Wendy's Co (Form: 10-Q, Received: 08/10/2016 07:40:55)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(X)		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2016



( )		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 registrants 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)

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 [x] 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 [x] No [ ]

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

Large accelerated filer [x] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [x]

There were 261,255,301 shares of The Wendy’s Company common stock outstanding as of August 4, 2016 .

THE WENDY’S COMPANY AND SUBSIDIARIES

INDEX TO FORM 10-Q



	Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets as of July 3, 2016 (Unaudited) and January 3, 2016	3
Unaudited Condensed Consolidated Statements of Operations for the three and six months ended July 3, 2016 and June 28, 2015	4
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 3, 2016 and June 28, 2015	5
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended July 3, 2016 and June 28, 2015	6
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosures about Market Risk	40
Item 4. Controls and Procedures	40

PART II: OTHER INFORMATION	41
Item 1. Legal Proceedings	43
Item 1A. Risk Factors	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6. Exhibits	46
Signatures	47

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)



	July 3, 2016			January 3, 2016
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	266,180		$	327,216
Restricted cash	35,694			42,869
Accounts and notes receivable	115,304			104,854
Inventories	2,432			4,312
Prepaid expenses and other current assets	144,800			69,919
Advertising funds restricted assets	91,322			67,399
Total current assets	655,732			616,569
Properties	1,191,353			1,227,944
Goodwill	739,566			770,781
Other intangible assets	1,330,869			1,339,587
Investments	60,942			58,369
Other assets	156,758			95,470
Total assets	$	4,135,220		$	4,108,720

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	23,701		$	23,290
Accounts payable	38,192			53,681
Accrued expenses and other current liabilities	124,739			124,404
Advertising funds restricted liabilities	91,322			67,399
Total current liabilities	277,954			268,774
Long-term debt	2,485,414			2,402,823
Deferred income taxes	450,616			459,713
Other liabilities	228,072			224,496
Total liabilities	3,442,056			3,355,806
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued	47,042			47,042
Additional paid-in capital	2,874,434			2,874,752
Accumulated deficit	(336,948		)	(356,632		)
Common stock held in treasury, at cost; 207,115 and 198,109 shares, respectively	(1,835,629		)	(1,741,425		)
Accumulated other comprehensive loss	(55,735		)	(70,823		)
Total stockholders’ equity	693,164			752,914
Total liabilities and stockholders’ equity	$	4,135,220		$	4,108,720

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						Six Months Ended
	July 3, 2016			June 28, 2015			July 3, 2016			June 28, 2015
	(Unaudited)
Revenues:
Sales	$	259,235		$	385,048		$	518,567		$	742,617
Franchise revenues	123,483			104,486			242,938			198,686
	382,718			489,534			761,505			941,303
Costs and expenses:
Cost of sales	202,554			315,122			417,290			620,233
General and administrative	61,124			60,771			125,770			120,469
Depreciation and amortization	30,749			39,335			63,094			74,880
System optimization gains, net	(1,924		)	(15,654		)	(10,350		)	(14,849		)
Reorganization and realignment costs	2,487			6,279			5,737			10,892
Impairment of long-lived assets	5,525			10,018			12,630			11,955
Other operating expense, net	16,555			9,355			17,857			15,504
	317,070			425,226			632,028			839,084
Operating profit	65,648			64,308			129,477			102,219
Interest expense	(28,643		)	(17,201		)	(56,752		)	(29,944		)
Loss on early extinguishment of debt	—			(7,295		)	—			(7,295		)
Other income, net	276			272			538			511
Income from continuing operations before income taxes	37,281			40,084			73,263			65,491
Provision for income taxes	(10,801		)	(15,259		)	(21,420		)	(22,516		)
Income from continuing operations	26,480			24,825			51,843			42,975
Discontinued operations:
Income from discontinued operations, net of income taxes	—			231			—			9,588
Gain on disposal of discontinued operations, net of income taxes	—			15,139			—			15,139
Net income from discontinued operations	—			15,370			—			24,727
Net income	$	26,480		$	40,195		$	51,843		$	67,702

Basic income per share:
Continuing operations	$	.10		$	.07		$	.19		$	.12
Discontinued operations	—			.04			—			.07
Net income	$	.10		$	.11		$	.19		$	.19

Diluted income per share:
Continuing operations	$	.10		$	.07		$	.19		$	.12
Discontinued operations	—			.04			—			.07
Net income	$	.10		$	.11		$	.19		$	.18

Dividends per share	$	.06		$	.055		$	.12		$	.11

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					Six Months Ended
	July 3, 2016			June 28, 2015		July 3, 2016			June 28, 2015
	(Unaudited)

Net income	$	26,480		$	40,195	$	51,843		$	67,702
Other comprehensive income (loss), net:
Foreign currency translation adjustment	1,580			4,901		14,256			(12,494		)
Change in unrecognized pension loss, net of income tax benefit of $34 for the three and six months ended July 3, 2016 and $124 for the six months ended June 28, 2015	(56		)	—		(56		)	(203		)
Effect of cash flow hedges, net of income tax (provision) benefit of $(281) and $(12) for the three months and $(559) and $1,490 for the six months ended July 3, 2016 and June 28, 2015, respectively	443			24		888			(2,442		)
Other comprehensive income (loss), net	1,967			4,925		15,088			(15,139		)
Comprehensive income	$	28,447		$	45,120	$	66,931		$	52,563

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)



	Six Months Ended
	July 3, 2016			June 28, 2015
	(Unaudited)
Cash flows from operating activities:
Net income	$	51,843		$	67,702
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	64,694			78,799
Share-based compensation	9,925			12,242
Impairment of long-lived assets	12,630			11,955
Deferred income tax	(10,353		)	19,730
Excess tax benefits from share-based compensation	(1,774		)	(46,374		)
Non-cash rent (income) expense, net	(2,561		)	2,607
Net receipt o f deferred vendor incentives	8,230			8,396
System optimization gains, net	(10,350		)	(14,881		)
Gain on disposal of the Bakery	—			(27,338		)
Distributions received from TimWen joint venture	5,786			5,825
Equity in earnings in joint ventures, net	(4,275		)	(4,545		)
Accretion of long-term debt	608			600
Amortization of deferred financing costs	3,769			1,589
Loss on early extinguishment of debt	—			7,295
Payments for termination of cash flow hedges	—			(7,337		)
Reclassification of unrealized losses on cash flow hedges	1,447			—
Other, net	1,731			1,060
Changes in operating assets and liabilities:
Restricted cash	135			(27,190		)
Accounts and notes receivable	(30,020		)	(14,876		)
Inventories	148			168
Prepaid expenses and other current assets	(4,638		)	(3,869		)
Accounts payable	(1,884		)	10,664
Accrued expenses and other current liabilities	5,867			(29,108		)
Net cash provided by operating activities	100,958			53,114
Cash flows from investing activities:
Capital expenditures	(68,495		)	(130,548		)
Acquisitions	(2,209		)	(1,232		)
Dispositions	45,078			38,697
Proceeds from sale of the Bakery	—			78,408
Payments for investments	(113		)	(2,000		)
Notes receivable, net	(3,439		)	830
Changes in restricted cash	7,040			484
Other, net	(17		)	89
Net cash used in investing activities	(22,155		)	(15,272		)
Cash flows from financing activities:
Proceeds from long-term debt	—			2,275,000
Repayments of long-term debt	(12,651		)	(1,302,055		)
Deferred financing costs	(867		)	(39,374		)
Repurchases of common stock	(108,057		)	(63,206		)
Dividends	(32,152		)	(40,189		)
Proceeds from stock option exercises	6,696			19,688
Excess tax benefits from share-based compensation	1,774			46,374
Net cash (used in) provided by financing activities	(145,257		)	896,238
Net cash (used in) provided by operations before effect of exchange rate changes on cash	(66,454		)	934,080
Effect of exchange rate changes on cash	5,418			(3,789		)
Net (decrease) increase in cash and cash equivalents	(61,036		)	930,291
Cash and cash equivalents at beginning of period	327,216			267,276
Cash and cash equivalents at end of period	$	266,180		$	1,197,567

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—CONTINUED

(In Thousands)



	Six Months Ended
	July 3, 2016		June 28, 2015
	(Unaudited)
Supplemental cash flow information:
Cash paid for:
Interest	$	57,501	$	27,452
Income taxes, net of refunds	39,745		11,845

Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable	$	17,228	$	30,927
Capitalized lease obligations	91,579		20,210
Notes receivable	—		2,023
Accrued debt issuance costs	164		3,720

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 necessary to present fairly our financial position as of July 3, 2016 and the results of our operations for the three and six months ended July 3, 2016 and June 28, 2015 and cash flows for the six months ended July 3, 2016 and June 28, 2015 . The results of operations for the three and six months ended July 3, 2016 are not necessarily indicative of the results to be expected for the full 2016 fiscal year. These 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 3, 2016 (the “Form 10-K”).

The principal subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). The Company manages and internally reports its business geographically. The operation and franchising of Wendy’s ^® restaurants in North America (defined as the United States of America (“U.S.”) and Canada) comprises virtually all of our current operations and represents a single reportable segment. The revenues and operating results of Wendy’s restaurants outside of North America are not material.

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 and quarters relate to fiscal periods rather than calendar periods.

On May 31, 2015, Wendy’s completed the sale of its company-owned bakery, The New Bakery Company, LLC and its subsidiaries (collectively, the “Bakery”), a 100% owned subsidiary of Wendy’s. As a result of the sale of the Bakery, as further discussed in Note 2, the Bakery’s results of operations for the period from December 29, 2014 through May 31, 2015 and the gain on disposal have been included in “ Net income from discontinued operations ” in our condensed consolidated statements of operations.

In connection with the reimaging of restaurants as part of our Image Activation program, we have recorded accelerated depreciation of $1,393 and $3,215 during the three and six months ended July 3, 2016 , respectively, on certain long-lived assets to reflect their use over shortened estimated useful lives. We describe the circumstances under which we record accelerated depreciation and amortization for properties in our Form 10-K.

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

(2) Discontinued Operations

On May 31, 2015, Wendy’s completed the sale of 100% of its membership interest in the Bakery to East Balt US, LLC (the “Buyer”) for $78,500 in cash (subject to customary purchase price adjustments). The Company also assigned certain capital leases for transportation equipment to the Buyer but retained the related obligation, which was settled during 2015. Pursuant to the sale agreement, the Company was obligated to continue to provide health insurance benefits to the Bakery’s employees at the Company’s expense through December 31, 2015. The Company recorded a pre-tax gain on the disposal of the Bakery of $27,338 in the second quarter of 2015, which included transaction closing costs and a reduction of goodwill. The Company recognized income tax expense associated with the gain on disposal of $12,199 during the second quarter of 2015, which included the impact of the disposal of non-deductible goodwill.

In conjunction with the Bakery sale, Wendy’s entered into a transition services agreement with the Buyer, pursuant to which Wendy’s provided certain continuing corporate and shared services to the Buyer through March 31, 2016 for no additional consideration. A purchasing cooperative, Quality Supply Chain Co-op, Inc. (“QSCC”), established by Wendy’s and its franchisees, agreed to continue to source sandwich buns from the Bakery for a specified time period following the sale of the Bakery. As a result, Wendy’s paid the Buyer $5,265 and $996 for the purchase of sandwich buns during the six months ended July 3, 2016 and for the period from June 1, 2015 through June 28, 2015 , respectively, which has been recorded to “Cost of sales.”

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Information related to the Bakery has been reflected in the accompanying condensed consolidated financial statements as follows:


•	Balance sheets - As a result of our sale of the Bakery on May 31, 2015, there are no remaining Bakery assets and liabilities.


•	Statements of operations - The Bakery’s results of operations for the period from December 29, 2014 through May 31, 2015 have been presented as discontinued operations. In addition, the gain on disposal of the Bakery has been included in “ Net income from discontinued operations ” for the three and six months ended June 28, 2015 .


•	Statements of cash flows - The Bakery’s cash flows prior to its sale (for the period from December 29, 2014 through May 31, 2015) have been included in, and not separately reported from, our consolidated statement of cash flows. The consolidated statement of cash flows for the six months ended June 28, 2015 also includes the effects of the sale of the Bakery.

The following table presents the Bakery’s results of operations and the gain on disposal, which have been included in discontinued operations:



	Three Months Ended			Six Months Ended
	June 28, 2015			June 28, 2015
Revenues (a)	$	11,408		$	25,885
Cost of sales (b)	(9,175		)	(7,336		)
	2,233			18,549
General and administrative	(483		)	(1,097		)
Depreciation and amortization (c)	(962		)	(2,297		)
Other expense, net (d)	(12		)	(34		)
Income from discontinued operations before income taxes	776			15,121
Provision for income taxes	(545		)	(5,533		)
Income from discontinued operations, net of income taxes	231			9,588
Gain on disposal of discontinued operations before income taxes	27,338			27,338
Provision for income taxes on gain on disposal	(12,199		)	(12,199		)
Gain on disposal of discontinued operations, net of income taxes	15,139			15,139
Net income from discontinued operations	$	15,370		$	24,727

_______________


(a)	Includes sales of sandwich buns and related products previously reported in “Sales” as well as rental income.

(b)

The three and six months ended June 28, 2015 include employee separation costs of $791 as a result of the sale of the Bakery. In addition, the six months ended June 28, 2015 includes a reduction to cost of sales of $12,486 , as further described in the Form 10-K, resulting from the reversal of a liability recorded during 2013 associated with the Bakery’s withdrawal from a multiemployer pension plan.


(c)	Included in “Depreciation and amortization” in our condensed consolidated statement of cash flows for the period presented.


(d)	Includes net gains on sales of other assets. During the three and six months ended June 28, 2015 , the Bakery received cash proceeds of $41 and $50 , respectively, resulting in net gains on sales of other assets of $40 and $32 , respectively.

The Bakery’s capital expenditures were $2,106 and $2,693 for the three and six months ended June 28, 2015 , respectively, which are included in “Capital expenditures” in our condensed consolidated statements of cash flows.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following table summarizes the gain on the disposal of our Bakery, which has been included in discontinued operations:



	Three and Six Months Ended
	June 28, 2015
Proceeds from sale of the Bakery (a)	$	78,408
Net working capital (b)	(5,655		)
Net properties sold (c)	(30,664		)
Goodwill allocated to the sale of the Bakery	(12,067		)
Other (d)	(2,684		)
	27,338
Provision for income taxes (e)	(12,199		)
Gain on disposal of discontinued operations, net of income taxes	$	15,139

_______________


(a)	Represents net proceeds received, which includes the purchase price of $78,500 less transaction closing costs paid directly by the Buyer on the Company’s behalf.


(b)	Primarily represents accounts receivable, inventory, prepaid expenses and accounts payable.


(c)	Net properties sold consisted primarily of buildings, equipment and capital leases for transportation equipment.


(d)	Primarily includes the recognition of the Company’s obligation, pursuant to the sale agreement, to provide health insurance benefits to the Bakery’s employees through December 31, 2015 of $1,993 and transaction closing costs paid directly by the Company.


(e)	Includes the impact of non-deductible goodwill disposed of as a result of the sale.

(3) System Optimization Gains, Net

In July 2013, the Company announced a system optimization initiative, as part of its brand transformation, which includes a shift from company-owned restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers. In February 2015, the Company announced plans to sell approximately 540 additional restaurants to franchisees and reduce its ongoing company-owned restaurant ownership to approximately 5% of the total system by the end of 2016. During 2015 , 2014 and 2013 , the Company completed the sale of 327 , 255 and 244 company-owned restaurants to franchisees, respectively, which included the sale of all of its company-owned restaurants in Canada.

During the six months ended July 3, 2016 and June 28, 2015 , the Company completed the sale of 55 and 100 company-owned restaurants to franchisees, respectively. The Company recognized net gains totaling $ $10,350 and $14,849 on the sale of company-owned restaurants and other assets during the six months ended July 3, 2016 and June 28, 2015 , respectively. In addition, the Company facilitated the transfer of 126 restaurants between franchisees during the six months ended July 3, 2016. The Company expects to complete its plan to reduce company-owned restaurant ownership to approximately 5% of the total system with the sale of 258 restaurants during the remainder of 2016, all of which were classified as held for sale as of July 3, 2016 .

Gains and losses recognized on dispositions are recorded to “ System optimization gains, net ” in our condensed consolidated statements of operations. Costs related to our system optimization initiative are recorded to “ Reorganization and realignment costs ,” and include severance and employee related costs, professional fees and other associated costs, which are further described in Note 5 .

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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					Six Months Ended
	July 3, 2016		June 28, 2015			July 3, 2016			June 28, 2015
Number of restaurants sold to franchisees	—		83			55			100

Proceeds from sales of restaurants	$	—	$	31,468		$	39,615		$	36,049
Net assets sold (a)	—		(15,158		)	(17,055		)	(17,380		)
Goodwill related to sales of restaurants	—		(6,840		)	(6,376		)	(7,863		)
Net favorable (unfavorable) leases (b)	—		7,923			(4,906		)	7,395
Other (c)	—		(2,822		)	(795		)	(3,224		)
	—		14,571			10,483			14,977
Post-closing adjustments on sales of restaurants (d)	545		934			(1,590		)	(639		)
Gain on sales of restaurants, net	545		15,505			8,893			14,338

Gain on sales of other assets, net (e)	1,379		149			1,457			511
System optimization gains, net	$	1,924	$	15,654		$	10,350		$	14,849

_______________


(a)	Net assets sold consisted primarily of inventory and equipment.

