What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-05 compared with 2020-05-06 · 370 added, 183 removed, 469 unchanged (54% of the section changed)

3 unchanged sentences

(In Thousands Except Par Value)

2020 December 29,

ASSETS (Unaudited)

Current assets:

2 unchanged sentences

Accounts and notes receivable, net 134,519 117,461

Inventories 4,411 3,891

Prepaid expenses and other current assets 36,003 15,585

1 unchanged sentence

Total current assets 697,908 554,047

Properties 934,980 977,000

Finance lease assets 201,418 200,144

Operating lease assets 839,276 857,199

Goodwill 749,080 755,911

Other intangible assets 1,234,065 1,247,212

Investments 42,592 45,949

Net investment in sales-type and direct financing leases 258,798 256,606

Other assets 112,239 100,461

Total assets $ 5,070,356 $ 4,994,529

LIABILITIES AND STOCKHOLDERS’ EQUITY

20 unchanged sentences

223,749 and 224,889 shares outstanding, respectively

47,042 47,042

Additional paid-in capital 2,892,699 2,874,001

2 unchanged sentences

246,675 and 245,535 shares, respectively

( 2,580,658 ) ( 2,536,581 )

Accumulated other comprehensive loss ( 62,186 ) ( 53,828 )

5 unchanged sentences

(In Thousands Except Per Share Amounts)

Three Months Ended

Three Months Ended Six Months Ended

2020 June 30,

2019 June 28,

2020 June 30,

Sales $ 164,217 $ 181,050 $ 331,015 $ 348,747

Franchise royalty revenue and fees 103,120 109,125 204,825 211,078

1 unchanged sentence

Advertising funds revenue 78,112 86,612 156,713 167,093

402,306 435,348 807,266 843,931

Costs and expenses:

9 unchanged sentences

Other operating income, net ( 1,396 ) ( 3,003 ) ( 3,328 ) ( 6,985 )

341,645 354,775 697,873 697,092

Operating profit 60,661 80,573 109,393 146,839

Interest expense, net ( 29,085 ) ( 29,931 ) ( 57,610 ) ( 59,013 )

Other income, net

Loss on early extinguishment of debt — ( 7,150 ) — ( 7,150 )

Other (expense) income, net ( 144 ) 2,247 932 4,947

Income before income taxes

31,432 45,739 52,715 85,623

Provision for income taxes ( 6,528 ) ( 13,353 ) ( 13,370 ) ( 21,343 )

Basic and diluted net income per share

Net income $ 24,904 $ 32,386 $ 39,345 $ 64,280

Net income per share:

Basic $ .11 $ .14 $ .18 $ .28

Diluted .11 .14 .17 .27

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Three Months Ended

Other comprehensive (loss) income:

Three Months Ended Six Months Ended

2020 June 30,

2019 June 28,

2020 June 30,

Net income $ 24,904 $ 32,386 $ 39,345 $ 64,280

Other comprehensive income (loss):

Foreign currency translation adjustment 4,149 3,835 ( 8,358 ) 9,860

Other comprehensive (loss) income

Other comprehensive income (loss) 4,149 3,835 ( 8,358 ) 9,860

Comprehensive income

$ 29,053 $ 36,221 $ 30,987 $ 74,140

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Additional Paid-In

Retained Earnings

Common Stock Held in Treasury

Accumulated Other Comprehensive Loss

Stock Additional

Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total

Balance at December 29, 2019 $ 47,042 $ 2,874,001 $ 185,725 $ ( 2,536,581 ) $ ( 53,828 ) $ 516,359

Net income — — 14,441 — — 14,441

Other comprehensive loss

— — — — ( 12,507 ) ( 12,507 )

Cash dividends — — ( 26,793 ) — — ( 26,793 )

Repurchases of common stock, including accelerated share repurchase

— 15,000 — ( 58,336 ) — ( 43,336 )

Share-based compensation — 4,539 — — — 4,539

Common stock issued upon exercises of stock options

— 280 — 1,330 — 1,610

Common stock issued upon vesting of restricted shares

— ( 4,017 ) — 726 — ( 3,291 )

Other — 33 ( 7 ) 27 — 53

Balance at March 29, 2020 $ 47,042 $ 2,889,836 $ 173,366 $ ( 2,592,834 ) $ ( 66,335 ) $ 451,075

Net income — — 24,904 — — 24,904

Other comprehensive income

— — — — 4,149 4,149

Cash dividends — — ( 11,181 ) — — ( 11,181 )

Share-based compensation — 4,787 — — — 4,787

Common stock issued upon exercises of stock options

— ( 902 ) — 11,361 — 10,459

Common stock issued upon vesting of restricted shares

— ( 1,041 ) — 773 — ( 268 )

Other — 19 ( 3 ) 42 — 58

Balance at June 28, 2020 $ 47,042 $ 2,892,699 $ 187,086 $ ( 2,580,658 ) $ ( 62,186 ) $ 483,983

See accompanying notes to condensed consolidated financial statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED

(In Thousands)

Common Stock Additional

Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total

Balance at December 30, 2018 $ 47,042 $ 2,884,696 $ 146,277 $ ( 2,367,893 ) $ ( 61,673 ) $ 648,449

Net income — — 31,894 — — 31,894

Other comprehensive income — — — — 6,025 6,025

3 unchanged sentences

Common stock issued upon exercises of stock options

— ( 205 ) — 9,053 — 8,848

Common stock issued upon vesting of restricted shares

— ( 8,874 ) — 2,819 — ( 6,055 )

Cumulative effect of change in accounting principle

— — ( 1,105 ) — — ( 1,105 )

Other — 24 ( 6 ) 37 — 55

Balance at March 31, 2019 $ 47,042 $ 2,880,663 $ 153,991 $ ( 2,385,354 ) $ ( 55,648 ) $ 640,694

Net income — — 32,386 — — 32,386

Other comprehensive income — — — — 3,835 3,835

Cash dividends — — ( 23,124 ) — — ( 23,124 )

Repurchases of common stock — — — ( 20,391 ) — ( 20,391 )

Share-based compensation — 4,986 — — — 4,986

Common stock issued upon exercises of stock options

— ( 339 ) — 10,830 — 10,491

Common stock issued upon vesting of restricted shares

— ( 1,852 ) — 964 — ( 888 )

Other — 26 ( 4 ) 37 — 59

Balance at June 30, 2019 $ 47,042 $ 2,883,484 $ 163,249 $ ( 2,393,914 ) $ ( 51,813 ) $ 648,048

