What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-12 compared with 2020-11-04 · 180 added, 307 removed, 244 unchanged (67% of the section changed)

1 unchanged sentence

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us,” or “our”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included elsewhere within this report and “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019 (the “Form 10-K”).

There have been no material changes as of September 27, 2020 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021 (the “Form 10-K”).

There have been no material changes as of April 4, 2021 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.

Certain statements we make under this Item 2 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.

8 unchanged sentences

Wendy’s opened its first restaurant in Columbus, Ohio in 1969.

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

territories as of September 27, 2020.

Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the United States (the “U.S.”) based on traffic share, and the third largest globally with 6,838 restaurants in the U.S.

and 30 foreign countries and U.S.

territories as of April 4, 2021.

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

Wendy’s menu also includes chicken nuggets, chili, french fries, baked potatoes, freshly prepared salads, soft drinks, Frosty ® desserts and kids’ meals.

In addition, the restaurants sell a variety of promotional products on a limited time basis.

Wendy’s also entered the breakfast daypart across the U.S.

system on March 2, 2020.

In addition, Wendy’s restaurants sell a variety of promotional products on a limited time basis.

In March 2020, Wendy’s entered the breakfast daypart across the U.S.

Wendy’s breakfast menu features a variety of breakfast sandwiches, biscuits and croissants, sides such as seasoned potatoes, oatmeal bars and seasonal fruit, and a beverage platform that includes hot coffee, cold brew iced coffee and our vanilla and chocolate Frosty-ccino iced coffee.

13 unchanged sentences

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

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

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

All three-month periods presented herein contain 13 weeks.

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

Executive Overview

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

As of April 4, 2021, the Wendy’s restaurant system was comprised of 6,838 restaurants, with 5,885 Wendy’s restaurants in operation in the U.S.

restaurants, 362 were operated by the Company and 5,523 were operated by a total of 228 franchisees.

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

In addition, at April 4, 2021, there were 953 Wendy’s restaurants in operation in 30 foreign countries and U.S.

territories, all of which were franchised.

1 unchanged sentence

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

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

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of April 4, 2021.

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

The COVID-19 pandemic has had and may continue to have the effect of heightening the impact of many of these factors.

See “COVID-19 Update” and “Special Note Regarding Forward-Looking Statements and Projections” below for additional information.

Wendy’s long-term growth opportunities include accelerating U.S.

same-restaurant sales through (1) its “One More Visit, One More Dollar” strategy, which includes continuing core menu improvement, product innovation and strategic price increases on our menu items, (2) focused execution of operational excellence, (3) continued implementation of consumer-facing digital platforms and technologies and (4) increased restaurant utilization in various dayparts, including the Company’s launch of breakfast across the U.S.

system on March 2, 2020.

Wendy’s also expects growth in the number of new restaurants through targeted U.S.

expansion and accelerated international expansion through same-restaurant sales growth and new restaurant development.

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

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

Key Business Measures

2 unchanged sentences

Restaurants temporarily closed for more than one fiscal week are excluded from same-restaurant sales.

For fiscal 2020, same-restaurant sales excluded the impact of a 53rd operating week.

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

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

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

6 unchanged sentences

The Company’s consolidated financial statements do not include sales by franchised restaurants to their customers.

The Company believes systemwide sales data is useful in assessing consumer demand for the Company’s products, the overall success of the Wendy’s brand and, ultimately, the performance of the Company.

The Company’s royalty revenues are computed as percentages of sales made by Wendy’s franchisees.

As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty revenues and profitability.

The Company’s royalty and advertising funds revenues are computed as percentages of sales made by Wendy’s franchisees.

As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty and advertising funds revenues and profitability.

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

3 unchanged sentences

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

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

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

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

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

The non-GAAP financial measure discussed above does not replace the presentation of the Company’s financial results in accordance with GAAP.

Because all companies do not calculate non-GAAP financial measures in the same way, this measure as used by other companies may not be consistent with the way the Company calculates such measure.

