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Item 7. Management’s Discussion and Analysis

2021-03-03 compared with 2020-02-26 · 403 added, 301 removed, 310 unchanged (69% of the section changed)

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Certain statements we make under this Item 7 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.

See “Special Note Regarding Forward-Looking Statements and Projections” in “Part I” preceding “Item 1 - Business.” You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors” in Item 1A above, as well as our consolidated financial statements, related notes and other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission.

The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s Restaurants, LLC (“Wendy’s Restaurants”).

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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 6,788 restaurants in the United States (the “U.S.”) and 30 foreign countries and U.S.

territories as of December 29, 2019 .

As a result of the realignment of our management and operating structure during 2019 as discussed in Note 5 of the Financial Statements and Supplementary Data contained in Item 8 herein, the Company adopted a new segment reporting structure beginning in the fourth quarter of 2019.

As part of this new structure, the Company made the following changes:

(1) it combined its Canadian business with its International segment and (2) it separated its real estate and development operations into its own segment.

These changes were designed to increase efficiencies and to accelerate long-term growth.

Prior period segment results have been revised to reflect these changes.

The Company is now comprised of the following segments:

Today, Wendy’s is the #2 quick-service restaurant company in the hamburger sandwich segment in the United States (the “U.S.”) based on traffic share*, and the third largest globally with 6,828 restaurants in the U.S and 30 foreign countries and U.S.

territories as of January 3, 2021.

(*Based on The NPD Group CREST ® data for the twelve months ended December 2020.)

The Company is comprised of the following segments:

(1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development.

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In this Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company now reports on the segment profit for each of the three segments described above.

“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”).

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See “Results of Operations” below and Note 26 of the Financial Statements and Supplementary Data contained in Item 8 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 and are referred to herein as (1) “the year ended December 29, 2019 ” or “ 2019 ,” (2) “the year ended December 30, 2018 ” or “ 2018 ” and (3) “the year ended January 1, 2017 ” or “ 2017 ,” all of which consisted of 52 weeks.

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

The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31 and are referred to herein as (1) “the year ended January 3, 2021” or “2020,” which consisted of 53 weeks, (2) “the year ended December 29, 2019” or “2019,” which consisted of 52 weeks, and (3) “the year ended December 30, 2018” or “2018,” which consisted of 52 weeks.

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

We adopted the new accounting guidance for leases effective December 31, 2018, which had a material impact on our consolidated financial statements.

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See Note 1 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information.

We adopted the accounting guidance for revenue recognition effective January 1, 2018, which had a material impact on our consolidated financial statements.

Beginning with the first quarter of 2018, our financial results reflect adoption of this guidance;

however, prior period results were not restated.

See Note 1 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information.

Executive Overview

As of December 29, 2019 , the Wendy’s restaurant system was comprised of 6,788 restaurants, with 5,852 Wendy’s restaurants in operation in the U.S.

As of January 3, 2021, the Wendy’s restaurant system was comprised of 6,828 restaurants, with 5,881 Wendy’s restaurants in operation in the U.S.

restaurants, 361 were operated by the Company and 5,520 were operated by a total of 228 franchisees.

In addition, at December 29, 2019 , there were 936 Wendy’s restaurants in operation in 30 foreign countries and U.S.

In addition, at January 3, 2021, there were 947 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 December 29, 2019 .

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

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 plans to launch breakfast across the U.S.

system on March 2, 2020 (see “Breakfast Launch” below).

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.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of January 3, 2021.

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 “Sales Trends and COVID-19 Update” below and “Special Note Regarding Forward-Looking Statements and Projections” in “Part I” preceding “Item 1 - Business” for additional information.

Wendy’s long-term growth opportunities include investing in accelerated global growth through (1) building our breakfast daypart, (2) continued implementation of consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint through targeted U.S.

expansion and accelerated international expansion through same-restaurant sales growth and new restaurant development, including the Company’s plan to open Company-operated restaurants in the United Kingdom (“U.K.”) in the first half of 2021.

Key Business Measures

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• 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.

Same-restaurant sales exclude the impact of the 53 rd week of 2020.

For 2020, same-restaurant sales compares the 52 weeks from December 30, 2019 through December 27, 2020 to the 52 weeks from December 31, 2018 through December 29, 2019.

For fiscal 2021, same restaurant sales will compare the 52 weeks from January 4, 2021 through January 2, 2022 to the 52 weeks from January 6, 2020 through January 3, 2021.

This methodology is consistent with the metric used by our management for internal reporting and analysis.

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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.

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• Average Unit Volumes - We calculate Company-operated restaurant average unit volumes by summing the average weekly sales of all Company-operated restaurants which reported sales during the week.

Average unit volumes exclude the impact of the 53 rd week of 2020.

For 2020, average unit volumes are calculated using the 52 weeks from December 30, 2019 through December 27, 2020.

Franchised restaurant average unit volumes is a non-GAAP financial measure, which includes sales by franchised restaurants, which 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 franchised restaurant average unit volumes is useful information for the same reasons

described above for “Systemwide Sales.” We calculate franchised restaurant average unit volumes by summing the average weekly sales of all franchised restaurants which reported sales during the week.

We calculate franchised restaurant average unit volumes by summing the average weekly sales of all franchised restaurants which reported sales during the week.

The Company calculates same-restaurant sales and systemwide sales growth on a constant currency basis.

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The Company considers economies that have had cumulative inflation in excess of 100% over a three-year period as highly inflationary.

The Company believes its presentation of same-restaurant sales, restaurant margin, systemwide sales and average unit volumes provide a meaningful perspective of the underlying operating performance of the Company’s current business and enables investors to better understand and evaluate the Company’s historical and prospective operating performance.

The Company believes that these metrics are important supplemental measures of operating performance because they highlight trends in the Company’s business that may not otherwise be apparent when relying solely on GAAP financial measures.

The Company believes investors, analysts and other interested parties use these metrics in evaluating issuers and that the presentation of these measures facilitates a comparative assessment of the Company’s operating performance.

With respect to same-restaurant sales, systemwide sales and franchised restaurant average unit volumes, the Company also believes that the data is useful in assessing consumer demand for the Company’s products and the overall success of the Wendy’s brand.

The non-GAAP financial measures discussed above do 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, these measures as used by other companies may not be consistent with the way the Company calculates such measures.

Sales Trends and 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 the ultimate duration, scope or severity of the COVID-19 pandemic or its ultimate impact on our results of operations, financial condition and prospects.

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 at each restaurant owner’s discretion, subject to applicable regulatory restrictions.

As of January 3, 2021, 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 January 3, 2021, systemwide temporary restaurant closures totaled 17 and 45 in the U.S.

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

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

January through February March April May June Third

Quarter Fourth

Same-restaurant sales:

systemwide 3.7 % (7.7) % (14.0) % (1.9) % 5.1 % 7.0 % 5.5 %

International 5.4 % (17.0) % (28.3) % (15.7) % (10.7) % (2.1) % (2.3) %

Global systemwide 3.9 % (8.6) % (15.3) % (3.3) % 3.4 % 6.1 % 4.7 %

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(a) Excludes the impact of the 53 rd week in 2020.

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 increased 6.1% and 4.7% during the third and fourth quarters, respectively.

Through the week ended February 21, 2021, U.S.

and global systemwide same-restaurant sales increased approximately 6.0% and 5.0%, respectively.

The improvement in same-restaurant sales since the lows seen in March and April has been primarily driven by a significant increase in customer counts since that time.

Breakfast Launch

In September 2019, the Company announced that it planned to launch breakfast across the U.S.

system in the first quarter of 2020.

In February 2020, the Company announced that the expected launch date was March 2, 2020.

The Company made investments during 2019 of $16.8 million to support the U.S.

system in preparation of the national launch, which was primarily recorded to “ Franchise support and other costs .” The 2019 investments were primarily comprised of (1) the purchase of smallwares and menuboards for franchisees and (2) a national recruiting advertising campaign and other talent acquisition costs.

Wendy’s long-term growth opportunities include investing in accelerated global growth, which includes building upon our breakfast daypart.

Since the launch of breakfast across the U.S.

system on March 2, 2020, same-restaurant sales have benefited from this new daypart, with breakfast contributing 6.2%, 6.4% and 6.3% to U.S.

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

The Company funded $14.6 million of incremental advertising to support the breakfast daypart during 2020.

Wendy’s long-term growth opportunities include accelerating same-restaurant sales through continued implementation of consumer-facing digital platforms and technologies.

The Company has invested significant resources to focus on consumer-facing technology, including activating mobile ordering via Wendy’s mobile app, launching the Wendy’s Rewards loyalty program and establishing delivery agreements with third-party vendors for Wendy’s U.S.

and Canadian restaurants.

The Company’s digital business continues to grow and represented approximately 5% of U.S.

systemwide sales during 2020, which is more than double the amount in 2019.

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 2020, the Company recognized costs totaling $3.8 million, which primarily included severance and related employee costs and share-based compensation.

The Company expects to incur additional costs aggregating approximately $3.0 million to $5.0 million, comprised primarily of third-party and other costs.

The Company expects to recognize the majority of the remaining costs and make the majority of the remaining cash expenditures associated with the Operations and Field Realignment Plan 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.

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

The Company expects to incur total costs aggregating approximately $13.0 million to $15.0 million related to the plan.

During 2019, the Company recognized costs totaling $9.1 million , which primarily included severance and related employee costs of $7.5 million and third-party and other costs of $1.4 million .

