Wendy's Co 10-Q

Item 1. Financial Statements. THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands Except Par Value) April 4, 2021 January 3, 2021 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 316,488 $ 306,989 Restricted cash 37,948 33,973 Accounts and notes receivable, net 100,312 109,891 Inventories 4,733 4,732 Prepaid expenses and other current assets 48,498 89,732 Advertising funds restricted assets 133,518 142,306 Total current assets 641,497 687,623 Properties 898,420 915,889 Finance lease assets 201,249 206,153 Operating lease assets 806,614 821,480 Goodwill 751,957 751,049 Other intangible assets 1,219,089 1,224,960 Investments 43,743 44,574 Net investment in sales-type and direct financing leases 269,750 268,221 Other assets 124,351 120,057 Total assets $ 4,956,670 $ 5,040,006 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 31,250 $ 28,962 Current portion of finance lease liabilities 12,582 12,105 Current portion of operating lease liabilities 45,498 45,346 Accounts payable 29,325 31,063 Accrued expenses and other current liabilities 140,720 155,321 Advertising funds restricted liabilities 137,144 140,511 Total current liabilities 396,519 413,308 Long-term debt 2,205,652 2,218,163 Long-term finance lease liabilities 501,422 506,076 Long-term operating lease liabilities 850,448 865,325 Deferred income taxes 280,077 280,755 Deferred franchise fees 86,532 89,094 Other liabilities 115,355 117,689 Total liabilities 4,436,005 4,490,410 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 221,784 and 224,268 shares outstanding, respectively 47,042 47,042 Additional paid-in capital 2,901,460 2,899,276 Retained earnings 259,879 238,674 Common stock held in treasury, at cost; 248,640 and 246,156 shares, respectively ( 2,640,295 ) ( 2,585,755 ) Accumulated other comprehensive loss ( 47,421 ) ( 49,641 ) Total stockholders’ equity 520,665 549,596 Total liabilities and stockholders’ equity $ 4,956,670 $ 5,040,006 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Amounts) Three Months Ended April 4, 2021 March 29, 2020 (Unaudited) Revenues: Sales $ 189,057 $ 166,798 Franchise royalty revenue and fees 122,830 101,705 Franchise rental income 58,876 57,856 Advertising funds revenue 89,440 78,601 460,203 404,960 Costs and expenses: Cost of sales 156,850 149,999 Franchise support and other costs 7,686 8,013 Franchise rental expense 32,566 29,301 Advertising funds expense 94,238 79,988 General and administrative 52,622 51,639 Depreciation and amortization 31,542 31,046 System optimization gains, net ( 516 ) ( 323 ) Reorganization and realignment costs 4,934 3,910 Impairment of long-lived assets 635 4,587 Other operating income, net ( 3,476 ) ( 1,932 ) 377,081 356,228 Operating profit 83,122 48,732 Interest expense, net ( 28,786 ) ( 28,525 ) Other income, net 129 1,076 Income before income taxes 54,465 21,283 Provision for income taxes ( 13,099 ) ( 6,842 ) Net income $ 41,366 $ 14,441 Net income per share: Basic $ .19 $ .06 Diluted .18 .06 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) Three Months Ended April 4, 2021 March 29, 2020 (Unaudited) Net income $ 41,366 $ 14,441 Other comprehensive income (loss): Foreign currency translation adjustment 2,220 ( 12,507 ) Other comprehensive income (loss) 2,220 ( 12,507 ) Comprehensive income $ 43,586 $ 1,934 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In Thousands) Common Stock Additional Paid-In Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total (Unaudited) 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 Cash dividends — — ( 20,156 ) — — ( 20,156 ) Repurchases of common stock — — — ( 56,084 ) — ( 56,084 ) Share-based compensation — 5,151 — — — 5,151 Common stock issued upon exercises of stock options — ( 20 ) — 683 — 663 Common stock issued upon vesting of restricted shares — ( 2,996 ) — 817 — ( 2,179 ) Other — 49 ( 5 ) 44 — 88 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 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 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Three Months Ended April 4, 2021 March 29, 2020 (Unaudited) Cash flows from operating activities: Net income $ 41,366 $ 14,441 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 31,542 31,046 Share-based compensation 5,151 4,539 Impairment of long-lived assets 635 4,587 Deferred income tax ( 1,116 ) 748 Non-cash rental expense, net 10,152 6,218 Change in operating lease liabilities ( 11,607 ) ( 10,611 ) Net receipt (recognition) of deferred vendor incentives 6,522 ( 2,305 ) System optimization gains, net ( 516 ) ( 323 ) Distributions received from joint ventures, net