First Quarter 2021 Financial Highlights

• Revenue increased 13.6% to $460.2 million in the first quarter of 2021 compared to $405.0 million in the first quarter of 2020;

• Global same-restaurant sales increased 13.0%, U.S.

same-restaurant sales increased 13.5% and international same-restaurant sales increased 7.9%;

• Company-operated restaurant margin was 17.0% in the first quarter of 2021, an increase of 690 basis points;

• Net income was $41.4 million in the first quarter of 2021 compared to $14.4 million in the first quarter of 2020.

COVID-19 Update

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide.

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 whether, when or the manner in which the conditions surrounding the pandemic will change and cannot currently estimate the impact on our business in the short or long-term.

however, we cannot predict the ultimate duration, scope or severity of the COVID-19 pandemic or its ultimate impact on our results of operations, financial condition and prospects.

In response to the pandemic, in March 2020, Wendy’s updated its brand standard to include the closure of all dining rooms except where there were specific needs, or a drive-thru or pick-up window option was not available, subject to applicable federal, state and local requirements.

1 unchanged sentence

During the second quarter of 2020, the Company began to implement its restaurant and dining room reopening process through a phased approach in accordance with federal, state and local requirements, with customer and team member safety as its top priority.

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

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

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

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

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

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

January through February March April May June Third

Same-restaurant sales:

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

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

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

As a result of the COVID-19 pandemic, global systemwide same-restaurant sales began to be materially adversely impacted in the fiscal month of March, with the fiscal month of April seeing the greatest impact.

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

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

During the fiscal month of October, U.S.

systemwide same-restaurant sales increased 6.6%.

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

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

system on March 2, 2020.

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

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

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

and internationally, the expected impact of the COVID-19 pandemic on the Company’s 2020 net income and cash flows cannot be reasonably estimated.

Our net income and cash flows for the remainder of 2020 could continue to be materially affected by the pandemic.

See “Item 1A.

Risk Factors” in “Part II.

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

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

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

Beef Supply Update

As previously disclosed, the Company experienced disruptions to its beef supply beginning in early May as beef suppliers across North America faced production challenges.

As a result, some menu items were occasionally in short supply at some Wendy’s system restaurants.

The Company and its supply chain partners effectively managed through this disruption by allocating beef to all Wendy’s system restaurants, with deliveries occurring two or three times a week, consistent with normal delivery schedules.

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

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

Goodwill and Indefinite-Lived Intangible Assets

We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that it may be impaired.

The negative impacts of the COVID-19 pandemic, including the decline in same-restaurant sales described above and the volatility in the price of our common stock, resulted in the Company testing its goodwill for impairment in March 2020.

A goodwill impairment loss is recognized if the fair value of a reporting unit is less than its carrying value.

The Company’s goodwill impairment test in March 2020 included three reporting units, which were comprised of its (1) U.S.

Company-operated and franchise restaurants, (2) Canada franchise restaurants and (3) global real estate and development operations.

Based on the results of our goodwill impairment test, we determined the fair values of our U.S.

Company-operated and franchise restaurants and our Canada franchise restaurants reporting units continued to significantly exceed their carrying values.

The goodwill impairment test for our global real estate and development operations also indicated the fair value of the reporting unit exceeded its carrying value;

however, the fair value exceeded the carrying value of the reporting unit by only a nominal amount.

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

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

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

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

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

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

Dining rooms have been re-opening at each restaurant owner’s discretion, subject to applicable regulatory restrictions.

As of April 4, 2021, approximately 85% of dining rooms were open across the Wendy’s system offering carryout and, in some cases, dine in services.

Global systemwide same-restaurant sales during the first quarter of 2021 increased 13.0%, in part due to a significant increase in customer count compared with the adversely impacted fiscal month of March 2020.

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

Since the launch of breakfast across the U.S.

system on March 2, 2020, same-restaurant sales have benefited from this new daypart, with breakfast contributing 3.7% to U.S.

same-restaurant sales during the first quarter of 2021.

The Company expects to fund $15.0 million of incremental advertising to support the breakfast daypart during 2021.

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

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

The Company’s digital business continues to grow and represented approximately 7.5% of U.S.

systemwide sales during the first quarter of 2021, which is more than double the amount in the first quarter of 2020.

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.

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 $7.0 million to $9.0 million, of which approximately $6.5 million to $8.5 million will be cash expenditures, related to the Operations and Field Realignment Plan.

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

Costs related to the Operations and Field Realignment Plan are recorded to “Reorganization and realignment costs.” During the three months ended April 4, 2021, the Company recognized costs totaling $0.3 million, which primarily included severance and related employee costs.

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

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

The majority of the cash expenditures are expected during 2021.

Information Technology (“IT”) Realignment

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

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

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

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

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

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

The Company expects to incur additional costs aggregating approximately $1.0 million, comprised primarily of recruitment and relocation costs.

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

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

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

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.

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.

Results of Operations

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

Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the first quarter of 2021 and 2020.

First Quarter

2021 2020 Change

Sales $ 189.1 $ 166.8 $ 22.3

17 unchanged sentences

Interest expense, net (28.8) (28.5) (0.3)

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

Other income, net 0.2 1.1 (0.9)

2 unchanged sentences

Net income $ 41.4 $ 14.4 $ 27.0

Third Quarter Nine Months

Total Revenues 2019 % of

Total Revenues 2020 % of

First Quarter

Total Revenues 2020 % of

11 unchanged sentences

$ 460.2 100.0 % $ 405.0 100.0 %

Third Quarter Nine Months

Sales 2019 % of

Sales 2020 % of

First Quarter

Sales 2020 % of

5 unchanged sentences

Total cost of sales $ 156.9 83.0 % $ 150.0 89.9 %

Third Quarter Nine Months

Sales 2019 % of

Sales 2020 % of

First Quarter

Sales 2020 % of

1 unchanged sentence

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

Third Quarter Nine Months

2020 2019 2020 2019

First Quarter

Key business measures:

3 unchanged sentences

Franchised restaurants

7.2 % 4.5 % 1.1 % 2.4 %

7.0 % 4.5 % 0.9 % 2.4 %

International same-restaurant sales (a) 7.9 % (1.6) %

8 unchanged sentences

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

Third Quarter Nine Months

2020 2019 2020 2019

First Quarter

Key business measures (continued):

5 unchanged sentences

International franchised (b)

291.3 303.0 784.1 877.3

Global systemwide

1 unchanged sentence

________________

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

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

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

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

(a) During the first quarter of 2021 and 2020, global systemwide sales increased 12.5% and 1.0%, respectively, U.S.

systemwide sales increased 13.1% and 1.0%, respectively, and international franchised sales increased 7.3% and 1.0%, respectively, on a constant currency basis.

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

Third Quarter

First Quarter

Company-operated U.S.

1 unchanged sentence

Restaurant count:

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

Opened 2 25 6 33

Closed (a) — (15) (10) (25)

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

Restaurant count at September 27, 2020

360 5,514 940 6,814

Company-operated U.S.

Franchised International Franchised Systemwide

Restaurant count at December 29, 2019 357 5,495 936 6,788

Restaurant count at January 3, 2021 361 5,520 947 6,828

Opened 2 18 18 38

Closed (a) (1) (15) (12) (28)

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

Restaurant count at September 27, 2020

Restaurant count at April 4, 2021

362 5,523 953 6,838

1 unchanged sentence

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

Sales Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Sales First Quarter

2021 2020 Change

Sales $ 189.1 $ 166.8 $ 22.3

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

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

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

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

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

Franchise Royalty Revenue and Fees Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The increase in sales for the first quarter of 2021 was primarily due to a 13.0% increase in Company-operated same-restaurant sales.

Company-operated same-restaurant sales increased due to (1) higher average check and (2) the positive impact from the breakfast daypart, partially offset by a decrease in customer count.

Company-operated same-restaurant sales benefited from government stimulus payments to consumers during the first quarter of 2021.

Franchise Royalty Revenue and Fees First Quarter

2021 2020 Change

Franchise royalty revenue $ 108.3 $ 95.4 $ 12.9

1 unchanged sentence

$ 122.8 $ 101.7 $ 21.1

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

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

Franchise Rental Income Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The increase in franchise royalty revenue during the first quarter of 2021 was primarily due to a 13.0% increase in global franchise same-restaurant sales.

Franchise same-restaurant sales increased due to (1) higher average check and (2) the positive impact from the breakfast daypart, partially offset by a decrease in customer count.

Franchise same-restaurant sales benefited from government stimulus payments to consumers during the first quarter of 2021.

The increase in franchise fees during the first quarter of 2021 was primarily due to (1) an increase in fees for providing information technology services to franchisees and (2) the accelerated recognition of fees associated with development agreements that were canceled primarily as a result of the NPC bankruptcy sale process.

Franchise Rental Income First Quarter

2021 2020 Change

Franchise rental income $ 58.9 $ 57.9 $ 1.0

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

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

Advertising Funds Revenue Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The increase in franchise rental income during the first quarter of 2021 was primarily due to assigning certain leases to a franchisee during 2020.

Advertising Funds Revenue First Quarter

2021 2020 Change

Advertising funds revenue $ 89.4 $ 78.6 $ 10.8

1 unchanged sentence

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

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

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

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

2020 2019 Change 2020 2019 Change

The increase in advertising funds revenue during the first quarter of 2021 was primarily due to an increase in franchise same-restaurant sales in the U.S.

Cost of Sales, as a Percent of Sales First Quarter

2021 2020 Change

Food and paper 29.0 % 31.5 % (2.5) %

2 unchanged sentences

83.0 % 89.9 % (6.9) %

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

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

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

These impacts were partially offset by higher average check.

Franchise Support and Other Costs Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The decrease in cost of sales, as a percent of sales, during the first quarter of 2021 was primarily due to (1) higher average check and (2) lower commodity costs.

These impacts were partially offset by (1) restaurant labor rate increases and (2) a decrease in customer count.

Franchise Support and Other Costs First Quarter

2021 2020 Change

Franchise support and other costs $ 7.7 $ 8.0 $ (0.3)

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

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

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

system on March 2, 2020.

Franchise Rental Expense Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The decrease in franchise support and other costs during the first quarter of 2021 was primarily due to investments made during the first quarter of 2020 to support U.S.

franchisees in preparation of the national launch of breakfast on March 2, 2020.

This decrease was partially offset by an increase in costs incurred to provide information technology services to our franchisees.

Franchise Rental Expense First Quarter

2021 2020 Change

Franchise rental expense $ 32.6 $ 29.3 $ 3.3

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

Advertising Funds Expense Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The increase in franchise rental expense during the first quarter of 2021 was primarily due to the impact of assigning certain leases to a franchisee in 2020.

Advertising Funds Expense First Quarter

2021 2020 Change

Advertising funds expense $ 94.2 $ 80.0 $ 14.2

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

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

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

General and Administrative Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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

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

The Company expects advertising funds expense to exceed advertising funds revenue by approximately $21.0 million for 2021, which includes (1) the Company’s decision to fund up to $15.0 million of incremental advertising and (2) the amount by which advertising funds revenue exceeded advertising funds expense in 2020 (excluding the Company’s funding of $14.6 million of incremental advertising) and 2019 of approximately $6.0 million.

During the first quarter of 2021, advertising funds expense increased due to (1) an increase in franchise same-restaurant sales in the U.S.

and Canada and (2) the recognition of $4.8 million of the expected advertising spend in excess of advertising funds revenue.

General and Administrative First Quarter

2021 2020 Change

Incentive compensation $ 7.4 $ 3.0 $ 4.4

2 unchanged sentences

$ 52.6 $ 51.6 $ 1.0

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

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

Depreciation and Amortization Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The increase in general and administrative expenses during the first quarter of 2021 was primarily due to an increase in incentive compensation accruals due to higher operating performance in the first quarter of 2021 versus the first quarter of 2020, partially offset by a decrease in travel-related expenses as a result of reduced travel.