The Company expects to incur additional costs aggregating approximately $5.5 million , comprised of (1) severance and related employee costs of approximately $1.0 million and (2) third-party and other costs of approximately $4.5 million .

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

General and Administrative (“G&A”) Realignment

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

Additionally, the Company announced in May 2019 changes to its management and operating structure that included the creation of two new positions, a President, U.S.

and Chief Commercial Officer and a President, International and Chief Development Officer, and the elimination of the Chief Operations Officer position.

During 2019, 2018 and 2017, the Company recognized costs totaling $7.7 million , $8.8 million and $21.7 million , respectively, which primarily included severance and related employee costs and share-based compensation.

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

Other Investments in Equity Securities

In October 2019, the Company received a $25.0 million cash settlement related to a previously held investment.

As a result, the Company recorded $24.4 million to “Investment income, net” and $0.6 million to “General and administrative” for the reimbursement of related costs during the fourth quarter of 2019.

Indirect Investment in Inspire Brands

In connection with the sale of Arby’s Restaurant Group, Inc.

(“Arby’s”) during 2011, Wendy’s Restaurants obtained an 18.5% equity interest in ARG Holding Corporation (“ARG Parent”) (through which Wendy’s Restaurants indirectly retained an 18.5% interest in Arby’s).

The carrying value of our investment was reduced to zero during 2013 in connection with the receipt of a dividend.

Our 18.5% equity interest was diluted to 12.3% in February 2018, when a subsidiary of ARG Parent acquired Buffalo Wild Wings, Inc.

As a result of the acquisition, our diluted ownership interest included both the Arby’s and Buffalo Wild Wings brands under the newly formed combined company, Inspire Brands, Inc.

(“Inspire Brands”).

In August 2018, the Company sold its remaining 12.3% ownership interest to Inspire Brands for $450.0 million and incurred transaction costs of $0.1 million, which were recorded to “Investment income, net.” The Company recorded income tax expense of $97.5 million on the transaction, of which $95.0 million was paid during the fourth quarter of 2018.

System Optimization Initiative

The Company’s system optimization initiative includes a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating Franchise Flips.

As of January 1, 2017, the Company completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total system.

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

During 2019, 2018 and 2017, the Company facilitated 37 , 96 and 400 Franchise Flips, respectively (excluding the DavCo and NPC Transactions discussed below).

Additionally, during 2018, the Company completed the sale of three Company-operated restaurants to franchisees.

No Company-operated restaurants were sold to franchisees during 2019 or 2017.

During 2020, the Company expects to sell 43 Company-operated restaurants in New York to franchisees.

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

Gains and losses recognized on dispositions are recorded to “ System optimization (gains) losses, net ” in our consolidated statements of operations.

Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “ Reorganization and realignment costs .” All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

Cybersecurity Incident

In February 2016, the Company reported unusual payment card activity affecting some franchise owned restaurants and that malware had been discovered on certain systems.

In June 2016, the Company reported that an additional malware variant had been identified and disabled.

In July 2016, the Company, on behalf of affected franchise locations, provided information about specific restaurant locations that may have been impacted by these attacks, all of which were located in the United States, along with support for customers who may have been affected by the malware.

During 2019, the Company entered into settlement agreements to resolve a consumer class action and a financial institutions class action related to the cybersecurity incidents.

The consumer class action settlement was approved by the court in February 2019 and the financial institutions class action settlement was approved by the court in November 2019.

Both matters are now considered fully paid and closed.

Under the terms of the settlement agreement for the financial institutions class action, the Company and its franchisees received a full release of all claims that have or could have been brought by the financial institutions, and the financial institutions received $50.0 million, inclusive of attorneys’ fees and costs.

After exhaustion of applicable insurance receivables, the Company made a payment of $24.7 million of this amount in January 2020.

During 2018, the Company recorded a liability of $50.0 million and insurance receivables of $22.5 million for the financial institutions case.

During 2019, as a result of cost savings related to the settlement of the consumer class action, the Company adjusted its insurance receivables for the financial institutions case to approximately $25.0 million.

See “Item 1A.

Risk Factors” and Note 23 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information.

DavCo and NPC Transactions

As part of our system optimization initiative, the Company acquired 140 Wendy’s restaurants on May 31, 2017 from DavCo Restaurants, LLC (“DavCo”) for total net cash consideration of $86.8 million, which restaurants were immediately sold to NPC International, Inc.

(“NPC”), an existing franchisee of the Company, for cash proceeds of $70.7 million (collectively, the “DavCo and NPC Transactions”).

As part of the NPC transaction, NPC agreed to remodel 90 acquired restaurants in the Image Activation format by the end of 2021 and build 15 new Wendy’s restaurants by the end of 2022.

Prior to closing the DavCo transaction, seven DavCo restaurants were closed.

The acquisition of Wendy’s restaurants from DavCo was not contingent on executing the sale agreement with NPC;

as such, the Company accounted for the DavCo and NPC Transactions as an acquisition and subsequent disposition of a business.

As part of the DavCo and NPC Transactions, the Company retained leases for purposes of subleasing such properties to NPC.

As a result of the DavCo and NPC Transactions, the Company recognized a loss of $43.6 million during 2017.

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 certain employee compensation and other related costs that the Company has reinvested 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 elimination of the Chief Digital Experience Officer position and the creation of a Chief Information Officer position, for which the Company completed the hiring process in October 2020.

Costs related to the IT Realignment Plan are recorded to “Reorganization and realignment costs.” During 2020 and 2019, the Company recognized costs totaling $7.3 million and $9.1 million, respectively, which primarily included third-party and other costs and recruitment and relocation costs in 2020 and severance and related employee costs and third-party and other costs in 2019.

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

NPC Quality Burgers, Inc.

As previously announced, NPC, the Company’s largest franchisee, filed for chapter 11 bankruptcy in July 2020 and commenced a process to sell all or substantially all of its assets, including its interest in approximately 393 Wendy’s restaurants across eight different markets, pursuant to a court-approved auction process.

On November 18, 2020, the Company submitted a consortium bid together with a group of pre-qualified franchisees to acquire NPC’s Wendy’s restaurants.

Under the terms of the consortium bid, several existing and new franchisees would have been the ultimate purchasers of seven of the NPC markets, while the Company would have acquired one market.

On January 7, 2021, following a court-approved mediation process, NPC and certain affiliates of Flynn Restaurant Group (“FRG”) and the Company entered into separate asset purchase agreements under which all of NPC’s Wendy’s restaurants will be sold to Wendy’s approved franchisees.

Under the proposed transaction, FRG will acquire approximately half of NPC’s Wendy’s restaurants in four markets, while several existing Wendy’s franchisees that were part of the Company’s consortium bid will acquire the other half of NPC’s Wendy’s restaurants in the other four markets.

The Company does not expect to acquire and operate any restaurants as part of this transaction.

The Company expects that the sale of the restaurants will be completed in the late first quarter or early second quarter of 2021, subject to the satisfaction of various closing conditions specified in the asset purchase agreements.

This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019.

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Results of Operations

The tables included throughout Results of Operations set forth in millions the Company’s consolidated results of operations for the years ended December 29, 2019 , December 30, 2018 and December 31, 2017 (except average unit volumes, which are in thousands).

The tables included throughout this Results of Operations section set forth in millions (except as otherwise indicated) the Company’s consolidated results of operations for the years ended January 3, 2021, December 29, 2019 and December 30, 2018.

Except as noted below, the Company’s consolidated results of operations described below includes the benefit of the 53 rd week in 2020.

2020 2019 2018

Amount Change Amount Change Amount

Sales $ 722.8 $ 15.3 $ 707.5 $ 55.9 $ 651.6

Franchise royalty revenue and fees 444.7 15.7 429.0 20.0 409.0

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Advertising funds revenue 333.7 (5.7) 339.4 13.4 326.0

1,733.8 24.8 1,709.0 119.1 1,589.9

Costs and expenses:

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Depreciation and amortization 132.8 1.1 131.7 2.8 128.9

System optimization (gains) losses, net

System optimization gains, net (3.1) (1.8) (1.3) (0.8) (0.5)

Reorganization and realignment costs 16.0 (1.0) 17.0 7.9 9.1

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Other operating income, net (8.5) 2.9 (11.4) (4.9) (6.5)

1,464.5 18.1 1,446.4 106.4 1,340.0

Operating profit 269.3 6.7 262.6 12.7 249.9

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Loss on early extinguishment of debt — 8.5 (8.5) 3.0 (11.5)

Investment income, net

Investment (loss) income, net (0.2) (25.8) 25.6 (425.1) 450.7

Other income, net 1.4 (6.4) 7.8 2.4 5.4

Income before income taxes

(Provision for) benefit from income taxes

152.8 (18.7) 171.5 (403.4) 574.9

We adopted the new accounting guidance for leases effective December 31, 2018, which had a material impact on our consolidated financial statements.

Beginning with the first quarter of 2019, our financial condition and results of operations reflect adoption of this guidance;

however, prior period results were not restated.

See Note 1 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information.

We adopted the accounting guidance for revenue recognition effective January 1, 2018, which had a material impact on our consolidated financial statements.

Beginning with the first quarter of 2018, our financial results reflect adoption of this guidance;

however, prior period results were not restated.

See Note 1 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information.