of equity in earnings 1,409 180 Long-term debt-related activities, net 1,677 1,556 Changes in operating assets and liabilities and other, net 615 ( 69,445 ) Net cash provided by (used in) operating activities 85,830 ( 19,369 ) Cash flows from investing activities: Capital expenditures ( 10,364 ) ( 12,629 ) Acquisitions 4,879 — Dispositions 3 195 Notes receivable, net 397 313 Net cash used in investing activities ( 5,085 ) ( 12,121 ) Cash flows from financing activities: Proceeds from long-term debt — 153,315 Repayments of long-term debt ( 11,900 ) ( 14,334 ) Repayments of finance lease liabilities ( 2,659 ) ( 1,967 ) Repurchases of common stock ( 55,611 ) ( 45,137 ) Dividends ( 20,156 ) ( 26,793 ) Proceeds from stock option exercises 972 1,722 Payments related to tax withholding for share-based compensation ( 2,308 ) ( 3,402 ) 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 (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 Cash, cash equivalents and restricted cash at end of period $ 408,147 $ 385,535 Supplemental non-cash investing and financing activities: Capital expenditures included in accounts payable $ 5,461 $ 9,579 Finance leases 5,539 9,274 April 4, 2021 January 3, 2021 Reconciliation of cash, cash equivalents and restricted cash at end of period: Cash and cash equivalents $ 316,488 $ 306,989 Restricted cash 37,948 33,973 Restricted cash, included in Advertising funds restricted assets 53,711 77,279 Total cash, cash equivalents and restricted cash $ 408,147 $ 418,241 See accompanying notes to condensed consolidated financial statements. 8 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (1) Basis of Presentation 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 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. 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 January 3, 2021 (the “Form 10-K”). 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”). The Company manages and internally reports its business in the following segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. 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-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. 9 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (2) Revenue Disaggregation of Revenue The following tables disaggregate revenue by segment and source: Wendy’s U.S. Wendy’s International Global Real Estate & Development Total 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 (a) 11,930 1,443 1,123 14,496 Franchise rental income — — 58,876 58,876 Advertising funds revenue 84,203 5,237 — 89,440 Total revenues $ 381,954 $ 18,250 $ 59,999 $ 460,203 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 (a) 5,285 473 591 6,349 Franchise rental income — — 57,856 57,856 Advertising funds revenue 74,125 4,476 — 78,601 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: April 4, 2021 (a) January 3, 2021 (a) Receivables, which are included in “Accounts and notes receivable, net” (b) $ 57,546 $ 57,677 Receivables, which are included in “Advertising funds restricted assets” 55,721 63,252 Deferred franchise fees (c) 95,247 97,785 _______________ (a) Excludes funds collected from the sale of gift cards, which are primarily reimbursed to franchisees upon redemption at franchised restaurants and do not ultimately result in the recognition of revenue in the Company’s condensed consolidated statements of operations. (b) Includes receivables related to “Sales” and “Franchise royalty revenue and fees.” (c) Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $ 8,715 and $ 86,532 as of April 4, 2021, respectively, and $ 8,691 and $ 89,094 as of January 3, 2021, respectively. 10 Table of Contents 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: Three Months Ended April 4, 2021 March 29, 2020 Deferred franchise fees at beginning of period $ 97,785 $ 100,689 Revenue recognized during the period ( 4,337 ) ( 2,144 ) New deferrals due to cash received and other 1,799 1,066 Deferred franchise fees at end of period $ 95,247 $ 99,611 Anticipated Future Recognition of Deferred Franchise Fees The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period: Estimate for fiscal year: 2021 (a) $ 7,204 2022 6,200 2023 6,028 2024 5,831 2025 5,644 Thereafter 64,340 $ 95,247 _______________ (a) Represents franchise fees expected to be recognized for the remainder of 2021, which includes development-related franchise fees expected to be recognized over a duration of one year or less. (3) Acquisitions No restaurants were acquired from franchisees during the three months ended April 4, 2021 and March 29, 2020. NPC Quality Burgers, Inc. (“NPC”) 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. 