(b)

During the six months ended July 3, 2016 , the Company recorded favorable lease assets of $183 and unfavorable lease liabilities of $5,089 as a result of leasing and/or subleasing land, buildings, and/or leasehold improvements to franchisees, in connection with sales of restaurants. During the three and six months ended June 28, 2015 , the Company recorded favorable lease assets of $23,428 and $25,807 , respectively, and unfavorable lease liabilities of $15,505 and $18,412 , respectively.

(c)

The three and six months ended June 28, 2015 includes a deferred gain of $2,387 related to the sale of 14 Canadian restaurants to a franchisee, as a result of certain contingencies related to the extension of lease terms. The deferred gain is included in “Other liabilities.” The three and six months ended June 28, 2015 also includes a note receivable of $1,801 from a franchisee in connection with the sale of 16 Canadian restaurants, which has been recognized as part of the overall loss on sale.


(d)	The three and six months ended June 28, 2015 includes the recognition of a gain on sale of $2,450 related to the repayment of notes receivable from franchisees in connection with sales of restaurants in 2014.


(e)	During the three and six months ended July 3, 2016 , the Company received cash proceeds of $3,893 and $5,463 , respectively, primarily from the sale of surplus properties. During the three and six months ended June 28, 2015 , the Company received cash proceeds of $905 and $2,598 , respectively.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Assets Held for Sale



	July 3, 2016		January 3, 2016
Number of restaurants classified as held for sale	258		99
Net restaurant assets held for sale (a)	$	114,720	$	50,262

Other assets held for sale (a)	$	6,026	$	7,124

_______________


(a)	Net restaurant assets held for sale include company-owned restaurants and consist primarily of cash, inventory, equipment and an estimate of allocable goodwill. Other assets held for sale primarily consist of surplus properties. Assets held for sale are included in “ Prepaid expenses and other current assets .”

Subsequent to July 3, 2016 , the Company completed sales of certain assets used in the operation of 82 Wendy’s company-owned restaurants for cash proceeds of approximately $66,300 , subject to customary purchase price adjustments.

(4) Acquisitions

The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for acquisitions of franchised restaurants:



	Six Months Ended
	July 3, 2016			June 28, 2015
Restaurants acquired from franchisees	2			4

Total consideration paid, net of cash received	$	2,209		$	1,232
Identifiable assets acquired and liabilities assumed:
Properties	2,218			1,303
Acquired franchise rights	—			760
Other assets	9			—
Capital lease obligations	—			(706		)
Unfavorable leases	—			(440		)
Other liabilities	(18		)	(80		)
Total identifiable net assets	2,209			837
Goodwill	$	—		$	395

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(In Thousands Except Per Share Amounts)

(5) Reorganization and Realignment Costs

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



	Three Months Ended				Six Months Ended
	July 3, 2016		June 28, 2015		July 3, 2016		June 28, 2015
G&A realignment	$	406	$	4,372	$	933	$	8,535
System optimization initiative	2,081		1,907		4,804		2,357
Reorganization and realignment costs	$	2,487	$	6,279	$	5,737	$	10,892

G&A Realignment

In November 2014, the Company initiated a plan to reduce its general and administrative expenses. The plan included a realignment and reinvestment of resources to focus primarily on accelerated restaurant development and consumer-facing restaurant technology to drive long-term growth. The Company achieved the majority of the expense reductions through the realignment of its U.S. field operations and savings at its Restaurant Support Center in Dublin, Ohio, which was substantially completed by the end of the second quarter of 2015. The Company recognized costs totaling $933 during the six months ended July 3, 2016 and $24,201 in aggregate since inception. The Company expects to incur additional costs aggregating approximately $950 during the remainder of 2016, comprised primarily of recruitment and relocation costs for the reinvestment in resources to drive long-term growth.

The following is a summary of the activity recorded as a result of our G&A realignment plan:



	Three Months Ended				Six Months Ended				Total Incurred Since Inception
	July 3, 2016		June 28, 2015		July 3, 2016		June 28, 2015		Total Incurred Since Inception
Severance and related employee costs (a)	$	35	$	637	$	11	$	2,619	$	14,939
Recruitment and relocation costs	353		514		893		984		2,760
Other	18		9		29		41		166
	406		1,160		933		3,644		17,865
Share-based compensation (b)	—		3,212		—		4,891		6,336
Total G&A realignment	$	406	$	4,372	$	933	$	8,535	$	24,201

_______________


(a)	The six months ended July 3, 2016 includes a reversal of an accrual of $32 as a result of a change in estimate.


(b)	Represents incremental share-based compensation resulting from the modification of stock options and performance-based awards in connection with the termination of employees under our G&A realignment plan.

The tables below present a rollforward of our accruals for our G&A realignment plan, which are included in “Accrued expenses and other current liabilities.”



	Balance January 3, 2016		Charges		Payments			Balance July 3, 2016
Severance and related employee costs	$	3,431	$	11	$	(2,325	)	$	1,117
Recruitment and relocation costs	144		893		(807		)	230
Other	—		29		(29		)	—
	$	3,575	$	933	$	(3,161	)	$	1,347

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	Balance December 28, 2014		Charges		Payments			Balance June 28, 2015
Severance and related employee costs	$	11,609	$	2,619	$	(5,974	)	$	8,254
Recruitment and relocation costs	149		984		(902		)	231
Other	5		41		(46		)	—
	$	11,763	$	3,644	$	(6,922	)	$	8,485

System Optimization Initiative

The Company has recognized costs related to its system optimization initiative which includes a shift from company-owned restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers. The Company expects to incur additional costs of approximately $3,700 during the remainder of 2016, which are primarily comprised of professional fees.

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



	Three Months Ended						Six Months Ended					Total Incurred Since Inception
	July 3, 2016			June 28, 2015			July 3, 2016		June 28, 2015			Total Incurred Since Inception
Severance and related employee costs	$	18		$	303		$	18	$	629		$	18,170
Professional fees	1,445			110			3,146		151			12,319
Other (a)	(37		)	(128		)	40		(45		)	5,511
	1,426			285			3,204		735			36,000
Accelerated depreciation and amortization (b)	655			1,622			1,600		1,622			25,398
Share-based compensation (c)	—			—			—		—			5,013
Total system optimization initiative	$	2,081		$	1,907		$	4,804	$	2,357		$	66,411

_______________


(a)	The three and six months ended July 3, 2016 and June 28, 2015 include a reversal of an accrual of $50 and $210 , respectively, as a result of a change in estimate.


(b)	Primarily includes accelerated amortization of previously acquired franchise rights related to company-owned restaurants in territories that will be or have been sold in connection with our system optimization initiative.


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

The tables below present a rollforward of our accrual for our system optimization initiative, which is included in “Accrued expenses and other current liabilities.”



	Balance January 3, 2016		Charges		Payments			Balance July 3, 2016
Severance and related employee costs	$	77	$	18	$	(35	)	$	60
Professional fees	708		3,146		(3,497		)	357
Other	90		40		(130		)	—
	$	875	$	3,204	$	(3,662	)	$	417

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(In Thousands Except Per Share Amounts)



	Balance December 28, 2014		Charges			Payments			Balance June 28, 2015
Severance and related employee costs	$	2,235	$	629		$	(2,438	)	$	426
Professional fees	146		151			(159		)	138
Other	423		(45		)	(254		)	124
	$	2,804	$	735		$	(2,851	)	$	688

(6) Investments

Equity 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 for the operation of Wendy’s restaurants in Brazil (the “Brazil JV”). The Company has significant influence over these investees. Such investments are accounted for using the equity method of accounting, under which our results of operations include our share of the income (loss) of the investees in “Other operating expense, net.”

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



	Six Months Ended
	July 3, 2016			June 28, 2015
Balance at beginning of period	$	55,541		$	69,790

Investment	113			—

Equity in earnings for the period	5,410			5,712
Amortization of purchase price adjustments (a)	(1,135		)	(1,167		)
	4,275			4,545
Distributions received	(5,786		)	(5,825		)
Foreign currency translation adjustment included in “Other comprehensive income (loss), net”	3,952			(3,971		)
Balance at end of period	$	58,095		$	64,539

_______________


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

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(7) 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:



	July 3, 2016				January 3, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements
Financial assets
Cash equivalents	$	40,744	$	40,744	$	45,339	$	45,339	Level 1
Non-current cost method investments (a)	2,846		294,130		2,828		249,870		Level 3

Financial liabilities
Series 2015-1 Class A-2-I Notes (b)	868,438		870,956		872,813		849,106		Level 2
Series 2015-1 Class A-2-II Notes (b)	893,250		917,278		897,750		879,795		Level 2
Series 2015-1 Class A-2-III Notes (b)	496,250		500,369		498,750		484,648		Level 2
7% debentures, due in 2025 (b)	87,665		101,000		87,057		100,500		Level 2
Guarantees of franchisee loan obligations (c)	810		810		851		851		Level 3

_______________

(a)

The fair value of our indirect investment in Arby’s Restaurant Group, Inc. (“Arby’s”) is based on applying a multiple to Arby’s adjusted earnings before income taxes, depreciation and amortization per its current unaudited financial information. The carrying value of our indirect investment in Arby’s was reduced to zero during 2013 in connection with the receipt of a dividend. The fair values of our remaining investments are not significant and are based on our review of information provided by the investment managers or investees which was based on (1) valuations performed by the investment managers or investees, (2) quoted market or broker/dealer prices for similar investments and (3) quoted market or broker/dealer prices adjusted by the investment managers for legal or contractual restrictions, risk of nonperformance or lack of marketability, depending upon the underlying investments.


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

(c)

Wendy’s has provided loan guarantees to various lenders on behalf of franchisees entering into debt arrangements for new restaurant development and equipment financing. In addition, during 2012, Wendy’s provided a guarantee to a lender for a franchisee in connection with the refinancing of the franchisee’s debt. We have accrued a liability for the fair value of these guarantees, the calculation of which was based upon a weighted average risk percentage established at inception and adjusted for a history of defaults.

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(In Thousands Except Per Share Amounts)

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

Derivative Instruments

The Company’s primary objective for entering into interest rate swap agreements was to manage its exposure to changes in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt.

Our derivative instruments for the six months ended June 28, 2015 included seven forward-starting interest rate swaps designated as cash flow hedges to change the floating rate interest payments for $350,000 and $100,000 in borrowings associated with the Term A and Term B Loans, respectively, under the Company’s prior credit agreement, to fixed rate interest payments beginning June 30, 2015 and maturing on December 31, 2017. In May 2015, the Company terminated these interest rate swaps and paid $7,275 , which was recorded against the derivative liability. The unrealized loss on the cash flow hedges at termination of $7,275 is being reclassified on a straight-line basis from “Accumulated other comprehensive loss” to “Interest expense” beginning June 30, 2015, the original effective date of the interest rate swaps through December 31, 2017, the original maturity date of the interest rate swaps. As a result, the three and six months ended July 3, 2016 include the reclassification of unrealized losses on the cash flow hedges of $724 and $1,447 , respectively, from “Accumulated other comprehensive loss” to “Interest expense.”

There was no hedge ineffectiveness from these cash flows hedges through their termination in May 2015.

Non-Recurring Fair Value Measurements

Assets and liabilities remeasured to fair value on a non-recurring basis during the six months ended July 3, 2016 and the year ended January 3, 2016 resulted in impairment which we have recorded to “Impairment of long-lived assets” in our condensed consolidated statements of operations.

Total losses for the six months ended July 3, 2016 and the year ended January 3, 2016 reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements and favorable lease assets) to fair value as a result of 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. Total losses for the six months ended July 3, 2016 and the year ended January 3, 2016 also include the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements and favorable lease assets) to fair value as a result of declines in operating performance at company-owned restaurants. The fair value of long-lived assets held and used presented in the tables below represents the remaining carrying value and was estimated based on either discounted cash flows of future anticipated lease and sublease income or current market values.

Total losses for the six months ended July 3, 2016 and the year ended January 3, 2016 also include the impact of remeasuring long-lived assets held for sale which primarily include surplus properties. 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 8 for more information on impairment of our long-lived assets.



			Fair Value Measurements						Six Months Ended July 3, 2016 Total Losses
	July 3, 2016		Level 1		Level 2		Level 3		Six Months Ended July 3, 2016 Total Losses
Held and used	$	5,377	$	—	$	—	$	5,377	$	12,526
Held for sale	967		—		—		967		104
Total	$	6,344	$	—	$	—	$	6,344	$	12,630

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(In Thousands Except Per Share Amounts)



			Fair Value Measurements						2015 Total Losses
	January 3, 2016		Level 1		Level 2		Level 3		2015 Total Losses
Held and used	$	10,244	$	—	$	—	$	10,244	$	22,346
Held for sale	4,328		—		—		4,328		2,655
Total	$	14,572	$	—	$	—	$	14,572	$	25,001

(8) Impairment of Long-Lived Assets

During the three and six months ended July 3, 2016 and June 28, 2015 , the Company recorded impairment charges on long-lived assets as a result of the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of company-owned restaurants. The Company may recognize additional impairment charges resulting from leasing or subleasing additional properties to franchisees in connection with sales of company-owned restaurants to franchisees.

Additionally, during the six months ended July 3, 2016 and three and six months ended June 28, 2015, the Company recorded impairment charges on long-lived assets as a result of closing company-owned restaurants and classifying such properties as held for sale.

The three and six months ended July 3, 2016 and June 28, 2015 also include impairment charges on long-lived assets as a result of the deterioration in operating performance of certain company-owned restaurants and charges for capital improvements in restaurants impaired in prior years which did not subsequently recover.

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				Six Months Ended
	July 3, 2016		June 28, 2015		July 3, 2016		June 28, 2015
Restaurants leased or subleased to franchisees	$	5,490	$	7,551	$	12,491	$	8,256
Surplus properties	—		394		104		1,152
Company-owned restaurants	35		2,073		35		2,547
	$	5,525	$	10,018	$	12,630	$	11,955

(9) Income Taxes

The Company’s effective tax rate on income from continuing operations for the three months ended July 3, 2016 and June 28, 2015 was 29.0% and 38.1% , respectively. The Company’s effective tax rate varies from the U.S. federal statutory rate of 35% due to the effect of (1) non-deductible goodwill disposed of in connection with our system optimization initiative described in Note 3, including a correction to a prior year identified and recorded in the second quarter of 2016, which resulted in a benefit of $4,235 , (2) state income taxes net of federal benefits, including non-recurring changes to state deferred taxes, (3) adjustments related to prior tax matters and (4) changes to valuation allowances on state net operating loss carryforwards due to the expected sale of restaurants under our system optimization initiative.

During the three months ended March 29, 2015, we concluded two state income tax examinations which resulted in the recognition of a net tax benefit of $1,872 . Additionally, during the three months ended June 28, 2015 , unfavorable state court decisions and audit experience led us to abandon certain refund claims, which resulted in a reduction of our unrecognized tax benefits by $1,274 .

The Company’s effective tax rate on income from continuing operations for the six months ended July 3, 2016 and June 28, 2015 was 29.2% and 34.4% , respectively. The Company’s effective tax rate varies from the U.S. federal statutory rate of 35% due to the effect of (1) changes to valuation allowances on state net operating loss carryforwards due to the expected sale of restaurants under our system optimization initiative, including a correction to a prior year identified and recorded in the first quarter of 2016, which resulted in a benefit of $2,878 , (2) state income taxes net of federal benefits, including non-recurring changes to state deferred taxes, (3) foreign rate differential, (4) employment credits and (5) non-deductible goodwill disposed of in connection

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(In Thousands Except Per Share Amounts)

with our system optimization initiative described in Note 3, including a correction to a prior year identified and recorded in the second quarter of 2016, which resulted in a benefit of $4,235 . The Company evaluated the corrections of the prior year errors in relation to the estimated income for the full fiscal year and to the trend on earnings. The Company concluded that correcting the errors did not materially affect the estimated 2016 full year income.

There were no significant changes to unrecognized tax benefits or related interest and penalties for the Company for the six months ended July 3, 2016. During the next twelve months, we believe that it is reasonably possible the Company will reduce its unrecognized tax benefits by up to $393 , primarily due to expected settlements with taxing authorities.

The Company includes refundable income taxes in “Accounts and notes receivable” in the accompanying condensed consolidated balance sheets. Refundable income taxes were $32,638 and $23,508 as of July 3, 2016 and January 3, 2016 , respectively.

(10) Net Income Per Share

Basic net income per share was computed by dividing net income amounts by the weighted average number of common shares outstanding.

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



	Three Months Ended		Six Months Ended
	July 3, 2016	June 28, 2015	July 3, 2016	June 28, 2015
Common stock:
Weighted average basic shares outstanding	265,915	363,766	268,065	365,175
Dilutive effect of stock options and restricted shares	4,350	6,776	4,442	6,700
Weighted average diluted shares outstanding	270,265	370,542	272,507	371,875

Diluted net income per share for the three and six months ended July 3, 2016 and June 28, 2015 was computed by dividing net income by the weighted average number of basic shares outstanding plus the potential common share effect of dilutive stock options and restricted shares. We excluded potential common shares of 259 and 1,992 for the three and six months ended July 3, 2016 and 434 and 599 for the three and six months ended June 28, 2015 , respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

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(In Thousands Except Per Share Amounts)

(11) Stockholders’ Equity

Stockholders’ Equity

The following is a summary of the changes in stockholders’ equity:



	Six Months Ended
	July 3, 2016			June 28, 2015
Balance at beginning of period	$	752,914		$	1,717,576
Comprehensive income	66,931			52,563
Cash dividends	(32,152		)	(40,189		)
Repurchases of common stock	(109,348		)	(63,206		)
Share-based compensation	9,925			12,242
Exercises of stock options	6,238			15,278
Vesting of restricted shares	(2,841		)	(1,393		)
Tax benefit from share-based compensation	1,402			45,452
Other	95			103
Balance at end of period	$	693,164		$	1,738,426

Repurchases of Common Stock

On June 1, 2015, our Board of Directors authorized a repurchase program for up to $1,400,000 of our common stock through January 1, 2017, when and if market conditions warrant and to the extent legally permissible. During the six months ended July 3, 2016 , the Company repurchased 10,767 shares with an aggregate purchase price of $109,187 , of which $2,991 was accrued at July 3, 2016 and excluding commissions of $161 . As of July 3, 2016 , the Company had $268,969 of availability remaining under its June 2015 authorization. Subsequent to July 3, 2016 through August 4, 2016 , the Company repurchased 2,171 shares with an aggregate purchase price of $21,064 , excluding commissions of $32 .

