What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-05 · 213 added, 167 removed, 338 unchanged (53% of the section changed)

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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 December 29, 2019 (the “Form 10-K”).

There have been no material changes as of June 28, 2020 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.

There have been no material changes as of September 27, 2020 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.

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Today, Wendy’s is the world’s third largest quick-service restaurant company in the hamburger sandwich segment, with 6,814 restaurants in the United States (the “U.S.”) and 30 foreign countries and U.S.

territories as of June 28, 2020.

territories as of September 27, 2020.

Each Wendy’s restaurant offers an extensive menu specializing in hamburger sandwiches and featuring filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of condiments.

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The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31.

All three- and six-month periods presented herein contain 13 weeks and 26 weeks, respectively.

All three- and nine-month periods presented herein contain 13 weeks and 39 weeks, respectively.

All references to years and quarters relate to fiscal periods rather than calendar periods.

Executive Overview

As of June 28, 2020, the Wendy’s restaurant system was comprised of 6,806 restaurants, with 5,862 Wendy’s restaurants in operation in the U.S.

As of September 27, 2020, the Wendy’s restaurant system was comprised of 6,814 restaurants, with 5,874 Wendy’s restaurants in operation in the U.S.

restaurants, 360 were operated by the Company and 5,514 were operated by a total of 237 franchisees.

In addition, at June 28, 2020, there were 944 Wendy’s restaurants in operation in 30 foreign countries and U.S.

In addition, at September 27, 2020, there were 940 Wendy’s restaurants in operation in 30 foreign countries and U.S.

territories, all of which were franchised.

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(1) sales at Company-operated restaurants and (2) franchise-related revenues, including royalties, national advertising funds contributions, rents and franchise fees received from Wendy’s franchised restaurants.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of June 28, 2020.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of September 27, 2020.

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

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During the second quarter of 2020, the Company began to implement its 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 its top priority.

Dining rooms have been 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.

Dining rooms have been re-opening during the second and third quarters of 2020 at each restaurant owner’s discretion, subject to applicable regulatory restrictions.

As of September 27, 2020, approximately 75% of dining rooms were open across the Wendy’s system offering carryout and, in some cases, dine in services.

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

As of August 2, 2020, systemwide temporary restaurant closures totaled 34 and 93 in the U.S.

As of September 27, 2020, systemwide temporary restaurant closures totaled 17 and 52 in the U.S.

and internationally, respectively, which represents approximately 1% of all system restaurants.

The following table shows same-restaurant sales for the fiscal months of January through June 2020:

January through February March April May June

The following table shows same-restaurant sales for the fiscal months of January through June and the third quarter of 2020:

January through February March April May June Third

Same-restaurant sales:

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The decrease in same-restaurant sales was driven by a significant decline in customer count, partially offset by an increase in average check.

Subsequently, global same-restaurant sales improved during the fiscal months of May and June, despite being impacted by the previously disclosed disruption in beef supply at the beginning of May (see “Beef Supply Update” below for further information).

The improvement in same-restaurant sales was primarily driven by a significant increase in customer traffic compared to the lows seen in March and April.

Global same-restaurant sales continued to improve during the fiscal month of July, with U.S.

systemwide same-restaurant sales increasing 8.2%.

The negative impact of the COVID-19 pandemic on same-restaurant sales has been partially offset by the Company’s entry into the breakfast daypart across the U.S.

Subsequently, global same-restaurant sales improved beginning in May, turned positive to 3.4% growth in June and improved to an increase of 6.1% during the third quarter.

During the fiscal month of October, U.S.

systemwide same-restaurant sales increased 6.6%.

The improvement in same-restaurant sales has been primarily driven by a significant increase in customer traffic compared to the lows seen in March and April.

Same-restaurant sales have benefited from the Company’s entry into the breakfast daypart across the U.S.

system on March 2, 2020.

Breakfast represented approximately 8% of U.S.

systemwide sales in the second quarter of 2020.

Breakfast contributed 6.2% and 6.4% to U.S.

systemwide same-restaurant sales during the second and third quarters of 2020, respectively.

Due to the current unprecedented market and economic conditions in the U.S.

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See “Item 1A.

Factors” in “Part II.

Other Information” for further information regarding the risks associated with the COVID-19 pandemic and the impact on our business, results and financial condition.

Risk Factors” in “Part II.

Other Information” for further information regarding the risks associated with the COVID-19 pandemic

and the impact on our business, results and financial condition.

Also, see “Liquidity and Capital Resources” below for certain actions taken by the Company in response to the COVID-19 pandemic.

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The Company also shifted its marketing efforts in the short term to focus on chicken products in an effort to alleviate pressure on beef demand.

Beef supply has returned to normal levels across the Wendy’s system as of June 28, 2020.

Beef supply returned to normal levels across the Wendy’s system by the end of the second quarter of 2020.

Goodwill and Indefinite-Lived Intangible Assets

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Given the limited excess of the fair value over carrying value, this reporting unit is more sensitive to changes in assumptions regarding its fair value.

As of the date of our analysis in the first quarter of 2020, a 50 basis point increase in the discount rate, or a moderate decline in estimated future cash flows, would result in the fair value of the reporting unit being less than its carrying value.

As of June 28, 2020, the goodwill balance associated with our global real estate and development operations was $122.5 million.

The Company also tested our indefinite-lived intangible assets, which represent trademarks, for impairment in March 2020.

As of the date of our analysis in the first quarter of 2020, a 50 basis point increase in the discount rate, or a moderate decline in estimated future cash flows, would have resulted in the fair value of the reporting unit being less than its carrying value.

As of September 27, 2020, the goodwill balance associated with our global real estate and development operations was $122.5 million.

The Company also tested our indefinite-lived intangible assets, which consist of our trademarks, for impairment in March 2020.

Based on the results of our impairment test, we determined the fair value of our trademarks continued to significantly exceed their carrying value.

Further adverse changes as a result of the COVID-19 pandemic could further reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could result in future impairment charges of goodwill and indefinite-lived intangible assets.

Further adverse changes as a result of the COVID-19 pandemic could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could result in future impairment charges of goodwill and indefinite-lived intangible assets.

Operations and Field Realignment

In September 2020, the Company initiated a plan to reallocate resources to better support the long-term growth strategies for Company and franchise operations (the “Operations and Field Realignment Plan”).

The Operations and Field Realignment Plan realigns the Company’s restaurant operations team, including transitioning from separate leaders of Company and franchise operations to a single leader of all U.S.

restaurant operations.

We also expect to incur contract termination charges, including the planned closure of certain field offices.

