What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-03 compared with 2020-02-26 · 831 added, 755 removed, 1199 unchanged (57% of the section changed)

4 unchanged sentences

Report of Independent Registered Public Accounting Firm 63

Consolidated Balance Sheets as of December 29, 2019 and December 30, 2018

Consolidated Statements of Operations for the years ended December 29, 2019, December 30, 2018 and

Consolidated Balance Sheets as of January 3, 2021 and December 29, 2019 65

Consolidated Statements of Operations for the years ended January 3, 2021, December 29, 2019 and

December 30, 2018 66

Consolidated Statements of Comprehensive Income for the years ended December 29, 2019, December 30, 2018 and December 31, 2017

Consolidated Statements of Stockholders’ Equity for the years ended December 29, 2019, December 30, 2018 and December 31, 2017

Consolidated Statements of Cash Flows for the years ended December 29, 2019, December 30, 2018 and

Consolidated Statements of Comprehensive Income for the years ended January 3, 2021, December 29, 2019 and December 30, 2018 67

Consolidated Statements of Stockholders’ Equity for the years ended January 3, 2021, December 29, 2019 and December 30, 2018 68

Consolidated Statements of Cash Flows for the years ended January 3, 2021, December 29, 2019 and

December 30, 2018 69

1 unchanged sentence

(1) Summary of Significant Accounting Policies 71

(3) System Optimization (Gains) Losses, Net

(2) Revenue 81

(3) System Optimization Gains, Net 83

(4) Acquisitions 85

12 unchanged sentences

(17) Impairment of Long-Lived Assets 110

(18) Investment Income, Net

(18) Investment (Loss) Income, Net 110

(19) Retirement Benefit Plans 110

(20) Leases 111

(21) Guarantees and Other Commitments and Contingencies 115

5 unchanged sentences

(27) Quarterly Financial Information (Unaudited) 121

Footnote Where Defined

Share-Based Compensation

2018 ASR Agreement

Stockholders’ Equity

2019 ASR Agreement

Stockholders’ Equity

Retirement Benefit Plans

Advertising Funds

Summary of Significant Accounting Policies

Black-Scholes Model

Summary of Significant Accounting Policies

Legal and Environmental Matters

Class A-1 Notes

Long-Term Debt

Class A-2 Notes

Long-Term Debt

Summary of Significant Accounting Policies

Contingent Rent

Summary of Significant Accounting Policies

System Optimization (Gains) Losses, Net

DavCo and NPC Transactions

System Optimization (Gains) Losses, Net

Segment Information

Eligible Arby’s Employees

Retirement Benefit Plans

Summary of Significant Accounting Policies

Legal and Environmental Matters

Fountain Beverages

Guarantees and Other Commitments and Contingencies

Franchise Flip

Summary of Significant Accounting Policies

Reorganization and Realignment Costs

Summary of Significant Accounting Policies

Legal and Environmental Matters

Long-Term Debt

Inspire Brands

Reorganization and Realignment Costs

Master Issuer

Long-Term Debt

System Optimization (Gains) Losses, Net

Transactions with Related Parties

Summary of Significant Accounting Policies

Restricted Shares

Share-Based Compensation

Summary of Significant Accounting Policies

Securitization Entities

Long-Term Debt

Retirement Benefit Plans

Straight-Line Rent

Summary of Significant Accounting Policies

Share-Based Compensation

Footnote Where Defined

The Wendy’s Company

Summary of Significant Accounting Policies

Legal and Environmental Matters

Summary of Significant Accounting Policies

Wendy’s Co-op

Transactions with Related Parties

Wendy’s Funding

Long-Term Debt

Wendy’s Merger

Wendy’s Restaurants

Defined Term Footnote Where Defined

2010 Plan (16) Share-Based Compensation

2018 ASR Agreement (15) Stockholders’ Equity

2019-1 Class A-1 Notes (12) Long-Term Debt

2019 ASR Agreement (15) Stockholders’ Equity

2020-1 Class A-1 Notes (12) Long-Term Debt

2020 Plan (16) Share-Based Compensation

401(k) Plan (19) Retirement Benefit Plans

Advertising Funds (1) Summary of Significant Accounting Policies

Arby’s (8) Investments

ARG Parent (8) Investments

Black-Scholes Model (1) Summary of Significant Accounting Policies

Brazil JV (1) Summary of Significant Accounting Policies

CAP (14) Income Taxes

Caracci Case (23) Legal and Environmental Matters

Class A-1 Notes (12) Long-Term Debt

Class A-2 Notes (12) Long-Term Debt

Company (1) Summary of Significant Accounting Policies

Contingent Rent (1) Summary of Significant Accounting Policies

COVID-19 (1) Summary of Significant Accounting Policies

EBITDA (26) Segment Information

Eligible Arby’s Employees (19) Retirement Benefit Plans

Equity Plans (1) Summary of Significant Accounting Policies

FASB (1) Summary of Significant Accounting Policies

Fountain Beverages (21) Guarantees and Other Commitments and Contingencies

Franchise Flip (1) Summary of Significant Accounting Policies

FRG (4) Acquisitions

G&A (5) Reorganization and Realignment Costs

G&A Realignment Plan (5) Reorganization and Realignment Costs

GAAP (1) Summary of Significant Accounting Policies

GILTI (14) Income Taxes

Graham Case (23) Legal and Environmental Matters

Indenture (12) Long-Term Debt

Inspire Brands (8) Investments

IRS (14) Income Taxes

IT (5) Reorganization and Realignment Costs

IT Realignment Plan (5) Reorganization and Realignment Costs

LIBOR (12) Long-Term Debt

Master Issuer (12) Long-Term Debt

NPC (4) Acquisitions

Operations and Field Realignment Plan (5) Reorganization and Realignment Costs

QSCC (22) Transactions with Related Parties

Rent Holiday (1) Summary of Significant Accounting Policies

Restricted Shares (16) Share-Based Compensation

ROU (1) Summary of Significant Accounting Policies

RSAs (1) Summary of Significant Accounting Policies

RSUs (1) Summary of Significant Accounting Policies

Securitization Entities (12) Long-Term Debt

Senior Notes (12) Long-Term Debt

Defined Term Footnote Where Defined

SERP (19) Retirement Benefit Plans

Straight-Line Rent (1) Summary of Significant Accounting Policies

Target (16) Share-Based Compensation

Tax Act (14) Income Taxes

The Wendy’s Company (1) Summary of Significant Accounting Policies

TimWen (1) Summary of Significant Accounting Policies

(1) Summary of Significant Accounting Policies

VIE (1) Summary of Significant Accounting Policies

Wendy’s (1) Summary of Significant Accounting Policies

Wendy’s Co-op (22) Transactions with Related Parties

Wendy’s Funding (12) Long-Term Debt

Wendy’s Merger (8) Investments

Wendy’s Restaurants (1) Summary of Significant Accounting Policies

Yellow Cab (22) Transactions with Related Parties

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

1 unchanged sentence

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Wendy’s Company and subsidiaries (the “Company”) as of December 29, 2019 and December 30, 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 29, 2019, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2019 and December 30, 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.

We have audited the accompanying consolidated balance sheets of The Wendy’s Company and subsidiaries (the “Company”) as of January 3, 2021 and December 29, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended January 3, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 3, 2021 and December 29, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 3, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 3, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, during 2019, the Company adopted the Financial Accounting Standards Board’s (FASB) new standard related to leases using the modified retrospective approach, and during 2018, the Company adopted the FASB’s new standard related to revenue using the modified retrospective approach.

Basis for Opinion

12 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Leases - Refer to Notes 1 and 20 to the financial statements

Goodwill - Global Real Estate and Development Operations Reporting Unit – Refer to Notes 1 and 10 to the financial statements

Critical Audit Matter Description

The Company operates certain restaurants that are located on sites leased by the Company from third parties.

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

The Company also leases restaurant, office and transportation equipment.

The Company adopted ASC 842, Leases , on December 31, 2018, and recognized operating lease liabilities of $1.0 billion based on the present value of the remaining minimum rental payments discounted using the incremental borrowing rate, with corresponding right-of-use assets of $934.0 million.

In accordance with ASC 842, management makes certain significant estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market rents, property lives, discount rates and probable term, all of which can impact (1) the classification and accounting for a lease or sublease as operating or finance, including sales-type and direct financing, (2) the rent holiday and escalations in payment that are taken into consideration when calculating straight-line rent, (3) the term over which leasehold improvements for each restaurant are amortized and (4) the values and lives of adjustments to the initial right-of-use asset where the Company is the lessee, or favorable and unfavorable leases where the Company is the lessor.

The amount of depreciation and amortization, interest and rent expense and income reported would vary if different estimates and assumptions were used.

We identified the adoption of ASC 842 and evaluation of new or modified leases as a critical audit matter because of the significant estimates and assumptions made by management, which impacted the recognition and ongoing accounting for leases.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists when performing audit procedures to evaluate the reasonableness of management’s significant estimates and assumptions.

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

The Company used an income approach to estimate fair value of the global real estate and development operations reporting unit, which requires management to make significant estimates and assumptions including future sales growth, operating profit and the weighted average cost of capital (discount rate).

Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

The goodwill balance was $751.0 million as of January 3, 2021, of which $122.5 million was allocated to the global real estate and development operations reporting unit.

The fair value of the global real estate and development operations reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized.

We identified the impairment evaluation of goodwill for the global real estate and development operations reporting unit as a critical audit matter because of the significant judgments made by management to estimate the fair value of this reporting unit.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions, particularly related to future sales growth, operating profit and the selection of the discount rate.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the adoption of ASC 842 and the significant estimates and assumptions made by management for leases included the following procedures, among others:

We tested the effectiveness of controls over lease accounting, including those over the adoption of ASC 842 and evaluation of new or modified leases.

We evaluated the Company’s lessee and lessor lease accounting policies.

We selected a sample of existing operating leases at the adoption date and recalculated the initial measurement of the lease liability and right of use asset.

We selected a sample of new and modified leases and performed the following:

Read the terms of the contract and evaluated whether the contract meets the definition of a lease.

Evaluated whether the Company properly identified the lease and non-lease components, if any, in the contract.

Evaluated the Company’s determination of lease payments, based on the terms of the lease contract.

Evaluated the Company’s determination of the lease term, which required consideration of which option periods are reasonably certain to be exercised.

Evaluated whether the lease is appropriately classified and recorded within the financial statements as an operating or financing lease when the Company is the lessee, or as an operating, direct financing or sales-type lease when the Company is the lessor.

Recalculated the initial and subsequent measurement of the lease.

With the assistance of fair value specialists, we evaluated the reasonableness of the Company’s lease-related valuations by:

Assessing the Company’s valuation methodology.

Evaluating the reasonableness of significant valuation inputs, including underlying source information such as comparable market data and property lives.

Assessing the reasonableness of significant business assumptions, including projected store sales and contract rents.

Testing the mathematical accuracy of the Company’s valuation model calculations.

With the assistance of fair value specialists, we evaluated the reasonableness of the discount rates by:

Testing the source information underlying the determination of the discount rates and the mathematical accuracy of the calculation.

Developing a range of independent estimates and comparing those to the discount rates selected by management.

Our audit procedures related to the estimates of future sales growth, operating profit and discount rate used by management to estimate the fair value of the global real estate and development operations reporting unit included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the global real estate and development operations reporting unit, such as controls related to management’s forecasts of future sales growth, operating profit and selection of the discount rate.

• We evaluated management’s ability to accurately forecast future sales growth and operating profit by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s sales and operating profit forecasts by comparing the forecasts to (1) historical sales and operating profit and (2) internal communications to management and the Board of Directors.

We also considered the impact of changes in management’s forecasts from the annual measurement date in the fourth quarter to January 3, 2021.

• With the assistance of our fair value specialists, we evaluated the discount rate assumptions, including testing the underlying source information and the mathematical accuracy of the calculation, and by developing a range of independent estimates and comparing those to the discount rate selected by management.

/s/ Deloitte & Touche LLP

Columbus, Ohio

February 26, 2020

March 3, 2021

We have served as the Company’s auditor since 1994.

2 unchanged sentences

(In Thousands Except Par Value)

2021 December 29,

Current assets:

2 unchanged sentences

Accounts and notes receivable, net 109,891 117,461

Inventories 4,732 3,891

Prepaid expenses and other current assets 89,732 15,585

1 unchanged sentence

Total current assets 687,623 554,047

Properties 915,889 977,000

Finance lease assets 206,153 200,144

Operating lease assets 821,480 857,199

Goodwill 751,049 755,911

Other intangible assets 1,224,960 1,247,212

Investments 44,574 45,949

Net investment in sales-type and direct financing leases 268,221 256,606

Other assets 120,057 100,461

Total assets $ 5,040,006 $ 4,994,529

LIABILITIES AND STOCKHOLDERS’ EQUITY

20 unchanged sentences

224,268 a nd 224,889 shares outstanding, respectively

47,042 47,042

Additional paid-in capital 2,899,276 2,874,001

2 unchanged sentences

246,156 and 245,535 shares, respectively

( 2,585,755 ) ( 2,536,581 )

Accumulated other comprehensive loss ( 49,641 ) ( 53,828 )

5 unchanged sentences

(In Thousands Except Per Share Amounts)

2021 December 29,

2019 December 30,

Sales $ 722,764 $ 707,485 $ 651,577

Franchise royalty revenue and fees 444,749 428,999 409,043

1 unchanged sentence

Advertising funds revenue 333,664 339,453 326,019

1,733,825 1,709,002 1,589,936

Costs and expenses:

5 unchanged sentences

Depreciation and amortization 132,775 131,693 128,879

System optimization (gains) losses, net

System optimization gains, net ( 3,148 ) ( 1,283 ) ( 463 )

Reorganization and realignment costs 16,030 16,965 9,068

1 unchanged sentence

Other operating income, net ( 8,397 ) ( 11,418 ) ( 6,387 )

1,464,517 1,446,423 1,340,044

Operating profit 269,308 262,579 249,892

1 unchanged sentence

Loss on early extinguishment of debt — ( 8,496 ) ( 11,475 )

Investment income, net

Investment (loss) income, net ( 225 ) 25,598 450,736

Other income, net 1,449 7,771 5,381

Income before income taxes

(Provision for) benefit from income taxes

152,795 171,481 574,916

Provision for income taxes ( 34,963 ) ( 34,541 ) ( 114,801 )

Net income $ 117,832 $ 136,940 $ 460,115

Net income per share:

Basic $ .53 $ .60 $ 1.93

Diluted .52 .58 1.88

See accompanying notes to consolidated financial statements.

3 unchanged sentences

2021 December 29,

2019 December 30, 2018

Net income $ 117,832 $ 136,940 $ 460,115

Other comprehensive income (loss), net:

4 unchanged sentences

Final settlement of pension liability

Effect of cash flow hedges:

Reclassification of losses into Net income

Income tax provision

Other comprehensive income (loss), net 4,187 7,845 ( 15,475 )

Comprehensive income

$ 122,019 $ 144,785 $ 444,640

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(In Thousands)

Additional Paid-In

Retained Earnings (Accumulated

Common Stock Held in Treasury

Accumulated Other Comprehensive Loss

Balance at January 1, 2017

Other comprehensive income, net

Stock Additional Paid-In

Capital Retained Earnings (Accumulated

Deficit) Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total

Balance at December 31, 2017 $ 47,042 $ 2,885,955 $ ( 163,289 ) $ ( 2,150,307 ) $ ( 46,198 ) $ 573,203

Net income — — 460,115 — — 460,115

Other comprehensive loss, net — — — — ( 15,475 ) ( 15,475 )

Cash dividends — — ( 80,532 ) — — ( 80,532 )

Repurchases of common stock

Repurchases of common stock, including accelerated share repurchase

— — — ( 270,377 ) — ( 270,377 )

Share-based compensation — 17,918 — — — 17,918

Common stock issued upon exercises of stock options

— ( 9,582 ) — 48,401 — 38,819

Common stock issued upon vesting of restricted shares

— ( 9,711 ) — 4,280 — ( 5,431 )

Cumulative effect of change in accounting principle

— — ( 70,210 ) — — ( 70,210 )

Other — 116 193 110 — 419

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

Other comprehensive loss, net

Net income — — 136,940 — — 136,940

Other comprehensive income, net — — — — 7,845 7,845

Cash dividends — — ( 96,364 ) — — ( 96,364 )

Repurchases of common stock, including accelerated share repurchase

— ( 15,000 ) — ( 202,771 ) — ( 217,771 )

Share-based compensation — 18,676 — — — 18,676

Common stock issued upon exercises of stock options

— ( 808 ) — 28,944 — 28,136

Common stock issued upon vesting of restricted shares

— ( 13,677 ) — 5,050 — ( 8,627 )

Cumulative effect of change in accounting principle

— — ( 1,105 ) — — ( 1,105 )

Other — 114 ( 23 ) 89 — 180

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

Net income — — 117,832 — — 117,832

Other comprehensive income, net — — — — 4,187 4,187

1 unchanged sentence

Repurchases of common stock, including accelerated share repurchase

— 15,000 — ( 76,095 ) — ( 61,095 )

Share-based compensation — 18,930 — — — 18,930

Common stock issued upon exercises of stock options

— ( 912 ) — 24,263 — 23,351

Common stock issued upon vesting of restricted shares

Cumulative effect of change in accounting principle

Balance at December 29, 2019

— ( 7,889 ) — 2,500 — ( 5,389 )

Other — 146 ( 17 ) 158 — 287

Balance at January 3, 2021 $ 47,042 $ 2,899,276 $ 238,674 $ ( 2,585,755 ) $ ( 49,641 ) $ 549,596

See accompanying notes to consolidated financial statements.