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Three Months Ended

Six Months Ended

2020 June 30,

Cash flows from operating activities:

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Net income $ 39,345 $ 64,280

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 65,760 64,669

4 unchanged sentences

Change in operating lease liabilities ( 19,233 ) ( 20,983 )

Net (recognition) receipt of deferred vendor incentives

Net receipt of deferred vendor incentives 7,728 5,312

System optimization gains, net ( 2,310 ) ( 122 )

2 unchanged sentences

Changes in operating assets and liabilities and other, net ( 93,332 ) 1,373

Net cash (used in) provided by operating activities

Net cash provided by operating activities 30,562 154,060

Cash flows from investing activities:

Capital expenditures ( 29,402 ) ( 25,484 )

Acquisitions — ( 5,052 )

Dispositions 4,320 1,240

Proceeds from sale of investments — 130

5 unchanged sentences

Repayments of finance lease liabilities ( 3,707 ) ( 3,521 )

Deferred financing costs ( 2,122 ) ( 14,008 )

Repurchases of common stock ( 45,137 ) ( 50,781 )

Dividends ( 37,974 ) ( 46,193 )

Proceeds from stock option exercises 11,865 19,160

2 unchanged sentences

Net cash provided by (used in) operations before effect of exchange rate changes on cash

53,883 ( 6,032 )

Effect of exchange rate changes on cash ( 3,132 ) 3,866

5 unchanged sentences

Finance leases 12,962 23,534

2020 December 29,

Reconciliation of cash, cash equivalents and restricted cash at end of period:

9 unchanged sentences

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements.

In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of March 29, 2020 and the results of our operations and cash flows for the three months ended March 29, 2020 and March 31, 2019 .

In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of June 28, 2020, the results of our operations for the three and six months ended June 28, 2020 and June 30, 2019 and cash flows for the six months ended June 28, 2020 and June 30, 2019.

The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019 (the “Form 10-K”).

The novel coronavirus (COVID-19) pandemic has disrupted and is expected to continue to disrupt our business, which has materially affected and could continue to materially affect our financial condition and results of operations for an extended period of time.

As such, the results of operations for the three months ended March 29, 2020 are not necessarily indicative of the results to be expected for the full 2020 fiscal year.

We cannot predict whether, when or the manner in which the conditions surrounding the pandemic will change and cannot currently estimate the impact on our business in the short or long-term.

See Note 9 for the debt-related actions taken by the Company in response to the COVID-19 pandemic and Note 11 for the impact of the COVID-19 pandemic on the recoverability of the Company’s long-lived assets.

As such, the results of operations for the three and six months ended June 28, 2020 are not necessarily indicative of the results to be expected for the full 2020 fiscal year.

See Notes 3, 7, 9, 11 and 14 for further information regarding actions taken by the Company in response to the COVID-19 pandemic and certain impacts of the COVID-19 pandemic on our condensed consolidated financial statements.

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

4 unchanged sentences

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to or on December 31.

All three-month periods presented herein contain 13 weeks.

All 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.

2 unchanged sentences

New Accounting Standards Adopted

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and the simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and the simplification of areas such as franchise taxes, transactions that result in a step-up in the tax basis of goodwill, separate entity financial statements and interim recognition of enactment of tax laws or tax rate changes.

The Company early adopted this amendment during the first quarter of 2020.

19 unchanged sentences

The following tables disaggregate revenue by segment and source:

Wendy’s International

Global Real Estate & Development

Three Months Ended March 29, 2020

Wendy’s International Global Real Estate & Development Total

Three Months Ended June 28, 2020

Sales at Company-operated restaurants $ 164,217 $ — $ — $ 164,217

4 unchanged sentences

Total revenues $ 331,258 $ 14,003 $ 57,045 $ 402,306

Three Months Ended March 31, 2019

Six Months Ended June 28, 2020

Sales at Company-operated restaurants $ 331,015 $ — $ — $ 331,015

4 unchanged sentences

Total revenues $ 662,299 $ 29,475 $ 115,492 $ 807,266

Contract Balances

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

Receivables, which are included in “Accounts and notes receivable, net” (b)

Receivables, which are included in “Advertising funds restricted assets”

Deferred franchise fees (c)

_______________

Three Months Ended June 30, 2019

Sales at Company-operated restaurants $ 181,050 $ — $ — $ 181,050

Franchise royalty revenue 91,430 11,391 — 102,821

Franchise fees 5,238 464 602 6,304

Franchise rental income — — 58,561 58,561

Advertising funds revenue 81,437 5,175 — 86,612

Total revenues $ 359,155 $ 17,030 $ 59,163 $ 435,348

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

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

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

Deferred franchise fees are included in “ Accrued expenses and other current liabilities ” and “ Deferred franchise fees ” and totaled $ 8,983 and $ 90,628 as of March 29, 2020 , respectively, and $ 8,899 and $ 91,790 as of December 29, 2019 , respectively.

Wendy’s International Global Real Estate & Development Total

Six Months Ended June 30, 2019

Sales at Company-operated restaurants $ 348,747 $ — $ — $ 348,747

Franchise royalty revenue 175,808 21,856 — 197,664

Franchise fees 10,668 1,497 1,249 13,414

Franchise rental income — — 117,013 117,013

Advertising funds revenue 157,418 9,675 — 167,093

Total revenues $ 692,641 $ 33,028 $ 118,262 $ 843,931

Contract Balances

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

2020 (a) December 29,

Receivables, which are included in “Accounts and notes receivable, net” (b) (c) $ 86,834 $ 39,188

Receivables, which are included in “Advertising funds restricted assets” (c)

83,891 54,394

Deferred franchise fees (d) 98,563 100,689

_______________

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

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

(c) The increase in receivables as of June 28, 2020 was primarily due to extending payment terms for royalties and national advertising funds contributions by 45 days beginning in April for a three month period in response to the COVID-19 pandemic.

See Note 7 for further information.

(d) Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $ 9,179 and $ 89,384 as of June 28, 2020, respectively, and $ 8,899 and $ 91,790 as of December 29, 2019, respectively.

Significant changes in deferred franchise fees are as follows:

Three Months Ended

Six Months Ended

2020 June 30,

Deferred franchise fees at beginning of period $ 100,689 $ 102,205

Revenue recognized during the period

( 3,898 ) ( 4,609 )

New deferrals due to cash received and other 1,772 3,671

Deferred franchise fees at end of period $ 98,563 $ 101,267

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Anticipated Future Recognition of Deferred Franchise Fees

1 unchanged sentence

Estimate for fiscal year:

2020 (a) $ 6,091

Thereafter 68,851

_______________

Represents franchise fees expected to be recognized for the remainder of 2020, which includes development-related franchise fees expected to be recognized over a duration of one year or less.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(a) Represents franchise fees expected to be recognized for the remainder of 2020, which includes development-related franchise fees expected to be recognized over a duration of one year or less.