The Company expects to incur total costs aggregating approximately $7.0 million to $9.0 million, of which approximately $6.5 million to $8.5 million will be cash expenditures, related to the Operations and Field Realignment Plan.

Costs related to the Operations and Field Realignment Plan are recorded to “Reorganization and realignment costs.” During the nine months ended September 27, 2020, the Company recognized costs totaling $3.0 million, which included severance and related employee costs and share-based compensation.

The Company expects to incur additional costs aggregating approximately $4.0 million to $6.0 million, comprised primarily of third-party and other costs.

The Company expects to recognize the majority of the remaining costs associated with the Operations and Field Realignment Plan during the remainder of 2020 and 2021.

The majority of the cash expenditures are expected during 2021.

Information Technology (“IT”) Realignment

In December 2019, our Board of Directors approved a plan to realign and reinvest resources in the Company’s IT organization to strengthen its ability to accelerate growth.

The Company is partnering with a third-party global IT consultant on this new structure to leverage their global capabilities, which the Company believes will enable a more seamless integration between its digital and corporate IT assets.

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.

In December 2019, our Board of Directors approved a plan to realign and reinvest resources in the Company’s IT organization to strengthen its ability to accelerate growth (the “IT Realignment Plan”).

The Company has partnered with a third-party global IT consultant on this new structure to leverage their global capabilities, which will enable a more seamless integration between its digital and corporate IT assets.

The IT Realignment Plan has reduced and will continue to reduce certain employee compensation and other related costs that the Company is reinvesting back into IT to drive additional capabilities and capacity across all of its technology platforms.

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 $16.0 million to $17.0 million related to the plan.

During the six months ended June 28, 2020, the Company recognized costs totaling $6.4 million, which primarily included third-party and other costs and severance and related employee costs.

As a result, the Company expects to incur total costs aggregating approximately $16.0 million to $17.0 million related to the IT Realignment plan.

Costs related to the IT Realignment Plan are recorded to “Reorganization and realignment costs.” During the nine months ended September 27, 2020, the Company recognized costs totaling $6.8 million, which primarily included third-party and other costs and severance and related employee costs.

The Company expects to incur additional costs aggregating approximately $1.0 million, 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 Company expects to recognize the majority of the remaining costs associated with the IT Realignment Plan during the remainder of 2020.

Subsequent to September 27, 2020, the Company announced the appointment of its new Chief Information Officer.

Results of Operations

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the second quarter and the first six months of 2020 and 2019.

Second Quarter Six Months

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the third quarter and the first nine months of 2020 and 2019.

Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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Loss on early extinguishment of debt — — — — (7.2) 7.2

Other (expense) income, net (0.2) 2.2 (2.4) 0.9 5.0 (4.1)

Other income, net 0.2 2.2 (2.0) 1.2 7.1 (5.9)

Income before income taxes 52.4 53.3 (0.9) 105.2 138.9 (33.7)

31.4 45.7 (14.3) 52.7 85.6 (32.9)

Provision for income taxes (12.6) (7.2) (5.4) (26.1) (28.5) 2.4

Net income $ 39.8 $ 46.1 $ (6.3) $ 79.1 $ 110.4 $ (31.3)

Second Quarter Six Months

Third Quarter Nine Months

Total Revenues 2019 % of

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Franchise royalty revenue and fees:

Royalty revenue 97.2 24.2 % 102.8 23.6 % 192.6 23.9 % 197.7 23.4 %

Franchise royalty revenue 109.3 24.2 % 102.3 23.4 % 301.9 24.0 % 300.0 23.4 %

Franchise fees 7.5 1.6 % 6.9 1.5 % 19.7 1.5 % 20.3 1.6 %

Total franchise royalty revenue and fees 116.8 25.8 % 109.2 24.9 % 321.6 25.5 % 320.3 25.0 %

103.1 25.6 % 109.1 25.1 % 204.9 25.4 % 211.1 25.0 %

Franchise rental income

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$ 452.2 100.0 % $ 437.9 100.0 % $ 1,259.5 100.0 % $ 1,281.8 100.0 %

Second Quarter Six Months

Third Quarter Nine Months

Sales 2019 % of

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Total cost of sales $ 159.5 83.1 % $ 152.4 83.8 % $ 450.2 86.1 % $ 446.1 84.1 %

Second Quarter Six Months

Third Quarter Nine Months

Sales 2019 % of

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The tables below present certain of the Company’s key business measures, which are defined and further discussed in the “Executive Overview” section included herein.

Second Quarter Six Months

Third Quarter Nine Months

2020 2019 2020 2019

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(a) Includes international franchised restaurants same-restaurant sales (excluding Argentina and Venezuela due to the impact of the highly inflationary economies of those countries).

Second Quarter Six Months

Third Quarter Nine Months

2020 2019 2020 2019

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________________

(a) During the second quarter of 2020 and 2019, global systemwide sales decreased 6.2% and increased 3.3%, respectively, U.S.

systemwide sales decreased 4.0% and increased 2.5%, respectively, and international franchised sales decreased 24.5% and increased 10.4%, respectively, on a constant currency basis.

During the first six months of 2020 and 2019, global systemwide sales decreased 2.7% and increased 3.3%, respectively, U.S.

systemwide sales decreased 1.6% and increased 2.5%, respectively, and international franchised sales decreased 12.4% and increased 10.3%, respectively, on a constant currency basis.

(a) During the third quarter of 2020 and 2019, global systemwide sales increased 6.7% and 5.7%, respectively, U.S.

systemwide sales increased 7.9% and 5.8%, respectively, and international franchised sales decreased 3.5% and increased 4.6%, respectively, on a constant currency basis.

During the first nine months of 2020 and 2019, global systemwide sales increased 0.5% and 4.1%, respectively, U.S.

systemwide sales increased 1.6% and 3.6%, respectively, and international franchised sales decreased 9.3% and increased 8.3%, respectively, on a constant currency basis.

(b) Excludes Argentina and Venezuela due to the impact of the highly inflationary economies of those countries.

Second Quarter

Third Quarter

Company-operated U.S.

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Restaurant count:

Restaurant count at March 29, 2020 358 5,503 944 6,805

Restaurant count at June 28, 2020 358 5,504 944 6,806

Opened 2 25 6 33

Closed (a) — (15) (10) (25)

Restaurant count at June 28, 2020 358 5,504 944 6,806

Net purchased from (sold by) franchisees — — — —

Restaurant count at September 27, 2020

360 5,514 940 6,814

Company-operated U.S.