Also as part of the June 2015 authorization, the Company commenced an $850,000 share repurchase program on June 3, 2015, which included (1) a modified Dutch auction tender offer to repurchase up to $639,000 of our common stock and (2) a separate stock purchase agreement to repurchase up to $211,000 of our common stock from Nelson Peltz, Peter W. May (Messrs. Peltz and May are members of the Company’s Board of Directors) and Edward P. Garden (who served on the Company’s Board of Directors until December 14, 2015) and certain of their family members and affiliates, investment funds managed by Trian Fund Management, L.P. (an investment management firm controlled by Messrs. Peltz, May and Garden, “TFM”) and the general partner of certain of those funds (together with Messrs. Peltz, May and Garden, certain of their family members and affiliates and TFM, the “Trian Group”). During the second quarter of 2015, the Company incurred costs of $1,489 in connection with the tender offer, which were recorded to treasury stock. The $850,000 share repurchase program was completed during the third quarter of 2015.

In August 2014, our Board of Directors authorized a repurchase program for up to $100,000 of our common stock through December 31, 2015, when and if market conditions warrant and to the extent legally permissible. During the six months ended June 28, 2015, the Company repurchased 5,655 shares with an aggregate purchase price of $61,631 , excluding commissions of $86 . The August 2014 authorization was completed during the third quarter of 2015.

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(In Thousands Except Per Share Amounts)

Accumulated Other Comprehensive Loss

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



	Foreign Currency Translation			Cash Flow Hedges (a)			Pension			Total
Balance at January 3, 2016	$	(66,163	)	$	(3,571	)	$	(1,089	)	$	(70,823	)
Current-period other comprehensive income (loss)	14,256			888			(56		)	15,088
Balance at July 3, 2016	$	(51,907	)	$	(2,683	)	$	(1,145	)	$	(55,735	)

Balance at December 28, 2014	$	(28,363	)	$	(2,044	)	$	(887	)	$	(31,294	)
Current-period other comprehensive loss	(12,494		)	(2,442		)	(203		)	(15,139		)
Balance at June 28, 2015	$	(40,857	)	$	(4,486	)	$	(1,090	)	$	(46,433	)

_______________

(a)

Current-period other comprehensive loss for the three and six months ended June 28, 2015 includes the effect of changes in unrealized losses on cash flow hedges, net of tax. The three and six months ended July 3, 2016 includes the reclassification of unrealized losses on cash flow hedges of $443 and $888 , respectively, from “Accumulated other comprehensive loss” to our condensed consolidated statements of operations. The reclassification of unrealized losses on cash flow hedges for the three and six months ended July 3, 2016 consists of $724 and $1,447 , respectively, recorded to “Interest expense,” net of the related income tax benefit of $281 and $559 , respectively, recorded to “Provision for income taxes.” See Note 7 for more information.

(12) Transactions with Related Parties

Except as described below, the Company did not have any significant changes in or transactions with its related parties during the current fiscal period since those reported in the Form 10-K.

Transactions with QSCC

Wendy’s received $76 and $92 of lease income from its purchasing cooperative, Quality Supply Chain Co-op, Inc. (“QSCC”) during the six months ended July 3, 2016 and June 28, 2015 , respectively, which has been recorded as a reduction to “General and administrative.”

TimWen Lease and Management Fee Payments

A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen for the operation of Wendy’s/Tim Hortons combo units in Canada. Prior to the second quarter of 2015, Wendy’s operated certain of the Wendy’s/Tim Hortons combo units in Canada and subleased some of the restaurant facilities to franchisees. As a result of the Company completing its plan to sell all of its company-owned restaurants in Canada to franchisees during the second quarter of 2015, all of the restaurant facilities are subleased to franchisees. During the six months ended July 3, 2016 and June 28, 2015 , Wendy’s paid TimWen $5,727 and $5,892 , respectively, under these lease agreements. In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $104 and $112 during the six months ended July 3, 2016 and June 28, 2015 , respectively, which has been included as a reduction to “General and administrative.”

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(In Thousands Except Per Share Amounts)

(13) Guarantees and Other Commitments and Contingencies

Refer to the Form 10-K for further information regarding the Company’s additional commitments and obligations.

Franchisee Image Activation Incentive Programs

In order to promote Image Activation new restaurant development, Wendy’s has an incentive program for franchisees that provides for reductions in royalty payments for the first three years of operation for qualifying new restaurants opened by December 31, 2016.

Wendy’s also has incentive programs for 2016 and 2017 for franchisees that commence Image Activation restaurant remodels during those years. The incentive programs provide reductions in royalty payments for one year or two years after the completion of construction, depending on the type of remodel. In 2015, Wendy’s added an additional incentive to the 2016 program described above to include waiving the franchise agreement renewal fee for certain types of remodels.

In addition, Wendy’s had incentive programs in 2015 that included reductions in royalty payments for franchisees’ participation in the Image Activation program.

Franchisee Image Activation Financing Program

Wendy’s executed an agreement in 2013 to partner with a third-party lender to establish a financing program for franchisees that participate in our Image Activation program. Under the program, the lender has agreed to provide loans to franchisees to be used for the reimaging of restaurants according to the guidelines and specifications under Wendy’s Image Activation program. To support the program, Wendy’s provided to the lender a $6,000 irrevocable stand-by letter of credit, which was issued on July 1, 2013 and was cash collateralized. During the three months ended April 3, 2016, the Company entered into an agreement to reduce the letter of credit from $6,000 to $1,000 due to franchisees successfully obtaining financing independently. During the three months ended July 3, 2016, the new irrevocable letter of credit of $1,000 was issued against the Company’s $2,275,000 securitized financing facility and the $6,000 letter of credit was terminated.

Lease Guarantees

Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former company-owned restaurant locations now operated by franchisees, amounting to $34,140 as of July 3, 2016. These leases extend through 2050. We have not received any notice of default related to these leases as of July 3, 2016. In the event of default by a franchise owner, Wendy’s generally retains the right to acquire possession of the related restaurant locations.

Wendy’s is contingently liable for certain other leases which have been assigned to unrelated third parties who have indemnified Wendy’s against future liabilities amounting to $1,238 as of July 3, 2016. These leases expire on various dates through 2021.

Letters of Credit

As of July 3, 2016, the Company had outstanding letters of credit with various parties totaling $34,967 , of which $6,165 were cash collateralized. The outstanding letters of credit include amounts outstanding against the securitized financing facility and for the franchisee Image Activation financing program described above. The related cash collateral is classified as “Restricted cash” in the condensed consolidated balance sheets. We do not expect any material loss to result from these letters of credit.

(14) Legal and Environmental Matters

We are involved in litigation and claims incidental to our current and prior businesses. We provide accruals for such litigation and claims when payment is probable and reasonably estimable. As of July 3, 2016 , the Company had accruals for all of its legal and environmental matters aggregating $5,181 . We cannot estimate the aggregate possible range of loss due to most proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult. Based on currently available information, including legal defenses available to us, and given the aforementioned accruals and our insurance coverage, we do not believe that the outcome of these legal and environmental matters will have a material effect on our consolidated financial position or results of operations.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(15) New Accounting Standards

New Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued an amendment that will require the Company to determine impairment of financial instruments based on expected losses rather than incurred losses. The transition method varies with the type of instrument; however, most debt instruments will be transitioned using a modified retrospective approach. The

amendment is effective commencing with our 2020 fiscal year. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

In March 2016, the FASB issued an amendment which modifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as statement of cash flows presentation. The transition requirement is mostly modified retrospective, with the exception of recognition of excess tax benefits and tax deficiencies which requires prospective adoption. The amendment is effective commencing with our 2017 fiscal year. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

In March 2016, the FASB issued an amendment which clarifies the steps for assessing triggering events of embedded contingent put and call options within debt instruments. The amendment requires modified retrospective adoption and is effective commencing with our 2017 fiscal year. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

In March 2016, the FASB issued an amendment related to equity method accounting which eliminates the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in level of ownership interest or degree of influence. The amendment requires prospective adoption and is effective commencing with our 2017 fiscal year. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

In February 2016, the FASB issued new guidance on leases. The new guidance requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by finance and operating leases with lease terms of more than 12 months, as well as enhanced disclosures. The amendment requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach and is effective commencing with our 2019 fiscal year. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

In May 2014, the FASB issued amended guidance for revenue recognition. Subsequently, the FASB issued an amendment to defer for one year the effective date of the new guidance on revenue recognition, as well as issued additional clarifying amendments. The new guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The new guidance supersedes most current revenue recognition guidance, including industry-specific guidance, and is now effective commencing with our 2018 fiscal year. The guidance allows for either a full retrospective or modified retrospective transition method. We are continuing to evaluate which transition method to use. We do not believe this guidance will impact our recognition of revenue from company-owned restaurant sales or our recognition of continuing royalty revenues from franchisees, which are based on a percentage of franchise sales. We are continuing to evaluate the impact the adoption of this guidance will have on our business, including the recognition of transactions such as franchise development fees, initial fees from franchisees and sales of company-owned restaurants to franchisees, as well as the accounting for our national advertising funds.

New Accounting Standards Adopted

In September 2015, the FASB issued an amendment that requires an acquirer to recognize adjustments to provisional amounts during the measurement period, in the period such adjustments are identified, rather than retrospectively adjusting previously reported amounts. The Company adopted this amendment, prospectively, during the first quarter of 2016. The adoption of this guidance did not impact our consolidated financial statements.

In April 2015, the FASB issued an amendment that clarifies the accounting for fees paid in a cloud computing arrangement. The amendment provides guidance to customers about whether a cloud computing arrangement includes a software license. The Company adopted this amendment, prospectively, during the first quarter of 2016. The adoption of this guidance did not materially impact our consolidated financial statements.

In February 2015, the FASB issued an amendment that revises the consolidation requirements and significantly changes the consolidation analysis required under current guidance. The Company adopted this amendment, prospectively, during the first quarter of 2016. The adoption of this guidance did not impact our consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

In June 2014, the FASB issued an amendment to clarify that a performance target that affects vesting and that could be achieved after the requisite service period should be treated as a performance condition and therefore should not be reflected in estimating the grant-date fair value of the award. The Company adopted this amendment during the first quarter of 2016. The adoption of this guidance did not impact our consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us,” or “our”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included elsewhere within this report and “Item 7. 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 3, 2016 (the “Form 10-K”). There have been no material changes as of July 3, 2016 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. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II - Other Information” preceding Item 1 of Part II of this report. You should consider our forward-looking statements in light of our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report, the Form 10-K and our other filings with the Securities and Exchange Commission.

The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s Restaurants, LLC (“Wendy’s Restaurants”). The principal 100% owned subsidiary of Wendy’s Restaurants is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). Wendy’s franchises and operates company-owned Wendy’s ^® quick-service restaurants throughout North America (defined as the United States of America (“U.S.”) and Canada). Wendy’s also has franchised restaurants in 28 foreign countries and U.S. territories, including franchised restaurants located in Brazil, which opened subsequent to July 3, 2016 .

Wendy’s restaurants offer an extensive menu specializing in hamburger sandwiches and featuring fillet of chicken breast sandwiches, chicken nuggets, chili, french fries, baked potatoes, freshly prepared salads, soft drinks, Frosty ^® desserts and kids’ meals. In addition, the restaurants sell a variety of promotional products on a limited basis.

The Company manages and internally reports its business geographically. The operation and franchising of Wendy’s restaurants in North America comprises virtually all of our current operations and represents a single reportable segment. The revenues and operating results of Wendy’s restaurants outside of North America are not material. The results of operations discussed below may not necessarily be indicative of future results.

The Company reports 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 and quarters relate to fiscal periods rather than calendar periods.

Executive Overview

Sale of the Bakery

On May 31, 2015, Wendy’s completed the sale of 100% of its membership interest in The New Bakery Company, LLC and its subsidiaries (collectively, the “Bakery”) to East Balt US, LLC (the “Buyer”) for $78.5 million in cash (subject to customary purchase price adjustments). The Company recorded a pre-tax gain on the disposal of the Bakery of $27.3 million in the second quarter of 2015, which included transaction closing costs and a reduction of goodwill. The Company recognized income tax expense associated with the gain on disposal of $12.2 million during the second quarter of 2015, which included the impact of the disposal of non-deductible goodwill. In conjunction with the Bakery sale, Wendy’s entered into a transition services agreement with the Buyer, pursuant to which Wendy’s provided certain continuing corporate and shared services to the Buyer through March 31, 2016 for no additional consideration. As a result of the sale of the Bakery, the Bakery’s results of operations for the period from December 29, 2014 through May 31, 2015 and the gain on disposal have been included in “Net income from discontinued operations” in our condensed consolidated statements of operations.

Our Continuing Business

As of July 3, 2016 , the Wendy’s restaurant system was comprised of 6,490 restaurants, of which 582 were owned and operated by the Company. All of our company-owned restaurants are located in the U.S. as a result of the Company completing its initiative during the second quarter of 2015 to sell all company-owned restaurants in Canada to franchisees.

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

Wendy’s long-term growth opportunities will be driven by a combination of brand relevance and economic relevance. Key components of growth include (1) North America systemwide same-restaurant sales growth through continuing core menu improvement, product innovation and customer count growth, (2) investing in our Image Activation program, which includes innovative exterior and interior restaurant designs for our new and reimaged restaurants and focused execution of operational excellence, (3) growth in new restaurants, including global growth, (4) increased restaurant utilization in various dayparts and brand access utilizing mobile technology, (5) building shareholder value through financial management strategies and (6) our system optimization initiative.

Wendy’s revenues for the first six months of 2016 include: (1) $518.6 million of sales at company-owned restaurants and (2) $167.0 million of royalty revenue, $65.1 million of rental income and $10.8 million of franchise fees from franchisees. Substantially all of our Wendy’s royalty agreements provide for royalties of 4.0% of franchisees’ revenues.

Key Business Measures

We track our results of operations and manage our business using the following key business measures:


•	Same-Restaurant Sales

Beginning with the first quarter of 2016, the Company revised its reporting methodology for same-restaurant sales to simplify the reporting of its same-restaurant sales performance for reimaged restaurants and to better align with restaurant-industry practice. Under the new methodology, the Company includes restaurants in its comparable sales base as soon as reimaged restaurants reopen (the “New Method”). Reimaged restaurants previously entered the comparable sales base after they had been open for three continuous months (the “Old Method”). There was no change in the reporting methodology for new restaurants, which will continue to be excluded from same-restaurant sales until they have been open for 15 continuous months. The tables summarizing the results of operations below provide the same-restaurant sales percent change using the New Method, as well as the Old Method. The New Method is consistent with the metric used by our management for internal reporting and analysis. Same-restaurant sales exclude the impact of currency translation.

• Restaurant Margin

We define restaurant margin as sales from company-owned restaurants less cost of sales divided by sales from company-owned restaurants. Cost of sales includes food and paper, restaurant labor and occupancy, advertising and other operating costs. Restaurant margin is influenced by factors such as restaurant openings, remodels and closures, price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, the level of our fixed and semi-variable costs and fluctuations in food and labor costs.

System Optimization Initiative

During the first six months of 2016 and 2015, the Company completed the sale of 55 and 100 company-owned restaurants to franchisees, respectively. The Company recognized net gains totaling $10.4 million and $14.9 million on the sale of company-owned restaurants and other assets during the first six months of 2016 and 2015 , respectively, which were recorded to “ System optimization gains, net ” in our condensed consolidated statements of operations. In addition, the Company facilitated the transfer of 126 restaurants between franchisees during the first six months of 2016 . The Company expects to complete its plan to reduce company-owned restaurant ownership to approximately 5% of the total system with the sale of 258 restaurants during the remainder of 2016 , all of which were classified as held for sale as of July 3, 2016 .

Costs related to our system optimization initiative are recorded to “Reorganization and realignment costs.” During the first six months of 2016 and 2015 , the Company recognized costs totaling $4.8 million and $2.4 million , respectively, which primarily included professional fees and accelerated amortization of previously acquired franchise rights in 2016 and accelerated amortization of previously acquired franchise rights and severance and related employee costs in 2015. The Company expects to incur additional costs of approximately $3.7 million during the remainder of 2016 in connection with its system optimization initiative, which are primarily comprised of professional fees.

G&A Realignment

In November 2014, the Company initiated a plan to reduce its general and administrative expenses. The plan included a realignment and reinvestment of resources to focus primarily on accelerated restaurant development and consumer-facing restaurant technology to drive long-term growth. The Company achieved the majority of the expense reductions through the realignment of its U.S. field operations and savings at its Restaurant Support Center in Dublin, Ohio, which was substantially completed by the end of the second quarter of 2015. Costs related to G&A realignment are recorded to “Reorganization and realignment costs.” The Company recognized costs totaling $0.9 million and $8.5 million during the first six months of 2016 and 2015 , respectively, which primarily included recruitment and relocation costs in 2016 and share-based compensation, severance and related employee costs and recruitment and relocation costs in 2015 . The Company expects to incur additional costs aggregating approximately $1.0 million during the remainder of 2016, comprised primarily of recruitment and relocation costs for the reinvestment in resources to drive long-term growth.

