UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



~~(X)~~☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September ~~30, 2018~~29, 2019



~~( )~~☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission file number: 1-2207

THE WENDY’S COMPANY

(Exact name of ~~registrants~~registrant as specified in its charter)



Delaware		38-0471180
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Dave Thomas Blvd.,
Dublin,	Ohio	43017
(Address of principal executive offices)		(Zip Code)

~~(614)~~ (614) 764-3100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.10 par value	WEN	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[x]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ~~[x]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ~~[x]~~	☒	Accelerated filer ~~[ ]~~	☐
Non-accelerated filer ~~[ ]~~	☐	Smaller reporting company ~~[ ]~~	☐
		Emerging growth company ~~[ ]~~	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[ ]~~☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ~~[ ]~~☐ No ~~[x]~~☒

There were ~~236,768,234~~230,047,087 shares of The Wendy’s Company common stock outstanding as of October ~~31, 2018.~~30, 2019.

THE WENDY’S COMPANY AND SUBSIDIARIES

INDEX TO FORM 10-Q



	Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements	34
Unaudited Condensed Consolidated Balance Sheets as of September ~~30, 2018~~29, 2019 and December ~~31, 2017~~30, 2018	34
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~	45
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~	56
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 29, 2019 and September 30, 2018	7
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~	69
Notes to Condensed Consolidated Financial Statements	811
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3133
Item 3. Quantitative and Qualitative Disclosures about Market Risk	4345
Item 4. Controls and Procedures	4446

PART II: OTHER INFORMATION	45
~~Item 1. Legal Proceedings~~	47
Item ~~1A. Risk Factors~~1. Legal Proceedings	4749
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4751
Item 6. Exhibits	4852
Signatures	4953

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands Except Par Value)


	September 30, 2018			December 31, 2017			September 29, 2019			December 30, 2018
ASSETS	(Unaudited)						(Unaudited)
Current assets:
Cash and cash equivalents	$	634,751		$	171,447		$	439,421		$	431,405
Restricted cash	29,874			32,633			28,769			29,860
Accounts and notes receivable, net	100,148			114,390			105,017			109,805
Inventories	3,335			3,156			3,549			3,687
Prepaid expenses and other current assets	18,147			20,125			12,638			14,452
Advertising funds restricted assets	69,835			62,602			84,380			76,509
Total current assets	856,090			404,353			673,774			665,718
Properties	1,223,982			1,263,059			980,872			1,023,267
Finance lease assets							198,415			189,969
Operating lease assets							871,108			—
Goodwill	749,192			743,334			755,588			747,884
Other intangible assets	1,303,690			1,321,585			1,251,699			1,294,153
Investments	52,575			56,002			46,898			47,660
Net investment in direct financing leases	226,149			229,089
Net investment in sales-type and direct financing leases							250,602			226,477
Other assets	95,754			79,516			107,264			96,907
Total assets	$	4,507,432		$	4,096,938		$	5,136,220		$	4,292,035

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	31,291		$	30,172		$	22,750		$	23,250
Current portion of finance lease liabilities							10,584			8,405
Current portion of operating lease liabilities							43,474			—
Accounts payable	24,061			22,764			23,793			21,741
Income taxes payable	84,623			1,115
Accrued expenses and other current liabilities	120,203			110,509			146,693			150,636
Advertising funds restricted liabilities	78,925			62,602			90,152			80,153
Total current liabilities	339,103			227,162			337,446			284,185
Long-term debt	2,759,766			2,724,230			2,270,866			2,305,552
Long-term finance lease liabilities							471,704			447,231
Long-term operating lease liabilities							911,213			—
Deferred income taxes	275,312			299,053			273,097			269,160
Deferred franchise fees	92,522			10,881			91,437			92,232
Other liabilities	257,411			262,409			130,866			245,226
Total liabilities	3,724,114			3,523,735			4,486,629			3,643,586
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 238,318 and 240,512 shares outstanding, respectively	47,042			47,042
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 230,371 and 231,233 shares outstanding, respectively							47,042			47,042
Additional paid-in capital	2,883,298			2,885,955			2,885,404			2,884,696
Retained earnings (accumulated deficit)	146,983			(163,289		)
Common stock held in treasury, at cost; 232,106 and 229,912 shares, respectively	(2,242,870		)	(2,150,307		)
Retained earnings							186,282			146,277
Common stock held in treasury, at cost; 240,053 and 239,191 shares, respectively							(2,415,027		)	(2,367,893		)
Accumulated other comprehensive loss	(51,135		)	(46,198		)	(54,110		)	(61,673		)
Total stockholders’ equity	783,318			573,203			649,591			648,449
Total liabilities and stockholders’ equity	$	4,507,432		$	4,096,938		$	5,136,220		$	4,292,035

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Amounts)


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2018			October 1, 2017			September 30, 2018			October 1, 2017			September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
	(Unaudited)												(Unaudited)
Revenues:
Sales	$	165,323		$	158,843		$	486,316		$	467,914		$	181,977		$	165,323		$	530,724		$	486,316
Franchise royalty revenue and fees	103,212			98,882			308,679			306,120			109,155			103,212			320,233			308,679
Franchise rental income	50,474			50,275			152,110			140,127			59,918			50,474			176,931			152,110
Advertising funds revenue	81,541			—			245,011			—			86,830			81,541			253,923			245,011
	400,550			308,000			1,192,116			914,161			437,880			400,550			1,281,811			1,192,116
Costs and expenses:
Cost of sales	139,348			133,631			409,721			388,755			152,425			139,348			446,096			409,721
Franchise support and other costs	5,349			3,690			18,553			11,122			9,739			5,349			19,823			18,553
Franchise rental expense	22,260			24,076			69,829			64,841			32,364			22,260			92,842			69,829
Advertising funds expense	81,541			—			245,011			—			87,883			81,541			257,031			245,011
General and administrative	46,545			51,716			146,064			153,089			46,169			46,545			146,266			146,064
Depreciation and amortization	29,070			31,216			94,649			91,690			33,306			29,070			97,975			94,649
System optimization (gains) losses, net	(486		)	106			(8		)	39,749
System optimization gains, net													(1,040		)	(486		)	(1,162		)	(8		)
Reorganization and realignment costs	941			2,888			6,691			20,768			403			941			4,771			6,691
Impairment of long-lived assets	347			1,041			2,156			1,804			—			347			1,684			2,156
Other operating income, net	(1,713		)	(2,021		)	(4,643		)	(5,828		)	(2,392		)	(1,713		)	(9,377		)	(4,643		)
	323,202			246,343			988,023			765,990			358,857			323,202			1,055,949			988,023
Operating profit	77,348			61,657			204,093			148,171			79,023			77,348			225,862			204,093
Interest expense, net	(29,625		)	(29,977		)	(89,939		)	(87,887		)	(27,930		)	(29,625		)	(86,943		)	(89,939		)
Loss on early extinguishment of debt	—			—			(11,475		)	—			—			—			(7,150		)	(11,475		)
Investment income (loss), net	450,133			(636		)	450,432			2,086
Investment income, net													340			450,133			999			450,432
Other income, net	1,061			511			2,423			1,022			1,878			1,061			6,166			2,423
Income before income taxes	498,917			31,555			555,534			63,392			53,311			498,917			138,934			555,534
Provision for income taxes	(107,668		)	(17,298		)	(114,250		)	(28,639		)	(7,184		)	(107,668		)	(28,527		)	(114,250		)
Net income	$	391,249		$	14,257		$	441,284		$	34,753		$	46,127		$	391,249		$	110,407		$	441,284

Net income per share
Net income per share:
Basic	$	1.65		$	.06		$	1.85		$	.14		$	.20		$	1.65		$	.48		$	1.85
Diluted	1.60			.06			1.79			.14			.20			1.60			.47			1.79

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)


	Three Months Ended					Nine Months Ended						Three Months Ended					Nine Months Ended
	September 30, 2018		October 1, 2017			September 30, 2018			October 1, 2017			September 29, 2019			September 30, 2018		September 29, 2019		September 30, 2018
	(Unaudited)											(Unaudited)
Net income	$	391,249	$	14,257		$	441,284		$	34,753		$	46,127		$	391,249	$	110,407	$	441,284
Other comprehensive income (loss), net:
Other comprehensive (loss) income, net:
Foreign currency translation adjustment	5,315		8,787			(5,054		)	16,797			(2,297		)	5,315		7,563		(5,054		)
Change in unrecognized pension loss:
Unrealized gains arising during the period	—		—			156			156			—			—		—		156
Income tax provision	—		—			(39		)	(60		)	—			—		—		(39		)
	—		—			117			96			—			—		—		117
Effect of cash flow hedges:
Reclassification of losses into Net income	—		723			—			2,170
Income tax provision	—		(279		)	—			(838		)
	—		444			—			1,332
Other comprehensive income (loss), net	5,315		9,231			(4,937		)	18,225
Other comprehensive (loss) income, net												(2,297		)	5,315		7,563		(4,937		)
Comprehensive income	$	396,564	$	23,488		$	436,347		$	52,978		$	43,830		$	396,564	$	117,970	$	436,347

See accompanying notes to condensed consolidated financial statements.

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 (Accumulated Deficit)			Common Stock Held in Treasury			Accumulated Other Comprehensive Loss			Total
	Common Stock		Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Common Stock Held in Treasury			Accumulated Other Comprehensive Loss			Total
	(Unaudited)
Balance at December 30, 2018	$	47,042	$	2,884,696		$	146,277		$	(2,367,893	)	$	(61,673	)	$	648,449
Net income	—		—			31,894			—			—			31,894
Other comprehensive income, net	—		—			—			—			6,025			6,025
Cash dividends	—		—			(23,069		)	—			—			(23,069		)
Repurchases of common stock	—		—			—			(29,370		)	—			(29,370		)
Share-based compensation	—		5,022			—			—			—			5,022
Common stock issued upon exercises of stock options	—		(205		)	—			9,053			—			8,848
Common stock issued upon vesting of restricted shares	—		(8,874		)	—			2,819			—			(6,055		)
Cumulative effect of change in accounting principle	—		—			(1,105		)	—			—			(1,105		)
Other	—		24			(6		)	37			—			55
Balance at March 31, 2019	$	47,042	$	2,880,663		$	153,991		$	(2,385,354	)	$	(55,648	)	$	640,694
Net income	—		—			32,386			—			—			32,386
Other comprehensive income, net	—		—			—			—			3,835			3,835
Cash dividends	—		—			(23,124		)	—			—			(23,124		)
Repurchases of common stock	—		—			—			(20,391		)	—			(20,391		)
Share-based compensation	—		4,986			—			—			—			4,986
Common stock issued upon exercises of stock options	—		(339		)	—			10,830			—			10,491
Common stock issued upon vesting of restricted shares	—		(1,852		)	—			964			—			(888		)
Other	—		26			(4		)	37			—			59
Balance at June 30, 2019	$	47,042	$	2,883,484		$	163,249		$	(2,393,914	)	$	(51,813	)	$	648,048
Net income	—		—			46,127			—			—			46,127
Other comprehensive loss, net	—		—			—			—			(2,297		)	(2,297		)
Cash dividends	—		—			(23,087		)	—			—			(23,087		)
Repurchases of common stock	—		—			—			(26,462		)	—			(26,462		)
Share-based compensation	—		3,981			—			—			—			3,981
Common stock issued upon exercises of stock options	—		545			—			4,171			—			4,716
Common stock issued upon vesting of restricted shares	—		(2,636		)	—			1,147			—			(1,489		)
Other	—		30			(7		)	31			—			54
Balance at September 29, 2019	$	47,042	$	2,885,404		$	186,282		$	(2,415,027	)	$	(54,110	)	$	649,591

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED

(In Thousands)



	Common Stock		Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Common Stock Held in Treasury			Accumulated Other Comprehensive Loss			Total
	Common Stock		Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Common Stock Held in Treasury			Accumulated Other Comprehensive Loss			Total
	(Unaudited)
Balance at December 31, 2017	$	47,042	$	2,885,955		$	(163,289	)	$	(2,150,307	)	$	(46,198	)	$	573,203
Net income	—		—			20,159			—			—			20,159
Other comprehensive loss, net	—		—			—			—			(5,927		)	(5,927		)
Cash dividends	—		—			(20,355		)	—			—			(20,355		)
Repurchases of common stock	—		—			—			(39,407		)	—			(39,407		)
Share-based compensation	—		4,458			—			—			—			4,458
Common stock issued upon exercises of stock options	—		(7,460		)	—			11,038			—			3,578
Common stock issued upon vesting of restricted shares	—		(4,170		)	—			1,620			—			(2,550		)
Cumulative effect of change in accounting principle	—		—			(70,210		)	—			—			(70,210		)
Other	—		21			(5		)	32			—			48
Balance at April 1, 2018	$	47,042	$	2,878,804		$	(233,700	)	$	(2,177,024	)	$	(52,125	)	$	462,997
Net income	—		—			29,876			—			—			29,876
Other comprehensive loss, net	—		—			—			—			(4,325		)	(4,325		)
Cash dividends	—		—			(20,290		)	—			—			(20,290		)
Repurchases of common stock	—		—			—			(45,787		)	—			(45,787		)
Share-based compensation	—		5,133			—			—			—			5,133
Common stock issued upon exercises of stock options	—		396			—			2,840			—			3,236
Common stock issued upon vesting of restricted shares	—		(1,199		)	—			828			—			(371		)
Other	—		33			(6		)	43			—			70
Balance at July 1, 2018	$	47,042	$	2,883,167		$	(224,120	)	$	(2,219,100	)	$	(56,450	)	$	430,539
Net income	—		—			391,249			—			—			391,249
Other comprehensive income, net	—		—			—			—			5,315			5,315
Cash dividends	—		—			(20,141		)	—			—			(20,141		)
Repurchases of common stock	—		—			—			(56,421		)	—			(56,421		)
Share-based compensation	—		4,810			—			—			—			4,810
Common stock issued upon exercises of stock options	—		(2,409		)	—			31,484			—			29,075
Common stock issued upon vesting of restricted shares	—		(2,300		)	—			1,132			—			(1,168		)
Other	—		30			(5		)	35			—			60
Balance at September 30, 2018	$	47,042	$	2,883,298		$	146,983		$	(2,242,870	)	$	(51,135	)	$	783,318

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	Nine Months Ended						Nine Months Ended
	September 30, 2018			October 1, 2017			September 29, 2019			September 30, 2018
	(Unaudited)						(Unaudited)
Cash flows from operating activities:
Net income	$	441,284		$	34,753		$	110,407		$	441,284
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	94,649			91,690			97,975			94,649
Share-based compensation	14,401			16,356			13,989			14,401
Impairment of long-lived assets	2,156			1,804			1,684			2,156
Deferred income tax	(1,527		)	945			5,524			(1,527		)
Non-cash rental income, net	(10,868		)	(8,348		)
Non-cash rental expense (income), net							18,722			(10,868		)
Change in operating lease liabilities							(31,481		)	—
Net receipt of deferred vendor incentives	2,689			4,547			2,269			2,689
System optimization (gains) losses, net	(8		)	39,749
System optimization gains, net							(1,162		)	(8		)
Gain on sale of investments, net	(450,000		)	(1,807		)	(130		)	(450,000		)
Distributions received from TimWen joint venture	9,060			5,524
Equity in earnings in joint ventures, net	(5,810		)	(6,113		)
Long-term debt-related activities, net (see below)	16,860			9,051
Other, net	4,596			2,023
Changes in operating assets and liabilities:
Accounts and notes receivable, net	11,382			(14,193		)
Inventories	(82		)	(44		)
Prepaid expenses and other current assets	2,754			(1,281		)
Advertising funds restricted assets and liabilities	8,879			(15,823		)
Accounts payable	(559		)	(1,557		)
Accrued expenses and other current liabilities	89,806			3,039
Distributions received from joint ventures, net of equity in earnings							2,926			3,250
Long-term debt-related activities, net							12,386			16,860
Changes in operating assets and liabilities and other, net							4,391			116,776
Net cash provided by operating activities	229,662			160,315			237,500			229,662
Cash flows from investing activities:
Capital expenditures	(39,717		)	(53,711		)	(40,984		)	(39,717		)
Acquisitions	(21,401		)	(86,788		)	(5,052		)	(21,401		)
Dispositions	2,863			80,058			2,038			2,863
Proceeds from sale of investments	450,000			3,282			130			450,000
Notes receivable, net	(283		)	(4,174		)	(1,834		)	(283		)
Payments for investments	(13		)	(375		)	—			(13		)
Net cash provided by (used in) investing activities	391,449			(61,708		)
Net cash (used in) provided by investing activities							(45,702		)	391,449
Cash flows from financing activities:
Proceeds from long-term debt	934,837			22,675			850,000			934,837
Repayments of long-term debt	(893,039		)	(42,966		)	(883,564		)	(888,689		)
Repayments of finance lease liabilities							(5,178		)	(4,350		)
Deferred financing costs	(17,340		)	(1,069		)	(14,008		)	(17,340		)
Repurchases of common stock	(140,199		)	(90,065		)	(76,948		)	(140,199		)
Dividends	(60,786		)	(51,464		)	(69,280		)	(60,786		)
Proceeds from stock option exercises	42,299			10,419			24,069			42,299
Payments related to tax withholding for share-based compensation	(10,464		)	(4,484		)	(8,447		)	(10,464		)
Contingent consideration payment	(6,269		)	—			—			(6,269		)
Net cash used in financing activities	(150,961		)	(156,954		)	(183,356		)	(150,961		)
Net cash provided by (used in) operations before effect of exchange rate changes on cash	470,150			(58,347		)
Net cash provided by operations before effect of exchange rate changes on cash							8,442			470,150
Effect of exchange rate changes on cash	(2,195		)	6,910			2,755			(2,195		)
Net increase (decrease) in cash, cash equivalents and restricted cash	467,955			(51,437		)
Net increase in cash, cash equivalents and restricted cash							11,197			467,955
Cash, cash equivalents and restricted cash at beginning of period	212,824			275,949			486,512			212,824
Cash, cash equivalents and restricted cash at end of period	$	680,779		$	224,512		$	497,709		$	680,779

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—CONTINUED

(In Thousands)

Nine Months Ended
September 30,
2018 October 1,
2017
(Unaudited)
Detail of cash flows from operating activities:
Long-term debt-related activities, net:
Loss on early extinguishment of debt $ 11,475
$ —
Accretion of long-term debt 940
927
Amortization of deferred financing costs 4,445
5,954
Reclassification of unrealized losses on cash flow hedges —
2,170
$ 16,860
$ 9,051

Supplemental cash flow information:
Cash paid for:

Interest $ 103,240
$ 93,701
Income taxes, net of refunds 5,925
22,092

Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable $ 9,588
$ 9,621
Capitalized lease obligations 6,569
239,721
Accrued debt issuance costs 332
—

September 30,
2018 December 31,
2017
Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents $ 634,751
$ 171,447
Restricted cash 29,874
32,633
Restricted cash, included in Advertising funds restricted assets 16,154
8,579
Restricted cash, included in Other assets —
165
Total cash, cash equivalents and restricted cash $ 680,779
$ 212,824



	Nine Months Ended
	September 29, 2019		September 30, 2018
	(Unaudited)
Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable	$	7,582	$	9,588
Finance leases	34,084		6,569

	September 29, 2019		December 30, 2018
Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	$	439,421	$	431,405
Restricted cash	28,769		29,860
Restricted cash, included in Advertising funds restricted assets	29,519		25,247
Total cash, cash equivalents and restricted cash	$	497,709	$	486,512

See accompanying notes to condensed consolidated financial statements.

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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 September ~~30, 2018~~29, 2019, the results of our operations for the three and nine months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~ and cash flows for the nine months ended September 29, 2019 and September 30, ~~2018 and October 1, 2017.~~2018. The results of operations for the three and nine months ended September ~~30, 2018~~29, 2019 are not necessarily indicative of the results to be expected for the full ~~2018~~2019 fiscal year. ~~These~~The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2017~~30, 2018 (the “Form 10-K”).

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 geographically. The operation and franchising of Wendy’s^®restaurants in North America (defined as the United States of America (“U.S.”) and Canada) comprises virtually all of our current operations and represents a single reportable segment. The revenues and operating results of Wendy’s restaurants outside of North America are not material. As a result of the realignment of our management and operating structure in May 2019, the Company is continuing to evaluate the impact these changes will have on its existing operating segment structure. The Company currently expects to report its results in the following three segments beginning with our Annual Report on Form 10-K for the fiscal year ended December 29, 2019: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. See Note 6 for further information.

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to or on December 31. All three- and nine-month periods presented herein contain 13 weeks and 39 weeks, respectively. All references to years and quarters relate to fiscal periods rather than calendar periods.

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

Certain reclassifications have been made to the prior year presentation to conform to the current year presentation. See Note 2 for further information.

The Company has reclassified certain costs associated with the Company’s franchise operations to “Franchise support and other costs,” which were previously recorded to “Other operating expense (income), net.” The costs reclassified include costs incurred to provide direct support services to our franchisees, as well as certain other direct and incremental costs for the Company’s franchise operations. Also, the Company reclassified certain restaurant operational costs from “General and administrative” to “Cost of sales.” The Company believes this new presentation will aid users in understanding its results of operations. The prior periods reflect the reclassifications of these expenses to conform to the current year presentation. There was no impact to operating profit, income before income taxes or net income as a result of these reclassifications.

~~The following tables illustrate the expense reclassifications made to the condensed consolidated statements of operations for the three and nine months ended October 1, 2017:~~

Three Months Ended
Reclassifications
As Previously Reported Franchise support and other costs Restaurant operational costs As Currently Reported
Cost of sales $ 132,387
$ —
$ 1,244
$ 133,631
Franchise support and other costs —
3,690
—
3,690
General and administrative 52,960
—
(1,244 ) 51,716
Other operating expense (income), net 1,669
(3,690 ) —
(2,021 )
$ 187,016
$ —
$ —
$ 187,016

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In Thousands Except Per Share Amounts)~~

Nine Months Ended
Reclassifications
As Previously Reported Franchise support and other costs Restaurant operational costs As Currently Reported
Cost of sales $ 385,154
$ —
$ 3,601
$ 388,755
Franchise support and other costs —
11,122
—
11,122
General and administrative 156,690
—
(3,601 ) 153,089
Other operating expense (income), net 5,294
(11,122 ) —
(5,828 )
$ 547,138
$ —
$ —
$ 547,138

(2) New Accounting Standards

New Accounting Standards

Credit Losses

In ~~August 2018,~~June 2016, the Financial Accounting Standards Board (“FASB”) issued an amendment that will require the Company to use a current expected credit loss model that will result in the immediate recognition of an estimate of credit losses that are expected to occur over the life of the financial instruments that are within the scope of the guidance, including trade receivables. The amendment is effective commencing with our 2020 fiscal year. We are currently evaluating the impact of the adoption of this guidance on our condensed consolidated financial statements.

