Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us,” or “our”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included elsewhere within this report and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019 (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. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II. Other Information” of this report. You should consider our forward-looking statements in light of the risks discussed in “Item 1A. Risk Factors” in “Part II. Other Information” of this report and our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report, the Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”).
The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s Restaurants, LLC (“Wendy’s Restaurants”). The principal 100% owned subsidiary of Wendy’s Restaurants is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). Wendy’s is primarily engaged in the business of operating, developing and franchising a system of distinctive quick-service restaurants serving high quality food. Wendy’s opened its first restaurant in Columbus, Ohio in 1969. 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 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. Wendy’s menu also includes chicken nuggets, chili, french fries, baked potatoes, freshly prepared salads, soft drinks, Frosty ® desserts and kids’ meals. In addition, the restaurants sell a variety of promotional products on a limited time basis. Wendy’s also entered the breakfast daypart across the U.S. system on March 2, 2020. Wendy’s breakfast menu features a variety of breakfast sandwiches, biscuits and croissants, sides such as seasoned potatoes, oatmeal bars and seasonal fruit, and a beverage platform that includes hot coffee, cold brew iced coffee and our vanilla and chocolate Frosty-ccino iced coffee.
The Company is comprised of the following segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. Wendy’s U.S. includes the operation and franchising of Wendy’s restaurants in the U.S. and derives its revenues from sales at Company-operated restaurants and royalties, fees and advertising fund collections from franchised restaurants. Wendy’s International includes the franchising of Wendy’s restaurants in countries and territories other than the U.S. and derives its revenues from royalties, fees and advertising fund collections from franchised restaurants. Global Real Estate & Development includes real estate activity for owned sites and sites leased from third parties, which are leased and/or subleased to franchisees, and also includes our share of the income of our TimWen real estate joint venture. In addition, Global Real Estate & Development earns fees from facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”) and providing other development-related services to franchisees. In this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company reports on the segment profit for each of the three segments described above. The Company measures segment profit based on segment adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”). Segment adjusted EBITDA excludes certain unallocated general and administrative expenses and other items that vary from period to period without correlation to the Company’s core operating performance. See “Results of Operations” below and Note 19 to the Condensed Consolidated Financial Statements contained in Item 1 herein for segment financial information.
The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31. 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.
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Executive Overview
Our Business
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. Of the U.S. restaurants, 360 were operated by the Company and 5,514 were operated by a total of 237 franchisees. 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.
The revenues from our restaurant business are derived from two principal sources: (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 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. The COVID-19 pandemic has had and may continue to have the effect of heightening the impact of many of these factors. See “COVID-19 Update” and “Special Note Regarding Forward-Looking Statements and Projections” below for additional information.
Wendy’s long-term growth opportunities include accelerating U.S. same-restaurant sales through (1) its “One More Visit, One More Dollar” strategy, which includes continuing core menu improvement, product innovation and strategic price increases on our menu items, (2) focused execution of operational excellence, (3) continued implementation of consumer-facing digital platforms and technologies and (4) increased restaurant utilization in various dayparts, including the Company’s launch of breakfast across the U.S. system on March 2, 2020. Wendy’s also expects growth in the number of new restaurants through targeted U.S. expansion and accelerated international expansion through same-restaurant sales growth and new restaurant development.
Key Business Measures
We track our results of operations and manage our business using the following key business measures, which includes a non-GAAP financial measure:
• Same-Restaurant Sales - We report same-restaurant sales commencing after new restaurants have been open for 15 continuous months and as soon as reimaged restaurants reopen. Restaurants temporarily closed for more than one fiscal week are excluded from same-restaurant sales. This methodology is consistent with the metric used by our management for internal reporting and analysis. The table summarizing same-restaurant sales below in “Results of Operations” provides the same-restaurant sales percent changes.
• Restaurant Margin - We define restaurant margin as sales from Company-operated restaurants less cost of sales divided by sales from Company-operated restaurants. Cost of sales includes food and paper, restaurant labor and occupancy, advertising and other operating costs. Restaurant margin is influenced by factors such as price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, fluctuations in food and labor costs, restaurant openings, remodels and closures and the level of our fixed and semi-variable costs.