3 unchanged sentences

2021 December 29,

2019 December 30, 2018

Cash flows from operating activities:

Net income $ 117,832 $ 136,940 $ 460,115

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

5 unchanged sentences

Change in operating lease liabilities ( 40,905 ) ( 41,911 ) —

Net (recognition) receipt of deferred vendor incentives

System optimization (gains) losses, net

Net receipt (recognition) of deferred vendor incentives 2,495 ( 501 ) 139

System optimization gains, net ( 3,148 ) ( 1,283 ) ( 463 )

Gain on sale of investments, net — ( 24,496 ) ( 450,000 )

2 unchanged sentences

Long-term debt-related activities, net (see below) 6,723 15,317 18,673

Other, net ( 6,438 ) ( 4,838 ) 5,178

Changes in operating assets and liabilities:

Accounts and notes receivable, net ( 16,243 ) 16,935 13,226

Inventories ( 841 ) ( 163 ) ( 434 )

Prepaid expenses and other current assets ( 8,780 ) ( 1,569 ) 6,824

5 unchanged sentences

Capital expenditures ( 68,969 ) ( 74,453 ) ( 69,857 )

Acquisitions ( 4,879 ) ( 5,052 ) ( 21,401 )

Dispositions 6,091 3,448 3,223

Proceeds from sale of investments 169 24,496 450,000

8 unchanged sentences

Repurchases of common stock, including accelerated share repurchase

( 62,173 ) ( 217,797 ) ( 269,809 )

Dividends ( 64,866 ) ( 96,364 ) ( 80,532 )

Proceeds from stock option exercises 23,361 28,328 45,228

Payments related to tax withholding for share-based compensation

( 5,577 ) ( 8,820 ) ( 11,805 )

Contingent consideration payment

— — ( 6,269 )

Net cash used in financing activities ( 157,907 ) ( 365,296 ) ( 305,762 )

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

Net cash provided by (used in) operations before effect of exchange rate changes on cash 58,204 ( 131,294 ) 281,377

Effect of exchange rate changes on cash 1,330 3,489 ( 7,689 )

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

Net increase (decrease) in cash, cash equivalents and restricted cash 59,534 ( 127,805 ) 273,688

Cash, cash equivalents and restricted cash at beginning of period 358,707 486,512 212,824

3 unchanged sentences

(In Thousands)

2021 December 29,

2019 December 30,

Detail of cash flows from operating activities:

3 unchanged sentences

Amortization of deferred financing costs 5,562 5,549 5,943

Reclassification of unrealized losses on cash flow hedges

$ 6,723 $ 15,317 $ 18,673

Supplemental cash flow information:

Cash paid for:

Interest $ 136,228 $ 138,270 $ 137,607

Income taxes, net of refunds 16,202 34,798 102,827

2 unchanged sentences

Finance leases 34,918 50,061 6,569

2021 December 29,

2019 December 30,

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

2 unchanged sentences

Restricted cash, included in Advertising funds restricted assets 77,279 23,973 25,247

Restricted cash, included in Other assets

Total cash, cash equivalents and restricted cash $ 418,241 $ 358,707 $ 486,512

8 unchanged sentences

Wendy’s franchises and operates Wendy’s quick-service restaurants specializing in hamburger sandwiches throughout the United States of America (“U.S.”) and also franchises Wendy’s quick-service restaurants in 30 foreign countries and U.S.

At December 29, 2019 , Wendy’s operated and franchised 357 and 6,431 restaurants, respectively.

As a result of the realignment of our management and operating structure during 2019 as discussed in Note 5 , 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.

The Company is now comprised of the following segments:

At January 3, 2021, Wendy’s operated and franchised 361 and 6,467 restaurants, respectively.

The Company manages and internally reports its business in the following segments:

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

Certain prior period financial information has been revised to align with the new segment reporting structure.

See Note 26 for further information.

1 unchanged sentence

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all of the Company’s subsidiaries.

We also consider for consolidation entities in which we have certain interests, where the controlling financial interest may be achieved through arrangements that do not involve voting interests.

Such an entity, known as a variable interest entity (“VIE”), is required to be consolidated by its primary beneficiary.

The primary beneficiary is the entity that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it.

The principal entities in which we possess a variable interest include the Company’s national advertising funds for the U.S.

and Canada (the “Advertising Funds”).

All intercompany balances and transactions have been eliminated in consolidation.

1 unchanged sentence

Actual results could differ materially from those estimates.

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 December 31, 2017 ” or “ 2017 ,” all of which consisted of 52 weeks.

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.

Reclassifications

Certain balance sheet reclassifications have been made to the prior year presentation to conform to the current year presentation.

See “New Accounting Standards Adopted” below for further information.

Certain reclassifications have been made to the prior year presentation to conform to the current year presentation.

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.

Cash and Cash Equivalents

1 unchanged sentence

The Company’s cash and cash equivalents principally consist of cash in bank and money market mutual fund accounts and are primarily not in Federal Deposit Insurance Corporation insured accounts.

We believe that our vulnerability to risk concentrations in our cash equivalents is mitigated by (1) our policies restricting the eligibility, credit quality and concentration limits for our placements in cash equivalents and (2) insurance from the Securities Investor Protection Corporation of up to $ 500 per account, as well as supplemental private insurance coverage maintained by substantially all of our brokerage firms, to the extent our cash equivalents are held in brokerage accounts.

Restricted Cash

In accordance with the Company’s securitized financing facility, certain cash accounts have been established with the trustee for the benefit of the trustee and the noteholders and are restricted in their use.

Such restricted cash primarily represents cash

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

collections and cash reserves held by the trustee to be used for payments of principal, interest and commitment fees required for the Company’s senior secured notes.

Restricted cash also includes cash collected by the Company’s national advertising funds for the U.S.

and Canada (the “Advertising Funds”), usage of which is restricted for advertising activities.

Refer to Note 7 for further information.

Restricted Cash

Such restricted cash primarily represents cash collections and cash reserves held by the trustee to be used for payments of principal, interest and commitment fees required for the Company’s senior secured notes.

Restricted cash also includes cash collected by the Advertising Funds, usage of which is restricted for advertising activities and is included in “Advertising funds restricted assets.” Refer to Note 7 for further information.

Accounts and Notes Receivable, Net

Accounts and notes receivable, net, consist primarily of royalties, rents, property taxes and franchise fees due principally from franchisees, credit card receivables, insurance receivables and refundable income taxes.

The need for an allowance for doubtful accounts is reviewed on a specific identification basis based upon past due balances and the financial strength of the obligor.

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

The Company periodically assesses the need for an allowance for doubtful accounts on its receivables based upon several key credit quality indicators such as outstanding past due balances, the financial strength of the obligor, the estimated fair value of any underlying collateral and agreement characteristics.

We believe that our vulnerability to risk concentrations in our receivables is mitigated by (1) favorable historical collectability on past due balances, (2) recourse to the underlying collateral regarding sales-type and direct financing lease receivables, and (3) our expectations for fluctuations in general market conditions.

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

As of January 3, 2021, there were no material receivables more than one year past due.

The Company’s inventories are stated at the lower of cost or net realizable value, with cost determined in accordance with the first-in, first-out method and consist primarily of restaurant food items and paper supplies.

10 unchanged sentences

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

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Goodwill, representing the excess of the cost of an acquired entity over the fair value of the acquired net assets, is not amortized.

4 unchanged sentences

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.

If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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.

Our critical estimates in this impairment test include future sales growth, operating profit, income tax rates, terminal value growth rates, capital expenditures and the weighted average cost of capital (discount rate).

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.

9 unchanged sentences

Definite-lived intangible assets are amortized on a straight-line basis using the following estimated useful lives of the related classes of intangibles:

for favorable leases, the terms of the respective leases, including periods covered by renewal options that the Company as lessee is reasonably assured of exercising;

for favorable leases, the terms of the respective leases, including periods covered by renewal options that the Company as lessor is reasonably certain the tenant will exercise;

1 to 5 years for computer software;

2 unchanged sentences

Trademarks have an indefinite life and are not amortized.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The Company reviews definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.

9 unchanged sentences

Realized gains and losses are reported as income or loss in the period in which the securities are sold or otherwise disposed.

Cash distributions and dividends received that are determined to be returns of capital are recorded as a reduction of the carrying value of our investments and returns on our investments are recorded to “ Investment income, net .”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The difference between the carrying value of our TimWen equity investment and the underlying equity in the historical net assets of the investee is accounted for as if the investee were a consolidated subsidiary.

7 unchanged sentences

The Company determines the grant date fair value of stock options using a Black-Scholes-Merton option pricing model (the “Black-Scholes Model”).

The grant date fair value of restricted share awards (“RSAs”), restricted share units (“RSUs”) and performance-based awards are determined using the average of the high and low trading prices of our common stock on the date of grant, unless the awards are subject to market conditions, in which case we use a Monte Carlo simulation model.

The grant date fair value of restricted share awards (“RSAs”), restricted share units (“RSUs”) and performance-based awards are determined using the fair market value of the Company’s common stock on the date of grant, as set forth in the applicable plan document, unless the awards are subject to market conditions, in which case we use a Monte Carlo simulation model.

The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that market conditions will be achieved.

4 unchanged sentences

Net gains or losses resulting from the translation are recorded to the “Foreign currency translation adjustment” component of “Accumulated other comprehensive loss.” Gains and losses arising from the impact of foreign currency exchange rate fluctuations on transactions in foreign currency are included in “General and administrative.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The Company accounts for income taxes under the asset and liability method.

7 unchanged sentences

Interest accrued for uncertain tax positions is charged to “Interest expense, net.” Penalties accrued for uncertain tax positions are charged to “General and administrative.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Restaurant Acquisitions and Dispositions

20 unchanged sentences

“Sales” also includes income for gift cards.

Gift card payments are recorded as deferred income when received and are recognized as revenue in proportion to actual gift card redemptions.

Gift card payments are recorded as deferred income when received and are recognized as revenue upon redemption.

“Franchise royalty revenue and fees” includes royalties, new build technical assistance fees, renewal fees, franchisee-to- franchisee restaurant transfer (“Franchise Flip”) technical assistance fees, Franchise Flip advisory fees and development fees.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Royalties from franchised restaurants are based on a percentage of sales of the franchised restaurant and are recognized as earned.

4 unchanged sentences

Franchise Flip advisory fees are paid by the seller and are recognized as revenue at closing of the Franchise Flip transaction.

“ Advertising funds revenue ” includes contributions to the Advertising Funds by franchisees.

Revenue related to these contributions is based on a percentage of sales of the franchised restaurants and is recognized as earned.

“Franchise rental income” includes rental income from properties owned and leased by the Company and leased or subleased to franchisees.

1 unchanged sentence

Favorable and unfavorable lease amounts related to the leased and/or subleased properties are amortized to rental income on a straight-line basis over the remaining term of the leases.

See “New Accounting Standards Adopted” below for a description of changes to our revenue recognition policies resulting from the adoption of the new accounting guidance for revenue recognition effective January 1, 2018.

“Advertising funds revenue” includes contributions to the Advertising Funds by franchisees.

Revenue related to these contributions is based on a percentage of sales of the franchised restaurants and is recognized as earned.

Cost of Sales

1 unchanged sentence

Cost of sales excludes depreciation and amortization expense.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Vendor Incentives

12 unchanged sentences

Since there are many estimates and assumptions involved in recording insurance liabilities and in the case of workers’ compensation a significant period of time elapses before the ultimate resolution of claims, differences between actual future events and prior estimates and assumptions could result in adjustments to these liabilities.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Determination of Whether a Contract Contains a Lease

12 unchanged sentences

Lease terms for real estate are generally initially between 15 and 20 years and, in most cases, provide for rent escalations and renewal options.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Operating Leases

7 unchanged sentences

Contingent Rent is recognized each period as the liability is incurred or the asset is earned.

Lease cost for operating leases is recognized on a straight-line basis and includes the amortization of the ROU asset and interest expense related to the operating lease liability.

Lease cost for operating leases includes the amortization of the ROU asset and interest expense related to the operating lease liability.

Variable lease cost for operating leases includes Contingent Rent and payments for executory costs such as real estate taxes, insurance and common area maintenance, which are excluded from the measurement of the lease liability.

2 unchanged sentences

(1) rental expense related to leases for Company-operated restaurants is recorded to “Cost of sales,” (2) rental expense for leased properties that are subsequently subleased to franchisees is recorded to “Franchise rental expense” and (3) rental expense related to leases for corporate offices and equipment is recorded to “General and administrative.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Favorable and unfavorable lease amounts for operating leases where the Company is the lessor are recorded as components of “Other intangible assets” and “Other liabilities,” respectively.

3 unchanged sentences

Finance Leases

Lease cost for finance leases includes the amortization of the ROU asset, which is amortized on a straight-line basis and recorded to “ Depreciation and amortization ,” and interest expense on the finance lease liability, which is calculated using the interest method and recorded to “ Interest expense, net .” Finance lease ROU assets are amortized over the shorter of their estimated useful lives or the terms of the respective leases, including periods covered by renewal options that the Company is reasonably assured of exercising.

Lease cost for finance leases where the Company is the lessee includes the amortization of the ROU asset, which is amortized on a straight-line basis and recorded to “Depreciation and amortization,” and interest expense on the finance lease liability, which is calculated using the interest method and recorded to “Interest expense, net.” Finance lease ROU assets are amortized over the shorter of their estimated useful lives or the terms of the respective leases, including periods covered by renewal options that the Company is reasonably certain of exercising.

Sales-Type and Direct Financing Leases

4 unchanged sentences

Lessees’ variable payments to the Company for executory costs under sales-type and direct financing leases are recognized on a gross basis as “Franchise rental income” with a corresponding expense recorded to “Franchise rental expense.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Significant Assumptions and Judgments

3 unchanged sentences

Wendy’s had no customers which accounted for 10% or more of consolidated revenues in 2020, 2019 or 2018.

As of December 29, 2019 , Wendy’s had one main in-line distributor of food, packaging and beverage products, excluding breads, that serviced approximately 52 % of Wendy’s restaurants in the U.S.

and five additional in-line distributors that, in the aggregate, serviced approximately 47 % of Wendy’s restaurants in the U.S.

As of January 3, 2021, Wendy’s had one main in-line distributor of food, packaging and beverage products, excluding breads, that serviced approximately 67 % of Wendy’s restaurants in the U.S.

and four additional in-line distributors that, in the aggregate, serviced approximately 32 % of Wendy’s restaurants in the U.S.

We believe that our vulnerability to risk concentrations related to significant vendors and sources of our raw materials is mitigated as we believe that there are other vendors who would be able to service our requirements.

However, if a disruption of service from any of our main in-line distributors was to occur, we could experience short-term increases in our costs while distribution channels were adjusted.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Wendy’s restaurants are principally located throughout the U.S.

14 unchanged sentences

New Accounting Standards Adopted

Cloud Computing

In August 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance on accounting for implementation costs of a cloud computing arrangement that is a service contract.

The new guidance aligns the accounting for such implementation costs of a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software.

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

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

The adoption of this guidance did not have a material impact on our consolidated financial statements.

Fair Value Measurement

In August 2018, the FASB issued new guidance on disclosure requirements for fair value measurements.

The objective of the new guidance is to provide additional information about assets and liabilities measured at fair value in the statement of financial position or disclosed in the notes to financial statements.

New incremental disclosure requirements include the amount of fair value hierarchy level 3 changes in unrealized gains and losses and the range and weighted average used to develop significant unobservable inputs for level 3 fair value measurements.

The Company adopted this guidance during the first quarter of 2020.

The adoption of this guidance did not have a material impact on our consolidated financial statements.

Goodwill Impairment

In January 2017, the FASB issued new guidance that simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test.

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

The adoption of this guidance did not have a material impact on our consolidated financial statements.

Nonemployee Share-Based Payments

In June 2018, the FASB issued new guidance on nonemployee share-based payment arrangements.

The new guidance aligns the requirements for nonemployee share-based payments with the requirements for employee share-based payments.

Credit Losses

In June 2016, the FASB issued an amendment that requires the Company to use a current expected credit loss model that results in the immediate recognition of an estimate of credit losses that are expected to occur over the life of the financial instruments that are within the scope of the guidance, including trade receivables.

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

19 unchanged sentences

The adoption of the guidance did not have a material impact on our consolidated statement of cash flows.

In connection with the adoption of the standard, the Company has reclassified finance lease ROU assets to “ Finance lease assets ,” which were previously recorded to “ Properties .” The Company also reclassified the current and long-term finance lease liabilities to “ Current portion of finance lease liabilities ” and “ Long-term finance lease liabilities ,” respectively, which were previously recorded to “ Current portion of long-term debt ” and “ Long-term debt ,” respectively.

The prior period amounts in the consolidated balance sheet and in the related notes to the financial statements reflect the reclassifications of these assets and liabilities to conform to the current year presentation.