Related Party Transactions

TimWen Lease and Management Fees

A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen for the operation of Wendy’s/Tim Hortons combo units in Canada. Prior to the second quarter of 2015, Wendy’s operated certain of the Wendy’s/Tim Hortons combo units in Canada and subleased some of the restaurant facilities to franchisees. As a result of the Company completing its plan to sell all of its company-owned restaurants in Canada to franchisees during the second quarter of 2015, all of the restaurant facilities are subleased to franchisees. During the first six months of 2016 and 2015 , Wendy’s paid TimWen $5.7 million and $5.9 million , respectively, under these lease agreements. In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $0.1 million during both the first six months of 2016 and 2015 , which has been included as a reduction to “General and administrative.”

Franchisee Incentive Programs

Franchisee Image Activation Financing Program

Wendy’s executed an agreement in 2013 to partner with a third-party lender to establish a financing program for franchisees that participate in our Image Activation program. Under the program, the lender has agreed to provide loans to franchisees to be used for the reimaging of restaurants according to the guidelines and specifications under Wendy’s Image Activation program. To support the program, Wendy’s provided to the lender a $6.0 million irrevocable stand-by letter of credit, which was issued on July 1, 2013 and was cash collateralized. During the first quarter of 2016, the Company entered into an agreement to reduce the letter of credit from $6.0 million to $1.0 million due to franchisees successfully obtaining financing independently. During the second quarter of 2016, the new irrevocable letter of credit of $1.0 million was issued against the Company’s $2,275.0 million securitized financing facility and the $6.0 million letter of credit was terminated.

Cybersecurity Incident

The Company first reported unusual payment card activity affecting some franchise-owned restaurants in February 2016 and that malware had been discovered on certain systems. Subsequently, on June 9, 2016, the Company reported that an additional malware variant had been identified and disabled. On July 7, 2016, the Company, on behalf of affected franchise locations, provided information about specific restaurant locations that may have been impacted by these attacks, all of which are located in the United States, along with support for customers who may have been affected by the malware variants. See “Item 1 - Legal Proceedings” and “Item 1A - Risk Factors” in “Part II - Other Information” for further information.

Results of Operations

The tables included throughout Results of Operations set forth in millions the Company’s consolidated results of operations for the second quarter of 2016 and 2015 . As a result of the sale of the Bakery discussed above in “Executive Overview - Sale of the Bakery,” the Bakery’s results of operations for the period from March 30, 2015 through May 31, 2015 have been included in “Income from discontinued operations, net of income taxes” in the table below.



	Three Months Ended
	July 3, 2016			June 28, 2015			Change
Revenues:
Sales	$	259.2		$	385.0		$	(125.8	)
Franchise revenues	123.5			104.5			19.0
	382.7			489.5			(106.8		)
Costs and expenses:
Cost of sales	202.6			315.1			(112.5		)
General and administrative	61.1			60.8			0.3
Depreciation and amortization	30.7			39.3			(8.6		)
System optimization gains, net	(1.9		)	(15.7		)	13.8
Reorganization and realignment costs	2.5			6.3			(3.8		)
Impairment of long-lived assets	5.5			10.0			(4.5		)
Other operating expense, net	16.6			9.4			7.2
	317.1			425.2			(108.1		)
Operating profit	65.6			64.3			1.3
Interest expense	(28.6		)	(17.2		)	(11.4		)
Loss on early extinguishment of debt	—			(7.3		)	7.3
Other income, net	0.3			0.3			—
Income from continuing operations before income taxes	37.3			40.1			(2.8		)
Provision for income taxes	(10.8		)	(15.3		)	4.5
Income from continuing operations	26.5			24.8			1.7
Discontinued operations:
Income from discontinued operations, net of income taxes	—			0.3			(0.3		)
Gain on disposal of discontinued operations, net of income taxes	—			15.1			(15.1		)
Net income from discontinued operations	—			15.4			(15.4		)
Net income	$	26.5		$	40.2		$	(13.7	)



	Second Quarter 2016			Second Quarter 2015
Revenues:
Sales	$	259.2		$	385.0
Franchise revenues:
Royalty revenue	$	86.3		$	80.7
Rental income	34.5			20.2
Franchise fees	2.7			3.6
Total franchise revenues	123.5			104.5
Total revenues	$	382.7		$	489.5

	Second Quarter 2016		% of Sales	Second Quarter 2015		% of Sales
Cost of sales:
Food and paper	$	78.4	30.2%	$	122.4	31.8%
Restaurant labor	70.8		27.3%	107.1		27.8%
Occupancy, advertising and other operating costs	53.4		20.6%	85.6		22.2%
Total cost of sales	$	202.6	78.1%	$	315.1	81.8%



	Second Quarter 2016		% of Sales	Second Quarter 2015		% of Sales
Restaurant margin	$	56.6	21.9%	$	69.9	18.2%



	New Method				Old Method
	Second Quarter 2016		Second Quarter 2015		Second Quarter 2016		Second Quarter 2015
Same-restaurant sales:
North America same-restaurant sales:
Company-owned	1.2	%	2.4	%	0.9	%	2.4	%
Franchised	0.3	%	2.3	%	0.3	%	2.2	%
Systemwide	0.4	%	2.4	%	0.4	%	2.2	%

Total same-restaurant sales:
Company-owned	1.2	%	2.4	%	0.9	%	2.4	%
Franchised (a)	0.2	%	2.2	%	0.3	%	2.1	%
Systemwide (a)	0.3	%	2.2	%	0.3	%	2.1	%

________________

(a) Includes international franchised same-restaurant sales (excluding Venezuela due to the impact of Venezuela’s highly inflationary economy).



	Company-owned		Franchised		Systemwide
Restaurant count:
Restaurant count at April 3, 2016	582		5,900		6,482
Opened	2		17		19
Closed	(2	)	(9	)	(11	)
Restaurant count at July 3, 2016	582		5,908		6,490



Sales	Change
Sales	$	(125.8	)

The decrease in sales during the second quarter of 2016 was primarily due to the impact of Wendy’s company-owned restaurants sold under our system optimization initiative, which resulted in a reduction in sales of $139.5 million. Company-owned same-restaurant sales during the second quarter of 2016 increased primarily due to an increase in customer count, partially offset by a slight decrease in our average per customer check amount, primarily resulting from changes in product mix. Sales also benefited from higher sales growth at our new and remodeled Image Activation restaurants.



Franchise Revenues	Change
Royalty revenue	$	5.6
Rental income	14.3
Franchise fees	(0.9		)
	$	19.0

The increase in franchise revenues during the second quarter of 2016 was primarily due to increases in rental income and royalty revenue primarily resulting from sales of company-owned restaurants to franchisees under our system optimization initiative.



Cost of Sales, as a Percent of Sales	Change
Food and paper	(1.6	)%
Restaurant labor	(0.5	)%
Occupancy, advertising and other operating costs	(1.6	)%
	(3.7	)%

The improvement in cost of sales, as a percent of sales, during the second quarter of 2016 was primarily due to a decrease in commodity costs, reflecting lower beef prices. In addition, the increase in same-restaurant sales and higher sales at our new and remodeled Image Activation restaurants contributed to the improvement in cost of sales, as a percent of sales. These decreases in cost of sales, as a percent of sales, were partially offset by the negative impact of changes in product mix.



General and Administrative	Change
Severance	$	2.3
Employee compensation and related expenses	(1.9		)
Other, net	(0.1		)
	$	0.3

The increase in general and administrative expenses during the second quarter of 2016 was primarily due to severance expense. The increase in general and administrative expenses was partially offset by a decrease in employee compensation and related expenses primarily as a result of changes in staffing driven by our ongoing system optimization initiative.



Depreciation and Amortization	Change
Restaurants	$	(9.0	)
Corporate and other	0.4
	$	(8.6	)

The decrease in restaurant depreciation and amortization during the second quarter of 2016 was primarily due to decreases in (1) depreciation on assets sold or classified as held for sale under our system optimization initiative of $5.8 million and (2) accelerated depreciation on existing assets that are being replaced as part of our Image Activation program of $2.9 million.



System Optimization Gains, Net	Second Quarter
	2016			2015
System optimization gains, net	$	(1.9	)	$	(15.7	)

The decrease in system optimization gains, net during the second quarter of 2016 was due to the sale of 83 company-owned restaurants to franchisees during the second quarter of 2015. There were no sales of company-owned restaurants to franchisees during the second quarter of 2016.



Reorganization and Realignment Costs	Second Quarter
	2016		2015
G&A realignment	$	0.4	$	4.4
System optimization initiative	2.1		1.9
	$	2.5	$	6.3

During the second quarter of 2016 and 2015, the Company recognized costs associated with its G&A realignment plan totaling $0.4 million and $4.4 million , respectively. In the second quarter of 2016, costs primarily included recruitment and relocation costs. In the second quarter of 2015, costs primarily included share-based compensation expense.

During the second quarter of 2016 and 2015 , the Company recognized costs associated with its system optimization initiative totaling $2.1 million and $1.9 million , respectively. In the second quarter of 2016, costs primarily included (1) professional fees of $1.4 million and (2) accelerated amortization of $0.7 million . In the second quarter of 2015, costs primarily included accelerated amortization.



Impairment of Long-Lived Assets	Change
Impairment of long-lived assets	$	(4.5	)

The decrease in impairment charges during the second quarter of 2016 was primarily driven by variations in losses from the remeasurement of properties to fair value upon determination that the assets will be leased and/or subleased to franchisees in connection with the sale of company-owned restaurants. In addition, the second quarter of 2015 included impairment charges totaling $2.1 million resulting from the deterioration in operating performance of certain company-owned restaurants and charges for capital improvements in restaurants impaired in prior years which did not subsequently recover.



Other Operating Expense, Net	Second Quarter
	2016			2015
Lease expense	$	17.5		$	11.4
Equity in earnings in joint ventures, net	(2.4		)	(2.5		)
Other, net	1.5			0.5
	$	16.6		$	9.4

The increase in other operating expense, net during the second quarter of 2016 was primarily due to an increase in lease expense resulting from (1) subleasing properties to franchisees that were previously operated as company-owned restaurants and as such, had been previously recorded in cost of sales and (2) entering into new leases in connection with facilitating franchisee-to-franchisee restaurant transfers for purposes of subleasing such properties to the franchisee.



Interest Expense	Change
Interest expense	$	11.4

The increase in interest expense during the second quarter of 2016 was primarily a result of the Company completing a $2,275.0 million securitized financing facility on June 1, 2015. The principal amounts outstanding under the securitized financing facility significantly exceed the amounts that were outstanding under the Company’s prior credit agreement. In addition, the notes under the securitized financing facility bear fixed-rate interest at rates higher than our historical effective interest rates on our variable interest rate loans under the prior credit agreement.

Loss on Early Extinguishment of Debt

During the second quarter of 2015, the Company incurred a loss on the early extinguishment of debt as a result of repaying all amounts outstanding under the Company’s prior credit agreement with the proceeds from its securitized financing facility. The loss on the early extinguishment of debt was primarily comprised of the write-off of deferred costs associated with the prior credit agreement of $7.2 million and fees paid to terminate the related interest rate swaps of $0.1 million .



Provision for Income Taxes	Change
State income taxes, net of federal benefits	$	(2.6	)
System optimization initiative	(1.4		)
Federal and state provision on variance in income from continuing operations before income taxes	(0.2		)
Prior year tax matters	(0.2		)
Other	(0.1		)
	$	(4.5	)

Our income taxes during the second quarter of 2016 and 2015 were impacted by (1) changes to valuation allowances on state net operating loss carryforwards, (2) the disposal of non-deductible goodwill and changes to state deferred taxes in connection with our system optimization initiative, including a correction to a prior year identified and recorded in the second quarter of 2016, which resulted in a benefit of $4.2 million , (3) variations in income from continuing operations before income taxes, adjusted for recurring items and (4) adjustments related to prior year tax matters.



Net Income from Discontinued Operations	Second Quarter
	2015
Income from discontinued operations before income taxes	$	0.8
Provision for income taxes	(0.5		)
Income from discontinued operations, net of income taxes	0.3
Gain on disposal of discontinued operations before income taxes	27.3
Provision for income taxes on gain on disposal	(12.2		)
Gain on disposal of discontinued operations, net of income taxes	15.1
Net income from discontinued operations	$	15.4

As a result of the sale of the Bakery during the second quarter of 2015, as discussed above in “Executive Overview - Sale of the Bakery,” the Bakery’s results of operations for the period from March 30, 2015 through May 31, 2015 have been included in “Income from discontinued operations, net of income taxes” in the table above. During the second quarter of 2015, the Company recognized a gain on the disposal of the Bakery of $15.1 million , net of income tax expense of $12.2 million , which has been included in net income from discontinued operations. The provision for income taxes on the gain on disposal includes the impact of non-deductible goodwill disposed of as a result of the sale.

Results of Operations

The following tables included throughout Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the six months ended July 3, 2016 and June 28, 2015 . As a result of the sale of the Bakery discussed above in “Executive Overview - Sale of the Bakery,” the Bakery’s results of operations for the period from December 29, 2014 through May 31, 2015 have been included in “Income from discontinued operations, net of income taxes” in the table below.



	Six Months Ended
	July 3, 2016			June 28, 2015			Change
Revenues:
Sales	$	518.6		$	742.6		$	(224.0	)
Franchise revenues	242.9			198.7			44.2
	761.5			941.3			(179.8		)
Costs and expenses:
Cost of sales	417.3			620.2			(202.9		)
General and administrative	125.8			120.5			5.3
Depreciation and amortization	63.1			74.9			(11.8		)
System optimization gains, net	(10.4		)	(14.9		)	4.5
Reorganization and realignment costs	5.7			10.9			(5.2		)
Impairment of long-lived assets	12.6			12.0			0.6
Other operating expense, net	17.9			15.5			2.4
	632.0			839.1			(207.1		)
Operating profit	129.5			102.2			27.3
Interest expense	(56.7		)	(29.9		)	(26.8		)
Loss on early extinguishment of debt	—			(7.3		)	7.3
Other income, net	0.5			0.5			—
Income from continuing operations before income taxes	73.3			65.5			7.8
Provision for income taxes	(21.5		)	(22.5		)	1.0
Income from continuing operations	51.8			43.0			8.8
Discontinued operations:
Income from discontinued operations, net of income taxes	—			9.6			(9.6		)
Gain on disposal of discontinued operations, net of income taxes	—			15.1			(15.1		)
Net income from discontinued operations	—			24.7			(24.7		)
Net income	$	51.8		$	67.7		$	(15.9	)



	Six Months 2016			Six Months 2015
Revenues:
Sales	$	518.6		$	742.6
Franchise revenues:
Royalty revenue	$	167.0		$	154.3
Rental income	65.1			38.1
Franchise fees	10.8			6.3
Total franchise revenues	242.9			198.7
Total revenues	$	761.5		$	941.3


	Six Months 2016		% of Sales	Six Months 2015		% of Sales
Cost of sales:
Food and paper	$	157.6	30.4%	$	238.0	32.0%
Restaurant labor	146.8		28.3%	212.3		28.6%
Occupancy, advertising and other operating costs	112.9		21.8%	169.9		22.9%
Total cost of sales	$	417.3	80.5%	$	620.2	83.5%



	Six Months 2016		% of Sales	Six Months 2015		% of Sales
Restaurant margin	$	101.3	19.5%	$	122.4	16.5%



	New Method				Old Method
	Six Months 2016		Six Months 2015		Six Months 2016		Six Months 2015
Same-restaurant sales:
North America same-restaurant sales:
Company-owned	3.0	%	2.6	%	2.8	%	2.5	%
Franchised	1.8	%	2.9	%	1.8	%	2.7	%
Systemwide	1.9	%	2.8	%	1.9	%	2.7	%

Total same-restaurant sales:
Company-owned	3.0	%	2.6	%	2.8	%	2.5	%
Franchised (a)	1.7	%	2.7	%	1.7	%	2.6	%
Systemwide (a)	1.8	%	2.7	%	1.8	%	2.6	%

________________

(a) Includes international franchised same-restaurant sales (excluding Venezuela due to the impact of Venezuela’s highly inflationary economy).



	Company-owned		Franchised		Systemwide
Restaurant count:
Restaurant count at January 3, 2016	632		5,847		6,479
Opened	6		43		49
Closed	(3	)	(35	)	(38	)
Net (sold to) purchased by franchisees	(53	)	53		—
Restaurant count at July 3, 2016	582		5,908		6,490



Sales	Change
Sales	$	(224.0	)

The decrease in sales during the first six months of 2016 was primarily due to the impact of Wendy’s company-owned restaurants sold under our system optimization initiative, which resulted in a reduction in sales of $257.9 million. Company-owned same-restaurant sales during the first six months of 2016 increased primarily due to an increase in customer count, partially offset by a slight decrease in our average per customer check amount, primarily resulting from changes in product mix. Sales also benefited from higher sales growth at our new and remodeled Image Activation restaurants.



Franchise Revenues	Change
Royalty revenue	$	12.7
Rental income	27.0
Franchise fees	4.5
	$	44.2

The increase in franchise revenues during the first six months of 2016 was primarily due to increases in rental income, royalty revenue and initial franchise fees resulting from sales of company-owned restaurants to franchisees and facilitating franchisee-to-franchisee restaurant transfers under our system optimization initiative. Royalty revenue was also positively impacted by a 1.7% increase in franchise same-restaurant sales.