New Accounting Standards Adopted

Cloud Computing

In August 2018, the FASB issued new guidance on accounting for implementation costs of a cloud computing arrangement that is a service contract. The new guidance aligns the accounting for such implementation costs of a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The Company ~~does~~adopted this amendment during the first quarter of 2019. The adoption of this guidance did not ~~expect the amendment, which is effective beginning with our 2019 fiscal year, to~~ have a material impact on our condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In August 2018, the FASB issued new guidance on disclosure requirements for fair value measurements. The objective of the new guidance, which is effective beginning with our 2020 fiscal year, is to provide additional information about assets and liabilities measured at fair value in the statement of financial position or disclosed in the notes to financial statements. New incremental disclosure requirements include the amount of fair value hierarchy level 3 changes in unrealized gains and losses and the range and weighted average used to develop significant unobservable inputs for level 3 fair value measurements. The Company does not expect the amendment to have a material impact on our consolidated financial statements.Thousands Except Per Share Amounts)

In August 2018, the FASB issued new guidance on disclosure requirements for employer sponsored defined benefit plans. The amendments remove disclosure requirements that no longer are considered cost beneficial and add disclosure requirements that are identified as relevant. New incremental disclosure requirements include the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates as well as an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The Company does not expect the amendment, which is effective beginning with our 2020 fiscal year, to have a material impact on our consolidated financial statements.

Nonemployee Share-Based Payments

In June 2018, the FASB issued new guidance on nonemployee share-based payment arrangements. The new guidance aligns the requirements for nonemployee share-based payments with the requirements for employee share-based payments. The Company ~~does~~adopted this amendment during the first quarter of 2019. The adoption of this guidance did not ~~expect the amendment, which is effective beginning with our 2019 fiscal year, to~~ have a material impact on our condensed consolidated financial statements.

Leases

In February 2016, the FASB issued new guidance on leases, which outlines principles for the recognition, measurement, presentation and disclosure of leases applicable to both lessors and lessees. The new guidance ~~which is effective beginning with our 2019 fiscal year,~~ requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by finance and operating leases. The Company adopted the new guidance during the first quarter of 2019 using the effective date as the date of initial application; therefore, the comparative period has not been adjusted and continues to be reported under the previous lease guidance.

The new standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. For those leases ~~with~~that fall under the definition of a short-term lease, ~~terms~~the Company elected the short-term lease recognition exemption. Under this practical expedient, for those leases that qualify, we did not recognize right-of-use (“ROU”) assets or liabilities, which included not recognizing ROU assets or lease liabilities for existing short-term leases of ~~more than 12 months.~~those assets in transition. The ~~guidance allows~~Company also elected the practical expedient for ~~either (1)~~lessees to account for lease components and nonlease components as a ~~modified retrospective transition method under which~~single lease component for all underlying classes of assets. In addition, the Company elected the practical expedient for lessors to account for lease components and nonlease components as a single lease component in instances where the lease component is predominant, the timing and pattern of transfer for the lease component and nonlease component are the same and the lease component, if accounted for separately, would be classified as an operating lease. The Company did not elect the use-of-hindsight practical expedient.

The standard ~~is applied~~had a material impact on our condensed consolidated balance sheets and related disclosures. Upon adoption at the beginning of 2019, we recognized operating lease liabilities of $1,011,000 based on the ~~earliest period presented in~~present value of the financial statements or (2) an alternative transition method under which the standard is applied at the adoption date and a cumulative-effect adjustment to the opening balance of retained earnings is recognized in the period of adoption. The Company currently plans to adopt the standard using the alternative transition method. We are currently implementing a new lease management system to facilitate the adoption of this guidance. As shown in Note 14, there are $1,546,470 in futureremaining minimum rental payments, with corresponding ROU assets of $934,000. The measurement of the operating lease ROU assets included, among other items, favorable lease amounts of $23,000 and unfavorable lease amounts of $30,000, which were previously included in “Other intangible assets” and “Other liabilities,” respectively, as well as the excess of rent expense recognized on a straight-line basis over the minimum rents paid of $67,000, which was previously included in “Other liabilities.” In addition, the standard requires lessors to recognize lessees’ payments to the Company for ~~operating leases that are not currently~~executory costs on ~~our balance sheet; therefore,~~a gross basis as revenue with a corresponding expense, which we expect ~~this~~ will result in an increase of approximately $40,000 to our 2019 franchise rental income and expense. The Company also recognized a decrease to retained earnings of $1,105 as a result of impairing newly recognized ROU assets upon transition to the new guidance. The adoption of the guidance did not have a material impact on our condensed consolidated ~~balance sheets and related disclosures. We do not expect~~statement of cash flows.

In connection with the adoption of ~~this guidance~~the standard, the Company has reclassified finance lease ROU assets to ~~have a material impact on our consolidated statements~~“Finance lease assets,” which were previously recorded to “Properties.” The Company also reclassified the current and long-term finance lease liabilities to “Current portion of ~~operations~~finance lease liabilities” and ~~statements~~“Long-term finance lease liabilities,” respectively, which were previously recorded to “Current portion of ~~cash flows.~~long-term debt” and “Long-term debt,” respectively. The prior period reflects the reclassifications of these assets and liabilities to conform to the current year presentation.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~New Accounting Standards Adopted~~

~~In May 2017,~~The following table illustrates the ~~FASB issued new guidance on~~reclassifications made to the scope of modification accounting for share-based payment arrangements. The new guidance provides relief to entities that make non-substantive changes to their share-based payment arrangements. The Company adopted this amendment, prospectively, during the first quarter of 2018. The adoption of this guidance did not impact our condensed consolidated financial statements.

In January 2017, the FASB issued an amendment that clarifies the definition of a business in determining whether to account for a transaction as an asset acquisition or a business combination. The Company adopted this amendment, prospectively, during the first quarter of 2018. The adoption of this guidance did not impact our condensed consolidated financial statements.

In November 2016, the FASB issued an amendment that clarifies guidance for proper classification and presentation of restricted cash in the statement of cash flows. Accordingly, changes in restricted cash that have historically been included within operating, investing and financing activities have been eliminated, and restricted cash, including the restricted cash of the national advertising funds, is combined with cash and cash equivalents when reconciling the beginning and end of period balances for all periods presented. The Company adopted this amendment during the first quarter of 2018. The adoption of the amendment resulted in an increase in net cash used in investing activities of $23,624 during the nine months ended October 1, 2017. In addition, during the nine months ended October 1, 2017, net cash provided by operating activities decreased $16,428, primarily due to changes in restricted cash of the national advertising funds. Because of the inclusion of restricted cash in the beginning and end of period balances, our cash, cash equivalents and restricted cash as presented in the statement of cash flows increased $37,883 and $77,709 as of October 1, 2017 and January 1, 2017, respectively. This amendment did not impact the Company’s condensed consolidated statements of operations and condensed consolidated balance ~~sheets.~~

~~In August 2016, the FASB issued an amendment that provides guidance for proper classification~~sheet as of certain cash receipts and payments in the statement of cash flows. Upon adoption in the first quarter of 2018, the Company elected to use the nature of distribution approach for all distributions it receives from its equity method investees. The adoption of this guidance did not impact our condensed consolidated financial statements.

In March 2016, the FASB issued an amendment that provides guidance on extinguishing financial liabilities for certain prepaid stored-value products. The Company adopted this amendment during the first quarter of 2018. The adoption of this guidance did not impact our condensed consolidated financial statements.

In January 2016, the FASB issued an amendment that revises the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The Company adopted this amendment during the first quarter of 2018. The adoption of this guidance did not impact our condensed consolidated financial statements.

~~Revenue Recognition~~

In May 2014, the FASB issued amended guidance for revenue recognition. The new guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the guidance is that an entity should recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. The Company adopted the new guidance on January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed below.

The Company applied the new guidance using the modified retrospective method, whereby the cumulative effect of initially adopting the guidance was recognized as an adjustment to the opening balance of equity at January 1, 2018. Therefore, the comparative period has not been adjusted and continues to be reported under the previous revenue recognition guidance. The details of the significant changes and quantitative impact of the changes are discussed below. See Note 3 for further information regarding our revenue policies and disaggregation of our sources of revenue.

December 30, 2018:



	As Previously Reported		Reclassifications			As Currently Reported
Properties	$	1,213,236	$	(189,969	)	$	1,023,267
Finance lease assets	—		189,969			189,969
Current portion of long-term debt	31,655		(8,405		)	23,250
Current portion of finance lease liabilities	—		8,405			8,405
Long-term debt	2,752,783		(447,231		)	2,305,552
Long-term finance lease liabilities	—		447,231			447,231

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~Franchise Fees~~(3) Revenue

Under previous revenue recognition guidance, new build technical assistance fees and development fees were recognized as revenue when a franchised restaurant opened, as all material services and conditions related to the franchise fee had been substantially performed upon the restaurant opening. In addition, under previous guidance, technical assistance fees received in connection with salesDisaggregation of Company-operated restaurants to franchisees and facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”), as well as renewal fees, were recognized as revenue when the license agreements were signed and the restaurant opened. Under the new guidance, these franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. As such, these franchise fees are recognized over the contractual term of the franchise agreement.Revenue

~~National Advertising Funds~~

The ~~Company maintains two national advertising funds (the “Advertising Funds”) established to collect~~following tables disaggregate revenue by primary geographical market and administer funds contributed for use in advertising and promotional programs for Company-operated and franchised restaurants in the U.S. and Canada. Previously, the revenue, expenses and cash flows of such Advertising Funds were not included in the Company’s condensed consolidated statements of operations and statements of cash flows because the contributions to these Advertising Funds were designated for specific purposes and the Company acted as an agent, in substance, with regard to these contributions as a result of industry-specific guidance. Under the new guidance, which superseded the previous industry-specific guidance, the revenue, expenses and cash flows of the Advertising Funds are fully consolidated into the Company’s condensed consolidated statements of operations and statements of cash flows. In addition, the Company reclassified the total stockholders’ equity of the Advertising Funds from “Advertising funds restricted liabilities” to “Accumulated deficit” upon adoption of the guidance. Upon the full consolidation of the Advertising Funds, the Company also eliminated certain amounts due to and from affiliates from “Advertising funds restricted assets” and “Advertising funds restricted liabilities.” The Company allocates a portion of its advertising funds expense to “Cost of sales” based on a percentage of sales of Company-operated restaurants. Our significant interim accounting policies include the recognition of advertising funds expense in proportion to advertising funds revenue.

source:



	U.S.		Canada		Other International		Total
Three Months Ended September 29, 2019
Sales at Company-operated restaurants	$	181,977	$	—	$	—	$	181,977
Franchise royalty revenue	90,791		6,529		4,947		102,267
Franchise fees	5,838		877		173		6,888
Franchise rental income	50,987		8,931		—		59,918
Advertising funds revenue	81,386		5,444		—		86,830
Total revenues	$	410,979	$	21,781	$	5,120	$	437,880

Nine Months Ended September 29, 2019
Sales at Company-operated restaurants	$	530,724	$	—	$	—	$	530,724
Franchise royalty revenue	266,599		18,341		14,991		299,931
Franchise fees	17,563		1,997		742		20,302
Franchise rental income	151,693		25,238		—		176,931
Advertising funds revenue	238,804		15,119		—		253,923
Total revenues	$	1,205,383	$	60,695	$	15,733	$	1,281,811

Three Months Ended September 30, 2018
Sales at Company-operated restaurants	$	165,323	$	—	$	—	$	165,323
Franchise royalty revenue	84,648		6,260		4,593		95,501
Franchise fees	5,575		1,855		281		7,711
Franchise rental income	43,900		6,574		—		50,474
Advertising funds revenue	76,492		5,049		—		81,541
Total revenues	$	375,938	$	19,738	$	4,874	$	400,550

Nine Months Ended September 30, 2018
Sales at Company-operated restaurants	$	486,316	$	—	$	—	$	486,316
Franchise royalty revenue	252,094		17,696		13,812		283,602
Franchise fees	19,671		4,776		630		25,077
Franchise rental income	133,046		19,064		—		152,110
Advertising funds revenue	230,391		14,620		—		245,011
Total revenues	$	1,121,518	$	56,156	$	14,442	$	1,192,116

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~Impacts on Financial Statements~~

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

Adjustments
As Reported Franchise Fees Advertising Funds Balances Without Adoption
Condensed Consolidated Balance Sheet
September 30, 2018
Accrued expenses and other current liabilities $ 120,203
$ (1,664 ) $ —
$ 118,539
Advertising funds restricted liabilities 78,925
—
(6,645 ) 72,280
Total current liabilities 339,103
(1,664 ) (6,645 ) 330,794
Deferred income taxes 275,312
21,463
—
296,775
Deferred franchise fees 92,522
(81,686 ) —
10,836
Total liabilities 3,724,114
(61,887 ) (6,645 ) 3,655,582
Retained earnings 146,983
62,011
6,645
215,639
Accumulated other comprehensive loss (51,135 ) (124 ) —
(51,259 )
Total stockholders’ equity 783,318
61,887
6,645
851,850

Condensed Consolidated Statements of Operations
Three Months Ended September 30, 2018
Franchise royalty revenue and fees (a) $ 103,212
$ (497 ) $ —
$ 102,715
Advertising funds revenue 81,541
—
(81,541 ) —
Total revenues 400,550
(497 ) (81,541 ) 318,512
Advertising funds expense 81,541
—
(81,541 ) —
Total costs and expenses 323,202
—
(81,541 ) 241,661
Operating profit 77,348
(497 ) —
76,851
Income before income taxes 498,917
(497 ) —
498,420
Provision for income taxes (107,668 ) 124
—
(107,544 )
Net income 391,249
(373 ) —
390,876

Nine Months Ended September 30, 2018
Franchise royalty revenue and fees (a) $ 308,679
$ (2,087 ) $ —
$ 306,592
Advertising funds revenue 245,011
—
(245,011 ) —
Total revenues 1,192,116
(2,087 ) (245,011 ) 945,018
Advertising funds expense 245,011
—
(245,011 ) —
Total costs and expenses 988,023
—
(245,011 ) 743,012
Operating profit 204,093
(2,087 ) —
202,006
Income before income taxes 555,534
(2,087 ) —
553,447
Provision for income taxes (114,250 ) 533
—
(113,717 )
Net income 441,284
(1,554 ) —
439,730

~~_______________~~

~~(a)~~

The adjustments for the three and nine months ended September 30, 2018 include the reversal of franchise fees recognized over time under the new revenue recognition guidance of $2,266 and $7,393, respectively, as well as franchisee fees that would have been recognized under the previous revenue recognition guidance when the license agreements were signed and the restaurant opened of $1,769 and $5,306, respectively. See Note 3 for further information.

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In Thousands Except Per Share Amounts)~~

Adjustments
As Reported Franchise Fees Advertising Funds Balances Without Adoption
Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 2018
Cash flows from operating activities:
Net income $ 441,284
$ (1,554 ) $ —
$ 439,730
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax (1,527 ) (533 ) —
(2,060 )
Other, net 4,596
(219 ) —
4,377
Changes in operating assets and liabilities:
Accrued expenses and other current liabilities 89,806
2,306
—
92,112

~~(3) Revenue~~

~~Nature of Goods and Services~~

~~Wendy’s franchises and operates Wendy’s~~^® quick-service restaurants specializing in hamburger sandwiches throughout North America. Wendy’s also has franchised restaurants in 30 foreign countries and U.S. territories other than North America. At September 30, 2018, Wendy’s operated and franchised 350 and 6,319 restaurants, respectively. The Company generates revenues from sales at Company-operated restaurants and earns fees and rental income from franchised restaurants.

The rights and obligations governing franchised restaurants are set forth in the franchise agreement. The franchise agreement provides the franchisee the right to construct, own and operate a Wendy’s restaurant upon a site accepted by Wendy’s and to use the Wendy’s system in connection with the operation of the restaurant at that site. The franchise agreement generally provides for a 20-year term and a 10-year renewal subject to certain conditions. The initial term may be extended up to 25 years and the renewal extended up to 20 years for qualifying restaurants under certain new restaurant development programs.

The franchise agreement requires that the franchisee pay a royalty based on a percentage of sales of the franchised restaurant, as well as make contributions to the Advertising Funds based on a percentage of sales. The agreement also typically requires that the franchisee pay Wendy’s a technical assistance fee. The technical assistance fee is used to defray some of the costs to Wendy’s for training, start-up and transitional services related to new and existing franchisees acquiring restaurants and in the development and opening of new restaurants.

Wendy’s also enters into development agreements with certain franchisees. The development agreement provides the franchisee with the right to develop a specified number of new Wendy’s restaurants using the Image Activation design within a stated, non-exclusive territory for a specified period, subject to the franchisee meeting interim new restaurant development requirements.

Wendy’s owns and leases sites from third parties, which it leases and/or subleases to franchisees. Noncancelable lease terms are generally initially between 15 and 20 years and, in most cases, provide for rent escalations and renewal options. The lease term for properties leased or subleased to franchisees is determined based upon the economic detriment to the franchisee and includes consideration of the length of the franchise agreement, historical performance of the restaurant and the existence of bargain renewal options.

Royalties and contributions to the Advertising Funds are generally due within the month subsequent to which the revenue was generated through sales of the franchised restaurant. Technical assistance fees, renewal fees and development fees are generally due upon execution of the related franchise agreement. Rental income is due in accordance with the terms of each lease, which is generally at the beginning of each month.

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In Thousands Except Per Share Amounts)~~

~~Significant Accounting Policy~~

“Sales” includes revenues recognized upon delivery of food to the customer at Company-operated restaurants. “Sales” excludes taxes collected from the Company’s customers. Revenue is recognized when the performance obligation is satisfied, which occurs upon delivery of food to the customer. “Sales” also includes income for gift cards. Gift card payments are recorded as deferred income when received and are recognized as revenue in proportion to actual gift card redemptions.

“Franchise royalty revenue and fees” includes royalties, new build technical assistance fees, renewal fees, Franchise Flip technical assistance fees, Franchise Flip advisory fees and development fees. Royalties from franchised restaurants are based on a percentage of sales of the franchised restaurant and are recognized as earned. New build technical assistance fees, renewal fees and Franchise Flip technical assistance fees are recorded as deferred revenue when received and recognized as revenue over the contractual term of the franchise agreements, once the restaurant has opened. Development fees are deferred when received, allocated to each agreed upon restaurant, and recognized as revenue over the contractual term of each respective franchise agreement, once the restaurant has opened. These franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. Franchise Flip advisory fees include valuation services and fees for selecting pre-approved buyers for Franchise Flips. Franchise Flip advisory fees are paid by the seller and are recognized as revenue at closing of the Franchise Flip transaction.

“Advertising funds revenue” includes contributions to the Advertising Funds by franchisees. Revenue related to these contributions is based on a percentage of sales of the franchised restaurants and is recognized as earned.

“Franchise rental income” includes rental income from properties owned and leased by the Company and leased or subleased to franchisees. Rental income is recognized on a straight-line basis over the respective operating lease terms. Favorable and unfavorable lease amounts related to the leased and/or subleased properties are amortized to rental income on a straight-line basis over the remaining term of the leases.

~~Disaggregation of Revenue~~

~~The following table disaggregates revenue by primary geographical market and source:~~

Three Months Ended Nine Months Ended
September 30,
2018 September 30,
2018
Primary geographical markets
United States $ 375,938
$ 1,121,518
Canada 19,738
56,156
International 4,874
14,442
Total revenue $ 400,550
$ 1,192,116

Sources of revenue
Sales at Company-operated restaurants $ 165,323
$ 486,316
Franchise royalty revenue 95,501
283,602
Franchise fees 7,711
25,077
Franchise rental income 50,474
152,110
Advertising funds revenue 81,541
245,011
Total revenue $ 400,550
$ 1,192,116

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In Thousands Except Per Share Amounts)~~

Contract Balances

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


	September 30, 2018 (a)		September 29, 2019 (a)		December 30, 2018 (a)
Receivables, which are included in “Accounts and notes receivable, net” (b)	$	39,281	$	39,669	$	40,300
Receivables, which are included in “Advertising funds restricted assets”	42,226		49,102		47,332
Deferred franchise fees (c)	103,012		100,751		102,205

_______________


(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 ~~statement~~condensed consolidated statements of operations.


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


(c)	Deferred franchise fees ~~of $10,490 and $92,522~~ are included in “Accrued expenses and other current liabilities” and “Deferred franchise ~~fees,”~~fees” and totaled $9,314 and $91,437 as of September 29, 2019, respectively, and $9,973 and $92,232 as of December 30, 2018, respectively.

Significant changes in deferred franchise fees are as follows:



	Nine Months Ended
	September 29, 2019			September 30, 2018
Deferred franchise fees at beginning of period	$	102,205		$	102,492
Revenue recognized during the period	(6,635		)	(7,393		)
New deferrals due to cash received and other	5,181			7,913
Deferred franchise fees at end of period	$	100,751		$	103,012

Nine Months Ended
September 30,
2018
Deferred franchise fees at beginning of period $ 102,492
Revenue recognized during the period (7,393 )
New deferrals due to cash received and other 7,913
Deferred franchise fees at end of period $ 103,012

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:
2018 (a)	$	2,445
2019	7,774
2019 (a)			$	2,164
2020	6,282		7,399
2021	5,749		6,118
2022	5,559		5,858
2023			5,633
Thereafter	75,203		73,579
	$	103,012	$	100,751

_______________


(a)	Represents franchise fees expected to be recognized for the remainder of ~~the 2018 fiscal year,~~2019, which includes development-related franchise fees expected to be recognized over a duration of one year or less.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(4) Acquisitions

During the nine months ended September ~~30, 2018,~~29, 2019, the Company acquired 165 restaurants from ~~a franchisee~~franchisees for total net cash consideration of ~~$21,401.~~$5,052. The Company did not incur any material acquisition-related costs associated with the ~~acquisition~~acquisitions and such ~~transaction was~~transactions were not significant to our condensed consolidated financial statements. The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for restaurants acquired from ~~the franchisee:~~franchisees:



	Nine Months Ended
	September 29, 2019
Restaurants acquired from franchisees	5

Total consideration paid, net of cash received	$	5,052
Identifiable assets acquired and liabilities assumed:
Properties	666
Acquired franchise rights	1,354
Finance lease assets	5,350
Finance lease liabilities	(4,084		)
Other	(2,316		)
Total identifiable net assets	970
Goodwill	$	4,082

Nine Months Ended
September 30,
2018
Restaurants acquired from franchisee 16

Total consideration paid, net of cash received $ 21,401
Identifiable assets acquired and liabilities assumed:
Properties 4,363
Acquired franchise rights 10,127
Capital lease assets 5,360
Other assets 621
Capital lease obligations (3,135 )
Unfavorable leases (733 )
Other liabilities (1,960 )
Total identifiable net assets 14,643
Goodwill $ 6,758

~~On May 31, 2017,~~During 2018, the Company ~~also entered into~~acquired 16 restaurants from a franchisee for total net cash consideration of $21,401. The fair values of the ~~DavCo~~identifiable intangible assets related to the acquisition were provisional amounts as of December 30, 2018, pending final purchase accounting adjustments. The Company finalized the purchase price allocation during the three months ended March 31, 2019, which resulted in a decrease in the fair value of acquired franchise rights of $2,989 and ~~NPC Transactions. See Note 5 for further information.~~an increase in deferred tax assets of $140.