• Systemwide Sales - Systemwide sales is a non-GAAP financial measure, which includes sales by both Company-operated restaurants and franchised restaurants. Franchised restaurants’ sales are reported by our franchisees and represent their revenues from sales at franchised Wendy’s restaurants. The Company’s consolidated financial statements do not include sales by franchised restaurants to their customers. The Company believes systemwide sales data is useful in assessing consumer demand for the Company’s products, the overall success of the Wendy’s brand and, ultimately, the performance of the Company. The Company’s royalty revenues are computed as percentages of sales made by Wendy’s franchisees. As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty revenues and profitability.
The Company calculates same-restaurant sales and systemwide sales growth on a constant currency basis. Constant currency results exclude the impact of foreign currency translation and are derived by translating current year results at prior year average exchange rates. The Company believes excluding the impact of foreign currency translation provides better year over year comparability.
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Same-restaurant sales and systemwide sales exclude sales from Argentina and Venezuela due to the highly inflationary economies of those countries. The Company considers economies that have had cumulative inflation in excess of 100% over a three-year period as highly inflationary.
The non-GAAP financial measure discussed above does not replace the presentation of the Company’s financial results in accordance with GAAP. Because all companies do not calculate non-GAAP financial measures in the same way, this measure as used by other companies may not be consistent with the way the Company calculates such measure.
COVID-19 Update
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. We continue to monitor the dynamic nature of the COVID-19 pandemic on our business, results and financial condition; however, 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.
In response to the pandemic, in March 2020, Wendy’s updated its 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, 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 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 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 and the third quarter of 2020:
January through February March April May June Third
Quarter
Same-restaurant sales:
U.S. systemwide 3.7 % (7.7) % (14.0) % (1.9) % 5.1 % 7.0 %
International 5.4 % (17.0) % (28.3) % (15.7) % (10.7) % (2.1) %
Global systemwide 3.9 % (8.6) % (15.3) % (3.3) % 3.4 % 6.1 %
As a result of the COVID-19 pandemic, global systemwide same-restaurant sales began to be materially adversely impacted in the fiscal month of March, with the fiscal month of April seeing the greatest impact. 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 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 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. and internationally, the expected impact of the COVID-19 pandemic on the Company’s 2020 net income and cash flows cannot be reasonably estimated. Our net income and cash flows for the remainder of 2020 could continue to be materially affected by the pandemic. See “Item 1A. Risk Factors” in “Part II. Other Information” for further information regarding the risks associated with the COVID-19 pandemic
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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.
Beef Supply Update
As previously disclosed, the Company experienced disruptions to its beef supply beginning in early May 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. The Company and its supply chain partners effectively managed through this disruption by allocating beef to all Wendy’s system restaurants, with deliveries occurring two or three times a week, consistent with normal delivery schedules. 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 returned to normal levels across the Wendy’s system by the end of the second quarter of 2020.
Goodwill and Indefinite-Lived Intangible Assets
We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that it may be impaired. The negative impacts of the COVID-19 pandemic, including the decline in same-restaurant sales described above and the volatility in the price of our common stock, resulted in the Company testing its goodwill for impairment in March 2020. A goodwill impairment loss is recognized if the fair value of a reporting unit is less than its carrying value.
The Company’s goodwill impairment test in March 2020 included three reporting units, which were comprised of its (1) U.S. Company-operated and franchise restaurants, (2) Canada franchise restaurants and (3) global real estate and development operations. Based on the results of our goodwill impairment test, we determined the fair values of our U.S. Company-operated and franchise restaurants and our Canada franchise restaurants reporting units continued to significantly exceed their carrying values. The goodwill impairment test for our global real estate and development operations also indicated the fair value of the reporting unit exceeded its carrying value; however, the fair value exceeded the carrying value of the reporting unit by only a nominal amount. 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 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 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.
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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 “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 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 IT Realignment Plan during the remainder of 2020. Subsequent to September 27, 2020, the Company announced the appointment of its new Chief Information Officer.
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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 third quarter and the first nine months of 2020 and 2019.