Depreciation and Amortization First Quarter

2021 2020 Change

Restaurants $ 19.4 $ 19.5 $ (0.1)

Corporate and other 11.8 11.5 0.3 35.0 34.3 0.7

Technology support, corporate and other 12.1 11.5 0.6

$ 31.5 $ 31.0 $ 0.5

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

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

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

System Optimization Gains, Net Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The increase in depreciation and amortization during the first quarter of 2021 was primarily due to an increase in depreciation and amortization for technology investments.

System Optimization Gains, Net First Quarter

2021 2020 Change

System optimization gains, net $ (0.5) $ (0.3) $ (0.2)

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

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

Reorganization and Realignment Costs Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

System optimization gains, net for the first quarter of 2021 and 2020 were primarily comprised of post-closing adjustments on previous sales of restaurants.

Reorganization and Realignment Costs First Quarter

2021 2020 Change

Operations and field realignment $ 0.2 $ — $ 0.2

3 unchanged sentences

$ 4.9 $ 3.9 $ 1.0

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

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

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

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

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

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

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

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

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

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

Impairment of Long-Lived Assets Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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.

During the first quarter of 2020, the Company recognized costs associated with the IT Realignment Plan totaling $3.5 million, which primarily included third-party and other costs.

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

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

During the first quarter of 2021, the Company recognized costs associated with its system optimization initiative totaling $4.7 million, which were primarily comprised of the write-off of certain lease assets and lease termination fees associated with the NPC bankruptcy sale process.

The Company expects to recognize a gain of approximately $1.4 million related to the write-off of certain NPC-related lease liabilities upon final termination of the leases.

Impairment of Long-Lived Assets First Quarter

2021 2020 Change

Impairment of long-lived assets $ 0.6 $ 4.6 $ (4.0)

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

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

Other Operating Income, Net Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The decrease in impairment charges during the first quarter of 2021 was primarily driven by the expected deterioration in operating performance of certain Company-operated restaurants in the first quarter of 2020 as a result of the COVID-19 pandemic.

Other Operating Income, Net First Quarter

2021 2020 Change

Gains on sales-type leases $ (1.9) $ (0.6) $ (1.3)

Equity in earnings in joint ventures, net (1.6) (1.4) (0.2)

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

Other, net 0.1 0.2 (0.1)

$ (3.4) $ (1.8) $ (1.6)

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

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

Interest Expense, Net Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

The change in other operating income, net during the first quarter of 2021 was primarily due to gains on new and modified sales-type leases.

Interest Expense, Net First Quarter

2021 2020 Change

Interest expense, net $ 28.8 $ 28.5 $ 0.3

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

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

Loss on Early Extinguishment of Debt Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

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

During the second quarter of 2019, in connection with the refinancing of a portion of the Company’s securitized financing facility, the Company incurred a loss on the early extinguishment of debt as a result of repaying its outstanding Series 2015-1 Class A-2-II Notes primarily with the proceeds from the issuance of its Series 2019-1 Class A-2 Notes.

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

Other Income, Net Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Interest expense, net increased during the first quarter of 2021 primarily due to higher commitment fees on our Class A-1 Notes.

Other Income, Net First Quarter

2021 2020 Change

Other income, net $ 0.2 $ 1.1 $ (0.9)

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

Provision for Income Taxes Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

Other income, net decreased during the first quarter of 2021 primarily due to lower interest income earned on our cash equivalents.

Provision for Income Taxes First Quarter

2021 2020 Change

Income before income taxes $ 54.5 $ 21.3 $ 33.2

3 unchanged sentences

24.1 % 32.1 % (8.0) %

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

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

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

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

Our effective tax rates for the first quarter of 2021 and 2020 were impacted by variations in income before income taxes, including uncertainty in 2020 income before income taxes arising from the COVID-19 pandemic, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The decrease in the effective tax rate for the first quarter of 2021 compared with the first quarter of 2020 was primarily due to a decrease in the tax effect of our foreign operations, partially offset by a reduction in the benefit of share-based compensation.

Segment Information

See Note 17 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information regarding the Company’s segments.

Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

First Quarter

2021 2020 Change

Sales $ 189.1 $ 166.8 $ 22.3

5 unchanged sentences

The increase in Wendy’s U.S.

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

The decrease in Wendy’s U.S.

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

revenues during the first quarter of 2021 was primarily due to an increase in systemwide same-restaurant sales.

Same-restaurant sales increased due to (1) higher average check and (2) the positive impact from the breakfast daypart, partially offset by a decrease in customer count.

revenues also benefited from higher franchise fees, primarily due to an increase in fees for providing information technology services to franchisees.

The increase in Wendy’s U.S.

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

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

segment profit during the first quarter of 2021 was primarily due to (1) higher revenues and (2) lower cost of sales, as a percent of sales, for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales.” These changes were partially offset by advertising funds expense of $3.5 million related to the expected Company funding of incremental advertising during 2021.

Wendy’s International

Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

First Quarter

2021 2020 Change

Franchise royalty revenue $ 11.6 $ 10.5 $ 1.1

3 unchanged sentences

Segment profit $ 7.7 $ 5.1 $ 2.6

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

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

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

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

The increase in Wendy’s International revenues during the first quarter of 2021 was primarily due to an increase in same-restaurant sales.

Same-restaurant sales increased due to higher average check, partially offset by a decrease in customer count.

The increase in Wendy’s International segment profit during the first quarter of 2021 was primarily due to higher revenues.

Global Real Estate & Development

Third Quarter Nine Months

2020 2019 Change 2020 2019 Change

First Quarter

2021 2020 Change

Franchise fees $ 1.1 $ 0.5 $ 0.6

2 unchanged sentences

Segment profit $ 26.3 $ 26.5 $ (0.2)

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

The increase in Global Real Estate & Development revenues during the first quarter of 2021 was primarily due to higher franchise rental income.

See “Franchise Rental Income” above for further information.

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

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

The decrease in Global Real Estate & Development segment profit during the first quarter of 2021 was primarily due to a decrease in net rental income, reflecting the impact of assigning certain leases to a franchisee during 2020, partially offset by gains on new and modified sales-type leases.

Liquidity and Capital Resources

1 unchanged sentence

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

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

COVID-19 Actions

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

Long-Term Debt.

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

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

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

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

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

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

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

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

See “Dividends” below for additional information.

Stock Repurchases.

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

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

G&A and Capital Expenditures.

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

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

Advertising Expenditures.

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

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

Franchise and System Support.

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

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

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

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

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

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

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

• capital expenditures of approximately $70.0 million to $80.0 million, resulting in total anticipated cash capital expenditures for the year of approximately $80.0 million to $90.0 million;

• cash dividends aggregating approximately $66.4 million as discussed below in “Dividends;” and

• potential stock repurchases of up to $61.7 million, of which $11.7 million was repurchased subsequent to April 4, 2021 through May 5, 2021, as discussed below in “Stock Repurchases.”

Based on current levels of operations, the Company expects that available cash and cash flows from operations will provide sufficient liquidity to meet operating cash requirements for the next 12 months.

1 unchanged sentence

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

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

The table below summarizes our cash flows from operating, investing and financing activities for the first three months of 2021 and 2020:

First Quarter

2021 2020 Change

4 unchanged sentences

Effect of exchange rate changes on cash 0.9 (5.1) 6.0

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

Net (decrease) increase in cash, cash equivalents and restricted cash $ (10.1) $ 26.8 $ (36.9)

Operating Activities

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

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

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

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

Cash provided by (used in) operating activities was $85.8 million and $(19.4) million in the first quarter of 2021 and 2020, respectively.

The change was primarily due to (1) higher net income, adjusted for non-cash expenses, (2) a cash payment of $24.7 million related to the settlement of the financial institutions class action in January 2020, (3) the timing of receipt of franchisee rental payments, (4) the timing of receipt of vendor incentives and (5) a decrease in payments for incentive compensation for the 2020 fiscal year paid in 2021.

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

Investing Activities

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

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

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

Cash used in investing activities was $5.1 million and $12.1 million in the first quarter of 2021 and 2020, respectively.