(5) System Optimization ~~(Gains) Losses,~~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. The~~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 as of January 1, 2017.~~system. While the Company has no plans to reduce its ownership below the approximately 5% level, ~~Wendy’s will~~the Company expects to continue to optimize ~~its~~the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, ~~and~~ drive new restaurant development and accelerate ~~reimages in~~reimages.

During the ~~Image Activation format.~~

~~During~~nine months ended September 29, 2019 and September 30, 2018, the Company facilitated 3 and 73 Franchise Flips, respectively. Additionally, during the nine months ended September 30, 2018, the Company completed the sale of ~~three~~3 Company-operated restaurants to a franchisee. ~~In addition, the Company facilitated 73 and 270 Franchise Flips~~NaN Company-operated restaurants were sold to franchisees during the nine months ended September ~~30, 2018 and October 1, 2017, respectively (excluding the DavCo and NPC Transactions discussed below).~~29, 2019.

Gains and losses recognized on dispositions are recorded to “System optimization ~~(gains) losses,~~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 6. All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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


	Three Months Ended					Nine Months Ended						Three Months Ended				Nine Months Ended
	September 30, 2018		October 1, 2017			September 30, 2018			October 1, 2017			September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Gain on sale of restaurants, net (a)	$	—	$	—		$	89		$	—		$	—	$	—	$	—	$	89
Post-closing adjustments on sales of restaurants (b)	279		418			54			1,345			1,033		279		1,087		54
Gain (loss) on sales of other assets, net (c)	207		(539		)	(135		)	2,040			7		207		75		(135		)
Gain (loss) on DavCo and NPC Transactions (d)	—		15			—			(43,134		)
System optimization gains (losses), net	$	486	$	(106	)	$	8		$	(39,749	)
System optimization gains, net												$	1,040	$	486	$	1,162	$	8

_______________


(a)	During the nine months ended September 30, 2018, the Company received cash proceeds of $1,436 from the sale of ~~three~~3 Company-operated restaurants. ~~Net~~The value of the net assets ~~sold~~that were included in the sale totaled $1,139 and consisted primarily of equipment. In addition, goodwill of $208 was written off in connection with the sale.

(b)

The nine months ended September 30, 2018 includes cash proceeds, net of payments of $6. The three and nine months ended October 1, 2017 includes cash payments, net of proceeds received, of $333 and $33, respectively, related to post-closing reconciliations with franchisees. The three and nine months ended September 29, 2019 and September 30, 2018 ~~and the nine months ended October 1, 2017~~ include the recognition of deferred gains of ~~$503~~$911 and ~~$312,~~$503, respectively, as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees. The nine months ended September 30, 2018 also includes cash proceeds, net of payments of $6.

(c)

During the three and nine months ended September ~~30, 2018,~~29, 2019, the Company received cash proceeds ~~primarily from the sale~~ of ~~surplus properties, of $1,049~~$798 and ~~$1,421,~~$2,038, respectively, and ~~received cash proceeds of $2,411 and $9,403~~ during the three and nine months ended ~~October 1, 2017, respectively. The nine months ended October 1, 2017 also includes the recognition~~September 30, 2018 received cash proceeds of ~~a deferred gain of $375 related to~~$1,049 and $1,421, respectively, primarily from the sale of ~~a share in an aircraft.~~surplus properties.

~~(d)~~

As part of our system optimization initiative, the Company acquired 140 Wendy’s restaurants on May 31, 2017 from DavCo Restaurants, LLC (“DavCo”) for total net cash consideration of $86,788, which were immediately sold to NPC International, Inc. (“NPC”), an existing franchisee of the Company, for cash proceeds of $70,688 (the “DavCo and NPC Transactions”). The acquisition of Wendy’s restaurants from DavCo was not contingent on executing the sale agreement with NPC; as such, the Company accounted for the transactions as an acquisition and subsequent disposition of a business. As part of the transactions, the Company retained leases for purposes of subleasing such properties to NPC.

~~The total consideration paid to DavCo was allocated to net tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. Refer to the Form 10-K~~Assets Held for further information regarding the purchase price allocation. The Company finalized the purchase price allocation during 2018 with no differences from the provisional amounts previously reported. The gain on the DavCo and NPC Transactions during the three months ended October 1, 2017 was comprised of a decrease in goodwill of $27 related to adjustments in the fair value of deferred taxes and net unfavorable leases, partially offset by additional selling and other costs of $12. The loss on the DavCo and NPC Transactions during the nine months ended October 1, 2017 was comprised of the write-off of goodwill of $65,476 and selling and other costs of $1,692, partially offset by the recognition of net favorable leases of $24,034.Sale

~~As part of the DavCo acquisition, the Company recognized a supplemental purchase price liability of $6,269, which was settled during the nine months ended September 30, 2018.~~

As of September ~~30, 2018~~29, 2019 and December ~~31, 2017,~~30, 2018, the Company had assets held for sale of ~~$2,519~~$2,391 and ~~$2,235,~~$2,435, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”

(6) Reorganization and Realignment Costs

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



	Three Months Ended				Nine Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
G&A realignment	$	396	$	629	$	4,695	$	6,375
System optimization initiative	7		312		76		316
Reorganization and realignment costs	$	403	$	941	$	4,771	$	6,691

General and Administrative (“G&A”) Realignment

In May 2017, the Company initiated a plan to further reduce its G&A expenses. Additionally, the Company announced in May 2019 changes to its leadership structure that includes 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 nine months ended September 29, 2019 and September 30, 2018, the Company recognized costs related to the plan totaling $4,695 and $6,375, respectively, which primarily included severance and related employee costs and share-based compensation. The Company expects to incur additional costs aggregating approximately $2,700, comprised of (1) severance and related employee costs of approximately $1,900, (2) recruitment and relocation costs of approximately $450, (3) third-party and other costs of approximately $50 and (4) share-based compensation of approximately $300. The Company expects to incur total costs aggregating approximately $35,000 to $38,000 related to the plan.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~(6) Reorganization and Realignment Costs~~

~~The following is~~As a ~~summary~~result of the ~~initiatives included in “Reorganization~~realignment of our management and ~~realignment costs:”~~

Three Months Ended Nine Months Ended
September 30,
2018 October 1,
2017 September 30,
2018 October 1,
2017
G&A realignment $ 629
$ 2,656
$ 6,375
$ 19,901
System optimization initiative 312
232
316
867
Reorganization and realignment costs $ 941
$ 2,888
$ 6,691
$ 20,768

~~General and Administrative (~~“~~G&A~~”) ~~Realignment~~

~~In May 2017,~~operating structure as described above, the Company ~~initiated a plan~~is continuing to ~~further reduce~~evaluate the impact these changes will have on its ~~G&A expenses.~~existing operating segment structure. The Company currently expects to ~~incur total costs aggregating approximately $30,000 to $33,000 related to~~report its results in the ~~plan. The Company recognized costs totaling $6,375 during~~following three segments beginning with our Annual Report on Form 10-K for the ~~nine months~~fiscal year ended ~~September 30, 2018, which primarily included severance~~December 29, 2019: (1) Wendy’s U.S., (2) Wendy’s International and related employee costs and share-based compensation. The Company expects to incur additional costs aggregating approximately $4,500, comprised of (1) severance and related employee costs of approximately $1,000, (2) recruitment and relocation costs of approximately $2,000, (3) ~~third-party and other costs of approximately $500 and (4) share-based compensation of approximately $1,000. The Company expects to continue to recognize costs associated with the plan into 2019.~~Global Real Estate & Development.

The following is a summary of the activity recorded as a result of the G&A realignment plan:


	Three Months Ended				Nine Months Ended				Total Incurred Since Inception		Three Months Ended				Nine Months Ended				Total Incurred Since Inception
	September 30, 2018		October 1, 2017		September 30, 2018		October 1, 2017		Total Incurred Since Inception		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018		Total Incurred Since Inception
Severance and related employee costs	$	57	$	1,210	$	3,168	$	14,436	$	18,124	$	214	$	57	$	2,816	$	3,168	$	21,569
Recruitment and relocation costs	200		145		708		145		1,197		58		200		654		708		2,220
Third-party and other costs	39		496		971		821		2,062		25		39		112		971		2,222
	296		1,851		4,847		15,402		21,383		297		296		3,582		4,847		26,011
Share-based compensation (a)	333		805		1,528		4,499		6,655		99		333		1,113		1,528		7,797
Termination of defined benefit plans											—		—		—		—		1,335
Total G&A realignment	$	629	$	2,656	$	6,375	$	19,901	$	28,038	$	396	$	629	$	4,695	$	6,375	$	35,143

_______________


(a)	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 September 30, 2018, the~~The accruals for our G&A realignment plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $3,491 and $507 as of September 29, 2019, respectively, and $6,817 and $1,432 as of September 30, 2018, respectively. The tables below present a rollforward of our accruals for the plan.


	Balance December 31, 2017		Charges		Payments			Balance September 30, 2018		Balance December 30, 2018		Charges		Payments			Balance September 29, 2019
Severance and related employee costs	$	12,093	$	3,168	$	(7,103	)	$	8,158	$	7,241	$	2,816	$	(6,216	)	$	3,841
Recruitment and relocation costs	177		708		(794		)	91		83		654		(580		)	157
Third-party and other costs	—		971		(971		)	—		—		112		(112		)	—
	$	12,270	$	4,847	$	(8,868	)	$	8,249	$	7,324	$	3,582	$	(6,908	)	$	3,998



	Balance December 31, 2017		Charges		Payments			Balance September 30, 2018
Severance and related employee costs	$	12,093	$	3,168	$	(7,103	)	$	8,158
Recruitment and relocation costs	177		708		(794		)	91
Third-party and other costs	—		971		(971		)	—
	$	12,270	$	4,847	$	(8,868	)	$	8,249

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In Thousands Except Per Share Amounts)~~

Balance
January 1,
2017
Charges Payments
Balance
October 1, 2017
Severance and related employee costs $ —
$ 14,436
$ (1,350 ) $ 13,086
Recruitment and relocation costs —
145
(36 ) 109
Third-party and other costs —
821
(821 ) —
$ —
$ 15,402
$ (2,207 ) $ 13,195

System Optimization Initiative

The Company recognizes costs related to acquisitions and dispositions under its system optimization initiative. The Company has incurred costs of ~~$72,225~~$72,268 under the initiative since ~~inception. The Company~~inception and does not expect to incur any additional costs ~~in 2018 in connection with acquisitions or dispositions under our system optimization initiative.~~during the remainder of 2019.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(7) 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 Hortonsis 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.”

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


	Nine Months Ended						Nine Months Ended
	September 30, 2018			October 1, 2017			September 29, 2019			September 30, 2018
Balance at beginning of period	$	55,363		$	54,545		$	47,021		$	55,363

Investment	13			375			—			13

Equity in earnings for the period	7,566			7,844			8,812			7,566
Amortization of purchase price adjustments (a)	(1,756		)	(1,731		)	(1,700		)	(1,756		)
	5,810			6,113			7,112			5,810
Distributions received ~~(b)~~	(9,060		)	(8,128		)	(10,038		)	(9,060		)
Foreign currency translation adjustment included in “Other comprehensive income (loss), net” and other	(191		)	4,304
Foreign currency translation adjustment included in “Other comprehensive (loss) income, net” and other							2,164			(191		)
Balance at end of period	$	51,935		$	57,209		$	46,259		$	51,935

_______________


(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.


~~(b)~~	~~The nine months ended October 1, 2017 included a distribution receivable from TimWen of $2,604, which was included in “Accounts and notes receivable, net.”~~

Other Investments in Equity Securities

On October 11, 2019, the Company received a $25,000 cash settlement related to a previously held investment.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~Indirect Investment in Inspire Brands~~

In connection with the sale of Arby’s Restaurant Group, Inc. (“Arby’s) during 2011, Wendy’s Restaurants, LLC (“Wendy’s Restaurants”) obtained an 18.5% equity interest in ARG Holding Corporation (“ARG Parent”) (through which Wendy’s Restaurants indirectly retained an 18.5% interest in Arby’s). The carrying value of our investment was reduced to zero during 2013 in connection with the receipt of a dividend.

(8) Long-Term Debt

Long-term debt consisted of the following:



	September 29, 2019			December 30, 2018
Series 2019-1 Class A-2 Notes:
3.783% Series 2019-1 Class A-2-I Notes, anticipated repayment date 2026	$	399,000		$	—
4.080% Series 2019-1 Class A-2-II Notes, anticipated repayment date 2029	448,875			—
Series 2018-1 Class A-2 Notes:
3.573% Series 2018-1 Class A-2-I Notes, anticipated repayment date 2025	442,125			445,500
3.884% Series 2018-1 Class A-2-II Notes, anticipated repayment date 2028	466,688			470,250
Series 2015-1 Class A-2 Notes:
4.080% Series 2015-1 Class A-2-II Notes, repaid in connection with the June 2019 refinancing	—			870,750
4.497% Series 2015-1 Class A-2-III Notes, anticipated repayment date 2025	480,000			483,750
7% debentures, due in 2025	91,722			90,769
Unamortized debt issuance costs	(34,794		)	(32,217		)
	2,293,616			2,328,802
Less amounts payable within one year	(22,750		)	(23,250		)
Total long-term debt	$	2,270,866		$	2,305,552

September 30,
2018 December 31,
2017
Series 2018-1 Class A-2 Notes:
3.573% Series 2018-1 Class A-2-I Notes, anticipated repayment date 2025 $ 446,625
$ —
3.884% Series 2018-1 Class A-2-II Notes, anticipated repayment date 2028 471,438
—
Series 2015-1 Class A-2 Notes:
3.371% Series 2015-1 Class A-2-I Notes, repaid with 2018 refinancing —
855,313
4.080% Series 2015-1 Class A-2-II Notes, anticipated repayment date 2022 873,000
879,750
4.497% Series 2015-1 Class A-2-III Notes, anticipated repayment date 2025 485,000
488,750
7% debentures, due in 2025 90,454
89,514
Capital lease obligations, due through 2045 458,347
467,964
Unamortized debt issuance costs (33,807 ) (26,889 )
2,791,057
2,754,402
Less amounts payable within one year (31,291 ) (30,172 )
Total long-term debt $ 2,759,766
$ 2,724,230

On ~~January 17, 2018,~~June 26, 2019, Wendy’s Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of the Company, completed a debt refinancing transaction under which the Master Issuer issued fixed rate senior secured notes in the following ~~2018-1~~2019-1 series: Class A-2-I with an initial principal amount of ~~$450,000~~$400,000 and Class A-2-II with an initial principal amount of ~~$475,000~~$450,000 (collectively, the “Series ~~2018-1~~2019-1 Class A-2 Notes”). Interest payments on the Series ~~2018-1~~2019-1 Class A-2 Notes are payable on a quarterly basis. The legal final maturity date of the Series ~~2018-1~~2019-1 Class A-2 Notes is in ~~March 2048.~~June 2049. If the Master Issuer has not repaid or ~~redeemed~~refinanced the Series ~~2018-1~~2019-1 Class A-2 Notes prior to the respective anticipated repayment date, additional interest will accrue on ~~these notes~~each tranche of the Series 2019-1 Class A-2 Notes at a rate equal to the greater of ~~(1)~~(A) 5.00% per annum and ~~(2)~~(B) a per annum interest rate equal to the ~~excess,~~amount, if any, by which the sum of ~~(a)~~(i) the yield to maturity (adjusted to a quarterly bond-equivalent basis) on such anticipated repayment date of the United States Treasury Security having a term closest to 10 years, plus ~~(b)~~(ii) 5.00%, plus ~~(c) (i)~~(iii) (1) with respect to the Series ~~2018-1~~2019-1 Class A-2-I Notes, ~~1.35%~~1.863%, and ~~(ii)~~(2) with respect to the Series ~~2018-1~~2019-1 Class A-2-II Notes, ~~1.58%~~2.051%, exceeds the original interest rate with respect to such tranche. The ~~net proceeds from the sale of the Series 2018-1 Class A-2 Notes were used to redeem the~~ Master Issuer’s outstanding Series 2015-1 Class ~~A-2-I~~A-2-II Notes ~~to pay prepayment and transaction costs, and for general corporate purposes.~~were repaid as part of the refinancing transaction. As a result, the Company recorded a loss on early extinguishment of debt of ~~$11,475~~$7,150 during the nine months ended September ~~30, 2018,~~29, 2019, which was comprised of the write-off of certain unamortized deferred financing ~~costs and a specified make-whole payment.~~costs. The Series ~~2018-1~~2019-1 Class A-2 Notes have scheduled principal payments of ~~$9,250~~$4,250 in 2019, $8,500 annually from ~~2018~~2020 through ~~2024, $423,250~~2025, $378,500 in ~~2025, $4,750~~2026, $4,500 in each ~~2026 through~~of 2027 and ~~$427,500~~2028 and $407,250 in ~~2028.~~2029.

~~Table~~In connection with the issuance of ~~Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In Thousands Except Per Share Amounts)~~

~~Concurrently,~~the Series 2019-1 Class A-2 Notes, the Master Issuer also entered into a revolving financing facility of Series ~~2018-1~~2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Series ~~2018-1~~2019-1 Class A-1 Notes” and, together with the Series ~~2018-1~~2019-1 Class A-2 Notes, the “Series ~~2018-1~~2019-1 Senior Notes”), which allows for the drawing of up to $150,000 on a revolving basis using various credit instruments, including a letter of credit facility. NoNaN amounts were borrowed under the Series ~~2018-1~~2019-1 Class A-1 Notes during the nine months ended September ~~30, 2018.~~29, 2019. The Series ~~2015-1~~2019-1 Class A-1 Notes replaced the Company’s $150,000 Series 2018-1 Class A-1 Notes, which were canceled on the closing date, and the letters of credit outstanding against the Series ~~2015-1~~2018-1 Class A-1 Notes were transferred to the Series ~~2018-1~~2019-1 Class A-1 Notes.

The Series ~~2018-1~~2019-1 Senior Notes are secured by substantially all of the assets of the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company that act as guarantors (the “Guarantors”), excluding certain real estate assets and subject to certain limitations. The Series ~~2018-1~~2019-1 Senior Notes are subject to the same series of covenants and restrictions as the Company’s outstanding Series 2018-1 Class A-2 Notes and Series 2015-1 ~~Senior~~Class A-2 Notes.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

During the nine months ended September ~~30, 2018,~~29, 2019, the Company incurred debt issuance costs of ~~$17,672~~$14,008 in connection with the issuance of the Series ~~2018-1~~2019-1 Senior Notes. The debt issuance costs ~~are being~~will be amortized to “Interest expense, net” through the anticipated repayment dates of the Series ~~2018-1~~2019-1 SeniorNotes utilizing the effective interest rate method.

Wendy’s U.S. advertising fund has a revolving line of credit of $25,000. Neither the Company nor Wendy’s is the guarantor of the debt. The advertising fund facility was established to fund the advertising fund operations. During the nine months ended September 30, 2018, the Company borrowed $9,837 and repaid ~~$9,837 and~~ $11,124 under the line of credit. There were 0 borrowings or repayments under the line of credit ~~respectively. During~~during the nine months ended ~~October 1, 2017, the Company borrowed and repaid $22,675 under the line of credit.~~September 29, 2019.

(9) 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.

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In Thousands Except Per Share Amounts)~~

Financial Instruments

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


	September 30, 2018				December 31, 2017					September 29, 2019				December 30, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements
Financial assets
Cash equivalents	$	444,012	$	444,012	$	338	$	338	Level 1	$	206,094	$	206,094	$	222,228	$	222,228	Level 1
Non-current cost method investments (a)	640		2,409		639		327,710		Level 3
Other investments in equity securities (a)										639		1,818		639		2,181		Level 3

Financial liabilities
Series 2019-1 Class A-2-I Notes (b)										399,000		405,863		—		—		Level 2
Series 2019-1 Class A-2-II Notes (b)										448,875		463,598		—		—		Level 2
Series 2018-1 Class A-2-I Notes (b)	446,625		425,678		—		—		Level 2	442,125		448,580		445,500		424,026		Level 2
Series 2018-1 Class A-2-II Notes (b)	471,438		449,186		—		—		Level 2	466,688		476,208		470,250		439,353		Level 2
Series 2015-1 Class A-2-I Notes (b)	—		—		855,313		856,510		Level 2
Series 2015-1 Class A-2-II Notes (b)	873,000		866,714		879,750		897,961		Level 2	—		—		870,750		865,342		Level 2
Series 2015-1 Class A-2-III Notes (b)	485,000		481,654		488,750		513,188		Level 2	480,000		492,624		483,750		482,522		Level 2
7% debentures, due in 2025 (b)	90,454		104,500		89,514		107,000		Level 2	91,722		107,500		90,769		102,750		Level 2
Guarantees of franchisee loan obligations (c)	22		22		37		37		Level 3	2		2		17		17		Level 3

_______________

(a)

The fair value of our indirect investment in Arby’s as of December 31, 2017 was based on applying a multiple to Arby’s adjusted earnings before income taxes, depreciation and amortization per its current unaudited financial information. The carrying value of our indirect investment in Arby’s was reduced to zero during 2013 in connection with the receipt of a dividend. On February 5, 2018, a subsidiary of ARG Parent acquired Buffalo Wild Wings, Inc. As a result, our ownership interest included both the Arby’s and Buffalo Wild Wings brands under the newly formed combined company, Inspire Brands. On August 16, 2018, the Company sold its remaining ownership interest to Inspire Brands for $450,000. See Note 7 for further information. The fair values of our ~~remaining~~ investments are not significant and are based on our review of information provided by the investment managers or investees which was based on (1) valuations performed by the investment managers or investees, (2) quoted market or broker/dealer prices for similar investments and (3) quoted market or broker/dealer prices adjusted by the investment managers for legal or contractual restrictions, risk of nonperformance or lack of marketability, depending upon the underlying investments.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)


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


(c)	Wendy’s has provided loan guarantees to various lenders on behalf of franchisees entering into debt arrangements for equipment financing. We have accrued a liability for the fair value of these guarantees, the calculation of which was based upon a weighted average risk percentage.