(4) Acquisitions

No restaurants were acquired from franchisees during the three months ended March 29, 2020 .

During the three months ended March 31, 2019 , the Company acquired five restaurants from franchisees for total net cash consideration of $ 5,052 .

The Company did not incur any material acquisition-related costs associated with the acquisitions during the three months ended March 31, 2019 and such transactions were not significant to our condensed consolidated financial statements.

No restaurants were acquired from franchisees during the six months ended June 28, 2020.

During the six months ended June 30, 2019, the Company acquired five restaurants from franchisees for total net cash consideration of $ 5,052 .

The Company did not incur any material acquisition-related costs associated with the acquisitions during the six months ended June 30, 2019 and such transactions were not significant to our condensed consolidated financial statements.

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

Three Months Ended

Six Months Ended

Restaurants acquired from franchisees 5

1 unchanged sentence

Identifiable assets acquired and liabilities assumed:

Properties 666

Acquired franchise rights 1,354

1 unchanged sentence

Finance lease liabilities ( 4,084 )

Other ( 2,316 )

Total identifiable net assets 970

Goodwill $ 4,082

During 2018, the Company acquired 16 restaurants from a franchisee for total net cash consideration of $ 21,401 .

1 unchanged sentence

The Company finalized the purchase price allocation during the three months ended March 31, 2019, which resulted in a decrease in the fair value of acquired franchise rights of $ 2,989 and an increase in deferred tax assets of $ 140 .

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(5) System Optimization Gains, Net

2 unchanged sentences

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

During the three months ended March 29, 2020 , the Company facilitated three Franchise Flips.

No Franchise Flips were facilitated by the Company during the three months ended March 31, 2019 .

During the next twelve months, the Company expects to sell 43 Company-operated restaurants in New York to franchisees.

During the six months ended June 28, 2020, the Company facilitated three Franchise Flips.

No Franchise Flips were facilitated by the Company during the six months ended June 30, 2019.

The Company expects to sell 43 Company-operated restaurants in New York to franchisees in the first quarter of 2021.

The Company expects to retain its Company-operated restaurants in Manhattan.

2 unchanged sentences

All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

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

Three Months Ended Six Months Ended

2020 June 30,

2019 June 28,

2020 June 30,

Post-closing adjustments on sales of restaurants (a) $ — $ 62 $ 345 $ 54

(Loss) gain on sales of other assets, net (b)

Gain on sales of other assets, net (b) 1,987 48 1,965 68

System optimization gains, net $ 1,987 $ 110 $ 2,310 $ 122

_______________

The three months ended March 29, 2020 represents the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

During the three months ended March 29, 2020 , the Company received cash proceeds of $ 195 primarily from the sale of surplus properties .

(a) The six months ended June 28, 2020 represents the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

(b) During the three and six months ended June 28, 2020, the Company received cash proceeds of $ 4,125 and $ 4,320 , respectively, primarily from the sale of surplus and other properties.

During the three and six months ended June 30, 2019, the Company received cash proceeds of $ 1,240 , primarily from the sale of surplus properties.

Assets Held for Sale

2020 December 29,

Number of restaurants classified as held for sale 43 —

2 unchanged sentences

_______________

Net restaurant assets held for sale include the New York Company-operated restaurants we expect to sell during the next twelve months and consist primarily of cash, inventory, property and an estimate of allocable goodwill.

Other assets held for sale primarily consist of surplus properties.

(a) Net restaurant assets held for sale include the New York Company-operated restaurants we expect to sell in the first quarter of 2021 and consist primarily of cash, inventory, property and an estimate of allocable goodwill.

(b) Other assets held for sale primarily consist of surplus properties.

Assets held for sale are included in “Prepaid expenses and other current assets.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(6) Reorganization and Realignment Costs

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

Three Months Ended

Three Months Ended Six Months Ended

2020 June 30,

2019 June 28,

2020 June 30,

IT realignment $ 2,847 $ — $ 6,406 $ —

6 unchanged sentences

The Company expects that the realignment plan will reduce certain employee compensation and other related costs that the Company intends to reinvest back into IT to drive additional capabilities and capacity across all of its technology platforms.

The Company expects the majority of the impact of the realignment plan to occur at its Restaurant Support Center in Dublin, Ohio.

The Company expects to incur total costs aggregating approximately $ 13,000 to $ 15,000 related to the

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

During the three months ended March 29, 2020 , the Company recognized costs totaling $ 3,559 , which primarily included third-party and other costs.

The Company expects to incur additional costs aggregating approximately $ 1,500 , comprised primarily of third-party and other costs.

The Company expects to recognize the majority of the remaining costs associated with the plan during the second quarter of 2020.

Additionally, in June 2020, the Company made changes to its leadership structure that included the creation of a Chief Information Officer position and the elimination of the Chief Digital Experience Officer position.

As a result, the Company now expects to incur total costs aggregating approximately $ 16,000 to $ 17,000 related to the plan.

During the six months ended June 28, 2020, the Company recognized costs totaling $ 6,406 , which primarily included third-party and other costs and severance and related employee costs.

The Company expects to incur additional costs aggregating approximately $ 1,000 , comprised primarily of recruitment and relocation costs.

The Company expects to recognize the majority of the remaining costs associated with the plan during the remainder of 2020.

The following is a summary of the activity recorded as a result of the IT realignment plan:

Three Months Ended

Three Months Ended Six Months Ended Total

Incurred Since Inception

2020 June 28,

Severance and related employee costs $ 830 $ 975 $ 8,523

1 unchanged sentence

Third-party and other costs 1,874 5,117 6,503

2,847 6,406 15,340

Share-based compensation (a) — — 193

1 unchanged sentence

_______________

Primarily represents incremental share-based compensation resulting from the modification of stock options in connection with the termination of employees under our IT realignment plan.

The table below presents a rollforward of our accruals for the plan, which are included in “ Accrued expenses and other current liabilities ” and “ Other liabilities ” and totaled $ 6,744 and $ 237 as of March 29, 2020 , respectively.

December 29, 2019

March 29, 2020

(a) Primarily represents incremental share-based compensation resulting from the modification of stock options in connection with the termination of employees under our IT realignment plan.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The table below presents a rollforward of our accruals for the IT realignment plan, which are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 4,039 and $ 371 as of June 28, 2020, respectively.

