What changed in this filing

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Item 1A. Risk Factors

2020-08-05 compared with 2020-05-06 · 28 added, 17 removed, 22 unchanged (67% of the section changed)

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 be described elsewhere in this report, there have been no material changes from the risk factors previously disclosed in our Form 10-K.

In addition to the information contained in this report, you should carefully consider the risk factors disclosed in our Form 10-K and our Quarterly Report on Form 10-Q for the period ended March 29, 2020, 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 and our Quarterly Report on Form 10-Q for the period ended March 29, 2020.

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 results of operations, financial condition and prospects for an extended period of time.

2 unchanged sentences

Governmental restrictions and public perceptions of the risks associated with COVID-19 have caused consumers to avoid or limit non-essential travel, gatherings in public places and other social interactions, which has adversely affected, and could continue to adversely affect, our business.

In response to the COVID-19 pandemic, we have updated our brand standard to include the closure of all dining rooms except where there are specific needs, or a drive-thru or pick-up window option is not available, subject to applicable governmental requirements.

As of the date of this Form 10-Q, substantially all of our Company-operated and franchised restaurants in the United States and Canada have closed their dine-in operations and are operating drive-thru and delivery only, sometimes with limited hours, menus and capacity.

In addition, several international markets have temporarily closed all restaurants, and many other international markets have limited restaurant operations.

As a result, restaurant traffic and systemwide sales have been significantly negatively impacted.

Even after the mobility restrictions are lifted, customers may still be reluctant to return to in-restaurant dining, and consumer spending may be adversely impacted for an extended period of time as a result of decreased consumer confidence and the impact of lost wages due to increased unemployment.

In response to the COVID-19 pandemic, in March 2020, we updated our brand standard to include the closure of all dining rooms except where there were specific needs, or a drive-thru or pick-up window option was not available, subject to applicable federal, state and local requirements.

Substantially all Wendy’s restaurants continued to offer drive-thru and delivery service to our customers.

During the second quarter of 2020, we began implementing our restaurant and dining room reopening process through a phased approach in accordance with federal, state and local requirements, with customer and team member safety as our top priority.

Dining rooms have begun re-opening at each restaurant owner’s discretion, subject to applicable regulatory restrictions.

As of August 2, 2020, over 70% of dining rooms were open across the Wendy’s system offering carryout and, in some cases, dine in services.

The COVID-19 pandemic has also resulted in the temporary closure of certain restaurants across the Wendy’s system.

As of August 2, 2020, approximately 98% of our global systemwide restaurants were operating.

As a result of the COVID-19 pandemic, restaurant traffic and systemwide sales have been significantly negatively impacted.

Even as mobility begins to increase, customers have been and may continue to be reluctant to return to in-restaurant dining, and consumer spending may be adversely impacted for an extended period of time as a result of decreased consumer confidence and the impact of lost wages due to increased unemployment.

The COVID-19 pandemic has also adversely affected new restaurant development and restaurant reimaging.

Due to the uncertain and challenging economic and market conditions, we have delayed construction of substantially all new Company-operated restaurants and reimaging of existing Company-operated restaurants and have also delayed the new restaurant development and Image Activation requirements of our franchisees.

These delays could affect our ability to drive future growth in our business, particularly if they continue for a significant amount of time.

Due to the uncertain and challenging economic and market conditions, we have delayed construction of certain new Company-operated restaurants and reimaging of existing Company-operated restaurants and have also delayed the 2020 new restaurant development and Image Activation requirements of our franchisees.

These delays could affect our ability to drive future growth in our business.

Our operating results and financial condition are impacted to a large extent by the operational and financial success of our franchisees.

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Because a significant portion of restaurant operating costs are fixed or semi-fixed in nature, the loss of sales during a prolonged period of time negatively impacts operating margins and can result in restaurant operating losses.

We have taken certain actions to support our franchisees, including extending payment terms for royalties, extending or abating payment terms for advertising fund contributions and offering to defer base rent payments on properties owned by the Company and leased to franchisees.

These actions are expected to adversely affect our cash flows and financial condition in the upcoming quarters.

To the extent our franchisees experience financial distress, it could negatively affect our results of operations, cash flows and financial condition through delayed or reduced payments of royalties, advertising fund contributions or rent.

As previously announced, we have taken certain actions to support our franchisees, including extending payment terms for royalties, extending or abating payment terms for advertising fund contributions and offering to defer base rent payments on

properties owned by the Company and leased to franchisees.