The carrying amounts of cash, accounts payable and accrued expenses approximated 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) approximated fair value due to the effect of the related allowance for doubtful accounts. Our cash equivalents and guarantees are the only financial assets and liabilities measured and recorded at fair value on a recurring basis.

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

Total impairment losses may also include the impact of remeasuring long-lived assets held for sale, which primarily include surplus properties. The fair values of long-lived assets held for sale presented in the tables below represents the remaining carrying value and were estimated based on current market values. See Note 10 for further information on impairment of our long-lived assets.



			Fair Value Measurements
	September 29, 2019		Level 1		Level 2		Level 3
Held and used	$	1,866	$	—	$	—	$	1,866
Held for sale	988		—		—		988
Total	$	2,854	$	—	$	—	$	2,854

Fair Value Measurements
September 30,
2018 Level 1 Level 2 Level 3
Held and used $ 226
$ —
$ —
$ 226
Held for sale 1,115
—
—
1,115
Total $ 1,341
$ —
$ —
$ 1,341



			Fair Value Measurements
	December 30, 2018		Level 1		Level 2		Level 3
Held and used	$	462	$	—	$	—	$	462
Held for sale	1,031		—		—		1,031
Total	$	1,493	$	—	$	—	$	1,493

Fair Value Measurements
December 31,
2017 Level 1 Level 2 Level 3
Held and used $ 757
$ —
$ —
$ 757
Held for sale 1,560
—
—
1,560
Total $ 2,317
$ —
$ —
$ 2,317

Total impairment losses for the three and nine months ended September 30, 2018 included remeasuring long-lived assets held and used of $118 and $1,886, respectively, and remeasuring long-lived assets held for sale of $229 and $270, respectively. Total impairment losses for the three and nine months ended October 1, 2017 included remeasuring long-lived assets held and used of $928 and $1,146, respectively, and remeasuring long-lived assets held for sale of $113 and $658, respectively.

(10) Impairment of Long-Lived Assets

~~During the three and nine months ended September 30, 2018 and October 1, 2017, the~~The Company ~~recorded~~records impairment charges ~~on long-lived assets~~ as a result of (1) closing Company-operated restaurants and classifying such surplus properties as held for sale, (2) the deterioration of operating performance of certain Company-operated restaurants and ~~(2)~~(3) 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. Additionally, during the nine months ended September 30, 2018 and the three and nine months ended October 1, 2017, the Company recorded impairment charges on long-lived assets as a result of the deterioration in operating performance of certain Company-operated restaurants and charges for capital improvements in previously impaired restaurants that did not subsequently recover.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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.~~assets:”



	Three Months Ended				Nine Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Surplus properties	$	—	$	229	$	1,397	$	270
Company-operated restaurants	—		—		287		1,603
Restaurants leased or subleased to franchisees	—		118		—		283
	$	—	$	347	$	1,684	$	2,156

Three Months Ended Nine Months Ended
September 30,
2018 October 1,
2017 September 30,
2018 October 1,
2017
Surplus properties $ 229
$ 113
$ 270
$ 658
Restaurants leased or subleased to franchisees 118
95
283
95
Company-operated restaurants —
833
1,603
1,051
$ 347
$ 1,041
$ 2,156
$ 1,804

(11) Income Taxes

The Company’s effective tax rate for the three months ended September 29, 2019 and September 30, 2018 was 13.5% and ~~October 1, 2017 was~~ 21.6% ~~and 54.8%~~ respectively. The Company’s effective tax rate ~~varies~~varied from the U.S. federal statutory rate of 21% ~~and 35% in the third quarter of 2018 and 2017, respectively,~~ primarily due to (1) a reduction in unrecognized tax benefits due to a lapse of statute of limitations in the three months ended September 29, 2019, (2) a reduction for stock-based compensation, which included net excess tax benefits ~~related~~of $1,103 and $5,251 for the three months ended September 29, 2019 and September 30, 2018, respectively, and (3) an increase due to share-based payments, which resulted in a benefit of $5,251 in the third quarter of 2018, (2) the impact of the comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), (3) the system optimization initiative provision of $5,019 in 2017, reflecting goodwill adjustments, changes to valuation allowances on state net operating loss carryforwards and state deferred taxes, and (4) state income ~~tax provision in 2017,~~taxes, including non-recurring changes to state deferred taxes net of federal benefits.

The Company’s effective tax rate for the nine months ended September 29, 2019 and September 30, 2018 was 20.5% and ~~October 1, 2017 was~~ 20.6% ~~and 45.2%,~~ respectively. The Company’s effective tax rate ~~varies~~varied immaterially from the U.S. federal statutory rate of 21% ~~and 35% for the first nine months of 2018 and 2017, respectively,~~ primarily due to (1) a reduction in unrecognized tax benefits due to a lapse of statute of limitations in the nine months ended September 29, 2019, (2) a reduction for stock-based compensation, which included net excess tax benefits ~~related to share-based payments, which resulted in a benefit~~ of $4,028 and $12,142 infor the ~~first~~ nine months ofended September 29, 2019 and September 30, 2018, ~~(2)~~respectively, and (3) an increase due to state income taxes, ~~(3) the impact of the Tax Act and (4) the system optimization initiative in 2017, reflecting goodwill adjustments,~~including non-recurring changes to ~~valuation allowances on state net operating loss carryforwards and~~ state deferred ~~taxes.~~taxes net of federal benefits.

On December 22, 2017, the U.S. government enacted the Tax Act. In our continued analysis of the impact of the Tax Act induring the first nine months of 2018 under Staff Accounting Bulletin 118, we ~~have~~ adjusted our provisional amounts for a discrete net tax expense of $2,076. This ~~includes~~included a net expense of $2,426 related to the impact of the corporate rate reduction on our net deferred tax liabilities and a net expense of $991 related to limitations on the deductibility of certain executive compensation, partially offset by $1,341 for the tax benefit of foreign tax credits. The Company considers the impact of the Tax Act related to these items to be final. The impact of the Tax Act on the Company’s state income taxes is not yet final; however, we do not expect any material change to the provisional amounts made for state taxes.

Unrecognized tax benefits for the Company ~~increased~~decreased by ~~$3,554~~$5,639 and ~~$2,547~~$6,475 during the three and nine months ended September ~~30, 2018,~~29, 2019, respectively. The ~~increase~~decrease was primarily related to the ~~sale~~lapse of ~~our ownership interest in Inspire Brands (see Note 7 for further information).~~statutes of limitations during the third quarter of 2019. During the next twelve months, we believe it is reasonably possible the ~~Company will reduce~~Company’s unrecognized tax benefits will decrease by up to ~~$11,241~~$2,081 due to the lapse of statutes of limitations and expected settlements with taxing authorities.

The current portion of refundable income taxes was ~~$5,851~~$6,719 and ~~$26,262~~$14,475 as of September ~~30, 2018~~29, 2019 and December ~~31, 2017,~~30, 2018, respectively, and is included in “Accounts and notes receivable, net” in the condensed consolidated balance sheets. There were no0 long-term refundable income taxes as of September ~~30, 2018~~29, 2019 and December ~~31, 2017.~~30, 2018.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(12) Net Income Per Share

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

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



	Three Months Ended		Nine Months Ended
	September 29, 2019	September 30, 2018	September 29, 2019	September 30, 2018
Common stock:
Weighted average basic shares outstanding	230,723	237,696	230,779	238,872
Dilutive effect of stock options and restricted shares	4,995	7,070	5,122	7,574
Weighted average diluted shares outstanding	235,718	244,766	235,901	246,446

Three Months Ended Nine Months Ended
September 30,
2018 October 1,
2017 September 30,
2018 October 1,
2017
Common stock:
Weighted average basic shares outstanding 237,696
243,354
238,872
245,073
Dilutive effect of stock options and restricted shares 7,070
8,383
7,574
8,103
Weighted average diluted shares outstanding 244,766
251,737
246,446
253,176

Diluted net income per share for the three and nine months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~ 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 3,257 and 2,488 for the three and nine months ended September 29, 2019, respectively, and 1,121 and 1,287 for the three and nine months ended September 30, 2018, ~~respectively, and 1,617 and 618 for the three and nine months ended October 1, 2017,~~ respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

(13) Stockholders’ Equity

~~Stockholders’ Equity~~Dividends

~~The following is a summary~~During each of the ~~changes in stockholders’ equity:~~

Three Months Ended Nine Months Ended
September 30,
2018 October 1,
2017 September 30,
2018 October 1,
2017
Balance at beginning of period $ 430,539
$ 487,049
$ 573,203
$ 527,736
Comprehensive income 396,564
23,488
436,347
52,978
Cash dividends ($.085 and $.07 per share for the three months and $.255 and $.21 per share for the nine months ended September 30, 2018 and October 1, 2017, respectively) (20,141 ) (17,017 ) (60,786 ) (51,464 )
Repurchases of common stock (56,421 ) (38,463 ) (141,615 ) (90,964 )
Share-based compensation 4,810
4,984
14,401
16,356
Exercises of stock options 29,075
4,033
35,889
10,194
Vesting of restricted shares (1,168 ) (1,528 ) (4,089 ) (4,260 )
Cumulative effect of change in accounting principle (a) —
—
(70,210 ) 1,880
Other 60
49
178
139
Balance at end of period $ 783,318
$ 462,595
$ 783,318
$ 462,595

~~_______________~~

~~Table~~first three quarters of ~~Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In Thousands Except Per Share Amounts)~~

~~(a)~~

During the nine months ended September 30, 2018, the Company recognized a net increase to “Accumulated deficit” of $70,210 as a result of adoption of amended guidance for revenue recognition. The net increase resulted from an increase to deferred franchise fees of $85,561 and a decrease to “Deferred income taxes” of $21,996 as a result of now deferring franchise fees over the contractual term of the franchise agreements. Additionally, an increase to “Advertising funds restricted liabilities” of $6,645 was recognized as a result of a reclassification of the total stockholders’ deficit of the Advertising Funds as of December 31, 2017. See Note 2 for further information.

~~During the nine months ended October 1, 2017,~~2019, the Company ~~recognized a tax benefit as a reduction to~~paid quarterly cash dividends of $.10 per share. During each of the ~~Company’s deferred tax liability with an equal offsetting increase to “Accumulated deficit.” The adjustment was recognized as a result~~first three quarters of ~~adoption~~2018, the Company paid quarterly cash dividends of ~~an amendment to the accounting for employee share-based payment transactions.~~$.085 per share.

Repurchases of Common Stock

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 warrant and to the extent legally permissible. In connection with the February 2019 authorization, the Company’s previous November 2018 repurchase authorization for up to $220,000 of our common stock was canceled. During the nine months ended September 29, 2019, the Company repurchased 4,153 shares with an aggregate purchase price of $76,165, of which $1,102 was accrued at September 29, 2019, and excluding commissions of $58, under the November 2018 and February 2019 authorizations. As of September 29, 2019, the Company had $170,292 of availability remaining under its February 2019 authorization. Subsequent to September 29, 2019 through October 30, 2019, the Company repurchased 443 shares under the February 2019 authorization with an aggregate purchase price of $9,190, excluding commissions of $6. As part of the February 2019 authorization, the Company announced on October 11, 2019 its intention to launch a $100,000 accelerated share repurchase program during the fourth quarter of 2019.

In February 2018, our Board of Directors authorized a repurchase program for up to $175,000 of our common stock through March 3, 2019, when and if market conditions ~~warrant~~warranted and to the extent legally permissible. In August 2018, our Board of Directors authorized an additional share repurchase program for up to $100,000 of our common stock through December 27, 2019 with a portion of the proceeds obtained through the sale of our ownership interest in Inspire Brands, when and if market conditions warrant and to the extent legally ~~permissible~~. During the nine months ended September 30, 2018, the Company repurchased 6,896 shares under the February 2018 repurchase authorization with an aggregate purchase price of $118,866, of which $2,675 was accrued at September 30, 2018, and excluding commissions of $97. As of September 30, 2018, the Company had $56,134 of availability remaining under its February 2018 authorization and $100,000 remaining under its August 2018 authorization. Subsequent to September 30, 2018 through October 31, 2018, the Company repurchased 1,596 shares under the February 2018 authorization with an aggregate purchase price of $27,288, excluding commissions of $22. In addition, subsequent to September 30, 2018, the Board of Directors approved an increase of $120,000 to the August 2018 authorization, which now totals $220,000 and expires on December 27, 2019.

In February 2017, our Board of Directors authorized a repurchase program for up to $150,000 of our common stock through March 4, 2018, when and if market conditions warranted and to the extent legally permissible. DuringAdditionally, during the nine months ended September 30, 2018, the Company completed ~~the~~its previous February 2017 repurchase authorization for up to $150,000 ~~program~~of our common stock with the repurchase of 1,385 shares with an aggregate purchase price of $22,633, excluding commissions of $19. ~~During the nine months ended October 1, 2017, the Company repurchased 6,131 shares with an aggregate purchase price~~

Table of ~~$90,876, of which $899 was accrued at October 1, 2017, and excluding commissions of $88.~~Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Accumulated Other Comprehensive Loss

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



	Foreign Currency Translation			Pension			Total
Balance at December 30, 2018	$	(61,673	)	$	—		$	(61,673	)
Current-period other comprehensive income	7,563			—			7,563
Balance at September 29, 2019	$	(54,110	)	$	—		$	(54,110	)

Balance at December 31, 2017	$	(45,149	)	$	(1,049	)	$	(46,198	)
Current-period other comprehensive (loss) income	(5,054		)	117			(4,937		)
Balance at September 30, 2018	$	(50,203	)	$	(932	)	$	(51,135	)

Foreign Currency Translation Cash Flow Hedges (a) Pension Total
Balance at December 31, 2017 $ (45,149 ) $ —
$ (1,049 ) $ (46,198 )
Current-period other comprehensive (loss) income (5,054 ) —
117
(4,937 )
Balance at September 30, 2018 $ (50,203 ) $ —
$ (932 ) $ (51,135 )

Balance at January 1, 2017 $ (60,299 ) $ (1,797 ) $ (1,145 ) $ (63,241 )
Current-period other comprehensive income 16,797
1,332
96
18,225
Balance at October 1, 2017 $ (43,502 ) $ (465 ) $ (1,049 ) $ (45,016 )

~~_______________~~

(14) Leases

~~(a)~~

Current-period other comprehensive income included the reclassification of unrealized losses on cash flow hedges from “Accumulated other comprehensive loss” to our condensed consolidated statements of operations of $444 and $1,332 for the three and nine months ended October 1, 2017, respectively. The reclassification of unrealized losses on cash flow hedges consisted of $723 and $2,170 for the three and nine months ended October 1, 2017, respectively, recorded to “Interest expense, net,” net of the related income tax benefit of $279 and $838 for the three and nine months ended October 1, 2017, respectively, recorded to “Provision for income taxes.”

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 September 29, 2019, Wendy’s and its franchisees operated 6,743 Wendy’s restaurants. Of the 356 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for 143 restaurants, owned the building and held long-term land leases for 144 restaurants and held leases covering the land and building for 69 restaurants. Wendy’s also owned 512 and leased 1,255 properties that were either leased or subleased principally to franchisees. The Company also leases restaurant, office and transportation equipment.

Determination of Whether a Contract Contains a Lease

The Company evaluates the contracts it enters into to determine whether such contracts contain leases. A contract contains a lease if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. At commencement, contracts containing a lease are further evaluated for classification as an operating or finance lease where the Company is a lessee, or as an operating, sales-type or direct financing lease where the Company is a lessor, based on their terms.

ROU Model and Determination of Lease Term

The Company uses the ROU model to account for leases where the Company is the lessee, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any favorable or unfavorable terms for leases acquired from franchisees, as well as payments made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, the Company includes option periods that it is reasonably certain to exercise as failure to renew the lease would impose a significant economic detriment. For properties used for Company-operated restaurants, the primary economic detriment relates to the existence of unamortized leasehold improvements which might be impaired if we choose not to exercise the available renewal options. The lease term for properties leased or subleased to franchisees is determined based upon the economic detriment to the franchisee and includes consideration of the length of the franchise agreement, historical performance of the restaurant and the existence of bargain renewal options. Lease terms for real estate are generally initially between 15 and 20 years and, in most cases, provide for rent escalations and renewal options.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~(14)~~Operating Leases

~~At September 30, 2018, Wendy’s~~For operating leases, minimum lease payments or receipts, including minimum scheduled rent increases, are recognized as rent expense where the Company is a lessee, or income where the Company is a lessor, as applicable, on a straight-line basis (“Straight-Line Rent”) over the applicable lease terms. There is a period under certain lease agreements referred to as a rent holiday (“Rent Holiday”) that generally begins on the possession date and ~~its franchisees operated 6,669 Wendy’s restaurants. Of~~ends on the ~~350 Company-operated Wendy’s restaurants, Wendy’s owned~~rent commencement date. During a Rent Holiday, no cash rent payments are typically due under the ~~land~~terms of the lease; however, expense is recorded for that period on a straight-line basis. The excess of the Straight-Line Rent over the minimum rents paid is included in the ROU asset where the Company is a lessee. The excess of the Straight-Line Rent over the minimum rents received is recorded as a deferred lease asset and ~~building~~is included in “Other assets” where the Company is a lessor. Certain leases contain provisions, referred to as contingent rent (“Contingent Rent”), that require additional rental payments based upon restaurant sales volume. Contingent Rent is recognized each period as the liability is incurred or the asset is earned.

Lease cost for ~~145 restaurants, owned~~operating leases is recognized on a straight-line basis and includes the ~~building~~amortization of the ROU asset and ~~held long-term land~~interest expense related to the operating lease liability. Variable lease cost for operating leases includes Contingent Rent and payments for executory costs such as real estate taxes, insurance and common area maintenance, which are excluded from the measurement of the lease liability. Short-term lease cost for operating leases includes rental expense for leases with a term of less than 12 months. Lease costs are recorded in the condensed consolidated statements of operations based on the nature of the underlying lease as follows: (1) rental expense related to leases for ~~141~~Company-operated restaurants ~~and held leases covering land and building~~is recorded to “Cost of sales,” (2) rental expense for ~~64 restaurants. Wendy’s also owned 519 and~~ leased ~~1,281~~ properties that ~~were either~~are subsequently subleased to franchisees is recorded to “Franchise rental expense” and (3) rental expense related to leases for corporate offices and equipment is recorded to “General and administrative.”

Favorable and unfavorable lease amounts for operating leases where the Company is the lessor are recorded as components of “Other intangible assets” and “Other liabilities,” respectively. Favorable and unfavorable lease amounts are amortized on a straight-line basis over the term of the leases. When the expected term of a lease is determined to be shorter than the original amortization period, the favorable or unfavorable lease balance associated with the lease is adjusted to reflect the revised lease term.

Rental income and favorable and unfavorable lease amortization for operating leases on properties leased or subleased ~~principally~~ to ~~franchisees.~~

~~Rental expense~~franchisees is recorded to “Franchise rental income.” Lessees’ variable payments to the Company for executory costs under operating leases ~~consists~~are recognized on a gross basis as “Franchise rental income” with a corresponding expense recorded to “Franchise rental expense.”

Finance Leases

Lease cost for finance leases includes the amortization of the ~~following components:~~ROU asset, which is amortized on a straight-line basis and recorded to “Depreciation and amortization,” and interest expense on the finance lease liability, which is calculated using the interest method and recorded to “Interest expense, net.”

Three Months Ended Nine Months Ended
September 30,
2018 October 1,
2017 September 30,
2018 October 1,
2017
Rental expense:
Minimum rentals $ 22,814
$ 23,997
$ 72,738
$ 66,701
Contingent rentals 5,061
5,395
14,522
14,405
Total rental expense (a) (b) $ 27,875
$ 29,392
$ 87,260
$ 81,106
Sales-Type and Direct Financing Leases

~~_______________~~


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


~~(b)~~	Amounts exclude sublease income of $34,097 and $103,353 recognized during the three and nine months ended September 30, 2018, respectively, and $35,022 and $92,434 recognized during the three and nine months ended October 1, 2017, respectively.

~~Rental income for operating~~For sales-type and direct financing leases ~~and subleases consists~~where the Company is the lessor, the Company records its investment in properties leased to franchisees on a net basis, which is comprised of the ~~following components:~~present value of the lease payments not yet received and the present value of the guaranteed and unguaranteed residual assets. The current and long-term portions of our net investment in sales-type and direct financing leases are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively. Unearned income is recognized as interest income over the lease term and is included in “Interest expense, net.” Sales-type leases result in the recognition of gain or loss at the commencement of the lease, which is recorded to “Other operating income, net.” The gain or loss recognized upon commencement of the lease is directly affected by the Company’s estimate of the amount to be derived from the guaranteed and unguaranteed residual assets at the end of the lease term. The Company’s main component of this estimate is the expected fair value of the underlying assets, primarily the fair value of land. Lessees’ variable payments to the Company for executory costs under sales-type and direct financing leases are recognized on a gross basis as “Franchise rental income” with a corresponding expense recorded to “Franchise rental expense.”

Three Months Ended Nine Months Ended
September 30,
2018 October 1,
2017 September 30,
2018 October 1,
2017
Rental income:
Minimum rentals $ 45,291
$ 44,682
$ 137,549
$ 124,847
Contingent rentals 5,183
5,593
14,561
15,280
Total rental income $ 50,474
$ 50,275
$ 152,110
$ 140,127

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Significant Assumptions and Judgments

Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market rents, property lives, discount rates and probable term, all of which can impact (1) the classification and accounting for a lease or sublease as operating or finance, including sales-type and direct financing, (2) the Rent Holiday and escalations in payment that are taken into consideration when calculating Straight-Line Rent, (3) the term over which leasehold improvements for each restaurant are amortized and (4) the values and lives of adjustments to the initial ROU asset where the Company is the lessee, or favorable and unfavorable leases where the Company is the lessor. The amount of depreciation and amortization, interest and rent expense and income reported would vary if different estimates and assumptions were used.