The following table illustrates the reclassifications made to the consolidated balance sheet as of December 30, 2018 :

As Previously Reported

Reclassifications

As Currently Reported

Finance lease assets

Current portion of long-term debt

Current portion of finance lease liabilities

Long-term debt

Long-term finance lease liabilities

In addition, the Company reclassified repayments of finance lease liabilities to “ Repayments of finance lease liabilities ,” which were previously recorded to “ Repayments of long-term debt .” The prior period amounts in the consolidated statements of cash flows reflect the reclassifications of these cash flows to conform to the current year presentation.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following tables illustrate the reclassifications made to the consolidated statements of cash flows for 2018 and 2017:

As Previously Reported

Reclassifications

As Currently Reported

Repayments of long-term debt

Repayments of finance lease liabilities

As Previously Reported

Reclassifications

As Currently Reported

Repayments of long-term debt

Repayments of finance lease liabilities

Revenue Recognition

In May 2014, the FASB issued amended guidance for revenue recognition.

The new guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.

The core principle of the guidance is that an entity should recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.

Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized.

The Company adopted the new guidance on January 1, 2018.

As a result, the Company has changed its accounting policy for revenue recognition as detailed below.

The Company applied the new guidance using the modified retrospective method, whereby the cumulative effect of initially adopting the guidance was recognized as an adjustment to the opening balance of equity at January 1, 2018.

Therefore, the comparative period has not been adjusted and continues to be reported under the previous revenue recognition guidance.

The details of the significant changes and quantitative impact of the changes are discussed below.

Franchise Fees

Under previous revenue recognition guidance, new build technical assistance fees and development fees were recognized as revenue when a franchised restaurant opened, as all material services and conditions related to the franchise fee had been substantially performed upon the restaurant opening.

In addition, under previous guidance, technical assistance fees received in connection with sales of Company-operated restaurants to franchisees and facilitating Franchise Flips, as well as renewal fees, were recognized as revenue when the franchise agreements were signed and the restaurants opened.

Under the new guidance, these franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement.

As such, these franchise fees are recognized over the contractual term of the franchise agreement.

National Advertising Funds

Previously, the revenue, expenses and cash flows of the Advertising Funds were not included in the Company’s consolidated statements of operations and statements of cash flows because the contributions to the Advertising Funds were designated for specific purposes and the Company acted as an agent, in substance, with regard to these contributions as a result of industry-specific guidance.

Under the new guidance, which superseded the previous industry-specific guidance, the revenue, expenses and cash flows of the Advertising Funds are fully consolidated into the Company’s consolidated statements of operations and statements of cash flows.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Impacts on Financial Statements

The following tables summarize the impacts of adopting the revenue recognition standard on the Company’s consolidated financial statements:

Franchise Fees

Advertising Funds

Balances Without Adoption

Consolidated Balance Sheet

December 30, 2018

Accrued expenses and other current liabilities

Advertising funds restricted liabilities

Total current liabilities

Deferred income taxes

Deferred franchise fees

Total liabilities

Retained earnings

Accumulated other comprehensive loss

Total stockholders’ equity

Consolidated Statement of Operations

Year Ended December 30, 2018

Franchise royalty revenue and fees (a)

Advertising funds revenue

Total revenues

Advertising funds expense

Total costs and expenses

Operating profit

Income before income taxes

Provision for income taxes

_______________

The adjustments for 2018 include the reversal of franchise fees recognized over time under the new revenue recognition guidance of $ 9,641 , as well as franchisee fees that would have been recognized under the previous revenue recognition guidance when the franchise agreements were signed and the restaurants opened of $ 9,116 .

See Note 2 for further information.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Franchise Fees

Advertising Funds

Balances Without Adoption

Consolidated Statement of Cash Flows

Year Ended December 30, 2018

Cash flows from operating activities:

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

Deferred income tax

Changes in operating assets and liabilities:

Advertising funds restricted assets and liabilities

Accrued expenses and other current liabilities

New Accounting Standards

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

The standard is effective beginning with our 2021 fiscal year.

The Company does not expect the guidance to have a material impact on our consolidated financial statements.

Fair Value Measurement

In August 2018, the FASB issued new guidance on disclosure requirements for fair value measurements, which is effective beginning with our 2020 fiscal year.

The Company does not expect the amendment to have a material impact on our consolidated financial statements.

Goodwill Impairment

In January 2017, the FASB issued an amendment that simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test.

The Company does not expect the amendment, which is effective beginning with our 2020 fiscal year, to have a material impact on our consolidated financial statements.

Credit Losses

In June 2016, the FASB issued an amendment that will require the Company to use a current expected credit loss model that will result in the immediate recognition of an estimate of credit losses that are expected to occur over the life of the financial instruments that are within the scope of the guidance, including trade receivables.

The amendment is effective beginning with our 2020 fiscal year.

The Company does not expect the amendment to have a material impact on our consolidated financial statements.

Financial Instruments

In August 2020, the FASB issued an amendment that simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The amendment simplifies accounting for convertible instruments by removing major separation models required under current accounting guidance.

In addition, the amendment removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception, and also simplifies the diluted earnings per share calculation in certain areas.

The amendment is effective commencing with our 2022 fiscal year.

We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

21 unchanged sentences

The following tables disaggregate revenue by segment and source for 2020, 2019 and 2018:

Wendy’s International

Global Real Estate & Development

Wendy’s International Global Real Estate & Development Total

Sales at Company-operated restaurants $ 722,764 $ — $ — $ 722,764

7 unchanged sentences

(In Thousands Except Per Share Amounts)

Wendy’s International

Global Real Estate & Development

Wendy’s International Global Real Estate & Development Total

Sales at Company-operated restaurants $ 707,485 $ — $ — $ 707,485

4 unchanged sentences

Total revenues $ 1,404,307 $ 68,198 $ 236,497 $ 1,709,002

Wendy’s International

Global Real Estate & Development

Wendy’s International Global Real Estate & Development Total

Sales at Company-operated restaurants $ 651,577 $ — $ — $ 651,577

2 unchanged sentences

Franchise rental income — — 203,297 203,297

Advertising funds revenue 306,442 19,577 — 326,019

Total revenues $ 1,312,491 $ 67,630 $ 209,815 $ 1,589,936

1 unchanged sentence

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

2021 (a) December 29,

Receivables, which are included in “Accounts and notes receivable, net” (b) $ 57,677 $ 39,188

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

63,252 54,394

Deferred franchise fees (c) 97,785 100,689

_______________

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

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

Deferred franchise fees are included in “ Accrued expenses and other current liabilities ” and “ Deferred franchise fees ” and totaled $ 8,899 and $ 91,790 as of December 29, 2019 , respectively, and $ 9,973 and $ 92,232 as of December 30, 2018 , respectively.

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

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

(c) Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $ 8,691 and $ 89,094 as of January 3, 2021, respectively, and $ 8,899 and $ 91,790 as of December 29, 2019, respectively.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Significant changes in deferred franchise fees are as follows:

2020 2019 2018

Deferred franchise fees at beginning of period $ 100,689 $ 102,205 $ 102,492

Revenue recognized during the period

( 8,955 ) ( 9,487 ) ( 9,641 )

New deferrals due to cash received and other 6,051 7,971 9,354

Deferred franchise fees at end of period $ 97,785 $ 100,689 $ 102,205

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Anticipated Future Recognition of Deferred Franchise Fees

1 unchanged sentence

Estimate for fiscal year:

(3) System Optimization (Gains) Losses, Net

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.

Thereafter 65,635

(3) System Optimization Gains, Net

The Company’s system optimization initiative included 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, 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.

During 2020, 2019 and 2018, the Company facilitated 54 , 37 and 96 Franchise Flips, respectively.

Additionally, during 2020 and 2018, the Company completed the sale of one and three Company-operated restaurants to franchisees, respectively.

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

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

Gains and losses recognized on dispositions are recorded to “System optimization gains, 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,” which are further described in Note 5.

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

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following is a summary of the disposition activity recorded as a result of our system optimization initiative:

2020 2019 2018

Number of restaurants sold to franchisees 1 — 3

6 unchanged sentences

Gain (loss) on sales of other assets, net (c) 2,770 196 ( 71 )

Loss on DavCo and NPC Transactions

System optimization gains (losses), net

System optimization gains, net $ 3,148 $ 1,283 $ 463

_______________

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Net assets sold consisted primarily of equipment.

2019, 2018 and 2017 include the recognition of deferred gains of $ 911 , $ 1,029 and $ 312 , respectively, as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

2018 and 2017 also include cash proceeds, net of payments, of $ 6 and $ 294 , respectively, related to post-closing reconciliations with franchisees.

Additionally, 2017 includes the recognition of a deferred gain of $ 1,822 (C $ 2,300 ) resulting from the release of a guarantee provided by Wendy’s to a lender on behalf of a franchisee in connection with the sale of eight Canadian restaurants to the franchisee during 2014.

During 2019 , 2018 and 2017 , Wendy’s received cash proceeds of $ 3,448 , $ 1,781 and $ 10,534 , respectively, primarily from the sale of surplus properties.

2017 also includes the recognition of a deferred gain of $ 375 related to the sale of a share in an aircraft.

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 $ 86,788 , which restaurants were immediately sold to NPC International, Inc.

(“NPC”), an existing franchisee of the Company, for cash proceeds of $ 70,688 (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.

The total consideration paid to DavCo was allocated to net tangible and identifiable intangible assets acquired based on their estimated fair values.

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

The following is a summary of the activity recorded as a result of the DavCo and NPC Transactions:

Acquisition (a)

Total consideration paid

Identifiable assets and liabilities assumed:

Net assets held for sale

Finance lease assets

Deferred taxes

Finance lease obligations

Net unfavorable leases (b)

Other liabilities (c)

Total identifiable net assets

Net assets sold

Net favorable leases (e)

Loss on DavCo and NPC Transactions

(a) Net assets sold consisted primarily of equipment.

(b) 2020, 2019 and 2018 include the recognition of deferred gains of $ 368 , $ 911 and $ 1,029 , respectively, as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

2018 also includes cash proceeds, net of payments, of $ 6 related to post-closing reconciliations with franchisees.

(c) During 2020, 2019 and 2018, Wendy’s received cash proceeds of $ 6,041 , $ 3,448 and $ 1,781 , respectively, primarily from the sale of surplus and other properties.

Assets Held for Sale

January 3, 2020 December 29, 2019

Number of restaurants classified as held for sale 43 —

Net restaurant assets held for sale (a) $ 20,587 $ —

Other assets held for sale (b) $ 1,732 $ 1,437

_______________

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

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

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

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

The fair values of the identifiable intangible assets and taxes related to the acquisition were provisional amounts as of December 31, 2017 , pending final purchase accounting adjustments.

The Company finalized the purchase price allocation during 2018 with no differences from the provisional amounts previously reported.

The Company utilized management estimates and consultation with an independent third-party valuation firm to assist in the valuation process.

Includes favorable lease assets of $ 1,229 and unfavorable lease liabilities of $ 23,559 .

Includes a supplemental purchase price liability recorded to “ Accrued expenses and other current liabilities ” of $ 6,269 , which was settled during 2018 upon the resolution of certain lease-related matters.

Includes tax deductible goodwill of $ 21,795 .

The Company recorded favorable lease assets of $ 30,068 and unfavorable lease liabilities of $ 6,034 as a result of subleasing land, buildings and leasehold improvements to NPC.

Includes cash payments for selling and other costs associated with the transaction.

Assets Held for Sale

As of December 29, 2019 and December 30, 2018 , the Company had assets held for sale of $ 1,437 and $ 2,435 , respectively, primarily consisting of surplus properties.

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

(4) Acquisitions

No restaurants were acquired from franchisees during 2020.

During 2019 and 2018, the Company acquired five restaurants and 16 restaurants from franchisees, respectively.

1 unchanged sentence

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

2019 2018 (a)

Restaurants acquired from franchisees 5 16

1 unchanged sentence

Identifiable assets acquired and liabilities assumed:

Properties 666 4,363

Acquired franchise rights 1,354 10,127

Finance lease assets 5,350 5,360

Other assets — 621

Finance lease liabilities ( 4,084 ) ( 3,135 )

Unfavorable leases — ( 733 )

Other ( 2,316 ) ( 2,240 )

Total identifiable net assets 970 14,363

Goodwill $ 4,082 $ 7,038

_______________

1 unchanged sentence

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

On May 31, 2017, the Company also entered into the DavCo and NPC Transactions.

See Note 3 for further information.

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.

As part of the consortium bid, the Company submitted a deposit of $ 43,240 , which is included in “Prepaid expenses and other current assets” as of January 3, 2021.

The deposit included $ 38,361 received from the group of prequalified franchisees, which was payable to the franchisees and included in “Accrued expenses and other current liabilities” as of January 3, 2021 pending resolution of the bankruptcy sale process.

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.

THE WENDY’S COMPANY AND SUBSIDIARIES

3 unchanged sentences

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

2020 2019 2018

Operations and field realignment $ 3,801 $ — $ —

IT realignment 7,288 9,127 —

2 unchanged sentences

Reorganization and realignment costs $ 16,030 $ 16,965 $ 9,068

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 $ 7,000 to $ 9,000 related to the Operations and Field Realignment Plan.

During 2020, the Company recognized costs totaling $ 3,801 , which primarily included severance and related employee costs and share-based compensation.

The Company expects to incur additional costs aggregating approximately $ 3,000 to $ 5,000 , comprised primarily of third-party and other costs.

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

The following is a summary of the activity recorded as a result of the Operations and Field Realignment Plan:

Severance and related employee costs $ 3,113

Third party and other costs 67

Share-based compensation (a) 621

Total operations and field realignment $ 3,801

_______________

(a) Primarily represents incremental share-based compensation resulting from the modification of stock options in connection with the termination of employees under the Operations and Field Realignment Plan.

The accruals for the Operations and Field Realignment Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 2,487 and $ 113 as of January 3, 2021.

The table below presents a rollforward of our accruals for the Operations and Field Realignment Plan.

Balance December 29, 2019 Charges Payments Balance January 3, 2021

Severance and related employee costs $ — $ 3,113 $ ( 513 ) $ 2,600

Third party and other costs — 67 ( 67 ) —

$ — $ 3,180 $ ( 580 ) $ 2,600

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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 $ 13,000 to $ 15,000 related to the plan.

During 2019, the Company recognized costs totaling $ 9,127 , which primarily included severance and related employee costs and third-party and other costs.

The Company expects to incur additional costs aggregating approximately $ 5,500 , comprised of (1) severance and related employee costs of approximately $ 1,000 and (2) third-party and other costs of approximately $ 4,500 .

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

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.

During 2020 and 2019, the Company recognized costs totaling $ 7,288 and $ 9,127 , 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.

The following is a summary of the activity recorded as a result of the IT Realignment Plan:

Year Ended Total Incurred Since Inception

Severance and related employee costs $ 843 $ 7,548 $ 8,391

Recruitment and relocation costs 1,296 — 1,296

Third-party and other costs 5,149 1,386 6,535

7,288 8,934 16,222

Share-based compensation (a) — 193 193

1 unchanged sentence

_______________

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

The table below presents a rollforward of our accruals for the plan, which are included in “ Accrued expenses and other current liabilities ” and “ Other liabilities ” and totaled $ 8,025 and $ 599 as of December 29, 2019 , respectively.

December 30, 2018

December 29, 2019

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

As of January 3, 2021, the accruals for our IT Realignment Plan are included in “Accrued expenses and other current liabilities.” As of December 29, 2019, the accruals for our IT Realignment Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 8,025 and $ 599 , respectively.

The tables below present a rollforward of our accruals for the IT Realignment Plan:

Balance December 29, 2019 Charges Payments Balance January 3, 2021

Severance and related employee costs $ 7,548 $ 843 $ ( 6,883 ) $ 1,508

Recruitment and relocation costs — 1,296 ( 1,296 ) —

Third-party and other costs 1,076 5,149 ( 6,225 ) —

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 related to the plan totaling $ 7,749 ,

$ 8,624 $ 7,288 $ ( 14,404 ) $ 1,508

Balance December 30, 2018 Charges Payments Balance December 29, 2019

Severance and related employee costs $ — $ 7,548 $ — $ 7,548

Recruitment and relocation costs — — — —

Third-party and other costs — 1,386 ( 310 ) 1,076

$ — $ 8,934 $ ( 310 ) $ 8,624

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

$ 8,785 and $ 21,663 , 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.

As discussed in Note 26 , the realignment of our management and operating structure described above resulted in a change in our operating segments as of December 29, 2019 .

General and Administrative ( “ G&A ”) Realignment

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

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

During 2020, 2019 and 2018, the Company recognized costs related to the plan totaling $ 614 , $ 7,749 and $ 8,785 , respectively, which primarily included recruitment and relocation costs and share-based compensation in 2020 and severance and related employee costs and share-based compensation in 2019 and 2018.

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

The following is a summary of the activity recorded as a result of the G&A Realignment Plan:

Total Incurred

Year Ended Total Incurred

Since Inception

2020 2019 2018

Severance and related employee costs $ 28 $ 5,485 $ 3,797 $ 24,266

1 unchanged sentence

Third-party and other costs 13 100 1,019 2,223

401 6,535 5,893 29,365

Share-based compensation (a) 213 1,214 1,557 8,111

2 unchanged sentences

_______________

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

During 2018, the Company terminated two frozen defined benefit plans.

(a) Primarily represents incremental share-based compensation resulting from the modification of stock options in connection with the termination of employees under the G&A Realignment Plan.

(b) During 2018, the Company terminated two frozen defined benefit plans.

See Note 19 for further information.

The accruals for our G&A realignment plan are included in “ Accrued expenses and other current liabilities ” and “ Other liabilities ” and totaled $ 4,504 and $ 855 as of December 29, 2019 , respectively, and $ 6,280 and $ 1,044 as of December 30, 2018 , respectively.