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Closed (a) (2) (49) (19) (70)

Restaurant count at June 28, 2020 358 5,504 944 6,806

Net purchased from (sold by) franchisees — — — —

Restaurant count at September 27, 2020

360 5,514 940 6,814

________________

(a) Excludes restaurants temporarily closed due to the impact of the COVID-19 pandemic.

Sales Second Quarter Six Months

Sales Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Sales $ 191.9 $ 182.0 $ 9.9 $ 523.0 $ 530.7 $ (7.7)

The decrease in sales for the second quarter and the first six months of 2020 was primarily due to a 10.0% and 5.5% decrease in Company-operated same-restaurant sales, respectively.

Company-operated same-restaurant sales decreased due to a decrease in customer count as a result of the COVID-19 pandemic, partially offset by (1) higher average check and (2) the positive impact from the launch of breakfast on March 2, 2020.

Franchise Royalty Revenue and Fees Second Quarter Six Months

The increase in sales for the third quarter of 2020 was primarily due to a 4.2% increase in Company-operated same-restaurant sales.

Company-operated same-restaurant sales increased due to (1) the positive impact from the launch of breakfast on March 2, 2020 and (2) higher average check.

These increases were partially offset by a decrease in customer count as a result of the COVID-19 pandemic.

The decrease in sales for the first nine months of 2020 was primarily due to a 2.2% decrease in Company-operated same-restaurant sales.

Company-operated same-restaurant sales decreased due to a decrease in customer count as a result of the COVID-19 pandemic, partially offset by (1) the positive impact from the launch of breakfast on March 2, 2020 and (2) higher average check.

Franchise Royalty Revenue and Fees Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Royalty revenue $ 97.2 $ 102.8 $ (5.6) $ 192.6 $ 197.7 $ (5.1)

Franchise royalty revenue $ 109.3 $ 102.3 $ 7.0 $ 301.9 $ 300.0 $ 1.9

Franchise fees 7.5 6.9 0.6 19.7 20.3 (0.6)

$ 116.8 $ 109.2 $ 7.6 $ 321.6 $ 320.3 $ 1.3

The decrease in franchise royalty revenue during the second quarter and the first six months of 2020 was primarily due to a 5.5% and 2.9% decrease in franchise same-restaurant sales, respectively, which reflects the impact of the COVID-19 pandemic, partially offset by the positive impact from the launch of breakfast on March 2, 2020.

The decrease in franchise fees during the second quarter and the first six months of 2020 was primarily due to lower other miscellaneous franchise fees.

Franchise Rental Income Second Quarter Six Months

The increase in franchise royalty revenue during the third quarter and the first nine months of 2020 was primarily due to a 6.2% and 0.2% increase in franchise same-restaurant sales, respectively, which reflects the positive impact from the launch of breakfast on March 2, 2020, partially offset by a decrease in customer count as a result of the COVID-19 pandemic.

The change in franchise fees during the third quarter and the first nine months of 2020 was primarily due to changes in other miscellaneous franchise fees.

Franchise Rental Income Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Franchise rental income $ 58.7 $ 59.9 $ (1.2) $ 173.4 $ 176.9 $ (3.5)

The decrease in franchise rental income during the second quarter was primarily due to amending certain existing leases, partially offset by the impact of assigning certain leases to a franchisee during the second quarter of 2019.

The decrease in franchise rental income during the first six months of 2020 was primarily due to amending certain existing leases and the impact of assigning certain leases to a franchisee.

Advertising Funds Revenue Second Quarter Six Months

The decrease in franchise rental income during the third quarter and the first nine months of 2020 was primarily due to assigning certain leases to franchisees during 2019.

Franchise rental income during the first nine months of 2020 also decreased due to amending certain existing leases.

Advertising Funds Revenue Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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Franchisees make contributions to the national advertising funds based on a percentage of sales of the franchised restaurants.

The decrease in advertising funds revenue during the second quarter and the first six months of 2020 was primarily due to a decrease in franchise same-restaurant sales as a result of the COVID-19 pandemic.

Cost of Sales, as a Percent of Sales Second Quarter Six Months

The decrease in advertising funds revenue during the third quarter and the first nine months of 2020 was primarily due to the impact of the COVID-19 pandemic.

The positive impact from the launch of breakfast has not impacted advertising funds revenue due to the Company’s decision in March 2020 to abate national advertising fund contributions on breakfast sales for the remainder of 2020 in response to the COVID-19 pandemic.

Cost of Sales, as a Percent of Sales Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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83.1 % 83.8 % (0.7) % 86.1 % 84.1 % 2.0 %

The increase in cost of sales, as a percent of sales, during the second quarter and the first six months of 2020 was primarily due to (1) a decrease in customer count, reflecting the impact of the COVID-19 pandemic, and (2) restaurant labor rate increases, which included incremental recognition pay during April and May.

These impacts were partially offset by (1) higher average check and (2) labor efficiencies and other dining room closure related efficiencies.

Franchise Support and Other Costs Second Quarter Six Months

The decrease in cost of sales, as a percent of sales, during the third quarter of 2020 was primarily due to (1) higher average check and (2) lower than expected local advertising spend.

These impacts were partially offset by (1) a decrease in customer count, reflecting the impact of the COVID-19 pandemic, (2) an increase in commodity costs and (3) restaurant labor rate increases.

The increase in cost of sales, as a percent of sales, during the first nine months of 2020 was primarily due to (1) a decrease in customer count, reflecting the impact of the COVID-19 pandemic, (2) restaurant labor rate increases, which included incremental recognition pay during April and May, and (3) an increase in commodity costs.

These impacts were partially offset by higher average check.

Franchise Support and Other Costs Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Franchise support and other costs $ 6.0 $ 9.7 $ (3.7) $ 19.4 $ 19.8 $ (0.4)

The increase in franchise support and other costs during the second quarter was primarily due to higher costs incurred to provide information technology and other services to our franchisees.

The increase in franchise support and other costs during the first six months of 2020 was primarily due to (1) investments to support U.S.

The decrease in franchise support and other costs during the third quarter and the first nine months of 2020 was primarily due to the prior year purchase of digital scanning equipment for franchisees of $3.9 million.

During the first nine months of 2020, this decrease was partially offset by investments to support U.S.

franchisees in preparation of the launch of breakfast across the U.S.

system on March 2, 2020 and (2) higher costs incurred to provide information technology and other services to our franchisees.

Franchise Rental Expense Second Quarter Six Months

system on March 2, 2020.