These actions have adversely affected and are expected to continue to adversely affect our cash flows and financial condition in the upcoming quarters.

To the extent our franchisees experience financial distress, including as a result of the COVID-19 pandemic, it could negatively affect our results of operations, cash flows and financial condition through delayed or reduced payments of royalties, advertising fund contributions or rent.

In addition, in the event our franchisees institute insolvency or bankruptcy proceedings, we could be prevented from collecting or retaining certain payments or exercising certain rights under the related franchise, development or other agreements.

On July 1, 2020, our largest franchisee, NPC Quality Burgers, Inc.

filed for chapter 11 bankruptcy.

As of the date of this report, all of NPC’s Wendy’s restaurants remain open, and NPC has remained current with their continuing obligations to us and the Wendy’s system, except for certain obligations that were not yet due as of the bankruptcy filing date and for which we expect to receive payment upon resolution of the bankruptcy proceedings.

There can be no assurances that NPC’s bankruptcy will not have an adverse impact on our results of operation, cash flows or financial condition or on the performance of the Wendy’s system.

The COVID-19 pandemic has led, and could continue to lead, to interruptions in the delivery of food or other supplies to Wendy’s restaurants arising from delays or restrictions on shipping or manufacturing, closures of supplier or distributor facilities or financial distress or insolvency of suppliers or distributors.

These delays or interruptions could impact the availability of certain food items at Wendy’s restaurants, including beef, chicken, pork and other core menu products.

Our results of operations and those of our franchisees could be adversely affected if our key suppliers or distributors are unable to fulfill their responsibilities

and we are unable to identify alternative suppliers or distributors in a timely manner or effectively transition the impacted business to new suppliers or distributors.

For example, as previously disclosed, we experienced disruptions to our beef supply beginning in early May 2020 as beef suppliers across North America faced production challenges.

As a result, some menu items were occasionally in short supply at some Wendy’s system restaurants.

While we and our supply chain partners effectively managed through this disruption and the beef supply subsequently returned to normal levels across the Wendy’s system, there can be no assurances that we will not see similar disruptions in the future.

Our results of operations and those of our franchisees could be adversely affected if our key suppliers or distributors are unable to fulfill their responsibilities and we are unable to identify alternative suppliers or distributors in a timely manner or effectively transition the impacted business to new suppliers or distributors.

The COVID-19 pandemic could also lead to labor shortages or increased labor costs.

Because COVID-19 can be transmitted through human contact, the risk or perceived risk of contracting the virus could adversely affect the ability or cost of adequately staffing restaurants, which could be exacerbated to the extent that the Company or franchisees have employees who test positive for the virus.

If a significant percentage of our or our franchisees’ workforce is unable to work, whether because of illness, quarantine, travel limitations or other governmental restrictions, our operations and the operations of our franchisees may be negatively impacted, which could materially affect our results of operations and financial condition.

We have taken several actions to help support our employees and protect the health and safety of our employees and customers, such as implementing a new emergency sick leave policy, providing temporary wage increases to restaurant employees and purchasing additional sanitation supplies and personal protective materials, which have contributed to increased operating costs.

If a significant percentage of our or our franchisees’ workforce is unable to work, whether because of illness, quarantine, travel limitations or other governmental actions or restrictions, our operations and the operations of our franchisees may be negatively impacted, which could materially affect our results of operations and financial condition.

As previously disclosed, we have taken several actions to help support our employees and protect the health and safety of our employees and customers, such as implementing a new emergency sick leave policy, providing temporary wage increases to restaurant employees in April and May and purchasing additional sanitation supplies and personal protective materials, which have contributed to increased operating costs.

The impacts from the COVID-19 pandemic could have a material adverse effect on our liquidity and capital resources.

We currently believe we have the ability to pursue additional sources of liquidity if needed or desired to fund operating cash requirements or for other purposes.

Due to the uncertainty in the credit markets caused by the COVID-19 pandemic, there can be no assurance that additional liquidity will be readily available or available on terms acceptable to us.

However, there can be no assurance that additional liquidity will be readily available or available on terms acceptable to us.

If the disruptions caused by COVID-19 worsen or last longer than we currently expect, our ability to comply with certain debt covenants under our securitized financing facility could be adversely affected.

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

What changed 10-Q

Item 1A. Risk Factors