Company as Lessee

The ~~following table illustrates the Company’s future minimum rental payments and rental receipts for non-cancelable leases and subleases, including rental receipts for direct financing leases~~components of lease cost are as ~~of September 30, 2018. Rental receipts below are presented separately for owned properties and for leased properties based on the classification of the underlying lease.~~follows:

Rental Payments Rental Receipts
Fiscal Year
Capital
Leases

Operating
Leases

Capital
Leases

Operating
Leases

Owned
Properties
2018 (a) $ 12,967
$ 25,217
$ 16,007
$ 18,911
$ 13,488
2019 45,323
95,216
64,376
76,044
54,736
2020 46,252
94,079
65,467
75,810
55,348
2021 47,849
93,580
67,267
75,771
56,943
2022 48,937
93,304
68,451
76,222
58,514
Thereafter 751,317
1,145,074
1,034,322
935,083
948,620
Total minimum payments $ 952,645
$ 1,546,470
$ 1,315,890
$ 1,257,841
$ 1,187,649
Less interest (494,298 )
Present value of minimum capital lease payments (b) $ 458,347



	Three Months Ended		Nine Months Ended
	September 29, 2019		September 29, 2019
Finance lease cost:
Amortization of finance lease assets	$	3,201	$	7,949
Interest on finance lease liabilities	10,116		26,808
	13,317		34,757
Operating lease cost	23,358		67,087
Variable lease cost (a)	15,435		44,910
Short-term lease cost	1,141		3,420
Total operating lease cost (b)	39,934		115,417
Total lease cost	$	53,251	$	150,174

_______________


(a)	~~Represents future minimum rental payments~~The three and ~~rental receipts~~nine months ended September 29, 2019 includes expenses for ~~non-cancelable leases~~executory costs of $9,908 and ~~subleases~~$29,211, respectively, for which the ~~remainder of the 2018 fiscal year.~~Company is reimbursed by sublessees.

(b)

The ~~present value~~three and nine months ended September 29, 2019 includes $32,342 and $92,815, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees and $6,892 and $20,492, respectively, recorded to “Cost of ~~minimum capital lease payments of $8,041 and $450,306 are included in “Current portion of long-term debt” and “Long-term debt,” respectively.~~sales” for leases for Company-operated restaurants.

~~Properties owned by the Company~~The following table includes supplemental cash flow and ~~leased to franchisees and other third parties under operating leases include:~~

September 30,
2018 December 31, 2017
Land $ 272,730
$ 272,411
Buildings and improvements 313,706
313,108
Restaurant equipment 2,443
2,444
588,879
587,963
Accumulated depreciation and amortization (139,802 ) (128,003 )
$ 449,077
$ 459,960

~~Our net investment in direct financing leases is as follows:~~

September 30,
2018 December 31, 2017
Future minimum rental receipts $ 633,039
$ 662,889
Unearned interest income (406,230 ) (433,175 )
Net investment in direct financing leases 226,809
229,714
Net current investment in direct financing leases (a) (660 ) (625 )
Net non-current investment in direct financing leases $ 226,149
$ 229,089

~~_______________~~


~~(a)~~	~~Included in “Accounts and notes receivable, net.”~~

~~During the three and nine months ended September 30, 2018, the Company recognized $6,844 and $20,861 in interest income~~non-cash information related to ~~our direct financing leases, respectively, and $6,467 and $16,312~~ ~~recognized during the three and nine months ended October 1, 2017, respectively, which is included in “Interest expense, net,”~~

leases:



	Nine Months Ended
	September 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	29,683
Operating cash flows from operating leases	69,277
Financing cash flows from finance leases	5,178
Right-of-use assets obtained in exchange for lease obligations:
Finance lease liabilities	34,084
Operating lease liabilities	8,212

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following table includes supplemental information related to leases:



	September 29, 2019
Weighted-average remaining lease term (years):
Finance leases	17.3
Operating leases	15.5

Weighted average discount rate:
Finance leases	10.03	%
Operating leases	5.10	%

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of September 29, 2019:



	Finance Leases						Operating Leases
Fiscal Year	Company-Operated			Franchise and Other			Company-Operated			Franchise and Other
2019 (a)	$	707		$	12,759		$	5,001		$	17,602
2020	2,862			45,340			19,921			70,690
2021	2,973			46,826			19,733			70,540
2022	3,023			47,830			19,421			70,696
2023	2,975			49,504			19,400			70,655
Thereafter	39,104			704,276			201,762			827,387
Total minimum payments	$	51,644		$	906,535		$	285,238		$	1,127,570
Less interest	(23,407		)	(452,484		)	(88,577		)	(369,544		)
Present value of minimum lease payments (b) (c)	$	28,237		$	454,051		$	196,661		$	758,026

_______________


(a)	Represents future minimum rental payments for non-cancelable leases for the remainder of 2019.


(b)	The present value of minimum finance lease payments of $10,584 and $471,704 are included in “Current portion of finance lease liabilities” and “Long-term finance lease liabilities,” respectively.


(c)	The present value of minimum operating lease payments of $43,474 and $911,213 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of December 30, 2018:



	Finance Leases						Operating Leases
Fiscal Year	Company-Operated			Franchise and Other			Company-Operated		Franchise and Other
2019	$	1,962		$	45,125		$	20,174	$	75,703
2020	1,978			43,969			20,052		73,320
2021	2,082			45,522			19,820		73,167
2022	2,114			46,573			19,530		73,300
2023	2,084			48,109			19,430		73,377
Thereafter	23,558			676,139			203,073		854,964
Total minimum payments	$	33,778		$	905,437		$	302,079	$	1,223,831
Less interest	(16,874		)	(466,705		)
Present value of minimum lease payments (a)	$	16,904		$	438,732

_______________


(a)	The present value of minimum finance lease payments of $8,405 and $447,231 are included in “Current portion of finance lease liabilities” and “Long-term finance lease liabilities,” respectively.

Company as Lessor

The components of lease income are as follows:



	Three Months Ended			Nine Months Ended
	September 29, 2019			September 29, 2019
Sales-type and direct-financing leases:
Selling (loss) profit	$	(97	)	$	1,874
Interest income	7,240			19,045

Operating lease income	$	44,892		$	134,056
Variable lease income	15,026			42,875
Franchise rental income (a)	$	59,918		$	176,931

_______________


(a)	Includes sublease income of $44,821 and $130,763 recognized during the three and nine months ended September 29, 2019, respectively, of which $9,683 and $28,894, respectively, represents lessees’ variable payments to the Company for executory costs.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following table illustrates the Company’s future minimum rental receipts for non-cancelable leases and subleases as of September 29, 2019:



	Sales-Type and Direct Financing Leases						Operating Leases
Fiscal Year	Subleases			Owned Properties			Subleases		Owned Properties
2019 (a)	$	6,953		$	489		$	27,614	$	13,129
2020	28,528			2,036			111,227		52,912
2021	29,668			2,068			111,946		54,700
2022	30,342			2,148			113,017		56,173
2023	31,381			2,192			114,021		56,378
Thereafter	486,141			27,115			1,339,940		861,865
Total future minimum receipts	613,013			36,048			$	1,817,765	$	1,095,157
Unearned interest income	(376,192		)	(19,472		)
Net investment in sales-type and direct financing leases (b)	$	236,821		$	16,576

_______________


(a)	Represents future minimum rental receipts for non-cancelable leases for the remainder of 2019.


(b)	The present value of minimum direct financing rental receipts of $2,795 and $250,602 are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively. The present value of minimum direct financing rental receipts includes a net investment in unguaranteed residual assets of $195.

The following table illustrates the Company’s future minimum rental receipts for non-cancelable leases and subleases as of December 30, 2018:



	Sales-Type and Direct Financing Leases						Operating Leases
Fiscal Year	Subleases			Owned Properties			Subleases		Owned Properties
2019	$	26,239		$	1,937		$	113,180	$	52,527
2020	26,859			2,006			113,578		53,066
2021	27,904			2,043			114,447		54,615
2022	28,563			2,119			115,552		56,092
2023	29,512			2,159			116,463		56,284
Thereafter	448,851			26,404			1,372,646		858,755
Total future minimum receipts	587,928			36,668			$	1,945,866	$	1,131,339
Unearned interest income	(377,046		)	(20,338		)
Net investment in sales-type and direct financing leases (a)	$	210,882		$	16,330

_______________


(a)	The present value of minimum direct financing rental receipts of $735 and $226,477 are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Properties owned by the Company and leased to franchisees and other third parties under operating leases include:



	September 29, 2019
Land	$	281,744
Buildings and improvements	310,936
Restaurant equipment	1,726
	594,406
Accumulated depreciation and amortization	(153,379		)
	$	441,027

(15) 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 for the operation of Wendy’s/Tim Hortons combo units in Canada. During the nine months ended September 29, 2019 and September 30, 2018, ~~and October 1, 2017,~~ Wendy’s paid TimWen ~~$9,967~~$12,710 and ~~$9,362,~~$9,967, respectively, under these lease agreements. In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of ~~$161~~$155 and ~~$158~~$161 during the nine months ended September 29, 2019 and September 30, 2018, ~~and October 1, 2017,~~ respectively, which has been included as a reduction to “General and administrative.”

(16) Guarantees and Other Commitments and Contingencies

~~The~~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.

~~Franchisee Image Activation Incentive Programs~~

In order to promote Image Activation new restaurant development, Wendy’s has an incentive program for franchisees that provides for reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants opened by December 31, 2020, with the value of the incentives declining in the later years of the program. In August 2018, Wendy’s announced a new restaurant development incentive program that provides for reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants for franchisees that sign up for the program and commit to incremental development under a new development agreement by July 1, 2019. Wendy’s also had incentive programs for 2017 available to franchisees that commenced Image Activation restaurant remodels by December 15, 2017. The remodel incentive programs provide for reductions in royalty payments for one year after the completion of construction.

Lease Guarantees

Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees, amounting to ~~$51,309~~$74,898 as of September ~~30, 2018.~~29, 2019. These leases extend through 2056. We have not received any notice of default related to these leases as of September ~~30, 2018.~~29, 2019. In the event of default by a franchise owner, Wendy’s generally retains the right to acquire possession of the related restaurant locations.

Wendy’s is contingently liable for certain other leases which have been assigned to unrelated third parties who have indemnified Wendy’s against future liabilities amounting to $365 as of September 30, 2018. These leases expire on various dates through 2021.

Letters of Credit

As of September ~~30, 2018,~~29, 2019, the Company had outstanding letters of credit with various parties totaling ~~$27,102.~~$25,082. The outstanding letters of credit include amounts outstanding against the Series ~~2018-1~~2019-1 Class A-1 Notes. We do not expect any material loss to result from these letters of credit.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Purchase and Capital Commitments

Beverage Agreement

The Company has an agreement with a beverage vendor that provides fountain beverage products and certain marketing support funding to the Company and its franchisees. This agreement requires minimum purchases of certain fountain beverages (“Fountain Beverages”) by the Company and its franchisees at certain agreed upon prices until the total contractual gallon volume usage is reached. This agreement also provides for an annual advance to be paid to the Company based on the vendor’s expectation of the Company’s annual Fountain Beverages usage, which is amortized over actual usage during the year. In January 2019, the Company amended its contract with the beverage vendor, which now expires at the later of reaching a threshold usage requirement or December 31, 2025. Beverage purchases made by the Company under this agreement during the nine months ended September 29, 2019 were $8,417. As of September 29, 2019, the Company estimates future purchases to be approximately $2,700 for the remainder of 2019, $10,800 in 2020, $11,100 in 2021, $11,600 in 2022 and $12,100 in 2023 based on current pricing and the expected ratio of usage at Company-operated restaurants to usage at franchised restaurants.

(17) Legal and Environmental Matters

~~We are~~The Company is involved in litigation and claims incidental to our current and prior businesses. We provide accruals for such litigation and claims when payment is probable and reasonably estimable. 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 ~~due~~for various reasons, including, but not limited to, ~~most~~many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur ~~and~~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 ~~Company’s Annual Report on~~ Form ~~10-K filed with~~10-K. Except as set forth below, there were no material developments in those legal proceedings as of September 29, 2019.

As previously reported, the ~~SEC on February 28, 2018. The~~ Company was ~~previously~~ named as a defendant in putative class action lawsuits alleging, among other things, that the Company failed to safeguard customer credit card information and failed to provide notice that credit card information had been compromised. Jonathan Torres and other consumers filed an action in the U.S. District Court for the Middle District of Florida (the “Torres Case”). ~~The operative complaint seeks to certify~~On August 23, 2018, the court preliminarily approved a ~~nationwide class~~class-wide settlement. A final approval hearing of ~~consumers, or in~~ the ~~alternative, statewide classes~~settlement of ~~consumers for Florida, New York, New Jersey, Texas~~the Torres Case was held on February 26, 2019, and ~~Tennessee,~~final approval was granted by the court. At this time, the action has been dismissed with prejudice (with no appeal taken), all claims and other amounts payable per the terms of the settlement agreement have been paid, and the matter is considered closed.

Also as ~~well as statewide classes of consumers under those states’ consumer protection and unfair trade practices laws. Certain~~previously reported, certain financial institutions have also filed class ~~action~~actions lawsuits in the U.S. District Court for the Western District of Pennsylvania, which ~~seek~~sought to certify a nationwide class of financial institutions that issued payment cards that were allegedly impacted. Those cases were consolidated into a single case (the “FI Case”). InOn February 13, 2019, the ~~Torres Case~~Company and the plaintiffs filed a settlement agreement and a motion for preliminary approval of a class-wide settlement of the FI Case with the ~~plaintiffs seek monetary damages, injunctive~~court. Under the terms of the settlement agreement, if approved and ~~equitable relief,~~finalized, a settlement class of financial institutions will receive $50,000, inclusive of attorneys’ fees and ~~other~~ costs. After exhaustion of applicable insurance, the Company now expects to pay approximately $25,000 of this amount. In exchange, the Company and its franchisees will receive a full release of all claims that have or could have been brought by financial institutions who do not opt out of the settlement related to the cybersecurity incidents described herein. On ~~August 23, 2018,~~February 26, 2019, the court preliminarily approved ~~class~~the settlement ~~in the Torres case. A~~agreement and scheduled a final approval hearing for November 6, 2019. The settlement agreement remains subject to a notice and objection process and final court approval. If approved, the Company anticipates that payment will occur in early 2020. The Company recorded a liability of $50,000 and insurance receivables of $22,500 for the FI case during 2018. As a result of cost savings related to the settlement of the Torres ~~settlement is scheduled for February 25, 2019. On August 27, 2018,~~Case in the three months ended September 29, 2019, the Company ~~filed a motion~~adjusted its insurance receivables for ~~judgment on the pleadings in~~ the FI Case, seeking dismissal of the plaintiffs’ negligence and negligence per se claims under Ohio law. That motion is pending before the court. Discovery as between the parties in the FI Case is stayed while settlement discussions are occurring.case to approximately $25,000.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations.

Introduction

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 ~~31, 2017~~30, 2018 (the “Form 10-K”). There have been no material changes as of September ~~30, 2018~~29, 2019 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. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II - Other Information” ~~preceding Item 1 of Part II~~ of this report. You should consider our forward-looking statements in light of our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report, the Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”).

The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s Restaurants, LLC (“Wendy’s Restaurants”). The principal 100% owned subsidiary of Wendy’s Restaurants is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). Wendy’s franchises and operates Wendy’s^® quick-service restaurants specializing in hamburger sandwiches throughout North America (defined as the United States of America (“U.S.”) and Canada). Wendy’s also has franchised restaurants in 30 foreign countries and U.S. territories.

Each Wendy’s ~~restaurants offer~~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, ~~chicken tenders,~~ 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 currently offers breakfast in more than 300 restaurants in the United States.

The Company manages and internally reports its business geographically. The operation and franchising of Wendy’s restaurants in North America comprises virtually all of our current operations and represents a single reportable segment. The revenues and operating results of Wendy’s restaurants outside of North America are not material. The results of operations discussed below may not necessarily be indicative of future results.

The ~~Company reports on a~~Company’s fiscal ~~year consisting~~reporting periods consist of 52 or 53 weeks ending on the Sunday closest to ~~or on~~ December 31. All three- and nine-month periods presented herein contain 13 weeks and 39 weeks, respectively. All references to years and quarters relate to fiscal periods rather than calendar periods.

We adopted the new accounting guidance for ~~revenue recognition~~leases effective ~~January 1,~~December 31, 2018, which had a material impact on our condensed consolidated financial statements. Beginning with the first quarter of ~~2018,~~2019, our financial condition and results of operations reflect adoption of the guidance; however, prior period results were not restated. See Note 2 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.

Executive Overview

Our Business

As of September ~~30, 2018,~~29, 2019, the Wendy’s restaurant system was comprised of ~~6,669~~6,743 restaurants, of which ~~350~~356 were owned and operated by the Company. All of our Company-operated restaurants are located in the United States.

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

Wendy’s long-term growth opportunities include (1) systemwide same-restaurant sales growth through continuing core menu improvement, product innovation, customer count growth and strategic price increases on our menu items, (2) system investment in our Image Activation program, which includes innovative exterior and interior restaurant designs for our new and reimaged restaurants and focused execution of operational excellence, (3) growth in new restaurants, including global growth, (4) increased focus on consumer-facing digital platforms and technologies, (5) increased restaurant utilization in various dayparts, including the Company’s recent announcement of its plan to launch breakfast across the U.S. system in the first quarter of 2020 (see “Breakfast Launch” below), (6) strengthening our operations through our system optimization initiative and ~~brand access utilizing mobile technology, (5)~~(7) building ~~shareholder~~stockholder value through financial management ~~strategies and (6) our system optimization initiative.~~strategies.

Key Business Measures

We track our results of operations and manage our business using the following key business ~~measures:~~measures, which includes a non-GAAP financial measure:

Same-Restaurant Sales - We report same-restaurant sales commencing after new restaurants have been open for 15 continuous months and as soon as reimaged restaurants reopen. This methodology is consistent with the metric used by our management for internal reporting and analysis. The table summarizing same-restaurant sales below in “Results of Operations” provides the same-restaurant sales percent changes. ~~Same-restaurant sales exclude the impact of currency translation.~~

Restaurant Margin - We define restaurant margin as sales from Company-operated restaurants less cost of sales divided by sales from Company-operated restaurants. Cost of sales includes food and paper, restaurant labor and occupancy, advertising and other operating costs. Restaurant margin is influenced by factors such as price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, fluctuations in food and labor costs, restaurant openings, remodels and closures and the level of our fixed and semi-variable costs.

Systemwide Sales - Systemwide sales is a non-GAAP financial measure, which includes sales by both Company-operated restaurants and franchised restaurants. Franchised ~~restaurant~~restaurants’ sales are reported by our franchisees and represent their revenues from sales at franchised Wendy’s restaurants. The Company’s consolidated financial statements do not include sales by franchised restaurants to their customers. The Company believes 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 ~~therefore on the Company’s~~ profitability.

The Company calculates same-restaurant sales and systemwide sales growth on a constant currency basis. Constant currency results exclude the impact of foreign currency translation and are derived by translating current year results at prior year average exchange rates. The Company believes excluding the impact of foreign currency translation provides better year over year comparability.

Same-restaurant sales and systemwide sales exclude sales from Venezuela and, beginning in the third quarter of 2018, exclude sales from Argentina, due to the highly inflationary economies of those countries. The Company considers economies that have had cumulative inflation in excess of 100% over a three-year period as highly inflationary.

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.

~~Indirect Investment in Inspire Brands~~Breakfast Launch

Our 18.5% equity interest was diluted to 12.3% on February 5, 2018, when a subsidiary of ARG Parent acquired Buffalo Wild Wings, Inc. As a result, our diluted ownership interest included both the Arby’s and Buffalo Wild Wings brands under the newly formed combined company, Inspire Brands, Inc. (“Inspire Brands”). On August 16, 2018,September 2019, the Company ~~sold its remaining 12.3% ownership interest~~announced that it plans to ~~Inspire Brands for $450.0 million and incurred transaction costs~~launch breakfast across the U.S. system in the first quarter of ~~$0.1 million, which were recorded to “Investment income (loss), net.”~~2020. The Company expects to ~~pay income taxes on the transaction~~make one-time investments during 2019 of approximately ~~$95.0~~$20.0 million ~~during~~to support the ~~fourth quarter~~U.S. system in preparation of ~~2018.~~the national launch. The 2019 investments are primarily comprised of (1) the purchase of smallwares and menuboards for franchisees and (2) a national recruiting advertising campaign and other talent acquisition costs.

Other Investments in Equity Securities

On October 11, 2019, the Company received a $25.0 million cash settlement related to a previously held investment.

General and Administrative (“G&A”) Realignment

In May 2017, the Company initiated a plan to further reduce its G&A expenses. ~~The~~Additionally, the Company ~~expects~~announced in May 2019 changes to its leadership structure that ~~approximately three-quarters~~includes 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 ~~total G&A expense reduction of approximately $35.0 million will be realized by~~Chief Operations Officer position. During the ~~end of~~nine months ended September 29, 2019 and September 30, 2018, ~~with~~ the ~~remainder of the savings being realized in 2019. The~~ Company ~~expects to incur total~~recognized costs aggregating approximately $30.0 million to $33.0 million, of which $23.0 million to $27.0 million will be cash expenditures, related to such savings. The cash expenditures are expected to continue into 2019, with approximately half of the total cash expenditures occurring in 2018. Costs related to the plan ~~are recorded to “Reorganization~~totaling $4.7 million and ~~realignment costs.” The Company recognized costs totaling~~ $6.4 million, ~~during the first nine months of 2018,~~respectively, which primarily included severance and related employee costs and share-based compensation. The Company expects to incur additional costs aggregating approximately ~~$4.5~~$2.7 million, comprised of (1) severance and related employee costs of approximately ~~$1.0~~$1.9 million, (2) recruitment and relocation costs of approximately ~~$2.0~~$0.4 million, (3) third-party and other costs of approximately ~~$0.5~~$0.1 million and (4) share-based compensation of approximately ~~$1.0~~$0.3 million. The Company expects to ~~continue~~incur total costs aggregating approximately $35.0 million to ~~recognize costs associated with~~$38.0 million, of which $26.0 million to $29.0 million will be cash expenditures, related to the plan. The Company expects to realize a total G&A expense reduction through the plan ~~into 2019.~~of approximately $35.0 million.