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

December 30, 2018

December 29, 2019

As of January 3, 2021, the accruals for the G&A Realignment Plan are included in “Accrued expenses and other current liabilities.” As of December 29, 2019, the accruals for the G&A Realignment Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 4,504 and $ 855 , respectively.

The tables below present a rollforward of our accruals for the G&A Realignment Plan.

2019 Charges Payments Balance

Severance and related employee costs $ 5,276 $ 28 $ ( 4,372 ) $ 932

1 unchanged sentence

Third-party and other costs — 13 ( 13 ) —

December 30, 2018

$ 5,359 $ 401 $ ( 4,828 ) $ 932

2018 Charges Payments Balance

Severance and related employee costs $ 7,241 $ 5,485 $ ( 7,450 ) $ 5,276

1 unchanged sentence

Third-party and other costs — 100 ( 100 ) —

System Optimization Initiative

The Company has recognized costs related to its system optimization initiative, which includes a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating Franchise Flips.

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

$ 7,324 $ 6,535 $ ( 8,500 ) $ 5,359

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

System Optimization Initiative

The Company recognizes costs related to acquisitions and dispositions under its system optimization initiative.

During 2020, the Company recognized costs totaling $ 4,327 , which were primarily comprised of professional fees related to the NPC bankruptcy sale process.

See Note 4 for further information.

The Company expects to incur additional costs of approximately $ 3,000 related to the NPC bankruptcy sale process during 2021.

The following is a summary of the costs recorded as a result of our system optimization initiative:

Total Incurred Since Inception

Year Ended Total Incurred Since Inception

2020 2019 2018

Severance and related employee costs $ — $ — $ — $ 18,237

Professional fees 4,323 72 264 22,107

Other 4 17 19 5,853

4,327 89 283 46,197

Accelerated depreciation and amortization (a) — — — 25,398

2 unchanged sentences

_______________

Primarily includes accelerated amortization of previously acquired franchise rights related to Company-operated restaurants in territories that have been sold to franchisees in connection with our system optimization initiative.

Represents incremental share-based compensation resulting from the modification of stock options and performance-based awards in connection with the termination of employees under our system optimization initiative.

The table below presents a rollforward of our accruals for our system optimization initiative, which were included in “ Accrued expenses and other current liabilities ” and “ Other liabilities .” As of both December 29, 2019 and December 30, 2018, no accrual remained.

(a) Primarily includes accelerated amortization of previously acquired franchise rights related to Company-operated restaurants in territories that have been sold to franchisees in connection with our system optimization initiative.

(b) Represents incremental share-based compensation resulting from the modification of stock options and performance-based awards in connection with the termination of employees under our system optimization initiative.

The table below presents a rollforward of our accruals for our system optimization initiative, which are included in “Accrued expenses and other current liabilities.”

December 29, 2019 Charges Payments Balance

January 3, 2021

December 31, 2017

Severance and related employee costs

Recruitment and relocation costs

Professional fees $ — $ 4,323 $ ( 3,093 ) $ 1,230

Other — 4 ( 4 ) —

$ — $ 4,327 $ ( 3,097 ) $ 1,230

(6) Income Per Share

1 unchanged sentence

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

2020 2019 2018

Common stock:

2 unchanged sentences

Weighted average diluted shares outstanding 228,014 235,075 244,963

Diluted net income per share was computed by dividing net income by the weighted average number of basic shares outstanding plus the potential common share effect of dilutive stock options and restricted shares.

We excluded potential common shares of 2,518 , 1,520 and 1,168 for 2019 , 2018 and 2017 , respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

We excluded potential common shares of 2,064 , 2,518 and 1,520 for 2020, 2019 and 2018, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

(7) Cash and Receivables

December 29, 2019

December 30, 2018

January 3, 2021 December 29, 2019

Cash and cash equivalents

Cash $ 231,922 $ 185,203

Cash equivalents 75,067 114,992

306,989 300,195

Restricted cash

Accounts held by trustee for the securitized financing facility 33,635 34,209

Trust for termination costs for former Wendy’s executives

Other 338 330

33,973 34,539

Advertising Funds (a) 77,279 23,973

111,252 58,512

Total cash, cash equivalents and restricted cash

$ 418,241 $ 358,707

Included in “ Advertising funds restricted assets .”

December 29, 2019

December 30, 2018

_______________

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

January 3, 2021 December 29, 2019

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

Accounts and Notes Receivable, Net

Accounts receivable:

Notes receivable from franchisees (b) (c)

Allowance for doubtful accounts

Non-current (d)

Notes receivable from franchisees (c)

Allowance for doubtful accounts (c)

Accounts receivable (a) (b) $ 97,399 $ ( 3,739 ) $ 93,660 $ 103,852 $ ( 3,314 ) $ 100,538

Notes receivable from franchisees (c) (d) 21,227 ( 4,996 ) 16,231 23,628 ( 6,705 ) 16,923

$ 118,626 $ ( 8,735 ) $ 109,891 $ 127,480 $ ( 10,019 ) $ 117,461

Includes income tax refund receivables of $ 13,555 and $ 14,475 as of December 29, 2019 and December 30, 2018 , respectively.

Additionally, 2019 and 2018 include receivables of $ 25,350 and $ 22,500 , respectively, related to insurance coverage for the FI Case.

Non-current (e)

Notes receivable from franchisees (d) $ 6,759 $ ( 629 ) $ 6,130 $ 1,617 $ — $ 1,617

_______________

(a) Includes income tax refund receivables of $ 5,399 and $ 13,555 as of January 3, 2021 and December 29, 2019, respectively.

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

See Note 11 for further information on our legal reserves.

Includes the current portion of sales-type and direct financing lease receivables of $ 3,146 and $ 735 as of December 29, 2019 and December 30, 2018 , respectively.

(b) During 2020, rent receivables increased by $ 5,226 due to actions taken by the Company in response to the COVID-19 pandemic, which included offering to defer base rent payments on properties owned by Wendy’s and leased to franchisees by 50% and offering to pass along any deferrals that were obtained on properties leased by Wendy’s and subleased to franchisees by up to 100%, beginning in May for a three month period, which are being repaid over a 12 month period beginning in August 2020.

(c) Includes the current portion of sales-type and direct financing lease receivables of $ 5,965 and $ 3,146 as of January 3, 2021 and December 29, 2019, respectively.

See Note 20 for further information.

2 unchanged sentences

(In Thousands Except Per Share Amounts)

Includes a note receivable from a franchisee in Indonesia, of which $ 1,262 and $ 969 are included in current notes receivable and $ 1,617 and $ 2,522 are included in non-current notes receivable as of December 29, 2019 and December 30, 2018 , respectively.

Includes notes receivable from the Brazil JV of $ 15,920 as of December 29, 2019 , which is included in current notes receivable, and $ 12,800 as of December 30, 2018 , which is included in non-current notes receivable.

As of December 29, 2019 and December 30, 2018 , the Company had reserves of $ 5,720 and $ 2,000 , respectively, on the loans outstanding to the Brazil JV.

Included a note receivable from a U.S.

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

The note was repaid during 2020.

(d) Includes a note receivable from a franchisee in India, of which $ 356 and $ 1,000 are included in current notes receivable as of January 3, 2021 and December 29, 2019, respectively, and $ 629 which is included in non-current notes receivable as of January 3, 2021.

As of January 3, 2021 and December 29, 2019, the Company had a reserve of $ 985 on the loan outstanding to the franchisee in India.

Includes a note receivable from a franchisee in Indonesia, of which $ 831 and $ 1,262 are included in current notes receivable and $ 1,780 and $ 1,617 are included in non-current notes receivable as of January 3, 2021 and December 29, 2019, respectively.

Includes notes receivable related to the Brazil JV, of which $ 12,775 and $ 15,920 are included in current notes receivable as of January 3, 2021 and December 29, 2019, respectively, and $ 4,350 is included in non-current notes receivable as of January 3, 2021.

As of January 3, 2021 and December 29, 2019, the Company had reserves of $ 4,640 and $ 5,720 , respectively, on the loans outstanding related to the Brazil JV.

See Note 8 for further information.

Includes a note receivable from a franchisee in India totaling $ 1,000 , which is included in current notes receivable as of December 29, 2019 and in non-current notes receivable as of December 30, 2018 .

During 2019, the Company recorded a reserve of $ 985 on the loan outstanding to the franchisee in India.

Includes a note receivable from a U.S.

franchisee totaling $ 1,000 , which is included in current notes receivable as of December 29, 2019 .

Included in “Other assets.”

(e) Included in “Other assets.”

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

Balance at beginning of year:

Accounts Receivable Notes Receivable Total

Balance at December 29, 2019

$ 3,314 $ 6,705 $ 10,019

Provision for doubtful accounts 647 206 853

Franchisees and other

Uncollectible accounts written off, net of recoveries ( 222 ) ( 1,286 ) ( 1,508 )

Balance at end of year:

Balance at January 3, 2021

$ 3,739 $ 5,625 $ 9,364

Balance at December 30, 2018

$ 4,939 $ 2,000 $ 6,939

Provision for doubtful accounts ( 1,618 ) 4,912 3,294

Uncollectible accounts written off, net of recoveries ( 7 ) ( 207 ) ( 214 )

Balance at December 29, 2019

$ 3,314 $ 6,705 $ 10,019

Balance at December 31, 2017 $ 4,546 $ — $ 4,546

Provision for doubtful accounts 606 1,956 2,562

Uncollectible accounts written off, net of recoveries ( 213 ) 44 ( 169 )

Balance at December 30, 2018

$ 4,939 $ 2,000 $ 6,939

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(8) Investments

The following is a summary of the carrying value of our investments:

2021 December 29,

Equity method investments $ 44,574 $ 45,310

Other investments in equity securities — 639

$ 44,574 $ 45,949

Equity Method Investments

Wendy’s has a 50 % share in the TimWen real estate joint venture and a 20 % share in the Brazil JV, both of which are accounted for using the equity method of accounting, under which our results of operations include our share of the income (loss) of the investees in “Other operating income, net.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

A wholly-owned subsidiary of Wendy’s entered into the Brazil JV during the second quarter of 2015 for the operation of Wendy’s restaurants in Brazil.

3 unchanged sentences

The Company did not receive any distributions and our share of the Brazil JV’s net losses was $ 417 , $ 1,022 and $ 1,344 during 2020, 2019 and 2018, respectively.

A wholly-owned subsidiary of Wendy’s has loans outstanding to the Brazil JV totaling $ 15,920 and $ 12,800 as of December 29, 2019 and December 30, 2018 , respectively.

A wholly-owned subsidiary of Wendy’s has loans outstanding related to the Brazil JV totaling $ 17,125 and $ 15,920 as of January 3, 2021 and December 29, 2019, respectively.

The loans are denominated in U.S.

1 unchanged sentence

therefore, there is no exposure to changes in foreign currency rates.

The loans are primarily due in 2020 and bear interest at rates ranging from 3.25 % to 6.5 % per year.

As of December 29, 2019 and December 30, 2018 , the Company had reserves of $ 5,720 and $ 2,000 , respectively, on the loans outstanding to the Brazil JV.

The loans bear interest at rates ranging from 3.25 % to 6.5 % per year.

Of the total loans outstanding as of January 3, 2021, $ 12,775 was due primarily in the fourth quarter of 2020 and $ 4,350 is due in 2024.

As of January 3, 2021 and December 29, 2019, the Company had reserves of $ 4,640 on the past due loans and $ 5,720 on the current loans outstanding, respectively, related to the Brazil JV.

The Company is currently pursuing collection of certain of the past due amounts.

See Note 7 for further information.

The carrying value of our investment in TimWen exceeded our interest in the underlying equity of the joint venture by $ 25,160 and $ 26,378 as of December 29, 2019 and December 30, 2018 , respectively, primarily due to purchase price adjustments from the 2008 merger of Triarc Companies, Inc.

The carrying value of our investment in TimWen exceeded our interest in the underlying equity of the joint venture by $ 23,433 and $ 25,160 as of January 3, 2021 and December 29, 2019, respectively, primarily due to purchase price adjustments from the 2008 merger of Triarc Companies, Inc.

and Wendy’s International, Inc.

(the “Wendy’s Merger”).

Presented below is activity related to our portion of TimWen and the Brazil JV included in our consolidated balance sheets and consolidated statements of operations as of and for the years ended December 29, 2019 , December 30, 2018 and December 31, 2017 .

Presented below is activity related to our portion of TimWen and the Brazil JV included in our consolidated balance sheets and consolidated statements of operations as of and for the years ended January 3, 2021, December 29, 2019 and December 30, 2018.

2020 2019 2018

Balance at beginning of period $ 45,310 $ 47,021 $ 55,363

Investment — — 13

Equity in earnings for the period 8,389 10,943 10,402

Amortization of purchase price adjustments (a) ( 2,293 ) ( 2,270 ) ( 2,326 )

6,096 8,673 8,076

Distributions received ( 8,376 ) ( 13,400 ) ( 13,390 )

1 unchanged sentence

“Other comprehensive income (loss), net” and other

1,544 3,016 ( 3,041 )

Balance at end of period $ 44,574 $ 45,310 $ 47,021

_______________

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

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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

Indirect Investment in Inspire Brands

5 unchanged sentences

(“Inspire Brands”).

In August 2018, the Company sold its remaining 12.3 % ownership interest to Inspire Brands for $ 450,000 and incurred transaction costs of $ 55 , which were recorded to “ Investment income, net .” The Company recorded income tax expense of $ 97,501 on the transaction, of which $ 95,038 was paid during the fourth quarter of 2018.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

In August 2018, the Company sold its remaining 12.3 % ownership interest to Inspire Brands for $ 450,000 and incurred transaction costs of $ 55 , which were recorded to “Investment (loss) income, net.” The Company recorded income tax expense of $ 97,501 on the transaction, of which $ 95,038 was paid during the fourth quarter of 2018.

Other Investments in Equity Securities

In October 2019, the Company received a $ 25,000 cash settlement related to a previously held investment.

As a result, the Company recorded $ 24,366 to “Investment income, net” and $ 634 to “General and administrative” for the reimbursement of related costs during the fourth quarter of 2019.

As a result, the Company recorded $ 24,366 to “Investment (loss) income, net” and $ 634 to “General and administrative” for the reimbursement of related costs during the fourth quarter of 2019.

(9) Properties

December 29, 2019

December 30, 2018

January 3, 2021 December 29, 2019

Land $ 372,473 $ 375,109

Buildings and improvements 504,504 508,602

1 unchanged sentence

Office, restaurant and transportation equipment 255,469 279,799

1,541,752 1,568,668

Accumulated depreciation and amortization ( 625,863 ) ( 591,668 )

$ 915,889 $ 977,000

Depreciation and amortization expense related to properties was $ 77,656 , $ 81,219 and $ 79,009 during 2020, 2019 and 2018, respectively.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(10) Goodwill and Other Intangible Assets

Goodwill activity for 2020 and 2019 was as follows:

December 29, 2019

December 30, 2018

Balance at beginning of year:

International Global Real Estate & Development Total

Balance at December 30, 2018:

Goodwill, gross $ 595,560 $ 39,173 $ 122,548 $ 757,281

3 unchanged sentences

Restaurant acquisitions (b) 6,931 — — 6,931

Restaurant dispositions

Currency translation adjustment — 1,096 — 1,096

Balance at end of year:

Balance at December 29, 2019:

Goodwill, gross 602,491 40,269 122,548 765,308

1 unchanged sentence

Goodwill, net 602,491 30,872 122,548 755,911

Changes in goodwill:

Restaurant dispositions (c) ( 5,394 ) — — ( 5,394 )

Currency translation adjustment and other ( 223 ) 755 — 532

Balance at January 3, 2021:

Goodwill, gross 596,874 41,024 122,548 760,446

Accumulated impairment losses (a) — ( 9,397 ) — ( 9,397 )

Goodwill, net $ 596,874 $ 31,627 $ 122,548 $ 751,049

_______________

Accumulated impairment losses resulted from the full impairment of goodwill of the Wendy’s international franchise restaurants during the fourth quarter of 2013.

2019 includes an adjustment to the fair value of net assets acquired in connection with the acquisition of franchised restaurants during 2018.

(a) Accumulated impairment losses resulted from the full impairment of goodwill of the Wendy’s international franchise restaurants during the fourth quarter of 2013.

(b) Includes an adjustment to the fair value of net assets acquired in connection with the acquisition of franchised restaurants during 2018.

See Note 4 for further information.

(c) During 2020, in connection with the Company’s plan to sell 43 Company-operated restaurants in New York in the second quarter of 2021, goodwill of $ 5,394 was reclassified to assets held for sale.

See Note 3 for further information.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

As discussed in Note 26 , the realignment of our management and operating structure resulted in a change in our operating segments and reporting units as of December 29, 2019 .

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

In addition, we completed a quantitative assessment of any potential goodwill impairment for our previous North America reporting unit immediately prior to the reallocation and determined the reporting unit was not impaired.