Cost of Sales, as a Percent of Sales	Change
Food and paper	(1.6	)%
Restaurant labor	(0.3	)%
Occupancy, advertising and other operating costs	(1.1	)%
	(3.0	)%

The improvement in cost of sales, as a percent of sales, during the first six months of 2016 was primarily due to a decrease in commodity costs, reflecting lower beef prices. In addition, the increase in same-restaurant sales and higher sales at our new and remodeled Image Activation restaurants contributed to the improvement in cost of sales, as a percent of sales. These decreases in cost of sales, as a percent of sales, were partially offset by the negative impact of changes in product mix.



General and Administrative	Change
Share-based compensation	$	2.8
Severance	2.7
Legal reserves	2.6
Employee compensation and related expenses	(3.0		)
Other	0.2
	$	5.3

The increase in general and administrative expenses during the first six months of 2016 was primarily due to increases in (1) share-based compensation primarily as a result of awards granted and timing of expense recognition, (2) severance expense and (3) legal reserves. The increase in general and administrative expenses was partially offset by a decrease in employee compensation and related expenses primarily as a result of changes in staffing driven by our ongoing system optimization initiative.



Depreciation and Amortization	Change
Restaurants	$	(11.9	)
Corporate and other	0.1
	$	(11.8	)

The decrease in restaurant depreciation and amortization during the first six months of 2016 was primarily due to a decrease in depreciation on assets sold or classified as held for sale under our system optimization initiative of $10.1 million.



System Optimization Gains, Net	Six Months
	2016			2015
System optimization gains, net	$	(10.4	)	$	(14.9	)

The decrease in system optimization gains, net during the first six months of 2016 was primarily due to fewer sales of company-owned restaurants to franchisees. The Company sold 55 U.S. restaurants during the first six months of 2016 compared to 100 Canadian restaurants in 2015 .



Reorganization and Realignment Costs	Six Months
	2016		2015
G&A realignment	$	0.9	$	8.5
System optimization initiative	4.8		2.4
	$	5.7	$	10.9

During the first six months of 2016 and 2015, the Company recognized costs associated with its G&A realignment plan totaling $0.9 million and $8.5 million , respectively. During the first six months of 2016, costs primarily included recruitment and relocation costs. During the first six months of 2015 , costs primarily included (1) share-based compensation expense of $4.9 million , (2) severance and related employee costs of $2.6 million and (3) recruitment and relocation costs of $1.0 million .

During the first six months of 2016 and 2015 , the Company recognized costs associated with its system optimization initiative totaling $4.8 million and $2.4 million , respectively. During the first six months of 2016 , costs primarily included (1) professional fees of $3.1 million and (2) accelerated amortization of $1.6 million . During the first six months of 2015 , costs primarily included (1) accelerated amortization of $1.6 million and (2) severance and related employee costs of $0.6 million .



Impairment of Long-Lived Assets	Change
Impairment of long-lived assets	$	0.6

The increase in impairment charges during the first six months of 2016 was primarily driven by variations in losses from the remeasurement of properties to fair value upon determination that the assets will be leased and/or subleased to franchisees in connection with the sale of company-owned restaurants. This increase was partially offset by impairment charges during the first six months of 2015 totaling $2.5 million resulting from the deterioration in operating performance of certain company-owned restaurants and charges for capital improvements in restaurants impaired in prior years which did not subsequently recover.



Other Operating Expense, Net	Six Months
	2016			2015
Lease expense	$	32.2		$	21.3
Lease buyout	(11.6		)	(2.1		)
Equity in earnings in joint ventures, net	(4.3		)	(4.5		)
Other	1.6			0.8
	$	17.9		$	15.5

The increase in other operating expense, net during the first six months of 2016 was primarily due to an increase in lease expense resulting from (1) subleasing properties to franchisees that were previously operated as company-owned restaurants and as such, had been recorded to cost of sales and (2) entering into new leases in connection with facilitating franchisee-to-franchisee restaurant transfers for purposes of subleasing such properties to the franchisee. The increase in expense was partially offset by a gain recognized on a lease buyout during the first quarter of 2016.



Interest Expense	Change
Interest expense	$	26.8

The increase in interest expense during the first six months of 2016 was primarily a result of the Company completing a $2,275.0 million securitized financing facility on June 1, 2015. The principal amounts outstanding under the securitized financing facility significantly exceed the amounts that were outstanding under the Company’s prior credit agreement. In addition, the notes under the securitized financing facility bear fixed-rate interest at rates higher than our historical effective interest rates on our variable interest rate loans under the prior credit agreement.

Loss on Early Extinguishment of Debt



Provision for Income Taxes	Change
State income taxes, net of federal benefits	$	(6.2	)
System optimization initiative	(0.1		)
Federal and state expense on variance in income from continuing operations before income taxes	3.7
Prior year tax matters, including changes to unrecognized tax benefits	1.6
	$	(1.0	)

Our income taxes during the first six months of 2016 and 2015 were impacted by (1) changes to valuation allowances on state net operating loss carryforwards, including a correction to a prior year identified and recorded in the first quarter of 2016, which resulted in a benefit of $2.9 million , (2) the disposal of non-deductible goodwill and changes to state deferred taxes in connection with our system optimization initiative, including a correction to a prior year identified and recorded in the second quarter of 2016, which resulted in a benefit of $4.2 million , (3) variations in income from continuing operations before income taxes, adjusted for recurring items and (4) adjustments related to prior year tax matters, including changes to unrecognized tax benefits.



Net Income from Discontinued Operations	Six Months
	2015
Income from discontinued operations before income taxes	$	15.1
Provision for income taxes	(5.5		)
Income from discontinued operations, net of income taxes	9.6
Gain on disposal of discontinued operations before income taxes	27.3
Provision for income taxes on gain on disposal	(12.2		)
Gain on disposal of discontinued operations, net of income taxes	15.1
Net income from discontinued operations	$	24.7

As a result of the sale of the Bakery during the second quarter of 2015, as discussed above in “Executive Overview - Sale of the Bakery,” the Bakery’s results of operations for the period from December 29, 2014 through May 31, 2015 have been included in “Income from discontinued operations, net of income taxes” in the table above. During the second quarter of 2015, the Company recognized a gain on the disposal of the Bakery of $15.1 million , net of income tax expense of $12.2 million , which has been included in net income from discontinued operations. The provision for income taxes on the gain on disposal includes the impact of non-deductible goodwill disposed of as a result of the sale.

Liquidity and Capital Resources

Sources and Uses of Cash

Cash provided by operating activities increased $47.8 million in the first six months of 2016 as compared to the first six months of 2015 , primarily due to changes in our net income and non-cash items as well as the following:


•	an increase of $27.3 million as a result of cash restricted for the payment of interest under our securitized financing facility during the second quarter of 2015; and


•	an increase of $7.3 million as a result of payments to terminate our cash flow hedges during the second quarter of 2015; partially offset by


•	an increase of $30.0 million in interest payments primarily resulting from the securitized financing facility;


•	a $27.9 million increase in income tax payments, net of refunds; and


•	an increase in payments for incentive compensation for the 2015 fiscal year.

Cash used in investing activities increased $6.9 million in the first six months of 2016 as compared to the first six months of 2015 , primarily due to the following:


•	a decrease of $78.4 million in proceeds from the sale of the Bakery during the second quarter of 2015; partially offset by


•	a decrease of $62.1 million in capital expenditures; and


•	an increase of $6.4 million in proceeds from dispositions related to our system optimization initiative.

Cash used in financing activities increased $1,041.5 million in the first six months of 2016 as compared to the first six months of 2015 , primarily due to non-cash items as well as the following:


•	a net decrease in cash provided by long-term debt activities of $947.1 million primarily from the Company’s $2,275.0 million securitized financing facility and the related repayment of debt under the Company’s prior credit agreement during the second quarter of 2015 ; and


•	an increase in repurchases of common stock of $44.9 million.

The net cash used in our business before the effect of exchange rate changes on cash was approximately $66.5 million .

Sources and Uses of Cash for the Remainder of 2016

Our anticipated sources of cash and cash requirements for the remainder of 2016 , exclusive of operating cash flow requirements, consist principally of:


•	capital expenditures of approximately $71.5 million , resulting in total anticipated cash capital expenditures for the year of approximately $140.0 million .


•	quarterly cash dividends aggregating up to approximately $31.4 million as discussed below in “Dividends;”


•	potential stock repurchases of up to $269.0 million , of which $21.1 million was repurchased subsequent to July 3, 2016 through August 4, 2016 as discussed below in “Stock Repurchases;” and


•	consideration paid for restaurant acquisitions and proceeds from restaurant dispositions under our system optimization initiative.

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

Dividends

On March 15, 2016 and June 15, 2016, The Wendy’s Company paid quarterly cash dividends of $0.06 per share on its common stock, aggregating $32.2 million . On August 4, 2016, The Wendy’s Company declared a dividend of $0.06 per share to be paid on September 15, 2016 to shareholders of record as of September 1, 2016. If The Wendy’s Company pays regular quarterly cash dividends for the remainder of 2016 at the same rate as declared in the second quarter of 2016 , the total cash requirement for dividends for the remainder of 2016 would be approximately $31.4 million based on the number of shares of common stock outstanding at August 4, 2016 . The Wendy’s Company currently intends to continue to declare and pay quarterly cash dividends; however, there can be no assurance that any quarterly dividends will be declared or paid in the future or of the amount or timing of such dividends, if any.

Stock Repurchases

On June 1, 2015, our Board of Directors authorized a repurchase program for up to $1.4 billion of our common stock through January 1, 2017, when and if market conditions warrant and to the extent legally permissible. During the first six months of 2016 , the Company repurchased 10.8 million shares with an aggregate purchase price of $109.2 million , of which $3.0 million was accrued at July 3, 2016 and excluding commissions of $0.2 million . As of July 3, 2016 , the Company had $269.0 million of availability remaining under its June 2015 authorization. Subsequent to July 3, 2016 through August 4, 2016 , the Company repurchased 2.2 million shares with an aggregate purchase price of $21.1 million , excluding commissions.

Also as part of the June 2015 authorization, the Company commenced an $850.0 million share repurchase program on June 3, 2015, which included (1) a modified Dutch auction tender offer to repurchase up to $639.0 million of our common stock and (2) a separate stock purchase agreement to repurchase up to $211.0 million of our common stock from Nelson Peltz, Peter W. May (Messrs. Peltz and May are members of the Company’s Board of Directors) and Edward P. Garden (who served on the Company’s Board of Directors until December 14, 2015) and certain of their family members and affiliates, investment funds managed by Trian Fund Management, L.P. (an investment management firm controlled by Messrs. Peltz, May and Garden, “TFM”) and the general partner of certain of those funds (together with Messrs. Peltz, May and Garden, certain of their family members and affiliates and TFM, the “Trian Group”). During the second quarter of 2015, the Company incurred costs of $1.5 million in connection with the tender offer, which were recorded to treasury stock. The $850.0 million share repurchase program was completed during the third quarter of 2015.

In August 2014, our Board of Directors authorized a repurchase program for up to $100.0 million of our common stock through December 31, 2015, when and if market conditions warrant and to the extent legally permissible. During the first six months of 2015 , the Company repurchased 5.7 million shares with an aggregate purchase price of $61.6 million , excluding commissions of $0.1 million . The August 2014 authorization was completed during the third quarter of 2015.

General Inflation, Commodities and Changing Prices

We believe that general inflation did not have a significant effect on our condensed consolidated results of operations during the reporting periods. We manage any inflationary costs and commodity price increases primarily through selective menu price increases. Delays in implementing such menu price increases and competitive pressures may limit our ability to recover such cost increases in the future. Inherent volatility experienced in certain commodity markets, such as those for beef, chicken, corn, pork and cheese could have an unfavorable effect on our results of operations in the future. The extent of any impact will depend on our ability and timing to increase food prices.

Seasonality

Our restaurant operations are moderately impacted by seasonality; Wendy’s restaurant revenues are normally higher during the summer months than during the winter months. Because our business is moderately seasonal, results for any future quarter will not necessarily be indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

As of July 3, 2016 there were no material changes from the information contained in the Form 10-K for the fiscal year ended January 3, 2016 .

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The management of the Company, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of July 3, 2016 . Based on such evaluations, the Chief Executive Officer and Chief Financial Officer concluded that, as of July 3, 2016 , the disclosure controls and procedures of the Company were effective at a reasonable assurance level in (1) recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and (2) ensuring that information required to be disclosed by the Company in such reports is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the internal control over financial reporting of the Company during the second quarter of 2016 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

There are inherent limitations in the effectiveness of any control system, including the potential for human error and the possible circumvention or overriding of controls and procedures. Additionally, judgments in decision-making can be faulty and breakdowns can occur because of a simple error or mistake. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Accordingly, the management of the Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that the control system can prevent or detect all errors or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.

PART II. OTHER INFORMATION

Special Note Regarding Forward-Looking Statements and Projections

This Quarterly Report on Form 10-Q and oral statements made from time to time by representatives of the Company may contain or incorporate by reference certain statements that are not historical facts, including, most importantly, information concerning possible or assumed future results of operations of the Company. Those statements, as well as statements preceded by, followed by, or that include the words “may,” “believes,” “plans,” “expects,” “anticipates,” or the negation thereof, or similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). All statements that address future operating, financial or business performance; strategies, initiatives or expectations; future synergies, efficiencies or overhead savings; anticipated costs or charges; future capitalization; and anticipated financial impacts of recent or pending transactions are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are based on our expectations at the time such statements are made, speak only as of the dates they are made and are susceptible to a number of risks, uncertainties and other factors. Our actual results, performance and achievements may differ materially from any future results, performance or achievements expressed or implied by our forward-looking statements. For all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Reform Act. Many important factors could affect our future results and could cause those results to differ materially from those expressed in or implied by the forward-looking statements contained herein. Such factors, all of which are difficult or impossible to predict accurately, and many of which are beyond our control, include, but are not limited to, the following:


•	competition, including pricing pressures, couponing, aggressive marketing and the potential impact of competitors’ new unit openings on sales of Wendy’s restaurants;


•	consumers’ perceptions of the relative quality, variety, affordability and value of the food products we offer;


•	food safety events, including instances of food-borne illness (such as salmonella or E. coli) involving Wendy’s or its supply chain;


•	consumer concerns over nutritional aspects of beef, poultry, french fries or other products we sell, concerns regarding the ingredients in our products and/or cooking processes used in our restaurants, or concerns regarding the effects of disease outbreaks, epidemics or pandemics impacting the Company’s customers or food supplies;


•	the effects of negative publicity that can occur from increased use of social media;


•	success of operating and marketing initiatives, including advertising and promotional efforts and new product and concept development by us and our competitors;


•	the impact of general economic conditions and increases in unemployment rates on consumer spending, particularly in geographic regions that contain a high concentration of Wendy’s restaurants;


•	changes in consumer tastes and preferences, and in discretionary consumer spending;


•	changes in spending patterns and demographic trends, such as the extent to which consumers eat meals away from home;

•

certain factors affecting our franchisees, including the business and financial viability of franchisees, the timely payment of such franchisees’ obligations due to us or to national or local advertising organizations, and the ability of our franchisees to open new restaurants and remodel existing restaurants in accordance with their development and franchise commitments, including their ability to finance restaurant development and remodels;


•	increased labor costs due to competition or increased minimum wage or employee benefit costs;


•	changes in commodity costs (including beef, chicken and corn), labor, supplies, fuel, utilities, distribution and other operating costs;


•	availability, location and terms of sites for restaurant development by us and our franchisees;


•	development costs, including real estate and construction costs;


•	delays in opening new restaurants or completing reimages of existing restaurants, including risks associated with the Image Activation program;


•	the timing and impact of acquisitions and dispositions of restaurants;


•	anticipated or unanticipated restaurant closures by us and our franchisees;


•	our ability to identify, attract and retain potential franchisees with sufficient experience and financial resources to develop and operate Wendy’s restaurants successfully;


•	availability of qualified restaurant personnel to us and to our franchisees, and the ability to retain such personnel;


•	our ability, if necessary, to secure alternative distribution of supplies of food, equipment and other products to Wendy’s restaurants at competitive rates and in adequate amounts, and the potential financial impact of any interruptions in such distribution;


•	availability and cost of insurance;


•	adverse weather conditions;


•	availability, terms (including changes in interest rates) and deployment of capital;


•	changes in, and our ability to comply with, legal, regulatory or similar requirements, including franchising laws, payment card industry rules, overtime rules, minimum wage rates, wage and hour laws, government-mandated health care benefits, tax legislation, federal ethanol policy and accounting standards;


•	the costs, uncertainties and other effects of legal, environmental and administrative proceedings;


•	the effects of charges for impairment of goodwill or for the impairment of other long-lived assets;


•	the effects of war or terrorist activities;


•	risks associated with failures, interruptions or security breaches of the Company’s computer systems or technology, or the occurrence of cyber incidents or a deficiency in cybersecurity that impacts the Company or its franchisees, including the cybersecurity incident described in Item 1A below;

•

the difficulty in predicting the ultimate costs associated with the sale of company-owned restaurants to franchisees, employee termination costs, the timing of payments made and received, the results of negotiations with landlords, the impact of the sale of restaurants on ongoing operations, any tax impact from the sale of restaurants and the future impact to the Company’s earnings, restaurant operating margins, cash flow and depreciation;


•	risks associated with the Company’s securitized financing facility, including the ability to generate sufficient cash flow to meet increased debt service obligations, compliance with operational and financial covenants, and restrictions on the Company’s ability to raise additional capital;


•	risks associated with the amount and timing of share repurchases under the $1.4 billion share repurchase program approved by the Board of Directors; and

•

other risks and uncertainties affecting us and our subsidiaries referred to in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016 (the “Form 10-K”) (see especially “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and in our other current and periodic filings with the Securities and Exchange Commission.

