What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-12 compared with 2020-11-04 · 220 added, 422 removed, 498 unchanged (56% of the section changed)

3 unchanged sentences

(In Thousands Except Par Value)

September 27,

2020 December 29,

2021 January 3,

ASSETS (Unaudited)

51 unchanged sentences

(In Thousands Except Per Share Amounts)

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Sales $ 189,057 $ 166,798

17 unchanged sentences

Interest expense, net ( 28,786 ) ( 28,525 )

Loss on early extinguishment of debt — — — ( 7,150 )

Other income, net 129 1,076

9 unchanged sentences

(In Thousands)

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Net income $ 41,366 $ 14,441

10 unchanged sentences

Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total

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

Net income — — 14,441 — — 14,441

Other comprehensive loss

— — — — ( 12,507 ) ( 12,507 )

Cash dividends — — ( 26,793 ) — — ( 26,793 )

Repurchases of common stock, including accelerated share repurchase

— 15,000 — ( 58,336 ) — ( 43,336 )

Share-based compensation — 4,539 — — — 4,539

Common stock issued upon exercises of stock options

— 280 — 1,330 — 1,610

Common stock issued upon vesting of restricted shares

— ( 4,017 ) — 726 — ( 3,291 )

Other — 33 ( 7 ) 27 — 53

Balance at March 29, 2020 $ 47,042 $ 2,889,836 $ 173,366 $ ( 2,592,834 ) $ ( 66,335 ) $ 451,075

Net income — — 24,904 — — 24,904

Other comprehensive income

— — — — 4,149 4,149

Cash dividends — — ( 11,181 ) — — ( 11,181 )

Share-based compensation — 4,787 — — — 4,787

Common stock issued upon exercises of stock options

— ( 902 ) — 11,361 — 10,459

Common stock issued upon vesting of restricted shares

— ( 1,041 ) — 773 — ( 268 )

Other — 19 ( 3 ) 42 — 58

Balance at June 28, 2020 $ 47,042 $ 2,892,699 $ 187,086 $ ( 2,580,658 ) $ ( 62,186 ) $ 483,983

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

Net income — — 41,366 — — 41,366

Other comprehensive income — — — — 2,220 2,220

— — — — 3,220 3,220

Cash dividends — — ( 20,156 ) — — ( 20,156 )

6 unchanged sentences

Other — 49 ( 5 ) 44 — 88

Balance at September 27, 2020 $ 47,042 $ 2,896,767 $ 215,635 $ ( 2,578,943 ) $ ( 58,966 ) $ 521,535

See accompanying notes to condensed consolidated financial statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED

(In Thousands)

Common Stock Additional

Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total

Balance at April 4, 2021 $ 47,042 $ 2,901,460 $ 259,879 $ ( 2,640,295 ) $ ( 47,421 ) $ 520,665

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

Net income — — 14,441 — — 14,441

Other comprehensive income — — — — 6,025 6,025

Cash dividends — — ( 23,069 ) — — ( 23,069 )

Repurchases of common stock — — — ( 29,370 ) — ( 29,370 )

Share-based compensation — 5,022 — — — 5,022

Common stock issued upon exercises of stock options

— ( 205 ) — 9,053 — 8,848

Common stock issued upon vesting of restricted shares

— ( 8,874 ) — 2,819 — ( 6,055 )

Cumulative effect of change in accounting principle

Other comprehensive loss

— — — — ( 12,507 ) ( 12,507 )

Other — 24 ( 6 ) 37 — 55

Balance at March 31, 2019 $ 47,042 $ 2,880,663 $ 153,991 $ ( 2,385,354 ) $ ( 55,648 ) $ 640,694

Net income — — 32,386 — — 32,386

Other comprehensive income — — — — 3,835 3,835

Cash dividends — — ( 26,793 ) — — ( 26,793 )

Repurchases of common stock — — — ( 20,391 ) — ( 20,391 )

Share-based compensation — 4,986 — — — 4,986

Common stock issued upon exercises of stock options

— ( 339 ) — 10,830 — 10,491

Common stock issued upon vesting of restricted shares

Repurchases of common stock, including accelerated share repurchase

— 15,000 — ( 58,336 ) — ( 43,336 )

Other — 26 ( 4 ) 37 — 59

Balance at June 30, 2019 $ 47,042 $ 2,883,484 $ 163,249 $ ( 2,393,914 ) $ ( 51,813 ) $ 648,048

Net income — — 46,127 — — 46,127

Other comprehensive loss — — — — ( 2,297 ) ( 2,297 )

Cash dividends — — ( 23,087 ) — — ( 23,087 )

Repurchases of common stock — — — ( 26,462 ) — ( 26,462 )

Share-based compensation — 4,539 — — — 4,539

4 unchanged sentences

Other — 33 ( 7 ) 27 — 53

Balance at September 29, 2019 $ 47,042 $ 2,885,404 $ 186,282 $ ( 2,415,027 ) $ ( 54,110 ) $ 649,591

Balance at March 29, 2020 $ 47,042 $ 2,889,836 $ 173,366 $ ( 2,592,834 ) $ ( 66,335 ) $ 451,075

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Nine Months Ended

September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Cash flows from operating activities:

Net income $ 41,366 $ 14,441

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

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 31,542 31,046

4 unchanged sentences

Change in operating lease liabilities ( 11,607 ) ( 10,611 )