The following table sets forth the reallocation of goodwill to the Company’s segments as of December 29, 2019 :

Wendy’s International

Global Real Estate & Development

The following is a summary of the components of other intangible assets and the related amortization expense:

December 29, 2019

December 30, 2018

Accumulated Amortization

January 3, 2021 December 29, 2019

Cost Accumulated Amortization Net Cost Accumulated Amortization Net

Indefinite-lived:

Trademarks $ 903,000 $ — $ 903,000 $ 903,000 $ — $ 903,000

Definite-lived:

2 unchanged sentences

Reacquired rights under franchise agreements

9,872 ( 3,414 ) 6,458 10,172 ( 2,766 ) 7,406

Software 206,741 ( 143,990 ) 62,751 181,666 ( 125,025 ) 56,641

$ 1,631,883 $ ( 406,923 ) $ 1,224,960 $ 1,609,761 $ ( 362,549 ) $ 1,247,212

Aggregate amortization expense:

Actual for fiscal year:

2018 $ 52,064

Estimate for fiscal year:

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

2021 $ 47,669

Thereafter 129,276

(11) Accrued Expenses and Other Current Liabilities

December 29, 2019

December 30, 2018

January 3, 2021 December 29, 2019

Legal reserves (a) $ 2,006 $ 52,272

1 unchanged sentence

Accrued taxes 27,162 23,926

NPC consortium bid (b) 38,361 —

Other 43,528 33,064

$ 155,321 $ 165,272

Includes a legal reserve of $ 50,000 as of December 29, 2019 and December 30, 2018 for a settlement of the FI Case.

See Note 23 for further information.

_______________

(a) Included a legal reserve of $ 50,000 as of December 29, 2019 for a settlement of the financial institutions class action.

The Company maintains insurance coverage for legal settlements, receivables for which are included in “Accounts and notes receivable, net.” See Note 7 for further information.

After exhaustion of applicable insurance receivables of $ 25,350 , the Company made a payment of $ 24,650 for the settlement of the FI Case in January 2020.

After exhaustion of applicable insurance receivables of $ 25,350 , the Company made a payment of $ 24,650 for the settlement of the financial institutions class action in January 2020.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(b) Represents amounts received from franchisees as part of the consortium bid to acquire NPC’s Wendy’s restaurants.

See Note 4 for further information.

(12) Long-Term Debt

Long-term debt consisted of the following:

2021 December 29,

Series 2019-1 Class A-2 Notes:

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

$ 386,000 $ 398,000

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

434,250 447,750

Series 2018-1 Class A-2 Notes:

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

436,500 441,000

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

460,750 465,500

Series 2015-1 Class A-2 Notes:

4.080% Series 2015-1 Class A-2-II Notes, repaid in connection with June 2019 refinancing

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

473,750 478,750

Canadian revolving credit facility 1,962 —

7 % debentures, due in 2025

83,998 82,837

Unamortized debt issuance costs ( 30,085 ) ( 33,526 )

2,247,125 2,280,311

Less amounts payable within one year ( 28,962 ) ( 22,750 )

Total long-term debt $ 2,218,163 $ 2,257,561

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Aggregate annual maturities of long-term debt, excluding the effect of purchase accounting adjustments, as of December 29, 2019 were as follows:

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.

As of December 29, 2019 , the Master Issuer issued the following outstanding series of fixed rate senior secured notes:

Aggregate annual maturities of long-term debt, excluding the effect of purchase accounting adjustments, as of January 3, 2021 were as follows:

2021 $ 28,962

Thereafter 1,210,500

Wendy’s Funding, LLC (“Wendy’s Funding”), 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.

As of January 3, 2021, the Master Issuer issued the following outstanding series of fixed rate senior secured notes:

(i) 2019-1 Class A-2-I with an initial principal amount of $ 400,000 ;

3 unchanged sentences

and (v) 2015-1 Class A-2-III with an initial principal amount of $ 500,000 (collectively, the “Class A-2 Notes”).

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

As of December 29, 2019 , there were no borrowings outstanding under the Class A-1 Notes.

The Class A-2 Notes and Class A-1 Notes are collectively the “Senior Notes.”

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

In March 2020, the Company drew down $ 120,000 under the 2019-1 Class A-1 Notes, 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 Series 2020-1 Variable Funding Senior Secured Notes, Class A-1 (the “2020-1 Class A-1 Notes”), which allow for the borrowing of up to $ 100,000 from time to time on a revolving basis using various credit

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The Company had no outstanding borrowings under the Series 2020-1 Class A-1 Notes as of January 3, 2021.

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

The 2019-1 Class A-1 Notes and the 2020-1 Class A-1 Notes are collectively the “Class A-1 Notes,” and the Class A-1 Notes and the Class A-2 Notes are collectively the “Senior Notes.”

The Senior Notes are secured by a security interest in substantially all of the assets of the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company that act as guarantors (collectively, the “Securitization Entities”), except for certain real estate assets and subject to certain limitations as set forth in the indenture governing the Senior Notes (the “Indenture”) and the related guarantee and collateral agreements.

4 unchanged sentences

If the Master Issuer has not repaid or refinanced the Class A-2 Notes prior to their respective anticipated repayment dates, which range from 2025 through 2029, additional interest will accrue pursuant to the Indenture.

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

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

There is a commitment fee on the unused portion of the Class A-1 Notes which ranges from 0.40 % to 0.75 % based on utilization.

As of December 29, 2019, $ 24,756 of letters of credit were outstanding against the Class A-1 Notes, which relate primarily to interest reserves required under the Indenture.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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

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

As of January 3, 2021, $ 26,228 of letters of credit were outstanding against the 2019-1 Class A-1 Notes, which relate primarily to interest reserves required under the Indenture governing the 2019-1 Class A-1 Notes.

Covenants and Restrictions

4 unchanged sentences

In accordance with the Indenture, certain cash accounts have been established with the Indenture trustee for the benefit of the trustee and the noteholders, and are restricted in their use.

As of December 29, 2019 and December 30, 2018 , Wendy’s Funding had restricted cash of $ 34,209 and $ 29,538 , respectively, which primarily represents cash collections and cash reserves held by the trustee to be used for payments of principal, interest and commitment fees required for the Class A-2 Notes.

As of January 3, 2021 and December 29, 2019, Wendy’s Funding had restricted cash of $ 33,635 and $ 34,209 , respectively, which primarily represents cash collections and cash reserves held by the trustee to be used for payments of principal, interest and commitment fees required for the Class A-2 Notes.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Refinancing Transactions

8 unchanged sentences

Debt Issuance Costs

During 2019, 2018 and 2017, the Company incurred debt issuance costs of $ 14,008 , $ 17,580 and $ 351 in connection with the June 2019 and January 2018 refinancing transactions.

During 2017, the Company also incurred debt issuance costs in connection with the 2015 securitization transaction of $ 561 .

During 2020, 2019 and 2018, the Company incurred debt issuance costs of $ 2,122 , $ 14,008 and $ 17,580 in connection with the issuance of the 2020-1 Class A-1 Notes and the June 2019 and January 2018 refinancing transactions, respectively.

The debt issuance costs are being amortized to “Interest expense, net” through the anticipated repayment dates of the Class A-2 Notes utilizing the effective interest rate method.

As of December 29, 2019 , the effective interest rates, including the amortization of debt issuance costs, were 4.7 % , 3.8 % , 4.1 % , 4.0 % and 4.2 % for the Series 2015-1 Class A-2-III Notes, Series 2018-1 Class A-2-I Notes, Series 2018-1 Class A-2-II Notes, Series 2019-1 Class A-2-I Notes and Series 2019-1 Class A-2-II Notes, respectively.

As of January 3, 2021, the effective interest rates, including the amortization of debt issuance costs, were 4.7 %, 3.9 %, 4.1 %, 4.0 % and 4.2 % for the Series 2015-1 Class A-2-III Notes, Series 2018-1 Class A-2-I Notes, Series 2018-1 Class A-2-II Notes, Series 2019-1 Class A-2-I Notes and Series 2019-1 Class A-2-II Notes, respectively.

Other Long-Term Debt

2 unchanged sentences

These debentures contain covenants that restrict the incurrence of indebtedness secured by liens and certain finance lease transactions.

In December 2019, Wendy’s repurchased

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

$ 10,000 in principal of its 7 % debentures for $ 10,550 , including a premium of $ 500 and transaction fees of $ 50 .

In December 2019, Wendy’s repurchased $ 10,000 in principal of its 7 % debentures for $ 10,550 , including a premium of $ 500 and transaction fees of $ 50 .

As a result, the Company recognized a loss on early extinguishment of debt of $ 1,346 during the fourth quarter of 2019.

advertising fund has a revolving line of credit of $ 25,000 , which was established to fund the advertising fund operations.

During 2018 , the Company borrowed and repaid $ 9,837 and $ 11,124 , respectively, under the line of credit.

There were no borrowings or repayments under the line of credit during 2019.

At December 29, 2019 , one of Wendy’s Canadian subsidiaries has a revolving credit facility of C $ 6,000 which bears interest at the Bank of Montreal Prime Rate.

The debt is guaranteed by Wendy’s.

The full amount of the line was available under this line of credit as of December 29, 2019 .

A Canadian subsidiary of Wendy’s has a revolving credit facility of C$ 6,000 , which bears interest at the Bank of Montreal Prime Rate.

Borrowings under the facility are guaranteed by Wendy’s.

In March 2020, the Company drew down C$ 5,500 under the revolving credit facility, of which the Company repaid C$ 1,000 in October 2020 and C$ 2,000 in December 2020.

As a result, as of January 3, 2021, the Company had outstanding borrowings of C$ 2,500 under the revolving credit facility.

Subsequent to January 3, 2021, the Company repaid the C$ 2,500 outstanding balance under the Canadian revolving credit facility.

advertising fund has a revolving line of credit of $ 25,000 , which was established to support the advertising fund operations and bears interest at LIBOR plus 2.15 %.

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

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

In March 2020, the Company drew down $ 25,000 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 were taken as precautionary measures to provide enhanced financial flexibility considering the uncertain market conditions arising from the COVID-19 pandemic.

Interest Expense

Interest expense on the Company’s long-term debt was $ 106,116 , $ 105,829 and $ 107,929 during 2020, 2019 and 2018, respectively, which was recorded to “Interest expense, net.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Pledged Assets

3 unchanged sentences

Accounts and notes receivable, net 40,389

Inventories 3,897

Properties 60,794

Other intangible assets 1,043,640

15 unchanged sentences

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

December 29, 2019

December 30, 2018

January 3, 2021 December 29, 2019

Value Carrying

Value Fair Value

Financial assets

Cash equivalents

Other investments in equity securities (a)

Cash equivalents $ 75,067 $ 75,067 $ 114,992 $ 114,992 Level 1

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

Financial liabilities

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

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

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

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

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

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

7% debentures, due in 2025 (b)

Guarantees of franchisee loan obligations (c)

Series 2019-1 Class A-2-I Notes (b) 386,000 409,778 398,000 405,152 Level 2

Series 2019-1 Class A-2-II Notes (b) 434,250 469,555 447,750 459,136 Level 2

Series 2018-1 Class A-2-I Notes (b) 436,500 450,381 441,000 444,859 Level 2

Series 2018-1 Class A-2-II Notes (b) 460,750 491,021 465,500 475,718 Level 2

Series 2015-1 Class A-2-III Notes (b) 473,750 481,851 478,750 490,531 Level 2

Canadian revolving credit facility 1,962 1,962 — — Level 2

7% debentures, due in 2025 (b) 83,998 98,775 82,837 94,838 Level 2

_______________

The fair values of our investments are not significant and are based on our review of information provided by the investment managers or investees which was based on (1) valuations performed by the investment managers or investees, (2) quoted market or broker/dealer prices for similar investments and (3) quoted market or broker/dealer prices adjusted by the investment managers for legal or contractual restrictions, risk of nonperformance or lack of marketability, depending upon the underlying investments.

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

Wendy’s has provided loan guarantees to various lenders on behalf of franchisees entering into debt arrangements for equipment financing.

We have accrued a liability for the fair value of these guarantees, the calculation of which was based upon a weighted average risk percentage.

(a) The fair values of our investments were not significant and were based on our review of information provided by the investment managers or investees, which was based on (1) valuations performed by the investment managers or investees, (2) quoted market or broker/dealer prices for similar investments and (3) quoted market or broker/dealer prices adjusted by the investment managers for legal or contractual restrictions, risk of nonperformance or lack of marketability, depending upon the underlying investments.

In June 2020, the Company impaired a miscellaneous investment due to the deterioration in operating performance of the underlying assets.

In July 2020, the Company sold its remaining interest in this investment.

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

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

The carrying amounts of accounts and notes receivable, net (both current and non-current) approximate fair value due to the effect of the related allowance for doubtful accounts.

Our cash equivalents and guarantees are the only financial assets and liabilities measured and recorded at fair value on a recurring basis.

Our cash equivalents are the only financial assets measured and recorded at fair value on a recurring basis.

Non-Recurring Fair Value Measurements

8 unchanged sentences

See Note 17 for further information on impairment of our long-lived assets.

Fair Value Measurements

2019 Total Losses

Fair Value Measurements 2020 Total Losses

2021 Level 1 Level 2 Level 3

Held and used $ 2,653 $ — $ — $ 2,653 $ 7,586

Held for sale 855 — — 855 451

Fair Value Measurements

2018 Total Losses

Total $ 3,508 $ — $ — $ 3,508 $ 8,037

Fair Value Measurements 2019 Total Losses

2019 Level 1 Level 2 Level 3

Held and used $ 3,582 $ — $ — $ 3,582 $ 5,602

Held for sale 988 — — 988 1,397

Total $ 4,570 $ — $ — $ 4,570 $ 6,999

(14) Income Taxes

1 unchanged sentence

2020 2019 2018

Excludes foreign income of domestic subsidiaries.

Domestic $ 149,046 $ 160,474 $ 560,776

Foreign (a) 3,749 11,007 14,140

$ 152,795 $ 171,481 $ 574,916

_______________

(a) Excludes foreign income of domestic subsidiaries.

The (provision for) benefit from income taxes is set forth below:

2020 2019 2018

federal $ ( 16,176 ) $ ( 18,421 ) $ ( 109,078 )

State ( 3,723 ) ( 6,093 ) ( 2,661 )

Foreign ( 4,798 ) ( 9,190 ) ( 9,630 )

Current tax provision ( 24,697 ) ( 33,704 ) ( 121,369 )

federal ( 6,707 ) 1,585 5,071

State ( 3,185 ) ( 2,449 ) 441

Foreign ( 374 ) 27 1,056

Deferred tax (provision) benefit ( 10,266 ) ( 837 ) 6,568

Income tax (provision) benefit

Income tax provision $ ( 34,963 ) $ ( 34,541 ) $ ( 114,801 )

THE WENDY’S COMPANY AND SUBSIDIARIES

2 unchanged sentences

Deferred tax assets (liabilities) are set forth below:

December 29, 2019

December 30, 2018

January 3, 2021 December 29, 2019

Deferred tax assets:

6 unchanged sentences

Deferred rent — 492

Other 5,869 3,757

Valuation allowances ( 49,968 ) ( 45,183 )

1 unchanged sentence

Deferred tax liabilities:

Operating and finance lease assets (a)

Operating and finance lease assets ( 332,515 ) ( 313,803 )

Intangible assets ( 301,969 ) ( 311,596 )

Fixed assets (a)

Fixed assets ( 63,826 ) ( 60,788 )

Other ( 37,491 ) ( 30,598 )

Total deferred tax liabilities ( 735,801 ) ( 716,785 )

$ ( 280,755 ) $ ( 270,759 )

The Company’s adoption of the lease accounting standard in 2019 caused additional deferred taxes to be recorded as a result of the ROU assets and lease liabilities recorded on the consolidated balance sheet.

Additionally, the deferred taxes existing at December 30, 2018 related to finance leases have been reclassified from fixed assets to finance lease liabilities and finance lease assets, consistent with the reclassifications made on the consolidated balance sheet upon adoption.

See “New Accounting Standards Adopted” in Note 1 for further information regarding the adoption of the lease accounting standard.

The amounts and expiration dates of net operating loss and tax credit carryforwards are as follows:

Amount Expiration

Tax credit carryforwards:

2 unchanged sentences

Foreign tax credits of non-U.S.

Not applicable

subsidiaries 4,125 Not applicable

Total $ 18,514

Net operating loss carryforwards:

State and local net operating loss carryforwards $ 1,182,774 2021-2035

Foreign net operating loss carryforwards

The Company’s valuation allowances of $ 45,183 and $ 42,175 as of December 29, 2019 and December 30, 2018 , respectively, relate to foreign and state tax credit carryforwards and net operating loss carryforwards.

Foreign net operating loss carryforwards 1,044 Not applicable

Total $ 1,183,818

The Company’s valuation allowances of $ 49,968 and $ 45,183 as of January 3, 2021 and December 29, 2019, respectively, relate to foreign and state tax credit and net operating loss carryforwards.

Valuation allowances increased $ 4,785 and $ 3,008 during 2020 and 2019, respectively, and decreased $ 5,120 during 2018.

The change during 2017 was primarily a result of the Tax Cuts and Jobs Act (the “Tax Act”) and our system optimization initiative.

The reduction in the U.S.

corporate rate from 35 % to 21 % decreases our ability to utilize foreign tax credit carryforwards after 2017 and we expect them to expire

The relative presence of Company-operated restaurants in various states impacts expected future state taxable income available to utilize state net operating loss carryforwards.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

The relative presence of Company-operated restaurants in various states impacts expected future state taxable income available to utilize state net operating loss carryforwards.

Major Tax Legislation

4 unchanged sentences

federal corporate tax rate from 35 % to 21 % in years 2018 and forward, (4) a tax on global intangible low-taxed income (“GILTI”) and (5) limitations on the deductibility of certain executive compensation.

During 2017, we recorded a net tax benefit of $ 140,379 primarily consisting of a benefit of $ 164,893 for the impact of the corporate rate reduction on our net deferred tax liabilities, partially offset by a net expense of $ 22,209 for the international-related provisions of the Tax Act.

In 2018, we recorded a net tax expense of $ 2,159 consisting of $ 2,454 related to the impact of the corporate rate reduction on our net deferred tax liabilities and state taxes and a net expense of $ 991 related to the limitations on the deductibility of certain executive compensation, partially offset by $ 1,286 for the net benefit of foreign tax credits.

In 2018, we recorded a net tax expense of $ 2,159 related to the Tax Act consisting of $ 2,454 related to the impact of the corporate rate reduction on our net deferred tax liabilities and state taxes and a net expense of $ 991 related to the limitations on the deductibility of certain executive compensation, partially offset by $ 1,286 for the net benefit of foreign tax credits.

_______________

The current portion of refundable income taxes was $ 13,555 and $ 14,475 as of December 29, 2019 and December 30, 2018 , respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of December 29, 2019 and December 30, 2018 .

The current portion of refundable income taxes was $ 5,399 and $ 13,555 as of January 3, 2021 and December 29, 2019, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of January 3, 2021 and December 29, 2019.

The reconciliation of income tax computed at the U.S.

federal statutory rate of 21 % for 2019 and 2018 and 35 % for 2017 to reported income tax is set forth below:

federal statutory rate of 21 % to reported income tax is set forth below:

2020 2019 2018 (a)

Income tax provision at the U.S.

2 unchanged sentences

federal income tax effect ( 4,664 ) ( 6,470 ) ( 221 )

Federal rate change

Prior years’ tax matters (b) 1,761 6,135 ( 9,970 )

Excess federal tax benefits from share-based compensation 5,338 5,841 10,250

Domestic tax planning initiatives

Foreign and U.S.

2 unchanged sentences

Non-deductible goodwill (c) — — ( 41 )

Transition tax

Tax credits 1,901 879 1,089

Non-deductible executive compensation ( 1,973 ) ( 1,925 ) ( 1,098 )

Unrepatriated earnings ( 283 ) ( 402 ) ( 326 )

1 unchanged sentence

$ ( 34,963 ) $ ( 34,541 ) $ ( 114,801 )

2018 includes the following impacts associated with the Tax Act:

_______________

(a) 2018 includes the following impacts associated with the Tax Act:

(1) a net expense of $ 2,426 related to the impact of the corporate rate reduction on our net deferred tax liabilities, (2) a net expense of $ 991 related to the limitations on the deductibility of certain executive compensation, (3) a net expense of $ 28 of state income tax and (4) a net benefit of $ 1,286 related to foreign tax credits.

2017 includes the following impacts associated with the Tax Act:

(1) the revaluation of our U.S.

net deferred tax liability at 21 % , resulting in a benefit of $ 164,893 , (2) a full valuation allowance of $ 15,962 on our U.S.

foreign tax credit carryforwards due to the decrease in the U.S.

federal tax rate, (3) a one-time transition tax of $ 4,446 , (4) deferred tax on unrepatriated earnings of $ 1,801 and (5) other net expenses of $ 2,305 .

2019 primarily relates to a reduction in unrecognized tax benefits due to a lapse of statute of limitations.

(b) 2019 primarily relates to a reduction in unrecognized tax benefits due to a lapse of statute of limitations.

2018 includes expense of $ 9,542 related to the Tax Act, which was partially offset by a $ 7,535 benefit reported in “Valuation allowances.”

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

2017 primarily relates to certain state net operating loss carryforwards, previously considered worthless, that existed at the beginning of the year.

The Company changed its judgment during 2017 regarding the likelihood of the utilization of these carryforwards.

Because of this change, the Company recognized a deferred tax asset of $ 16,643 , net of federal benefit, which was partially offset by an expense reported in “Valuation allowances” of $ 13,667 .

Substantially all of the goodwill included in the net gain (loss) on sales of restaurants in 2018 and 2017 under our system optimization initiative was non-deductible for tax purposes.

(c) Substantially all of the goodwill included in the net gain (loss) on sales of restaurants in 2018 under our system optimization initiative was non-deductible for tax purposes.

See Note 3 for further information.

2 unchanged sentences

As such, our tax returns for fiscal years 2009 through 2018 have been settled.

The statute of limitations for the Company’s state tax returns vary, but generally 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 and forward

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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.

Unrecognized Tax Benefits

As of December 29, 2019 , the Company had unrecognized tax benefits of $ 22,323 , which, if resolved favorably would reduce income tax expense by $ 17,987 .

As of January 3, 2021, the Company had unrecognized tax benefits of $ 20,973 , which, if resolved favorably would reduce income tax expense by $ 16,601 .

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

2021 December 29,

2019 December 30,

Beginning balance $ 22,323 $ 27,632 $ 28,848

2 unchanged sentences

Tax positions of prior years ( 1,183 ) ( 227 ) ( 7,553 )

Settlements ( 119 ) — ( 21 )

Lapse of statute of limitations ( 370 ) ( 6,438 ) ( 114 )

Ending balance $ 20,973 $ 22,323 $ 27,632

The increase in unrecognized tax benefits in 2019 was primarily related to the uncertainty of the income tax consequences of a cash settlement related to a previously held investment.

The reductions in unrecognized tax benefits in 2020 was primarily related to decreases as a result of settlements with various taxing jurisdictions.

The additions in unrecognized tax benefits in 2019 was primarily related to the uncertainty of the income tax consequences of a cash settlement related to a previously held investment.

The addition of unrecognized tax benefits in 2018 was primarily related to the sale of our ownership interest in Inspire Brands, and the reduction of unrecognized benefits in 2018 was primarily related to settlements with various taxing jurisdictions, including amended returns that were filed in 2017.

The addition of unrecognized tax benefits in 2017 was primarily related to the filing of amended returns in various jurisdictions, as well as an unfavorable court decision which caused us to change our judgment about the technical merits of a filing position.

During 2021, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $ 220 due primarily to the lapse of statutes of limitations and expected settlements.

During 2019 , 2018 and 2017 , the Company recognized $( 489 ) , $( 12 ) and $ 161 of (income) expense for interest and $ 81 , $ 309 and $ 106 of income for penalties, respectively, related to uncertain tax positions.

The Company has $ 946 and $ 1,428 accrued for interest and $ 118 and $ 199 accrued for penalties as of December 29, 2019 and December 30, 2018 , respectively.

During 2020, 2019 and 2018, the Company recognized $ 159 , $( 489 ) and $( 12 ) of expense (income) for interest and $ 81 , $ 81 and $ 309 of income for penalties, respectively, related to uncertain tax positions.

The Company has $ 873 and $ 946 accrued for interest and $ 37 and $ 118 accrued for penalties as of January 3, 2021 and December 29, 2019, respectively.

(15) Stockholders’ Equity

During 2019 , 2018 and 2017 , The Wendy’s Company paid dividends per share of $ 0.42 , $ 0.34 and $ 0.28 , respectively.

During 2020, 2019 and 2018, the Company paid dividends per share of $ 0.29 , $ 0.42 and $ 0.34 , respectively.

THE WENDY’S COMPANY AND SUBSIDIARIES

5 unchanged sentences

Treasury Stock

2020 2019 2018

Number of shares at beginning of year 245,535 239,191 229,912

4 unchanged sentences

Director fees ( 15 ) ( 14 ) ( 15 )

Other ( 53 ) ( 54 ) ( 63 )

Number of shares at end of year 246,156 245,535 239,191

Repurchases of Common Stock

In February 2020, our Board of Directors authorized a repurchase program for up to $ 100,000 of our common stock through February 28, 2021, when and if market conditions 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 1,572 shares under the February 2020 repurchase authorization with an aggregate purchase price of $ 32,285 , of which $ 723 was accrued at January 3, 2021, and excluding commissions of $ 22 .

As of January 3, 2021, the Company had $ 67,715 of availability remaining under its February 2020 authorization.

Subsequent to January 3, 2021 through February 23, 2021, the Company repurchased 457 shares under the February 2020 authorization with an aggregate purchase price of $ 9,570 , excluding commissions of $ 6 .

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

In connection with the February 2019 authorization, the remaining portion of the Company’s previous November 2018 repurchase authorization for up to $ 220,000 of our common stock was canceled.

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 $ 100,000 in cash and received an initial delivery of 4,051 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 628 shares of common stock.

In February 2020, the Company completed the 2019 ASR Agreement and received an additional 628 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, 4,679 shares were delivered under the 2019 ASR Agreement at an average purchase price of $ 21.37 per share.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during 2019, the Company repurchased 6,107 shares under the November 2018 and February 2019 authorizations referenced above with an aggregate purchase price of $ 117,685 , of which $ 1,801 was accrued at December 29, 2019, and excluding commissions of $ 86 .

As of December 29, 2019, the Company had $ 43,772 of availability remaining under its February 2019 authorization.

Subsequent to December 29, 2019 through February 18, 2020 , the Company repurchased 1,312 shares with an aggregate purchase price of $ 28,770 , excluding commissions of $ 18 .

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 $ 100,000 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 1,312 shares with an aggregate purchase price of $ 28,770 , excluding commissions of $ 18 , under the February 2019 authorization.

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

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during 2019, the Company repurchased 6,107 shares with an aggregate purchase price of $ 117,685 , of which $ 1,801 was accrued at December 29, 2019, and excluding commissions of $ 86 , under the February 2019 authorization and the Company’s November 2018 authorization referenced below.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

In February 2018, our Board of Directors authorized a repurchase program for up to $ 175,000 of our common stock through March 3, 2019, when and if market conditions warranted and to the extent legally permissible.

4 unchanged sentences

The total number of shares of common stock ultimately purchased by the Company under the 2018 ASR Agreement was based on the average of the daily volume-weighted average prices of the common stock during the term of the 2018 ASR Agreement, less an agreed upon discount.

In addition to the shares repurchased in connection with the 2018 ASR Agreement, during 2018, the Company repurchased

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

10,058 shares under the February 2018 and November 2018 authorizations with an aggregate purchase price of $ 172,584 , of which $ 1,827 was accrued at December 30, 2018, and excluding commissions of $ 141 .

In addition to the shares repurchased in connection with the 2018 ASR Agreement, during 2018, the Company repurchased 10,058 shares under the February 2018 and November 2018 authorizations with an aggregate purchase price of $ 172,584 , of which $ 1,827 was accrued at December 30, 2018, and excluding commissions of $ 141 .

In February 2017, our Board of Directors authorized a repurchase program for up to $ 150,000 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 8,607 shares under the February 2017 authorization with an aggregate purchase price of $ 127,367 , of which $ 1,259 was accrued at December 31, 2017, and excluding commissions of $ 123 .

The Company completed the February 2017 authorization during 2018 with the repurchase of 1,385 shares with an aggregate purchase price of $ 22,633 , excluding commissions of $ 19 .

3 unchanged sentences

The following table provides a rollforward of the components of accumulated other comprehensive income (loss), net of tax as applicable:

Foreign Currency Translation

Cash Flow Hedges (a)

Balance at January 1, 2017

Current-period other comprehensive income

Foreign Currency Translation Pension (a) Total

Balance at December 31, 2017 $ ( 45,149 ) $ ( 1,049 ) $ ( 46,198 )

3 unchanged sentences

Balance at December 29, 2019 ( 53,828 ) — ( 53,828 )

Current-period other comprehensive income 4,187 — 4,187

Balance at January 3, 2021 $ ( 49,641 ) $ — $ ( 49,641 )

_______________

During 2015, the Company terminated seven forward-starting interest rate swaps designated as cash flow hedges, which had an original maturity date of December 31, 2017.

As a result, current-period other comprehensive income for 2017 includes the reclassification of unrealized losses on cash flow hedges of $ 1,797 from “Accumulated other comprehensive loss” to our consolidated statement of operations consisting of $ 2,894 recorded to “Interest expense, net,” net of the related income tax benefit of $ 1,097 recorded to “ (Provision for) benefit from income taxes .”

(b) During 2018, the Company terminated two frozen defined benefit plans.

(a) During 2018, the Company terminated two frozen defined benefit plans.

See Note 19 for further information.

(16) Share-Based Compensation

The Company has the ability to grant stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance compensation awards to current or prospective employees, directors, officers, consultants or advisors pursuant to the Company’s 2010 Omnibus Award Plan (as amended, the “2010 Plan”).

The 2010 Plan was initially adopted with shareholder approval in May 2010 and was amended with shareholder approval in June 2015 to, among other things, increase the number of shares of common stock available for issuance under the plan.

All equity grants during 2019 , 2018 and 2017 were issued from the 2010 Plan, and the 2010 Plan is currently the only equity plan from which future equity awards may be granted.

As of December 29, 2019 , there were approximately 22,440 shares of common stock available for future grants under the 2010 Plan.

During the periods presented in the consolidated financial statements, the Company settled all exercises of stock options and vesting of restricted shares, including performance shares, with treasury shares.

During 2020, the Company’s Board of Directors and its stockholders approved the adoption of the 2020 Omnibus Award Plan (the “2020 Plan”) for the issuance of equity instruments as described above.

The Company’s previous 2010 Omnibus Award Plan (as amended, the “2010 Plan”) expired in accordance with its terms in 2020.

Equity grants in 2020 were issued from both the 2020 Plan and the 2010 Plan.

All equity grants during 2019 and 2018 were issued from the 2010 Plan.

The 2020 Plan is currently the only equity plan from which future equity awards may be granted, but outstanding awards granted under the 2010 Plan will continue to be governed by the terms of the 2010 Plan.

As of January 3, 2021, there were approximately 26,691 shares of common stock available for future grants under the 2020 Plan.

During the periods presented in

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

the consolidated financial statements, the Company settled all exercises of stock options and vesting of restricted shares, including performance shares, with treasury shares.

Stock Options

4 unchanged sentences

The following table summarizes stock option activity during 2020:

Number of Options

Life in Years

Number of Options Weighted

Price Weighted

Life in Years Aggregate

Outstanding at December 29, 2019 11,937 $ 13.92

Granted 1,807 22.48

Exercised ( 2,395 ) 10.09

Forfeited and/or expired ( 107 ) 19.48

Outstanding at December 29, 2019

Vested or expected to vest at December 29, 2019

Exercisable at December 29, 2019

Outstanding at January 3, 2021 11,242 $ 16.06 6.74 $ 66,853

Vested or expected to vest at January 3, 2021 11,115 $ 16.01 6.72 $ 66,676

Exercisable at January 3, 2021 7,240 $ 13.46 5.59 $ 61,278

The total intrinsic value of options exercised during 2020, 2019 and 2018 was $ 28,111 , $ 26,947 and $ 62,744 , respectively.

1 unchanged sentence

The weighted average grant date fair value of stock options was determined using the following assumptions:

2020 2019 2018

Risk-free interest rate 0.22 % 1.57 % 2.77 %

5 unchanged sentences

The expected option life represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends for similar grants.

The expected volatility is based on the historical market price volatility of the Company as well as our industry peer group.

The expected volatility is based on the historical market price volatility of the Company over a period equivalent to the expected option life.

The expected dividend yield represents the Company’s annualized average yield for regular quarterly dividends declared prior to the respective stock option grant dates.

1 unchanged sentence

Employee stock option awards have characteristics significantly different from those of traded options and changes in the subjective input assumptions can materially affect the fair value estimates.

Restricted Shares

The Company grants RSAs and RSUs, which primarily cliff vest after 1 to 3 years .

For the purposes of our disclosures, the term “Restricted Shares” applies to RSAs and RSUs collectively unless otherwise noted.

The fair value of Restricted Shares granted is determined using the average of the high and low trading prices of our common stock on the date of grant.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

Restricted Shares

The Company grants RSAs and RSUs, which primarily cliff vest after 1 to 3 years.

For the purposes of our disclosures, the term “Restricted Shares” applies to RSAs and RSUs collectively unless otherwise noted.

The fair value of Restricted Shares granted is determined using the fair market value of the Company’s common stock on the date of grant, as set forth in the applicable plan document.

The following table summarizes activity of Restricted Shares during 2020:

Number of Restricted Shares

Number of Restricted Shares Weighted

Grant Date Fair Value

Non-vested at December 29, 2019 1,071 $ 16.46

Non-vested at December 29, 2019

Granted 458 22.39

Vested ( 401 ) 16.11

Forfeited ( 39 ) 18.37

Non-vested at January 3, 2021 1,089 $ 19.01

The total fair value of Restricted Shares that vested in 2020, 2019 and 2018 was $ 8,634 , $ 9,996 and $ 10,060 , respectively.

3 unchanged sentences

The quantity of shares awarded ranges from 0 % to 200 % of “Target,” as defined in the award agreement as the midpoint number of shares, based on the level of achievement of the performance and market conditions.

The fair values of the performance condition awards granted in 2019, 2018 and 2017 were determined using the average of the high and low trading prices of our common stock on the date of grant.

The fair values of the performance condition awards granted in 2020, 2019 and 2018 were determined using the fair market value of the Company’s common stock on the date of grant, as set forth in the applicable plan document.

Share-based compensation expense recorded for performance condition awards is reevaluated at each reporting period based on the probability of the achievement of the goal.

The fair value of market condition awards granted in 2020, 2019 and 2018 were estimated using the Monte Carlo simulation model.

The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that the market conditions will be achieved and is applied to the average of the high and low trading prices of our common stock on the date of grant.

The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that the market conditions will be achieved and is applied to the trading price of our common stock on the date of grant.

The input variables are noted in the table below:

2020 2019 2018

Risk-free interest rate 1.38 % 2.51 % 2.38 %

3 unchanged sentences

_______________

The Monte Carlo method assumes a reinvestment of dividends.