% of Total Revenues

Provision for income taxes (35.0) (0.4) (34.6) 80.2 (114.8)

Net income $ 117.8 $ (19.1) $ 136.9 $ (323.2) $ 460.1

2020 % of Total Revenues 2019 % of Total Revenues 2018 % of Total Revenues

Sales $ 722.8 41.7 % $ 707.5 41.4 % $ 651.6 41.0 %

Franchise royalty revenue and fees:

Royalty revenue

Franchise royalty revenue 416.5 24.0 % 400.7 23.4 % 377.9 23.7 %

Franchise fees 28.2 1.7 % 28.3 1.7 % 31.1 2.0 %

Total franchise royalty revenue and fees

444.7 25.7 % 429.0 25.1 % 409.0 25.7 %

Franchise rental income 232.6 13.4 % 233.1 13.6 % 203.3 12.8 %

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Total revenues $ 1,733.8 100.0 % $ 1,709.0 100.0 % $ 1,589.9 100.0 %

Sales 2019 % of

Sales 2018 % of

Cost of sales:

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Occupancy, advertising and other operating costs

159.5 22.1 % 160.0 22.7 % 147.2 22.6 %

Total cost of sales $ 614.9 85.1 % $ 597.5 84.5 % $ 548.6 84.2 %

2020 % of Sales 2019 % of Sales 2018 % of Sales

Restaurant margin $ 107.9 14.9 % $ 110.0 15.5 % $ 103.0 15.8 %

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.

2020 2019 2018

Key business measures:

same-restaurant sales growth:

same-restaurant sales (a):

Company-operated restaurants (0.7) % 3.1 % 1.3 %

Franchised restaurants 2.3 % 2.9 % 0.5 %

International same-restaurant sales growth (a)

Global same-restaurant sales growth:

Systemwide 2.0 % 2.9 % 0.6 %

International same-restaurant sales (a) (b) (6.0) % 3.2 % 4.7 %

Global same-restaurant sales (a):

Company-operated restaurants (0.7) % 3.1 % 1.3 %

Franchised restaurants (a)

Systemwide (a)

Franchised restaurants (b) 1.4 % 2.9 % 1.0 %

Systemwide (b) 1.2 % 2.9 % 1.0 %

________________

Includes international franchised restaurants same-restaurant sales (excluding Venezuela, and excluding Argentina beginning in the third quarter of 2018, due to the impact of the highly inflationary economies of those countries).

(a) Excludes the impact of the 53 rd week in 2020.

(b) Includes international franchised restaurants same-restaurant sales (excluding Venezuela, and excluding Argentina beginning in the third quarter of 2018, due to the impact of the highly inflationary economies of those countries).

2020 2019 2018

Key business measures (continued):

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Company-operated $ 722.8 $ 707.5 $ 651.6

franchised 9,508.5 9,055.2 8,719.1

systemwide 10,231.3 9,762.7 9,370.7

International franchised (b) 1,107.2 1,181.6 1,141.9

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Company-operated $ 1,978.5 $ 1,989.6 $ 1,918.0

franchised 1,708.9 1,664.1 1,612.8

systemwide 1,725.5 1,684.0 1,630.8

International franchised (b) 1,199.5 1,357.5 1,359.2

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________________

During 2019 and 2018, global systemwide sales increased 4.4% and 2.5% , respectively, U.S.

systemwide sales increased 4.2% and 1.5% , respectively, and international franchised sales increased 6.7% and 10.8% , respectively, on a constant currency basis.

Excludes Venezuela, and excludes Argentina beginning in the third quarter of 2018, due to the impact of the highly inflationary economies of those countries.

Company-operated

International Franchised

(a) During 2020 and 2019, global systemwide sales increased 3.7% and 4.4%, respectively, U.S.

systemwide sales increased 4.8% and 4.2%, respectively, and international franchised sales decreased 5.5% and increased 6.7%, respectively, on a constant currency basis.

2020 systemwide sales growth percentages include a positive impact of approximately 2.0% for the 53 rd week in 2020.

(b) Excludes Venezuela, and excludes Argentina beginning in the third quarter of 2018, due to the impact of the highly inflationary economies of those countries.

Company-operated U.S.

Franchised International Franchised Systemwide

Restaurant count:

Restaurant count at December 30, 2018

Net purchased from (sold by) franchisees

Restaurant count at December 30, 2018

353 5,457 901 6,711

Opened 2 105 75 182

Closed (3) (62) (40) (105)

Net purchased from (sold by) franchisees 5 (5) — —

Restaurant count at December 29, 2019

The increase in sales during 2019 was primarily due to a net increase in the number of Company-operated restaurants in operation during 2019 compared to 2018 .

In addition, sales during 2019 benefited from a 3.1% increase in Company-operated same-restaurant sales.

Company-operated same-restaurant sales improved due to an increase in our average per customer check amount, reflecting benefits from strategic price increases on our menu items and changes in product mix.

These benefits were partially offset by a decrease in customer count.

357 5,495 936 6,788

Opened 7 91 49 147

Closed (2) (67) (38) (107)

Net (sold to) purchased by franchisees (1) 1 — —

Restaurant count at January 3, 2021

361 5,520 947 6,828

Sales 2020 2019 2018

Amount Change Amount Change Amount

Sales $ 722.8 $ 15.3 $ 707.5 $ 55.9 $ 651.6

The increase in sales during 2020 was primarily due to (1) sales during the 53 rd week of 2020 of approximately $13.7 million and (2) a net increase in the number of Company-operated restaurants in operation during 2020 compared to 2019.

These increases were partially offset by a 0.7% decrease in Company-operated same-restaurant sales.

Company-operated same-restaurant sales declined 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 and (2) higher average check.

Franchise Royalty Revenue and Fees 2020 2019 2018

Royalty revenue

Amount Change Amount Change Amount

Franchise royalty revenue $ 416.5 $ 15.8 $ 400.7 $ 22.8 $ 377.9

Franchise fees 28.2 (0.1) 28.3 (2.8) 31.1

The increase in franchise royalty revenue during 2019 was primarily due to a 2.9% increase in franchise same-restaurant sales.

Royalty revenue was also positively impacted by a net increase in the number of franchise restaurants in operation during 2019 compared to 2018 .

The decrease in franchise fees during 2019 was primarily due to lower other miscellaneous franchise fees and facilitating fewer Franchise Flips in 2019 compared to 2018 , partially offset by an increase in fees for providing information technology and other services to franchisees.

$ 444.7 $ 15.7 $ 429.0 $ 20.0 $ 409.0

The increase in franchise royalty revenue during 2020 was primarily due to (1) royalties earned during the 53 rd week of 2020 of approximately $7.8 million, (2) a 1.4% increase in global franchise same-restaurant sales and (3) a net increase in the number of franchise restaurants in operation during 2020 compared to 2019.

The increase in franchise same-restaurant sales reflects (1) the positive impact from the launch of breakfast in the U.S.

and (2) higher average check, partially offset by a decrease in customer count as a result of the COVID-19 pandemic.

Franchise Rental Income 2020 2019 2018

Amount Change Amount Change Amount

Franchise rental income $ 232.6 $ (0.5) $ 233.1 $ 29.8 $ 203.3

The increase in franchise rental income during 2019 was primarily due to the adoption of new accounting guidance for leases.

Under the new guidance, lessees’ payments to the Company for executory costs are recorded on a gross basis as revenue with a corresponding expense.

See “ Franchise Rental Expense ” below.

This increase was partially offset by the impact of assigning certain leases to franchisees.

The decrease in franchise rental income during 2020 was primarily due to assigning certain leases to franchisees during 2019.

Advertising Funds Revenue 2020 2019 2018

Amount Change Amount Change Amount

Advertising funds revenue $ 333.7 $ (5.7) $ 339.4 $ 13.4 $ 326.0

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

The increase in advertising funds revenue during 2019 was primarily due to an increase in franchise same-restaurant sales in the U.S.

and Canada, as well as a net increase in the number of franchise restaurants in operation in those countries.

This increase was partially offset by reductions in advertising receipts under the Company’s restaurant development incentive programs.

The decrease in advertising funds revenue during 2020 was primarily due to the impact of the COVID-19 pandemic.

The positive impact from the launch of breakfast did not impact 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.

The decrease in advertising funds revenue was partially offset by revenues earned during the 53 rd week of 2020 of approximately $6.4 million.

Cost of Sales, as a Percent of Sales 2020 2019 2018

Amount Change Amount Change Amount

Food and paper 30.7 % (0.8) % 31.5 % (0.3) % 31.8 %

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Occupancy, advertising and other operating costs 22.1 % (0.6) % 22.7 % 0.1 % 22.6 %

The increase in cost of sales, as a percent of sales, during 2019 was primarily due to (1) an increase in restaurant labor rates, (2) an increase in commodity costs and (3) a decrease in customer count.

These unfavorable changes were partially offset by benefits from strategic price increases on certain of our menu items and changes in product mix.

85.1 % 0.6 % 84.5 % 0.3 % 84.2 %

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

These impacts were partially offset by (1) higher average check and (2) lower insurance costs.

Franchise Support and Other Costs 2020 2019 2018

Amount Change Amount Change Amount

Franchise support and other costs $ 26.5 $ (17.2) $ 43.7 $ 18.5 $ 25.2

The increase in franchise support and other costs during 2019 was primarily due to (1) investments of $16.4 million to support U.S.

franchisees in preparation of the national launch of breakfast on March 2, 2020 and (2) the purchase of digital scanning equipment for franchisees of $5.3 million.