11 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (4) System Optimization Gains, Net The Company’s system optimization initiative includes a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”). As of January 1, 2017, the Company completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5 % of the total system. While the Company has no plans to reduce its ownership below the approximately 5 % level, the Company expects to continue to optimize the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, drive new restaurant development and accelerate reimages. During 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. Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs,” which are further described in Note 5. All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.” The following is a summary of the disposition activity recorded as a result of our system optimization initiative: Three Months Ended April 4, 2021 March 29, 2020 Post-closing adjustments on sales of restaurants (a) $ 515 $ 345 Gain on sales of other assets, net (b) 1 ( 22 ) System optimization gains, net $ 516 $ 323 _______________ (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 April 4, 2021 January 3, 2021 Number of restaurants classified as held for sale 47 43 Net restaurant assets held for sale (a) $ 21,747 $ 20,587 Other assets held for sale (b) $ 1,732 $ 1,732 _______________ (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. Assets held for sale are included in “Prepaid expenses and other current assets.” 12 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (5) Reorganization and Realignment Costs The following is a summary of the initiatives included in “Reorganization and realignment costs:” Three Months Ended April 4, 2021 March 29, 2020 Operations and field realignment $ 274 $ — IT realignment — 3,559 G&A realignment ( 18 ) 267 System optimization initiative 4,678 84 Reorganization and realignment costs $ 4,934 $ 3,910 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 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. We also expect to incur contract termination charges, including the planned closure of certain field offices. The Company expects to incur total costs aggregating approximately $ 7,000 to $ 9,000 related to the Operations and Field Realignment Plan. During 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 2021. The following is a summary of the activity recorded as a result of the Operations and Field Realignment Plan: Three Months Ended Total Incurred Since Inception April 4, 2021 Severance and related employee costs $ 254 $ 3,367 Third-party and other costs 20 87 274 3,454 Share-based compensation (a) — 621 Total operations and field realignment $ 274 $ 4,075 _______________ (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 April 4, 2021. Balance January 3, 2021 Charges Payments Balance April 4, 2021 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 13 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Information Technology ( “ IT ”) Realignment In December 2019, our Board of Directors approved a plan to realign and reinvest resources in the Company’s IT organization to strengthen its ability to accelerate growth (the “IT Realignment Plan”). The Company has partnered with a third-party global IT consultant on this new structure to leverage their global capabilities, which will enable a more seamless integration between its digital and corporate IT assets. The IT Realignment Plan has reduced certain employee compensation and other related costs that the Company has reinvested back into IT to drive additional capabilities and capacity across all of its technology platforms. Additionally, in June 2020, the Company made changes to its leadership structure that included the elimination of the Chief Digital Experience Officer position and the creation of a Chief Information Officer position, for which the Company completed the hiring process in October 2020. During 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 Total Incurred Since Inception April 4, 2021 March 29, 2020 Severance and related employee costs (a) $ ( 111 ) $ 145 $ 8,280 Recruitment and relocation costs 108 171 1,404 Third-party and other costs 3 3,243 6,538 — 3,559 16,222 Share-based compensation (b) — — 193 Total IT realignment $ — $ 3,559 $ 16,415 _______________ (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. Balance January 3, 2021 Charges Payments Balance April 4, 2021 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 Balance December 29, 2019 Charges Payments Balance