(a) The Monte Carlo method assumes a reinvestment of dividends.

Share-based compensation expense is recorded ratably for market condition awards during the requisite service period and is not reversed, except for forfeitures, at the vesting date regardless of whether the market condition is met.

3 unchanged sentences

The following table summarizes activity of performance shares at Target during 2020:

Performance Condition Awards

Market Condition Awards

Grant Date Fair Value

Performance Condition Awards Market Condition Awards

Shares Weighted

Grant Date Fair Value Shares Weighted

Grant Date Fair Value

Non-vested at December 29, 2019 439 $ 15.75 362 $ 19.09

Granted 149 23.37 115 30.31

Dividend equivalent units issued (a) 7 — 6 —

Non-vested at December 29, 2019

Vested (b) ( 148 ) 13.87 ( 130 ) 16.81

Forfeited ( 18 ) 17.29 ( 7 ) 26.32

Non-vested at January 3, 2021 429 $ 19.06 346 $ 23.65

_______________

Dividend equivalent units are issued in lieu of cash dividends for non-vested performance shares.

(a) Dividend equivalent units are issued in lieu of cash dividends for non-vested performance shares.

There is no weighted average fair value associated with dividend equivalent units.

Performance condition awards and market condition awards exclude the vesting of an additional 169 and 157 shares, respectively, which resulted from the performance of the awards exceeding Target.

(b) Market condition awards exclude the vesting of an additional 80 shares, which resulted from the performance of the awards exceeding Target.

The total fair value of performance condition awards that vested in 2020, 2019 and 2018 was $ 3,447 , $ 7,720 and $ 3,681 , respectively.

The total fair value of market condition awards that vested in 2020, 2019 and 2018 was $ 4,910 , $ 7,135 and $ 3,143 , respectively.

No market condition awards vested in 2017.

Modifications of Share-Based Awards

During 2019, 2018 and 2017, the Company modified the terms of awards granted to ten , eight and 31 employees, respectively, in connection with its IT realignment and G&A realignment plans discussed in Note 5 .

During 2020, 2019 and 2018, the Company modified the terms of awards granted to seven , ten and eight employees, respectively, in connection with its Operations and Field Realignment Plan, IT Realignment Plan and G&A Realignment Plan discussed in Note 5.

These modifications resulted in the accelerated vesting of certain stock options in connection with the termination of such employees.

2 unchanged sentences

Total share-based compensation and the related income tax benefit recognized in the Company’s consolidated statements of operations were as follows:

2020 2019 2018

Stock options $ 8,499 $ 7,685 $ 7,172

11 unchanged sentences

(In Thousands Except Per Share Amounts)

2019, 2018 and 2017 include $ 396 , $ 319 and $ 197 , respectively, related to retention awards in connection with the Company’s G&A realignment plan, which is included in “Reorganization and realignment costs.” See Note 5 for further information.

As of December 29, 2019 , there was $ 20,978 of total unrecognized share-based compensation, which will be recognized over a weighted average amortization period of 2.11 years.

(a) 2020, 2019 and 2018 include $ 213 , $ 396 and $ 319 , respectively, related to retention awards in connection with the Company’s G&A Realignment Plan, which is included in “Reorganization and realignment costs.” See Note 5 for further information.

As of January 3, 2021, there was $ 25,156 of total unrecognized share-based compensation, which will be recognized over a weighted average amortization period of 2.16 years.

(17) Impairment of Long-Lived Assets

The Company records impairment charges as a result of (1) the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of Company-operated restaurants, including any subsequent lease modifications, (2) the deterioration in operating performance of certain Company-operated restaurants and (3) closing Company-operated restaurants and classifying such surplus properties as held for sale.

The Company records impairment charges as a result of (1) the deterioration in operating performance of certain Company-operated restaurants, (2) the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of Company-operated restaurants, including any subsequent lease modifications, and (3) closing Company-operated restaurants and classifying such surplus properties as held for sale.

Impairment charges during 2020 were primarily due to the deterioration in operating performance of certain Company-operated restaurants as a result of the COVID-19 pandemic.

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

The following is a summary of impairment losses recorded, which represent the excess of the carrying amount over the fair value of the affected assets and are included in “Impairment of long-lived assets:”

Restaurants leased or subleased to franchisees

2020 2019 2018

Company-operated restaurants $ 7,586 $ 294 $ 4,060

Restaurants leased or subleased to franchisees — 5,308 283

Surplus properties 451 1,397 354

(18) Investment Income, Net

$ 8,037 $ 6,999 $ 4,697

(18) Investment (Loss) Income, Net

2020 2019 2018

Gain on sale of investments, net (a) (b) $ — $ 24,496 $ 450,000

Other than temporary loss on other investments in equity securities

Impairment loss on other investments in equity securities ( 471 ) — —

Other, net 246 1,102 736

$ ( 225 ) $ 25,598 $ 450,736

In October 2019, the Company received a $ 25,000 cash settlement related to a previously held investment.

As a result, the Company recorded $ 24,366 to “Investment income, net” and $ 634 to “General and administrative” for the reimbursement of related costs.

During 2018, the Company sold its remaining ownership interest in Inspire Brands for $ 450,000 .

_______________

(a) In October 2019, the Company received a $ 25,000 cash settlement related to a previously held investment.

As a result, the Company recorded $ 24,366 to “Investment (loss) income, net” and $ 634 to “General and administrative” for the reimbursement of related costs.

(b) During 2018, the Company sold its remaining ownership interest in Inspire Brands for $ 450,000 .

See Note 8 for further information.

15 unchanged sentences

As of January 1, 2011, participation in the SERP was frozen to new entrants and future contributions, and existing participants’ balances only earn annual interest.

The corresponding SERP liabilities have been included in “ Accrued expenses and other current liabilities ” and “ Other liabilities ” and, in the aggregate, were $ 662 and $ 1,257 as of December 29, 2019 and December 30, 2018 , respectively.

The corresponding SERP liabilities are included in “Accrued expenses and other current liabilities” and “Other liabilities” and, in the aggregate, were $ 432 and $ 662 as of January 3, 2021 and December 29, 2019, respectively.

Effective January 1, 2017, the Company implemented a non-qualified, unfunded deferred compensation plan for management and highly compensated employees, whereby participants may defer all or a portion of their base compensation and certain incentive awards on a pre-tax basis.

1 unchanged sentence

The Company may also make discretionary contributions to the plan.

The total of participant deferrals was $ 774 and $ 444 at December 29, 2019 and December 30, 2018 , respectively, which were included in “ Other liabilities .”

The total of participant deferrals was $ 1,108 and $ 774 at January 3, 2021 and December 29, 2019, respectively, which are included in “Other liabilities.”

Nature of Leases

1 unchanged sentence

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

At December 29, 2019 , Wendy’s and its franchisees operated 6,788 Wendy’s restaurants.

Of the 357 Company-operated Wendy’s restaurants at December 29, 2019 , Wendy’s owned the land and building for 143 restaurants, owned the building and held long-term land leases for 145 restaurants and held leases covering the land and building for 69 restaurants.

At January 3, 2021, Wendy’s and its franchisees operated 6,828 Wendy’s restaurants.

Of the 361 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for 142 restaurants, owned the building and held long-term land leases for 149 restaurants and held leases covering the land and building for 70 restaurants.

Wendy’s also owned 509 and leased 1,245 properties that were either leased or subleased principally to franchisees.

1 unchanged sentence

Company as Lessee

The components of lease cost for 2019 are as follows:

The components of lease cost for 2020 and 2019 are as follows:

Finance lease cost:

1 unchanged sentence

Interest on finance lease liabilities 40,682 37,012

54,077 48,253

Operating lease cost 91,475 90,537

7 unchanged sentences

(In Thousands Except Per Share Amounts)

Includes expenses for executory costs of $ 37,758 , for which the Company is reimbursed by sublessees.

Includes $ 123,899 recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees and $ 27,419 recorded to “Cost of sales” for leases for Company-operated restaurants.

The components of rental expense for operating leases for 2018 and 2017, as accounted for under previous guidance, were as follows:

(a) Includes expenses for executory costs of $ 38,652 and $ 37,758 for 2020 and 2019, respectively, for which the Company is reimbursed by sublessees.

(b) Includes $ 125,553 and $ 123,899 for 2020 and 2019, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees.

Also includes $ 26,866 and $ 27,419 for 2020 and 2019, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

The components of rental expense for operating leases for 2018, as accounted for under previous guidance, were as follows:

Rental expense:

3 unchanged sentences

_______________

Amounts include rental expense related to (1) leases for Company-operated restaurants recorded to “Cost of sales,” (2) leased properties that are subsequently leased to franchisees recorded to “Franchise rental expense” and (3) leases for corporate offices and equipment recorded to “General and administrative.”

Accumulated amortization related to finance leases was $ 33,187 at December 30, 2018.

Amortization of finance lease assets was $ 11,603 and $ 9,025 for 2018 and 2017, respectively.

(a) Includes rental expense related to (1) leases for Company-operated restaurants recorded to “Cost of sales,” (2) leased properties that are subsequently leased to franchisees recorded to “Franchise rental expense” and (3) leases for corporate offices and equipment recorded to “General and administrative.”

Amortization of finance lease assets was $ 11,603 for 2018.

The following table includes supplemental cash flow and non-cash information related to leases:

10 unchanged sentences

The following table includes supplemental information related to leases:

December 29, 2019

January 3, 2021 December 29,

Weighted-average remaining lease term (years):

9 unchanged sentences

Operating lease assets 821,480 857,199

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of December 29, 2019 :

Company-Operated

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of January 3, 2021:

Leases Operating

Fiscal Year Company-Operated Franchise

and Other Company-Operated Franchise

2021 (a) $ 4,779 $ 47,503 $ 19,195 $ 70,730

2022 4,963 49,000 19,010 70,633

2023 4,927 50,632 19,037 70,460

2024 5,045 51,007 19,111 70,328

2025 5,140 51,423 19,065 69,977

Thereafter 59,126 628,162 167,441 699,756

Total minimum payments $ 83,980 $ 877,727 $ 262,859 $ 1,051,884

Less interest

Present value of minimum lease payments (a) (b)

( 30,716 ) ( 412,810 ) ( 77,388 ) ( 326,684 )

The present value of minimum finance lease payments of $ 11,005 and $ 480,847 are included in “Current portion of finance lease liabilities” and “Long-term finance lease liabilities,” respectively.

The present value of minimum operating lease payments of $ 43,775 and $ 897,737 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively.

Present value of minimum lease payments (b) (c) $ 53,264 $ 464,917 $ 185,471 $ 725,200

_______________

(a) In addition to the 2021 future minimum rental payments, the Company expects to pay $ 5,439 primarily during 2021 related to rent deferrals obtained due to the COVID-19 pandemic.

The related payable is included in “Accrued expenses and other current liabilities.” See Note 7 for further information.

(b) The present value of minimum finance lease payments of $ 12,105 and $ 506,076 are included in “Current portion of finance lease liabilities” and “Long-term finance lease liabilities,” respectively.

(c) The present value of minimum operating lease payments of $ 45,346 and $ 865,325 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of December 30, 2018:

Company-Operated

Total minimum payments

Less interest

Present value of minimum lease payments (a)

_______________

The present value of minimum finance lease payments of $ 8,405 and $ 447,231 are included in “Current portion of finance lease liabilities” and “Long-term finance lease liabilities,” respectively.

Company as Lessor

The components of lease income for 2019 are as follows:

The components of lease income for 2020 and 2019 are as follows:

Sales-type and direct-financing leases:

5 unchanged sentences

_______________

Included in “ Interest expense, net .”

Includes sublease income of $ 171,126 recognized during 2019, of which $ 37,739 represents lessees’ variable payments to the Company for executory costs.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The components of rental income for operating leases and subleases for 2018 and 2017, as accounted for under previous guidance, were as follows:

(a) Included in “Interest expense, net.”

(b) Includes sublease income of $ 169,921 and $ 171,126 recognized during 2020 and 2019, respectively.

Sublease income includes lessees’ variable payments to the Company for executory costs of $ 38,636 and $ 37,739 for 2020 and 2019, respectively.

The components of rental income for operating leases and subleases for 2018, as accounted for under previous guidance, were as follows:

Rental income:

3 unchanged sentences

_______________

Amounts include sublease income of $ 138,363 and $ 126,814 recognized during 2018 and 2017 , respectively.

During 2018 and 2017 , the Company recognized $ 27,638 and $ 22,869 in interest income related to our direct financing leases, respectively, which is included in “Interest expense, net.”

The following table illustrates the Company’s future minimum rental receipts for non-cancelable leases and subleases as of December 29, 2019 :

Sales-Type and

Direct Financing Leases

Owned Properties

Total future minimum receipts

Unearned interest income

Net investment in sales-type and direct financing leases (a)

_______________

The present value of minimum direct financing rental receipts of $ 3,146 and $ 256,606 are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively.

The present value of minimum direct financing rental receipts includes a net investment in unguaranteed residual assets of $ 197 .

(a) Includes sublease income of $ 138,363 .

During 2018, the Company recognized $ 27,638 in interest income related to our direct financing leases, which is included in “Interest expense, net.”

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

The following table illustrates the Company’s future minimum rental receipts for non-cancelable leases and subleases as of December 30, 2018:

The following table illustrates the Company’s future minimum rental receipts for non-cancelable leases and subleases as of January 3, 2021:

Sales-Type and

Direct Financing Leases

Owned Properties

Direct Financing Leases Operating

Fiscal Year Subleases Owned Properties Subleases Owned Properties

2021 (a) $ 31,128 $ 3,573 $ 110,920 $ 54,543

2022 31,953 2,037 111,605 56,017

2023 32,994 2,081 112,498 56,220

2024 34,965 2,089 112,541 57,311

2025 33,844 2,196 111,953 57,904

Thereafter 440,802 21,231 1,115,693 743,814

Total future minimum receipts 605,686 33,207 $ 1,675,210 $ 1,025,809

Unearned interest income ( 348,692 ) ( 16,015 )

Net investment in sales-type and direct financing leases (a)

Net investment in sales-type and direct financing leases (b) $ 256,994 $ 17,192

_______________

The present value of minimum direct financing rental receipts of $ 735 and $ 226,477 are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively.

(a) In addition to the 2021 future minimum rental receipts, the Company expects to collect $ 5,226 primarily during 2021 related to the offer to defer base rent payments in response to the COVID-19 pandemic.

The related receivable is included in “Accounts and notes receivable, net.” See Note 7 for further information.

(b) The present value of minimum direct financing rental receipts of $ 5,965 and $ 268,221 are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively.

The present value of minimum direct financing rental receipts includes a net investment in unguaranteed residual assets of $ 215 .

Properties owned by the Company and leased to franchisees and other third parties under operating leases include:

December 29, 2019

December 30, 2018

January 3, 2021 December 29, 2019

Land $ 279,956 $ 281,792

Buildings and improvements 309,605 311,047

Restaurant equipment 1,701 1,727

591,262 594,566

Accumulated depreciation and amortization ( 170,722 ) ( 157,130 )

$ 420,540 $ 437,436

(21) Guarantees and Other Commitments and Contingencies

1 unchanged sentence

Franchisee Image Activation Incentive Programs

In order to promote new restaurant development, Wendy’s has an incentive program for franchisees that provides for reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants opened by December 31, 2020, with the value of the incentives declining in the later years of the program.

In addition, during 2018, Wendy’s announced a restaurant development incentive program that provides for incremental reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants for existing franchisees that sign up for the program and commit to incremental development of new Wendy’s restaurants under a new development agreement.

Wendy’s also provides franchisees with the option of an early 20-year renewal of their franchise agreement upon completion of reimaging utilizing certain approved Image Activation remodel designs.

Wendy’s also had incentive programs for 2017 available to franchisees that commenced Image Activation restaurant remodels by December 15, 2017.

The remodel incentive programs provided for reductions in royalty payments for one year after the completion of construction.

In order to promote new restaurant development, Wendy’s has an incentive program for franchisees that provides for technical assistance fee waivers and reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants opened prior to December 31, 2022.

In addition, Wendy’s has a restaurant development incentive program that provides for incremental reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants for existing franchisees that sign up for the program under a new development agreement, or through an extension of their existing development agreement, and commit to incremental development of new Wendy’s restaurants.

Under any extended development agreements, franchisees are also eligible for technical assistance fee waivers for restaurants opened one year in advance of their original development schedule so long as

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

Other Loan Guarantees

Wendy’s provides loan guarantees to various lenders on behalf of franchisees entering into debt arrangements for equipment financing.

Wendy’s has accrued a liability for the fair value of these guarantees, the calculation of which was based upon a weighted average risk percentage established at the inception of each program which has been adjusted for a history of defaults.

Wendy’s potential recourse for the aggregate amount of these loans amounted to $ 6 as of December 29, 2019 .

As of December 29, 2019 , the fair value of these guarantees totaled $ 1 and is included in “Other liabilities.”

the restaurants are opened prior to December 31, 2022.

Wendy’s also provides franchisees with the option of an early 20 -year or 25 -year renewal of their franchise agreement upon completion of reimaging utilizing certain approved Image Activation reimage designs.

Wendy’s also had incentive programs for 2017 available to franchisees that commenced Image Activation restaurant remodels by December 15, 2017.

The remodel incentive programs provided for reductions in royalty payments for one year after the completion of construction.

Lease Guarantees

Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees, amounting to $ 75,626 as of December 29, 2019 .