December 29, 2019 Charges Payments Balance

Severance and related employee costs $ 7,548 $ 975 $ ( 4,113 ) $ 4,410

1 unchanged sentence

Third-party and other costs 1,076 5,117 ( 6,193 ) —

$ 8,624 $ 6,406 $ ( 10,620 ) $ 4,410

General and Administrative ( “ G&A ”) Realignment

In May 2017, the Company initiated a plan to further reduce its G&A expenses.

Additionally, the Company announced in May 2019 changes to its management and operating structure that included the creation of two new positions, a President, U.S and Chief Commercial Officer and a President, International and Chief Development Officer, and the elimination of the Chief Operations Officer position.

During the three months ended March 29, 2020 and March 31, 2019 , the Company recognized costs related to the plan totaling $ 267 and $ 782 , respectively, which primarily included severance and related employee costs and share-based compensation.

Additionally, in May 2019, the Company announced changes to its management and operating structure that included the creation of two new positions, a President, U.S and Chief Commercial Officer and a President, International and Chief Development Officer, and the elimination of the Chief Operations Officer position.

During the six months ended June 28, 2020 and June 30, 2019, the Company recognized costs related to the plan totaling $ 331 and $ 4,299 , respectively, which primarily included severance and related employee costs and share-based compensation.

The Company does not expect to incur any additional material costs under the plan.

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 activity recorded as a result of the G&A realignment plan:

Three Months Ended

Three Months Ended Six Months Ended Total

Incurred Since Inception

Severance and related employee costs

2020 June 30,

2019 June 28,

2020 June 30,

Severance and related employee costs (a) $ ( 6 ) $ 2,130 $ 146 $ 2,602 $ 24,384

Recruitment and relocation costs — 482 15 596 2,531

Third-party and other costs — 71 1 87 2,211

Share-based compensation (a)

( 6 ) 2,683 162 3,285 29,126

Share-based compensation (b) 70 834 169 1,014 8,067

Termination of defined benefit plans — — — — 1,335

1 unchanged sentence

_______________

Primarily represents incremental share-based compensation resulting from the modification of stock options in connection with the termination of employees under our G&A realignment plan.

The accruals for our G&A realignment plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 3,781 and $ 408 as of March 29, 2020 , respectively, and $ 4,730 and $ 765 as of March 31, 2019 , respectively.

(a) The three and six months ended June 28, 2020 includes a reversal of an accrual as a result of a change in estimate.

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

The accruals for our G&A realignment plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 2,705 and $ 108 as of June 28, 2020, respectively, and $ 4,835 and $ 607 as of June 30, 2019, respectively.

The tables below present a rollforward of our accruals for the plan.

2019 Charges Payments Balance

Severance and related employee costs $ 5,276 $ 146 $ ( 2,671 ) $ 2,751

1 unchanged sentence

Third-party and other costs — 1 ( 1 ) —

$ 5,359 $ 162 $ ( 2,708 ) $ 2,813

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

2018 Charges Payments Balance

Severance and related employee costs $ 7,241 $ 2,602 $ ( 4,724 ) $ 5,119

1 unchanged sentence

Third-party and other costs — 87 ( 87 ) —

$ 7,324 $ 3,285 $ ( 5,167 ) $ 5,442

System Optimization Initiative

1 unchanged sentence

The Company has incurred costs of $ 72,365 under the initiative since inception and does not expect to incur any material additional costs under the plan.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(7) Cash and Receivables

March 29, 2020

2020 December 29, 2019

Cash and cash equivalents

Cash $ 202,939 $ 185,203

Cash equivalents 135,063 114,992

338,002 300,195

Restricted cash

Accounts held by trustee for the securitized financing facility 30,274 34,209

Other 332 330

30,606 34,539

Advertising Funds (a) 40,850 23,973

71,456 58,512

Total cash, cash equivalents and restricted cash

$ 409,458 $ 358,707

Included in “ Advertising funds restricted assets .”

March 29, 2020

December 29, 2019

Allowance for Doubtful Accounts

_______________

(a) Included in “Advertising funds restricted assets.”

June 28, 2020 December 29, 2019

Gross Allowance for Doubtful Accounts Net Gross Allowance for Doubtful Accounts Net

Accounts and Notes Receivable, Net

Accounts receivable (a)

Notes receivable from franchisees (b) (c) (d)

Accounts receivable (a) (b) $ 125,021 $ ( 4,404 ) $ 120,617 $ 103,852 $ ( 3,314 ) $ 100,538

Notes receivable from franchisees (c) (d)

18,572 ( 4,670 ) 13,902 23,628 ( 6,705 ) 16,923

$ 143,593 $ ( 9,074 ) $ 134,519 $ 127,480 $ ( 10,019 ) $ 117,461

Non-current (e)

1 unchanged sentence

$ 6,425 $ ( 835 ) $ 5,590 $ 1,617 $ — $ 1,617

Includes accrued interest receivables, net of $ 1,008 and $ 1,304 and income tax refund receivables $ 9,764 and $ 13,555 as of March 29, 2020 and December 29, 2019 , respectively.

Additionally, 2019 includes receivables of $ 25,350 related to insurance coverage for the financial institutions case.

Includes the current portion of sales-type and direct financing lease receivables of $ 3,438 and $ 3,146 as of March 29, 2020 and December 29, 2019 , respectively.

Includes a note receivable from a franchisee in India totaling $ 1,000 as of March 29, 2020 and December 29, 2019 .

As of March 29, 2020 and December 29, 2019 , the Company had a reserve of $ 985 on the loan outstanding to the franchisee in India.

Included a note receivable from a U.S.

franchisee totaling $ 1,000 as of December 29, 2019 .

The note was repaid during the three months ended March 29, 2020 .

Includes a note receivable from a franchisee in Indonesia, of which $ 1,097 and $ 1,262 are included in current notes receivable and $ 1,273 and $ 1,617 are included in non-current notes receivable as of March 29, 2020 and December 29, 2019 , respectively.

_______________

(a) Includes income tax refund receivables of $ 5,933 and $ 13,555 as of June 28, 2020 and December 29, 2019, respectively.

Additionally, 2019 includes receivables of $ 25,350 related to insurance coverage for the financial institutions class action.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

Includes notes receivable related to a joint venture for the operation of Wendy’s restaurants in Brazil (the “Brazil JV”), of which $ 11,800 and $ 15,920 are included in current notes receivable as of March 29, 2020 and December 29, 2019 , respectively, and $ 4,350 is included in non-current notes receivable as of March 29, 2020 .