Third Quarter Nine Months
2020 2019 Change 2020 2019 Change
Revenues:
Sales $ 191.9 $ 182.0 $ 9.9 $ 523.0 $ 530.7 $ (7.7)
Franchise royalty revenue and fees 116.8 109.2 7.6 321.6 320.3 1.3
Franchise rental income 58.7 59.9 (1.2) 173.4 176.9 (3.5)
Advertising funds revenue 84.8 86.8 (2.0) 241.5 253.9 (12.4)
452.2 437.9 14.3 1,259.5 1,281.8 (22.3)
Costs and expenses:
Cost of sales 159.5 152.4 7.1 450.2 446.1 4.1
Franchise support and other costs 6.0 9.7 (3.7) 19.4 19.8 (0.4)
Franchise rental expense 32.4 32.4 — 93.0 92.8 0.2
Advertising funds expense 92.0 87.9 4.1 253.4 257.0 (3.6)
General and administrative 47.3 46.2 1.1 147.6 146.3 1.3
Depreciation and amortization 33.0 33.3 (0.3) 98.7 98.0 0.7
System optimization gains, net — (1.0) 1.0 (2.3) (1.2) (1.1)
Reorganization and realignment costs 3.4 0.4 3.0 10.2 4.8 5.4
Impairment of long-lived assets — — — 4.7 1.7 3.0
Other operating income, net (2.7) (2.4) (0.3) (6.1) (9.4) 3.3
370.9 358.9 12.0 1,068.8 1,055.9 12.9
Operating profit 81.3 79.0 2.3 190.7 225.9 (35.2)
Interest expense, net (29.1) (27.9) (1.2) (86.7) (86.9) 0.2
Loss on early extinguishment of debt — — — — (7.2) 7.2
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)
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)
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Third Quarter Nine Months
2020 % of
Total Revenues 2019 % of
Total Revenues 2020 % of
Total Revenues 2019 % of
Total Revenues
Revenues:
Sales $ 191.9 42.4 % $ 182.0 41.6 % $ 523.0 41.5 % $ 530.7 41.4 %
Franchise royalty revenue and fees:
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 %
Franchise rental income
58.7 13.0 % 59.9 13.7 % 173.4 13.8 % 176.9 13.8 %
Advertising funds revenue
84.8 18.8 % 86.8 19.8 % 241.5 19.2 % 253.9 19.8 %
Total revenues
$ 452.2 100.0 % $ 437.9 100.0 % $ 1,259.5 100.0 % $ 1,281.8 100.0 %
Third Quarter Nine Months
2020 % of
Sales 2019 % of
Sales 2020 % of
Sales 2019 % of
Sales
Cost of sales:
Food and paper $ 59.6 31.1 % $ 57.2 31.4 % $ 161.4 30.9 % $ 167.3 31.5 %
Restaurant labor 59.4 30.9 % 54.7 30.1 % 170.3 32.6 % 160.1 30.2 %
Occupancy, advertising and other operating costs
40.5 21.1 % 40.5 22.3 % 118.5 22.6 % 118.7 22.4 %
Total cost of sales $ 159.5 83.1 % $ 152.4 83.8 % $ 450.2 86.1 % $ 446.1 84.1 %
Third Quarter Nine Months
2020 % of
Sales 2019 % of
Sales 2020 % of
Sales 2019 % of
Sales
Restaurant margin $ 32.4 16.9 % $ 29.6 16.2 % $ 72.8 13.9 % $ 84.6 15.9 %
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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.
Third Quarter Nine Months
2020 2019 2020 2019
Key business measures:
U.S. same-restaurant sales:
Company-operated restaurants
4.2 % 4.7 % (2.2) % 2.5 %
Franchised restaurants
7.2 % 4.5 % 1.1 % 2.4 %
Systemwide
7.0 % 4.5 % 0.9 % 2.4 %
International same-restaurant sales (a) (2.1) % 3.3 % (7.3) % 3.3 %
Global same-restaurant sales:
Company-operated restaurants
4.2 % 4.7 % (2.2) % 2.5 %
Franchised restaurants (a)
6.2 % 4.4 % 0.2 % 2.5 %
Systemwide (a)
6.1 % 4.4 % — % 2.5 %
________________
(a) Includes international franchised restaurants same-restaurant sales (excluding Argentina and Venezuela due to the impact of the highly inflationary economies of those countries).