Net receipt of deferred vendor incentives 5,061 2,269

Net receipt (recognition) of deferred vendor incentives 6,522 ( 2,305 )

System optimization gains, net ( 516 ) ( 323 )

2 unchanged sentences

Changes in operating assets and liabilities and other, net 615 ( 69,445 )

Net cash provided by operating activities 205,759 237,500

Net cash provided by (used in) operating activities 85,830 ( 19,369 )

Cash flows from investing activities:

2 unchanged sentences

Dispositions 3 195

Proceeds from sale of investments 169 130

Notes receivable, net 397 313

4 unchanged sentences

Repayments of finance lease liabilities ( 2,659 ) ( 1,967 )

Deferred financing costs ( 2,122 ) ( 14,008 )

Repurchases of common stock ( 55,611 ) ( 45,137 )

2 unchanged sentences

Payments related to tax withholding for share-based compensation ( 2,308 ) ( 3,402 )

Net cash used in financing activities ( 115,328 ) ( 183,356 )

Net cash provided by operations before effect of exchange rate changes on cash 49,432 8,442

Net cash (used in) provided by financing activities ( 91,662 ) 63,404

Net cash (used in) provided by operations before effect of exchange rate changes on cash ( 10,917 ) 31,914

Effect of exchange rate changes on cash 823 ( 5,086 )

Net increase in cash, cash equivalents and restricted cash 47,717 11,197

Net (decrease) increase in cash, cash equivalents and restricted cash ( 10,094 ) 26,828

Cash, cash equivalents and restricted cash at beginning of period 418,241 358,707

3 unchanged sentences

Finance leases 5,539 9,274

September 27,

2020 December 29,

2021 January 3,

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

9 unchanged sentences

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements.

In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of September 27, 2020, the results of our operations for the three and nine months ended September 27, 2020 and September 29, 2019 and our cash flows for the nine months ended September 27, 2020 and September 29, 2019.

The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019 (the “Form 10-K”).

The novel coronavirus (COVID-19) pandemic has disrupted and is expected to continue to disrupt our business, which has materially affected and could continue to materially affect our financial condition and results of operations for an extended period of time.

As such, the results of operations for the three and nine months ended September 27, 2020 are not necessarily indicative of the results to be expected for the full 2020 fiscal year.

See Notes 7, 9, 11 and 14 for further information regarding actions taken by the Company in response to the COVID-19 pandemic and certain impacts of the COVID-19 pandemic on our condensed consolidated financial statements.

In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of April 4, 2021 and the results of our operations and cash flows for the three months ended April 4, 2021 and March 29, 2020.

The results of operations for the three months ended April 4, 2021 are not necessarily indicative of the results to be expected for the full 2021 fiscal year.

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic.

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.

The principal 100% owned subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”).

1 unchanged sentence

(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 this segment reporting structure.

See Note 17 for further information.

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to or on December 31.

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

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

All three-month periods presented herein contain 13 weeks.

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

Our significant interim accounting policies include the recognition of advertising funds expense in proportion to advertising funds revenue.

(2) New Accounting Standards

New Accounting Standards

Financial Instruments

In August 2020, the Financial Accounting Standards Board (“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 condensed consolidated financial statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

New Accounting Standards Adopted

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, 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 condensed 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 condensed 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 condensed consolidated financial statements.

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.

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

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Disaggregation of Revenue

1 unchanged sentence

Wendy’s International Global Real Estate & Development Total

Three Months Ended September 27, 2020

Sales at Company-operated restaurants $ 191,946 $ — $ — $ 191,946

Franchise royalty revenue 98,128 11,216 — 109,344

Franchise fees 5,651 463 1,362 7,476

Franchise rental income — — 58,721 58,721

Advertising funds revenue 79,170 5,585 — 84,755

Total revenues $ 374,895 $ 17,264 $ 60,083 $ 452,242

Nine Months Ended September 27, 2020

Sales at Company-operated restaurants $ 522,961 $ — $ — $ 522,961

Franchise royalty revenue 271,082 30,809 — 301,891

Franchise fees 16,244 1,369 2,141 19,754

Franchise rental income — — 173,434 173,434

Advertising funds revenue 226,907 14,561 — 241,468

Total revenues $ 1,037,194 $ 46,739 $ 175,575 $ 1,259,508

Three Months Ended September 29, 2019

Three Months Ended April 4, 2021

Sales at Company-operated restaurants $ 189,057 $ — $ — $ 189,057

Franchise royalty revenue 96,764 11,570 — 108,334

Franchise fees 5,199 1,011 678 6,888

Franchise fees (a) 11,930 1,443 1,123 14,496

Franchise rental income — — 58,876 58,876

1 unchanged sentence

Total revenues $ 381,954 $ 18,250 $ 59,999 $ 460,203

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Wendy’s International Global Real Estate & Development Total

Nine Months Ended September 29, 2019

Three Months Ended March 29, 2020

Sales at Company-operated restaurants $ 166,798 $ — $ — $ 166,798

Franchise royalty revenue 84,833 10,523 — 95,356

Franchise fees 15,867 2,508 1,927 20,302

Franchise fees (a) 5,285 473 591 6,349

Franchise rental income — — 57,856 57,856

1 unchanged sentence

Total revenues $ 331,041 $ 15,472 $ 58,447 $ 404,960

_______________

(a) Includes fees for providing information technology services to franchisees, which are recognized as revenue as earned.