As of March 29, 2020 and December 29, 2019 , the Company had reserves of $ 4,520 and $ 5,720 , respectively, on the loans outstanding related to the Brazil JV.

Included in “Other assets.”

(b) During the six months ended June 28, 2020, royalty receivables increased by $ 47,740 and rent receivables increased by $ 6,111 .

These increases were primarily due to actions taken by the Company in response to the COVID-19 pandemic, which included (1) extending payment terms for royalties by 45 days beginning in April for a three month period and (2) offering to defer base rent payments on properties owned by Wendy’s and leased to franchisees by 50%, and offering to pass along any deferrals that were obtained on properties leased by Wendy’s and subleased to franchisees by up to 100%, beginning in May for a three month period, which will be repaid over 12 months beginning in August.

(c) Includes the current portion of sales-type and direct financing lease receivables of $ 3,780 and $ 3,146 as of June 28, 2020 and December 29, 2019, respectively.

Included a note receivable from a U.S.

franchisee totaling $ 1,000 as of December 29, 2019.

The note was repaid during the six months ended June 28, 2020.

(d) Includes a note receivable from a franchisee in India, of which $ 150 and $ 1,000 are included in current notes receivable as of June 28, 2020 and December 29, 2019, respectively, and $ 1,010 is included in non-current notes receivable as of June 28, 2020.

As of June 28, 2020 and December 29, 2019, the Company had a reserve of $ 985 on the loan outstanding to the franchisee in India.

Includes a note receivable from a franchisee in Indonesia, of which $ 1,367 and $ 1,262 are included in current notes receivable and $ 1,065 and $ 1,617 are included in non-current notes receivable as of June 28, 2020 and December 29, 2019, respectively.

Includes notes receivable related to a joint venture for the operation of Wendy’s restaurants in Brazil (the “Brazil JV”), of which $ 11,975 and $ 15,920 are included in current notes receivable as of June 28, 2020 and December 29, 2019, respectively, and $ 4,350 is included in non-current notes receivable as of June 28, 2020.

As of June 28, 2020 and December 29, 2019, the Company had reserves of $ 4,520 and $ 5,720 , respectively, on the loans outstanding related to the Brazil JV.

(e) Included in “Other assets.”

Reserve estimates include consideration of the likelihood of default expected over the estimated life of the receivable.

2 unchanged sentences

Receivables are considered delinquent once they are contractually past due under the terms of the underlying agreements.

As of March 29, 2020 , there were no material receivables more than one year past due.

As of June 28, 2020, there were no material receivables more than one year past due.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following is an analysis of the allowance for doubtful accounts:

Accounts Receivable

Notes Receivable

Three Months Ended March 29, 2020

Accounts Receivable Notes Receivable Total

Six Months Ended June 28, 2020

Balance at December 29, 2019 $ 3,314 $ 6,705 $ 10,019

1 unchanged sentence

Uncollectible accounts written off, net of recoveries ( 66 ) ( 1,192 ) ( 1,258 )

Balance at March 29, 2020

Three Months Ended March 31, 2019

Balance at June 28, 2020 $ 4,404 $ 5,505 $ 9,909

Six Months Ended June 30, 2019

Balance at December 30, 2018 $ 4,940 $ 2,000 $ 6,940

1 unchanged sentence

Uncollectible accounts written off, net of recoveries ( 139 ) 7 ( 132 )

Balance at March 31, 2019

Balance at June 30, 2019 $ 4,047 $ 3,850 $ 7,897

(8) Investments

4 unchanged sentences

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 income, net.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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

Three Months Ended

Six Months Ended

2020 June 30,

Balance at beginning of period $ 45,310 $ 47,021

2 unchanged sentences

Distributions received ( 3,612 ) ( 7,018 )

Foreign currency translation adjustment included in “Other comprehensive (loss) income” and other

Foreign currency translation adjustment included in “Other comprehensive income (loss)” and other

( 1,631 ) 2,359

Balance at end of period $ 42,417 $ 47,281

_______________

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

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

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(9) Long-Term Debt

Long-term debt consisted of the following:

2020 December 29,

Series 2019-1 Class A-2 Notes:

3.783 % Series 2019-1 Class A-2-I Notes, anticipated repayment date 2026

$ 392,000 $ 398,000

4.080 % Series 2019-1 Class A-2-II Notes, anticipated repayment date 2029

441,000 447,750

Series 2018-1 Class A-2 Notes:

3.573 % Series 2018-1 Class A-2-I Notes, anticipated repayment date 2025

438,750 441,000

3.884 % Series 2018-1 Class A-2-II Notes, anticipated repayment date 2028

463,125 465,500

Series 2015-1 Class A-2 Notes:

4.497 % Series 2015-1 Class A-2-III Notes, anticipated repayment date 2025

476,250 478,750

Series 2019-1 Class A-1 Variable Funding Senior Secured Notes 120,000 —

1 unchanged sentence

7 % debentures, due in 2025

83,415 82,837

Unamortized debt issuance costs ( 33,085 ) ( 33,526 )

2,385,474 2,280,311

Less amounts payable within one year ( 146,769 ) ( 22,750 )

1 unchanged sentence

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

Under this facility, in June 2019, the Master Issuer also issued outstanding Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Class A-1 Notes”), which allows for the borrowing of up to $ 150,000 from time to time on a revolving basis using various credit instruments, including a letter of credit facility.

Under this facility, in June 2019, the Master Issuer also issued outstanding Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “2019-1 Class A-1 Notes”), which allow for the borrowing of up to $ 150,000 from time to time on a revolving basis using various credit instruments, including a letter of credit facility.

In March 2020, the Company drew down $ 120,000 under the 2019-1 Class A-1 Notes.

As a result, as of March 29, 2020 , the Company had outstanding borrowings of $ 120,000 under the Class A-1 Notes.

The increased borrowing was taken as a precautionary measure to provide enhanced financial flexibility considering the uncertain market conditions arising from the COVID-19 pandemic.

The Class A-1 Notes accrue interest at a variable interest rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate (“LIBOR”)

As a result, as of June 28, 2020, the Company had outstanding borrowings of $ 120,000 under the 2019-1 Class A-1 Notes.

Subsequent to June 28, 2020, the Company repaid the $ 120,000 outstanding balance under the 2019-1 Class A-1 Notes.

In June 2020, the Master Issuer also issued outstanding Series 2020-1 Variable Funding Senior Secured Notes, Class A-1 (the “2020-1 Class A-1 Notes”), which allow for the borrowing of up to $ 100,000 from time to time on a revolving basis using various credit instruments.

The Company had no outstanding borrowings under the Series 2020-1 Class A-1 Notes as of June 28, 2020.

The borrowing under the 2019-1 Class A-1 Notes in March 2020 and the issuance of the 2020-1 Class A-1 Notes in June 2020 were taken as precautionary measures to provide enhanced financial flexibility considering the uncertain market conditions arising from the COVID-19 pandemic.

The 2019-1 Class A-1 Notes and the 2020-1 Class A-1 Notes (collectively, the “Class A-1 Notes”) accrue interest at a variable interest rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate (“LIBOR”) for U.S.

Dollars or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin and as specified in the respective purchase agreements for the Class A-1 Notes.

There is a commitment fee on the unused portions of the Class A-1 Notes, which ranges from 0.40 % to 0.75 % based on utilization for the 2019-1 Class A-1 Notes, and is 1.50 % for the 2020-1 Class A-1 Notes.

As of June 28, 2020, $ 26,040 of letters of credit were outstanding against the 2019-1 Class A-1 Notes, which relate primarily to interest reserves required under the indenture governing the 2019-1 Class A-1 Notes.

During the three and six months ended June 28, 2020, the Company incurred debt issuance costs of $ 2,122 in connection with the issuance of the 2020-1 Class A-1 Notes.

The debt issuance costs are being amortized to “Interest expense, net” utilizing the effective interest rate method.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

As of March 29, 2020 , $ 24,756 of letters of credit were outstanding against the Class A-1 Notes, which relate primarily to interest reserves required under the Indenture.

Other Long-Term Debt

2 unchanged sentences

In March 2020, the Company drew down C$ 5,500 under the revolving credit facility.

As a result, as of March 29, 2020 , the Company had outstanding borrowings of C$ 5,500 under the revolving credit facility.

advertising fund has a revolving line of credit of $ 25,000 , which was established to fund the advertising fund operations and bears interest at LIBOR plus 2.75 % .

As a result, as of June 28, 2020, the Company had outstanding borrowings of C$ 5,500 under the revolving credit facility.

advertising fund has a revolving line of credit of $ 25,000 , which was established to support the advertising fund operations and bears interest at LIBOR plus 2.75 %.

In February 2020, the Company drew down $ 4,397 under the revolving line of credit, which the Company repaid in February 2020.

In March 2020, the Company drew down $ 25,000 under the revolving line of credit.

As a result, as of March 29, 2020 , the Company had outstanding borrowings of $ 25,000 under the revolving line of credit, which is included in “ Advertising funds restricted liabilities .”

As a result, as of June 28, 2020, the Company had outstanding borrowings of $ 25,000 under the revolving line of credit, which is included in “Advertising funds restricted liabilities.” Subsequent to June 28, 2020, the Company renewed the revolving line of credit, which is now guaranteed by Wendy’s.

The increased borrowings were taken as precautionary measures to provide enhanced financial flexibility considering the uncertain market conditions arising from the COVID-19 pandemic.

15 unchanged sentences

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

2020 December 29,

Value Carrying

Value Fair Value

Financial assets

Cash equivalents

Other investments in equity securities (a)

Cash equivalents $ 135,063 $ 135,063 $ 114,992 $ 114,992 Level 1

Other investments in equity securities (a) 175 175 639 1,649 Level 3

Financial liabilities

Series 2019-1 Class A-2-I Notes (b)

Series 2019-1 Class A-2-II Notes (b)

Series 2018-1 Class A-2-I Notes (b)

Series 2018-1 Class A-2-II Notes (b)

Series 2019-1 Class A-2-I Notes (b) 392,000 410,071 398,000 405,152 Level 2

Series 2019-1 Class A-2-II Notes (b) 441,000 468,518 447,750 459,136 Level 2

Series 2018-1 Class A-2-I Notes (b) 438,750 451,298 441,000 444,859 Level 2

Series 2018-1 Class A-2-II Notes (b) 463,125 487,624 465,500 475,718 Level 2

Series 2015-1 Class A-2-III Notes (b)

Series 2019-1 Class A-1 Notes (b)

advertising fund revolving line of credit

Canadian revolving credit facility

7% debentures, due in 2025 (b)

476,250 488,490 478,750 490,531 Level 2

Series 2019-1 Class A-1 Notes (b) 120,000 116,100 — — Level 2

advertising fund revolving line of credit 25,000 25,000 — — Level 2

Canadian revolving credit facility 4,019 4,019 — — Level 2

7% debentures, due in 2025 (b) 83,415 83,415 82,837 94,838 Level 2

_______________

The fair values of our 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.

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

(a) The fair values of our 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.

During the three months ended June 28, 2020, the Company impaired a miscellaneous investment due to the deterioration in operating performance of the underlying assets.

Subsequent to June 28, 2020, the Company sold its remaining interest in this investment.

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

The carrying amounts of cash, accounts payable, accrued expenses and lines of credit approximate fair value due to the short-term nature of those items.

12 unchanged sentences

Fair Value Measurements

2020 Level 1 Level 2 Level 3

Held and used $ 341 $ — $ — $ 341

Held for sale 1,440 — — 1,440

Total $ 1,781 $ — $ — $ 1,781

Fair Value Measurements

2019 Level 1 Level 2 Level 3

Held and used $ 3,582 $ — $ — $ 3,582

Held for sale 988 — — 988

Total $ 4,570 $ — $ — $ 4,570

(11) Impairment of Long-Lived Assets

The adverse impacts of the COVID-19 pandemic resulted in the Company testing its Company-operated restaurant long-lived assets for recoverability.

As a result of this analysis, the Company recorded impairment charges due to the expected deterioration in operating performance of certain Company-operated restaurants.

Additional impairment charges may be recognized by the Company as a result of further deterioration in operating performance of Company-operated restaurants.

The Company also recorded impairment charges as a result of closing Company-operated restaurants and classifying such surplus properties as held for sale.

During the six months ended June 28, 2020 and June 30, 2019, the Company recorded impairment charges as a result of (1) the deterioration of operating performance of certain Company-operated restaurants and (2) closing Company-operated restaurants and classifying such surplus properties as held for sale.

Impairment charges during the six months ended June 28, 2020 were primarily due to the expected deterioration in operating performance of certain Company-operated restaurants as a result of the COVID-19 pandemic.