Third Quarter Nine Months
2020 2019 2020 2019
Key business measures (continued):
Systemwide sales: (a)
Company-operated
$ 191.9 $ 182.0 $ 523.0 $ 530.7
U.S. franchised 2,499.7 2,313.0 6,913.1 6,784.9
U.S. systemwide
2,691.6 2,495.0 7,436.1 7,315.6
International franchised (b)
291.3 303.0 784.1 877.3
Global systemwide
$ 2,982.9 $ 2,798.0 $ 8,220.2 $ 8,192.9
________________
(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.
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Third Quarter
Company-operated U.S. Franchised International Franchised Systemwide
Restaurant count:
Restaurant count at June 28, 2020 358 5,504 944 6,806
Opened 2 25 6 33
Closed (a) — (15) (10) (25)
Net purchased from (sold by) franchisees — — — —
Restaurant count at September 27, 2020
360 5,514 940 6,814
Nine Months
Company-operated U.S. Franchised International Franchised Systemwide
Restaurant count at December 29, 2019 357 5,495 936 6,788
Opened 5 68 23 96
Closed (a) (2) (49) (19) (70)
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 Third Quarter Nine Months
2020 2019 Change 2020 2019 Change
Sales $ 191.9 $ 182.0 $ 9.9 $ 523.0 $ 530.7 $ (7.7)
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
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 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.
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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 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
Advertising funds revenue $ 84.8 $ 86.8 $ (2.0) $ 241.5 $ 253.9 $ (12.4)
The Company maintains two national advertising funds established to collect and administer funds contributed for use in advertising and promotional programs for Company-operated and franchised restaurants in the U.S. and Canada. 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 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
Food and paper 31.1 % 31.4 % (0.3) % 30.9 % 31.5 % (0.6) %
Restaurant labor 30.9 % 30.1 % 0.8 % 32.6 % 30.2 % 2.4 %
Occupancy, advertising and other operating costs 21.1 % 22.3 % (1.2) % 22.6 % 22.4 % 0.2 %
83.1 % 83.8 % (0.7) % 86.1 % 84.1 % 2.0 %
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 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.
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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 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)
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
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)
Other, net 34.2 33.3 0.9 108.8 107.1 1.7
$ 47.3 $ 46.2 $ 1.1 $ 147.6 $ 146.3 $ 1.3
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.
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Depreciation and Amortization Third Quarter Nine Months
2020 2019 Change 2020 2019 Change
Restaurants $ 21.2 $ 21.8 $ (0.6) $ 63.7 $ 63.7 $ —
Corporate and other 11.8 11.5 0.3 35.0 34.3 0.7
$ 33.0 $ 33.3 $ (0.3) $ 98.7 $ 98.0 $ 0.7
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 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 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
G&A realignment — 0.4 (0.4) 0.3 4.7 (4.4)
System optimization initiative — — — 0.1 0.1 —
$ 3.4 $ 0.4 $ 3.0 $ 10.2 $ 4.8 $ 5.4
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. 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. 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 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.
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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 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 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) 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 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 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
Loss on early extinguishment of debt $ — $ — $ — $ — $ 7.2 $ (7.2)
During the second quarter of 2019, in connection with the refinancing of a portion of the Company’s securitized financing facility, the Company incurred a loss on the early extinguishment of debt as a result of repaying its outstanding Series 2015-1 Class A-2-II Notes primarily with the proceeds from the issuance of its Series 2019-1 Class A-2 Notes. The loss on the early extinguishment of debt of $7.2 million was comprised of the write-off of certain deferred financing costs.
Other Income, Net Third Quarter Nine Months
2020 2019 Change 2020 2019 Change
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.
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Provision for Income Taxes Third Quarter Nine Months
2020 2019 Change 2020 2019 Change
Income before income taxes $ 52.4 $ 53.3 $ (0.9) $ 105.2 $ 138.9 $ (33.7)
Provision for income taxes
(12.6) (7.2) (5.4) (26.1) (28.5) 2.4
Effective tax rate on income
24.2 % 13.5 % 10.7 % 24.8 % 20.5 % 4.3 %
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.