Contract Balances

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

September 27,

2020 (a) December 29,

2021 (a) January 3, 2021 (a)

Receivables, which are included in “Accounts and notes receivable, net” (b) $ 57,546 $ 57,677

5 unchanged sentences

(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 $ 9,211 and $ 88,834 as of September 27, 2020, respectively, and $ 8,899 and $ 91,790 as of December 29, 2019, respectively.

(c) Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $ 8,715 and $ 86,532 as of April 4, 2021, respectively, and $ 8,691 and $ 89,094 as of January 3, 2021, respectively.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Significant changes in deferred franchise fees are as follows:

Nine Months Ended

September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Deferred franchise fees at beginning of period $ 97,785 $ 100,689

3 unchanged sentences

Deferred franchise fees at end of period $ 95,247 $ 99,611

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Anticipated Future Recognition of Deferred Franchise Fees

6 unchanged sentences

(3) Acquisitions

No restaurants were acquired from franchisees during the nine months ended September 27, 2020.

During the nine months ended September 29, 2019, the Company acquired five restaurants from franchisees for total net cash consideration of $ 5,052 .

The Company did not incur any material acquisition-related costs associated with the acquisitions during the nine months ended September 29, 2019 and such transactions were not significant to our condensed consolidated financial statements.

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:

Nine Months Ended

September 29,

Restaurants acquired from franchisees 5

Total consideration paid, net of cash received $ 5,052

Identifiable assets acquired and liabilities assumed:

Properties 666

Acquired franchise rights 1,354

Finance lease assets 5,350

Finance lease liabilities ( 4,084 )

Other ( 2,316 )

Total identifiable net assets 970

Goodwill $ 4,082

During 2018, the Company acquired 16 restaurants from a franchisee for total net cash consideration of $ 21,401 .

The fair values of the identifiable intangible assets related to the acquisition were provisional amounts as of December 30, 2018, pending final purchase accounting adjustments.

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 .

No restaurants were acquired from franchisees during the three months ended April 4, 2021 and March 29, 2020.

NPC Quality Burgers, Inc.

As previously announced, NPC, formerly 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 was 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.

During the three months ended April 4, 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 were sold to Wendy’s approved franchisees.

Under the transaction, FRG acquired 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 acquired the other half of NPC’s Wendy’s restaurants in the other four markets.

The Company did not acquire any restaurants as part of this transaction.

In addition, the deposits outstanding as of January 3, 2021 were settled during the three months ended April 4, 2021 upon resolution of the bankruptcy sale process.

The net settlement of deposits of $ 4,879 is included in “Acquisitions” in the condensed consolidated statements of cash flows.

THE WENDY’S COMPANY AND SUBSIDIARIES

5 unchanged sentences

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 the nine months ended September 27, 2020 and September 29, 2019, the Company facilitated 22 and three Franchise Flips, respectively.

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

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

During the three months ended April 4, 2021, the Company facilitated no Franchise Flips.

During the three months ended March 29, 2020, the Company facilitated three Franchise Flips.

The Company expects to sell 47 Company-operated restaurants in New York (including Manhattan) to franchisees in the second quarter of 2021.

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

2 unchanged sentences

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

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Post-closing adjustments on sales of restaurants (a) $ 515 $ 345

2 unchanged sentences

_______________

(a) The three and nine months ended September 27, 2020 represent the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

The three and nine months ended September 29, 2019 include the recognition of such deferred gains of $ 911 .

(b) During the nine months ended September 27, 2020, the Company received net cash proceeds of $ 3,570 , and during the three and nine months ended September 29, 2019, received cash proceeds of $ 798 and $ 2,038 , respectively, primarily from the sale of surplus and other properties.

(a) Represents the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

(b) During the three months ended April 4, 2021 and March 29, 2020, the Company received net cash proceeds of $ 3 and $ 195 , respectively, primarily from the sale of surplus and other properties.

Assets Held for Sale

September 27,

2020 December 29,

2021 January 3,

Number of restaurants classified as held for sale 47 43

2 unchanged sentences

_______________

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

(a) Net restaurant assets held for sale represent the New York Company-operated restaurants we expect to sell in the second quarter of 2021 (including Manhattan as of April 4, 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.

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

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Operations and field realignment $ 274 $ —

5 unchanged sentences

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.

The Operations and Field Realignment Plan realigned 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.

1 unchanged sentence

The Company expects to incur total costs aggregating approximately $ 7,000 to $ 9,000 related to the Operations and Field Realignment Plan.

During the nine months ended September 27, 2020, the Company recognized costs totaling $ 3,021 , which included severance and related employee costs and share-based compensation.

During the three months ended April 4, 2021, the Company recognized costs totaling $ 274 , which primarily included severance and related employee costs.

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 the remainder of 2020 and 2021.

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

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

Three Months Ended

September 27,

Three Months Ended Total

Incurred Since Inception

Severance and related employee costs $ 254 $ 3,367

Third-party and other costs 20 87

Share-based compensation (a) — 621

2 unchanged sentences

(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 table below presents a rollforward of our accruals for the Operations and Field Realignment Plan, which are included in “Accrued expenses and other current liabilities” as of September 27, 2020.

December 29, 2019 Charges Payments Balance

September 27,

The table below presents a rollforward of our accruals for the Operations and Field Realignment Plan, which are included in “Accrued expenses and other current liabilities” as of April 4, 2021.

January 3, 2021 Charges Payments Balance

Severance and related employee costs $ 2,600 $ 254 $ ( 1,410 ) $ 1,444

Third-party and other costs — 20 ( 20 ) —

$ 2,600 $ 274 $ ( 1,430 ) $ 1,444

THE WENDY’S COMPANY AND SUBSIDIARIES

4 unchanged sentences

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

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

Additionally, in June 2020, the Company made changes to its leadership structure that included the creation of a Chief Information Officer position and the elimination of the Chief Digital Experience Officer position.

As a result, the Company expects to incur total costs aggregating approximately $ 16,000 to $ 17,000 related to the IT Realignment Plan.

During the nine months ended September 27, 2020, the Company recognized costs totaling $ 6,809 , which primarily included third-party and other costs and severance and related employee costs.

The Company expects to incur additional costs aggregating approximately $ 1,000 , comprised primarily of recruitment and relocation costs.

The Company expects to recognize the majority of the remaining costs associated with the IT Realignment Plan during the remainder of 2020.

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

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 the three months ended March 29, 2020, the Company recognized costs totaling $ 3,559 , which primarily included third-party and other costs.

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:

Three Months Ended Nine Months Ended Total

Three Months Ended Total

Incurred Since Inception

September 27,

2020 September 27,

Severance and related employee costs $ 34 $ 1,009 $ 8,557

2021 March 29,

Severance and related employee costs (a) $ ( 111 ) $ 145 $ 8,280

Recruitment and relocation costs 108 171 1,404

1 unchanged sentence

— 3,559 16,222

Share-based compensation (a) — — 193

Share-based compensation (b) — — 193

Total IT realignment $ — $ 3,559 $ 16,415

_______________

(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.

The table below presents a rollforward of our accruals for the IT Realignment Plan, which are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 2,739 and $ 178 as of September 27, 2020, respectively.

(a) The three months ended April 4, 2021 includes a reversal of an accrual as a result of a change in estimate.

(b) 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.

The accruals for the IT Realignment Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 689 and $ 41 as of April 4, 2021 and $ 6,744 and $ 237 as of March 29, 2020, respectively.

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

January 3, 2021 Charges Payments Balance

Severance and related employee costs $ 1,508 $ ( 111 ) $ ( 667 ) $ 730

Recruitment and relocation costs — 108 ( 108 ) —

Third-party and other costs — 3 ( 3 ) —

$ 1,508 $ — $ ( 778 ) $ 730

December 29, 2019 Charges Payments Balance

September 27,

Severance and related employee costs $ 7,548 $ 145 $ ( 712 ) $ 6,981

9 unchanged sentences

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

During the nine months ended September 27, 2020 and September 29, 2019, the Company recognized costs related to the G&A Realignment Plan totaling $ 282 and $ 4,695 , respectively, which primarily included share-based compensation for 2020 and severance and related employee costs and share-based compensation for 2019.

During the three months ended March 29, 2020, the Company recognized costs totaling $ 267 , which primarily included severance and related employee costs and share-based compensation.

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

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

Three Months Ended Nine Months Ended Total

Three Months Ended Total

Incurred Since Inception

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

2021 March 29,

Severance and related employee costs (a) $ ( 31 ) $ 152 $ 24,235

6 unchanged sentences

_______________

(a) The three and nine months ended September 27, 2020 includes a reversal of an accrual as a result of a change in estimate.

(b) 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.

The accruals for the G&A realignment plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 1,705 and $ 18 as of September 27, 2020, respectively, and $ 3,491 and $ 507 as of September 29, 2019, respectively.

(a) The three months ended April 4, 2021 includes a reversal of an accrual as a result of a change in estimate.

(b) 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.

As of April 4, 2021, the accruals for the G&A realignment plan are included in “Accrued expenses and other current liabilities.” As of March 29, 2020, the accruals for the G&A realignment plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled and $ 3,781 and $ 408 , respectively.

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

2021 Charges Payments Balance

September 27,

Severance and related employee costs $ 932 $ ( 31 ) $ ( 501 ) $ 400

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2019 Charges Payments Balance

September 29,

Severance and related employee costs $ 5,276 $ 152 $ ( 1,306 ) $ 4,122

2 unchanged sentences

$ 5,359 $ 168 $ ( 1,338 ) $ 4,189

System Optimization Initiative

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

During the three months ended April 4, 2021, the Company recognized costs totaling $ 4,678 , which were primarily comprised of the write-off of certain lease assets and lease termination fees associated with the NPC bankruptcy sale process.

See Note 3 for further

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.

The Company has incurred costs of $ 72,365 under the initiative since inception and does not expect to incur any material additional costs under the plan.

(7) Cash and Receivables

September 27,

2020 December 29, 2019

Cash and cash equivalents

Cash $ 238,125 $ 185,203

Cash equivalents 75,062 114,992

313,187 300,195

Restricted cash

Accounts held by trustee for the securitized financing facility 38,127 34,209

Other 333 330

38,460 34,539

Advertising Funds (a) 54,777 23,973

93,237 58,512

Total cash, cash equivalents and restricted cash

$ 406,424 $ 358,707

_______________

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

September 27, 2020 December 29, 2019

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

Accounts and Notes Receivable, Net

Accounts receivable (a) (b) $ 89,593 $ ( 3,920 ) $ 85,673 $ 103,852 $ ( 3,314 ) $ 100,538

Notes receivable from franchisees (c) (d)

18,972 ( 4,520 ) 14,452 23,628 ( 6,705 ) 16,923

The Company expects to recognize a gain of approximately $ 1,400 related to the write-off of certain NPC-related lease liabilities upon final termination of the leases.

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

Three Months Ended Total

Incurred Since Inception

2021 March 29, 2020

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

Professional fees 235 80 22,342

Other (a) 1,354 4 7,207

1,589 84 47,786

Non-current (e)

Notes receivable from franchisees (d)

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

NPC lease termination costs (c) 3,089 — 3,089

Share-based compensation (d) — — 5,013

Total system optimization initiative $ 4,678 $ 84 $ 81,286

_______________

(a) The three months ended April 4, 2021 includes transaction fees of $ 1,350 associated with the NPC bankruptcy sale process.

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

(c) The three months ended April 4, 2021 includes the write-off of lease assets of $ 1,609 and lease termination fees paid of $ 1,480 .

(d) 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.”

2021 Charges Payments Balance

Professional fees $ 1,230 $ 235 $ ( 1,461 ) $ 4

Other — 1,354 ( 1,354 ) —

$ 1,230 $ 1,589 $ ( 2,815 ) $ 4

(a) Includes income tax refund receivables of $ 7,089 and $ 13,555 as of September 27, 2020 and December 29, 2019, respectively.

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

(b) During the nine months ended September 27, 2020, rent receivables increased by $ 7,291 .

This increase was primarily 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.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(c) Includes the current portion of sales-type and direct financing lease receivables of $ 4,054 and $ 3,146 as of September 27, 2020 and December 29, 2019, respectively.

Included a note receivable from a U.S.

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

The note was repaid during the nine months ended September 27, 2020.

(d) Includes a note receivable from a franchisee in India totaling $ 985 and $ 1,000 as of September 27, 2020 and December 29, 2019, respectively, which is included in non-current notes receivable as of September 27, 2020 and is included in current notes receivable as of December 29, 2019.

As of September 27, 2020 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 $ 1,643 and $ 1,262 are included in current notes receivable and $ 842 and $ 1,617 are included in non-current notes receivable as of September 27, 2020 and December 29, 2019, respectively.

Includes notes receivable related to a joint venture for the operation of Wendy’s restaurants in Brazil (the “Brazil JV”), of which $ 11,975 and $ 15,920 are included in current notes receivable as of September 27, 2020 and December 29, 2019, respectively, and $ 4,350 is included in non-current notes receivable as of September 27, 2020.

As of September 27, 2020 and December 29, 2019, the Company had reserves of $ 4,520 and $ 5,720 , respectively, on the loans outstanding related to the Brazil JV.

(e) Included in “Other assets.”

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 September 27, 2020, there were no material receivables more than one year past due.

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

Accounts Receivable Notes Receivable Total

Nine Months Ended September 27, 2020

Balance at December 29, 2019 $ 3,314 $ 6,705 $ 10,019

Provision for doubtful accounts 699 ( 8 ) 691

Uncollectible accounts written off, net of recoveries ( 93 ) ( 1,192 ) ( 1,285 )

Balance at September 27, 2020 $ 3,920 $ 5,505 $ 9,425

Nine Months Ended September 29, 2019

Balance at December 30, 2018 $ 4,940 $ 2,000 $ 6,940

Provision for doubtful accounts ( 1,544 ) 2,089 545

Uncollectible accounts written off, net of recoveries ( 220 ) 11 ( 209 )

Balance at September 29, 2019 $ 3,176 $ 4,100 $ 7,276

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(6) Investments

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Wendy’s has a 50 % share in a partnership in a Canadian restaurant real estate joint venture (“TimWen”) with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company that owns the Tim Hortons ® brand.

(Tim Hortons is a registered trademark of Tim Hortons USA Inc.) In addition, a wholly-owned subsidiary of Wendy’s has a 20 % share in the Brazil JV.

(Tim Hortons is a registered trademark of Tim Hortons USA Inc.) In addition, a wholly-owned subsidiary of Wendy’s has a 20 % share in a joint venture for the operation of Wendy’s restaurants in Brazil (the “Brazil JV”).

The Company has significant influence over these investees.

Such investments 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Presented below is activity related to our investment in TimWen and the Brazil JV included in our condensed consolidated financial statements:

Nine Months Ended

September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Balance at beginning of period $ 44,574 $ 45,310

9 unchanged sentences

Long-term debt consisted of the following:

September 27,

2020 December 29,

2021 January 3,

Series 2019-1 Class A-2 Notes:

18 unchanged sentences

Total long-term debt $ 2,205,652 $ 2,218,163

Wendy’s Funding, LLC, a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of The Wendy’s Company, is the master issuer (the “Master Issuer”) of outstanding senior secured notes under a securitized financing facility that was entered into in June 2015.

Under this facility, in June 2019, the Master Issuer issued outstanding 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 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” and, together with the 2019-1 Class A-1 Notes, the “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 instruments.

As of April 4, 2021, the Company had no outstanding borrowings under the 2019-1 Class A-1 Notes or the 2020-1 Class A-1 Notes.

THE WENDY’S COMPANY AND SUBSIDIARIES

1 unchanged sentence

(In Thousands Except Per Share Amounts)

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 September 27, 2020, the Company had no outstanding borrowings under the 2019-1 Class A-1 Notes.

In June 2020, the Master Issuer also issued outstanding 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 instruments.

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

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 (collectively, 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.

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 respective purchase agreements for the Class A-1 Notes.

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 September 27, 2020, $ 26,040 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.

During the nine months ended September 27, 2020, the Company incurred debt issuance costs of $ 2,122 in connection with the issuance of the 2020-1 Class A-1 Notes.

The debt issuance costs are being amortized to “Interest expense, net” utilizing the effective interest rate method.

Other Long-Term Debt

1 unchanged sentence

Borrowings under the facility are guaranteed by Wendy’s.

In March 2020, the Company drew down C$ 5,500 under the revolving credit facility.

As a result, as of September 27, 2020, the Company had outstanding borrowings of C$ 5,500 under the 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 September 27, 2020, 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.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

In March 2020, the Company drew down C$ 5,500 under the revolving credit facility, which the Company fully repaid through repayments of C$ 3,000 in the fourth quarter of 2020 and C$ 2,500 in the first quarter of 2021.

As a result, as of April 4, 2021, the Company had no outstanding borrowings under the Canadian revolving credit facility.

(8) Fair Value Measurements

11 unchanged sentences

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

September 27,

2020 December 29,

2021 January 3,

Value Carrying

2 unchanged sentences

Cash equivalents $ 25,035 $ 25,035 $ 75,067 $ 75,067 Level 1

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

Financial liabilities

Series 2019-1 Class A-2-I Notes (b) 391,000 414,499 398,000 405,152 Level 2

Series 2019-1 Class A-2-II Notes (b) 439,875 477,792 447,750 459,136 Level 2

Series 2018-1 Class A-2-I Notes (b) 437,625 452,198 441,000 444,859 Level 2

Series 2018-1 Class A-2-II Notes (b) 461,938 491,641 465,500 475,718 Level 2

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

475,000 486,543 478,750 490,531 Level 2

Series 2019-1 Class A-2-I Notes (a) 383,000 405,482 386,000 409,778 Level 2

Series 2019-1 Class A-2-II Notes (a) 430,875 457,201 434,250 469,555 Level 2

Series 2018-1 Class A-2-I Notes (a) 435,375 445,563 436,500 450,381 Level 2

Series 2018-1 Class A-2-II Notes (a) 459,563 487,872 460,750 491,021 Level 2

Series 2015-1 Class A-2-III Notes (a) 472,500 475,949 473,750 481,851 Level 2

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

7% debentures, due in 2025 (b) 83,696 98,100 82,837 94,838 Level 2

7 % debentures, due in 2025 (a)

84,291 99,900 83,998 98,775 Level 2

_______________

(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.

(a) 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.

8 unchanged sentences

The fair values of long-lived assets held and used presented in the tables below represent the remaining carrying value and were estimated based on either discounted cash flows of future anticipated lease and sublease income or discounted cash flows of future anticipated Company-operated restaurant performance.

Total impairment losses may also include the impact of remeasuring long-lived assets held for sale, which primarily include surplus properties.

Total impairment losses may also include the impact of remeasuring long-lived assets held for sale.

The fair values of long-lived assets held for sale presented in the tables below represent the remaining carrying value and were estimated based on current market values.

1 unchanged sentence

Fair Value Measurements

September 27,

2021 Level 1 Level 2 Level 3

8 unchanged sentences

(9) Impairment of Long-Lived Assets

During the nine months ended September 27, 2020 and September 29, 2019, the Company recorded impairment charges as a result of (1) the deterioration of operating performance of certain Company-operated restaurants and (2) closing Company-operated restaurants and classifying such surplus properties as held for sale.

Impairment charges during the nine months ended September 27, 2020 were primarily incurred in the first quarter of 2020 due to the expected 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 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 the three months ended March 29, 2020 were primarily due to the expected deterioration in operating performance of certain Company-operated restaurants as a result of the COVID-19 pandemic.

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:”

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Company-operated restaurants $ 446 $ 4,395

Restaurants leased or subleased to franchisees 189 —

Surplus properties — 192

4 unchanged sentences

(10) Income Taxes

The Company’s effective tax rate for the three months ended September 27, 2020 and September 29, 2019 was 24.2 % and 13.5 %, respectively.

The Company’s effective tax rate varied from the U.S.

federal statutory rate of 21 % primarily due an increase for state income taxes, partially offset by (1) a reduction for the benefit of share-based compensation and (2) a reduction in unrecognized tax benefits due to a lapse of statute of limitations during the three months ended September 29, 2019.

The Company’s effective tax rate for the nine months ended September 27, 2020 and September 29, 2019 was 24.8 % and 20.5 %, respectively.

The Company’s effective tax rate for the three months ended April 4, 2021 and March 29, 2020 was 24.1 % and 32.1 %, respectively.

The Company’s effective tax rate varied from the U.S.

federal statutory rate of 21 % primarily due to an increase for state income taxes, partially offset by (1) a reduction for the benefit of share-based compensation and (2) a reduction in unrecognized tax benefits due to a lapse of statute of limitations during the nine months ended September 29, 2019.

There were no significant changes to the unrecognized tax benefits or related interest and penalties for the three and nine months ended September 27, 2020.

federal statutory rate of 21 % primarily due to (1) an increase related to the tax effects of our foreign operations and (2) an increase for state income taxes, including discrete changes to state deferred taxes.

These increases were partially offset by a reduction for the benefit of share-based compensation.

There were no significant changes to the unrecognized tax benefits or related interest and penalties for the three months ended April 4, 2021.

During the next twelve months, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $ 2,016 due primarily to the lapse of statutes of limitations and expected settlements.

The current portion of refundable income taxes was $ 7,089 and $ 13,555 as of September 27, 2020 and December 29, 2019, respectively, and is included in “Accounts and notes receivable, net” in the condensed consolidated balance sheets.

There were no long-term refundable income taxes as of September 27, 2020 and December 29, 2019.

The current portion of refundable income taxes was $ 1,740 and $ 5,399 as of April 4, 2021 and January 3, 2021, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of April 4, 2021 and January 3, 2021.

(11) Net Income Per Share

Basic net income per share was computed by dividing net income amounts by the weighted average number of shares of common stock outstanding.

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

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

The calculation of basic and diluted net income per share was as follows:

Three Months Ended

2021 March 29,

Net income $ 41,366 $ 14,441

Common stock:

1 unchanged sentence

Dilutive effect of stock options and restricted shares

4,410 4,995 4,312 5,122

Weighted average diluted shares outstanding 226,727 228,007

Diluted net income per share for the three and nine months ended September 27, 2020 and September 29, 2019 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 1,049 and 2,117 for the three and nine months ended September 27, 2020, respectively, and 3,257 and 2,488 for the three and nine months ended September 29, 2019, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Net income per share:

Basic $ .19 $ .06

Diluted $ .18 $ .06

Basic net income per share for the three months ended April 4, 2021 and March 29, 2020 was computed by dividing net income amounts by the weighted average number of shares of common stock outstanding.

Diluted net income per share for the three months ended April 4, 2021 and March 29, 2020 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 1,870 and 2,667 for the three months ended April 4, 2021 and March 29, 2020, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

(12) Stockholders’ Equity

During the first, second, and third quarter of 2020, the Company paid dividends per share of $ .12 , $ .05 and $ .05 , respectively.

During each of the first three quarters of 2019, the Company paid dividends per share of $ .10 .

During the first quarter of 2021 and 2020, the Company paid dividends per share of $ .09 and $ .12 , respectively.

Repurchases of Common Stock

2 unchanged sentences

In July 2020, the Company’s Board of Directors approved an extension of the February 2020 authorization by one year, through February 28, 2022, when and if market and economic conditions warrant and to the extent legally permissible.

The Company resumed share repurchases in August 2020.

During the nine months ended September 27, 2020, the Company repurchased 860 shares under the February 2020 repurchase authorization with an aggregate purchase price of $ 16,244 , of which $ 178 was accrued at September 27, 2020, and excluding commissions of $ 12 .

As of September 27, 2020, the Company had $ 83,756 of availability remaining under its February 2020 authorization.

Subsequent to September 27, 2020 through October 28, 2020, the Company repurchased 86 shares under the February 2020 authorization with an aggregate purchase price of $ 2,041 , excluding commissions of $ 1 .

The Company resumed share repurchases

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

in August 2020.

During the three months ended April 4, 2021, the Company repurchased 2,763 shares under the February 2020 repurchase authorization with an aggregate purchase price of $ 56,046 , of which $ 1,196 was accrued at April 4, 2021, and excluding commissions of $ 38 .

As of April 4, 2021, the Company had $ 11,670 of availability remaining under its February 2020 authorization.

Subsequent to April 4, 2021 through May 5, 2021, the Company repurchased 529 shares under the February 2020 authorization with an aggregate purchase price of $ 11,670 , excluding commissions of $ 7 .

In addition, in May 2021, the Board of Directors approved an increase of $ 50,000 to the February 2020 authorization, resulting in an aggregate authorization of $ 150,000 that continues to expire on February 28, 2022.

The Company has $ 50,000 of availability remaining under the authorization as of May 12, 2021.

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.

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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 the nine months ended September 27, 2020, the Company repurchased 1,312 shares with an aggregate purchase price of $ 28,770 , excluding commissions of $ 18 , under the February 2019 authorization.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during the three months ended March 29, 2020, the Company repurchased 2,091 shares with an aggregate purchase price of $ 43,307 , excluding commissions of $ 29 , under the February 2020 authorization and the February 2019 authorization.

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

During the nine months ended September 29, 2019, the Company repurchased 4,153 shares with an aggregate purchase price of $ 76,165 , of which $ 1,102 was accrued at September 29, 2019, and excluding commissions of $ 58 , under the February 2019 authorization and the Company’s previous November 2018 authorization to repurchase up to $ 220,000 of our common stock.

Accumulated Other Comprehensive Loss

The following table provides a rollforward of accumulated other comprehensive loss:

Nine Months Ended

September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Balance at beginning of period $ ( 49,641 ) $ ( 53,828 )

2 unchanged sentences

Balance at end of period $ ( 47,421 ) $ ( 66,335 )

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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 September 27, 2020, Wendy’s and its franchisees operated 6,814 Wendy’s restaurants.

At April 4, 2021, Wendy’s and its franchisees operated 6,838 Wendy’s restaurants.

Of the 362 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 151 restaurants and held leases covering the land and building for 69 restaurants.

1 unchanged sentence

The Company also leases restaurant, office and transportation equipment.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Company as Lessee

The components of lease cost are as follows:

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Finance lease cost:

8 unchanged sentences

_______________

(a) Includes expenses for executory costs of $ 9,326 and $ 9,908 for the three months ended September 27, 2020 and September 29, 2019, respectively, and $ 28,526 and $ 29,211 for the nine months ended September 27, 2020 and September 29, 2019, respectively, for which the Company is reimbursed by sublessees.