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We assume no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q as a result of new information, future events

or developments, except as required by federal securities laws. In addition, it is our policy generally not to endorse any projections regarding future performance that may be made by third parties.

Item 1. Legal Proceedings.

We are involved in litigation and claims incidental to our current and prior businesses. We provide accruals for such litigation and claims when payment is probable and reasonably estimable. The Company believes it has adequate accruals for continuing operations for all of its legal and environmental matters. We cannot estimate the aggregate possible range of loss due to most proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult. Based on our currently available information, including legal defenses available to us, and given the aforementioned accruals and our insurance coverage, we do not believe that the outcome of these legal and environmental matters will have a material effect on our consolidated financial position or results of operations.

The Company was named as a defendant in a civil complaint that was filed in the U.S. District Court for the Middle District of Florida on February 8, 2016 by plaintiff Jonathan Torres. The complaint asserted claims of breach of implied contract, negligence and violations of the Florida Unfair and Deceptive Trade Practices Act arising from the Company’s alleged failure to safeguard customer credit card information and the alleged failure to provide notice that credit card information had been compromised. The complaint sought certification of a putative nationwide class of consumers impacted by the alleged failures. The plaintiff sought monetary damages, injunctive and equitable relief, attorneys’ fees and other costs. The Company’s motion to dismiss the complaint was granted, without prejudice, on July 15, 2016.

An amended complaint was filed in the same court by plaintiff Jonathan Torres and six additional named plaintiffs on July 29, 2016. The amended complaint names the Company’s subsidiary, Wendy’s International, LLC (“Wendy’s International”), as the defendant and asserts claims of breach of implied contract, negligence and violations of state consumer protection or deceptive trade practices statutes in the states of Florida, New York, New Jersey, Mississippi, Tennessee and Texas arising from Wendy’s International’s alleged failure to safeguard customer credit card information and the alleged failure to provide notice that credit card information had been compromised. The amended complaint also asserts violations of state data breach statutes in Florida, New York, New Jersey, Tennessee and Texas based on Wendy’s International’s alleged failure to timely and fully disclose the alleged data breach. The amended complaint seeks certification of a putative nationwide class of consumers impacted by the alleged failures, or in the alternative, statewide classes for Florida, New York, New Jersey, Mississippi, Tennessee and Texas. The plaintiffs seek monetary damages, injunctive and equitable relief, attorneys’ fees and other costs.

The Company was named as a defendant in a civil complaint that was filed in the U.S. District Court for the Western District of Pennsylvania on April 25, 2016 by plaintiff First Choice Federal Credit Union. The complaint asserts claims of common law negligence, negligence per se due to the alleged violation of section 5 of the Federal Trade Commission Act, and declaratory and injunctive relief. All of these claims are based on the allegations arising from the Company’s alleged failure to safeguard customer credit card information and the alleged failure to provide notice that credit card information had been compromised. The complaint sought certification of a putative nationwide class of banks, credit unions, financial institutions and other entities in the United States impacted by the alleged failures. The plaintiff sought monetary damages, a declaratory judgment, injunctive relief, attorneys’ fees and other costs.

The Company was named as a defendant in four other civil complaints filed by financial institutions in the U.S. District Court for the Western District of Pennsylvania based on the allegations arising from the Company’s alleged failure to safeguard customer credit card information and the alleged failure to provide notice that credit card information had been compromised. These cases were consolidated into the First Choice Federal Credit Union case.

An amended civil complaint was filed in the consolidated proceeding in the U.S. District Court for the Western District of Pennsylvania on July 22, 2016 naming the Company and two of its subsidiaries as defendants. The amended complaint was brought by 22 financial institutions and five association plaintiffs (representing members who are credit unions and other similar financial institutions). The amended complaint asserts claims of common law negligence, negligence per se due to the alleged violation of section 5 of the Federal Trade Commission Act, violation of the Ohio Deceptive Trade Practices Act, and declaratory and injunctive relief. The amended complaint also seeks certification of a putative nationwide class of banks, credit unions, financial institutions and other entities in the United States impacted by the alleged failures. The plaintiffs seek monetary damages, a declaratory judgment, injunctive relief, attorneys’ fees and other costs.

The Company believes it has meritorious defenses to each of the actions described above and intends to vigorously oppose the claims asserted in each of the complaints.

Item 1A. Risk Factors.

In addition to the information contained in this report, you should carefully consider the risk factors disclosed in our Form 10-K, which could materially affect our business, financial condition or future results. Except as set forth below or as may otherwise be described elsewhere in this report, there have been no material changes from the risk factors previously disclosed in our Form 10-K.

Certain of Our Franchisees have Experienced a Cybersecurity Incident

Working closely with third-party forensic experts, federal law enforcement and payment card industry contacts as part of its ongoing investigation, the Company determined that specific payment card information was targeted by the additional malware variant. This information included cardholder name, credit or debit card number, expiration date, cardholder verification value and service code.

The Company believes the criminal cyberattacks resulted from service providers’ remote access credentials being compromised, allowing access, and the ability to deploy malware, to some franchisees’ point-of-sale systems. There has been no indication in the ongoing investigation that any Company-operated restaurants were impacted by this activity.

The Company worked with investigators to disable the malware involved in the first attack earlier this year. Soon after detecting the malware variant involved in the latest attack, the Company identified a method of disabling it and thereafter disabled it in all franchisee restaurants where it was discovered. The investigation has confirmed that criminals used malware believed to have been effectively deployed on some Wendy’s franchisee systems starting in late fall 2015.

The Company has been named as a defendant in a putative class action filed in the United States on behalf of customers, as well as five class actions brought by financial institutions in the United States that have been consolidated into a single proceeding. These class actions seek damages and other relief allegedly arising from the cybersecurity incident. In addition, claims may also be made by payment card networks against the affected franchisees. These claims and investigations may adversely affect how we or our franchisees operate the business, divert the attention of management from the operation of the business, have an adverse effect on our reputation, result in additional costs and adversely affect our results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information with respect to repurchases of shares of our common stock by us and our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the second quarter of 2016 :

Issuer Repurchases of Equity Securities



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (2)
April 4, 2016 through May 8, 2016	1,986,022	$	11.05	1,981,373	$	308,105,428
May 9, 2016 through June 5, 2016	1,708,053	$	10.33	1,663,900	$	290,945,069
June 6, 2016 through July 3, 2016	2,238,416	$	9.84	2,236,200	$	268,968,817
Total	5,932,491	$	10.38	5,881,473	$	268,968,817


(1)	Includes 51,018 shares reacquired by the Company from holders of share-based awards to satisfy certain requirements associated with the vesting or exercise of the respective awards. The shares were valued at the average of the high and low trading prices of our common stock on the vesting or exercise date of such awards.


(2)	In June 2015, our Board of Directors authorized the repurchase of up to $1.4 billion of our common stock through January 1, 2017, when and if market conditions warrant and to the extent legally permissible.

Subsequent to July 3, 2016 through August 4, 2016 , the Company repurchased 2.2 million shares with an aggregate purchase price of $21.1 million , excluding commissions.

Item 6. Exhibits.



EXHIBIT NO.	DESCRIPTION

3.1	Amended and Restated Certificate of Incorporation of The Wendy’s Company, as filed with the Secretary of State of the State of Delaware on May 26, 2016, incorporated herein by reference to Exhibit 3.1 of The Wendy’s Company Current Report on Form 8-K filed on May 26, 2016 (SEC file no. 001-02207).
3.2	By-Laws of The Wendy’s Company (as amended and restated through May 26, 2016).*
10.1	Employment Letter between The Wendy’s Company and David Trimm executed on May 21, 2015.* **
31.1	Certification of the Chief Executive Officer of The Wendy’s Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of the Chief Financial Officer of The Wendy’s Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as an exhibit to this Form 10-Q.*
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

____________________



*	Filed herewith.
**	Identifies a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	THE WENDY’S COMPANY (Registrant)
Date: August 10, 2016	By: /s/ Gunther Plosch
	Gunther Plosch
	Chief Financial Officer
	(On behalf of the Company)

Date: August 10, 2016	By: /s/ Scott A. Kriss
	Scott A. Kriss
	Senior Vice President -
	Chief Accounting and Tax Officer
	(Principal Accounting Officer)

Exhibit Index



EXHIBIT NO.	DESCRIPTION

3.1	Amended and Restated Certificate of Incorporation of The Wendy’s Company, as filed with the Secretary of State of the State of Delaware on May 26, 2016, incorporated herein by reference to Exhibit 3.1 of The Wendy’s Company Current Report on Form 8-K filed on May 26, 2016 (SEC file no. 001-02207).
3.2	By-Laws of The Wendy’s Company (as amended and restated through May 26, 2016).*
10.1	Employment Letter between The Wendy s Company and David Trimm executed on May 21, 2015.* **
31.1	Certification of the Chief Executive Officer of The Wendy’s Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of the Chief Financial Officer of The Wendy’s Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as an exhibit to this Form 10-Q.*
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

____________________



*	Filed herewith.
**	Identifies a management contract or compensatory plan or arrangement.

EXHIBIT 3.2

THE WENDY’S COMPANY

BY-LAWS

(as amended and restated through May 26, 2016)

ARTICLE I

OFFICES

SECTION 1. Registered Office in Delaware . The registered office of the Corporation (as defined in Article IX below) in the State of Delaware shall be located at 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of the resident agent in charge thereof shall be The Corporation Trust Company.

SECTION 2. Executive Offices . The Corporation shall maintain an executive office in New York, New York, or such other location as the Board of Directors shall determine.

SECTION 3. Other Offices . In addition to the registered office in the State of Delaware and the principal executive office, the Corporation may have offices at such other places within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require; provided, however, that the headquarters of the Wendy’s brand will be located in the greater Columbus, Ohio area for a period of ten years from the date of the closing of the Agreement and Plan of Merger among the Corporation, Wendy’s International, Inc., and Green Merger Sub, Inc., dated April 23, 2008, as such agreement may be amended from time to time.

ARTICLE II

MEETING OF STOCKHOLDERS

SECTION 1. Annual Meetings . The annual meeting of stockholders of the Corporation for the election of directors and the transaction of such other business as may be brought before the meeting in accordance with the Certificate of Incorporation (as defined in Article IX below) and these By-Laws shall be held on the date and at the time fixed from time to time within thirteen (13) months after the date of the preceding annual meeting by the Board of Directors, by a resolution adopted by the affirmative vote of a majority of the total number of directors determined from time to time by the Board of Directors pursuant to a resolution adopted pursuant to Section 3 of Article III of these By-Laws. The annual meeting of stockholders of the Corporation shall not be called or held otherwise than as provided in the Certificate of Incorporation or in these By-Laws.

SECTION 2. Special Meetings . Special meetings of stockholders of the Corporation may be called only (i) at the direction of (a) a majority of the entire Board of Directors, (b) the Chairman of the Board of Directors (the “Chairman”), (c) the Vice Chairman of the Board of Directors (the “Vice Chairman”) or (d) the Chief Executive Officer or (ii) by the Secretary of the Corporation at the written request of holders of record of at least 20% in voting power of the

outstanding capital stock of the Corporation, in accordance with and subject to the requirements set forth in the Certificate of Incorporation.

SECTION 3. Place of Meeting . Annual and special meetings of stockholders of the Corporation shall be held at the registered office of the Corporation in the City of Wilmington, County of New Castle, State of Delaware, unless some other place within or without the State of Delaware shall have been fixed by a resolution adopted by the Board of Directors and designated in the notice of meeting.

SECTION 4. Notice of Meetings . Notice of every meeting of stockholders of the Corporation, annual or special, stating the time, place, if any, and, for special meetings, in general terms, the purpose or purposes thereof, shall be given by the Chairman, the Vice Chairman, the Chief Executive Officer or the Secretary of the Corporation to each stockholder of record entitled to vote at the meeting. Notice of the time, place, if any, and purposes of any annual or special meeting of stockholders may be dispensed with if every stockholder entitled to notice of and to vote at such meeting shall attend, either in person or by proxy, or if every absent stockholder entitled to such notice and vote shall, in a writing or writings or by electronic transmission filed with the records of the meeting either before or after the holding thereof, waive such notice.

SECTION 5. Means of Giving Notice . A notice of any annual or special meeting of stockholders of the Corporation may be given either personally or by mail or other means of written communication, charges prepaid, addressed to the stockholder at such stockholder’s address appearing on the books of the Corporation or given by such stockholder to the Corporation for the purpose of notice. Notices given to stockholders may be given by electronic transmission in the manner provided by law.

SECTION 6. Time of Notice . Any required notice of any meeting of stockholders of the Corporation shall be sent to each stockholder entitled thereto not less than ten (10) nor more than sixty (60) days prior to the date of the meeting.

SECTION 7. Record Date . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) or less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting (including by telegram, cablegram or other electronic transmission as permitted by law), the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall be not more than ten (10) days after the date upon which the resolution fixing the record date is adopted. If no record date has been fixed by the Board of Directors and no prior action by the Board of Directors is required by the Delaware General Corporation Law, the record date shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in the manner prescribed by Article II, Section 14 hereof. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the Delaware General Corporation Law with respect to the proposed action by written consent of the stockholders, the record date for determining stockholders entitled to consent to corporate action in writing shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

SECTION 8. List of Stockholders . A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such stockholder, shall be open to the examination of any such stockholder in the manner provided by law.

The stockholder list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.

SECTION 9. Quorum . At any meeting of stockholders of the Corporation the presence in person or by proxy of the holders of a majority in voting power of the outstanding stock of the Corporation entitled to vote shall constitute a quorum for the transaction of business brought before the meeting in accordance with the Certificate of Incorporation and these By-Laws . When a quorum is present at any meeting of stockholders of the Corporation, the affirmative vote of the holders of a majority in voting power present in person or represented by proxy and entitled to vote shall be required to effect action by stockholders, unless the action is one upon which, by express provision of law, the Certificate of Incorporation, or these By-Laws, a different vote is required, in which case such provision will establish the vote required to effect such action. The stockholders present at any duly organized meeting of stockholders may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to have less than a quorum.

SECTION 10. Adjournment . Any meeting of stockholders of the Corporation may be adjourned from time to time, without notice other than by announcement at the meeting by the chairman of the meeting at which such adjournment is taken, and at any such adjourned meeting at which a quorum shall be present any action may be taken that could have been taken at the meeting originally called; provided, however, that if the adjournment is for more than thirty (30) days, or if

after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting.

SECTION 11. Organization . Subject to the Certificate of Incorporation, at every meeting of stockholders of the Corporation, the Chairman or, in the absence of the Chairman, the Vice Chairman, or in the absence of both the Chairman and the Vice Chairman, the Chief Executive Officer or, in the absence of all such persons, such individual as shall have been designated by a resolution adopted by the affirmative vote of a majority of the Board of Directors, shall act as chairman of the meeting. The Secretary of the Corporation or, in the absence of such officer, an Assistant Secretary in attendance or, in the absence of the Secretary and an Assistant Secretary, an individual appointed by the chairman of the meeting shall act as secretary of the meeting and keep a record of the proceedings of the meeting.

SECTION 12. Agenda and Rules of Order . The chairman of the meeting shall have sole authority to prescribe the agenda and rules of order for the conduct of any meeting of stockholders of the Corporation and to determine all questions arising thereat relating to the order of business and the conduct of the meeting, except as otherwise required by law.

SECTION 13. Conduct of Business at Meetings . Except as otherwise provided by law, at any annual or special meeting of stockholders only such business shall be conducted as shall have been properly brought before the meeting. Except as otherwise provided in this Article II or in the Certificate of Incorporation, in order to be properly brought before the meeting, such business must have either been:

(A) specified in the notice of the meeting (or any supplement thereto) given to stockholders of record on the record date for such meeting by or at the direction of the Board of Directors; or

(B) brought before the meeting at the direction of the Chairman, the Vice Chairman, the Chief Executive Officer or the Board of Directors.

SECTION 14. Stockholder Action by Consent . Any action required or permitted to be taken by the holders of the issued and outstanding stock of the Corporation may be effected at an annual or special meeting of stockholders or by the consent in writing of such stockholders or any of them, which writing shall be filed with the minutes of proceedings of the stockholders. A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder shall be deemed to be in writing for purposes of this section to the extent permitted by law.

ARTICLE III

BOARD OF DIRECTORS

SECTION 1. Board of Directors . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

SECTION 2. Qualification of Director . Each director shall be at least eighteen (18) years of age. Directors need not be stockholders of the Corporation.

SECTION 3. Number of Directors . The Board of Directors shall consist of not fewer than seven (7) nor more than fifteen (15) individuals, the exact number to be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of directors then in office.

SECTION 4. Election and Term of Office . The members of the Board of Directors shall be elected by the stockholders at the annual meeting of stockholders and each director shall hold office until the annual meeting of stockholders next succeeding his or her election and until his or her successor is elected and qualified, or until his or her earlier death, resignation, retirement, disqualification or removal. Except as otherwise required by the provisions of any class or series of Preferred Stock of the Corporation, each nominee for director shall be elected by the affirmative vote of the majority of the votes cast with respect to that nominee’s election at any meeting for the election of directors at which a quorum is present, provided that if, as of the tenth (10th) day preceding the date the Corporation first mails its notice of meeting for such meeting to the stockholders of the Corporation, the number of nominees exceeds the number of directors to be elected (a “Contested Election”), the directors shall be elected by the vote of a plurality of the votes cast. If directors are to be elected by the plurality of the votes cast, stockholders shall not be permitted to vote against a nominee for director. For purposes of Article III of these By-Laws, a majority of votes cast shall mean that the number of votes cast “for” a nominee’s election exceeds the number of votes cast “against” that nominee’s election (with “abstentions” and “broker nonvotes” not counted as a vote cast either “for” or “against” that nominee’s election).

SECTION 5. Vacancies . Any vacancy in the Board of Directors caused by death, resignation, retirement, disqualification or removal or any other cause (including an increase in the number of directors) may be filled solely by resolution adopted by the affirmative vote of a majority of the directors then in office, whether or not such majority constitutes less than a quorum, or by a sole remaining director. Any new director elected to fill a vacancy on the Board of Directors will serve for the remainder of the full term of the director for which the vacancy occurred. No decrease in the size of the Board of Directors shall have the effect of shortening the term of any incumbent director.

SECTION 6. Resignation of Directors . Any director may resign at any time. Such resignation shall be made in writing or by electronic transmission and shall take effect at the time specified therein or upon the happening of an event specified therein, and if no time or event be specified, shall take effect at the time of its receipt by the Chairman, the Vice Chairman, the Chief Executive Officer or the Secretary of the Corporation. The acceptance of a resignation shall not be necessary to make it effective, but no resignation shall discharge any accrued obligation or duty of a director.

SECTION 7. [Deleted.]

SECTION 8. Quorum of Directors . Except as otherwise required by law or by the Certificate of Incorporation or by these By-Laws, (i) a majority of the directors in office at the time

of a duly assembled meeting shall constitute a quorum and be sufficient for the transaction of business, and (ii) any act of a majority of the directors present at a meeting at which there is a quorum shall be the act of the Board of Directors.

SECTION 9. Place of Meeting . Subject to the provisions of Section 10 of this Article III, the Board of Directors may hold any meeting at such place or places within or without the State of Delaware as it may determine.

SECTION 10. Organizational Meeting . After each annual meeting of stockholders of the Corporation, the Board of Directors shall meet immediately at the place where such meeting of stockholders was held for the purpose of organization, election of Executive Officers (as defined in Section 1 of Article V), and the transaction of other business.

SECTION 11. Regular Meetings . Regular meetings of the Board of Directors may be held at such times and at such places within or without the State of Delaware as the Board of Directors shall from time to time determine.

SECTION 12. Special Meetings . Special meetings of the Board of Directors may be called by the Chairman, the Vice Chairman, the Chief Executive Officer, or any two directors, and any such meeting shall be held at such time and at such place within or without the State of Delaware as shall be specified in the notice of meeting.

SECTION 13. Notice of Meetings . Subject to the provisions of Section 10 of this Article III, notice of the place, day and hour of every meeting of the Board of Directors shall be given to each director by mailing written notice at least two (2) days before the meeting to his or her last known address or by delivering such notice either by personal delivery, by telegraph, by telephone or by any other lawful means (including electronic transmission) to each director at least twenty-four (24) hours before the meeting.

SECTION 14. Organization . The Chairman or, in the absence of the Chairman, the Vice Chairman, or in the absence of both the Chairman and Vice Chairman, the Chief Executive Officer, shall call meetings of the Board of Directors to order and shall act as the chairman thereof. In the absence of the Chairman, the Vice Chairman and the Chief Executive Officer, a majority of the directors present may elect as chairman of the meeting any director present. The Secretary of the Corporation or, in the absence of such officer, an Assistant Secretary in attendance or, in the absence of the Secretary and an Assistant Secretary, an individual appointed by the chairman of the meeting shall act as a secretary of the meeting and keep a record of the proceedings of the meeting.

SECTION 15. Order of Business . Unless otherwise determined by the Board of Directors the order of business and rules of order at any meeting of the Board of Directors shall be determined by the chairman of the meeting.

SECTION 16. Adjournment . Any meeting of the Board of Directors may be adjourned from time to time by a majority of the directors present, whether or not they shall constitute a quorum, and no notice shall be required of any adjourned meeting beyond the announcement of such adjournment at the meeting.

SECTION 17. Action by Board of Directors Without a Meeting . Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all the members of the Board or the committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of the Board of Directors or committee, as the case may be. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

SECTION 18. Action by Conference Telephone . Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors or of any committee thereof may participate in a meeting of the Board of Directors or of such committee, as the case may be, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting in such manner shall constitute presence in person at such a meeting.

SECTION 19. Compensation . Each director, in consideration of his or her serving as such, shall be entitled to receive from the Corporation such compensation as the Board of Directors shall from time to time determine, together with reimbursement for reasonable expenses incurred by him or her in attending meetings of the Board of Directors. Each director who shall serve as a member of any committee of the Board of Directors, in consideration of his or her serving as such, shall be entitled to such additional compensation as the Board of Directors shall from time to time determine, together with reimbursement for reasonable expenses incurred by him or her in attending meetings of such committee. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE IV

COMMITTEES OF DIRECTORS

SECTION 1. Committees . The Board of Directors may appoint one or more committees, which may include as members directors only or directors and non-directors, as the Board of Directors may from time to time consider desirable, and such committees shall have such powers and duties as the Board of Directors shall determine and as shall be specified in the resolution of appointment; provided, however, that the powers and duties of any such committee whose members shall include non-directors shall be limited to making recommendations to the Board of Directors.

SECTION 2. Committee Vacancies . Any member of a committee appointed pursuant to this Article IV shall serve at the pleasure of the Board of Directors, which Board shall have the power at any time to remove any member, with or without cause, and to fill vacancies in the membership of a committee. No committee appointed pursuant to this Article IV shall have the power to fill any vacancy in the membership of such committee. Any committee appointed pursuant to Section 1 of this Article IV shall exist at the pleasure of the Board of Directors, which Board shall have the power at any time to change the powers and duties of any such committee or to dissolve it.

SECTION 3. Committee Meetings . Regular meetings of a committee appointed pursuant to this Article IV shall be held at such times and at such places within or without the State of Delaware as the Board of Directors or the committee shall from time to time determine, and no notice of such regular meetings shall be required. Special meetings of any committee may be called by the chairman of such committee or by the Chairman, the Vice Chairman or the Chief Executive Officer, and shall be called by the Secretary of the Corporation on the written request of any member of such committee. Notice of a special meeting of any committee shall be given to each member thereof by mailing such notice at least forty-eight (48) hours, or by delivering such notice either by personal delivery, by telegraph, by telephone or by any other lawful means (including electronic transmission) at least eighteen (18) hours, before the meeting. It shall not be requisite for the validity of any meeting of any committee that notice thereof shall have been given to any committee member who is present at the meeting or, if absent, waives notice thereof in writing filed with the records of the meeting either before or after the holding thereof. Members of a committee constituting at least fifty percent (50%) of such committee shall constitute a quorum for the transaction of committee business, and the act of a majority of the members present at any meeting at which there is a quorum shall be the act of the committee. A committee shall keep regular minutes of its meetings and all action taken or resolutions adopted shall be reported to the Board of Directors at the meeting of the Board next following such action.

ARTICLE V

OFFICERS

SECTION 1. Executive Officers . At the organizational meeting of the Board of Directors following the annual meeting of stockholders (the “Organizational Meeting”), the Board of Directors shall elect as executive officers of the Corporation a Chief Executive Officer, a Secretary and a Treasurer, and may elect as executive officers of the Corporation a President, a Chief Operating Officer, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents. All such executive officers elected by the Board of Directors are referred to in these By-Laws as “Executive Officers.” The Board of Directors may from time to time appoint such other officers and agents of the Corporation as the interests of the Corporation may require and may fix their duties and terms of office. To the extent permitted by law, any number of offices may be held by the same person.

SECTION 2. Other Officers . In addition to the Executive Officers elected by the Board of Directors pursuant to Section 1 of this Article V, the Chief Executive Officer may from time to time appoint such other officers of the Corporation, including, Vice Presidents, Assistant Vice Presidents, Staff Vice Presidents, Assistant Secretaries, Assistant Treasurers and Controllers, as the interests of the Corporation may require (the “Other Officers”); provided, however, that no Other Officer may be appointed to the office of President, Chief Operating Officer, Executive Vice President, Senior Vice President, Secretary or Treasurer. Each appointment of an Other Officer shall be in writing and shall set forth the duties of the Other Officer being appointed and, subject to Section 3 of this Article V, such officer’s term of office.

SECTION 3. Term of Office . Each Executive Officer shall hold office until the Organizational Meeting following the annual meeting of stockholders next succeeding such officer’s election and until such officer’s successor is elected and qualified, or until such officer’s earlier

death, resignation, retirement or removal. Each Other Officer shall hold office for a term to be decided by the Chief Executive Officer; provided, however, that no such term shall be for a period longer than the term of office of the appointing Chief Executive Officer.

SECTION 4. Removal of Officers . Any Executive Officer or Other Officer may be removed from office with or without cause at any time by the affirmative vote of a majority of the Board of Directors. Any Other Officer may be removed from office at any time with or without cause by the Chief Executive Officer.

SECTION 5. Vacancies . A vacancy in any Executive Office or Other Office arising from any cause may be filled for the unexpired portion of the term by the Board of Directors. A vacancy in any Other Office arising from any cause may be filled for the unexpired portion of the term by the Chief Executive Officer.

SECTION 6. Compensation of Officers . The salaries or compensation, if any, of the Executive Officers shall be fixed by the Board of Directors or the Compensation Committee of the Board of Directors (and/or any subcommittee thereof), if there be one. The salaries or compensation of the Other Officers and division officers, if there be any, may be fixed from time to time by the Board of Directors (or the Compensation Committee and/or any subcommittee thereof if there be one), or by the Chief Executive Officer.

SECTION 7. Chairman of the Board . At the Organizational Meeting, the Board of Directors shall designate one member of the Board of Directors to serve as Chairman of the Board. The Chairman shall also serve as Chairman of the Executive Committee, if any. The Chairman shall preside at all meetings of stockholders of the Corporation and the Board of Directors at which the Chairman is present. The Chairman shall perform all duties as are properly required of him or her by the Board of Directors, and shall enjoy all other powers which are commonly incident to the position of Chairman, or are delegated to the Chairman from time to time by the Board of Directors or are or may at any time be authorized or required by law.

SECTION 8. Vice Chairman of the Board . At the Organizational Meeting, the Board of Directors shall designate one member of the Board of Directors to serve as Vice Chairman of the Board. The Vice Chairman shall also serve as Vice Chairman of the Executive Committee, if any. Subject to the Certificate of Incorporation, in the absence of the Chairman, the Vice Chairman shall preside at all meetings of stockholders of the Corporation and the Board of Directors at which the Vice Chairman is present. The Vice Chairman shall perform all duties as are properly required of him or her by the Board of Directors, and shall enjoy all other powers which are commonly incident to the position of Vice Chairman, or are delegated to the Vice Chairman from time to time by the Board of Directors or are or may at any time be authorized or required by law.

SECTION 9. Chief Executive Officer . The Chief Executive Officer shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall have general charge and control of the business and affairs of the Corporation with power and authority, when acting in the ordinary course of business of the Corporation, in the name and on behalf of the Corporation and under its seal attested by the Secretary or an Assistant Secretary of the Corporation, or otherwise, to (i) execute and deliver agreements, contracts, certificates and other

instruments, (ii) purchase and accept delivery of stocks, bonds, evidences of interest and indebtedness, rights and options to acquire the same, and all other securities, whether negotiable or non-negotiable, (iii) sell, assign, transfer and deliver all stocks, bonds, evidence of interest and indebtedness, rights and options to acquire the same, and all other securities, corporate or otherwise, now or hereafter standing in the name of or owned beneficially by the Corporation, (iv) open and maintain accounts with banking institutions, including investment banks and brokerage firms, and (v) borrow from banks and other financial institutions, including investment banks and brokerage firms, such sums of money for such periods of time and upon such terms as such officer shall deem necessary or appropriate, and execute and deliver notes, other evidences of indebtedness and agreements for the repayment of any sums so borrowed in the name and on behalf of the Corporation; provided, however, that no borrowing pursuant to this clause (v) shall have an original maturity of more than one year. Such officer shall perform all other duties and enjoy all other powers which are commonly incident to the office of Chief Executive Officer, or are delegated to such officer from time to time by the Board of Directors or are or may at any time be authorized or required by law.

SECTION 10. Chief Operating Officer . The Chief Operating Officer, if there be one, shall be responsible for directing, administering and coordinating the business operations of the Corporation in accordance with policies, goals and objectives established by the Board of Directors, the Chairman, the Vice Chairman, and the Chief Executive Officer with power and authority, when acting in the ordinary course of business of the Corporation, in the name and on behalf of the Corporation and under its seal attested by the Secretary or an Assistant Secretary of the Corporation, or otherwise, to, (i) execute and deliver agreements, contracts, certificates and other instruments, (ii) purchase and accept delivery of stocks, bonds, evidences of interest and indebtedness, rights and options to acquire the same, and all other securities, whether negotiable or non-negotiable, (iii) sell, assign, transfer and deliver stocks, bonds, evidences of interest and indebtedness, rights and options to acquire the same, and all other securities, corporate or otherwise, now or hereafter standing in the name of or owned beneficially by the Corporation, (iv) open and maintain accounts with banking institutions, including investment banks and brokerage firms, and (v) borrow from banks and other financial institutions, including investment banks and brokerage firms, such sums of money for such periods of time and upon such terms as such officer shall deem necessary or appropriate, and execute and deliver notes, other evidences of indebtedness and agreements for the repayment of any sums so borrowed in the name and on behalf of the Corporation; provided, however, that no borrowing pursuant to this clause (v) shall have an original maturity of more than one year. Such officer shall perform all other duties and enjoy all other powers which are commonly incident to the office of Chief Operating Officer or which are delegated to such officer by the Board of Directors, the Chairman, the Vice Chairman or the Chief Executive Officer. In the absence of the Chief Executive Officer, the Chief Operating Officer shall perform all duties and may exercise all powers of the Chief Executive Officer.

SECTION 11. President, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents Elected by the Board . The President, the Executive Vice Presidents, the Senior Vice Presidents and the Vice Presidents elected by the Board of Directors pursuant to Section 1 of this Article V, if there be any, shall have such powers and perform such duties as may from time to

time be assigned to them by the Board of Directors, the Chairman, the Vice Chairman or the Chief Executive Officer.

SECTION 12. Secretary . The Secretary shall record the proceedings of all meetings of stockholders of the Corporation and of the Board of Directors which such officer attends in a book or books to be kept for that purpose. Such officer shall attend to the giving and serving of all notices on behalf of the Corporation, shall have custody of the records and the seal of the Corporation and shall affix the seal to any instrument which requires the seal of the Corporation. Such officer shall, in general, perform all the duties and functions incident to the office of Secretary and shall also perform such other duties as may from time to time be assigned to such officer by the Board of Directors, the Chairman, the Vice Chairman or the Chief Executive Officer.

SECTION 13. Treasurer . The Treasurer shall have custody and control of all funds and securities of the Corporation, except as otherwise provided by the Board of Directors. Such officer shall keep full and accurate accounts of all receipts and disbursements of the Corporation in books to be kept for that purpose, shall deposit all money and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors, and shall render to the Chief Executive Officer, the Chief Operating Officer or the Board of Directors, whenever any of them may require it, an account of all such officer’s transactions as Treasurer and an account of the financial condition of the Corporation. Such officer shall also perform such other duties as may from time to time be assigned to such officer by the Board of Directors or the Chief Executive Officer.

SECTION 14. Powers and Duties of Other Officers . The Other Officers shall have such powers and perform such duties as may from time to time be assigned to them by the Board of Directors or the Chief Executive Officer.

ARTICLE VI

CAPITAL STOCK

SECTION 1. Certificates . Each holder of stock represented by certificates shall be entitled to a certificate or certificates signed by or in the name of the Corporation by the Chairman, the Vice Chairman, the President, an Executive Vice President or a Senior Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, certifying the number of shares of stock of the Corporation owned by such stockholder. Any or all of the signatures on the certificates may be a facsimile.

In case any officer, Transfer Agent or Registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, Transfer Agent or Registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he, she or it was such officer, Transfer Agent or Registrar at the date of issue.

All certificates of each class or series shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued. Every certificate shall certify the name of the Person owning the shares represented thereby, with the number of shares and the date of issue. The names and addresses of all Persons owning shares of the Corporation, with the number

of shares owned by each and the date or dates of issue of the shares held by each, shall be entered in the books of the Corporation kept for that purpose by the proper officers, agents or employees of the Corporation.

The Corporation shall be entitled to treat the holder of record of any share or shares of stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other Persons, whether or not it has actual or other notice thereof, except as provided by law.

SECTION 2. Cancellation of Certificates . All certificates surrendered to the Corporation shall be cancelled and, except in the case of lost, stolen or destroyed certificates, no new certificates shall be issued until the former certificate or certificates for the same number of shares of the same class of stock have been surrendered and cancelled.

SECTION 3. Lost, Stolen or Destroyed Certificates . The Board of Directors may direct a new certificate or certificates or one or more uncertificated shares (as applicable) to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the Person claiming the certificate or certificates to be lost, stolen or destroyed. In its discretion and as a condition precedent to the issuance of any such new certificate or certificates or one or more uncertificated shares, the Board of Directors may require that the owner of such lost, stolen or destroyed certificate or certificates, or such Person’s legal representative, advertise the same in such manner as the Board shall require and/or give the Corporation and its Transfer Agent or Agents, Registrar or Registrars a bond in such form and amount as the Board of Directors may direct as indemnity against any claim that may be made against the Corporation and its Transfer Agent or Agents, Registrar or Registrars, and that the owner requesting such new certificate or certificates or one or more uncertificated shares obtain a final order or decree of a court of competent jurisdiction as such owner’s right to receive such new certificate or certificates or one or more uncertificated shares.

SECTION 4. Transfer of Shares . Shares of stock represented by certificates shall be transferable on the books of the Corporation by the holder thereof, in person or by duly authorized attorney, upon the surrender for cancellation of the certificate or certificates representing the shares to be transferred, properly endorsed, with such proof or guarantee of the authenticity of the signature as the Corporation or its agents may reasonably require.

Upon the receipt of proper transfer instructions from the registered owner of uncertificated shares, issuance of new equivalent uncertificated shares or certificated shares (as applicable) shall be made to the stockholder entitled thereto and the transaction shall be recorded upon the books of the Corporation.

SECTION 5. Transfer Agents and Registrars . The Corporation may have one or more Transfer Agents and one or more Registrars of its stocks, whose respective duties the Board of Directors may define from time to time. No certificate representing shares of stock shall be valid until countersigned by a Transfer Agent, if the Corporation shall have a Transfer Agent, or until

registered by the Registrar, if the Corporation shall have a Registrar. The duties of Transfer Agent and Registrar may be combined.

ARTICLE VII

CONTRACTS, CHECKS, DRAFTS, PROXIES

SECTION 1. Execution of Contracts . The Board of Directors may authorize any Executive Officer or Other Officer, agent or employee of the Corporation to enter into any contract or execute and deliver any instrument in the name or on behalf of the Corporation, and such authority may be general or confined to specific instances, and, unless so authorized by the Board of Directors, no Executive Officer or Other Officer, agent or employee except the Chief Executive Officer, the Chief Operating Officer, the President, or any Executive Vice President or Senior Vice President shall have any power or authority to bind the Corporation by any contract or to pledge its credit or to render it liable pecuniarily for any purpose or to any amount.

SECTION 2. Loans . Except as otherwise provided in these By-Laws, no loan shall be contracted in the name or on behalf of the Corporation, and no evidence of indebtedness shall be issued, endorsed or accepted in its name, or on its behalf, unless authorized by the Board of Directors. Such authority may be general or confined to specific instances. When so authorized, the Executive or Other Officer, agent or employee thereunto authorized may effect loans and advances at any time for the Corporation from any Person (including any bank, trust company or other institution) and for such loans and advances may make, execute and deliver promissory notes or other evidences of indebtedness of the Corporation, and, when authorized as aforesaid, as security for the payment of any and all loans and advances may make, execute and deliver promissory notes or other evidences of indebtedness and liabilities of the Corporation, may mortgage, pledge, hypothecate or transfer any real or personal property at any time owned or held by the Corporation, and to that end execute instruments of mortgage or pledge or otherwise transfer such property.

SECTION 3. Checks, Drafts, etc. All checks, drafts, bills of exchange or other orders for the payment of money, obligations, notes or other evidences of indebtedness, bills of lading, warehouse receipts and insurance certificates of the Corporation, shall be signed or endorsed by the Chief Executive Officer, the Chief Operating Officer, the President, any Executive Vice President or such other Executive Officer or Other Officer, agent, attorney, or employee of the Corporation as shall from time to time be determined by the Board of Directors, the Chief Executive Officer or the Chief Operating Officer.

SECTION 4. Proxies in Respect of Securities of Other Corporations . The Chief Executive Officer, the Chief Operating Officer, the President, any Executive Vice President or Senior Vice President, and such other Executive Officers or Other Officers as are designated by the Chief Executive Officer or the Chief Operating Officer are authorized to vote by casting a ballot in person or by voting by proxy on behalf of the Corporation the shares owned by the Corporation of the stock or other securities in any other corporation at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation.

ARTICLE VIII

INDEMNIFICATION

SECTION 1. To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a “Proceeding”), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the Corporation, or is or was serving in any capacity at the request of the Corporation for any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (an “Other Entity”), against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys’ fees and disbursements). Persons who are not directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board of Directors at any time specifies that such persons are entitled to the benefits of this Article VIII.

SECTION 2. The Corporation shall, from time to time, reimburse or advance to any director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys’ fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if required by the Delaware General Corporation Law, such expenses incurred by or on behalf of any director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such director, officer or other person is not entitled to be indemnified for such expenses.

SECTION 3. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, the Certificate of Incorporation, these By-Laws, any agreement, any vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.

SECTION 4. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article VIII shall continue as to a person who has ceased to be a director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person.

SECTION 5. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article

VIII, the Certificate of Incorporation or under Section 145 of the Delaware General Corporation Law or any other provision of law.

SECTION 6. The provisions of this Article VIII shall be a contract between the Corporation, on the one hand, and each director and officer who serves in such capacity at any time while this Article VIII is in effect and any other person indemnified hereunder, on the other hand, pursuant to which the Corporation and each such director, officer, or other person intend to be legally bound. No repeal or modification of this Article VIII shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts.

SECTION 7. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article VIII shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding.

SECTION 8. Any director or officer of the Corporation serving in any capacity (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation.

SECTION 9. Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article VIII may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought.

ARTICLE IX

DEFINITIONS

For purposes of these By-Laws, the following terms shall have the meanings set forth below:

“Certificate of Incorporation” shall mean the Certificate of Incorporation of the Corporation, as from time to time amended.

“Corporation” shall mean The Wendy’s Company.

“Delaware Law” shall mean the General Corporation Law of the State of Delaware, as amended from time to time.

“Executive Officers” shall have the meaning set forth in Section 1 of Article V of these By-Laws.

“Indemnitee” shall have the meaning set forth in Section 1 of Article VIII of these By-Laws.

“Other Officers” shall have the meaning set forth in Section 2 of Article V of these By-Laws.

“Person” shall mean any individual, firm, corporation, limited liability company, partnership or other entity.

“Proceeding” shall have the meaning set forth in Section 1 of Article VIII of these By-Laws.

“Voting Shares” shall mean any issued and outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors.

ARTICLE X

MISCELLANEOUS

SECTION 1. Books and Records . The books and records of the Corporation may be kept at such places within or without the State of Delaware as the Board of Directors may from time to time determine. The stock record books and the blank stock certificate books shall be kept by the Secretary or by any other officer or agent designated by the Board of Directors.

SECTION 2. Dividends and Reserves . The Board of Directors, from time to time, may determine whether any, and, if any, what part of the net profits of the Corporation, or of its net assets in excess of its capital, available therefor pursuant to law and the Certificate of Incorporation, shall be declared by it as dividends on the stock of the Corporation. The Board of Directors, in its discretion, in lieu of declaring any such dividend, may use and apply any of such net profits or net assets as a reserve for working capital, to meet contingencies, for the purpose of maintaining or

increasing the property or business of the Corporation or for any other lawful purpose which it may think conducive to the best interests of the Corporation.

SECTION 3. Corporate Seal . The corporate seal of the Corporation shall be in the form of a circle and shall bear the name of the Corporation and the year and state of its incorporation.

SECTION 4. Fiscal Year . The fiscal year of the Corporation shall end on the Sunday that is closest to December 31 of each year unless the Board of Directors shall determine otherwise.

ARTICLE XI

AMENDMENTS

All By-laws of the Corporation shall be subject to alteration, amendment or repeal, in whole or in part, and new By-laws not inconsistent with Delaware law or any provision of the Certificate of Incorporation may be made by a vote of two-thirds of the entire Board of Directors that would be in office if no vacancy existed, whether or not present at a meeting; provided, however, that any By-laws made, amended or repealed by the Board of Directors may be amended or repealed, and any By-laws may be made, by the stockholders of the Corporation by vote of a majority of the holders of shares of stock of the Corporation entitled to vote in the election of directors of the Corporation.

EXHIBIT 10.1

May 21, 2015

Via Email: David.Trimm@gmail.com

David Trimm

Dear David:

The Wendy’s Company is delighted to confirm the offer of employment for the position of Chief Information Officer on the terms stated below. For quick reference, a few key points are also outlined in the attached term sheet. We believe you will contribute to the Company’s overall success and trust that Wendy’s will provide you with the career environment and opportunities you seek. We look forward to you joining the team this July.

COMPENSATION AND BENEFITS . The following is a summary of your compensation and benefits, but it does not contain all the details. The complete understanding between the Company and you regarding your compensation and benefits is governed by legal plan documents. If there is a discrepancy between the information in this letter and the legal plan documents, the legal plan documents will prevail. All forms of compensation referenced in this letter are subject to all applicable deductions and withholdings.


1.	Base Salary . Your starting base annualized salary will be $400,000, paid on a bi-weekly basis.

Annual Incentive. You will be eligible to receive an incentive under the terms and conditions of the incentive plan provided to similarly situated officers of the Company, which currently provides for a target bonus of 60% of your annual base salary, provided performance measures set by the Company are achieved. Any bonus to which you are entitled in your initial year of employment will be prorated based on the number of full fiscal periods you are employed from your start date.

Benefits . You shall be entitled to participate in any retirement, fringe benefit, or welfare benefit plan of the Company on the same terms as provided to similarly situated officers of the Company, including any plan providing prescription, dental, disability, employee life, group life, accidental death, travel accident insurance benefits and car allowance program that the Company may adopt for the benefit of similarly situated officers, in accordance with the terms of such plan. You will be eligible to participate in medical, dental, vision and life insurance programs after 30 days of service.

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4.	Executive Physical. Wendy’s wants to ensure that its leaders are provided with comprehensive health exams to help them maintain their health and peak performance. Wendy’s provides all officers of the company with the opportunity to receive an Executive Physical and will cover up to $4,000 for an annual executive physical exam.


5.	Vacation . You will be eligible for four weeks of vacation per year.


6.	One-Time Equity Award. You will be eligible to receive a one-time award of restricted stock units with an award value of $100,000 after you have completed 30 days of continued, active employment. The restricted stock unit award will vest in full on the third anniversary of the grant.


7.	2015 Equity Award. You will be eligible for a stock option award with an award value of $400,000 on the date the Performance Compensation Subcommittee (the “Subcommittee”) approves awards to other similarly situated senior executives of the Company.


8.	Subsequent Equity Awards. Commencing in 2016, you will be eligible to receive awards under the terms and conditions of the Company’s annual long-term incentive award program in effect for other similarly situated senior executives of the Company, subject to Subcommittee approval.


9.	Relocation Assistance. You are eligible for relocation assistance, and may elect to have your relocation expenses: (i) paid in a lump sum in the amount of $100,000, or (ii) covered by the Company through its third party service provider, Cartus Corporation, subject to the provisions outlined in the Relocation III Homeowners policy, a copy of which accompanies this letter.

10.

Severance. The Company’s Executive Severance Policy provides for certain pay and benefits in the event the Company terminates your employment without cause or within twelve (12) months following a change in control. Such pay and benefits would be provided in exchange for your execution of a general release of any and all claims concerning your employment and termination in favor of the Company. You will not be entitled to severance in the event the Company terminates your employment for cause or in the event you voluntarily resign or terminate your employment with the Company.

CONFIDENTIAL INFORMATION NONCOMPETE/NONSOLICITATION/EMPLOYEE NO-HIRE. In accepting this offer and in consideration of this employment offer and/or continued obligation and promise to provide you with confidential information, you agree to the Non-Compete and Confidentiality Addendum attached hereto and incorporated herein.

EMPLOYMENT AT WILL. By accepting the position on the terms stated, you acknowledge that your employment is “at-will.” This means that you may resign from the Company or the Company may end the employment relationship, at any time, with or without cause, and with or without notice.

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Please review the information contained in this letter. Once you have had an opportunity to consider this letter, and provided you wish to accept the position on the terms outlined, please return an executed copy of this letter to me by May 29, 2015 .

Should you have any questions, please do not hesitate to contact me.

Yours truly,

/s/ Scott A. Weisberg

THE WENDY'S COMPANY

Scott A. Weisberg

Chief People Officer

ACCEPTED AND AGREED:

/s/ David Trimm

David Trimm

May 23, 2015

Date

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DAVID TRIMM

CHIEF INFORMATION OFFICER



PROVISION	TERM	COMMENTS
Base Salary	$400,000/year	Reviewed annually.
Annual Incentive	Target annual bonus percentage equal to 60% of base salary	Company and individual performance assessed for each fiscal year relative to pre-established performance measures.
2015 Equity Award	Value of $400,000	$400,000 will be issued in the form of stock options with the grant date to be the date on which the Performance Compensation Subcommittee approves the award.
Subsequent Equity Awards		Commencing in 2016, during your employment you are eligible to be granted awards under the Wendy’s annual long-term award program in effect for other executives of Wendy’s.
One-Time Equity Award	Value of $100,000	You are eligible to receive a one-time award of restricted stock units with an award value of $100,000 after you have completed 30 days of continued, active employment. The restricted stock unit award will vest in full on the third anniversary of the grant.
Benefits/Car Allowance		Benefits as are generally made available to other senior executives of Wendy’s, including participation in Wendy’s health/medical and insurance programs and $14,400/year car allowance, paid bi-weekly.
Vacation	Four weeks per year

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NON-COMPETE AND CONFIDENTIALITY ADDENDUM

TO OFFER LETTER OF MAY 21, 2015

CONFIDENTIAL INFORMATION . You agree that you will not at any time during your employment and anytime thereafter, divulge, furnish, or make known or accessible to, or use for the benefit of anyone other than Wendy’s, its subsidiaries affiliates and their respective officers, directors and employee, any information of a confidential nature relating in any way to the business of Wendy’s or its subsidiaries or affiliates, or any of their respective franchisees, suppliers or distributors. You further agree that you are not subject to any agreement that would restrict you from performing services to Wendy’s and that you will not disclose to Wendy’s or use on its behalf, any confidential information or material that is the property of a former employer or third party.

NONCOMPETE/NONSOLICITATION/EMPLOYEE NO-HIRE . You acknowledge that you will be involved, at the highest level, in the development, implementation, and management of Wendy’s business strategies and plans, including those which involve Wendy’s finances, marketing and other operations, and acquisitions and, as a result, you will have access to Wendy’s most valuable trade secrets and proprietary information. By virtue of your unique and sensitive position, your employment by a competitor of Wendy’s represents a material unfair competitive danger to Wendy’s and the use of your knowledge and information about Wendy’s business, strategies and plans can and would constitute a competitive advantage over Wendy’s. You further acknowledge that the provisions of this section are reasonable and necessary to protect Wendy’s legitimate business interests.

You agree that during your employment with Wendy’s and either (x) in the event your employment with Wendy’s is terminated “without cause”, for a period of twenty-four (24) months following such termination, or (y) in the event your employment with Wendy’s is terminated for cause, for a period of twelve (12) months following such termination:

(i) in any state or territory of the United States (and the District of Columbia) or any country where Wendy’s maintains restaurants, you will not engage or be engaged in any capacity, “directly or indirectly” (as defined below), except as a passive investor owning less than a two percent (2%) interest in a publicly held company, in any business or entity that is competitive with the business of Wendy’s or its affiliates. This restriction includes any business engaged in drive through or food service restaurant business where hamburgers, chicken sandwiches or entree salads are predominant products (15% or more, individually or in the aggregate, of food products not including beverages). Notwithstanding anything to the contrary herein, this restriction shall not prohibit you from accepting employment, operating or otherwise becoming associated with a franchisee of Wendy’s, any of its affiliates or any subsidiary of the foregoing, but only in connection with activities associated with the operation of such a franchise or activities that otherwise are not encompassed by the restrictions of this paragraph, subject to any confidentiality obligations contained herein;

(ii) you will not, directly or indirectly, without Wendy’s prior written consent, hire or cause to be hired, solicit or encourage to cease to work with Wendy’s or any of its subsidiaries or affiliates, any person who is at the time of such activity, or who was within the six (6) month period preceding such activity, an employee of Wendy’s or any of its subsidiaries or affiliates

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at the level of director or any more senior level or a consultant under contract with Wendy’s or any of its subsidiaries or affiliates and whose primary client is such entity or entities; and

(iii) you will not, directly or indirectly, solicit, encourage or cause any franchisee or supplier of Wendy’s or any of its subsidiaries or affiliates to cease doing business with Wendy’s or subsidiary or affiliate, or to reduce the amount of business such franchisee or supplier does with Wendy’s or such subsidiary or affiliate.

For purposes of this section, “ directly or indirectly ” means in your individual capacity for your own benefit or as a shareholder, lender, partner, member or other principal, officer, director, employee, agent or consultant of or to any individual, corporation, partnership, limited liability company, trust, association or any other entity whatsoever; provided , however , that you may own stock in Wendy’s and may operate, directly or indirectly, Wendy’s restaurants as a franchisee without violating sections (i) or (iii).

If any competent authority having jurisdiction over this section determines that any of the provisions is unenforceable because of the duration or geographical scope of such provision, such competent authority shall have the power to reduce the duration or scope, as the case may be, of such provision and, in its reduced form, such provision shall then be enforceable. In the event of your breach of your obligations under the post-employment restrictive covenants, then the post-employment restricted period shall be tolled and extended during the length of such breach, to the extent permitted by law.

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EXHIBIT 31.1

CERTIFICATIONS

I, Todd A. Penegor, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of The Wendy’s Company;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2016

/s/ Todd A. Penegor

Todd A. Penegor

President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATIONS

I, Gunther Plosch, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of The Wendy’s Company;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2016

/s/ Gunther Plosch

Gunther Plosch

Chief Financial Officer

EXHIBIT 32.1

Certification Pursuant to

18 U.S.C. Section 1350

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of The Wendy’s Company, a Delaware corporation (the “Company”), does hereby certify, to the best of such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended July 3, 2016 (the “Form 10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 10, 2016

/s/ Todd A. Penegor

Todd A. Penegor

President and Chief Executive Officer

Date: August 10, 2016

/s/ Gunther Plosch

Gunther Plosch

Chief Financial Officer