Franchise Rental Expense Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Franchise rental expense $ 32.4 $ 32.4 $ — $ 93.0 $ 92.8 $ 0.2

The increase in franchise rental expense during the second quarter and the first six months of 2020 was primarily due to the impact of assigning certain leases to a franchisee in 2019.

Advertising Funds Expense Second Quarter Six Months

The increase in franchise rental expense during the first nine months of 2020 was primarily due to the impact of assigning certain leases to franchisees in 2019.

Advertising Funds Expense Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Advertising funds expense $ 92.0 $ 87.9 $ 4.1 $ 253.4 $ 257.0 $ (3.6)

The decrease in advertising funds expense during the second quarter and the first six months of 2020 was primarily due to the same factor as described above for “Advertising Funds Revenue.” On an interim basis, advertising funds expense is recognized in proportion to advertising funds revenue.

During the second quarter and the first six months of 2020, advertising funds expense exceeded advertising funds revenue by $3.2 million and $4.6 million, respectively, reflecting a portion of the expected advertising spend in excess of advertising funds revenue for 2020.

The second quarter and the first six months of 2020 include $2.2 million related to the Company’s decision in June to fund incremental advertising during 2020.

The excess of advertising funds expense over advertising funds revenue for 2020 is expected to be approximately $20.0 million, which includes (1) up to $15.0 million of Company funding of incremental advertising and (2) the amount by which advertising funds revenue exceeded advertising funds expense in 2019 and 2018 of approximately $5.0 million.

General and Administrative Second Quarter Six Months

On an interim basis, advertising funds expense is recognized in proportion to advertising funds revenue.

The Company expects advertising funds expense to exceed advertising funds revenue by approximately $20.0 million for 2020, which includes (1) the Company’s decision in June 2020 to fund up to $15.0 million of incremental advertising and (2) the amount by which advertising funds revenue exceeded advertising funds expense in 2019 and 2018 of approximately $5.0 million.

During the third quarter of 2020, advertising funds expense increased due to the Company recognizing $7.3 million of the expected advertising spend in excess of advertising funds revenue, which was partially offset by the decrease in advertising funds revenue due to the same factor as described above for “Advertising Funds Revenue.” During the first nine months of 2020, advertising funds expense decreased due to the same factor as described above for “Advertising Funds Revenue,” partially offset by the recognition of $11.9 million of the expected advertising spend in excess of advertising funds revenue.

General and Administrative Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Employee compensation and related benefits $ 26.9 $ 27.7 $ (0.8) $ 57.2 $ 56.2 $ 1.0

Severance expense — 0.3 (0.3) 1.2 0.4 0.8

Professional fees $ 8.0 $ 4.4 $ 3.6 $ 20.8 $ 13.6 $ 7.2

Legal reserves 0.1 (2.8) 2.9 0.1 (2.3) 2.4

Incentive compensation 4.2 7.6 (3.4) 13.2 18.3 (5.1)

Travel-related expenses 0.8 3.7 (2.9) 4.7 9.6 (4.9)

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$ 47.3 $ 46.2 $ 1.1 $ 147.6 $ 146.3 $ 1.3

The decrease in general and administrative expenses during the second quarter of 2020 was primarily due to a decrease in travel-related expenses as a result of reduced travel during the COVID-19 pandemic.

The increase in general and administrative expenses during the first six months of 2020 was primarily due to increases in (1) employee compensation and related benefits and (2) severance expense.

These increases were offset by a decrease in travel-related expenses as a result of reduced travel during the COVID-19 pandemic.

Depreciation and Amortization Second Quarter Six Months

The increase in general and administrative expenses during the third quarter and the first nine months of 2020 was primarily due to (1) an increase in professional fees, reflecting higher IT-related costs, and (2) the prior year reduction in legal reserves as a result of an increase in anticipated insurance proceeds available for use related to the settlement of the financial institutions class action.

These increases were offset by (1) a decrease in incentive compensation accruals due to lower operating performance in the first nine months of 2020 versus the first nine months of 2019 and (2) a decrease in travel-related expenses as a result of reduced travel during the COVID-19 pandemic.

Depreciation and Amortization Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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$ 33.0 $ 33.3 $ (0.3) $ 98.7 $ 98.0 $ 0.7

The increase in depreciation and amortization during the second quarter and the first six months of 2020 was primarily due to (1) changes in useful lives for certain asset categories and (2) the assignment of certain leases to a franchisee in 2019, resulting in the write-off of the related net investment in the leases.

The decrease in depreciation and amortization during the third quarter of 2020 was primarily due to a decrease in depreciation on assets classified as held for sale resulting from the expected sale of 43 restaurants in New York to franchisees in the first quarter of 2021.

The increase in depreciation and amortization during the first nine months of 2020 was primarily due to (1) changes in useful lives for certain asset categories, (2) the assignment of certain leases to a franchisee in 2019, resulting in the write-off of the related net investment in the leases, and (3) an increase in depreciation on assets newly added as part of our Image Activation program.

These increases were partially offset by (1) assets becoming fully depreciated and (2) a decrease in depreciation on assets classified as held for sale resulting from the expected sale of 43 restaurants in New York to franchisees in the first quarter of 2021.

System Optimization Gains, Net Second Quarter Six Months

System Optimization Gains, Net Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

System optimization gains, net $ — $ (1.0) $ 1.0 $ (2.3) $ (1.2) $ (1.1)

System optimization gains, net for the second quarter and the first six months of 2020 were primarily comprised of gains on the sale of surplus and other properties.

Reorganization and Realignment Costs Second Quarter Six Months

System optimization gains, net for the first nine months of 2020 were primarily comprised of gains on the sale of surplus and other properties.

System optimization gains, net for the third quarter and first nine months of 2019 were primarily comprised of post-closing adjustments on previous sales of restaurants.

Reorganization and Realignment Costs Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Operations and field realignment $ 3.0 $ — $ 3.0 $ 3.0 $ — $ 3.0

IT realignment 0.4 — 0.4 6.8 — 6.8

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$ 3.4 $ 0.4 $ 3.0 $ 10.2 $ 4.8 $ 5.4

In December 2019, the Company’s Board of Directors approved a plan to realign and reinvest resources in its IT organization to strengthen its ability to accelerate growth.

In September 2020, the Company initiated the Operations and Field Realignment Plan to reallocate resources to better support the long-term growth strategies for Company and franchise operations.

During the third quarter and the first nine months of 2020, the Company recognized costs associated with the Operations and Field Realignment Plan totaling $3.0 million, which included severance and related employee costs of $2.5 million and share-based compensation of $0.5 million.

In December 2019, the Company’s Board of Directors approved the IT Realignment Plan to realign and reinvest resources in its IT organization to strengthen its ability to accelerate growth.