Wendy’s U.S.
Third Quarter Nine Months
2020 2019 Change 2020 2019 Change
Sales $ 191.9 $ 182.0 $ 9.9 $ 523.0 $ 530.7 $ (7.7)
Franchise royalty revenue 98.1 90.8 7.3 271.1 266.6 4.5
Franchise fees 5.7 5.2 0.5 16.2 15.9 0.3
Advertising fund revenue 79.2 81.4 (2.2) 226.9 238.8 (11.9)
Total revenues $ 374.9 $ 359.4 $ 15.5 $ 1,037.2 $ 1,052.0 $ (14.8)
Segment profit $ 108.3 $ 98.3 $ 10.0 $ 283.3 $ 291.0 $ (7.7)
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. 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.”
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Wendy’s International
Third Quarter Nine Months
2020 2019 Change 2020 2019 Change
Franchise royalty revenue $ 11.2 $ 11.5 $ (0.3) $ 30.8 $ 33.3 $ (2.5)
Franchise fees 0.5 1.0 (0.5) 1.3 2.6 (1.3)
Advertising fund revenue 5.6 5.4 0.2 14.6 15.1 (0.5)
Total revenues $ 17.3 $ 17.9 $ (0.6) $ 46.7 $ 51.0 $ (4.3)
Segment profit $ 6.6 $ 6.3 $ 0.3 $ 15.3 $ 17.5 $ (2.2)
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
Third Quarter Nine Months
2020 2019 Change 2020 2019 Change
Franchise fees $ 1.4 $ 0.7 $ 0.7 $ 2.2 $ 2.0 $ 0.2
Franchise rental income 58.7 59.9 (1.2) 173.4 176.9 (3.5)
Total revenues $ 60.1 $ 60.6 $ (0.5) $ 175.6 $ 178.9 $ (3.3)
Segment profit $ 25.3 $ 26.4 $ (1.1) $ 75.5 $ 83.3 $ (7.8)
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 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
Cash Flows
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).
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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.
Dividends. 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.
CARES Act. 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.
Based on current levels of operations, the Company expects that available cash and cash flows from operations will provide sufficient liquidity to meet operating cash requirements for the next 12 months.
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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. 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 nine months of 2020 and 2019:
Nine Months
2020 2019 Change
Net cash provided by (used in):
Operating activities $ 205.8 $ 237.5 $ (31.7)
Investing activities (41.0) (45.7) 4.7
Financing activities (115.3) (183.4) 68.1
Effect of exchange rate changes on cash (1.8) 2.8 (4.6)
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 $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 $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 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.
Long-Term Debt, Including Current Portion
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 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 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 September 27, 2020.
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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 September 27, 2020, the Company had outstanding borrowings of C$5.5 million under the revolving credit facility.
Wendy’s U.S. advertising fund has a revolving line of credit of $25.0 million, which was established to support the advertising fund operations. 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.
Dividends
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; however, there can be no assurance that any additional quarterly dividends will be declared or paid or of the amount or timing of such dividends, if any.
Stock Repurchases
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. 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. 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. 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. In November 2019, the Company entered into an accelerated share repurchase agreement (the “2019 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the Company’s existing share repurchase program. 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 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 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.
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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
We believe that general inflation did not have a significant effect on our consolidated results of operations. We attempt to manage any inflationary costs and commodity price increases through product mix and selective menu price increases. Delays in implementing such menu price increases and competitive pressures may limit our ability to recover such cost increases in the future. Inherent volatility experienced in certain commodity markets, such as those for beef, chicken, pork, cheese and grains, could have a significant effect on our results of operations and may have an adverse effect on us in the future. The extent of any impact will depend on our ability to manage such volatility through product mix and selective menu price increases.
Seasonality
Wendy’s restaurant operations are moderately seasonal. Wendy’s average restaurant sales are normally higher during the summer months than during the winter months. Because our business is moderately seasonal, results for a particular quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year. Currently, we are not able to predict the impact that the COVID-19 pandemic may have on the seasonality of our business.