The decrease in franchise support and other costs during 2020 was primarily due to (1) the prior year investments of $16.4 million to support U.S.

franchisees in preparation of the launch of breakfast and (2) the prior year purchase of digital scanning equipment for franchisees of $5.3 million.

These decreases were partially offset by further investments made in 2020 to support U.S.

franchisees in preparation of the launch of breakfast.

Franchise Rental Expense 2020 2019 2018

Amount Change Amount Change Amount

Franchise rental expense $ 125.6 $ 1.7 $ 123.9 $ 32.8 $ 91.1

The increase in franchise rental expense during 2019 was primarily due to the adoption of new accounting guidance for leases.

Under the new guidance, lessees’ payments to the Company for executory costs are recorded on a gross basis as revenue with a corresponding expense.

See “ Franchise Rental Income ” above.

The increase was partially offset by the impact of assigning certain leases to franchisees.

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

Advertising Funds Expense 2020 2019 2018

Amount Change Amount Change Amount

Advertising funds expense $ 345.4 $ 7.3 $ 338.1 $ 16.2 $ 321.9

The increase in advertising funds expense during 2019 was primarily due to the same factors as described above for “Advertising Funds Revenue.” During 2019 , advertising funds revenue exceeded advertising funds expense by $1.3 million due to the timing of the Company’s advertising spend.

The increase in advertising funds expense during 2020 was primarily due to the Company’s funding of $14.6 million of incremental advertising to support the breakfast daypart.

This increase was partially offset by the impact of the COVID-19 pandemic.

General and Administrative 2020 2019 2018

Legal reserves

Employee compensation and related expenses

Amount Change Amount Change Amount

Professional fees $ 32.3 $ 12.8 $ 19.5 $ (0.1) $ 19.6

The decrease in general and administrative expenses during 2019 was primarily due to the prior year increase in legal reserves resulting from litigation associated with a cybersecurity incident (see Note 23 to the Financial Statements and Supplementary Data contained in Item 8 herein for further information).

This decrease was partially offset by higher employee compensation and related expenses, reflecting an increase in incentive compensation accruals.

Legal reserves 0.2 2.7 (2.5) (30.1) 27.6

Travel-related expenses 5.8 (6.6) 12.4 (0.4) 12.8

Incentive compensation 23.0 (3.0) 26.0 10.4 15.6

Other, net 145.6 0.8 144.8 2.9 141.9

$ 206.9 $ 6.7 $ 200.2 $ (17.3) $ 217.5

The increase in general and administrative expenses during 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 partially offset by (1) a decrease in travel-related expenses as a result of reduced travel during the COVID-19 pandemic and (2) a decrease in incentive compensation accruals due to lower operating performance in 2020 compared to 2019.

Depreciation and Amortization 2020 2019 2018

Amount Change Amount Change Amount

Restaurants $ 84.9 $ (0.9) $ 85.8 $ 2.9 $ 82.9

Corporate and other 47.9 2.0 45.9 (0.1) 46.0

The increase in restaurant depreciation and amortization during 2019 was primarily due to the assignment of certain leases to a franchisee in 2018, resulting in the write-off of the related net investment in the leases.

System Optimization (Gains) Losses, Net

System optimization (gains) losses, net

System optimization (gains) losses, net during 2019 were primarily comprised of post-closing adjustments on previous sales of restaurants.

System optimization (gains) losses, net during 2018 were comprised of post-closing adjustments on previous sales of restaurants, gains (losses) on the sale of surplus properties and a gain on the sale of three Company-operated restaurants to a franchisee.

$ 132.8 $ 1.1 $ 131.7 $ 2.8 $ 128.9

The increase in depreciation and amortization during 2020 was primarily due to (1) changes in useful lives for certain asset categories, (2) the impact of the 53rd week in 2020, (3) the assignment of certain leases to a franchisee in 2019, resulting in the write-off of the related net investment in the leases, and (4) 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 second quarter of 2021.

System Optimization Gains, Net 2020 2019 2018

Amount Change Amount Change Amount

System optimization gains, net $ (3.1) $ (1.8) $ (1.3) $ (0.8) $ (0.5)

System optimization gains, net during 2020 were primarily comprised of gains on the sale of surplus and other properties.

System optimization gains, net during 2019 were primarily comprised of post-closing adjustments on previous sales of restaurants.

Reorganization and Realignment Costs 2020 2019 2018

Amount Change Amount Change Amount

Operations and field realignment $ 3.8 $ 3.8 $ — $ — $ —

IT realignment 7.3 (1.8) 9.1 9.1 —

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System optimization initiative 4.3 4.2 0.1 (0.2) 0.3

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.

During 2019, the Company recognized costs associated with this plan totaling $9.1 million, which primarily included (1) severance and related employee costs of $7.5 million and (2) third-party and other costs of $1.4 million.

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

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

During 2019, the Company recognized costs associated with this plan totaling $7.8 million, which primarily included (1) severance and related employee costs of $5.5 million and (2) share-based compensation of $1.2 million.

During 2018, the Company recognized costs associated with this plan totaling $8.8 million, which primarily included (1) severance and related employee costs of $3.8 million, (2) third-party and other costs of $2.4 million and (3) share-based compensation of $1.6 million.

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

$ 16.0 $ (1.0) $ 17.0 $ 7.9 $ 9.1

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 2020, the Company recognized costs associated with the Operations and Field Realignment Plan totaling $3.8 million, which included severance and related employee costs of $3.1 million and share-based compensation of $0.6 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 2020, the Company recognized costs associated with the IT Realignment Plan totaling $7.3 million, which included third-party and other costs of $5.2 million, recruitment and relocation costs of $1.3 million and severance and related employee costs of $0.8 million.

During 2019, the Company recognized costs associated with the IT Realignment Plan totaling $9.1 million, which primarily included severance and related employee costs of $7.5 million and third-party and other costs of $1.4 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 2020 were primarily comprised of share-based compensation.

G&A realignment costs for 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.

As part of the Company’s system optimization initiative, the Company expects to continue to optimize the Wendy’s system through strategic restaurant acquisitions and dispositions, as well as by facilitating franchisee-to-franchisee restaurant transfers.

During 2020, the Company recognized costs associated with its system optimization initiative totaling $4.3 million, which primarily included professional fees related to the NPC bankruptcy sale process.

Impairment of Long-Lived Assets 2020 2019 2018

Amount Change Amount Change Amount

Impairment of long-lived assets $ 8.0 $ 1.0 $ 7.0 $ 2.3 $ 4.7

The increase in impairment charges during 2019 was primarily driven by the Company’s decision to lease and/or sublease properties to franchisees in connection with the anticipated sale of Company-operated restaurants in New York to franchisees.

The increase in impairment charges during 2020 was primarily driven by the deterioration in operating performance of certain Company-operated restaurants as a result of the COVID-19 pandemic.

Other Operating Income, Net 2020 2019 2018

Gains on sales-type leases

Amount Change Amount Change Amount

Equity in earnings in joint ventures, net $ (6.1) $ 2.6 $ (8.7) $ (0.6) $ (8.1)

The change in other operating income, net during 2019 was primarily due to (1) gains on new and modified sales-type leases as a result of the new accounting guidance for leases, (2) lease buyout activity and (3) an increase in the equity in earnings from our TimWen real estate joint venture.

Gains on sales-type leases (2.0) 0.3 (2.3) (2.3) —

Other, net (0.4) — (0.4) (2.0) 1.6

$ (8.5) $ 2.9 $ (11.4) $ (4.9) $ (6.5)

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

Interest Expense, Net 2020 2019 2018

Amount Change Amount Change Amount

Interest expense, net $ 117.7 $ 1.7 $ 116.0 $ (3.6) $ 119.6

Interest expense, net decreased during 2019 primarily due to lower outstanding principal amounts of long-term debt, reflecting the impact of the completion of refinancing a portion of the Company’s securitized financing facility in June 2019 .

Interest expense, net increased during 2020 primarily due to the impact of the 53 rd week in 2020 of approximately $1.9 million.

Loss on Early Extinguishment of Debt 2020 2019 2018

Amount Change Amount Change Amount

Loss on early extinguishment of debt $ — $ (8.5) $ 8.5 $ (3.0) $ 11.5

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 of $7.2 million resulting from the write-off of certain deferred financing costs.

The change in loss on early extinguishment of debt was due to the Company refinancing a portion of its securitized financing facility in the prior year, in which the Company incurred a loss on the early extinguishment of debt of $7.2 million resulting from the write-off of certain deferred financing costs.

In addition, the Company recognized a loss on early extinguishment of debt of $1.3 million during the fourth quarter of 2019 due to the repurchase of a portion of the Company’s 7% debentures.

During the first quarter of 2018, 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 of $11.5 million resulting from the write-off of certain deferred financing costs and a specified make-whole payment.

Investment Income, Net

Investment income, net

Investment income, net decreased during 2019 due to the prior year $450.0 million gain recorded on the sale of the Company’s ownership interest in Inspire Brands in August 2018.

This decrease was partially offset by a $25.0 million cash settlement related to a previously held investment received in October 2019, of which $24.4 million was recorded to investment income, net.