During the second quarter and the first six months of 2020, the Company recognized costs associated with this plan totaling $2.8 million and $6.4 million, respectively, which primarily included third-party and other costs of $1.9 million and $5.1 million, respectively, and severance and related employee costs of $0.8 million and $1.0 million, respectively.

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

During the third quarter of 2020, the Company recognized costs associated with the IT Realignment Plan totaling $0.4 million, which primarily included recruitment and relocation costs of $0.3 million.

During the first nine months of 2020, the Company recognized costs associated with the IT Realignment Plan totaling $6.8 million, which primarily included third-party and other costs of $5.1 million and severance and related employee costs of $1.0 million.

In May 2017, the Company initiated a plan to further reduce its G&A expenses (the “G&A Realignment Plan).

In addition, in May 2019, the Company announced changes to its management and operating structure.

G&A realignment costs for the second quarter and the first six months of 2020 were primarily comprised of share-based compensation.

G&A realignment costs for the second quarter and the first six months 2019 were primarily comprised of severance and related employee costs and share-based compensation.

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

Impairment of Long-Lived Assets Second Quarter Six Months

G&A realignment costs for the first nine months of 2020 were primarily comprised of share-based compensation.

G&A realignment costs for the first nine months of 2019 were primarily comprised of severance and related employee costs and share-based compensation.

The Company does not expect to incur any material additional costs under the G&A Realignment Plan.

Impairment of Long-Lived Assets Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Impairment of long-lived assets $ — $ — $ — $ 4.7 $ 1.7 $ 3.0

The increase in impairment charges during the first six months of 2020 was primarily driven by the Company testing its Company-operated restaurant long-lived assets for recoverability as a result of the adverse impacts of the COVID-19 pandemic.

The increase in impairment charges during the first nine months of 2020 was primarily driven by the Company testing its Company-operated restaurant long-lived assets for recoverability in March 2020 as a result of the adverse impacts of the COVID-19 pandemic.

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

Other Operating Income, Net Second Quarter Six Months

Other Operating Income, Net Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Equity in earnings in joint ventures, net $ (2.1) $ (2.1) $ — $ (4.4) $ (7.0) $ 2.6

Gains on sales-type leases (0.6) — (0.6) (1.2) (2.0) 0.8

(Gains) losses on sales-type leases (0.2) 0.1 (0.3) (1.4) (1.9) 0.5

Other, net (0.4) (0.4) — (0.3) (0.5) 0.2

$ (2.7) $ (2.4) $ (0.3) $ (6.1) $ (9.4) $ 3.3

The change in other operating income, net during the second quarter and the first six months of 2020 was primarily due to a decrease in the equity in earnings from our TimWen joint venture.

Interest Expense, Net Second Quarter Six Months

The change in other operating income, net during the third quarter of 2020 was primarily due to gains on new and modified sales-type leases.

The change in other operating income, net during the first nine months of 2020 was primarily due to a decrease in the equity in earnings from our TimWen joint venture.

Interest Expense, Net Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Interest expense, net $ 29.1 $ 27.9 $ 1.2 $ 86.7 $ 86.9 $ (0.2)

Interest expense, net decreased during the second quarter and the first six months of 2020 primarily due to the impact of the completion of refinancing a portion of the Company’s securitized financing facility in June 2019.

Loss on Early Extinguishment of Debt Second Quarter Six Months

Interest expense, net increased during the third quarter of 2020 primarily due to the prior year recognition of interest income related to uncertain tax positions.

Interest expense, net decreased during the first nine months of 2020 primarily due to the impact of the completion of refinancing a portion of the Company’s securitized financing facility in June 2019.

Loss on Early Extinguishment of Debt Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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The loss on the early extinguishment of debt of $7.2 million was comprised of the write-off of certain deferred financing costs.

Other (Expense) Income, Net Second Quarter Six Months

Other Income, Net Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Other (expense) income, net $ (0.2) $ 2.2 $ (2.4) $ 0.9 $ 5.0 $ (4.1)

Other (expense) income, net decreased during the second quarter and the first six months of 2020 primarily due to lower interest income earned on our cash equivalents.

Provision for Income Taxes Second Quarter Six Months

Other income, net $ 0.2 $ 2.2 $ (2.0) $ 1.2 $ 7.1 $ (5.9)

Other income, net decreased during the third quarter and the first nine months of 2020 primarily due to lower interest income earned on our cash equivalents.

Provision for Income Taxes Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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24.2 % 13.5 % 10.7 % 24.8 % 20.5 % 4.3 %

Our effective tax rates for the second quarter of 2020 and 2019 were impacted by variations in income before income taxes, including uncertainty in 2020 income before income taxes arising from the COVID-19 pandemic, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The decrease in the effective tax rate for the second quarter of 2020 compared with the second quarter of 2019 was primarily due to (1) an increase in the benefit of share-based compensation and (2) a reduction in state income taxes, including non-recurring changes to state deferred taxes net of federal benefits.

Our effective tax rates for the first six months of 2020 and 2019 were impacted by variations in income before income taxes, including uncertainty in 2020 income before income taxes arising from the COVID-19 pandemic, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The increase in the effective tax rate for the first six months of 2020 compared with the first six months of 2019 was primarily due to an increase in tax on our foreign operations, offset by (1) an increase in the benefit of share-based compensation and (2) a reduction in state income taxes, including non-recurring changes to state deferred taxes net of federal benefits.

Our effective tax rates for the third quarter of 2020 and 2019 were impacted by variations in income before income taxes, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The increase in the effective tax rate for the third quarter of 2020 compared with the third quarter of 2019 was primarily due to (1) a decrease for a reduction in unrecognized tax benefits due to a lapse of statute of limitations during the three months ended September 29, 2019 and (2) an increase in state income taxes, including non-recurring changes to state deferred taxes net of federal benefits.

Our effective tax rates for the first nine months of 2020 and 2019 were impacted by variations in income before income taxes, including uncertainty in 2020 income before income taxes arising from the COVID-19 pandemic, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The increase in the effective tax rate for the first nine months of 2020 compared with the first nine months of 2019 was primarily due to a decrease for a reduction in unrecognized tax benefits due to a lapse of statute of limitations during the nine months ended September 29, 2019.

Segment Information

See Note 19 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information regarding the Company’s segments.

Second Quarter Six Months

Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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Segment profit $ 108.3 $ 98.3 $ 10.0 $ 283.3 $ 291.0 $ (7.7)

The decrease in Wendy’s U.S.

revenues during the second quarter and the first six months of 2020 was primarily due to a decrease in same-restaurant sales resulting from the impact of the COVID-19 pandemic.