~~Cybersecurity Incident~~

As a result of the realignment of our management and operating structure as described above, the Company is continuing to evaluate the impact these changes will have on its existing operating segment structure. The Company first reported unusual payment card activity affecting some franchise-owned restaurants in February 2016 and that malware had been discovered on certain systems. Subsequently, on June 9, 2016, the Company reported that an additional malware variant had been identified and disabled. On July 7, 2016, the Company, on behalf of affected franchise locations, provided information about specific restaurant locations that may have been impacted by these attacks, all of which are locatedcurrently expects to report its results in the ~~United States, along~~following three segments beginning with ~~support for customers who may have been affected by the malware variants. See the Company’s~~our Annual Report on Form 10-K for ~~further information.~~the fiscal year ended December 29, 2019: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development.

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 ~~2018~~2019 and ~~2017.~~2018.


	Third Quarter									Nine Months									Third Quarter									Nine Months
	2018			2017			Change			2018			2017			Change			2019			2018			Change			2019			2018			Change
Revenues:
Sales	$	165.3		$	158.8		$	6.5		$	486.3		$	467.9		$	18.4		$	182.0		$	165.3		$	16.7		$	530.7		$	486.3		$	44.4
Franchise royalty revenue and fees	103.2			98.9			4.3			308.7			306.1			2.6			109.2			103.2			6.0			320.3			308.7			11.6
Franchise rental income	50.5			50.3			0.2			152.1			140.2			11.9			59.9			50.5			9.4			176.9			152.1			24.8
Advertising funds revenue	81.6			—			81.6			245.0			—			245.0			86.8			81.6			5.2			253.9			245.0			8.9
	400.6			308.0			92.6			1,192.1			914.2			277.9			437.9			400.6			37.3			1,281.8			1,192.1			89.7
Costs and expenses:
Cost of sales	139.3			133.6			5.7			409.7			388.8			20.9			152.4			139.3			13.1			446.1			409.7			36.4
Franchise support and other costs	5.4			3.7			1.7			18.6			11.1			7.5			9.7			5.4			4.3			19.8			18.6			1.2
Franchise rental expense	22.3			24.1			(1.8		)	69.8			64.8			5.0			32.4			22.3			10.1			92.8			69.8			23.0
Advertising funds expense	81.6			—			81.6			245.0			—			245.0			87.9			81.6			6.3			257.0			245.0			12.0
General and administrative	46.5			51.7			(5.2		)	146.1			153.1			(7.0		)	46.2			46.5			(0.3		)	146.3			146.1			0.2
Depreciation and amortization	29.1			31.2			(2.1		)	94.6			91.7			2.9			33.3			29.1			4.2			98.0			94.6			3.4
System optimization (gains) losses, net	(0.5		)	0.1			(0.6		)	—			39.7			(39.7		)
System optimization gains, net																			(1.0		)	(0.5		)	(0.5		)	(1.2		)	—			(1.2		)
Reorganization and realignment costs	0.9			2.9			(2.0		)	6.7			20.8			(14.1		)	0.4			0.9			(0.5		)	4.8			6.7			(1.9		)
Impairment of long-lived assets	0.3			1.0			(0.7		)	2.2			1.8			0.4			—			0.3			(0.3		)	1.7			2.2			(0.5		)
Other operating income, net	(1.6		)	(2.0		)	0.4			(4.7		)	(5.8		)	1.1			(2.4		)	(1.6		)	(0.8		)	(9.4		)	(4.7		)	(4.7		)
	323.3			246.3			77.0			988.0			766.0			222.0			358.9			323.3			35.6			1,055.9			988.0			67.9
Operating profit	77.3			61.7			15.6			204.1			148.2			55.9			79.0			77.3			1.7			225.9			204.1			21.8
Interest expense, net	(29.6		)	(30.0		)	0.4			(89.9		)	(87.9		)	(2.0		)	(27.9		)	(29.6		)	1.7			(86.9		)	(89.9		)	3.0
Loss on early extinguishment of debt	—			—			—			(11.5		)	—			(11.5		)	—			—			—			(7.2		)	(11.5		)	4.3
Investment income (loss), net	450.1			(0.6		)	450.7			450.4			2.1			448.3
Investment income, net																			0.3			450.1			(449.8		)	1.0			450.4			(449.4		)
Other income, net	1.1			0.5			0.6			2.4			1.0			1.4			1.9			1.1			0.8			6.1			2.4			3.7
Income before income taxes	498.9			31.6			467.3			555.5			63.4			492.1			53.3			498.9			(445.6		)	138.9			555.5			(416.6		)
Provision for income taxes	(107.7		)	(17.3		)	(90.4		)	(114.2		)	(28.6		)	(85.6		)	(7.2		)	(107.7		)	100.5			(28.5		)	(114.2		)	85.7
Net income	$	391.2		$	14.3		$	376.9		$	441.3		$	34.8		$	406.5		$	46.1		$	391.2		$	(345.1	)	$	110.4		$	441.3		$	(330.9	)


	Third Quarter								Nine Months								Third Quarter								Nine Months
	2018		% of Total Revenues		2017		% of Total Revenues		2018		% of Total Revenues		2017		% of Total Revenues		2019		% of Total Revenues		2018		% of Total Revenues		2019		% of Total Revenues		2018		% of Total Revenues
Revenues:
Sales	$	165.3	41.3	%	$	158.8	51.6	%	$	486.3	40.8	%	$	467.9	51.2	%	$	182.0	41.6	%	$	165.3	41.3	%	$	530.7	41.4	%	$	486.3	40.8	%
Franchise royalty revenue and fees:
Royalty revenue	95.5		23.8	%	93.7		30.4	%	283.6		23.8	%	275.0		30.1	%	102.3		23.4	%	95.5		23.8	%	300.0		23.4	%	283.6		23.8	%
Franchise fees	7.7		1.9	%	5.2		1.7	%	25.1		2.1	%	31.1		3.4	%	6.9		1.5	%	7.7		1.9	%	20.3		1.6	%	25.1		2.1	%
Total franchise royalty revenue and fees	103.2		25.7	%	98.9		32.1	%	308.7		25.9	%	306.1		33.5	%	109.2		24.9	%	103.2		25.7	%	320.3		25.0	%	308.7		25.9	%
Franchise rental income	50.5		12.6	%	50.3		16.3	%	152.1		12.8	%	140.2		15.3	%	59.9		13.7	%	50.5		12.6	%	176.9		13.8	%	152.1		12.8	%
Advertising funds revenue	81.6		20.4	%	—		—	%	245.0		20.5	%	—		—	%	86.8		19.8	%	81.6		20.4	%	253.9		19.8	%	245.0		20.5	%
Total revenues	$	400.6	100.0	%	$	308.0	100.0	%	$	1,192.1	100.0	%	$	914.2	100.0	%	$	437.9	100.0	%	$	400.6	100.0	%	$	1,281.8	100.0	%	$	1,192.1	100.0	%

	Third Quarter								Nine Months								Third Quarter								Nine Months
	2018		% of Sales		2017		% of Sales		2018		% of Sales		2017		% of Sales		2019		% of Sales		2018		% of Sales		2019		% of Sales		2018		% of Sales
Cost of sales:
Food and paper	$	53.0	32.1	%	$	51.8	32.6	%	$	154.8	31.8	%	$	147.1	31.4	%	$	57.2	31.4	%	$	53.0	32.1	%	$	167.3	31.5	%	$	154.8	31.8	%
Restaurant labor	48.4		29.3	%	46.3		29.2	%	144.1		29.6	%	137.7		29.5	%	54.7		30.1	%	48.4		29.3	%	160.1		30.2	%	144.1		29.6	%
Occupancy, advertising and other operating costs	37.9		22.9	%	35.5		22.3	%	110.8		22.8	%	104.0		22.2	%	40.5		22.3	%	37.9		22.9	%	118.7		22.4	%	110.8		22.8	%
Total cost of sales	$	139.3	84.3	%	$	133.6	84.1	%	$	409.7	84.2	%	$	388.8	83.1	%	$	152.4	83.8	%	$	139.3	84.3	%	$	446.1	84.1	%	$	409.7	84.2	%

Third Quarter Nine Months
2018
% of
Sales
2017
% of
Sales
2018
% of
Sales
2017
% of
Sales
Restaurant margin $ 26.0
15.7 % $ 25.2
15.9 % $ 76.6
15.8 % $ 79.1
16.9 %



	Third Quarter								Nine Months
	2019		% of Sales		2018		% of Sales		2019		% of Sales		2018		% of Sales
Restaurant margin	$	29.6	16.2	%	$	26.0	15.7	%	$	84.6	15.9	%	$	76.6	15.8	%

The tables below present key business measures which are defined and further discussed in the “Executive Overview” section included herein.


	Third Quarter				Nine Months				Third Quarter				Nine Months
	2018		2017		2018		2017		2019		2018		2019		2018
Key business measures:
North America same-restaurant sales:
North America same-restaurant sales growth:
Company-operated	1.2	%	(0.5	)%	1.4	%	0.7	%	4.7	%	1.2	%	2.5	%	1.4	%
Franchised	(0.3	)%	2.1	%	1.1	%	2.4	%	4.3	%	(0.3	)%	2.4	%	1.1	%
Systemwide	(0.2	)%	2.0	%	1.1	%	2.3	%	4.4	%	(0.2	)%	2.4	%	1.1	%

Total same-restaurant sales:
Global same-restaurant sales growth:
Company-operated	1.2	%	(0.5	)%	1.4	%	0.7	%	4.7	%	1.2	%	2.5	%	1.4	%
Franchised (a)	(0.1	)%	2.1	%	1.3	%	2.4	%	4.4	%	(0.1	)%	2.5	%	1.3	%
Systemwide (a)	0.0	%	1.9	%	1.3	%	2.3	%	4.4	%	0.0	%	2.5	%	1.3	%

________________

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


	Third Quarter				Nine Months				Third Quarter				Nine Months
	2018		2017		2018		2017		2019		2018		2019		2018
Key business measures (continued):
Systemwide sales: (a)
Company-operated	$	165.3	$	158.8	$	486.3	$	467.9	$	182.0	$	165.3	$	530.7	$	486.3
North America franchised	2,358.5		2,347.2		7,043.4		6,897.4		2,478.2		2,358.5		7,251.4		7,043.4
North America systemwide									2,660.2		2,523.8		7,782.1		7,529.7
International franchised (b)	126.5		119.4		385.8		351.6		137.8		126.5		410.8		385.8
Global systemwide sales	$	2,650.3	$	2,625.4	$	7,915.5	$	7,716.9
Global systemwide									$	2,798.0	$	2,650.3	$	8,192.9	$	7,915.5

________________

(a)

During the third quarter of 2019 and 2018, global systemwide sales increased 5.7% and ~~2017,~~1.7%, respectively, North America systemwide sales increased ~~1.2%~~5.5% and ~~3.0%~~1.2%, respectively, and international franchised sales increased ~~13.2%~~9.2% and ~~13.4%, respectively, and global systemwide sales increased 1.7% and 3.4%~~13.2%, respectively, on a constant currency basis. During the first nine months of 2019 and 2018, global systemwide sales increased 4.1% and ~~2017,~~2.7%, respectively, North America systemwide sales increased ~~2.2%~~3.8% and ~~3.2%~~2.2%, respectively, and international franchised sales increased ~~13.2%~~9.8% and ~~15.0%, respectively, and global systemwide sales increased 2.7% and 3.7%~~13.2%, respectively, on a constant currency basis.


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


	Third Quarter								Third Quarter
	Company-operated		North America Franchised		International Franchised		Systemwide		Company-operated		North America Franchised		International Franchised		Systemwide
Restaurant count:
Restaurant count at July 1, 2018	332		5,802		522		6,656
Restaurant count at June 30, 2019									358		5,828		533		6,719
Opened	2		21		14		37		—		27		13		40
Closed	—		(16	)	(8	)	(24	)	(2	)	(10	)	(4	)	(16	)
Net purchased from (sold by) franchisees	16		(16	)	—		—		—		—		—		—
Restaurant count at September 30, 2018	350		5,791		528		6,669
Restaurant count at September 29, 2019									356		5,845		542		6,743

	Nine Months								Nine Months
	Company-operated		North America Franchised		International Franchised		Systemwide		Company-operated		North America Franchised		International Franchised		Systemwide

Restaurant count at December 31, 2017	337		5,793		504		6,634
Restaurant count:
Restaurant count at December 30, 2018									353		5,825		533		6,711
Opened	3		61		42		106		—		76		35		111
Closed	(4	)	(49	)	(18	)	(71	)	(2	)	(51	)	(26	)	(79	)
Net purchased from (sold by) franchisees	14		(14	)	—		—		5		(5	)	—		—
Restaurant count at September 30, 2018	350		5,791		528		6,669
Restaurant count at September 29, 2019									356		5,845		542		6,743


Sales	Change				Third Quarter						Nine Months
	Third Quarter		Nine Months		2019		2018		Change		2019		2018		Change
Sales	$	6.5	$	18.4	$	182.0	$	165.3	$	16.7	$	530.7	$	486.3	$	44.4

The increase in sales for the third quarter and the first nine months of ~~2018~~2019 was primarily due to ~~a 1.2% and 1.4% increase in same-restaurant sales, respectively, as well as~~ a net increase in the number of Company-operated restaurants in operation during ~~2018~~2019 compared to ~~2017.~~2018. In addition, sales for the third quarter and the first nine months of 2019 benefited from a 4.7% and 2.5% increase in Company-operated same-restaurant sales, respectively. Company-operated same-restaurant sales improved due to an increase in our average per customer check amount, reflecting benefits from strategic price increases on our menu items and changes in product mix. These benefits were partially offset by a decrease in customer count.


Franchise Royalty Revenue and Fees	Change					Third Quarter							Nine Months
	Third Quarter		Nine Months			2019		2018		Change			2019		2018		Change
Royalty revenue	$	1.8	$	8.6		$	102.3	$	95.5	$	6.8		$	300.0	$	283.6	$	16.4
Franchise fees	2.5		(6.0		)	6.9		7.7		(0.8		)	20.3		25.1		(4.8		)
	$	4.3	$	2.6		$	109.2	$	103.2	$	6.0		$	320.3	$	308.7	$	11.6

The increase in franchise royalty revenue during the third quarter and the first nine months of ~~2018~~2019 was primarily due to ~~the absence of an incentive program for Image Activation restaurant remodels, which largely ended at December 31, 2017, as well as~~a 4.4% and 2.5% increase in franchise same-restaurant sales, respectively. Royalty revenue was also positively impacted by a net increase in the number of franchise restaurants in ~~operation during 2018 compared to 2017. Royalty revenue was also positively impacted by a 1.3% increase in franchise same-restaurant sales during the first nine months of 2018.~~operation.

The ~~increase~~decrease in franchise fees during the third quarter of ~~2018~~2019 was primarily due to lower other miscellaneous franchise fees, partially offset by higher fees for providing information technology and other services to ~~franchisees and other miscellaneous fees.~~franchisees. The decrease in franchise fees during the first nine months of ~~2018~~2019 was primarily due to lower other miscellaneous franchise fees and facilitating fewer franchisee-to-franchisee restaurant transfers (“Franchise Flips”) and the related impact of the new accounting guidance for revenue recognition effective January 1, 2018. The Company facilitated 73 and 270 Franchise Flips during the first nine months of 2018 and 2017, respectively (excluding the DavCo and NPC Transactions discussed below). Franchise Flip technical assistance fees are recognized as revenue over the contractual term of the franchise agreements under the new accounting guidance. Under previous guidance, technical assistance fees received in connection with Franchise Flips were recognized as revenue when the license agreements were signed and the restaurant opened. See Note 2 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information regarding the new accounting guidance for revenue recognition. This decrease in franchise fees during the first nine months of 2018 was2019, partially offset by higher fees for providing information technology and other services to ~~franchisees and other miscellaneous franchise fees.~~franchisees.


Franchise Rental Income	Change				Third Quarter						Nine Months
	Third Quarter		Nine Months		2019		2018		Change		2019		2018		Change
Franchise rental income	$	0.2	$	11.9	$	59.9	$	50.5	$	9.4	$	176.9	$	152.1	$	24.8

The increase in franchise rental income during the third quarter and the first nine months of ~~2018~~2019 was primarily due to ~~subleasing properties~~the adoption of new accounting guidance for leases. Under the new guidance, lessees’ payments to ~~franchisees in connection~~the Company for executory costs are recorded on a gross basis as revenue with ~~facilitating Franchise Flips~~a corresponding expense. See “Franchise Rental Expense” below. The increase during ~~2017.~~the first nine months of 2019 was partially offset by the assignment of certain leases to a franchisee.


Advertising Funds Revenue	Change				Third Quarter						Nine Months
	Third Quarter		Nine Months		2019		2018		Change		2019		2018		Change
Advertising funds revenue	$	81.6	$	245.0	$	86.8	$	81.6	$	5.2	$	253.9	$	245.0	$	8.9

The Company maintains two national advertising funds established to collect and administer funds contributed for use in advertising and promotional programs for Company-operated and franchised restaurants in the U.S. and Canada. Franchisees make contributions to the national advertising funds based on a percentage of sales of the franchised restaurants. ~~Under the new accounting guidance for revenue recognition effective January 1, 2018, the revenue of the national~~The increase in advertising funds ~~is fully consolidated into~~revenue during the third quarter and the first nine months of 2019 was primarily due to an increase in North America franchise same-restaurant sales, as well as a net increase in the number of North America franchise restaurants in operation. These increases were partially offset by reductions in advertising receipts under the Company’s ~~condensed consolidated statements of operations.~~restaurant development incentive program.


Cost of Sales, as a Percent of Sales	Change				Third Quarter						Nine Months
	Third Quarter		Nine Months		2019		2018		Change		2019		2018		Change
Food and paper	(0.5	)%	0.4	%	31.4	%	32.1	%	(0.7	)%	31.5	%	31.8	%	(0.3	)%
Restaurant labor	0.1	%	0.1	%	30.1	%	29.3	%	0.8	%	30.2	%	29.6	%	0.6	%
Occupancy, advertising and other operating costs	0.6	%	0.6	%	22.3	%	22.9	%	(0.6	)%	22.4	%	22.8	%	(0.4	)%
	0.2	%	1.1	%	83.8	%	84.3	%	(0.5	)%	84.1	%	84.2	%	(0.1	)%

The ~~increase~~decrease in cost of sales, as a percent of sales, during the third quarter and the first nine months of 2019 was primarily due to benefits from strategic price increases on certain of our menu items and changes in product mix. This decrease was partially offset by an increase in restaurant labor rates and ~~higher insurance costs, partially offset by lower~~ commodity costs. The increase in cost of sales, as a percent of sales, during the first nine months of 2018 was primarily due to an increase in restaurant labor rates and higher commodity costs. Cost of sales, as a percent of sales, for both the third quarter and the first nine months of 2018 benefited from strategic price increases on our menu items.


Franchise Support and Other Costs	Change				Third Quarter						Nine Months
	Third Quarter		Nine Months		2019		2018		Change		2019		2018		Change
Franchise support and other costs	$	1.7	$	7.5	$	9.7	$	5.4	$	4.3	$	19.8	$	18.6	$	1.2

The increase in franchise support and other costs during the third quarter and the first nine months of ~~2018~~2019 was primarily due to the purchase of digital scanning equipment for franchisees of $3.9 million, partially offset by lower costs incurred to provide information technology and other services to our franchisees.


Franchise Rental Expense	Change					Third Quarter						Nine Months
	Third Quarter			Nine Months		2019		2018		Change		2019		2018		Change
Franchise rental expense	$	(1.8	)	$	5.0	$	32.4	$	22.3	$	10.1	$	92.8	$	69.8	$	23.0

The ~~decrease~~increase in franchise rental expense during the third quarter and the first nine months of ~~2018~~2019 was primarily due to the ~~assignment~~adoption of ~~certain leases~~new accounting guidance for leases. Under the new guidance, lessees’ payments to the Company for executory costs are recorded on a ~~franchisee.~~gross basis as revenue with a corresponding expense. See “Franchise Rental Income” above. The increase ~~in franchise rental expense~~ during the first nine months of ~~2018~~2019 was ~~primarily~~partially offset by the impact of assigning certain leases to a ~~result of leases entered into in connection with Franchise Flips during 2017.~~franchisee.


Advertising Funds Expense	Change				Third Quarter						Nine Months
	Third Quarter		Nine Months		2019		2018		Change		2019		2018		Change
Advertising funds expense	$	81.6	$	245.0	$	87.9	$	81.6	$	6.3	$	257.0	$	245.0	$	12.0

The ~~expenses of the national~~increase in advertising funds ~~are now fully consolidated into~~expense during the ~~Company’s condensed consolidated statements~~third quarter and the first nine months of ~~operations under~~2019 was primarily due to the ~~new accounting guidance~~same factors as described above for ~~revenue recognition effective January 1, 2018.~~advertising funds revenue. On an interim basis, advertising funds expense is recognized in proportion to advertising funds revenue. During the third quarter and the first nine months of 2019, advertising funds expense exceeded advertising funds revenue by $1.1 million and $3.1 million, respectively, reflecting a portion of the expected advertising spend in excess of advertising funds revenue for the remainder of 2019. This excess for 2019 is expected to approximate the amount by which advertising funds revenue exceeded advertising funds expense in 2018.


General and Administrative	Change						Third Quarter								Nine Months
	Third Quarter			Nine Months			2019			2018		Change			2019			2018		Change
Employee compensation and related expenses	$	(3.4	)	$	(4.3	)	$	43.4		$	39.4	$	4.0		$	125.3		$	120.7	$	4.6
Professional services	0.1			(1.8		)
Legal reserves							(2.8		)	—		(2.8		)	(2.3		)	0.1		(2.4		)
Other, net	(1.9		)	(0.9		)	5.6			7.1		(1.5		)	23.3			25.3		(2.0		)
	$	(5.2	)	$	(7.0	)	$	46.2		$	46.5	$	(0.3	)	$	146.3		$	146.1	$	0.2

The decrease in general and administrative expenses during the third quarter ~~and the first nine months~~ of ~~2018~~2019 was primarily due to ~~lower~~a reduction in legal reserves as a result of an increase in anticipated insurance proceeds available for use related to the proposed settlement of the Financial Institutions case (see Note 17 to the Condensed Consolidated Financial Statements contained in Item 1 of Part 1 herein for further information). This decrease was offset by higher employee compensation and related expenses, reflecting ~~a decrease~~an increase in incentive compensation ~~accruals and changes~~accruals.