Additional impairment charges may be recognized by the Company in the event of further deterioration in operating performance of Company-operated restaurants.

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

Three Months Ended Six Months Ended

2020 June 30,

2019 June 28,

2020 June 30,

Company-operated restaurants $ — $ 86 $ 4,395 $ 287

Surplus properties 117 112 309 1,397

$ 117 $ 198 $ 4,704 $ 1,684

(12) Income Taxes

The Company’s effective tax rate for the three months ended March 29, 2020 and March 31, 2019 was 32.1 % and 20.0 % , respectively.

The Company’s effective tax rate for the three months ended June 28, 2020 and June 30, 2019 was 20.8 % and 29.2 %, respectively.

The Company’s effective tax rate varied from the U.S.

federal statutory rate of 21 % primarily due to (1) an increase in tax on our foreign operations, (2) an increase in state income taxes and (3) a reduction for the benefit of share-based compensation.

There were no significant changes to the unrecognized tax benefits or related interest and penalties for the three months ended March 29, 2020 .

federal statutory rate of 21 % primarily due to a reduction for the benefit of share-based compensation, partially offset by an increase due to state income taxes.

The Company’s effective tax rate for the six months ended June 28, 2020 and June 30, 2019 was 25.4 % and 24.9 %, respectively.

The Company’s effective tax rate varied from the U.S.

federal statutory rate of 21 % primarily due to (1) a reduction for the benefit of share-based compensation, (2) an increase due to state income taxes and (3) an increase for tax on our foreign operations.

There were no significant changes to the unrecognized tax benefits or related interest and penalties for the three and six months ended June 28, 2020.

During the next twelve months, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $ 1,319 due primarily to the lapse of statutes of limitations and expected settlements.

The current portion of refundable income taxes was $ 9,764 and $ 13,555 as of March 29, 2020 and December 29, 2019 , respectively, and is included in “ Accounts and notes receivable, net ” in the condensed consolidated balance sheets.

There were no long-term refundable income taxes as of March 29, 2020 and December 29, 2019 .

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

The current portion of refundable income taxes was $ 5,933 and $ 13,555 as of June 28, 2020 and December 29, 2019, respectively, and is included in “Accounts and notes receivable, net” in the condensed consolidated balance sheets.

There were no long-term refundable income taxes as of June 28, 2020 and December 29, 2019.

(13) Net Income Per Share

1 unchanged sentence

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

Three Months Ended

Three Months Ended Six Months Ended

2020 June 30,

2019 June 28,

2020 June 30,

Common stock:

1 unchanged sentence

Dilutive effect of stock options and restricted shares

4,051 5,064 4,262 5,186

Weighted average diluted shares outstanding 227,174 236,093 227,591 235,993

Diluted net income per share for the three months ended March 29, 2020 and March 31, 2019 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 2,667 and 2,158 for the three months ended March 29, 2020 and March 31, 2019 , respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

Diluted net income per share for the three and six months ended June 28, 2020 and June 30, 2019 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 2,636 and 2,652 for the three and six months ended June 28, 2020, respectively, and 2,049 and 2,104 for the three and six months ended June 30, 2019, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

(14) Stockholders’ Equity

During the first quarter of 2020 and 2019 , the Company paid dividends per share of $ .12 and $ .10 per share, respectively.

During the first and second quarter of 2020, the Company paid dividends per share of $ .12 and $ .05 , respectively.

During each of the first and second quarters of 2019, the Company paid dividends per share of $ .10 .

Repurchases of Common Stock

In February 2020, our Board of Directors authorized a repurchase program for up to $ 100,000 of our common stock through February 28, 2021, when and if market conditions warrant and to the extent legally permissible.

During the three months ended March 29, 2020 , the Company repurchased 779 shares under the February 2020 repurchase authorization with an aggregate purchase price of $ 14,537 , excluding commissions of $ 11 .

As of March 29, 2020 , the Company had $ 85,463 of availability remaining under its February 2020 authorization.

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

In February 2020, our Board of Directors authorized a repurchase program for up to $ 100,000 of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally permissible.

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

During the six months ended June 28, 2020, the Company repurchased 779 shares under the February 2020 repurchase authorization with an aggregate purchase price of $ 14,537 , excluding commissions of $ 11 .

As of June 28, 2020, the Company had $ 85,463 of availability remaining under its February 2020 authorization.

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

The Company now intends to resume share repurchases in 2020, subject to market conditions and prevailing economic factors.

In February 2019, our Board of Directors authorized a repurchase program for up to $ 225,000 of our common stock through March 1, 2020, when and if market conditions warranted and to the extent legally permissible.

2 unchanged sentences

In February 2020, the Company completed the 2019 ASR Agreement and received an additional 628 shares of common stock.

The total number of shares of common stock ultimately purchased by the Company under the 2019 ASR Agreement was based on the average of the daily volume-weighted average prices of the common stock during the term of the 2019 ASR Agreement, less an agreed upon discount.

In total, 4,679 shares were delivered under the 2019 ASR Agreement at an average purchase price of $ 21.37 per share.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during the three months ended March 29, 2020 , the Company repurchased 1,312 shares with an aggregate purchase price of $ 28,770 , excluding commissions of $ 18 , under the February 2019 authorization.

After taking into consideration these repurchases, with the completion of the 2019 ASR Agreement in February 2020, the Company completed its February 2019 authorization.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

During the three months ended March 31, 2019 , the Company repurchased 1,744 shares with an aggregate purchase price of $ 29,345 , of which $ 268 was accrued at March 31, 2019 , and excluding commissions of $ 25 , under the February 2019 authorization and the Company’s previous November 2018 authorization for up to $ 220,000 of common stock.

the 2019 ASR Agreement, less an agreed upon discount.

In total, 4,679 shares were delivered under the 2019 ASR Agreement at an average purchase price of $ 21.37 per share.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during the six months ended June 28, 2020, the Company repurchased 1,312 shares with an aggregate purchase price of $ 28,770 , excluding commissions of $ 18 , under the February 2019 authorization.

After taking into consideration these repurchases, with the completion of the 2019 ASR Agreement in February 2020, the Company completed its February 2019 authorization.

During the six months ended June 30, 2019, the Company repurchased 2,824 shares with an aggregate purchase price of $ 49,721 , of which $ 807 was accrued at June 30, 2019, and excluding commissions of $ 40 , under the February 2019 authorization and the Company’s previous November 2018 authorization to repurchase up to $ 220,000 of our common stock.