The change was primarily due to (1) the net settlement of deposits associated with the Company’s consortium bid to acquire NPC’s Wendy’s restaurants of $4.9 million in the first quarter of 2021 and (2) a decrease in capital expenditures of $2.3 million.

Financing Activities

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

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

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

Cash (used in) provided by financing activities was $(91.7) million and $63.4 million in the first quarter of 2021 and 2020, respectively.

The change was primarily due to (1) the impact of the draw downs under the 2019-1 Class A-1 Notes and the Company’s other lines of credit in the first quarter of 2020 of $153.3 million and (2) an increase in repurchases of common stock of $10.5 million.

These changes were partially offset by a decrease in dividends of $6.6 million.

Long-Term Debt, Including Current Portion

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

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

Except as described below, there were no material changes to the terms of any debt obligations since January 3, 2021.

The Company was in compliance with its debt covenants as of April 4, 2021.

See Note 7 of the Financial Statements contained in Item 1 herein for further information related to our long-term debt obligations.

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

Under this facility, in June 2019, the Master Issuer issued outstanding 2019-1 Class A-1 Notes, which allow for the borrowing of up to $150.0 million from time to time on a revolving basis using various credit instruments, including a letter of credit facility.

In March 2020, the Company drew down $120.0 million under the 2019-1 Class A-1 Notes, which the Company fully repaid in July 2020.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In March 2020, the Company drew down C$5.5 million under the revolving credit facility, which the Company fully repaid through repayments of C$3.0 million in the fourth quarter of 2020 and C$2.5 million 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.

On March 15, 2021, the Company paid quarterly cash dividends per share of $.09, aggregating $20.2 million.

On May 12, 2021, the Company announced a dividend of $.10 per share to be paid on June 15, 2021 to stockholders of record as of June 1, 2021.

If the Company pays regular quarterly cash dividends for the remainder of 2021 at the same rate as declared in the second quarter of 2021, the Company’s total cash requirement for dividends for the remainder of 2021 will be approximately $66.4 million based on the number of shares of its common stock outstanding at May 5, 2021.

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

5 unchanged sentences

The Company resumed share repurchases in August 2020.

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

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

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

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

In November 2019, the Company entered into an accelerated share repurchase agreement (the “2019 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the Company’s existing share repurchase program.

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

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

The total number of shares of common stock ultimately purchased by the Company under the 2019 ASR Agreement was based on the average of the daily volume-weighted average prices of the common stock during the term of the 2019 ASR Agreement, less an agreed upon discount.

In total, 4.7 million shares were delivered under the 2019 ASR Agreement at an average purchase price of $21.37 per share.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during the nine months ended September 27, 2020, the Company repurchased 1.3 million shares with an aggregate purchase price of $28.8 million, excluding commissions, under the February 2019 authorization.

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

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

During the three months ended April 4, 2021, the Company repurchased 2.8 million shares under the February 2020 repurchase authorization with an aggregate purchase price of $56.0 million, of which $1.2 million was accrued at April 4, 2021, and excluding commissions.

As of April 4, 2021, the Company had $11.7 million of availability remaining under its February 2020 authorization.

Subsequent to April 4, 2021 through May 5, 2021, the Company repurchased 0.5 million shares under the February 2020 authorization with an aggregate purchase price of $11.7 million, excluding commissions.

In addition, in May 2021, the Board of Directors approved an increase of $50.0 million to the February 2020 authorization, resulting in an aggregate authorization of $150.0 million that continues to expire on February 28, 2022.

The Company has $50.0 million of availability remaining under the authorization as of May 12, 2021.

General Inflation, Commodities and Changing Prices

7 unchanged sentences

Because our business is moderately seasonal, results for a particular quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Currently, we are not able to predict the impact that the COVID-19 pandemic may have on the seasonality of our business.

Quantitative and Qualitative Disclosures about Market Risk.

As of April 4, 2021, there were no material changes from the information contained in “Item 7A.

Quantitative and Qualitative Disclosures about Market Risk” in the Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis