Class A-2-II Notes (b)	412,875		405,113		414,000		439,792		Level 2
Series 2018-1 Class A-2-II Notes (b)	454,813		445,307		456,000		473,693		Level 2
7% debentures, due in 2025 (b)	85,472		97,425		85,175		101,142		Level 2

_______________

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

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

The carrying amounts of cash, accounts payable and accrued expenses approximate fair value due to the short-term nature of those items. The carrying amounts of accounts and notes receivable, net (both current and non-current) approximate fair value due to the effect of the related allowance for doubtful accounts. Our cash equivalents are the only financial assets measured and recorded at fair value on a recurring basis.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Non-Recurring Fair Value Measurements

Assets and liabilities remeasured to fair value on a non-recurring basis resulted in impairment that we have recorded to “Impairment of long-lived assets” in our condensed consolidated statements of operations.

Total impairment losses may reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements, favorable lease assets and right-of-use assets) to fair value as a result of (1) declines in operating performance at Company-operated restaurants and (2) the Company’s decision to lease and/or sublease the land and/or buildings to franchisees in connection with the sale or anticipated sale of restaurants, including any subsequent lease modifications. The fair values of long-lived assets held and used presented in the tables below represent the remaining carrying value and were estimated based on either discounted cash flows of future anticipated lease and sublease income or discounted cash flows of future anticipated Company-operated restaurant performance.

Total impairment losses may also include the impact of remeasuring long-lived assets held for sale. The fair values of long-lived assets held for sale presented in the tables below represent the remaining carrying value and were estimated based on current market values. See Note 9 for further information on impairment of our long-lived assets.


			Fair Value Measurements
	April 3, 2022		Level 1		Level 2		Level 3
Held and used	$	325	$	—	$	—	$	325
Held for sale	1,467		—		—		1,467
Total	$	1,792	$	—	$	—	$	1,792


			Fair Value Measurements
	January 2, 2022		Level 1		Level 2		Level 3
Held and used	$	1,618	$	—	$	—	$	1,618
Held for sale	371		—		—		371
Total	$	1,989	$	—	$	—	$	1,989

(9) Impairment of Long-Lived Assets

The Company records impairment charges as a result of (1) the deterioration in operating performance of certain Company-operated restaurants, (2) the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of Company-operated restaurants, including any subsequent lease modifications, and (3) closing Company-operated restaurants and classifying such surplus properties as held for sale.

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

Three Months Ended

April 3,
2022

April 4,
2021