(b) Includes $ 32,421 and $ 32,342 for the three months ended September 27, 2020 and September 29, 2019, respectively, and $ 92,975 and $ 92,815 for the nine months ended September 27, 2020 and September 29, 2019, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees.

Also includes $ 6,651 and $ 6,892 for the three months ended September 27, 2020 and September 29, 2019, respectively, and $ 20,315 and $ 20,492 for the nine months ended September 27, 2020 and September 29, 2019, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(a) Includes expenses for executory costs of $ 10,063 and $ 9,743 for the three months ended April 4, 2021 and March 29, 2020, respectively, for which the Company is reimbursed by sublessees.

(b) The three months ended April 4, 2021 and March 29, 2020 include $ 32,552 and $ 29,291 , respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees and $ 6,681 and $ 6,833 , respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

Company as Lessor

The components of lease income are as follows:

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

Sales-type and direct-financing leases:

Selling profit (loss) $ 182 $ ( 97 ) $ 1,379 $ 1,874

Selling profit $ 1,912 $ 628

Interest income 7,489 7,248

3 unchanged sentences

_______________

(a) Includes sublease income of $ 43,122 and $ 44,821 for the three months ended September 27, 2020 and September 29, 2019, respectively, and $ 126,653 and $ 130,763 for the nine months ended September 27, 2020 and September 29, 2019, respectively.

Sublease income includes lessees’ variable payments to the Company for executory costs of $ 9,379 and $ 9,683 for the three months ended September 27, 2020 and September 29, 2019, respectively, and $ 28,538 and $ 28,894 for the nine months ended September 27, 2020 and September 29, 2019, respectively.

(a) The three months ended April 4, 2021 and March 29, 2020 include sublease income of $ 43,250 and $ 42,042 , respectively, of which $ 9,874 and $ 9,709 , respectively, represents lessees’ variable payments to the Company for executory costs.

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(14) Transactions with Related Parties

2 unchanged sentences

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.

During the nine months ended September 27, 2020 and September 29, 2019, Wendy’s paid TimWen $ 11,970 and $ 12,710 , respectively, under these lease agreements.

In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 152 and $ 155 during the nine months ended September 27, 2020 and September 29, 2019, respectively, which has been included as a reduction to “General and administrative.”

During the three months ended April 4, 2021 and March 29, 2020, Wendy’s paid TimWen $ 4,026 and $ 3,855 , respectively, under these lease agreements.

In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 54 and $ 51 during the three months ended April 4, 2021 and March 29, 2020, respectively, which has been included as a reduction to “General and administrative.”

Transactions with Yellow Cab

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 April 4, 2021 owned and operated 78 Wendy’s restaurants (including Wendy’s restaurants acquired from NPC during the first quarter of 2021 as described below).

During the three months ended April 4, 2021, the Company recognized $ 1,659 in royalty, advertising fund, lease and other income from Yellow Cab and related entities.

As of April 4, 2021, $ 1,025 was due from Yellow Cab for such income, which is included in “Accounts and notes receivable, net” and “Advertising funds restricted assets.”

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.

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.

In March 2021, Yellow Cab closed on its acquisition of these restaurants and its deposit was applied against the purchase price for the restaurants.

See Note 3 for further information.

(15) Guarantees and Other Commitments and Contingencies

2 unchanged sentences

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 $ 81,275 as of September 27, 2020.

These leases extend through 2045.

We have not received any notice of default related to these leases as of September 27, 2020.

We have had no judgments against us as guarantor of these leases as of April 4, 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 April 4, 2021.

Letters of Credit

As of September 27, 2020, the Company had outstanding letters of credit with various parties totaling $ 26,381 .

As of April 4, 2021, the Company had outstanding letters of credit with various parties totaling $ 26,571 .

Substantially all of the outstanding letters of credit include amounts outstanding against the 2019-1 Class A-1 Notes.

4 unchanged sentences

(16) Legal and Environmental Matters

The Company is involved in litigation and claims incidental to our current and prior businesses.

We provide accruals for such litigation and claims when payment is probable and reasonably estimable, and we believe we have adequate accruals for continuing operations for all such matters.

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

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.

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.

1 unchanged sentence

We previously described certain legal proceedings in the Form 10-K.

As of September 27, 2020, there were no material developments in those legal proceedings.

As of April 4, 2021, there were no material developments in those legal proceedings.

(17) Segment Information

Revenues by segment were as follows:

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

$ 381,954 $ 331,041

3 unchanged sentences

The following table reconciles profit by segment to the Company’s consolidated income before income taxes:

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

(a) $ 112,087 $ 81,828

10 unchanged sentences

Interest expense, net ( 28,786 ) ( 28,525 )

Loss on early extinguishment of debt — — — ( 7,150 )

Other income, net 129 1,076

1 unchanged sentence

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(a) For the three and nine months ended September 27, 2020, includes advertising funds expense of $ 6,153 and $ 8,338 , respectively, related to the expected Company funding of incremental advertising during 2020.

(a) For the three months ended April 4, 2021, includes advertising funds expense of $ 3,534 related to the expected Company funding of incremental advertising during 2021.

(b) Includes corporate overhead costs, such as employee compensation and related benefits.

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

What changed 10-Q

Item 1. Financial Statements