This decrease in same-restaurant sales was driven by a decrease in customer count, partially offset by (1) higher average check and (2) the positive impact from the launch of breakfast on March 2, 2020.

The increase in Wendy’s U.S.

revenues during the third quarter was primarily due to an increase in same-restaurant sales, reflecting the positive impact from the launch of breakfast on March 2, 2020 and higher average check, partially offset by a decrease in customer count as a result of the COVID-19 pandemic.

The decrease in Wendy’s U.S.

segment profit during the second quarter and the first six months of 2020 was primarily due to (1) lower revenues and (2) higher cost of sales, as a percent of sales, for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales.”

revenues during the first nine months of 2020 was primarily due to the impact of the COVID-19 pandemic, partially offset by (1) the positive impact from the launch of breakfast on March 2, 2020 and (2) higher average check.

The increase in Wendy’s U.S.

segment profit during the third quarter was primarily due to (1) higher revenues and (2) lower cost of sales, as a percent of sales, for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales.” The decrease in Wendy’s U.S.

segment profit during the first nine months of 2020 was primarily due to (1) lower revenues and (2) higher cost of sales, as a percent of sales, for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales.”

Wendy’s International

Second Quarter Six Months

Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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Segment profit $ 6.6 $ 6.3 $ 0.3 $ 15.3 $ 17.5 $ (2.2)

The decrease in Wendy’s International revenues during the second quarter and the first six months of 2020 was primarily due to a decrease in same-restaurant sales resulting from the impact of the COVID-19 pandemic.

The decrease in Wendy’s International segment profit during the second quarter and the first six months of 2020 was primarily due to lower revenues, partially offset by a decrease in travel-related expenses as a result of reduced travel during the COVID-19 pandemic.

The decrease in Wendy’s International revenues during the third quarter and the first nine months of 2020 was primarily due to a decrease in same-restaurant sales and the temporary closure of restaurants resulting from the impact of the COVID-19 pandemic.

The decrease in same-restaurant sales was driven by a decrease in customer count, partially offset by higher average check.

The increase in Wendy’s International segment profit during the third quarter was primarily due to a decrease in travel-related expenses as a result of reduced travel during the COVID-19 pandemic, partially offset by lower revenues.

The decrease in Wendy’s International segment profit during the first nine months of 2020 was primarily due to lower revenues, partially offset by a decrease in travel-related expenses as a result of reduced travel during the COVID-19 pandemic.

Global Real Estate & Development

Second Quarter Six Months

Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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Segment profit $ 25.3 $ 26.4 $ (1.1) $ 75.5 $ 83.3 $ (7.8)

The decrease in Global Real Estate & Development revenues during the second quarter and the first six months of 2020 was primarily due to lower franchise rental income.

The decrease in Global Real Estate & Development revenues during the third quarter and the first nine months of 2020 was primarily due to lower franchise rental income.

See “Franchise Rental Income” above for further information.

The decrease in Global Real Estate & Development segment profit during the second quarter and the first six months of 2020 was primarily due to (1) a decrease in net rental income, reflecting the impact of assigning certain leases to a franchisee during 2019 and (2) a decrease in the equity in earnings from the TimWen joint venture.

The decrease in Global Real Estate & Development segment profit during the third quarter and the first nine months of 2020 was primarily due to a decrease in net rental income, reflecting the impact of assigning certain leases to franchisees during 2019.

Global Real Estate & Development segment profit during the first nine months of 2020 was also negatively impacted by a decrease in the equity in earnings from the TimWen joint venture.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under our securitized

financing facility.

Principal uses of cash are operating expenses, capital expenditures, repurchases of common stock and dividends to stockholders.

During the six months ended June 28, 2020, the Company made a payment of $24.7 million related to the settlement of the financial institutions class action (the “FI Case”) (see Note 23 of the Financial Statements and Supplementary Data contained in Item 8 of the Form 10-K for further information).

In response to the COVID-19 pandemic, the Company has taken the following actions impacting its liquidity and capital resources during and subsequent to the six months ended June 28, 2020:

• increased its cash position by draw downs of its Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “2019-1 Class A-1 Notes”), which was repaid subsequent to June 28, 2020, and the Company’s other lines of credit in March 2020, as discussed below in “Long-Term Debt, Including Current Portion;”

• enhanced its debt capacity by issuing $100.0 million of Series 2020-1 Variable Funding Senior Secured Notes, Class A-1 (the “2020-1 Class A-1 Notes”) in June 2020, which remain undrawn as of the date of this report, as discussed below in “Long-Term Debt, Including Current Portion;”

• reduced its quarterly cash dividend from $.12 per share in the first quarter of 2020 to $.05 per share in the second and third quarters of 2020, as discussed below in “Dividends;”

• temporarily suspended all share repurchase activity under the February 2020 share repurchase authorization.

The Company now intends to resume share repurchases in 2020, subject to market conditions and prevailing economic factors, as discussed below in “Stock Repurchases;”

• evaluated its planned 2020 general and administrative expenses and capital plan and identified approximately $10.0 million and $20.0 million, respectively, for a total of $30.0 million in savings.

• revised its planned 2020 advertising expenses in March 2020 to eliminate Company funding of incremental advertising.

In June 2020, the Company reevaluated its marketing plans and now plans to fund up to $15.0 million of incremental advertising during the remainder of 2020;

• deferred payment of the Company’s share of Social Security payroll taxes as permitted under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which allows for the deferral of these payments through the end of 2020 and requires repayment of the deferred amounts in 2021 and 2022;

• to support the franchise system, (1) extended payment terms for royalties and national advertising funds contributions by 45 days beginning in April for a three month period, (2) abated national advertising fund contributions on breakfast sales for the remainder of 2020, (3) offered to defer base rent payments on properties owned by Wendy’s and leased to franchisees by 50% beginning in May for a three month period, which will be repaid over 12 months beginning in August, and (4) extended Image Activation and new restaurant development requirements by one year;

• to support Company-operated restaurant employees, (1) implemented a new emergency paid sick leave policy with up to 14 days paid leave in the event an employee is unable to work as a result of the COVID-19 pandemic and (2) increased hourly pay by 10% for the months of April and May for hourly crew members, shift managers and assistant general managers, and protected part of the monthly bonus through May for general managers and district managers.

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under our securitized financing facility.

Our principal uses of cash are operating expenses, capital expenditures, repurchases of common stock and dividends to stockholders.

During the nine months ended September 27, 2020, the Company made a payment of $24.7 million related to the settlement of the financial institutions class action (see Note 23 of the Financial Statements and Supplementary Data contained in Item 8 of the Form 10-K for further information).

COVID-19 Actions

In response to the COVID-19 pandemic, the Company has taken the following actions impacting its liquidity and capital resources during the nine months ended September 27, 2020:

Long-Term Debt.

The Company increased its cash position in March 2020 by drawdowns of its Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “2019-1 Class A-1 Notes”), its U.S.

advertising fund revolving line of credit and its Canadian revolving credit facility.

The Company fully repaid the drawdowns of the 2019-1 Class A-1 Notes and the U.S.

advertising fund revolving line of credit in July 2020 and September 2020, respectively.

In addition, the Company enhanced its debt capacity in June 2020 by issuing $100.0 million of Series 2020-1 Variable Funding Senior Secured Notes, Class A-1 (the “2020-1 Class A-1 Notes”).

See “Long-Term Debt, Including Current Portion” below for additional information.

The Company reduced its quarterly cash dividend from $.12 per share in the first quarter of 2020 to $.05 per share in the second and third quarters of 2020.

The Company announced a dividend of $.07 per share to be paid in the fourth quarter of 2020.

See “Dividends” below for additional information.

Stock Repurchases.

The Company temporarily suspended all share repurchase activity beginning in March 2020 under the February 2020 share repurchase authorization.

The Company resumed share repurchases in August 2020 as discussed below in “Stock Repurchases.”

G&A and Capital Expenditures.

In the first quarter of 2020, the Company evaluated its planned 2020 general and administrative expenses and capital expenditures and identified savings of approximately $10.0 million and $20.0 million, respectively, for a total of $30.0 million in savings.

The Company now expects to realize approximately $5.0 million of the previously identified general and administrative expense savings, primarily as a result of a higher incentive compensation accrual, and approximately $5.0 million of the previously identified capital expenditures savings, primarily due to a decision to increase capital expenditures for new and existing Company-operated restaurants.

Advertising Expenditures.

The Company revised its planned 2020 advertising expenses in March 2020 to eliminate Company funding of incremental advertising.

In June 2020, the Company reevaluated its marketing plans and made a decision to fund up to $15.0 million of incremental advertising during the remainder of 2020 to drive additional growth.

Franchise and System Support.

To support the franchise system, the Company (1) extended payment terms for royalties and national advertising funds contributions by 45 days beginning in April for a three month period, (2) abated national advertising fund contributions on breakfast sales for the remainder of 2020, (3) offered to defer base rent payments on properties owned by Wendy’s and leased to franchisees by 50% beginning in May for a three month period, which are being repaid over a 12 month period beginning in August 2020, and (4) extended Image Activation and new restaurant development requirements by one year.

As of September 27, 2020, substantially all franchisees are current on royalties and national advertising funds contributions due to the Company.

To support Company-operated restaurant employees, the Company (1) implemented a new emergency paid sick leave policy with up to 14 days paid leave in the event an employee is unable to work as a result of the COVID-19 pandemic and (2) increased hourly pay by 10% for the months of April and May for hourly crew members, shift managers and assistant general managers, and protected part of the monthly bonus through September for general managers and district managers.

The Company deferred payment of the Company’s share of Social Security payroll taxes as permitted under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which allows for the deferral of these payments through the end of 2020 and requires repayment of the deferred amounts in 2021 and 2022.

The Company ceased the deferral of payments in August 2020 and plans to fully repay the deferred amounts during the fourth quarter of 2020.

In addition, the Company expects to benefit from the technical amendments under the CARES Act by treating qualified improvement property (“QIP”) as 15-year property and allowing such property to be eligible for the 100 percent bonus depreciation for QIP placed in service after December 31, 2017.

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

The table below summarizes our cash flows from operating, investing and financing activities for the first six months of 2020 and 2019:

The table below summarizes our cash flows from operating, investing and financing activities for the first nine months of 2020 and 2019:

2020 2019 Change

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Effect of exchange rate changes on cash (1.8) 2.8 (4.6)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 50.8 $ (2.2) $ 53.0

Net increase in cash, cash equivalents and restricted cash $ 47.7 $ 11.2 $ 36.5

Operating Activities

Cash provided by operating activities consists primarily of net income, adjusted for non-cash expenses such as depreciation and amortization, deferred income tax and share-based compensation, and the net change in operating assets and liabilities.

Cash provided by operating activities was $30.6 million and $154.1 million in the first six months of 2020 and 2019, respectively.

The change was primarily due to (1) the extension of payment terms for royalties beginning in April 2020 for a three month period, (2) lower net income, adjusted for non-cash expenses, (3) a cash payment of $24.7 million related to the settlement of the FI Case in January 2020 and (4) an increase in payments for incentive compensation for the 2019 fiscal year paid in 2020.

Cash provided by operating activities was $205.8 million and $237.5 million in the first nine months of 2020 and 2019, respectively.

The change was primarily due to (1) lower net income, adjusted for non-cash expenses, (2) a cash payment of $24.7 million related to the settlement of the financial institutions class action in January 2020 and (3) an increase in payments for incentive compensation for the 2019 fiscal year paid in 2020.

These changes were partially offset by the timing of payments for marketing expenses of the national advertising funds.

Investing Activities

Cash used in investing activities was $24.9 million and $29.9 million in the first six months of 2020 and 2019, respectively.

The change was primarily due to (1) no acquisitions of restaurants from franchisees in the first six months of 2020 compared with cash used for acquisitions of $5.1 million in the first six months of 2019 and (2) an increase in proceeds from dispositions of $3.1 million.

Cash used in investing activities was $41.0 million and $45.7 million in the first nine months of 2020 and 2019, respectively.

The change was primarily due to (1) no acquisitions of restaurants from franchisees in the first nine months of 2020 compared with cash used for acquisitions of $5.1 million in the first nine months of 2019, (2) a decrease in new notes receivable to franchisees of $2.0 million and (3) an increase in proceeds from dispositions of $1.5 million.

These changes were partially offset by an increase in capital expenditures of $3.9 million.

Financing Activities

Cash provided by (used in) financing activities was $48.3 million and $(130.2) million in the first six months of 2020 and 2019, respectively.

The change was primarily due to (1) a net increase in cash provided by long-term debt activities of $168.8 million, reflecting the impact of the draw downs under the 2019-1 Class A-1 Notes and certain other lines of credit, (2) a decrease in dividends of $8.2 million and (3) a decrease in repurchases of common stock of $5.6 million.