The increase in ~~staffing driven by our G&A realignment plan. In addition,~~ general and administrative expenses during the first nine months of ~~2018 decreased~~2019 was primarily due to ~~lower professional services, including lower~~higher employee compensation and related expenses, reflecting an increase in incentive compensation accruals and additional expenditures to support our digital experience and international organizations. This increase was partially offset by (1) a reduction in legal ~~fees.~~reserves as a result of an increase in anticipated insurance proceeds available for use related to the proposed settlement of the Financial Institutions case (see Note 17 to the Condensed Consolidated Financial Statements contained in Item 1 of Part 1 herein for further information) and (2) changes in staffing driven by our G&A realignment plan.


Depreciation and Amortization	Change						Third Quarter							Nine Months
	Third Quarter			Nine Months			2019		2018		Change			2019		2018		Change
Restaurants	$	(2.8	)	$	(0.3	)	$	21.8	$	17.4	$	4.4		$	63.7	$	60.3	$	3.4
Corporate and other	0.7			3.2			11.5		11.7		(0.2		)	34.3		34.3		—
	$	(2.1	)	$	2.9		$	33.3	$	29.1	$	4.2		$	98.0	$	94.6	$	3.4

The ~~decrease~~increase in restaurant depreciation and amortization during the third quarter and the first nine months of ~~2018~~2019 was primarily due to the assignment of certain leases to a franchisee in 2018, resulting in the write-off of the related net investment in the lease, partially offset by the impact of capital leases resulting from facilitating Franchise Flips during 2017. Corporate and other expense increased due to depreciation and amortization for technology investments.leases.

System Optimization (Gains) Losses, Net Third Quarter Nine Months
2018 2017 2018 2017
System optimization (gains) losses, net $ (0.5 ) $ 0.1
$ —
$ 39.7



System Optimization Gains, Net	Third Quarter									Nine Months
	2019			2018			Change			2019			2018		Change
System optimization gains, net	$	(1.0	)	$	(0.5	)	$	(0.5	)	$	(1.2	)	$	—	$	(1.2	)

System optimization ~~(gains) losses,~~gains, net for the third quarter and the first nine months of 2019 and 2018 ~~and 2017~~ were primarily comprised of post-closing adjustments on previous sales of restaurants and gains (losses) on the sale of surplus properties. System optimization (gains) losses, net for the first nine months of 2017 included the acquisition of 140 Wendy’s restaurants on May 31, 2017 from DavCo Restaurants, LLC (“DavCo”), which were immediately sold to NPC International, Inc. (“NPC”), an existing franchisee of the Company (the “DavCo and NPC Transactions”). The transactions resulted in a loss of $43.1 million during the first nine months of 2017.restaurants.


Reorganization and Realignment Costs	Third Quarter				Nine Months				Third Quarter							Nine Months
	2018		2017		2018		2017		2019		2018		Change			2019		2018		Change
G&A realignment	$	0.6	$	2.7	$	6.4	$	19.9	$	0.4	$	0.6	$	(0.2	)	$	4.7	$	6.4	(1.7		)
System optimization initiative	0.3		0.2		0.3		0.9		—		0.3		(0.3		)	0.1		0.3		(0.2		)
	$	0.9	$	2.9	$	6.7	$	20.8	$	0.4	$	0.9	$	(0.5	)	$	4.8	$	6.7	$	(1.9	)

In May 2017, the Company initiated a G&A realignment plan to further reduce its G&A expenses. ~~During the third quarter of 2018,~~In addition, the Company ~~recognized~~announced changes to its leadership structure in May 2019. G&A realignment costs associated with the plan totaling $0.6 million, which primarily included (1) share-based compensation of $0.3 million and (2) recruitment and relocation costs of $0.2 million. During the first nine months of 2018, the Company recognized costs totaling $6.4 million, which primarily included (1) severance and related employee costs of $3.2 million, (2) share-based compensation of $1.5 million, (3) third-party and other costs of $1.0 million and (4) recruitment and relocation costs of $0.7 million. During the third quarter of 2017, the Company recognized costs totaling $2.7 million, which primarily included (1) severance and related employee costs of $1.2 million, (2) share-based compensation of $0.8 million and (3) third-party and other costs of $0.5 million. During the first nine months of 2017, the Company recognized costs totaling $19.9 million, which primarily included (1) severance and related employee costs of $14.4 million, (2) shared-based compensation of $4.5 million and (3) third-party and other costs of $0.8 million.

~~During~~for the third quarter and the first nine months of 2019 and 2018 were primarily comprised of severance and ~~2017, the Company recognized~~related employee costs ~~associated with its system optimization initiative, which primarily included professional fees.~~and share-based compensation.


Impairment of Long-Lived Assets	Change					Third Quarter							Nine Months
	Third Quarter			Nine Months		2019		2018		Change			2019		2018		Change
Impairment of long-lived assets	$	(0.7	)	$	0.4	$	—	$	0.3	$	(0.3	)	$	1.7	$	2.2	$	(0.5	)

The ~~changes~~change in impairment charges during the third quarter of 2019 was primarily driven by lower impairment charges as a result of closing Company-operated restaurants and classifying such surplus properties as held for sale when compared to the third quarter of 2018. The change in impairment charges during the first nine months of ~~2018 were~~2019 was primarily driven by ~~variations in losses resulting from~~lower impairment charges as a result of the deterioration in operating performance of certain Company-operated restaurants when compared to the first nine months of 2018, partially offset by higher impairment charges as a result of closing Company-operated restaurants and ~~charges~~classifying such surplus properties as held for ~~capital improvements in previously impaired restaurants that did not subsequently recover.~~sale.


Other Operating Income, Net	Third Quarter						Nine Months						Third Quarter									Nine Months
	2018			2017			2018			2017			2019			2018			Change			2019			2018			Change
Equity in earnings in joint ventures, net													$	(2.1	)	$	(2.2	)	$	0.1		$	(7.0	)	$	(5.8	)	$	(1.2	)
Losses (gains) on sales-type leases													0.1			—			0.1			(1.9		)	—			(1.9		)
Lease buyout	$	0.3		$	0.2		$	0.9		$	0.1		(0.4		)	0.3			(0.7		)	(0.6		)	0.9			(1.5		)
Equity in earnings in joint ventures, net	(2.2		)	(2.3		)	(5.8		)	(6.1		)
Other, net	0.3			0.1			0.2			0.2			—			0.3			(0.3		)	0.1			0.2			(0.1		)
	$	(1.6	)	$	(2.0	)	$	(4.7	)	$	(5.8	)	$	(2.4	)	$	(1.6	)	$	(0.8	)	$	(9.4	)	$	(4.7	)	$	(4.7	)

The change in other operating income, net during the third quarter ~~and the first nine months~~ of ~~2018~~2019 was primarily due to lease buyout activity. The change in other operating income, net during the first nine months of 2019 was due to (1) gains on new and modified sales-type leases as a result of the new accounting guidance for leases, (2) lease buyout activity and ~~a decrease~~(3) an increase in ~~income~~the equity in earnings from our ~~equity method investments.~~TimWen joint venture.


Interest Expense, Net	Change					Third Quarter							Nine Months
	Third Quarter			Nine Months		2019		2018		Change			2019		2018		Change
Interest expense, net	$	(0.4	)	$	2.0	$	27.9	$	29.6	$	(1.7	)	$	86.9	$	89.9	$	(3.0	)

Interest expense, net decreased during the third quarter and the first nine months of ~~2018~~2019 primarily due to lower outstanding principal amounts of long-term debt, reflecting the impact of the completion of refinancing a ~~decrease in amortization~~portion of ~~debt issuance costs resulting from~~ the ~~refinancing transaction during the first quarter of 2018. Interest expense, net was higher~~Company’s securitized financing facility during the first nine months of ~~2018~~2019. Interest expense, net also decreased during the first nine months of 2019 due to ~~an increase in capital~~the timing of interest expense on the Company’s finance lease ~~obligations resulting from facilitating Franchise Flips during 2017, partially offset by a decrease in amortization of debt issuance costs.~~obligations.


Loss on Early Extinguishment of Debt	Change				Third Quarter						Nine Months
	Third Quarter		Nine Months		2019		2018		Change		2019		2018		Change
Loss on early extinguishment of debt	$	—	$	11.5	$	—	$	—	$	—	$	7.2	$	11.5	$	(4.3	)

During the ~~first~~second quarter of ~~2018,~~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 ~~redeeming~~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.

During the first quarter of 2018, in connection with the refinancing of a portion of the Company’s securitized financing facility, the Company incurred a loss on the early extinguishment of debt as a result of repaying its outstanding Series 2015-1 Class A-2-I Notes with the proceeds from the ~~sale~~issuance of ~~the~~its Series 2018-1 Class A-2 Notes. The loss on the early extinguishment of debt of $11.5 million was comprised of the write-off of certain deferred financing costs and a specified make-whole payment.

Investment Income (Loss), Net Change
Third
Quarter Nine
Months
Investment income (loss), net $ 450.7
$ 448.3



Investment Income, Net	Third Quarter							Nine Months
	2019		2018		Change			2019		2018		Change
Investment income, net	$	0.3	$	450.1	$	(449.8	)	$	1.0	$	450.4	$	(449.4	)

Investment income, ~~(loss),~~ net ~~increased~~decreased during the third quarter and the first nine months of ~~2018~~2019 due to the $450.0 million gain recorded on the sale of the Company’s ownership interest in Inspire Brands, Inc. (“Inspire Brands”) on August 16, 2018. ~~See Note 7 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.~~

Provision for Income Taxes Third Quarter Nine Months
2018 2017 2018 2017
Income before income taxes $ 498.9
$ 31.6
$ 555.5
$ 63.4
Provision for income taxes 107.7
17.3
114.2
28.6
Effective tax rate on income 21.6 % 54.8 % 20.6 % 45.2 %



Other Income, Net	Third Quarter						Nine Months
	2019		2018		Change		2019		2018		Change
Other income, net	$	1.9	$	1.1	$	0.8	$	6.1	$	2.4	$	3.7

Other income, net increased during the third quarter and the first nine months of 2019 primarily due to higher interest income earned on our cash equivalents.



Provision for Income Taxes	Third Quarter									Nine Months
	2019			2018			Change			2019			2018			Change
Income before income taxes	$	53.3		$	498.9		$	(445.6	)	$	138.9		$	555.5		$	(416.6	)
Provision for income taxes	(7.2		)	(107.7		)	100.5			(28.5		)	(114.2		)	85.7
Effective tax rate on income	13.5		%	21.6		%	(8.1		)%	20.5		%	20.6		%	(0.1		)%

Our effective tax rates infor the third quarter of ~~2018~~2019 and ~~2017~~2018 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. Discrete items, which may occur in any given year but are not consistent from year to year, include the following: (1) ~~net excess~~a reduction in unrecognized tax benefits ~~related~~due to ~~share-based payments, which resulted in~~ a ~~benefit~~lapse of ~~$5.3 million~~statute of limitations in the third quarter of ~~2018,~~2019, (2) a ~~change to our provisional amount, recorded in~~reduction for the impact of stock-based compensation, which included net excess tax benefits of $1.1 million and $5.3 million for the third quarter of 2019 and 2018, ~~for the impact of the Tax Cuts~~respectively, and ~~Jobs Act (the “Tax Act”), which resulted in~~(3) an ~~expense of $4.9 million, (3) the system optimization initiative in 2017 and (4) state income tax provision in 2017, including~~increase due to non-recurring changes to state deferred ~~taxes net of federal benefits.~~taxes.

Our effective tax rates infor the first nine months of ~~2018~~2019 and ~~2017~~2018 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. Discrete items, which may occur in any given year but are not consistent from year to year, include the following: (1) ~~net excess~~a reduction in unrecognized tax benefits ~~related~~due to ~~share-based payments, which resulted in~~ a ~~benefit~~lapse of ~~$12.1 million~~statute of limitations in the first nine months of ~~2018,~~2019, (2) ~~state income taxes, (3)~~ a ~~change to our provisional amount, recorded in~~reduction for the impact of stock-based compensation, which included net excess tax benefits of $4.0 million and $12.1 million for the first nine months of 2019 and 2018, ~~for the impact of the Tax Act, which resulted in~~respectively, and (3) an ~~expense of $2.1 million, and (4) the system optimization initiative in 2017.~~increase due to non-recurring changes to state deferred taxes.

Liquidity and Capital Resources

Cash Flows

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under our securitized

financing facility. Principal uses of cash are operating expenses, capital expenditures, repurchases of common stock and dividends to ~~shareholders.~~stockholders.

Our anticipated cash requirements for the remainder of ~~2018,~~2019, exclusive of operating cash flow requirements, consist principally of:

capital expenditures of approximately ~~$30.0~~$34.0 million to ~~$35.0~~$39.0 million, resulting in total anticipated cash capital expenditures for the year of approximately ~~$70.0~~$75.0 million to ~~$75.0 million.~~$80.0 million;

cash dividends aggregating up to approximately ~~$20.1~~$27.6 million as discussed below in “Dividends;” and

potential stock repurchases of up to $170.3 million, of which $9.2 million was repurchased subsequent to September 29, 2019 through October 30, 2019, as discussed below in “Stock Repurchases.”

In addition to the anticipated cash requirements above, the Company expects to make one-time investments during 2019 of approximately $20.0 million to support the U.S. system in preparation of the launch of breakfast in the first quarter of 2020.

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.

The table below summarizes our cash flows from operating, investing and financing activities for the first nine months of ~~2018~~2019 and ~~2017:~~2018:


	Nine Months									Nine Months
	2018			2017			Change			2019			2018			Change
Net cash provided by (used in):
Operating activities	$	229.7		$	160.3		$	69.4		$	237.5		$	229.7		$	7.8
Investing activities	391.4			(61.7		)	453.1			(45.7		)	391.4			(437.1		)
Financing activities	(151.0		)	(156.9		)	5.9			(183.4		)	(151.0		)	(32.4		)
Effect of exchange rate changes on cash	(2.1		)	6.9			(9.0		)	2.8			(2.1		)	4.9
Net increase (decrease) in cash, cash equivalents and restricted cash	$	468.0		$	(51.4	)	$	519.4
Net increase in cash, cash equivalents and restricted cash										$	11.2		$	468.0		$	(456.8	)

Operating Activities

Cash provided by operating activities was ~~$229.7~~$237.5 million and ~~$160.3~~$229.7 million in the first nine months of ~~2018~~2019 and ~~2017,~~2018, respectively. Cash provided by operating activities consists primarily of net income, adjusted for non-cash expenses such as depreciation and amortization, deferred income tax and share-based compensation, and the net change in operating assets and liabilities. Cash provided by operating activities increased ~~$69.4~~$7.8 million during the first nine months of ~~2018~~2019 as compared to the first nine months of ~~2017,~~2018, primarily due to (1) higher net income from operations, adjusted for non-cash expenses and (2) a ~~favorable change~~decrease in ~~operating assets and liabilities. The favorable change in operating assets and liabilities resulted primarily from (1) the timing of~~ payments for ~~marketing expenses of the national advertising funds, (2)~~incentive compensation. These favorable changes were partially offset by (1) the timing of collections of royalty receivables and ~~(3) a decrease~~(2) changes in ~~payments~~receivables for ~~incentive compensation for the 2017 fiscal year.~~income tax refunds. Further, income taxes payable ~~increased~~decreased significantly in the first nine months of 2019 as compared to the first nine months of 2018 due to income taxes associated with the gain on sale of our ownership interest in Inspire Brands during the first nine months of 2018 (which ~~offsets~~offset the income tax expense recognized in net ~~income). We expect~~income for the ~~income tax associated with the gain to be paid in the fourth quarter~~first nine months of ~~2018.~~2018).

Investing Activities

Cash ~~provided by~~used in investing activities increased ~~$453.1~~$437.1 million during the first nine months of ~~2018~~2019 as compared to the first nine months of ~~2017,~~2018, primarily due to ~~(1)~~the proceeds from the sale of our ownership interest in Inspire Brands during the first nine months of 2018 of $450.0 ~~million, (2) net cash used in the DavCo and NPC Transactions during 2017 of $16.1 million and (3) a decrease in capital expenditures of $14.0~~ million. ~~These favorable changes were~~This change was partially offset by ~~(1) an increase~~a decrease in cash used for the Company’s acquisition of ~~franchised~~ restaurants from franchisees of ~~$21.4 million and (2) a decrease in proceeds from dispositions of surplus properties and other assets of $6.5~~$16.3 million.

Financing Activities

Cash used in financing activities ~~decreased $5.9~~increased $32.4 million during the first nine months of ~~2018~~2019 as compared to the first nine months of ~~2017,~~2018, primarily due to (1) a net increase in cash ~~provided by~~used for long-term debt activities of ~~$45.8~~$76.4 million, reflecting the respective impacts of the completion of adebt refinancing ~~transaction~~transactions during the first ~~quarter~~nine months of 2019 and 2018, ~~and~~ (2) ~~an increase~~a decrease in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of ~~$25.9~~$16.2 million, and (3) an increase in dividends of $8.5 million. These changes were partially offset by (1) ~~an increase~~a decrease in repurchases of common stock of ~~$50.1 million, (2) an increase in dividends of $9.3~~$63.3 million and ~~(3)~~(2) the settlement of a supplemental purchase price liability associated with the acquisition of 140 Wendy’s restaurants from DavCo Restaurants, LLC of $6.3 ~~million.~~million during the first nine months of 2018.

Long-Term Debt, Including Current Portion

Except as described below, there were no material changes to the terms of any debt obligations since December ~~31, 2017.~~30, 2018. The Company was in compliance with its debt covenants as of September ~~30, 2018.~~29, 2019. See Note 8 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information related to our long-term debt obligations.

~~Concurrently,~~In connection with the issuance of the Series 2019-1 Class A-2 Notes, the Master Issuer also entered into a revolving financing facility of Series ~~2018-1~~2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Series ~~2018-1~~2019-1 Class A-1 Notes”), which allows for the drawing of up to $150.0 million using various credit instruments, including a letter of credit facility. No amounts were borrowed under the Series ~~2018-1~~2019-1 Class A-1 Notes during the nine months ended September ~~30, 2018.~~29, 2019. The Series ~~2015-1~~2019-1 Class A-1 Notes replaced the Company’s $150.0 million Series 2018-1 Class A-1 Notes, which were canceled on the closing date and the letters of credit outstanding against the Series ~~2015-1~~2018-1 Class A-1 Notes were transferred to the Series ~~2018-1~~2019-1 Class A-1 Notes.

Dividends

On March 15, ~~2018,~~2019, June ~~15, 2018~~17, 2019 and September ~~18, 2018,~~17, 2019, the Company paid quarterly cash dividends of ~~$0.085~~$.10 per share on its common stock, aggregating ~~$60.8~~$69.3 million. On ~~November 1, 2018,~~October 11, 2019, the Company declared a dividend of ~~$0.085~~$.12 per share to be paid on December ~~17, 2018~~16, 2019 to ~~shareholders~~stockholders of record as of December ~~3, 2018.~~2, 2019. As a result of the October 11 declaration, the ~~Company’s~~Company expects that its total cash requirements for the fourth quarter of ~~2018~~2019 will be approximately ~~$20.1~~$27.6 million based on the ~~estimated~~ number of shares of its common stock outstanding at October ~~31, 2018.~~30, 2019. The Company currently intends to continue to declare and pay quarterly cash dividends; however, there can be no assurance that any additional quarterly dividends will be declared or paid ~~in the future~~ or of the amount or timing of such dividends, if any.

Stock Repurchases

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 warrant and to the extent legally permissible. In connection with the February 2019 authorization, the Company’s previous November 2018 repurchase authorization for up to $220.0 million of our common stock was canceled. 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 November 2018 and February 2019 authorizations. As of September 29, 2019, the Company had $170.3 million of availability remaining under its February 2019 authorization. Subsequent to September 29, 2019 through October 30, 2019, the Company repurchased 0.4 million shares under the February 2019 authorization with an aggregate purchase price of $9.2 million, excluding commissions. As part of the February 2019 authorization, the Company

announced on October 11, 2019 its intention to launch a $100.0 million accelerated share repurchase program during the fourth quarter of 2019.

In February 2018, our Board of Directors authorized a repurchase program for up to $175.0 million of our common stock through March 3, 2019, when and if market conditions warrant and to the extent legally permissible. In August 2018, our Board of Directors authorized an additional share repurchase program for up to $100.0 million of our common stock through December 27, 2019 with a portion of the proceeds obtained through the sale of our ownership interest in Inspire Brands, when and if market conditions warrantwarranted and to the extent legally permissible. During the nine months ended September 30, 2018, the Company repurchased 6.9 million shares under the February 2018 repurchase authorization with an aggregate purchase price of $118.9 million, of which $2.7 million was accrued at September 30, 2018, and excluding commissions of $0.1 million. Subsequent to September 30, 2018 through October 31, 2018, the Company repurchased 1.6 million shares under the February 2018 authorization with an aggregate purchase price of $27.3 million, excluding commissions.

~~The following table summarizes the Company’s outstanding share repurchase authorizations as of September 30, 2018:~~

Announced Expiration Date Authorization Utilization Availability Remaining
February 2018 March 3, 2019 $ 175.0
$ 118.9
$ 56.1
August 2018 December 27, 2019 100.0
—
100.0
$ 275.0
$ 118.9
$ 156.1

~~Subsequent to September 30, 2018, the Board of Directors approved an increase of $120.0 million to the August 2018 authorization, which now totals $220.0 million and expires on December 27, 2019.~~

In February 2017, our Board of Directors authorized a repurchase program for up to $150.0 million of our common stock through March 4, 2018, when and if market conditions warranted and to the extent legally permissible. DuringAdditionally, during the nine months ended September 30, 2018, the Company completed ~~the~~its previous February 2017 repurchase authorization for up to $150.0 million ~~program~~of our common stock with the repurchase of 1.4 million shares with an aggregate purchase price of $22.6 million, excluding commissions. During the nine months ended October 1, 2017, the Company repurchased 6.1 million shares with an aggregate purchase price of $90.9 million, of which $0.9 million was accrued at October 1, 2017, and excluding commissions of $0.1 million.

General Inflation, Commodities and Changing Prices

We believe that general inflation did not have a significant effect on our consolidated results of ~~operations, except as mentioned below for certain commodities, during the reporting periods.~~operations. We attempt to manage any inflationary costs and commodity price increases through product mix and selective menu price increases. Delays in implementing such menu price increases and competitive pressures may limit our ability to recover such cost increases in the future. Inherent volatility experienced in certain commodity markets, such as those for beef, chicken, pork, cheese and grains, could have a significant effect on our results of operations and may have an adverse effect on us in the future. The extent of any impact will depend on our ability to ~~increase food prices.~~manage such volatility through product mix and selective menu price increases.