Investment (Loss) Income, Net 2020 2019 2018

Amount Change Amount Change Amount

Investment (loss) income, net $ (0.2) $ (25.8) $ 25.6 $ (425.1) $ 450.7

The change in investment (loss) income, net during 2020 was due to a prior year $25.0 million cash settlement related to a previously held investment received in October 2019, of which $24.4 million was recorded to investment (loss) income, net.

See Note 8 of the Financial Statements and Supplementary Data contained in Item 8 herein for further discussion.

Other Income, Net 2020 2019 2018

Amount Change Amount Change Amount

Other income, net $ 1.4 $ (6.4) $ 7.8 $ 2.4 $ 5.4

Other income, net increased during 2019 primarily due to higher interest income earned on our cash equivalents.

(Provision for) Benefit from Income Taxes

Other income, net decreased during 2020 primarily due to lower interest income earned on the Company’s cash equivalents.

Provision for Income Taxes 2020 2019 2018

Amount Change Amount Change Amount

Income before income taxes

(Provision for) benefit from income taxes

$ 152.8 $ (18.7) $ 171.5 $ (403.4) $ 574.9

Provision for income taxes (35.0) (0.4) (34.6) 80.2 (114.8)

Effective tax rate on income 22.9 % 2.8 % 20.1 % 0.1 % 20.0 %

The change in the provision for income taxes during 2019 was primarily due to lower income before income taxes during 2019, the majority of which resulted from the decrease in “Investment Income, Net” described above.

The increase in the effective tax rate in 2019 resulted from (1) a reduction in the tax benefit related to share-based compensation, which resulted in a federal and state benefit totaling $6.9 million and $12.3 million in 2019 and 2018, respectively, and (2) an increase in our effective state tax rate due to the non-recurring favorable impact in 2018 from the sale of our ownership interest in Inspire Brands.

These increases were partially offset by a $6.1 million benefit for the reduction in uncertain tax benefits in 2019, primarily related to a lapse of statute of limitations.

The increase in the provision for income taxes from 2019 to 2020 was primarily due to a $6.1 million nonrecurring benefit for the reduction in uncertain tax benefits recorded in 2019, partially offset by lower income before income taxes during 2020.

The increase in the effective tax rate in 2020 resulted from the $6.1 million nonrecurring benefit for the reduction in uncertain tax benefits in 2019, partially offset by changes to our deferred state taxes and valuation allowances on state net operating losses resulting from our system optimization initiative.

Segment Information

See Note 26 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information regarding the Company’s segments.

2020 2019 2018

Amount Change Amount Change Amount

Sales $ 722.8 $ 15.3 $ 707.5 $ 55.9 $ 651.6

Franchise royalty revenue 373.2 17.5 355.7 20.2 335.5

4 unchanged sentences

The increase in Wendy’s U.S.

revenues during 2019 was primarily due to (1) a net increase in the number of restaurants in operation during 2019 compared to 2018 and (2) an increase in same-restaurant sales.

The increase in Wendy’s U.S.

segment profit during 2019 was primarily due to higher revenues.

This increase was partially offset by an increase in franchise support and other costs, reflecting the Company’s investments to support U.S.

franchisees in preparation of the national launch of breakfast on March 2, 2020 and the purchase of digital scanning equipment for franchisees.

revenues during 2020 was primarily due to (1) sales and royalty revenue during the 53 rd week of 2020 of approximately $13.7 million and $7.0 million, respectively, (2) a net increase in the number of Company-operated and franchise restaurants in operation during 2020 compared to 2019 and (3) an increase in same-restaurant sales.

The increase in same-restaurant sales reflects the positive impact from the launch of breakfast across the U.S.

system and higher average check, partially offset by a decrease in customer count as a result of the COVID-19 pandemic.

The increase in Wendy’s U.S.

revenues during 2018 was primarily due to the full consolidation of the national advertising fund under the accounting guidance for revenue recognition effective January 1, 2018.

revenues during 2018 were also positively impacted by (1) an increase in same-restaurant sales and (2) a net increase in the number of restaurants in operation during 2018 compared to 2017.

These benefits were partially offset by a decrease in franchise fees due to facilitating fewer Franchise Flips and the related impact of the accounting guidance for revenue recognition effective January 1, 2018.

The decrease in Wendy’s U.S.

segment profit during 2018 was primarily due to (1) an increase in franchise support and other costs resulting from providing information technology and other services to our franchisees and (2) a decrease in franchise fees.

These items were partially offset by a decrease in employee compensation and related expenses, reflecting a decrease in incentive compensation accruals and changes in staffing driven by our G&A realignment plan.

segment profit during 2020 was primarily due to (1) higher royalty revenue, (2) a decrease in franchise support and other costs, reflecting the Company’s investments in 2019 to support U.S.

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

system and the purchase of digital scanning equipment for franchisees, and (3) lower general and administrative expenses.

These changes were partially offset by the Company’s funding of $14.6 million of incremental advertising during 2020.

Wendy’s International

2020 2019 2018

Amount Change Amount Change Amount

Franchise royalty revenue $ 43.3 $ (1.7) $ 45.0 $ 2.6 $ 42.4

3 unchanged sentences

Segment profit $ 20.1 $ (0.1) $ 20.2 $ (5.4) $ 25.6

The increase in Wendy’s International revenues during 2019 was primarily due to (1) a net increase in the number of franchise restaurants in operation during 2019 compared to 2018 and (2) an increase in same-restaurant sales.

These increases were largely offset by lower other miscellaneous franchise fees.

The decrease in Wendy’s International segment profit during 2019 was primarily due to higher general and administrative expenses, reflecting a higher provision for doubtful accounts on its international notes receivable from the Company’s joint venture in Brazil (the “Brazil JV”) and from a franchisee in India.

The increase in Wendy’s International revenues during 2018 was primarily due to the full consolidation of the national advertising fund under the accounting guidance for revenue recognition effective January 1, 2018.

Wendy’s International revenues

during 2018 were also positively impacted by (1) an increase in same-restaurant sales and (2) a net increase in the number of franchise restaurants in operation during 2018 compared to 2017.

The increase in Wendy’s International segment profit during 2018 was primarily due to an increase in franchise royalty revenue and fees.

This impact was partially offset by an increase in general and administrative expenses, reflecting a higher provision for doubtful accounts on its international notes receivable from the Brazil JV.

The decrease in Wendy’s International revenues during 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.

This decrease was partially offset by royalties during the 53 rd week of 2020 of approximately $0.8 million.

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

Global Real Estate & Development

2020 2019 2018

Amount Change Amount Change Amount

Franchise fees $ 4.2 $ 0.8 $ 3.4 $ (3.1) $ 6.5

2 unchanged sentences

Segment profit $ 100.7 $ (6.4) $ 107.1 $ (3.5) $ 110.6

The increase in Global Real Estate & Development revenues during 2019 was primarily due to the adoption of new accounting guidance for leases.

Under the new guidance, lessees’ payments to the Company for executory costs are recorded on a gross basis as revenue with a corresponding expense.

This increase was partially offset by the impact of assigning certain leases to franchisees and lower other miscellaneous franchise fees.

The decrease in Global Real Estate & Development segment profit during 2019 was primarily due to lower other miscellaneous franchise fees and the impact of assigning certain leases to franchisees.

This decrease was partially offset by gains on new and modified sales-type leases as a result of the new accounting guidance for leases.

The increase in Global Real Estate & Development revenues and segment profit during 2018 was primarily due to an increase in franchise rental income resulting from subleasing properties to franchisees in connection with facilitating Franchise Flips during 2017.

The increase in Global Real Estate & Development revenues during 2020 was primarily due to higher other miscellaneous franchise fees, partially offset by lower franchise rental income.

See “Franchise Rental Income” above for further information.

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

Consolidated Outlook for 2021

We expect sales at our Company-operated restaurants will be favorably impacted primarily by (1) the planned launch of breakfast across the U.S.

system on March 2, 2020, (2) our “One More Visit, One More Dollar” strategy, which includes continuing core menu improvement, product innovation and strategic price increases on our menu items, (3) focused execution of operational excellence and (4) continued implementation of consumer-facing digital platforms and technologies.

Sales are expected to be negatively impacted by the anticipated sale of certain Company-operated restaurants in New York to franchisees.

We expect sales at our Company-operated restaurants to be favorably impacted primarily by (1) an increase in customer counts as a result of the expected recovery from the COVID-19 pandemic, (2) a full year of operating in the breakfast daypart across the U.S.

system, (3) a net increase in the number of Company-operated restaurants, including the Company’s plan to open Company-operated restaurants in the U.K in the first half of 2021, (4) our “Fast Food Done Right” strategy, which includes continuing core menu improvements, product innovation and strategic price increases on our menu items, (5) focused execution of operational excellence and (6) continued implementation of consumer-facing digital platforms and technologies.

Sales at our Company-operated restaurants are expected to be negatively impacted by (1) the anticipated sale of certain Company-operated restaurants in New York to franchisees in the second quarter of 2021 and (2) lapping the impact of the 53 rd week of 2020.

Franchise Royalty Revenue and Fees

We expect the sales trends for franchised restaurants to continue to be generally benefited by the factors described above under “Sales.” In addition, we expect franchise royalty revenue and fees will be favorably impacted by an increase in the number of franchise restaurants in operation due to new restaurant development and the anticipated sale of certain Company-operated restaurants in New York to franchisees.