Cash used in financing activities was $115.3 million and $183.4 million in the first nine months of 2020 and 2019, respectively.

The change was primarily due to (1) a decrease in repurchases of common stock of $30.3 million, (2) a net decrease in cash used in long-term debt activities of $23.8 million, reflecting the impact of the completion of a debt refinancing transaction during 2019, and (3) a decrease in dividends of $20.1 million.

These changes were partially offset by a decrease in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of $5.5 million.

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Except as described below, there were no material changes to the terms of any debt obligations since December 29, 2019.

The Company was in compliance with its debt covenants as of June 28, 2020.

The Company was in compliance with its debt covenants as of September 27, 2020.

See Note 9 of the Financial Statements contained in Item 1 herein for further information related to our long-term debt obligations.

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 2019-1 Class A-1 Notes, which allow for the borrowing of up to $150.0 million 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 $120.0 million under the 2019-1 Class A-1 Notes.

As a result, as of June 28, 2020, the Company had outstanding borrowings of $120.0 million under the 2019-1 Class A-1 Notes.

Subsequent to June 28, 2020, the Company repaid the $120.0 million outstanding balance under the 2019-1 Class A-1 Notes.

Under this facility, in June 2019, the Master Issuer issued outstanding 2019-1 Class A-1 Notes, which allow for the borrowing of up to $150.0 million 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 $120.0 million under the 2019-1 Class A-1 Notes, which the Company fully repaid in July 2020.

As a result, as of September 27, 2020, the Company had no outstanding borrowings under the 2019-1 Class A-1 Notes.

In June 2020, the Master Issuer also issued outstanding 2020-1 Class A-1 Notes, which allow for the borrowing of up to $100.0 million from time to time on a revolving basis using various credit instruments.

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

The Company had no outstanding borrowings under the 2020-1 Class A-1 Notes as of September 27, 2020.

A Canadian subsidiary of Wendy’s has a revolving credit facility of C$6.0 million.

In March 2020, the Company drew down C$5.5 million under the revolving credit facility.

As a result, as of June 28, 2020, the Company had outstanding borrowings of C$5.5 million under the revolving credit facility.

As a result, as of September 27, 2020, the Company had outstanding borrowings of C$5.5 million under the revolving credit facility.

advertising fund has a revolving line of credit of $25.0 million, which was established to support the advertising fund operations.

In February 2020, the Company drew down $4.4 million under the revolving line of credit, which the Company repaid in February 2020.

In March 2020, the Company drew down $25.0 million under the revolving line of credit.

As a result, as of June 28, 2020, the Company had outstanding borrowings of $25.0 million under the revolving line of credit.

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.

On March 16, 2020 and June 15, 2020, the Company paid quarterly cash dividends per share of $.12 and $.05, respectively, aggregating $38.0 million.

On August 5, 2020, the Company announced a dividend of $.05 per share to be paid on September 15, 2020 to stockholders of record as of September 1, 2020.

If the Company pays regular quarterly cash dividends for the remainder of 2020 at the same rate as declared in the third quarter of 2020, the Company’s total cash requirement for dividends for the remainder of 2020 will be approximately $22.4 million based on the number of shares of its common stock outstanding at July 29, 2020.

Borrowings under the line of credit are guaranteed by Wendy’s.

In February 2020, the Company drew down $4.4 million under the revolving line of credit, which the Company fully repaid in February 2020.

In March 2020, the Company drew down $25.0 million under the revolving line of credit, which the Company fully repaid in September 2020.

As a result, as of September 27, 2020, the Company had no outstanding borrowings under the revolving line of credit.

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

On March 16, 2020, June 15, 2020 and September 15, 2020, the Company paid quarterly cash dividends per share of $.12, $.05 and $.05, respectively, aggregating $49.2 million.

On November 4, 2020, the Company announced a dividend of $.07 per share to be paid on December 15, 2020 to stockholders of record as of December 1, 2020.

As a result of the November 4 announcement, the Company expects that its total cash requirements for the fourth quarter of 2020 will be approximately $15.7 million based on the number of shares of its common stock outstanding at October 28, 2020.

The Company currently intends to continue to declare and pay quarterly cash dividends;

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In February 2020, our Board of Directors authorized a repurchase program for up to $100.0 million 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 0.8 million shares under the February 2020 repurchase authorization with an aggregate purchase price of $14.5 million, excluding commissions.

As of June 28, 2020, the Company had $85.5 million 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.

The Company resumed share repurchases in August 2020.

During the nine months ended September 27, 2020, the Company repurchased 0.9 million shares under the February 2020 repurchase authorization with an aggregate purchase price of $16.2 million, of which $0.2 million was accrued at September 27, 2020, and excluding commissions.

As of September 27, 2020, the Company had $83.8 million of availability remaining under its February 2020 authorization.

Subsequent to September 27, 2020 through October 28, 2020, the Company repurchased 0.1 million shares under the February 2020 authorization with an aggregate purchase price of $2.0 million, excluding commissions.

In February 2019, our Board of Directors authorized a repurchase program for up to $225.0 million of our common stock through March 1, 2020, when and if market conditions warranted and to the extent legally permissible.

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Under the 2019 ASR Agreement, the Company paid the financial institution an initial purchase price of $100.0 million in cash and received an initial delivery of 4.1 million shares of common stock, representing an estimated 85% of the total shares expected to be delivered under the 2019 ASR Agreement.

In February 2020, the Company completed the 2019 ASR Agreement and received an additional 0.6 million shares of common stock.

In February 2020, the Company completed the 2019 ASR Agreement and received an additional 0.6 million shares of common stock at an average purchase price of $23.89.

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, 4.7 million 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 1.3 million shares with an aggregate purchase price of $28.8 million, excluding commissions, under the February 2019 authorization.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during the nine months ended September 27, 2020, the Company repurchased 1.3 million shares with an aggregate purchase price of $28.8 million, excluding commissions, 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 2.8 million shares with an aggregate purchase price of $49.7 million, of which $0.8 million was accrued at June 30, 2019, and excluding commissions, under the February 2019 authorization and the Company’s previous November 2018 authorization to repurchase up to $220.0 million of our common stock.

During the nine months ended September 29, 2019, the Company repurchased 4.2 million shares with an aggregate purchase price of $76.2 million, of which $1.1 million was accrued at September 29, 2019, and excluding commissions of $0.1 million, under the February 2019 authorization and the Company’s previous November 2018 authorization to repurchase up to $220.0 million of our common stock.

General Inflation, Commodities and Changing Prices

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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 2. Management’s Discussion and Analysis