March 29, 2020 Severance and related employee costs $ 7,548 $ 145 $ ( 712 ) $ 6,981 Recruitment and relocation costs — 171 ( 171 ) — Third-party and other costs 1,076 3,243 ( 4,319 ) — $ 8,624 $ 3,559 $ ( 5,202 ) $ 6,981 14 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) General and Administrative ( “ G&A ”) Realignment In May 2017, the Company initiated a plan to further reduce its G&A expenses (the “G&A Realignment Plan”). Additionally, in May 2019, the Company announced changes to its management and operating structure that included the creation of two new positions, a President, U.S. and Chief Commercial Officer and a President, International and Chief Development Officer, and the elimination of the Chief Operations Officer position. During 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 Total Incurred Since Inception April 4, 2021 March 29, 2020 Severance and related employee costs (a) $ ( 31 ) $ 152 $ 24,235 Recruitment and relocation costs 1 15 2,877 Third-party and other costs 1 1 2,224 ( 29 ) 168 29,336 Share-based compensation (b) 11 99 8,122 Termination of defined benefit plans — — 1,335 Total G&A realignment $ ( 18 ) $ 267 $ 38,793 _______________ (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. Balance January 3, 2021 Charges Payments Balance April 4, 2021 Severance and related employee costs $ 932 $ ( 31 ) $ ( 501 ) $ 400 Recruitment and relocation costs — 1 ( 1 ) — Third-party and other costs — 1 ( 1 ) — $ 932 $ ( 29 ) $ ( 503 ) $ 400 Balance December 29, 2019 Charges Payments Balance March 29, 2020 Severance and related employee costs $ 5,276 $ 152 $ ( 1,306 ) $ 4,122 Recruitment and relocation costs 83 15 ( 31 ) 67 Third-party and other costs — 1 ( 1 ) — $ 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 15 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) information. 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 April 4, 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 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.” Balance January 3, 2021 Charges Payments Balance April 4, 2021 Professional fees $ 1,230 $ 235 $ ( 1,461 ) $ 4 Other — 1,354 ( 1,354 ) — $ 1,230 $ 1,589 $ ( 2,815 ) $ 4 (6) Investments Equity Investments 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 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.” 16 Table of Contents 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: Three Months Ended April 4, 2021 March 29, 2020 Balance at beginning of period $ 44,574 $ 45,310 Equity in earnings for the period 2,167 1,985 Amortization of purchase price adjustments (a) ( 595 ) ( 562 ) 1,572 1,423 Distributions received ( 2,981 ) ( 1,603 ) Foreign currency translation adjustment included in “Other comprehensive income (loss)” and other 578 ( 2,991 ) Balance at end of period $ 43,743 $ 42,139 _______________ (a) Purchase price adjustments that impacted the carrying value of the Company’s investment in TimWen are being amortized over the average original aggregate life of 21 years. (7) Long-Term Debt Long-term debt consisted of the following: April 4, 2021 January 3, 2021 Series 2019-1 Class A-2 Notes: 3.783 % Series 2019-1 Class A-2-I Notes, anticipated repayment date 2026 $ 383,000 $ 386,000 4.080 % Series 2019-1 Class A-2-II Notes, anticipated repayment date 2029 430,875 434,250 Series 2018-1 Class A-2 Notes: 3.573 % Series 2018-1 Class A-2-I Notes, anticipated repayment date 2025 435,375 436,500 3.884 % Series 2018-1 Class A-2-II Notes, anticipated repayment date 2028 459,563 460,750 Series 2015-1 Class A-2 Notes: 4.497 % Series 2015-1 Class A-2-III Notes, anticipated repayment date 2025 472,500 473,750 Canadian revolving credit facility — 1,962 7 % debentures, due in 2025 84,291 83,998 Unamortized debt issuance costs ( 28,702 ) ( 30,085 ) 2,236,902 2,247,125 Less amounts payable within one year ( 31,250 ) ( 28,962 ) Total long-term debt $ 2,205,652 $ 2,218,163 Senior Notes 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. 17 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Other Long-Term Debt A Canadian subsidiary of Wendy’s has a revolving credit facility of C$ 6,000 , which bears interest at the Bank of Montreal Prime Rate. Borrowings under the facility are guaranteed by Wendy’s. In March 2020, the Company drew down C$ 5,500 under the revolving credit facility, 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 Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. These inputs are classified into the following hierarchy: • Level 1 Inputs - Quoted prices for identical assets or liabilities in active markets. • Level 2 Inputs - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. • Level 3 Inputs - Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation. Financial Instruments The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments: April 4, 2021 January 3, 2021 Carrying Amount Fair Value Carrying Amount Fair Value Fair Value Measurements Financial assets Cash equivalents $ 25,035 $ 25,035 $ 75,067 $ 75,067 Level 1 Financial liabilities 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 (a) 84,291 99,900 83,998 98,775 Level 2 _______________ (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. The carrying amounts of accounts and notes receivable, net (both current and non-current) approximate fair value due to the effect of the related allowance for doubtful accounts. Our cash equivalents are the only financial assets measured and recorded at fair value on a recurring basis. 18 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Non-Recurring Fair Value Measurements Assets and liabilities remeasured to fair value on a non-recurring basis resulted in impairment that we have recorded to “Impairment of long-lived assets” in our condensed consolidated statements of operations. Total impairment losses may reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements, favorable lease assets and right-of-use assets) to fair value as a result of (1) declines in operating performance at Company-operated restaurants and (2) the Company’s decision to lease and/or sublease the land and/or buildings to franchisees in connection with the sale or anticipated sale of restaurants, including any subsequent lease modifications. 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. 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. See Note 9 for further information on impairment of our long-lived assets. Fair Value Measurements April 4, 2021 Level 1 Level 2 Level 3 Held and used $ 299 $ — $ — $ 299 Held for sale — — — — Total $ 299 $ — $ — $ 299 Fair Value Measurements January 3, 2021 Level 1 Level 2 Level 3 Held and used $ 2,653 $ — $ — $ 2,653 Held for sale 855 — — 855 Total $ 3,508 $ — $ — $ 3,508 (9) Impairment of Long-Lived Assets 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 April 4, 2021 March 29, 2020 Company-operated restaurants $ 446 $ 4,395 Restaurants leased or subleased to franchisees 189 — Surplus properties — 192 $ 635 $ 4,587 19 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (10) Income Taxes 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 (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 $ 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 The calculation of basic and diluted net income per share was as follows: Three Months Ended April 4, 2021 March 29, 2020 Net income $ 41,366 $ 14,441 Common stock: Weighted average basic shares outstanding 223,334 223,533 Dilutive effect of stock options and restricted shares 3,393 4,474 Weighted average diluted shares outstanding 226,727 228,007 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 Dividends During the first quarter of 2021 and 2020, the Company paid dividends per share of $ .09 and $ .12 , respectively. Repurchases of Common Stock In February 2020, our Board of Directors authorized a repurchase program for up to $ 100,000 of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally permissible. As previously announced, beginning in March 2020, the Company temporarily suspended all share repurchase activity under the February 2020 authorization in connection with the Company’s response to the COVID-19 pandemic. In July 2020, the Company’s Board of Directors approved an extension of the February 2020 authorization by one year, through February 28, 2022, when and if market and economic conditions warrant and to the extent legally permissible. The Company resumed share repurchases 20 Table of Contents 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. In November 2019, the Company entered into an accelerated share repurchase agreement (the “2019 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the Company’s existing share repurchase program. Under the 2019 ASR Agreement, the Company paid the financial institution an initial purchase price of $ 100,000 in cash and received an initial delivery of 4,051 shares of common stock, representing an estimated 85 % of the total shares expected to be delivered under the 2019 ASR Agreement. In February 2020, the Company completed the 2019 ASR Agreement and received an additional 628 shares of common stock at an average purchase price of $ 23.89 . The total number of shares of common stock ultimately purchased by the Company under the 2019 ASR Agreement was based on the average of the daily volume-weighted average prices of the common stock during the term of the 2019 ASR Agreement, less an agreed upon discount. In total, 4,679 shares were delivered under the 2019 ASR Agreement at an average purchase price of $ 21.37 per share. In addition to the shares repurchased in connection with the 2019 ASR Agreement, during 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. Accumulated Other Comprehensive Loss The following table provides a rollforward of accumulated other comprehensive loss: Three Months Ended April 4, 2021 March 29, 2020 Balance at beginning of period $ ( 49,641 ) $ ( 53,828 ) Foreign currency translation 2,220 ( 12,507 ) Balance at end of period $ ( 47,421 ) $ ( 66,335 ) (13) Leases Nature of Leases The Company operates restaurants that are located on sites owned by us and sites leased by us from third parties. In addition, the Company owns sites and leases sites from third parties, which it leases and/or subleases to franchisees. 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. Wendy’s also owned 509 and leased 1,242 properties that were either leased or subleased principally to franchisees. The Company also leases restaurant, office and transportation equipment. 21 Table of Contents 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 April 4, 2021 March 29, 2020 Finance lease cost: Amortization of finance lease assets $ 3,508 $ 3,186 Interest on finance lease liabilities 10,293 10,058 13,801 13,244 Operating lease cost 23,361 21,165 Variable lease cost (a) 15,188 14,370 Short-term lease cost 1,326 1,330 Total operating lease cost (b) 39,875 36,865 Total lease cost $ 53,676 $ 50,109 _______________ (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 April 4, 2021 March 29, 2020 Sales-type and direct-financing leases: Selling profit $ 1,912 $ 628 Interest income 7,489 7,248 Operating lease income $ 44,122 $ 43,952 Variable lease income 14,754 13,904 Franchise rental income (a) $ 58,876 $ 57,856 _______________ (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. 22 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (14) Transactions with Related Parties Except as described below, the Company did not have any significant changes in or transactions with its related parties during the current fiscal period since those reported in the Form 10-K. TimWen Lease and Management Fee Payments A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen, which are then subleased to franchisees for the operation of Wendy’s/Tim Hortons combo units in Canada. 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 Except as described below, the Company did not have any significant changes in guarantees and other commitments and contingencies during the current fiscal period since those reported in the Form 10-K. Refer to the Form 10-K for further information regarding the Company’s additional commitments and obligations. 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 $ 87,477 as of April 4, 2021. These leases extend through 2045. 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 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. We do not expect any material loss to result from these letters of credit. 23 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (16) Legal and Environmental Matters 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. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period. We previously described certain legal proceedings in the Form 10-K. 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 April 4, 2021 March 29, 2020 Wendy’s U.S. $ 381,954 $ 331,041 Wendy’s International 18,250 15,472 Global Real Estate & Development 59,999 58,447 Total revenues $ 460,203 $ 404,960 The following table reconciles profit by segment to the Company’s consolidated income before income taxes: Three Months Ended April 4, 2021 March 29, 2020 Wendy’s U.S. (a) $ 112,087 $ 81,828 Wendy’s International 7,684 5,095 Global Real Estate & Development 26,253 26,490 Total segment profit $ 146,024 $ 113,413 Advertising funds deficit ( 1,264 ) ( 1,387 ) Unallocated general and administrative (b) ( 25,107 ) ( 24,119 ) Depreciation and amortization ( 31,542 ) ( 31,046 ) System optimization gains, net 516 323 Reorganization and realignment costs ( 4,934 ) ( 3,910 ) Impairment of long-lived assets ( 635 ) ( 4,587 ) Unallocated other operating income, net 64 45 Interest expense, net ( 28,786 ) ( 28,525 ) Other income, net 129 1,076 Income before income taxes $ 54,465 $ 21,283 _______________ (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. 24