We expect sales at franchised restaurants to generally benefit from the factors described above under “Sales.” In addition, we expect franchise royalty revenue and fees to be favorably impacted by (1) an increase in the number of franchise restaurants in operation due to new restaurant development, (2) an increase in IT-related franchise fees and (3) the anticipated sale of certain Company-operated restaurants in New York to franchisees in the second quarter of 2021.

Cost of Sales

We expect cost of sales, as a percent of sales to be favorably impacted by the same factors described above under “Sales,” and to also benefit from productivity initiatives.

We expect these favorable impacts on cost of sales, as a percent of sales, to be offset by higher restaurant labor due to increases in wages, as well as an increase in commodity costs.

We expect these favorable impacts to be partially offset by higher restaurant labor-related costs, primarily due to increases in wages and investments in the U.K.

as we plan to launch that market in the first half of 2021.

Franchise Support and Other Costs

We expect franchise support and other costs to increase primarily due to costs incurred to provide IT services to our franchisees, partially offset by the investments made in 2020 to support U.S.

franchisees in preparation of the launch of breakfast.

Advertising Funds Revenue and Expense

We expect advertising funds expense will exceed advertising funds revenue as the Company plans to fund incremental advertising to support our planned expansion into the breakfast daypart across the U.S.

We expect advertising funds expense to exceed advertising funds revenue as the Company plans to fund an incremental $15.0 million in advertising to continue to drive growth in our breakfast daypart.

General and Administrative

We expect general and administrative expense to be higher primarily due to increases in IT-related costs and travel-related expenses.

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 shareholders.

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

During 2020, the Company made a payment of $24.7 million related to the settlement of the financial institutions class action.

See Note 11 of the Financial Statements and Supplementary Data contained in Item 8 herein 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 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.

The Company made partial repayments of the drawdown of the Canadian revolving credit facility in October 2020 and December 2020.

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 and $.07 per share 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 ultimately realized 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 in light of our improved liquidity position.

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 funded $14.6 million of incremental advertising during 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 January 3, 2021, substantially all franchisees are current on royalties and national advertising funds contributions due to the Company.

To support the health and well-being of our 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 fully repaid 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.

Anticipated Cash Requirements

Our anticipated cash requirements for 2021 exclusive of operating cash flow requirements consist principally of:

capital expenditures of approximately $75.0 million as discussed below in “Capital Expenditures;”

quarterly cash dividends aggregating up to approximately $107.1 million as discussed below in “Dividends;” and

stock repurchases of $28.8 million under our February 2019 authorization (after taking into consideration the entire initial purchase price under the 2019 ASR Agreement) and potential stock repurchases of up to $100.0 million under our February 2020 authorization as discussed below in “Stock Repurchases.”

In addition to the anticipated cash requirements above, the Company made a payment of $24.7 million related to the settlement of the financial institutions class action in January 2020 (see Note 23 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information).

The Company also anticipates cash expenditures to fund incremental advertising to support our planned expansion into the breakfast daypart across the U.S.

Based upon 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.

• capital expenditures of approximately $80.0 million to $90.0 million as discussed below in “Capital Expenditures;”

• quarterly cash dividends aggregating approximately $80.6 million as discussed below in “Dividends;” and

• stock repurchases of up to $67.7 million under our February 2020 authorization as discussed below in “Stock Repurchases.”

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.

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.

Cash Flows from Operating, Investing and Financing Activities

The table below summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years:

2020 2019 2018

Amount Change Amount Change Amount

Net cash provided by (used in):

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Effect of exchange rate changes on cash 1.3 (2.2) 3.5 11.2 (7.7)

Net (decrease) increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash $ 59.5 $ 187.3 $ (127.8) $ (401.5) $ 273.7

Operating Activities

Cash provided by operating activities was $288.9 million and $224.2 million in 2019 and 2018, respectively.

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 increased $64.7 million during 2019 as compared to 2018, primarily due to (1) a decrease in cash paid for income taxes, reflecting the payment of income taxes associated with the gain on sale of our remaining ownership interest in Inspire Brands during 2018, and (2) a decrease in payments for incentive compensation.

These favorable changes were partially offset by (1) the timing of collections of royalty receivables and (2) the timing of payments for marketing expenses of the national advertising funds.

Cash provided by operating activities was $284.4 million and $288.9 million in 2020 and 2019, respectively.

The change was primarily due to (1) a cash payment of $24.7 million related to the settlement of the financial institutions class action in January 2020, (2) an increase in payments related to the Company’s reorganization and realignment plans, (3) an increase in payments for incentive compensation for the 2019 fiscal year paid in 2020 and (4) the timing of rental payments.

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

Investing Activities

Cash (used in) provided by investing activities was $(54.9) million and $362.9 million in 2019 and 2018, respectively.

The change was primarily due to the proceeds from the sale of our remaining ownership interest in Inspire Brands during 2018 of $450.0 million, partially offset by (1) a cash settlement received during 2019 related to a previously held investment of $24.4 million and (2) a decrease in cash used for the Company’s acquisition of restaurants from franchisees of $16.3 million.

Cash used in investing activities was $68.3 million and $54.9 million in 2020 and 2019, respectively.

The change was primarily due to a cash settlement received during 2019 related to a previously held investment of $24.4 million, which was partially offset by (1) a decrease in capital expenditures of $5.5 million, (2) a decrease in new notes receivable to franchisees of $2.7 million (3) and increase in proceeds from dispositions of $2.6 million.

Financing Activities

Cash used in financing activities was $157.9 million and $365.3 million in 2020 and 2019, respectively.

The change was primarily due to (1) a net increase in cash used for long-term debt activities of $86.8 million, reflecting the respective impacts of the completion of debt refinancing transactions during 2019 and 2018, (2) an increase in dividends of $15.8 million and (3) a decrease in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of $13.9 million.

These changes were partially offset by (1) a decrease in repurchases of common stock of $52.0 million and (2) the settlement of a supplemental purchase price liability associated with the acquisition of 140 Wendy’s restaurants from DavCo Restaurants, LLC of $6.3 million during 2018.

The change was primarily due to (1) a decrease in repurchases of common stock of $155.6 million, (2) a decrease in dividends of $31.5 million and (3) a net decrease in cash used in long-term debt activities of $23.5 million, reflecting the impact of the completion of a debt refinancing transaction during 2019.

Capitalization

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Stockholders’ equity 549.6 516.4

The Company’s total capitalization at December 29, 2019 decreased $180.5 million from December 30, 2018 and was impacted principally by the following:

stock repurchases, including the 2019 ASR Agreement, of $217.8 million ;

$ 2,796.7 $ 2,796.7

The Company’s total capitalization at January 3, 2021 was flat compared to December 29, 2019 and was impacted principally by the following:

• dividends paid of $64.9 million;

a net decrease in long-term debt, including current portion and unamortized debt issuance costs, of $48.5 million, primarily resulting from the completion of a refinancing transaction during the second quarter of 2019;

partially offset by

• stock repurchases, including the impact of the 2019 ASR Agreement, of $61.1 million;

• a net decrease in long-term debt, including current portion, of $33.2 million;

• comprehensive income of $122.0 million;

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Series 2015-1 Class A-2-III Notes 473.7

Canadian revolving credit facility 2.0

7% debentures 84.0

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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 December 29, 2019 .

The Company was in compliance with its debt covenants as of January 3, 2021.

See Note 12 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information related to our long-term debt obligations.

In June 2019, Wendy’s Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of the Company, completed a refinancing transaction under which the Master Issuer issued fixed rate senior secured notes in the following 2019-1 series:

Class A-2-I with an interest rate of 3.783% and initial principal amount of $400.0 million and Class A-2-II with an interest rate of 4.080% and initial principal amount of $450.0 million (collectively, the “Series 2019-1 Class A-2 Notes”).

The net proceeds from the issuance of the Series 2019-1 Class A-2 Notes were used, together with cash from the Company’s balance sheet, to repay in full the Master Issuer’s outstanding Series 2015-1 Class A-2-II Notes.

In connection with the issuance of the Series 2019-1 Class A-2 Notes, the Master Issuer also entered into a revolving financing facility of Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Series 2019-1 Class A-1 Notes”), which allows for the drawing of up to $150.0 million using various credit instruments, including a letter of credit facility.

No amounts were outstanding under the Series 2019-1 Class A-1 Notes as of December 29, 2019.

In connection with the issuance of the Series 2019-1 Class A-1 Notes, the Master Issuer terminated the commitments with respect to its existing $150.0 million Series 2018-1 Class A-1 Notes.

In December 2019, Wendy’s repurchased $10.0 million in principal of its 7% debentures for $10.6 million, including a premium of $0.5 million and transaction fees of $0.1 million.

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 January 3, 2021, 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 January 3, 2021.

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, of which the Company repaid C$1.0 million in October 2020 and C$2.0 million in December 2020.

As a result, as of January 3, 2021, the Company had outstanding borrowings of C$2.5 million under the revolving credit facility.

Subsequent to January 3, 2021, the Company repaid the C$2.5 million outstanding balance under the Canadian revolving credit facility.

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 January 3, 2021, 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.

We may from time to time seek to repurchase additional portions of our outstanding long-term debt, including our 7% debentures and/or our senior secured notes, through open market purchases, privately negotiated transactions or otherwise.

Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Whether or not to repurchase any debt and the size and timing of any such repurchases will be determined at our discretion.

Whether or not we elect to repurchase any debt and the size and timing of any such repurchases will be determined at our discretion.

Contractual Obligations

The following table summarizes the expected payments under our outstanding contractual obligations at December 29, 2019 :

The following table summarizes the expected payments under our outstanding contractual obligations at January 3, 2021:

2021 2022-2023 2024-2025 After 2025 Total

Long-term debt obligations (a) $ 124.7 $ 234.3 $ 1,162.1 $ 1,320.0 $ 2,841.1

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Purchase obligations (d) 73.9 83.2 55.4 28.7 241.2

Other 6.5 0.2 — — 6.7

Total (e) $ 347.3 $ 606.3 $ 1,508.6 $ 2,903.2 $ 5,365.4

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The table includes interest of approximately $650.8 million .

(a) Includes interest of approximately $557.9 million.

These amounts exclude the fair value adjustment related to Wendy’s 7% debentures assumed in the Wendy’s Merger.

Includes interest of approximately $470.2 million .

Includes interest of approximately $445.7 million .

Includes purchase obligations related to (1) the Company’s arrangement with a third-party global IT consultant and (2) the remaining beverage purchase requirement under a beverage agreement.

(b) Includes interest of approximately $443.5 million.

(d) Includes purchase obligations related to (1) the Company’s arrangement with a third-party global IT consultant and (2) the remaining beverage purchase requirement under a beverage agreement.

Also includes other purchase obligations related primarily to marketing and information technology.

Excludes obligation for unrecognized tax benefits, including interest and penalties, of $23.4 million .

We are unable to predict when and if cash payments will be required.

(e) Excludes obligation for unrecognized tax benefits, including interest and penalties, of $21.9 million.

We are unable to predict when or if cash payments will be required.

Capital Expenditures

In 2020, cash capital expenditures amounted to $69.0 million.

In 2020, we expect that cash capital expenditures will amount to approximately $75.0 million, principally relating to (1) technology investments, including consumer-facing digital technology, (2) the opening of new Company-operated restaurants, (3) maintenance capital expenditures for our Company-operated restaurants, (4) reimaging existing Company-operated restaurants and (5) various other capital projects.

As of December 29, 2019 , the Company had $6.0 million of outstanding commitments, included in “Accounts payable,” for capital expenditures expected to be paid in 2020.

The Company paid quarterly cash dividends of $0.10 per share on its common stock aggregating $69.3 million in the first three quarters of 2019.

In the fourth quarter of 2019, the Company paid a quarterly cash dividend of $0.12 per share on its common stock aggregating $27.1 million.

During the first quarter of 2020, the Company declared a dividend of $0.12 per share on its common stock to be paid on March 16, 2020 to shareholders of record as of March 2, 2020 .

In 2021, we expect that cash capital expenditures will amount to approximately $80.0 million to $90.0 million, principally relating to (1) the opening of new Company-operated restaurants and the reimaging of existing Company-operated restaurants, (2) technology investments, including consumer-facing digital technology, (3) maintenance capital expenditures for our Company-operated restaurants and (4) various other capital projects.

As of January 3, 2021, the Company had $3.7 million of outstanding commitments, included in “Accounts payable,” for capital expenditures expected to be paid in 2021.

On March 16, 2020, June 15, 2020, September 15, 2020 and December 15, 2020, the Company paid quarterly cash dividends per share of $.12, $.05, $.05 and $.07, respectively, aggregating $64.9 million.

On February 23, 2021, the Company announced a dividend of $0.09 per share to be paid on March 15, 2021 to shareholders of record as of March 5, 2021.

If the Company pays regular quarterly cash dividends for the remainder of 2021 at the same rate as declared in the first quarter of 2021, the Company’s total cash requirement for dividends for all of 2021 would be approximately $80.6 million based on the number of shares of its common stock outstanding at February 23, 2021.

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The following table summarizes the Company’s repurchases of common stock for 2020, 2019 and 2018:

Repurchases of common stock (a) (b)

2020 2019 2018

Repurchases of common stock (a) (b) (c) $ 76.1 $ 202.7 $ 270.2

Number of shares repurchased 3.5 10.2 15.8

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Excludes commissions of $0.1 million, $0.2 million and $0.1 million for 2019 , 2018 and 2017 , respectively.

2019 includes repurchases of $85.0 million under the 2019 ASR Agreement, representing 85% of the initial purchase price of $100.0 million .

(a) Excludes commissions of $0.04 million, $0.1 million and $0.2 million for 2020, 2019 and 2018, respectively.

(b) 2019 includes repurchases of $85.0 million under the 2019 ASR Agreement, representing 85% of the initial purchase price of $100.0 million.

2020 includes the remaining repurchases of $15.0 million under the 2019 ASR Agreement.

(c) In addition to the ASR repurchase activity, 2020 includes $32.3 million and $28.8 million, excluding commissions, of repurchases under the February 2020 and February 2019 repurchase authorizations, respectively.

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 2020, the Company repurchased 1.6 million shares under the February 2020 repurchase authorization with an aggregate purchase price of $32.3 million, of which $0.7 million was accrued at January 3, 2021, and excluding commissions.

As of January 3, 2021, the Company had $67.7 million of availability remaining under its February 2020 authorization.

Subsequent to January 3, 2021 through February 23, 2021, the Company repurchased 0.5 million shares under the February 2020 authorization with an aggregate purchase price of $9.6 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 connection with the February 2019 authorization, the remaining portion of the Company’s previous November 2018 repurchase authorization for up to $220.0 million of our common stock was canceled.

In November 2019, the Company entered into 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.

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 2019, the Company repurchased 6.1 million shares under the November 2018 and February 2019 authorizations referenced above with an aggregate purchase price of $117.7 million , of which $1.8 million was accrued at December 29, 2019, and excluding commissions of $0.1 million .

As of December 29, 2019, the Company had $43.8 million of availability remaining under its February 2019 authorization.

Subsequent to December 29, 2019 through February 18, 2020 , the Company repurchased 1.3 million shares with an aggregate purchase price of $28.8 million , excluding commissions.

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

In February 2020, our Board of Directors authorized the repurchase of up to $100.0 million of our common stock through February 28, 2021, when and if market conditions warrant and to the extent legally permissible.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during 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.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during 2019, the Company repurchased 6.1 million shares with an aggregate purchase price of $117.7 million, of which $1.8 million was accrued at December 29, 2019, and excluding commissions of $0.1 million, under the February 2019 authorization and the Company’s November 2018 authorization referenced below.

In February 2018, our Board of Directors authorized a repurchase program for up to $175.0 million of our common stock through March 3, 2019, when and if market conditions warranted and to the extent legally permissible.

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In November 2018, the Company entered into an accelerated share repurchase agreement (the “2018 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the Company’s existing share repurchase programs.

Under the 2018 ASR Agreement, the Company paid the financial institution an initial purchase price of $75.0 million in cash and received an initial

delivery of 3.6 million shares of common stock, representing an estimated 85% of the total shares expected to be delivered under the 2018 ASR Agreement.

Under the 2018 ASR Agreement, the Company paid the financial institution an initial purchase price of $75.0 million in cash and received an initial delivery of 3.6 million shares of common stock, representing an estimated 85% of the total shares expected to be delivered under the 2018 ASR Agreement.

In December 2018, the Company completed the 2018 ASR Agreement and received an additional 0.7 million shares of common stock.

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In February 2017, our Board of Directors authorized a repurchase program for up to $150.0 million of our common stock through March 4, 2018, when and if market conditions warranted and to the extent legally permissible.

During 2017, the Company repurchased 8.6 million shares under the February 2017 authorization with an aggregate purchase price of $127.4 million, of which $1.3 million was accrued at December 31, 2017 and excluding commissions of $0.1 million.

The Company completed the February 2017 authorization during 2018 with the repurchase of 1.4 million shares with an aggregate purchase price of $22.6 million, excluding commissions.

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Letters of credit (b) 26.6

Total $ 116.9

_______________

Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees.

(a) Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees.

These leases extend through 2045.

The Company has outstanding letters of credit with various parties.

(b) The Company has outstanding letters of credit with various parties.

The Company does not expect any material loss to result from these letters of credit because we do not believe performance will be required.

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Our annual impairment test of goodwill may be completed through a qualitative assessment to determine if the fair value of the reporting unit is more likely than not greater than the carrying amount.

If we elect to bypass the qualitative assessment for any reporting units, or if a qualitative assessment indicates it is more likely than not that the estimated carrying value of a reporting unit exceeds its fair value, we perform a two-step quantitative goodwill impairment test.

Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill).

If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and we must perform step two of the impairment test (measurement).

Step two of the impairment test, if necessary, requires the estimation of the fair value for the assets and liabilities of a reporting unit in order to calculate the implied fair value of the reporting unit’s goodwill.

Under step two, an impairment loss is recognized to the extent the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of goodwill.

The fair value of the reporting unit is determined by management and is based on the results of (1) estimates we made regarding the present value of the anticipated cash flows associated with each reporting unit (the “income approach”) and (2) the indicated value of the reporting units based on a comparison and correlation of the Company and other similar companies (the “market approach”).

Under the quantitative test, the fair value of the reporting unit is compared with its carrying value (including goodwill).

If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

The fair value of the reporting unit is determined by management and is based on the results of (1) estimates we made regarding the present value of the anticipated cash flows associated with each reporting unit (the “income approach”) and/or (2) the indicated value of the reporting units based on a comparison and correlation of the Company and other similar companies (the “market approach”).

The income approach, which considers factors unique to each of our reporting units and related long range plans that may not be comparable to other companies and that are not yet publicly available, is dependent on several critical management assumptions.