These leases extend through 2045.

We have not received any notice of default related to these leases as of December 29, 2019 .

We have had no judgments against us as guarantor of these leases as of January 3, 2021.

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

The liability recorded for our probable exposure associated with these lease guarantees was not material as of January 3, 2021.

Wendy’s is self-insured for most workers’ compensation losses and purchases insurance for general liability and automotive liability losses, all subject to a $ 500 per occurrence retention or deductible limit.

Wendy’s determines its liability for claims incurred but not reported for the insurance liabilities on an actuarial basis.

As of December 29, 2019 , the Company had $ 20,588 recorded for these insurance liabilities.

As of January 3, 2021, the Company had $ 18,687 recorded for these insurance liabilities.

Wendy’s is self-insured for health care claims for eligible participating employees subject to certain deductibles and limitations and determines its liability for health care claims incurred but not reported based on historical claims runoff data.

As of December 29, 2019 , the Company had $ 2,349 recorded for these health care insurance liabilities.

As of January 3, 2021, the Company had $ 3,396 recorded for these health care insurance liabilities.

Letters of Credit

As of December 29, 2019 , the Company had outstanding letters of credit with various parties totaling $ 25,106 .

The outstanding letters of credit include amounts outstanding against the Class A-1 Notes.

As of January 3, 2021, the Company had outstanding letters of credit with various parties totaling $ 26,587 .

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

See Note 12 for further information.

8 unchanged sentences

The Company estimates future annual purchases to be approximately $ 10,000 in 2021, $ 10,500 in 2022, $ 11,000 in 2023, $ 11,400 in 2024 and $ 11,900 in 2025 based on current pricing and the expected ratio of usage at Company-operated restaurants to franchised restaurants.

As of December 29, 2019 , $ 2,542 is due to the beverage vendor and is included in “Accounts payable,” principally for annual estimated payments that exceeded usage under this agreement.

IT Services Agreement

In December 2019, the Company entered into an agreement to partner with a third-party global IT consultant on the Company’s new IT organization structure to leverage the consultant’s global capabilities, which the Company believes will enable a more seamless integration between its digital and corporate IT assets.

Costs incurred by the Company under this agreement were $ 1,386 during 2019 .

The Company’s unconditional purchase obligations under the agreement are approximately $ 16,800 in 2020, $ 17,200 in 2021, $ 15,400 in 2022, $ 13,000 in 2023 and $ 12,200 in 2024.

As of December 29, 2019 , $ 1,046 is due to the consultant and is included in “Accrued expenses and other current liabilities.”

As of January 3, 2021, $ 2,509 is due to the beverage vendor and is included in “Accounts payable,” principally for annual estimated payments that exceeded usage under this agreement.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

IT Services Agreement

Costs incurred by the Company under this agreement were $ 16,961 and $ 1,386 during 2020 and 2019, respectively.

The Company’s unconditional purchase obligations under the agreement are approximately $ 17,200 in 2021, $ 15,400 in 2022, $ 13,000 in 2023, $ 12,200 in 2024 and $ 6,600 in 2025.

As of January 3, 2021, $ 448 is due to the consultant and is included in “Accrued expenses and other current liabilities.”

Marketing Agreement

The Company has an agreement with two national broadcasters that grants the Company certain marketing and media rights.

Costs incurred by the Company under this agreement were approximately $ 11,000 in each of 2019 and 2018 , which are included in “ Advertising funds expense .” The Company’s unconditional purchase obligations under the agreement are approximately $ 15,500 in 2020, $ 12,400 in 2021, $ 12,900 in 2022, $ 13,400 in 2023 and $ 12,700 in 2024.

Costs incurred by the Company under this agreement were approximately $ 11,000 in each of 2019 and 2018, which are included in “Advertising funds expense.” No costs were incurred under this agreement in 2020.

The Company’s unconditional purchase obligations under the agreement are approximately $ 15,400 in 2021, $ 12,900 in 2022, $ 13,400 in 2023 and $ 12,700 in 2024.

(22) Transactions with Related Parties

The following is a summary of transactions between the Company and its related parties:

2020 2019 2018

Transactions with QSCC:

2 unchanged sentences

TimWen lease and management fee payments (c) $ 16,130 $ 16,660 $ 13,044

Yellow Cab royalty, advertising fund, lease and other income (d) $ 1,090 $ — $ —

_______________

Transactions with QSCC

Wendy’s has a purchasing co-op relationship agreement (the “Wendy’s Co-op”) with its franchisees which establishes Quality Supply Chain Co-op, Inc.

(a) Wendy’s has a purchasing co-op relationship structure (the “Wendy’s Co-op”) with its franchisees that establishes Quality Supply Chain Co-op, Inc.

QSCC manages, for the Wendy’s system in the U.S.

4 unchanged sentences

Should QSCC’s sourcing fees exceed its expected needs, QSCC’s board of directors may return some or all of the excess to its members in the form of a patronage dividend.

Wendy’s recorded its share of patronage dividends of $ 504 , $ 470 and $ 987 in 2019 , 2018 and 2017 , respectively, which are included as a reduction of “Cost of sales.”

Pursuant to a lease agreement entered into on January 1, 2017, Wendy’s leased 14,333 square feet of office space to QSCC for an annual base rental of $ 215 .

The lease expires on December 31, 2020.

Wendy’s recorded its share of patronage dividends of $ 504 and $ 470 in 2019 and 2018, respectively, which are included as a reduction of “Cost of sales.” There were no patronage dividends recorded during 2020.

(b) Pursuant to a lease agreement entered into on January 1, 2017, Wendy’s leased 14,333 square feet of office space to QSCC for an annual base rental of $ 215 .

In November 2018, the lease agreement was amended to increase the leased square footage to 14,493 and to increase the annual base rental to $ 217 .

The lease was further amended in December 2020 to extend the lease term by one year to December 31, 2021.

The Company received $ 217 , $ 217 and $ 215 of lease income from QSCC during 2020, 2019 and 2018, respectively, which has been recorded to “Franchise rental income.”

TimWen lease and management fee payments

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

Wendy’s paid TimWen $ 16,867 , $ 13,256 and $ 12,572 under these lease agreements during 2019 , 2018 and 2017 , respectively.

In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 207 , $ 212 and $ 212 during 2019 , 2018 and 2017 , respectively, which has been included as a reduction to “General and administrative.”

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

TimWen lease and management fee payments

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

Wendy’s paid TimWen $ 16,339 , $ 16,867 and $ 13,256 under these lease agreements during 2020, 2019 and 2018, respectively.

In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 209 , $ 207 and $ 212 during 2020, 2019 and 2018, respectively, which has been included as a reduction to “General and administrative.”

Transactions with Yellow Cab

(d) Certain family members and affiliates of Mr.

Nelson Peltz, our Chairman, and Mr.

Peter May, our Vice Chairman, as well as Mr.

Matthew Peltz, a director of the Company, hold indirect, minority ownership interests in operating companies managed by Yellow Cab Holdings, LLC (“Yellow Cab”), a Wendy’s franchisee, that as of January 3, 2021 owned and operated 24 Wendy’s restaurants.

During the three months ended January 3, 2021, the Company recognized $ 1,090 in royalty, advertising fund, lease and other income from Yellow Cab and related entities.

As of January 3, 2021, $ 298 was due from Yellow Cab for such payments, which is included in “Accounts and notes receivable, net.”

In November 2020, the Company submitted a consortium bid together with a group of pre-qualified franchisees (of which Yellow Cab was a member) to acquire the Wendy’s restaurants owned by NPC, the Company’s largest franchisee, which filed for chapter 11 bankruptcy in July 2020.

As part of the consortium bid, in November 2020, the Company received deposits from each of the pre-qualified franchisees (including Yellow Cab), which amounts were transferred to a third-party escrow account pending resolution of the bankruptcy sale process.

The Yellow Cab deposit is included in “Accrued expenses and other current liabilities” and an amount equal to that deposit is being held in escrow and is included in “Prepaid expenses and other current assets” as of January 3, 2021.

On January 7, 2021, following a court-approved mediation process, Yellow Cab was selected as the purchaser for 54 of NPC’s Wendy’s restaurants and, at closing, its deposit will be applied against the purchase price for the restaurants.

See Note 4 for further information.

(23) Legal and Environmental Matters

The Company is involved in litigation and claims incidental to our current and prior businesses.

The Company is involved in litigation and claims incidental to our business.

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, including the accrual that we recorded for the legal proceedings related to a cybersecurity incident as described below.

See Note 11 for further information on the accrual.

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

We cannot estimate the aggregate possible range of loss for our existing litigation and claims 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 is thus inherently difficult and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period.

The Company was named as a defendant in putative class action lawsuits alleging, among other things, that the Company failed to safeguard customer credit card information and failed to provide notice that credit card information had been compromised in connection with the cybersecurity incidents described herein.

Jonathan Torres and other consumers filed an action in the U.S.

District Court for the Middle District of Florida (the “Torres Case”).

On August 23, 2018, the court preliminarily approved a class-wide settlement of the Torres Case.

On February 26, 2019, the court granted final approval of the settlement agreement.

At this time, the Torres Case has been dismissed with prejudice (with no appeal taken), all claims and other amounts payable per the terms of the settlement agreement have been paid, and the matter is considered closed.

Certain financial institutions also filed class actions lawsuits in the U.S.

District Court for the Western District of Pennsylvania, which seek to certify a nationwide class of financial institutions that issued payment cards that were allegedly impacted in connection with the cybersecurity incidents described herein.

Those cases were consolidated into a single case (the “FI Case”).

On February 26, 2019, the court preliminarily approved a class-wide settlement of the FI Case.

On November 6, 2019, the court granted final approval of the settlement agreement.

Under the terms of the settlement agreement, a settlement class of financial institutions received $ 50,000 , inclusive of attorneys’ fees and costs.

After exhaustion of applicable insurance, the Company paid approximately $ 24,650 of this amount in January 2020.

In exchange, the Company and its franchisees received a full release of all claims that have or could have been brought by financial institutions who did not opt out of the settlement.

During 2018, the Company recorded a liability of $ 50,000 and insurance receivables of $ 22,500 for the FI Case.

During 2019, as a result of cost savings related to the settlement of the Torres Case, the Company adjusted its insurance receivables for the FI Case to approximately $ 25,000 .

See Note 11 for further information.

Certain of the Company’s present and former directors have been named in two putative shareholder derivative complaints arising out of the cybersecurity incidents described herein.

Predicting the outcomes of settlement discussions or judicial or arbitral decisions is inherently difficult and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period.

Certain of the Company’s present and former directors have been named in two putative shareholder derivative complaints arising out of the cybersecurity incidents that affected certain of our franchisees in 2015 and 2016.

The first case, brought by James Graham in the U.S.

16 unchanged sentences

In addition to the contributions to the Advertising Funds, Company-operated and franchised restaurants make additional contributions to other local and regional advertising programs.

Restricted assets and related liabilities of the Advertising Funds at December 29, 2019 and December 30, 2018 are as follows:

December 29, 2019

December 30, 2018

Cash and cash equivalents

Restricted assets and related liabilities of the Advertising Funds at January 3, 2021 and December 29, 2019 are as follows:

January 3, 2021 December 29, 2019

Cash and cash equivalents (a) $ 77,279 $ 23,973

Accounts receivable, net 63,252 54,394

Other assets 1,775 4,009

Advertising funds restricted assets $ 142,306 $ 82,376

Accounts payable

Accounts payable (a) $ 123,064 $ 66,749

Accrued expenses and other current liabilities 17,447 17,446

Advertising funds restricted liabilities $ 140,511 $ 84,195

_______________

(a) Increases during 2020 are due to the timing of payments to vendors.

Advertising expenses included in “Cost of sales” totaled $ 29,671 , $ 29,954 and $ 27,939 in 2020, 2019 and 2018, respectively.

1 unchanged sentence

The table below presents revenues and properties information by geographic area:

Other International

(26) Segment Information

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.

International Total

Revenues $ 1,635,696 $ 98,129 $ 1,733,825

Properties 879,806 36,083 915,889

Revenues $ 1,606,619 $ 102,383 $ 1,709,002

Properties 941,607 35,393 977,000

Revenues $ 1,495,639 $ 94,297 $ 1,589,936

Properties 990,992 32,275 1,023,267

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

The Company is now comprised of the following segments:

(26) Segment Information

The Company is comprised of the following segments:

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

9 unchanged sentences

The accounting policies of the Company’s segments are the same as those described in Note 1.

Revenues by segment were as follows:

Revenues by segment are as follows:

2020 2019 2018

$ 1,431,382 $ 1,404,307 $ 1,312,491

Wendy’s International 65,642 68,198 67,630

2 unchanged sentences

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

2020 2019 2018

(a) $ 393,314 $ 369,193 $ 355,455

Wendy’s International 20,119 20,246 25,597

2 unchanged sentences

Advertising funds surplus 2,904 1,337 4,153

Unallocated general and administrative (a)

Unallocated general and administrative (b) ( 94,256 ) ( 81,230 ) ( 104,208 )

Depreciation and amortization ( 132,775 ) ( 131,693 ) ( 128,879 )

System optimization gains (losses), net

System optimization gains, net 3,148 1,283 463

Reorganization and realignment costs ( 16,030 ) ( 16,965 ) ( 9,068 )

3 unchanged sentences

Loss on early extinguishment of debt — ( 8,496 ) ( 11,475 )

Investment income, net

Investment (loss) income, net ( 225 ) 25,598 450,736

Other income, net 1,449 7,771 5,381

1 unchanged sentence

_______________

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

2018 also includes the impact of legal reserves for a settlement of the FI Case of $ 27,500 .

(a) 2020 includes advertising funds expense of $ 14,600 related to the Company funding of incremental advertising.

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

2018 also includes the impact of legal reserves for a settlement of the financial institutions class action of $ 27,500 .

THE WENDY’S COMPANY AND SUBSIDIARIES

3 unchanged sentences

Net income (loss) of equity method investments by segment was as follows:

2020 2019 2018

Wendy’s International $ ( 417 ) $ ( 1,022 ) $ ( 1,344 )

3 unchanged sentences

The tables below set forth summary unaudited consolidated quarterly financial information for 2020 and 2019.

The Company reports on a fiscal year typically consisting of 52 or 53 weeks ending on the Sunday closest to December 31.

All of the Company’s fiscal quarters in 2019 and 2018 contained 13 weeks.

The Company reports on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31.

During 2020, the Company’s first, second and third fiscal quarters contained 13 weeks and the Company’s fourth quarter contained 14 weeks.

All of the Company’s fiscal quarters in 2019 contained 13 weeks.

2020 Quarter Ended (a)

March 29 June 28 September 27 January 3

Revenues $ 404,960 $ 402,306 $ 452,242 $ 474,317

Cost of sales 149,999 140,626 159,545 164,737

Operating profit 48,732 60,661 81,348 78,567

Net income $ 14,441 $ 24,904 $ 39,753 $ 38,734

Basic income per share

$ .06 $ .11 $ .18 $ .17

Diluted income per share

$ .06 $ .11 $ .17 $ .17

2019 Quarter Ended (b)

March 31 June 30 September 29 December 29

Revenues $ 408,583 $ 435,348 $ 437,880 $ 427,191

Cost of sales 142,579 151,092 152,425 151,434

Operating profit 66,266 80,573 79,023 36,717

$ 31,894 $ 32,386 $ 46,127 $ 26,533

Basic income per share

$ .14 $ .14 $ .20 $ .12

Diluted income per share

$ .14 $ .14 $ .20 $ .11

The Company’s consolidated statements of operations in fiscal 2019 were significantly impacted by investment income, net, franchise support and other costs, reorganization and realignment costs and loss on early extinguishment of debt.

_______________

(a) The Company’s consolidated statements of operation in fiscal 2020 were significantly impacted by the advertising funds deficit and reorganization and realignment costs.

The pre-tax impact of the advertising funds deficit for the first, second and third quarters was $ 1,387 , $ 3,205 and $ 7,293 , respectively.

The pre-tax impact of reorganization and realignment costs for the first, second, third, and fourth quarters was $ 3,910 , $ 2,911 , $ 3,375 and $ 5,834 , respectively (see Note 5 for further information).

(b) The Company’s consolidated statements of operations in fiscal 2019 were significantly impacted by investment income, net, franchise support and other costs, reorganization and realignment costs and loss on early extinguishment of debt.

The pre-tax impact of investment income, net for the fourth quarter was $ 24,599 (see Note 8 for further information).

4 unchanged sentences

The pre-tax impact of loss on early extinguishment of debt for the second and fourth quarters was $ 7,150 and $ 1,346 , respectively (see Note 12 for further information).

The Company’s consolidated statements of operations in fiscal 2018 were significantly impacted by investment income, net, reorganization and realignment costs, loss on early extinguishment of debt and legal reserves for the FI Case.

The pre-tax impact of investment income, net for the third quarter was $ 450,133 and included the sale of our remaining ownership interest in Inspire Brands (see Note 8 for further information).

The pre-tax impact of reorganization and realignment costs for the first, second, third and fourth quarters was $ 2,626 , $ 3,124 , $ 941 and $ 2,377 , respectively (see Note 5 for further information).

The pre-tax impact of loss on early extinguishment of debt for the first quarter was $ 11,475 (see Note 12 for further information).

The pre-tax impact of legal reserves for the FI Case for the fourth quarter was $ 27,500 (see Note 23 for further information).

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

1 unchanged sentence

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 8. Financial Statements and Supplementary Data