Seasonality

Wendy’s restaurant operations are moderately seasonal. Wendy’s average restaurant sales are normally higher during the summer months than during the winter months. Because ~~the~~our business is moderately seasonal, results for ~~any~~a particular quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

This “Quantitative and Qualitative Disclosures about Market Risk” should be read in conjunction with “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our annual report on Form 10-K for the fiscal year ended December ~~31, 2017~~30, 2018 (the “Form 10-K”).

As of September ~~30, 2018,~~29, 2019, there were no material changes from the information contained in the Form 10-K, except as described below.

Interest Rate Risk

As discussed in “~~Item~~“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~”Operation” under “~~Liquidity~~“Liquidity and Capital Resources,,” the Company completed ~~a $925.0~~an $850.0 million debt refinancing transaction on ~~January 17, 2018.~~June 26, 2019. The ~~proceeds were used to repay all amounts~~Company’s outstanding ~~on the~~ Series 2015-1 Class ~~A-2-I~~A-2-II Notes ~~to pay prepayment and transaction costs, and for general corporate purposes. The~~were repaid as part of the refinancing transaction. In aggregate, the Company’s new ~~notes~~Series 2019-1 Class A-2 Notes bear a weighted-average fixed-rate interest at rates slightly ~~higher~~lower than our historical effective rates on the Series 2015-1 Class ~~A-2-I~~A-2-II Notes. In addition, the principal amounts outstanding on the Series ~~2018-1~~2019-1 Class A-2 Notes ~~exceed~~are lower than the amounts that were outstanding on the Series 2015-1 Class ~~A-2-I~~A-2-II Notes. ~~The final legal maturity date~~In connection with the issuance of the Series ~~2018-1~~2019-1 Class A-2 Notes, ~~is in 2048; however, the anticipated repayment dates~~a wholly-owned subsidiary of the ~~Series 2018-1 Class A-2 Notes range from 2025 through 2028, which is up to six years longer than the prior Series 2015-1 Class A-2-I Notes. Concurrently, the~~ Company also entered into a revolving financing facility, the Series ~~2018-1~~2019-1 Class A-1 Notes, which allows for the drawing of up to $150.0 million using various credit instruments, including a letter of credit facility. The Series ~~2015-1~~2019-1 Class A-1 Notes replaced the Company’s $150.0 million Series 2018-1 Class A-1 Notes, which were canceled on the closing ~~date.~~date, and the letters of credit outstanding against the Series 2018-1 Class A-1 Notes were transferred to the Series 2019-1 Class A-1 Notes.

Consequently, our long-term debt, including the current portion, aggregated ~~$2,834.4~~$2,336.7 million ~~and consisted of $2,376.1 million of fixed-rate debt and $458.3 million of capital lease obligations~~ as of September ~~30, 2018~~29, 2019 (excluding unamortized debt issuance costs and the effect of purchase accounting adjustments). The Company’s predominantly fixed-rate debt structure has reduced its exposure to interest rate increases that could adversely affect its earnings and cash flows. The Company is exposed to interest rate increases under the Series ~~2018-1~~2019-1 Class A-1 Notes; however, the Company had no outstanding borrowings under ~~its~~the Series ~~2018-1~~2019-1 Class A-1 Notes as of September ~~30, 2018.~~29, 2019.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The management of the Company, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of ~~its~~the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September ~~30, 2018~~.29, 2019. Based on such evaluations, the Chief Executive Officer and Chief Financial Officer concluded that, as of September ~~30, 2018,~~29, 2019, the disclosure controls and procedures of the Company were effective at a reasonable assurance level in (1) recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and (2) ensuring that information required to be disclosed by the Company in such reports is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the internal control over financial reporting of the Company during the third quarter of ~~2018~~2019 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

There are inherent limitations in the effectiveness of any control system, including the potential for human error and the possible circumvention or overriding of controls and procedures. Additionally, judgments in decision-making can be faulty and breakdowns can occur because of a simple error or mistake. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Accordingly, the management of the Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that the control system can prevent or detect all errors or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.

PART II. OTHER INFORMATION

Special Note Regarding Forward-Looking Statements and Projections

This Quarterly Report on Form 10-Q and oral statements made from time to time by representatives of the Company may contain or incorporate by reference certain statements that are not historical facts, including, most importantly, information concerning possible or assumed future results of operations of the Company. Those statements, as well as statements preceded by, followed by, or that include the words “may,” “believes,” “plans,” “expects,” “anticipates,” or the negation thereof, or similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). All statements that address future operating, financial or business performance; strategies, initiatives or expectations; future synergies, efficiencies or overhead savings; anticipated costs or charges; future capitalization; and anticipated financial impacts of recent or pending transactions are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are based on our expectations at the time such statements are made, speak only as of the dates they are made and are susceptible to a number of risks, uncertainties and other factors. Our actual results, performance and achievements may differ materially from any future results, performance or achievements expressed in or implied by our forward-looking statements. For all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Reform Act. Many important factors could affect our future results and could cause those results to differ materially from those expressed in or implied by the forward-looking statements contained herein. Such factors, all of which are difficult or impossible to predict accurately, and many of which are beyond our control, include, but are not limited to, the following:

competition, including pricing pressures, couponing, aggressive marketing and the potential impact of competitors’ new unit openings on sales of Wendy’s restaurants;

consumers’ perceptions of the relative quality, variety, affordability and value of the food products we ~~offer;~~offer, and changes in consumer tastes and preferences;

food safety events, including instances of food-borne illness (such as salmonella or E. coli) involving Wendy’s or its supply chain;

consumer concerns over nutritional aspects of beef, ~~poultry,~~chicken, french fries or other products we sell, ~~concerns regarding~~ the ingredients in our products and/or the cooking processes used in our ~~restaurants, or concerns regarding the effects of~~restaurants;

conditions beyond our control, such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting ~~the Company’s~~our customers or food ~~supplies;~~supplies, or acts of war or terrorism;

the effects of negative publicity that can occur from increased use of social media;

success of operating and marketing initiatives, including advertising and promotional efforts and new product and concept development by us and our competitors;

~~the impact of general~~prevailing economic, market and business conditions affecting us, including competition from other food service providers, unemployment and ~~increases in unemployment rates on~~decreased consumer spending levels, particularly in geographic regions that contain a high concentration of Wendy’s restaurants;

changes in ~~consumer tastes and preferences, and in discretionary consumer spending;~~

~~changes in~~the quick-service restaurant industry, spending patterns and demographic trends, such as ~~the extent to which consumers eat~~consumer trends toward value-oriented products and promotions or toward consuming fewer meals away from home;

certain factors affecting our franchisees, including the business and financial viability of franchisees, the timely payment of ~~such~~ franchisees’ obligations due to us or to national or local advertising organizations, and the ability of ~~our~~ franchisees to open new restaurants and ~~remodel~~reimage existing restaurants in accordance with their development and franchise commitments, including their ability to finance restaurant development and ~~remodels;~~reimages;

increased labor costs due to competition or increased minimum wage or employee benefit costs;

changes in commodity costs (including beef, chicken, pork, cheese and grains), labor, supplies, fuel, utilities, distribution and other operating costs;

the availability ~~location~~of suitable locations and terms ~~of sites~~ for restaurant development by us and our franchisees;

development costs, including real estate and construction costs;

delays in opening new restaurants or completing reimages of existing restaurants, including risks associated with ~~the~~our Image Activation program;

the ~~timing~~ability to effectively manage the acquisition and ~~impact~~disposition of ~~acquisitions and dispositions of restaurants;~~restaurants or successfully implement other strategic initiatives;

anticipated or unanticipated restaurant closures by us and our franchisees;

our ability to identify, attract and retain ~~potential~~ franchisees with sufficient experience and financial resources to develop and operate Wendy’s restaurants successfully;

availability of qualified restaurant personnel to us and to our franchisees, and the ability to retain such personnel;

our ability, if necessary, to secure alternative distribution of supplies of food, equipment and other products to Wendy’s restaurants at competitive rates and in adequate amounts, and the potential financial impact of any interruptions in such distribution;

availability and cost of insurance;

~~adverse weather conditions;~~

availability, terms (including changes in interest rates) and deployment of ~~capital;~~capital, and changes in debt, equity and securities markets;

changes in, and our ability to comply with, legal, regulatory or similar requirements, including franchising laws, payment card industry rules, overtime rules, minimum wage rates, wage and hour laws, tax legislation, federal ethanol policy and accounting standards, ~~(including the new guidance on leases that will become effective for fiscal year 2019);~~policies and practices;

the costs, uncertainties and other effects of legal, environmental and administrative proceedings;

the effects of charges for impairment of goodwill or for the impairment of other long-lived assets;

~~the effects of war or terrorist activities;~~

risks associated with failures, interruptions or security breaches of ~~the Company’s~~our computer systems or technology, or the occurrence of cyber incidents or a deficiency in cybersecurity that impacts ~~the Company~~us or ~~its~~our franchisees, including the cybersecurity incident described in ~~Item 2 above;~~the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2019 (the “Form 10-K”);

the difficulty in predicting the ultimate costs that will be incurred in connection with ~~the Company’s~~our plan to reduce ~~its~~ general and administrative expense, and the future impact on ~~the Company’s~~our earnings;

risks associated with ~~the Company’s~~our securitized financing facility and other debt agreements, including the ability to generate sufficient cash flow to meet increased debt service obligations, compliance with operational and financial covenants, and restrictions on ~~the Company’s~~our ability to raise additional capital;

risks associated with the amount and timing of share repurchases under ~~the~~ share repurchase programs approved by ~~the~~our Board of Directors;

risks associated with the proposed settlement of the Financial Institutions case described in the Form 10-K, including the timing and amount of payments;

risks associated with our digital commerce strategy, platforms and technologies, including our ability to adapt to changes in industry trends and consumer preferences;

risks associated with our evolving organizational and leadership structure;

risks associated with our plans to enter the breakfast daypart across the U.S. system in 2020, including related investments;

risks associated with our international growth strategy, including related investments; and

other risks and uncertainties affecting us and our subsidiaries referred to in ~~our Annual Report on~~the Form 10-K ~~for the fiscal year ended December 31, 2017 (the “Form 10-K”)~~ (see especially “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and in our other current and periodic filings with the ~~SEC.~~Securities and Exchange Commission.

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We assume no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q as a result of new information, future events or developments, except as required by federal securities laws. In addition, ~~it is our policy generally~~we do not to endorse any projections regarding future performance that may be made by third parties.

Item 1. Legal Proceedings.

~~We are~~The Company is involved in litigation and claims incidental to our current and prior businesses, including the legal proceedings related to a cybersecurity incident referenced in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Item 2 herein.businesses. We provide accruals for such litigation and claims when payment is probable and reasonably estimable. The Company believes it has adequate accruals for continuing operations for all of its legal and environmental matters. We cannot estimate the aggregate possible range of loss ~~due~~for various reasons, including, but not limited to, ~~most~~many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur ~~and~~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.

See Note 17 to the Condensed Consolidated Financial Statements contained in Item 1 of Part 1 herein for further information regarding certain legal proceedings in which we are involved.

Item 1A. Risk Factors.

In addition to the information contained in this report, you should carefully consider the risk factors disclosed in our Form 10-K and our Quarterly Report on Form 10-Q for the period ended March 31, 2019, which could materially affect our business, financial condition or future results. Except as set forth below or as may otherwise be described elsewhere in this report, there have been no material changes from the risk factors previously disclosed in our Form ~~10-K.~~10-K and our Quarterly Report on Form 10-Q for the period ended March 31, 2019.

Wendy’s plans to launch breakfast across the U.S. system in 2020. The breakfast daypart is competitive across the restaurant industry and it may prove difficult to achieve market share and reach targeted levels of breakfast sales and profits.

As previously announced, Wendy’s plans to enter the breakfast daypart across the U.S. system in the first quarter of 2020. The Company and franchisee leadership have worked closely to align with the U.S. system on a breakfast program that the Company believes will drive incremental sales and profits through a strong economic model. However, previous breakfast initiatives were accompanied by competitive pressures and responses from our competitors, some of whom are well-established in the breakfast daypart, operational complexity, challenging food and labor costs, varied consumer acceptance and discretionary spending patterns that differ from other dayparts, and these factors could again impact our ability to achieve market share and reach targeted levels of breakfast sales and profits. In addition, breakfast sales could cannibalize sales during other parts of the day and may have negative impacts on restaurant margins. The continued active support and engagement of our franchisees is also critical for the successful launch and execution of breakfast. The Company and its franchisees plan to hire approximately 20,000 crew members across the country to support the breakfast initiative. Qualified individuals needed to fill these positions are in short supply in some geographic areas and our inability to successfully recruit, hire, train, motivate and retain qualified employees could adversely affect our operations. The launch of breakfast will also require significant financial resources, including the Company’s plans to support the system by investing approximately $20 million in 2019 to offset certain start-up costs and by reinvesting royalties from breakfast sales beginning in 2020 to fund incremental marketing and advertising campaigns. Our strategy to launch breakfast across the U.S. system may expose us to additional risks and our inability to successfully execute on our strategy could have a material adverse impact on our business, financial condition and results of operations.

Wendy’s planned expansion into the United Kingdom and other European markets may present increased risks due to low brand awareness, geopolitical risks and other factors.

As previously announced, Wendy’s intends to open Company-operated restaurants in the United Kingdom beginning in the next 12 to 18 months and, if successful, plans to expand into other anchor markets in Europe utilizing a franchise model. New markets, such as the United Kingdom, may have low brand awareness as well as competitive conditions, consumer tastes, discretionary spending patterns and social and cultural differences that are more difficult to predict or satisfy than our existing markets. We may need to make greater investments than we originally planned in advertising and promotional activity to build brand awareness, which could negatively impact the profitability of our operations. In addition, we may be unable to obtain desirable locations for new restaurants at reasonable prices, or at all, and restaurants may have higher construction, occupancy, food and labor costs than we currently anticipate. Geopolitical risks, including the United Kingdom’s decision to leave the European Union through a negotiated exit over a period of time, may result in increased regulatory complexities and economic uncertainty. Any of these risks and uncertainties, and other factors we cannot anticipate, could have a material adverse impact on our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information with respect to repurchases of shares of our common stock by us and our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the third quarter of ~~2018~~2019:

Issuer Repurchases of Equity Securities

Period Total Number of Shares Purchased (1)
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans (2)
July 2, 2018
through
August 5, 2018 1,136,233

$17.20
1,128,554

$93,114,300
August 6, 2018
through
September 2, 2018 815,688

$17.89
747,288

$179,716,861
September 3, 2018
through
September 30, 2018 1,345,861

$17.55
1,344,926

$156,134,246
Total 3,297,782

$17.51
3,220,768

$156,134,246



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (2)
July 1, 2019 through August 4, 2019	525,920		$19.19	520,672		$186,755
August 5, 2019 through September 1, 2019	317,484		$20.50	253,946		$181,515
September 2, 2019 through September 29, 2019	560,105		$20.30	553,750		$170,292
Total	1,403,509		$19.93	1,328,368		$170,292


(1)	Includes ~~77,014~~75,141 shares reacquired by the Company from holders of share-based awards to satisfy certain requirements associated with the vesting or exercise of the respective awards. The shares were valued at the average of the high and low trading prices of our common stock on the vesting or exercise date of such awards.

(2)

In February ~~2018,~~2019, our Board of Directors authorized ~~the~~a repurchase ofprogram for up to ~~$175.0~~$225.0 million of our common stock through March ~~3, 2019,~~1, 2020, when and if market conditions warrant and to the extent legally permissible. In August 2018, our Board of Directors authorized an additional share repurchase program for up to $100.0 million of our common stock through December 27, 2019, when and if market conditions warrant and to the extent legally ~~permissible~~.

Subsequent to September ~~30, 2018~~29, 2019 through October ~~31, 2018,~~30, 2019, the Company repurchased ~~1.6~~0.4 million shares under the February 2019 authorization with an aggregate purchase price of ~~$27.3~~$9.2 million, excluding commissions.

Item 6. Exhibits.



EXHIBIT NO.	DESCRIPTION

31.1	Certification of the Chief Executive Officer of The Wendy’s Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of the Chief Financial Officer of The Wendy’s Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
~~101.INS~~101	XBRL Instance Document*The following financial information from The Wendy’s Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2019 formatted in Inline eXtensible Business Reporting Language: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
~~101.SCH~~104	The cover page from The Wendy’s Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2019, formatted in Inline XBRL Taxonomy Extension Schema Document*
~~101.CAL~~	XBRL Taxonomy Extension Calculation Linkbase Document*
~~101.DEF~~	XBRL Taxonomy Extension Definition Linkbase Document*
~~101.LAB~~	XBRL Taxonomy Extension Label Linkbase Document*
~~101.PRE~~	XBRL Taxonomy Extension Presentation Linkbase Document*and contained in Exhibit 101.

____________________



*	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	THE WENDY’S COMPANY (Registrant)
Date: November 6, ~~2018~~2019	By: /s/ Gunther Plosch
	Gunther Plosch
	Chief Financial Officer
	(On behalf of the registrant)

Date: November 6, ~~2018~~2019	By: /s/ Leigh A. Burnside
	Leigh A. Burnside
	Senior Vice President, Finance and Chief Accounting Officer
	(Principal Accounting Officer)

4953



				Adjustments
	As Reported			Franchise Fees			Advertising Funds			Balances Without Adoption
Condensed Consolidated Balance Sheet
September 30, 2018
Accrued expenses and other current liabilities	$	120,203		$	(1,664	)	$	—		$	118,539
Advertising funds restricted liabilities	78,925			—			(6,645		)	72,280
Total current liabilities	339,103			(1,664		)	(6,645		)	330,794
Deferred income taxes	275,312			21,463			—			296,775
Deferred franchise fees	92,522			(81,686		)	—			10,836
Total liabilities	3,724,114			(61,887		)	(6,645		)	3,655,582
Retained earnings	146,983			62,011			6,645			215,639
Accumulated other comprehensive loss	(51,135		)	(124		)	—			(51,259		)
Total stockholders’ equity	783,318			61,887			6,645			851,850

Condensed Consolidated Statements of Operations
Three Months Ended September 30, 2018
Franchise royalty revenue and fees (a)	$	103,212		$	(497	)	$	—		$	102,715
Advertising funds revenue	81,541			—			(81,541		)	—
Total revenues	400,550			(497		)	(81,541		)	318,512
Advertising funds expense	81,541			—			(81,541		)	—
Total costs and expenses	323,202			—			(81,541		)	241,661
Operating profit	77,348			(497		)	—			76,851
Income before income taxes	498,917			(497		)	—			498,420
Provision for income taxes	(107,668		)	124			—			(107,544		)
Net income	391,249			(373		)	—			390,876

Nine Months Ended September 30, 2018
Franchise royalty revenue and fees (a)	$	308,679		$	(2,087	)	$	—		$	306,592
Advertising funds revenue	245,011			—			(245,011		)	—
Total revenues	1,192,116			(2,087		)	(245,011		)	945,018
Advertising funds expense	245,011			—			(245,011		)	—
Total costs and expenses	988,023			—			(245,011		)	743,012
Operating profit	204,093			(2,087		)	—			202,006
Income before income taxes	555,534			(2,087		)	—			553,447
Provision for income taxes	(114,250		)	533			—			(113,717		)
Net income	441,284			(1,554		)	—			439,730



	Nine Months Ended
	September 30, 2018
Restaurants acquired from franchisee	16

Total consideration paid, net of cash received	$	21,401
Identifiable assets acquired and liabilities assumed:
Properties	4,363
Acquired franchise rights	10,127
Capital lease assets	5,360
Other assets	621
Capital lease obligations	(3,135		)
Unfavorable leases	(733		)
Other liabilities	(1,960		)
Total identifiable net assets	14,643
Goodwill	$	6,758



	Balance January 1, 2017		Charges		Payments			Balance October 1, 2017
Severance and related employee costs	$	—	$	14,436	$	(1,350	)	$	13,086
Recruitment and relocation costs	—		145		(36		)	109
Third-party and other costs	—		821		(821		)	—
	$	—	$	15,402	$	(2,207	)	$	13,195



	Foreign Currency Translation			Cash Flow Hedges (a)			Pension			Total
Balance at December 31, 2017	$	(45,149	)	$	—		$	(1,049	)	$	(46,198	)
Current-period other comprehensive (loss) income	(5,054		)	—			117			(4,937		)
Balance at September 30, 2018	$	(50,203	)	$	—		$	(932	)	$	(51,135	)

Balance at January 1, 2017	$	(60,299	)	$	(1,797	)	$	(1,145	)	$	(63,241	)
Current-period other comprehensive income	16,797			1,332			96			18,225
Balance at October 1, 2017	$	(43,502	)	$	(465	)	$	(1,049	)	$	(45,016	)



	Rental Payments					Rental Receipts
Fiscal Year	Capital Leases			Operating Leases		Capital Leases		Operating Leases		Owned Properties
2018 (a)	$	12,967		$	25,217	$	16,007	$	18,911	$	13,488
2019	45,323			95,216		64,376		76,044		54,736
2020	46,252			94,079		65,467		75,810		55,348
2021	47,849			93,580		67,267		75,771		56,943
2022	48,937			93,304		68,451		76,222		58,514
Thereafter	751,317			1,145,074		1,034,322		935,083		948,620
Total minimum payments	$	952,645		$	1,546,470	$	1,315,890	$	1,257,841	$	1,187,649
Less interest	(494,298		)
Present value of minimum capital lease payments (b)	$	458,347



	September 30, 2018			December 31, 2017
Land	$	272,730		$	272,411
Buildings and improvements	313,706			313,108
Restaurant equipment	2,443			2,444
	588,879			587,963
Accumulated depreciation and amortization	(139,802		)	(128,003		)
	$	449,077		$	459,960



	September 30, 2018			December 31, 2017
Future minimum rental receipts	$	633,039		$	662,889
Unearned interest income	(406,230		)	(433,175		)
Net investment in direct financing leases	226,809			229,714
Net current investment in direct financing leases (a)	(660		)	(625		)
Net non-current investment in direct financing leases	$	226,149		$	229,089



Announced	Expiration Date	Authorization		Utilization		Availability Remaining
February 2018	March 3, 2019	$	175.0	$	118.9	$	56.1
August 2018	December 27, 2019	100.0		—		100.0
		$	275.0	$	118.9	$	156.1