These assumptions include estimates of future sales growth, gross margins, operating costs, income tax rates, terminal value growth rates, capital expenditures and the weighted average cost of capital (discount rate).

These assumptions include estimates of future sales growth, operating profit, income tax rates, terminal value growth rates, capital expenditures and the weighted average cost of capital (discount rate).

Anticipated cash flows used under the income approach are developed every fourth quarter in conjunction with our annual budgeting process and also incorporate amounts and timing of future cash flows based on our long range plan.

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The guideline company method of the market approach provides an indication of value by relating the equity or invested capital (debt plus equity) of guideline companies to various measures of their earnings and cash flow, then applying such multiples to the business being valued.

The result of applying the guideline company approach is adjusted based on the incremental value associated with a controlling

interest in the business.

The result of applying the guideline company approach is adjusted based on the incremental value associated with a controlling interest in the business.

This “control premium” represents the amount a new controlling shareholder would pay for the benefits resulting from synergies and other potential benefits derived from controlling the enterprise.

We elected to perform the two-step quantitative goodwill impairment test in the fourth quarter of 2019.

As of the date of the goodwill impairment test, Wendy’s included two reporting units, which were comprised of our (1) North America (defined as the United States and Canada) Company-operated and franchise restaurants and (2) international franchise restaurants.

All of Wendy’s goodwill of $755.9 million was associated with its North America restaurants as of the date of the goodwill impairment test since its international franchise restaurants goodwill was determined to be fully impaired during the fourth quarter of 2013.

Our assessment of goodwill of our North America restaurants indicated that there had been no impairment and the fair value of this reporting unit of $8,261.2 million was approximately 270% in excess of its carrying value.

As discussed in Note 26 of the Financial Statements and Supplementary Data contained in Item 8 herein, the realignment of our management and operating structure during 2019 resulted in a change in our reporting units as of December 29, 2019 .

As a result of the change, Wendy’s now includes five reporting units for purposes of the goodwill impairment test, which are comprised of its (1) U.S.

Company-operated and franchise restaurants, (2) Canada franchise restaurants, (3) Latin America and Caribbean franchise restaurants, (4) Asia Pacific, Europe, Middle East and Africa franchise restaurants and (5) global real estate and development operations.

We allocated goodwill to the new reporting units using a relative fair value approach.

See Note 10 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information.

Our indefinite-lived intangible assets represent trademarks and totaled $903.0 million as of December 29, 2019 .

The negative impacts of the COVID-19 pandemic, including the decline in same-restaurant sales described in “Sales Trends and COVID-19 Update” above and the volatility in the price of our common stock, resulted in the Company performing a quantitative goodwill impairment test in March 2020.

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 significantly exceeded 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.

For the annual goodwill impairment test in the fourth quarter of 2020, we elected to perform a qualitative assessment for the U.S.

Company-operated and franchise restaurants and the Canada franchise restaurants, and we performed a quantitative goodwill impairment test for the global real estate and development operations.

The qualitative assessment indicated the fair value of goodwill of our U.S.

Company-operated and franchise restaurants and the Canada franchise restaurants was more likely than not greater than the carrying amount.

Our quantitative goodwill impairment test for our global real estate and development operations indicated that there had been no impairment and the fair value of this reporting unit of $1,314.7 million was approximately 13% in excess of its carrying value.

A 100 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 January 3, 2021, the goodwill balance associated with our global real estate and development operations was $122.5 million.

Our indefinite-lived intangible assets represent trademarks and totaled $903.0 million as of January 3, 2021.

We test indefinite-lived intangible assets for impairment annually, or more frequently if events or changes in circumstances indicate that the assets may be impaired.

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Our critical estimates in the determination of the fair value of our indefinite-lived intangible assets include the anticipated future revenues of Company-operated and franchised restaurants and the resulting cash flows.

We elected to perform a quantitative indefinite-lived intangible asset impairment test in the fourth quarter of 2019, which indicated that there had been no impairment.

The Company performed a quantitative impairment test of our indefinite-lived intangible assets in March 2020 as a result of the negative impacts of the COVID-19 pandemic.

Based on the results of our impairment test, we determined the fair value of our indefinite-lived intangible assets significantly exceeded their carrying value.

For the annual impairment test of our indefinite-lived intangible assets in the fourth quarter of 2020, we elected to perform a qualitative assessment.

The qualitative assessment indicated the fair value of our indefinite-lived intangible assets was more likely than not greater than the carrying amount.

The estimated fair values of our goodwill reporting units and indefinite-lived intangible assets are subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment.

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• Impairment of long-lived assets:

As of December 29, 2019 , the total net carrying value of our long-lived tangible and definite-lived intangible assets was $2,378.6 million.

As of January 3, 2021, the total net carrying value of our long-lived tangible and definite-lived intangible assets was $2,265.5 million.

Our long-lived assets include (1) properties and related definite-lived intangible assets (e.g., favorable leases) that are leased and/or subleased to franchisees, (2) Company-operated restaurant assets and related definite-lived intangible assets, which include reacquired rights under franchise agreements, and (3) finance and operating lease assets.

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If the carrying amount of the long-lived asset group is not recoverable on an undiscounted cash flow basis, then impairment is recognized to the extent that the carrying amount exceeds its fair value and is included in “Impairment of long-lived assets.” Our critical estimates in this review process include the anticipated future cash flows from leases and/or subleases or individual Company-operated restaurants, which is used in assessing the recoverability of the respective long-lived assets.

Our impairment losses principally reflect impairment charges resulting from leasing and/or subleasing long-lived assets to franchisees in connection with the sale or anticipated sale of restaurants.

Our impairment losses principally reflect impairment charges resulting from the deterioration in operating performance of certain Company-operated restaurants as a result of the COVID-19 pandemic.

Our fair value estimates are subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment.

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When considered necessary, a valuation allowance is recorded to reduce the carrying amount of the deferred tax assets to their anticipated realizable value.

Our evaluation of the realizability of our deferred tax assets is subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions, the competitive environment and the effect of future tax legislation.

Our evaluation of the realizability of our deferred tax assets is subject to change as a result of many factors including, among others, any changes in our business plans, changing economic

conditions, the competitive environment and the effect of future tax legislation.

Should future taxable income vary from projected taxable income, we may be required to adjust our valuation allowance in future years.

Net operating loss and credit carryforwards are subject to various limitations and carryforward periods.

As of December 29, 2019 , we have foreign tax credits of $14.4 million and state tax credits of $0.6 million, which will begin to expire in 2022 and 2020, respectively.

In addition, as of December 29, 2019 , we have deferred tax assets for foreign net operating loss carryforwards of $0.04 million and state and local net operating loss carryforwards of $44.6 million, which will begin to expire in 2023 and 2020, respectively.

As of January 3, 2021, we have foreign tax credits of $17.8 million and state tax credits of $0.7 million, which will begin to expire in 2022 and 2021, respectively.

In addition, as of January 3, 2021, we have deferred tax assets for foreign net operating loss carryforwards of $0.3 million, as well as state and local net operating loss carryforwards of $43.4 million that will begin to expire in 2021.

We believe it is more likely than not that the benefit from certain net operating loss carryforwards and tax credits will not be realized.

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A tax position that meets the more-likely-than-not recognition threshold is then measured, for purposes of financial statement recognition, as the largest amount that has a greater than 50% likelihood of being realized upon effective settlement.

We have unrecognized tax benefits of $22.3 million , which if resolved favorably would reduce our tax expense by $18.0 million at December 29, 2019 .

We accrue interest related to uncertain tax positions in “ Interest expense, net ” and penalties in “ General and administrative .” At December 29, 2019 , we had $0.9 million accrued for interest and $0.1 million accrued for penalties.

We have unrecognized tax benefits of $21.0 million, which if resolved favorably would reduce our tax expense by $16.6 million at January 3, 2021.

We accrue interest related to uncertain tax positions in “Interest expense, net” and penalties in “General and administrative.” At January 3, 2021, we had $0.9 million accrued for interest and $0.04 million accrued for penalties.

The Company participates in the Internal Revenue Service (the “IRS”) Compliance Assurance Process (“CAP”).

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federal income tax returns for fiscal years 2009 through 2018 have been settled.

Certain of the Company’s state income tax returns from its 2016 fiscal year and forward remain subject to examination.

The statute of limitations for the Company’s state tax returns vary, but generally the Company’s state income tax returns from its 2017 fiscal year forward remain subject to examination.

We believe that adequate provisions have been made for any liabilities, including interest and penalties that may result from the completion of these examinations.

Legal and environmental accruals:

We are involved in litigation and claims incidental to our current and prior businesses.

We provide accruals for such litigation and claims when payment is probable and reasonably estimable.

We believe we have adequate accruals for continuing operations for all of our legal and environmental matters.

See Note 11 of the Financial Statements and Supplementary Data contained in Item 8 herein for further information on such accruals.

We cannot estimate the aggregate possible range of loss for various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and/or significant factual matters unresolved.

In addition, most cases seek an indeterminate amount of damages and many involve multiple parties.

Predicting the outcomes of settlement discussions or judicial or arbitral decisions are thus inherently difficult.

We review our assumptions and estimates each quarter based on new developments, changes in applicable law and other relevant factors and revise our accruals accordingly.

New Accounting Standards

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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-K

Item 7. Management’s Discussion and Analysis