Accumulated Other Comprehensive Loss

The following table provides a rollforward of accumulated other comprehensive loss:

Three Months Ended

Six Months Ended

2020 June 30,

Balance at beginning of period $ ( 53,828 ) $ ( 61,673 )

Foreign currency translation

( 8,358 ) 9,860

Balance at end of period $ ( 62,186 ) $ ( 51,813 )

2 unchanged sentences

In addition, the Company owns sites and leases sites from third parties, which it leases and/or subleases to franchisees.

At March 29, 2020 , Wendy’s and its franchisees operated 6,805 Wendy’s restaurants.

At June 28, 2020, Wendy’s and its franchisees operated 6,806 Wendy’s restaurants.

Of the 358 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for 142 restaurants, owned the building and held long-term land leases for 146 restaurants and held leases covering the land and building for 70 restaurants.

1 unchanged sentence

The Company also leases restaurant, office and transportation equipment.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Company as Lessee

The components of lease cost are as follows:

Three Months Ended

Three Months Ended Six Months Ended

2020 June 30,

2019 June 28,

2020 June 30,

Finance lease cost:

1 unchanged sentence

Interest on finance lease liabilities 10,160 9,939 20,218 16,692

13,498 11,570 26,742 21,440

Operating lease cost 23,969 19,086 45,134 43,729

4 unchanged sentences

_______________

Includes expenses for executory costs of $ 9,743 and $ 9,524 for the three months ended March 29, 2020 and March 31, 2019 , respectively, for which the Company is reimbursed by sublessees.

The three months ended March 29, 2020 and March 31, 2019 include $ 29,291 and $ 32,451 , respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees and $ 6,833 and $ 6,593 , respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(a) Includes expenses for executory costs of $ 9,457 and $ 9,779 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $ 19,200 and $ 19,303 for the six months ended June 28, 2020 and June 30, 2019, respectively, for which the Company is reimbursed by sublessees.

(b) Includes $ 31,263 and $ 28,022 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $ 60,554 and $ 60,473 for the six months ended June 28, 2020 and June 30, 2019, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees.

Also includes $ 6,831 and $ 7,007 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $ 13,664 and $ 13,600 for the six months ended June 28, 2020 and June 30, 2019, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

Company as Lessor

The components of lease income are as follows:

Three Months Ended

Three Months Ended Six Months Ended

2020 June 30,

2019 June 28,

2020 June 30,

Sales-type and direct-financing leases:

5 unchanged sentences

_______________

The three months ended March 29, 2020 and March 31, 2019 include sublease income of $ 42,042 and $ 43,021 , respectively, of which $ 9,709 and $ 9,432 , respectively, represents lessees’ variable payments to the Company for executory costs.

(a) Includes sublease income of $ 41,489 and $ 42,921 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $ 83,531 and $ 85,942 for the six months ended June 28, 2020 and June 30, 2019, respectively.

Sublease income includes lessees’ variable payments to the Company for executory costs of $ 9,450 and $ 9,779 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $ 19,159 and $ 19,211 for the six months ended June 28, 2020 and June 30, 2019, respectively.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(16) Transactions with Related Parties

2 unchanged sentences

A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen, which are then subleased to franchisees for the operation of Wendy’s/Tim Hortons combo units in Canada.

During both the three months ended March 29, 2020 and March 31, 2019 , Wendy’s paid TimWen $ 3,855 under these lease agreements.

In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 51 and $ 52 during the three months ended March 29, 2020 and March 31, 2019 , respectively, which has been included as a reduction to “ General and administrative .”

During the six months ended June 28, 2020 and June 30, 2019, Wendy’s paid TimWen $ 7,408 and $ 8,140 , respectively, under these lease agreements.

In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 101 and $ 103 during the six months ended June 28, 2020 and June 30, 2019, respectively, which has been included as a reduction to “General and administrative.”

(17) Guarantees and Other Commitments and Contingencies

2 unchanged sentences

Lease Guarantees

Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees, amounting to $ 77,811 as of March 29, 2020 .

These leases extend through 2045.

We have not received any notice of default related to these leases as of March 29, 2020 .

We have not received any notice of default related to these leases as of June 28, 2020.

In the event of default by a franchise owner, Wendy’s generally retains the right to acquire possession of the related restaurant locations.

Letters of Credit

As of March 29, 2020 , the Company had outstanding letters of credit with various parties totaling $ 25,082 .

As of June 28, 2020, the Company had outstanding letters of credit with various parties totaling $ 26,374 .

Substantially all of the outstanding letters of credit include amounts outstanding against the 2019-1 Class A-1 Notes.

We do not expect any material loss to result from these letters of credit.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(18) Legal and Environmental Matters

5 unchanged sentences

We previously described certain legal proceedings in the Form 10-K.

As of March 29, 2020, there were no material developments in those legal proceedings.

As of June 28, 2020, there were no material developments in those legal proceedings.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(19) Segment Information

Revenues by segment were as follows:

Three Months Ended

Three Months Ended Six Months Ended

2020 June 30,

2019 June 28,

2020 June 30,

$ 331,258 $ 359,155 $ 662,299 $ 692,641

Wendy’s International 14,003 17,030 29,475 33,028

2 unchanged sentences

The following table reconciles profit by segment to the Company’s consolidated income before income taxes:

Three Months Ended

Three Months Ended Six Months Ended

2020 June 30,

2019 June 28,

2020 June 30,

(a) $ 93,136 $ 102,973 $ 174,964 $ 192,627

Wendy’s International 3,594 5,482 8,689 11,229

2 unchanged sentences

Advertising funds deficit ( 1,020 ) ( 2,055 ) ( 2,407 ) ( 2,055 )

Unallocated general and administrative (a)

Unallocated general and administrative (b) ( 23,051 ) ( 20,610 ) ( 47,170 ) ( 41,352 )

Depreciation and amortization ( 34,714 ) ( 31,484 ) ( 65,760 ) ( 64,669 )

4 unchanged sentences

Interest expense, net ( 29,085 ) ( 29,931 ) ( 57,610 ) ( 59,013 )

Other income, net

Loss on early extinguishment of debt — ( 7,150 ) — ( 7,150 )

Other (expense) income, net ( 144 ) 2,247 932 4,947

Income before income taxes $ 31,432 $ 45,739 $ 52,715 $ 85,623

_______________

Includes corporate overhead costs, such as employee compensation and related benefits.

(a) For the three and six months ended June 28, 2020, includes advertising funds expense of $ 2,185 related to the expected Company funding of incremental advertising during 2020.

(b) Includes corporate overhead costs, such as employee compensation and related benefits.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements