UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM~~ ~~10-Q~~

FORM 10-Q



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

For the quarterly period ended June 28, 2020

~~September 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 registrant as specified in its charter)

Delaware

38-0471180

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

~~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~~

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 ☒ 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 ☒ 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	☒	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 ☒

There were ~~230,047,087~~223,817,984 shares of The Wendy’s Company common stock outstanding as of ~~October 30, 2019.~~

July 29, 2020.

THE WENDY’S COMPANY AND SUBSIDIARIES

INDEX TO FORM 10-Q



	Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements		4
Unaudited Condensed Consolidated Balance Sheets as of ~~September~~June 28, 2020 and December 29, 2019 ~~and~~ ~~December 30, 2018~~		4
Unaudited Condensed Consolidated Statements of Operations for the three and ~~nine~~ six months ended ~~September 29,~~ June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~		5
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~ six months ended ~~September 29,~~June 28 , 2020 and J une 30 , 2019 ~~and September 30, 2018~~		6
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and ~~nine~~ six months ended ~~September 29,~~June 28 , 2020 and J une 30 , 2019 ~~and September 30, 2018~~		7
Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~		9
Notes to Condensed Consolidated Financial Statements		1110
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3329
Item 3. Quantitative and Qualitative Disclosures about Market Risk		4544
Item 4. Controls and Procedures		4645

PART II: OTHER INFORMATION		47
Item 1. Legal Proceedings		49
Item 1A. Risk Factors		49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		51
Item 6. Exhibits		52
Signatures		53

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands Except Par Value)


	September 29, 2019			December 30, 2018				June 28, 2020		December 29, 2019
ASSETS	(Unaudited)						ASSETS	(Unaudited)
Current assets:							Current assets:
Cash and cash equivalents	$	439,421		$	431,405		Cash and cash equivalents	$	338,002	$	300,195
Restricted cash	28,769			29,860			Restricted cash	30,606		34,539
Accounts and notes receivable, net	105,017			109,805			Accounts and notes receivable, net	134,519		117,461
Inventories	3,549			3,687			Inventories	4,411		3,891
Prepaid expenses and other current assets	12,638			14,452			Prepaid expenses and other current assets	36,003		15,585
Advertising funds restricted assets	84,380			76,509			Advertising funds restricted assets	154,367		82,376
Total current assets	673,774			665,718			Total current assets	697,908		554,047
Properties	980,872			1,023,267			Properties	934,980		977,000
Finance lease assets	198,415			189,969			Finance lease assets	201,418		200,144
Operating lease assets	871,108			—			Operating lease assets	839,276		857,199
Goodwill	755,588			747,884			Goodwill	749,080		755,911
Other intangible assets	1,251,699			1,294,153			Other intangible assets	1,234,065		1,247,212
Investments	46,898			47,660			Investments	42,592		45,949
Net investment in sales-type and direct financing leases	250,602			226,477			Net investment in sales-type and direct financing leases	258,798		256,606
Other assets	107,264			96,907			Other assets	112,239		100,461
Total assets	$	5,136,220		$	4,292,035		Total assets	$	5,070,356	$	4,994,529

LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Current portion of long-term debt	$	22,750		$	23,250		Current portion of long-term debt	$	146,769	$	22,750
Current portion of finance lease liabilities	10,584			8,405			Current portion of finance lease liabilities	10,552		11,005
Current portion of operating lease liabilities	43,474			—			Current portion of operating lease liabilities	44,246		43,775
Accounts payable	23,793			21,741			Accounts payable	20,597		22,701
Accrued expenses and other current liabilities	146,693			150,636			Accrued expenses and other current liabilities	113,209		165,272
Advertising funds restricted liabilities	90,152			80,153			Advertising funds restricted liabilities	157,262		84,195
Total current liabilities	337,446			284,185			Total current liabilities	492,635		349,698
Long-term debt	2,270,866			2,305,552			Long-term debt	2,238,705		2,257,561
Long-term finance lease liabilities	471,704			447,231			Long-term finance lease liabilities	489,340		480,847
Long-term operating lease liabilities	911,213			—			Long-term operating lease liabilities	880,745		897,737
Deferred income taxes	273,097			269,160			Deferred income taxes	271,490		270,759
Deferred franchise fees	91,437			92,232			Deferred franchise fees	89,384		91,790
Other liabilities	130,866			245,226			Other liabilities	124,074		129,778
Total liabilities	4,486,629			3,643,586			Total liabilities	4,586,373		4,478,170
Commitments and contingencies							Commitments and contingencies
Stockholders’ equity:							Stockholders’ equity:
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
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 223,749 and 224,889 shares outstanding, respectively							Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 223,749 and 224,889 shares outstanding, respectively	47,042		47,042
Additional paid-in capital	2,885,404			2,884,696			Additional paid-in capital	2,892,699		2,874,001
Retained earnings	186,282			146,277			Retained earnings	187,086		185,725
Common stock held in treasury, at cost; 240,053 and 239,191 shares, respectively	(2,415,027		)	(2,367,893		)
Common stock held in treasury, at cost; 246,675 and 245,535 shares, respectively							Common stock held in treasury, at cost; 246,675 and 245,535 shares, respectively	(2,580,658)		(2,536,581)
Accumulated other comprehensive loss	(54,110		)	(61,673		)	Accumulated other comprehensive loss	(62,186)		(53,828)
Total stockholders’ equity	649,591			648,449			Total stockholders’ equity	483,983		516,359
Total liabilities and stockholders’ equity	$	5,136,220		$	4,292,035		Total liabilities and stockholders’ equity	$	5,070,356	$	4,994,529

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						Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
	(Unaudited)
Revenues:
Sales	$	164,217	$	181,050	$	331,015	$	348,747
Franchise royalty revenue and fees	103,120		109,125		204,825		211,078
Franchise rental income	56,857		58,561		114,713		117,013
Advertising funds revenue	78,112		86,612		156,713		167,093
	402,306		435,348		807,266		843,931
Costs and expenses:
Cost of sales	140,626		151,092		290,625		293,671
Franchise support and other costs	5,454		4,066		13,467		10,084
Franchise rental expense	31,297		28,027		60,598		60,478
Advertising funds expense	81,317		88,667		161,305		169,148
General and administrative	48,592		50,784		100,231		100,097
Depreciation and amortization	34,714		31,484		65,760		64,669
System optimization gains, net	(1,987)		(110)		(2,310)		(122)
Reorganization and realignment costs	2,911		3,570		6,821		4,368
Impairment of long-lived assets	117		198		4,704		1,684
Other operating income, net	(1,396)		(3,003)		(3,328)		(6,985)
	341,645		354,775		697,873		697,092
Operating profit	60,661		80,573		109,393		146,839
Interest expense, net	(29,085)		(29,931)		(57,610)		(59,013)
Loss on early extinguishment of debt	—		(7,150)		—		(7,150)
Other (expense) income, net	(144)		2,247		932		4,947
Income before income taxes	31,432		45,739		52,715		85,623
Provision for income taxes	(6,528)		(13,353)		(13,370)		(21,343)
Net income	$	24,904	$	32,386	$	39,345	$	64,280

Net income per share:
Basic	$	.11	$	.14	$	.18	$	.28
Diluted	.11		.14		.17		.27

Three Months Ended Nine Months Ended
September 29,
2019 September 30,
2018 September 29,
2019 September 30,
2018
(Unaudited)
Revenues:
Sales $ 181,977
$ 165,323
$ 530,724
$ 486,316
Franchise royalty revenue and fees 109,155
103,212
320,233
308,679
Franchise rental income 59,918
50,474
176,931
152,110
Advertising funds revenue 86,830
81,541
253,923
245,011
437,880
400,550
1,281,811
1,192,116
Costs and expenses:
Cost of sales 152,425
139,348
446,096
409,721
Franchise support and other costs 9,739
5,349
19,823
18,553
Franchise rental expense 32,364
22,260
92,842
69,829
Advertising funds expense 87,883
81,541
257,031
245,011
General and administrative 46,169
46,545
146,266
146,064
Depreciation and amortization 33,306
29,070
97,975
94,649
System optimization gains, net (1,040 ) (486 ) (1,162 ) (8 )
Reorganization and realignment costs 403
941
4,771
6,691
Impairment of long-lived assets —
347
1,684
2,156
Other operating income, net (2,392 ) (1,713 ) (9,377 ) (4,643 )
358,857
323,202
1,055,949
988,023
Operating profit 79,023
77,348
225,862
204,093
Interest expense, net (27,930 ) (29,625 ) (86,943 ) (89,939 )
Loss on early extinguishment of debt —
—
(7,150 ) (11,475 )
Investment income, net 340
450,133
999
450,432
Other income, net 1,878
1,061
6,166
2,423
Income before income taxes 53,311
498,917
138,934
555,534
Provision for income taxes (7,184 ) (107,668 ) (28,527 ) (114,250 )
Net income $ 46,127
$ 391,249
$ 110,407
$ 441,284

Net income per share:
Basic $ .20
$ 1.65
$ .48
$ 1.85
Diluted .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						Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
	(Unaudited)
Net income	$	24,904	$	32,386	$	39,345	$	64,280
Other comprehensive income (loss):
Foreign currency translation adjustment	4,149		3,835		(8,358)		9,860
Other comprehensive income (loss)	4,149		3,835		(8,358)		9,860
Comprehensive income	$	29,053	$	36,221	$	30,987	$	74,140

Three Months Ended Nine Months Ended
September 29,
2019 September 30,
2018 September 29,
2019 September 30,
2018
(Unaudited)
Net income $ 46,127
$ 391,249
$ 110,407
$ 441,284
Other comprehensive (loss) income, net:
Foreign currency translation adjustment (2,297 ) 5,315
7,563
(5,054 )
Change in unrecognized pension loss:
Unrealized gains arising during the period —
—
—
156
Income tax provision —
—
—
(39 )
—
—
—
117
Other comprehensive (loss) income, net (2,297 ) 5,315
7,563
(4,937 )
Comprehensive income $ 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		Common Stock Held in Treasury		Accumulated Other Comprehensive Loss		Total

	(Unaudited)
Balance at December 29, 2019	$	47,042	$	2,874,001	$	185,725	$	(2,536,581)	$	(53,828)	$	516,359
Net income	—		—		14,441		—		—		14,441
Other comprehensive loss	—		—		—		—		(12,507)		(12,507)
Cash dividends	—		—		(26,793)		—		—		(26,793)
Repurchases of common stock, including accelerated share repurchase	—		15,000		—		(58,336)		—		(43,336)
Share-based compensation	—		4,539		—		—		—		4,539
Common stock issued upon exercises of stock options	—		280		—		1,330		—		1,610
Common stock issued upon vesting of restricted shares	—		(4,017)		—		726		—		(3,291)
Other	—		33		(7)		27		—		53
Balance at March 29, 2020	$	47,042	$	2,889,836	$	173,366	$	(2,592,834)	$	(66,335)	$	451,075
Net income	—		—		24,904		—		—		24,904
Other comprehensive income	—		—		—		—		4,149		4,149
Cash dividends	—		—		(11,181)		—		—		(11,181)
Share-based compensation	—		4,787		—		—		—		4,787
Common stock issued upon exercises of stock options	—		(902)		—		11,361		—		10,459
Common stock issued upon vesting of restricted shares	—		(1,041)		—		773		—		(268)
Other	—		19		(3)		42		—		58
Balance at June 28, 2020	$	47,042	$	2,892,699	$	187,086	$	(2,580,658)	$	(62,186)	$	483,983

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		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	—		—		—		—		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	—		—		—		—		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

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.

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THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

Nine Months Ended
September 29,
2019 September 30,
2018
(Unaudited)
Cash flows from operating activities:
Net income $ 110,407
$ 441,284
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 97,975
94,649
Share-based compensation 13,989
14,401
Impairment of long-lived assets 1,684
2,156
Deferred income tax 5,524
(1,527 )
Non-cash rental expense (income), net 18,722
(10,868 )
Change in operating lease liabilities (31,481 ) —
Net receipt of deferred vendor incentives 2,269
2,689
System optimization gains, net (1,162 ) (8 )
Gain on sale of investments, net (130 ) (450,000 )
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 237,500
229,662
Cash flows from investing activities:

Capital expenditures (40,984 ) (39,717 )
Acquisitions (5,052 ) (21,401 )
Dispositions 2,038
2,863
Proceeds from sale of investments 130
450,000
Notes receivable, net (1,834 ) (283 )
Payments for investments —
(13 )
Net cash (used in) provided by investing activities (45,702 ) 391,449
Cash flows from financing activities:

Proceeds from long-term debt 850,000
934,837
Repayments of long-term debt (883,564 ) (888,689 )
Repayments of finance lease liabilities (5,178 ) (4,350 )
Deferred financing costs (14,008 ) (17,340 )
Repurchases of common stock (76,948 ) (140,199 )
Dividends (69,280 ) (60,786 )
Proceeds from stock option exercises 24,069
42,299
Payments related to tax withholding for share-based compensation (8,447 ) (10,464 )
Contingent consideration payment —
(6,269 )
Net cash used in financing activities (183,356 ) (150,961 )
Net cash provided by operations before effect of exchange rate changes on cash 8,442
470,150
Effect of exchange rate changes on cash 2,755
(2,195 )
Net increase in cash, cash equivalents and restricted cash 11,197
467,955
Cash, cash equivalents and restricted cash at beginning of period 486,512
212,824
Cash, cash equivalents and restricted cash at end of period $ 497,709
$ 680,779

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—CONTINUED~~

~~(In Thousands)~~

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


	Six Months Ended
	June 28, 2020		June 30, 2019
	(Unaudited)
Cash flows from operating activities:
Net income	$	39,345	$	64,280
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	65,760		64,669
Share-based compensation	9,326		10,008
Impairment of long-lived assets	4,704		1,684
Deferred income tax	1,920		3,422
Non-cash rental expense, net	12,251		11,519
Change in operating lease liabilities	(19,233)		(20,983)
Net receipt of deferred vendor incentives	7,728		5,312
System optimization gains, net	(2,310)		(122)
Distributions received from joint ventures, net of equity in earnings	1,262		2,099
Long-term debt-related activities, net	3,141		10,799
Changes in operating assets and liabilities and other, net	(93,332)		1,373
Net cash provided by operating activities	30,562		154,060
Cash flows from investing activities:
Capital expenditures	(29,402)		(25,484)
Acquisitions	—		(5,052)
Dispositions	4,320		1,240
Proceeds from sale of investments	—		130
Notes receivable, net	138		(750)
Net cash used in investing activities	(24,944)		(29,916)
Cash flows from financing activities:
Proceeds from long-term debt	153,315		850,000
Repayments of long-term debt	(24,271)		(877,876)
Repayments of finance lease liabilities	(3,707)		(3,521)
Deferred financing costs	(2,122)		(14,008)
Repurchases of common stock	(45,137)		(50,781)
Dividends	(37,974)		(46,193)
Proceeds from stock option exercises	11,865		19,160
Payments related to tax withholding for share-based compensation	(3,704)		(6,957)
Net cash provided by (used in) financing activities	48,265		(130,176)
Net cash provided by (used in) operations before effect of exchange rate changes on cash	53,883		(6,032)
Effect of exchange rate changes on cash	(3,132)		3,866
Net increase (decrease) in cash, cash equivalents and restricted cash	50,751		(2,166)
Cash, cash equivalents and restricted cash at beginning of period	358,707		486,512
Cash, cash equivalents and restricted cash at end of period	$	409,458	$	484,346

Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable	$	6,082	$	5,398
Finance leases	12,962		23,534

	June 28, 2020		December 29, 2019
Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	$	338,002	$	300,195
Restricted cash	30,606		34,539
Restricted cash, included in Advertising funds restricted assets	40,850		23,973
Total cash, cash equivalents and restricted cash	$	409,458	$	358,707

See accompanying notes to condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements. In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of ~~September 29, 2019~~,June 28, 2020, the results of our operations for the three and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ and cash flows for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 and ~~September~~June 30, ~~2018. The results of operations for the three and nine months ended September 29, 2019 are not necessarily indicative of the results to be expected for the full 2019 fiscal year.~~2019. The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018~~29, 2019 (the “Form 10-K”).

The novel coronavirus (COVID-19) pandemic has disrupted and is expected to continue to disrupt our business, which has materially affected and could continue to materially affect our financial condition and results of operations for an extended period of time. As such, the results of operations for the three and six months ended June 28, 2020 are not necessarily indicative of the results to be expected for the full 2020 fiscal year. See Notes 3, 7, 9, 11 and 14 for further information regarding actions taken by the Company in response to the COVID-19 pandemic and certain impacts of the COVID-19 pandemic on our condensed consolidated financial statements.

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:~~segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. Certain prior period financial information has been revised to align with this segment reporting structure. See Note 619 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~~six-month periods presented herein contain 13 weeks and 3926 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.~~

(2) New Accounting Standards

New Accounting Standards Adopted

Income Taxes

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and the simplification of areas such as franchise taxes, transactions that result in a step-up in the tax basis of goodwill, separate entity financial statements and interim recognition of enactment of tax laws or tax rate changes. The Company early adopted this amendment during the first quarter of 2020. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

Fair Value Measurement

In August 2018, the FASB issued new guidance on disclosure requirements for fair value measurements. The objective of the new guidance is to provide additional information about assets and liabilities measured at fair value in the statement of financial position or disclosed in the notes to financial statements. New incremental disclosure requirements include the amount of fair value hierarchy level 3 changes in unrealized gains and losses and the range and weighted average used to develop significant unobservable inputs for level 3 fair value measurements. The Company adopted this guidance during the first quarter of 2020. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Goodwill Impairment

In January 2017, the FASB issued new guidance that simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test. The Company adopted this amendment during the first quarter of 2020. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

Credit Losses

In June 2016, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued an amendment that ~~will require~~requires the Company to use a current expected credit loss model that ~~will result~~results in the immediate recognition of an estimate of credit losses that are expected to occur over the life of the financial instruments that are within the scope of the guidance, including trade receivables. The ~~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 adopted this amendment during the first quarter of ~~2019.~~2020. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~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 adopted this amendment during the first quarter of 2019. The adoption of this guidance did not 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 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 that fall under the definition of a short-term lease, 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 those assets in transition. The Company also elected the practical expedient for lessees to account for lease components and nonlease components as a 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 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 present value of the remaining 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 executory costs on a gross basis as revenue with a corresponding expense, which we expect 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 statement of cash flows.

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

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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 reclassifications made to the condensed consolidated balance sheet as of 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)~~

(3) Revenue

Disaggregation of Revenue

The following tables disaggregate revenue by ~~primary geographical market~~segment and source:


	Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total
Three Months Ended June 28, 2020
Sales at Company-operated restaurants	$	164,217	$	—	$	—	$	164,217
Franchise royalty revenue	88,121		9,070		—		97,191
Franchise fees	5,308		433		188		5,929
Franchise rental income	—		—		56,857		56,857
Advertising funds revenue	73,612		4,500		—		78,112
Total revenues	$	331,258	$	14,003	$	57,045	$	402,306

Six Months Ended June 28, 2020
Sales at Company-operated restaurants	$	331,015	$	—	$	—	$	331,015
Franchise royalty revenue	172,954		19,593		—		192,547
Franchise fees	10,593		906		779		12,278
Franchise rental income	—		—		114,713		114,713
Advertising funds revenue	147,737		8,976		—		156,713
Total revenues	$	662,299	$	29,475	$	115,492	$	807,266

Three Months Ended June 30, 2019
Sales at Company-operated restaurants	$	181,050	$	—	$	—	$	181,050
Franchise royalty revenue	91,430		11,391		—		102,821
Franchise fees	5,238		464		602		6,304
Franchise rental income	—		—		58,561		58,561
Advertising funds revenue	81,437		5,175		—		86,612
Total revenues	$	359,155	$	17,030	$	59,163	$	435,348

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)


	Wendy’s U.S.		Wendy’s International		Global Real Estate & Development		Total
Six Months Ended June 30, 2019
Sales at Company-operated restaurants	$	348,747	$	—	$	—	$	348,747
Franchise royalty revenue	175,808		21,856		—		197,664
Franchise fees	10,668		1,497		1,249		13,414
Franchise rental income	—		—		117,013		117,013
Advertising funds revenue	157,418		9,675		—		167,093
Total revenues	$	692,641	$	33,028	$	118,262	$	843,931

Contract Balances

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

September 29,
2019 (a)

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


	June 28, 2020 (a)		December 29, 2019 (a)
Receivables, which are included in “Accounts and notes receivable, net” (b) (c)	$	86,834	$	39,188
Receivables, which are included in “Advertising funds restricted assets” (c)	83,891		54,394
Deferred franchise fees (d)	98,563		100,689

_______________


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

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


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

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


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

(c) The increase in receivables as of June 28, 2020 was primarily due to extending payment terms for royalties and national advertising funds contributions by 45 days beginning in April for a three month period in response to the COVID-19 pandemic. See Note 7 for further information.

(d) Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $9,179 and $89,384 as of June 28, 2020, respectively, and $8,899 and $91,790 as of December 29, 2019, respectively.

Significant changes in deferred franchise fees are as follows:


	Six Months Ended
	June 28, 2020		June 30, 2019
Deferred franchise fees at beginning of period	$	100,689	$	102,205
Revenue recognized during the period	(3,898)		(4,609)
New deferrals due to cash received and other	1,772		3,671
Deferred franchise fees at end of period	$	98,563	$	101,267

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

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Anticipated Future Recognition of Deferred Franchise Fees

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:			Estimate for fiscal year:
2019 (a)	$	2,164
2020	7,399
2020 (a)			2020 (a)	$	6,091
2021	6,118		2021	6,195
2022	5,858		2022	5,991
2023	5,633		2023	5,819
2024			2024	5,616
Thereafter	73,579		Thereafter	68,851
	$	100,751		$	98,563

_______________


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

(a) Represents franchise fees expected to be recognized for the remainder of 2020, which includes development-related franchise fees expected to be recognized over a duration of one year or less.

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

(4) Acquisitions

NaN restaurants were acquired from franchisees during the six months ended June 28, 2020. During the ~~nine~~six months ended ~~September 29,~~June 30, 2019, the Company acquired 5 restaurants from franchisees for total net cash consideration of $5,052. The Company did not incur any material acquisition-related costs associated with the acquisitions during the six months ended June 30, 2019 and such transactions were not significant to our condensed consolidated financial statements. The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for restaurants acquired from franchisees:


	Six Months Ended
	June 30, 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 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

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

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(5) System Optimization Gains, Net

The Company’s system optimization initiative includes a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”). As of January 1, 2017, the Company completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total system. While the Company has no plans to reduce its ownership below the approximately 5% level, the Company expects to continue to optimize the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, drive new restaurant development and accelerate reimages.

During the ~~nine~~six months ended ~~September 29, 2019 and September 30, 2018,~~June 28, 2020, the Company facilitated 3 ~~and 73~~Franchise Flips. NaN Franchise Flips ~~respectively. Additionally,~~were facilitated by the Company during the ~~nine~~six months ended ~~September~~June 30, ~~2018, the~~2019. The Company ~~completed the sale of 3~~expects to sell 43 Company-operated restaurants in New York to ~~a franchisee. NaN~~franchisees in the first quarter of 2021. The Company expects to retain its Company-operated restaurants ~~were sold to franchisees during the nine months ended September 29, 2019.~~in Manhattan.

Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our condensed consolidated statements of operations. Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs,” which are further described in Note 6. All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

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


	Three Months Ended						Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Post-closing adjustments on sales of restaurants (a)	$	—	$	62	$	345	$	54
Gain on sales of other assets, net (b)	1,987		48		1,965		68
System optimization gains, net	$	1,987	$	110	$	2,310	$	122

_______________

(a) The six months ended June 28, 2020 represents the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

(b) During the three and six months ended June 28, 2020, the Company received cash proceeds of $4,125 and $4,320, respectively, primarily from the sale of surplus and other properties. During the three and six months ended June 30, 2019, the Company received cash proceeds of $1,240, primarily from the sale of surplus properties.

Assets Held for Sale


	June 28, 2020		December 29, 2019
Number of restaurants classified as held for sale	43		—
Net restaurant assets held for sale (a)	$	20,468	$	—
Other assets held for sale (b)	$	2,317	$	1,437

_______________

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

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

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

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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
September 29,
2019 September 30,
2018 September 29,
2019 September 30,
2018
Gain on sale of restaurants, net (a) $ —
$ —
$ —
$ 89
Post-closing adjustments on sales of restaurants (b) 1,033
279
1,087
54
Gain (loss) on sales of other assets, net (c) 7
207
75
(135 )
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 3 Company-operated restaurants. The value of the net assets 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 three and nine months ended September 29, 2019 and September 30, 2018 include the recognition of deferred gains of $911 and $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 29, 2019, the Company received cash proceeds of $798 and $2,038, respectively, and during the three and nine months ended September 30, 2018 received cash proceeds of $1,049 and $1,421, respectively, primarily from the sale of surplus properties.

~~Assets Held for Sale~~

As of September 29, 2019 and December 30, 2018, the Company had assets held for sale of $2,391 and $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						Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
IT realignment	$	2,847	$	—	$	6,406	$	—
G&A realignment	64		3,517		331		4,299
System optimization initiative	—		53		84		69
Reorganization and realignment costs	$	2,911	$	3,570	$	6,821	$	4,368

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

Information Technology (“IT”) Realignment

In December 2019, our Board of Directors approved a plan to realign and reinvest resources in the Company’s IT organization to strengthen its ability to accelerate growth. The Company is partnering with a third-party global IT consultant on this new structure to leverage their global capabilities, which the Company believes will enable a more seamless integration between its digital and corporate IT assets. The Company expects that the realignment plan will reduce certain employee compensation and other related costs that the Company intends to reinvest back into IT to drive additional capabilities and capacity across all of its technology platforms. Additionally, in June 2020, the Company made changes to its leadership structure that included the creation of a Chief Information Officer position and the elimination of the Chief Digital Experience Officer position. As a result, the Company now expects to incur total costs aggregating approximately $16,000 to $17,000 related to the plan. During the six months ended June 28, 2020, the Company recognized costs totaling $6,406, which primarily included third-party and other costs and severance and related employee costs. The Company expects to incur additional costs aggregating approximately $1,000, comprised primarily of recruitment and relocation costs. The Company expects to recognize the majority of the remaining costs associated with the plan during the remainder of 2020.

The following is a summary of the activity recorded as a result of the IT realignment plan:


	Three Months Ended		Six Months Ended		Total Incurred Since Inception
	June 28, 2020		June 28, 2020
Severance and related employee costs	$	830	$	975	$	8,523
Recruitment and relocation costs	143		314		314
Third-party and other costs	1,874		5,117		6,503
	2,847		6,406		15,340
Share-based compensation (a)	—		—		193
Total IT realignment	$	2,847	$	6,406	$	15,533

_______________

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The table below presents a rollforward of our accruals for the IT realignment plan, which are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $4,039 and $371 as of June 28, 2020, respectively.


	Balance December 29, 2019		Charges		Payments		Balance June 28, 2020
Severance and related employee costs	$	7,548	$	975	$	(4,113)	$	4,410
Recruitment and relocation costs	—		314		(314)		—
Third-party and other costs	1,076		5,117		(6,193)		—
	$	8,624	$	6,406	$	(10,620)	$	4,410

General and Administrative (“G&A”) Realignment

In May 2017, the Company initiated a plan to further reduce its G&A expenses. Additionally, in May 2019, the Company announced ~~in May 2019~~ changes to its ~~leadership~~management and operating structure that ~~includes~~included the creation of two new positions, a President, U.S and Chief Commercial Officer and a President, International and Chief Development Officer, and the elimination of the Chief Operations Officer position. During the ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ the Company recognized costs related to the plan totaling ~~$4,695~~$331 and ~~$6,375,~~$4,299, respectively, which primarily included severance and related employee costs and share-based compensation. The Company ~~expects~~does not expect to incur any additional material 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 tounder the plan.

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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 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.

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


												Three Months Ended						Six Months Ended					Total Incurred Since Inception
	Three Months Ended				Nine Months Ended				Total Incurred Since Inception			June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019				Total Incurred Since Inception
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Severance and related employee costs	$	214	$	57	$	2,816	$	3,168	$	21,569
Severance and related employee costs (a)											Severance and related employee costs (a)	$	(6)	$	2,130	$	146	$	2,602	$	24,384
Recruitment and relocation costs	58		200		654		708		2,220		Recruitment and relocation costs	—		482		15		596		2,531
Third-party and other costs	25		39		112		971		2,222		Third-party and other costs	—		71		1		87		2,211
	297		296		3,582		4,847		26,011			(6)		2,683		162		3,285		29,126
Share-based compensation (a)	99		333		1,113		1,528		7,797
Share-based compensation (b)											Share-based compensation (b)	70		834		169		1,014		8,067
Termination of defined benefit plans	—		—		—		—		1,335		Termination of defined benefit plans	—		—		—		—		1,335
Total G&A realignment	$	396	$	629	$	4,695	$	6,375	$	35,143	Total G&A realignment	$	64	$	3,517	$	331	$	4,299	$	38,528

_______________


~~(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.~~

(a) The three and six months ended June 28, 2020 includes a reversal of an accrual as a result of a change in estimate.

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

The accruals for our G&A realignment plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled ~~$3,491~~$2,705 and ~~$507~~$108 as of ~~September 29, 2019,~~June 28, 2020, respectively, and ~~$6,817~~$4,835 and ~~$1,432~~$607 as of ~~September~~June 30, ~~2018,~~2019, respectively. The tables below present a rollforward of our accruals for the plan.

Balance
December 30,
2018
Charges Payments
Balance
September 29,
2019
Severance and related employee costs $ 7,241
$ 2,816
$ (6,216 ) $ 3,841
Recruitment and relocation costs 83
654
(580 ) 157
Third-party and other costs —
112
(112 ) —
$ 7,324
$ 3,582
$ (6,908 ) $ 3,998


	Balance December 29, 2019		Charges		Payments		Balance June 28, 2020
Severance and related employee costs	$	5,276	$	146	$	(2,671)	$	2,751
Recruitment and relocation costs	83		15		(36)		62
Third-party and other costs	—		1		(1)		—
	$	5,359	$	162	$	(2,708)	$	2,813

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 December 30, 2018		Charges		Payments		Balance June 30, 2019
Severance and related employee costs	$	7,241	$	2,602	$	(4,724)	$	5,119
Recruitment and relocation costs	83		596		(356)		323
Third-party and other costs	—		87		(87)		—
	$	7,324	$	3,285	$	(5,167)	$	5,442

System Optimization Initiative

The Company recognizes costs related to acquisitions and dispositions under its system optimization initiative. The Company has incurred costs of ~~$72,268~~$72,365 under the initiative since inception and does not expect to incur any material additional costs ~~during~~under the ~~remainder~~plan.

(7)Cash and Receivables


	June 28, 2020		December 29, 2019
Cash and cash equivalents
Cash	$	202,939	$	185,203
Cash equivalents	135,063		114,992
	338,002		300,195
Restricted cash
Accounts held by trustee for the securitized financing facility	30,274		34,209
Other	332		330
	30,606		34,539
Advertising Funds (a)	40,850		23,973
	71,456		58,512
Total cash, cash equivalents and restricted cash	$	409,458	$	358,707

_______________

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


	June 28, 2020										December 29, 2019
	Gross		Allowance for Doubtful Accounts		Net		Gross		Allowance for Doubtful Accounts		Net
Accounts and Notes Receivable, Net
Current
Accounts receivable (a) (b)	$	125,021	$	(4,404)	$	120,617	$	103,852	$	(3,314)	$	100,538
Notes receivable from franchisees (c) (d)	18,572		(4,670)		13,902		23,628		(6,705)		16,923
	$	143,593	$	(9,074)	$	134,519	$	127,480	$	(10,019)	$	117,461
Non-current (e)
Notes receivable from franchisees (d)	$	6,425	$	(835)	$	5,590	$	1,617	$	—	$	1,617

_______________

(a)Includes income tax refund receivables of ~~2019.~~

$5,933 and $13,555 as of June 28, 2020 and December 29, 2019, respectively. Additionally, 2019 includes receivables of $25,350 related to insurance coverage for the financial institutions class action.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(b)During the six months ended June 28, 2020, royalty receivables increased by $47,740 and rent receivables increased by $6,111. These increases were primarily due to actions taken by the Company in response to the COVID-19 pandemic, which included (1) extending payment terms for royalties by 45 days beginning in April for a three month period and (2) offering to defer base rent payments on properties owned by Wendy’s and leased to franchisees by 50%, and offering to pass along any deferrals that were obtained on properties leased by Wendy’s and subleased to franchisees by up to 100%, beginning in May for a three month period, which will be repaid over 12 months beginning in August.

~~(7)~~

(c)Includes the current portion of sales-type and direct financing lease receivables of $3,780 and $3,146 as of June 28, 2020 and December 29, 2019, respectively.

Included a note receivable from a U.S. franchisee totaling $1,000 as of December 29, 2019. The note was repaid during the six months ended June 28, 2020.

(d)Includes a note receivable from a franchisee in India, of which $150 and $1,000 are included in current notes receivable as of June 28, 2020 and December 29, 2019, respectively, and $1,010 is included in non-current notes receivable as of June 28, 2020. As of June 28, 2020 and December 29, 2019, the Company had a reserve of $985 on the loan outstanding to the franchisee in India.

Includes a note receivable from a franchisee in Indonesia, of which $1,367 and $1,262 are included in current notes receivable and $1,065 and $1,617 are included in non-current notes receivable as of June 28, 2020 and December 29, 2019, respectively.

Includes notes receivable related to a joint venture for the operation of Wendy’s restaurants in Brazil (the “Brazil JV”), of which $11,975 and $15,920 are included in current notes receivable as of June 28, 2020 and December 29, 2019, respectively, and $4,350 is included in non-current notes receivable as of June 28, 2020. As of June 28, 2020 and December 29, 2019, the Company had reserves of $4,520 and $5,720, respectively, on the loans outstanding related to the Brazil JV.

(e)Included in “Other assets.”

Reserve estimates include consideration of the likelihood of default expected over the estimated life of the receivable. The Company periodically assesses the need for an allowance for doubtful accounts on its receivables based upon several key credit quality indicators such as outstanding past due balances, the financial strength of the obligor, the estimated fair value of any underlying collateral and agreement characteristics. We believe that our vulnerability to risk concentrations in our receivables is mitigated by (1) favorable historical collectability on past due balances, (2) recourse to the underlying collateral regarding sales-type and direct financing lease receivables, and (3) our expectations for fluctuations in general market conditions. Receivables are considered delinquent once they are contractually past due under the terms of the underlying agreements. As of June 28, 2020, there were no material receivables more than one year past due.

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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 an analysis of the allowance for doubtful accounts:


	Accounts Receivable		Notes Receivable		Total
Six Months Ended June 28, 2020
Balance at December 29, 2019	$	3,314	$	6,705	$	10,019
Provision for doubtful accounts	1,156		(8)		1,148
Uncollectible accounts written off, net of recoveries	(66)		(1,192)		(1,258)
Balance at June 28, 2020	$	4,404	$	5,505	$	9,909

Six Months Ended June 30, 2019
Balance at December 30, 2018	$	4,940	$	2,000	$	6,940
Provision for doubtful accounts	(754)		1,843		1,089
Uncollectible accounts written off, net of recoveries	(139)		7		(132)
Balance at June 30, 2019	$	4,047	$	3,850	$	7,897

(8) 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”).~~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							Six Months Ended
	September 29, 2019			September 30, 2018				June 28, 2020		June 30, 2019
Balance at beginning of period	$	47,021		$	55,363		Balance at beginning of period	$	45,310	$	47,021

Investment	—			13

Equity in earnings for the period	8,812			7,566			Equity in earnings for the period	3,455		6,048
Amortization of purchase price adjustments (a)	(1,700		)	(1,756		)	Amortization of purchase price adjustments (a)	(1,105)		(1,129)
	7,112			5,810				2,350		4,919
Distributions received	(10,038		)	(9,060		)	Distributions received	(3,612)		(7,018)
Foreign currency translation adjustment included in “Other comprehensive (loss) income, net” and other	2,164			(191		)
Foreign currency translation adjustment included in “Other comprehensive income (loss)” and other							Foreign currency translation adjustment included in “Other comprehensive income (loss)” and other	(1,631)		2,359
Balance at end of period	$	46,259		$	51,935		Balance at end of period	$	42,417	$	47,281

_______________


~~(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.~~

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

~~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)

~~(8)~~ (9)Long-Term Debt

Long-term debt consisted of the following:


	June 28, 2020		December 29, 2019
Series 2019-1 Class A-2 Notes:
3.783% Series 2019-1 Class A-2-I Notes, anticipated repayment date 2026	$	392,000	$	398,000
4.080% Series 2019-1 Class A-2-II Notes, anticipated repayment date 2029	441,000		447,750
Series 2018-1 Class A-2 Notes:
3.573% Series 2018-1 Class A-2-I Notes, anticipated repayment date 2025	438,750		441,000
3.884% Series 2018-1 Class A-2-II Notes, anticipated repayment date 2028	463,125		465,500
Series 2015-1 Class A-2 Notes:
4.497% Series 2015-1 Class A-2-III Notes, anticipated repayment date 2025	476,250		478,750
Series 2019-1 Class A-1 Variable Funding Senior Secured Notes	120,000		—
Canadian revolving credit facility	4,019		—
7% debentures, due in 2025	83,415		82,837
Unamortized debt issuance costs	(33,085)		(33,526)
	2,385,474		2,280,311
Less amounts payable within one year	(146,769)		(22,750)
Total long-term debt	$	2,238,705	$	2,257,561

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

Senior Notes

~~On June 26, 2019,~~

Wendy’s Funding, LLC, ~~(the “Master Issuer”),~~ a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of The Wendy’s Company, is the ~~Company, completed a debt refinancing transaction under which the Master Issuer issued fixed rate~~master issuer (the “Master Issuer”) of outstanding senior secured notes in the following 2019-1 series: Class A-2-I with an initial principal amount of $400,000 and Class A-2-II with an initial principal amount of $450,000 (collectively, the “Series 2019-1 Class A-2 Notes”). Interest payments on the Series 2019-1 Class A-2 Notes are payable onunder a ~~quarterly basis. The legal final maturity date of the Series 2019-1 Class A-2 Notes is~~securitized financing facility that was entered into in June 2049. If the Master Issuer has not repaid or refinanced the Series 2019-1 Class A-2 Notes prior to the respective anticipated repayment date, additional interest will accrue on each tranche of the Series 2019-1 Class A-2 Notes at a rate equal to the greater of (A) 5.00% per annum and (B) a per annum interest rate equal to the amount, if any, by which the sum of (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 (ii) 5.00%, plus (iii) (1) with respect to the Series 2019-1 Class A-2-I Notes, 1.863%, and (2) with respect to the Series 2019-1 Class A-2-II Notes, 2.051%, exceeds the original interest rate with respect to such tranche. The Master Issuer’s outstanding Series 2015-1 Class A-2-II Notes were repaid as part of the refinancing transaction. As a result, the Company recorded a loss on early extinguishment of debt of $7,150 during the nine months ended September 29,2015. Under this facility, in June 2019, which was comprised of the write-off of certain unamortized deferred financing costs. The Series 2019-1 Class A-2 Notes have scheduled principal payments of $4,250 in 2019, $8,500 annually from 2020 through 2025, $378,500 in 2026, $4,500 in each of 2027 and 2028 and $407,250 in 2029.

~~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~~issued outstanding Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the ~~“Series 2019-1~~“2019-1 Class A-1 Notes” ~~and, together with the Series 2019-1 Class A-2 Notes, the “Series 2019-1 Senior Notes”~~), which ~~allows~~allow for the ~~drawing~~borrowing of up to $150,000 from time to time on a revolving basis using various credit instruments, including a letter of credit facility. ~~NaN amounts were borrowed~~In March 2020, the Company drew down $120,000 under the 2019-1 Class A-1 Notes. As a result, as of June 28, 2020, the Company had outstanding borrowings of $120,000 under the 2019-1 Class A-1 Notes. Subsequent to June 28, 2020, the Company repaid the $120,000 outstanding balance under the 2019-1 Class A-1 Notes. In June 2020, the Master Issuer also issued outstanding Series 2020-1 Variable Funding Senior Secured Notes, Class A-1 (the “2020-1 Class A-1 Notes”), which allow for the borrowing of up to $100,000 from time to time on a revolving basis using various credit instruments. The Company had 0 outstanding borrowings under the Series 2020-1 Class A-1 Notes as of June 28, 2020. The borrowing under the 2019-1 Class A-1 Notes ~~during~~in March 2020 and the ~~nine months ended September 29, 2019.~~ issuance of the 2020-1 Class A-1 Notes in June 2020 were taken as precautionary measures to provide enhanced financial flexibility considering the uncertain market conditions arising from the COVID-19 pandemic.

The ~~Series~~ 2019-1 Class A-1 Notes ~~replaced~~and the ~~Company’s $150,000 Series 2018-1~~2020-1 Class A-1 Notes (collectively, the “Class A-1 Notes”) accrue interest at a variable interest rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate (“LIBOR”) for U.S. Dollars or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin and as specified in the respective purchase agreements for the Class A-1 Notes. There is a commitment fee on the unused portions of the Class A-1 Notes, which ~~were canceled~~ranges from 0.40% to 0.75% based on utilization for the ~~closing date,~~2019-1 Class A-1 Notes, and is 1.50% for the 2020-1 Class A-1 Notes. As of June 28, 2020, $26,040 of letters of credit were outstanding against the ~~Series 2018-1~~2019-1 Class A-1 Notes, ~~were transferred~~which relate primarily to interest reserves required under the ~~Series~~indenture governing the 2019-1 Class A-1 Notes.

~~The Series 2019-1 Senior Notes are secured by substantially all~~During the three and six months ended June 28, 2020, the Company incurred debt issuance costs of $2,122 in connection with the issuance of the ~~assets of~~2020-1 Class A-1 Notes. The debt issuance costs are being amortized to “Interest expense, net” utilizing 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 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 Class A-2 Notes.effective interest rate method.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Other Long-Term Debt

~~During~~

A Canadian subsidiary of Wendy’s has a revolving credit facility of C$6,000, which bears interest at the ~~nine months ended September 29, 2019,~~Bank of Montreal Prime Rate. The debt is guaranteed by Wendy’s. In March 2020, the Company ~~incurred debt issuance costs~~drew down C$5,500 under the revolving credit facility. As a result, as of ~~$14,008 in connection with~~June 28, 2020, the ~~issuance~~Company had outstanding borrowings of C$5,500 under the ~~Series 2019-1 Senior Notes. The debt issuance costs will be amortized to “Interest expense, net” through the anticipated repayment dates of the Series 2019-1 SeniorNotes utilizing the effective interest rate method.~~revolving credit facility.

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~~$25,000, which was established to ~~fund~~support the advertising fund ~~operations. During the nine months ended September 30, 2018,~~operations and bears interest at LIBOR plus 2.75%. In February 2020, the Company ~~borrowed $9,837 and~~drew down $4,397 under the revolving line of credit, which the Company repaid ~~$11,124~~in February 2020. In March 2020, the Company drew down $25,000 under the revolving line of credit. ~~There were 0~~As a result, as of June 28, 2020, the Company had outstanding borrowings ~~or repayments~~of $25,000 under the revolving line of credit, ~~during~~which is included in “Advertising funds restricted liabilities.” Subsequent to June 28, 2020, the ~~nine months ended September 29, 2019.~~Company renewed the revolving line of credit, which is now guaranteed by Wendy’s.

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

~~(9)~~

(10) 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.

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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 29, 2019				December 30, 2018						June 28, 2020						December 29, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements
Financial assets										Financial assets
Cash equivalents	$	206,094	$	206,094	$	222,228	$	222,228	Level 1	Cash equivalents	$	135,063	$	135,063	$	114,992	$	114,992	Level 1
Other investments in equity securities (a)	639		1,818		639		2,181		Level 3	Other investments in equity securities (a)	175		175		639		1,649		Level 3

Financial liabilities										Financial liabilities
Series 2019-1 Class A-2-I Notes (b)	399,000		405,863		—		—		Level 2	Series 2019-1 Class A-2-I Notes (b)	392,000		410,071		398,000		405,152		Level 2
Series 2019-1 Class A-2-II Notes (b)	448,875		463,598		—		—		Level 2	Series 2019-1 Class A-2-II Notes (b)	441,000		468,518		447,750		459,136		Level 2
Series 2018-1 Class A-2-I Notes (b)	442,125		448,580		445,500		424,026		Level 2	Series 2018-1 Class A-2-I Notes (b)	438,750		451,298		441,000		444,859		Level 2
Series 2018-1 Class A-2-II Notes (b)	466,688		476,208		470,250		439,353		Level 2	Series 2018-1 Class A-2-II Notes (b)	463,125		487,624		465,500		475,718		Level 2
Series 2015-1 Class A-2-II Notes (b)	—		—		870,750		865,342		Level 2
Series 2015-1 Class A-2-III Notes (b)	480,000		492,624		483,750		482,522		Level 2	Series 2015-1 Class A-2-III Notes (b)	476,250		488,490		478,750		490,531		Level 2
Series 2019-1 Class A-1 Notes (b)										Series 2019-1 Class A-1 Notes (b)	120,000		116,100		—		—		Level 2
U.S. advertising fund revolving line of credit										U.S. advertising fund revolving line of credit	25,000		25,000		—		—		Level 2
Canadian revolving credit facility										Canadian revolving credit facility	4,019		4,019		—		—		Level 2
7% debentures, due in 2025 (b)	91,722		107,500		90,769		102,750		Level 2	7% debentures, due in 2025 (b)	83,415		83,415		82,837		94,838		Level 2
Guarantees of franchisee loan obligations (c)	2		2		17		17		Level 3

_______________

~~(a)~~

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

~~Table~~(a)The fair values of ~~Contents~~our investments are not significant and are based on our review of information provided by the investment managers or investees which was based on (1) valuations performed by the investment managers or investees, (2) quoted market or broker/dealer prices for similar investments and (3) quoted market or broker/dealer prices adjusted by the investment managers for legal or contractual restrictions, risk of nonperformance or lack of marketability, depending upon the underlying investments. During the three months ended June 28, 2020, the Company impaired a miscellaneous investment due to the deterioration in operating performance of the underlying assets. Subsequent to June 28, 2020, the Company sold its remaining interest in this investment.

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~(b)The fair values were based on quoted market prices in markets that are not considered active markets.

~~(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~~and lines of credit approximate fair value due to the short-term nature of those items. The carrying amounts of accounts and notes receivable, net (both current and non-current) ~~approximated~~approximate fair value due to the effect of the related allowance for doubtful accounts. Our cash equivalents ~~and guarantees~~ are the only financial assets ~~and liabilities~~ measured and recorded at fair value on a recurring basis.

Non-Recurring Fair Value Measurements

Assets and liabilities remeasured to fair value on a non-recurring basis resulted in impairment that we have recorded to “Impairment of long-lived assets” in our condensed consolidated statements of operations.

Total impairment losses may reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements, favorable lease assets and 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 values of long-lived assets held and used presented in the tables below ~~represents~~represent the remaining carrying value and were estimated based on either discounted cash flows of future anticipated lease and sublease income or discounted cash flows of future anticipated Company-operated restaurant performance.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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~~represent the remaining carrying value and were estimated based on current market values. See Note 1011 for further information on impairment of our long-lived assets.


			Fair Value Measurements
	June 28, 2020		Level 1		Level 2		Level 3
Held and used	$	341	$	—	$	—	$	341
Held for sale	1,440		—		—		1,440
Total	$	1,781	$	—	$	—	$	1,781


			Fair Value Measurements									Fair Value Measurements
	September 29, 2019		Level 1		Level 2		Level 3			December 29, 2019		Level 1		Level 2		Level 3
Held and used	$	1,866	$	—	$	—	$	1,866	Held and used	$	3,582	$	—	$	—	$	3,582
Held for sale	988		—		—		988		Held for sale	988		—		—		988
Total	$	2,854	$	—	$	—	$	2,854	Total	$	4,570	$	—	$	—	$	4,570

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

~~(10)~~(11) Impairment of Long-Lived Assets

~~The~~During the six months ended June 28, 2020 and June 30, 2019, the Company ~~records~~recorded impairment charges as a result of (1) the deterioration of operating performance of certain Company-operated restaurants and (2) closing Company-operated restaurants and classifying such surplus properties as held for ~~sale, (2)~~sale. Impairment charges during the six months ended June 28, 2020 were primarily due to the expected deterioration ofin operating performance of certain Company-operated restaurants ~~and (3)~~as a result of the ~~Company’s decision to lease and/or sublease properties to franchisees~~COVID-19 pandemic. Additional impairment charges may be recognized by the Company in ~~connection with~~ the ~~sale or anticipated sale~~event of further deterioration in operating performance of Company-operated ~~restaurants, including any subsequent lease modifications.~~restaurants.

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


	Three Months Ended						Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Company-operated restaurants	$	—	$	86	$	4,395	$	287
Surplus properties	117		112		309		1,397

	$	117	$	198	$	4,704	$	1,684

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

~~(11)~~(12) Income Taxes

The Company’s effective tax rate for the three months ended ~~September 29,~~June 28, 2020 and June 30, 2019 was 20.8% and ~~September~~29.2%, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21% primarily due to a reduction for the benefit of share-based compensation, partially offset by an increase due to state income taxes.

The Company’s effective tax rate for the six months ended June 28, 2020 and June 30, ~~2018~~2019 was ~~13.5%~~25.4% and ~~21.6%~~24.9%, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21% 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 of $1,103 and $5,251 for the ~~three months ended September 29, 2019 and September 30, 2018, respectively, and (3)~~benefit of share-based compensation, (2) an increase due to state income 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 20.6% respectively. The Company’s effective tax rate varied immaterially from the U.S. federal statutory rate of 21% 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 of $4,028 and $12,142 for the nine months ended September 29, 2019 and September 30, 2018, respectively, and (3) an increase ~~due to state income taxes, including non-recurring~~for tax on our foreign operations.

There were no significant changes to ~~state deferred 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 during the first nine months of 2018 under Staff Accounting Bulletin 118, we adjusted our provisional amounts for a discrete net tax expense of $2,076. This 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.

~~Unrecognized~~unrecognized tax benefits ~~for the Company decreased by $5,639~~or related interest and ~~$6,475 during~~penalties for the three and ~~nine~~six months ended ~~September 29, 2019, respectively. The decrease was primarily related to the lapse of statutes of limitations during the third quarter of 2019.~~June 28, 2020. During the next twelve months, we believe it is reasonably possible the ~~Company’s~~Company will reduce unrecognized tax benefits ~~will decrease~~ by up to ~~$2,081~~$1,319 due primarily to the lapse of statutes of limitations and expected ~~settlements with taxing authorities.~~settlements.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The current portion of refundable income taxes was ~~$6,719~~$5,933 and ~~$14,475~~$13,555 as of ~~September~~June 28, 2020 and December 29, 2019, ~~and December 30, 2018,~~ respectively, and is included in “Accounts and notes receivable, net” in the condensed consolidated balance sheets. There were 0 long-term refundable income taxes as of ~~September 29, 2019~~June 28, 2020 and December ~~30, 2018.~~29, 2019.

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(12)~~(13) Net Income Per Share

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

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


	Three Months Ended			Six Months Ended
	June 28, 2020	June 30, 2019	June 28, 2020	June 30, 2019
Common stock:
Weighted average basic shares outstanding	223,123	231,029	223,329	230,807
Dilutive effect of stock options and restricted shares	4,051	5,064	4,262	5,186
Weighted average diluted shares outstanding	227,174	236,093	227,591	235,993

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

Diluted net income per share for the three and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ 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~~2,636 and ~~2,488~~2,652 for the three and ~~nine~~six months ended ~~September 29, 2019,~~June 28, 2020, respectively, and ~~1,121~~2,049 and ~~1,287~~2,104 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

~~(13)~~(14) Stockholders’ Equity

Dividends

During the first and second quarter of 2020, the Company paid dividends per share of $.12 and $.05, respectively. During each of the first ~~three~~and second quarters of 2019, the Company paid ~~quarterly cash~~ dividends per share of ~~$.10 per share. During each of the first three quarters of 2018, the Company paid quarterly cash dividends of $.085 per share.~~$.10.

Repurchases of Common Stock

In February 2020, our Board of Directors authorized a repurchase program for up to $100,000 of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally permissible. In July 2020, the Company’s Board of Directors approved an extension of the February 2020 authorization by one year, through February 28, 2022, when and if market and economic conditions warrant and to the extent legally permissible. During the six months ended June 28, 2020, the Company repurchased 779 shares under the February 2020 repurchase authorization with an aggregate purchase price of $14,537, excluding commissions of $11. As of June 28, 2020, the Company had $85,463 of availability remaining under its February 2020 authorization. As previously announced, beginning in March 2020, the Company temporarily suspended all share repurchase activity under the February 2020 authorization in connection with the Company’s response to the COVID-19 pandemic. The Company now intends to resume share repurchases in 2020, subject to market conditions and prevailing economic factors.

In February 2019, our Board of Directors authorized a repurchase program for up to ~~$225,000~~$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~~ warranted and to the extent legally permissible. ~~During the nine months ended September 30, 2018,~~In November 2019, the Company ~~repurchased 6,896 shares under~~entered into an accelerated share repurchase agreement (the “2019 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the ~~February 2018~~Company’s existing share repurchase ~~authorization with~~program. Under the 2019 ASR Agreement, the Company paid the financial institution an ~~aggregate~~initial purchase price of ~~$118,866,~~$100,000 in cash and received an initial delivery of ~~which $2,675 was accrued at September 30, 2018, and excluding commissions~~4,051 shares of ~~$97. Additionally, during~~common stock, representing an estimated 85% of the ~~nine months ended September 30, 2018,~~total shares expected to be delivered under the 2019 ASR Agreement. In February 2020, the Company completed ~~its previous February 2017 repurchase authorization for up to $150,000~~the 2019 ASR Agreement and received an additional 628 shares of ~~our~~common stock. The total number of shares of common stock ~~with~~ultimately purchased by the ~~repurchase~~Company under the 2019 ASR Agreement was based on the average of ~~1,385 shares with an aggregate purchase price~~the daily volume-weighted average prices of ~~$22,633, excluding commissions~~the common stock during the term of ~~$19.~~

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

the 2019 ASR Agreement, less an agreed upon discount. In total, 4,679 shares were delivered under the 2019 ASR Agreement at an average purchase price of $21.37 per share.

In addition to the shares repurchased in connection with the 2019 ASR Agreement, during the six months ended June 28, 2020, the Company repurchased 1,312 shares with an aggregate purchase price of $28,770, excluding commissions of $18, under the February 2019 authorization. After taking into consideration these repurchases, with the completion of the 2019 ASR Agreement in February 2020, the Company completed its February 2019 authorization.

During the six months ended June 30, 2019, the Company repurchased 2,824 shares with an aggregate purchase price of $49,721, of which $807 was accrued at June 30, 2019, and excluding commissions of $40, under the February 2019 authorization and the Company’s previous November 2018 authorization to repurchase up to $220,000 of our common stock.

Accumulated Other Comprehensive Loss

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


	Six Months Ended
	June 28, 2020		June 30, 2019
Balance at beginning of period	$	(53,828)	$	(61,673)
Foreign currency translation	(8,358)		9,860
Balance at end of period	$	(62,186)	$	(51,813)

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 )

~~(14)~~(15) Leases

Nature of Leases

The Company operates restaurants that are located on sites owned by us and sites leased by us from third parties. In addition, the Company owns sites and leases sites from third parties, which it leases and/or subleases to franchisees. At ~~September 29, 2019,~~June 28, 2020, Wendy’s and its franchisees operated ~~6,743~~6,806 Wendy’s restaurants. Of the ~~356~~358 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for ~~143~~142 restaurants, owned the building and held long-term land leases for ~~144~~146 restaurants and held leases covering the land and building for 6970 restaurants. Wendy’s also owned ~~512~~510 and leased ~~1,255~~1,243 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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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~Operating Leases~~

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 ends on the rent commencement date. During a Rent Holiday, no cash rent payments are typically due under the 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 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 operating leases is recognized on a straight-line basis and includes the amortization of the ROU asset and interest expense related to the operating lease liability. 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 Company-operated restaurants is recorded to “Cost of sales,” (2) rental expense for leased properties that are subsequently subleased to franchisees is recorded to “Franchise rental expense” and (3) rental expense related to leases for corporate offices and equipment is recorded to “General and administrative.”

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 to franchisees is recorded to “Franchise rental income.” Lessees’ variable payments to the Company for executory costs under operating leases 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 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.”

~~Sales-Type and Direct Financing Leases~~

For sales-type and direct financing leases 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 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.”

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~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 components of lease cost are as follows:


	Three Months Ended		Nine Months Ended			Three Months Ended						Six Months Ended
	September 29, 2019		September 29, 2019			June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Finance lease cost:					Finance lease cost:
Amortization of finance lease assets	$	3,201	$	7,949	Amortization of finance lease assets	$	3,338	$	1,631	$	6,524	$	4,748
Interest on finance lease liabilities	10,116		26,808		Interest on finance lease liabilities	10,160		9,939		20,218		16,692
	13,317		34,757			13,498		11,570		26,742		21,440
Operating lease cost	23,358		67,087		Operating lease cost	23,969		19,086		45,134		43,729
Variable lease cost (a)	15,435		44,910		Variable lease cost (a)	13,848		15,371		28,218		29,475
Short-term lease cost	1,141		3,420		Short-term lease cost	991		1,153		2,321		2,279
Total operating lease cost (b)	39,934		115,417		Total operating lease cost (b)	38,808		35,610		75,673		75,483
Total lease cost	$	53,251	$	150,174	Total lease cost	$	52,306	$	47,180	$	102,415	$	96,923

_______________


~~(a)~~	~~The three and nine months ended September 29, 2019 includes expenses for executory costs of $9,908 and $29,211, respectively, for which the Company is reimbursed by sublessees.~~


~~(b)~~	The 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 sales” for leases for Company-operated restaurants.

~~The following table includes supplemental cash flow and non-cash information related to 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

(a)Includes expenses for executory costs of $9,457 and $9,779 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $19,200 and $19,303 for the six months ended June 28, 2020 and June 30, 2019, respectively, for which the Company is reimbursed by sublessees.

(b)Includes $31,263 and $28,022 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $60,554 and $60,473 for the six months ended June 28, 2020 and June 30, 2019, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees. Also includes $6,831 and $7,007 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $13,664 and $13,600 for the six months ended June 28, 2020 and June 30, 2019, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

Company as Lessor

The components of lease income are as follows:


	Three Months Ended						Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Sales-type and direct-financing leases:
Selling profit	$	569	$	37	$	1,197	$	1,971
Interest income	7,260		7,072		14,508		11,805

Operating lease income	$	43,052	$	43,959	$	87,004	$	89,164
Variable lease income	13,805		14,602		27,709		27,849
Franchise rental income (a)	$	56,857	$	58,561	$	114,713	$	117,013

_______________

(a)Includes sublease income of $41,489 and $42,921 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $83,531 and $85,942 for the six months ended June 28, 2020 and June 30, 2019, respectively. Sublease income includes lessees’ variable payments to the Company for executory costs of $9,450 and $9,779 for the three months ended June 28, 2020 and June 30, 2019, respectively, and $19,159 and $19,211 for the six months ended June 28, 2020 and June 30, 2019, respectively.

Table of Contents

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.

~~Table of Contents~~

~~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.

~~Table of Contents~~

~~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.

~~Table of Contents~~

~~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)~~(16) Transactions with Related Parties

Except as described below, the Company did not have any significant changes in or transactions with its related parties during the current fiscal period since those reported in the Form 10-K.

TimWen Lease and Management Fee Payments

A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen, which are then subleased to franchisees for the operation of Wendy’s/Tim Hortons combo units in Canada. During the ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ Wendy’s paid TimWen ~~$12,710~~$7,408 and ~~$9,967,~~$8,140, respectively, under these lease agreements. In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of ~~$155~~$101 and ~~$161~~$103 during the ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ respectively, which has been included as a reduction to “General and administrative.”

~~(16)~~(17) Guarantees and Other Commitments and Contingencies

Except as described below, the Company did not have any significant changes in guarantees and other commitments and contingencies during the current fiscal period since those reported in the Form 10-K. Refer to the Form 10-K for further information regarding the Company’s additional commitments and obligations.

Lease Guarantees

Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees, amounting to ~~$74,898~~$74,538 as of ~~September 29, 2019.~~June 28, 2020. These leases extend through ~~2056.~~2045. We have not received any notice of default related to these leases as of ~~September 29, 2019.~~June 28, 2020. In the event of default by a franchise owner, Wendy’s generally retains the right to acquire possession of the related restaurant locations.

Letters of Credit

As of ~~September 29, 2019,~~June 28, 2020, the Company had outstanding letters of credit with various parties totaling ~~$25,082. The~~$26,374. Substantially all of the outstanding letters of credit include amounts outstanding against the ~~Series~~ 2019-1 Class A-1 Notes. We do not expect any material loss to result from these letters of credit.

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~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)~~(18) Legal and Environmental Matters

The Company is involved in litigation and claims incidental to our current and prior businesses. We provide accruals for such litigation and claims when payment is probable and reasonably ~~estimable. We~~estimable, and we believe we have adequate accruals for continuing operations for all ~~of our legal and environmental~~such matters. We cannot estimate the aggregate possible range of loss for various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and/or significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations or cash flows of a particular reporting period.

We previously described certain legal proceedings in the Form 10-K. ~~Except as set forth below,~~As of June 28, 2020, there were no material developments in those legal ~~proceedings~~proceedings.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(19)Segment Information

Revenues by segment were as follows:


	Three Months Ended						Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Wendy’s U.S.	$	331,258	$	359,155	$	662,299	$	692,641
Wendy’s International	14,003		17,030		29,475		33,028
Global Real Estate & Development	57,045		59,163		115,492		118,262
Total revenues	$	402,306	$	435,348	$	807,266	$	843,931

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


	Three Months Ended						Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Wendy’s U.S. (a)	$	93,136	$	102,973	$	174,964	$	192,627
Wendy’s International	3,594		5,482		8,689		11,229
Global Real Estate & Development	23,711		29,899		50,201		56,852
Total segment profit	$	120,441	$	138,354	$	233,854	$	260,708
Advertising funds deficit	(1,020)		(2,055)		(2,407)		(2,055)
Unallocated general and administrative (b)	(23,051)		(20,610)		(47,170)		(41,352)
Depreciation and amortization	(34,714)		(31,484)		(65,760)		(64,669)
System optimization gains, net	1,987		110		2,310		122
Reorganization and realignment costs	(2,911)		(3,570)		(6,821)		(4,368)
Impairment of long-lived assets	(117)		(198)		(4,704)		(1,684)
Unallocated other operating income, net	46		26		91		137
Interest expense, net	(29,085)		(29,931)		(57,610)		(59,013)
Loss on early extinguishment of debt	—		(7,150)		—		(7,150)
Other (expense) income, net	(144)		2,247		932		4,947
Income before income taxes	$	31,432	$	45,739	$	52,715	$	85,623

(a) For the three and six months ended June 28, 2020, includes advertising funds expense of ~~September 29, 2019.~~

As previously reported, the Company was named as a defendant in putative class action lawsuits alleging, among other things, that the Company failed to safeguard customer credit card information and failed to provide notice that credit card information had been compromised. Jonathan Torres and other consumers filed an action in the U.S. District Court for the Middle District of Florida (the “Torres Case”). On August 23, 2018, the court preliminarily approved a class-wide settlement. A final approval hearing of the settlement of the Torres Case was held on February 26, 2019, and 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 previously reported, certain financial institutions have also filed class actions lawsuits in the U.S. District Court for the Western District of Pennsylvania, which 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”). On February 13, 2019, the 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 court. Under the terms of the settlement agreement, if approved and finalized, a settlement class of financial institutions will receive $50,000, inclusive of attorneys’ fees and 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$2,185 related to the ~~cybersecurity incidents described herein. On February 26, 2019, the court preliminarily approved the settlement agreement~~expected Company funding of incremental advertising during 2020.

(b) Includes corporate overhead costs, such as employee compensation 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 Case in the three months ended September 29, 2019, the Company adjusted its insurance receivables for the FI case to approximately $25,000.~~

benefits.

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 ~~30, 2018~~29, 2019 (the “Form 10-K”). There have been no material changes as of ~~September 29, 2019~~June 28, 2020 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 -~~II. Other Information” of this report. You should consider our forward-looking statements in light of the risks discussed in “Item 1A. Risk Factors” in “Part II. Other Information” of this report and 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~~is primarily engaged in the business of operating, developing and ~~operates Wendy’s~~^®franchising a system of distinctive quick-service restaurants ~~specializing~~serving high quality food. Wendy’s opened its first restaurant in Columbus, Ohio in 1969. Today, Wendy’s is the world’s third largest quick-service restaurant company in the hamburger ~~sandwiches throughout North America (defined as~~sandwich segment, with 6,806 restaurants in the United States ~~of America (“U.S.~~(the “U.S.”) and ~~Canada). Wendy’s also has franchised restaurants in~~ 30 foreign countries and U.S. ~~territories.~~territories as of June 28, 2020.

Each Wendy’s restaurant offers an extensive menu specializing in hamburger sandwiches and featuring filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of condiments. Wendy’s menu also includes chicken nuggets, chili, french fries, baked potatoes, freshly prepared salads, soft drinks, Frosty^® desserts and kids’ meals. In addition, the restaurants sell a variety of promotional products on a limited time basis. Wendy’s also ~~currently offers~~entered the breakfast ~~in more than 300 restaurants in~~daypart across the ~~United States.~~U.S. system on March 2, 2020. Wendy’s breakfast menu features a variety of breakfast sandwiches, biscuits and croissants, sides such as seasoned potatoes, oatmeal bars and seasonal fruit, and a beverage platform that includes hot coffee, cold brew iced coffee and our vanilla and chocolate Frosty-ccino iced coffee.

The Company ~~manages~~is comprised of the following segments: (1) Wendy’s U.S., (2) Wendy’s International and ~~internally reports its business geographically. The~~(3) Global Real Estate & Development. Wendy’s U.S. includes the operation and franchising of Wendy’s restaurants in ~~North America comprises virtually all of our current operations~~the U.S. and ~~represents a single reportable segment. The~~derives its revenues from sales at Company-operated restaurants and ~~operating results~~royalties, fees and advertising fund collections from franchised restaurants. Wendy’s International includes the franchising of Wendy’s restaurants ~~outside~~in countries and territories other than the U.S. and derives its revenues from royalties, fees and advertising fund collections from franchised restaurants. Global Real Estate & Development includes real estate activity for owned sites and sites leased from third parties, which are leased and/or subleased to franchisees, and also includes our share of ~~North America are not material.~~the income of our TimWen real estate joint venture. In addition, Global Real Estate & Development earns fees from facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”) and providing other development-related services to franchisees. In this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company reports on the segment profit for each of the three segments described above. The ~~results~~Company measures segment profit based on segment adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”). Segment adjusted EBITDA excludes certain unallocated general and administrative expenses and other items that vary from period to period without correlation to the Company’s core operating performance. See “Results of ~~operations discussed~~Operations” below ~~may not necessarily be indicative of future results.~~and Note 19 to the Condensed Consolidated Financial Statements contained in Item 1 herein for segment financial information.

The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31. All three- and ~~nine-month~~six-month periods presented herein contain 13 weeks and 3926 weeks, respectively. All references to years and quarters relate to fiscal periods rather than calendar periods.

We adopted the new accounting guidance for leases effective December 31, 2018, which had a material impact on our condensed consolidated financial statements. Beginning with the first quarter of 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 29, 2019,~~June 28, 2020, the Wendy’s restaurant system was comprised of ~~6,743~~6,806 restaurants, ~~of which 356~~with 5,862 Wendy’s restaurants in operation in the U.S. Of the U.S. restaurants, 358 were ~~owned and~~ operated by the ~~Company. All~~Company and 5,504 were operated by a total of 239 franchisees. In addition, at June 28, 2020, there were 944 Wendy’s restaurants in operation in 30 foreign countries and U.S. territories, all of which were franchised.

The revenues from our restaurant business are derived from two principal sources: (1) sales at Company-operated restaurants ~~are located in~~and (2) franchise-related revenues, including royalties, national advertising funds contributions, rents and franchise fees received from Wendy’s franchised restaurants. Company-operated restaurants comprised approximately 5% of the ~~United States.~~total Wendy’s system as of June 28, 2020.

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. The COVID-19 pandemic has had and may continue to have the effect of heightening the impact of many of these factors. See “COVID-19 Update” and “Special Note Regarding Forward-Looking Statements and Projections” below for additional information.

Wendy’s long-term growth opportunities include ~~(1) systemwide~~accelerating U.S. same-restaurant sales ~~growth~~ through (1) its “One More Visit, One More Dollar” strategy, which includes 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~~continued implementation of consumer-facing digital platforms and technologies ~~(5)~~and (4) increased restaurant utilization in various dayparts, including the Company’s ~~recent announcement~~launch of ~~its plan to launch~~ breakfast across the U.S. system on March 2, 2020. Wendy’s also expects growth in the ~~first quarter~~number of ~~2020 (see “Breakfast Launch” below), (6) strengthening our operations~~new restaurants through ~~our system optimization initiative~~targeted U.S. expansion and ~~(7) building stockholder value~~accelerated international expansion through ~~financial management strategies.~~same-restaurant sales growth and new restaurant development.

Key Business Measures

We track our results of operations and manage our business using the following key business 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. Restaurants temporarily closed for more than one fiscal week are excluded from same-restaurant sales. 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.

•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 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 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~~Argentina and ~~beginning in the third quarter of 2018, exclude sales from Argentina,~~Venezuela 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.

~~Breakfast Launch~~COVID-19 Update

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. We continue to monitor the dynamic nature of the COVID-19 pandemic on our business, results and financial condition; however, we cannot predict whether, when or the manner in which the conditions surrounding the pandemic will change and cannot currently estimate the impact on our business in the short or long-term.

In ~~September 2019,~~response to the pandemic, in March 2020, Wendy’s updated its brand standard to include the closure of all dining rooms except where there were specific needs, or a drive-thru or pick-up window option was not available, subject to applicable federal, state and local requirements. Substantially all Wendy’s restaurants continued to offer drive-thru and delivery service to our customers.

During the second quarter of 2020, the Company ~~announced that it plans~~began to ~~launch~~implement its restaurant and dining room reopening process through a phased approach in accordance with federal, state and local requirements, with customer and team member safety as its top priority. Dining rooms have been re-opening at each restaurant owner’s discretion, subject to applicable regulatory restrictions. As of August 2, 2020, over 70% of dining rooms were open across the Wendy’s system offering carryout and, in some cases, dine in services.

The COVID-19 pandemic has resulted in the temporary closure of certain restaurants across the Wendy’s system. As of August 2, 2020, systemwide temporary restaurant closures totaled 34 and 93 in the U.S. and internationally, respectively, which represents approximately 2% of all system restaurants.

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


	January through February		March		April		May		June
Same-restaurant sales:
U.S. systemwide	3.7	%	(7.7)	%	(14.0)	%	(1.9)	%	5.1	%
International	5.4	%	(17.0)	%	(28.3)	%	(15.7)	%	(10.7)	%
Global systemwide	3.9	%	(8.6)	%	(15.3)	%	(3.3)	%	3.4	%

As a result of the COVID-19 pandemic, global systemwide same-restaurant sales began to be materially adversely impacted in the fiscal month of March, with the fiscal month of April seeing the greatest impact. The decrease in same-restaurant sales was driven by a significant decline in customer count, partially offset by an increase in average check. Subsequently, global same-restaurant sales improved during the fiscal months of May and June, despite being impacted by the previously disclosed disruption in beef supply at the beginning of May (see “Beef Supply Update” below for further information). The improvement in same-restaurant sales was primarily driven by a significant increase in customer traffic compared to the lows seen in March and April. Global same-restaurant sales continued to improve during the fiscal month of July, with U.S. systemwide same-restaurant sales increasing 8.2%.

The negative impact of the COVID-19 pandemic on same-restaurant sales has been partially offset by the Company’s entry into the breakfast daypart across the U.S. system on March 2, 2020. Breakfast represented approximately 8% of U.S. systemwide sales in the second quarter of 2020.

Due to the current unprecedented market and economic conditions in the U.S. and internationally, the expected impact of the COVID-19 pandemic on the Company’s 2020 net income and cash flows cannot be reasonably estimated. Our net income and cash flows for the remainder of 2020 could continue to be materially affected by the pandemic. See “Item 1A. Risk

Factors” in “Part II. Other Information” for further information regarding the risks associated with the COVID-19 pandemic and the impact on our business, results and financial condition. Also, see “Liquidity and Capital Resources” below for certain actions taken by the Company in response to the COVID-19 pandemic.

Beef Supply Update

As previously disclosed, the Company experienced disruptions to its beef supply beginning in early May as beef suppliers across North America faced production challenges. As a result, some menu items were occasionally in short supply at some Wendy’s system restaurants. The Company and its supply chain partners effectively managed through this disruption by allocating beef to all Wendy’s system restaurants, with deliveries occurring two or three times a week, consistent with normal delivery schedules. The Company also shifted its marketing efforts in the short term to focus on chicken products in an effort to alleviate pressure on beef demand. Beef supply has returned to normal levels across the Wendy’s system as of June 28, 2020.

Goodwill and Indefinite-Lived Intangible Assets

We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that it may be impaired. The negative impacts of the COVID-19 pandemic, including the decline in same-restaurant sales described above and the volatility in the price of our common stock, resulted in the Company testing its goodwill for impairment in March 2020. A goodwill impairment loss is recognized if the fair value of a reporting unit is less than its carrying value.

The Company’s goodwill impairment test in March 2020 included three reporting units, which were comprised of its (1) U.S. Company-operated and franchise restaurants, (2) Canada franchise restaurants and (3) global real estate and development operations. Based on the results of our goodwill impairment test, we determined the fair values of our U.S. Company-operated and franchise restaurants and our Canada franchise restaurants reporting units continued to significantly exceed their carrying values. The goodwill impairment test for our global real estate and development operations also indicated the fair value of the reporting unit exceeded its carrying value; however, the fair value exceeded the carrying value of the reporting unit by only a nominal amount. Given the limited excess of the fair value over carrying value, this reporting unit is more sensitive to changes in assumptions regarding its fair value. As of the date of our analysis in the first quarter of 2020, a 50 basis point increase in the discount rate, or a moderate decline in estimated future cash flows, would result in the fair value of the reporting unit being less than its carrying value. As of June 28, 2020, the goodwill balance associated with our global real estate and development operations was $122.5 million.

The Company also tested our indefinite-lived intangible assets, which represent trademarks, for impairment in March 2020. Based on the results of our impairment test, we determined the fair value of our trademarks continued to significantly exceed their carrying value.

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

Information Technology (“IT”) Realignment

~~Other Investments in Equity Securities~~

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

~~General~~reinvest back into IT to drive additional capabilities and ~~Administrative (“G&A”) Realignment~~

~~In May 2017,~~capacity across all of its technology platforms. Additionally, in June 2020, the Company ~~initiated a plan to further reduce its G&A expenses. Additionally, the Company announced in May 2019~~made changes to its leadership structure that ~~includes~~included the creation of ~~two new positions,~~ a ~~President, U.S and~~ Chief ~~Commercial~~Information Officer ~~and a President, International and Chief Development Officer,~~position and the elimination of the Chief ~~Operations~~Digital Experience Officer position. As a result, the Company now expects to incur total costs aggregating approximately $16.0 million to $17.0 million related to the plan. During the ~~nine~~six months ended ~~September 29, 2019 and September 30, 2018,~~June 28, 2020, the Company recognized costs ~~related to the plan~~ totaling ~~$4.7 million and~~ $6.4 million, ~~respectively,~~ which primarily included third-party and other costs and severance and related employee ~~costs and share-based compensation.~~costs. The Company expects to incur additional costs aggregating approximately ~~$2.7~~$1.0 million, comprised primarily of ~~(1) severance and related employee costs of approximately $1.9 million, (2)~~ recruitment and relocation ~~costs of approximately $0.4 million, (3) third-party and other costs of approximately $0.1 million and (4) share-based compensation of approximately $0.3 million.~~costs. The Company expects to ~~incur total~~recognize the majority of the remaining costs aggregating approximately $35.0 million to $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 throughassociated with the plan during the remainder of ~~approximately $35.0 million.~~2020.

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~~second quarter and the first ~~nine~~six months of ~~2019~~2020 and ~~2018.~~2019.


	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Revenues:
Sales	$	164.2	$	181.1	$	(16.9)	$	331.0	$	348.7	$	(17.7)
Franchise royalty revenue and fees	103.1		109.1		(6.0)		204.9		211.1		(6.2)
Franchise rental income	56.9		58.5		(1.6)		114.7		117.0		(2.3)
Advertising funds revenue	78.1		86.6		(8.5)		156.7		167.1		(10.4)
	402.3		435.3		(33.0)		807.3		843.9		(36.6)
Costs and expenses:
Cost of sales	140.6		151.1		(10.5)		290.6		293.7		(3.1)
Franchise support and other costs	5.5		4.0		1.5		13.5		10.1		3.4
Franchise rental expense	31.3		28.0		3.3		60.6		60.5		0.1
Advertising funds expense	81.3		88.7		(7.4)		161.3		169.1		(7.8)
General and administrative	48.6		50.8		(2.2)		100.2		100.1		0.1
Depreciation and amortization	34.7		31.5		3.2		65.8		64.7		1.1
System optimization gains, net	(2.0)		(0.1)		(1.9)		(2.3)		(0.1)		(2.2)
Reorganization and realignment costs	2.9		3.6		(0.7)		6.8		4.4		2.4
Impairment of long-lived assets	0.1		0.2		(0.1)		4.7		1.7		3.0
Other operating income, net	(1.4)		(3.1)		1.7		(3.3)		(7.1)		3.8
	341.6		354.7		(13.1)		697.9		697.1		0.8
Operating profit	60.7		80.6		(19.9)		109.4		146.8		(37.4)
Interest expense, net	(29.1)		(29.9)		0.8		(57.6)		(59.0)		1.4
Loss on early extinguishment of debt	—		(7.2)		7.2		—		(7.2)		7.2
Other (expense) income, net	(0.2)		2.2		(2.4)		0.9		5.0		(4.1)
Income before income taxes	31.4		45.7		(14.3)		52.7		85.6		(32.9)
Provision for income taxes	(6.5)		(13.3)		6.8		(13.4)		(21.3)		7.9
Net income	$	24.9	$	32.4	$	(7.5)	$	39.3	$	64.3	$	(25.0)

Third Quarter Nine Months
2019 2018 Change 2019 2018 Change
Revenues:
Sales $ 182.0
$ 165.3
$ 16.7
$ 530.7
$ 486.3
$ 44.4
Franchise royalty revenue and fees 109.2
103.2
6.0
320.3
308.7
11.6
Franchise rental income 59.9
50.5
9.4
176.9
152.1
24.8
Advertising funds revenue 86.8
81.6
5.2
253.9
245.0
8.9
437.9
400.6
37.3
1,281.8
1,192.1
89.7
Costs and expenses:

Cost of sales 152.4
139.3
13.1
446.1
409.7
36.4
Franchise support and other costs 9.7
5.4
4.3
19.8
18.6
1.2
Franchise rental expense 32.4
22.3
10.1
92.8
69.8
23.0
Advertising funds expense 87.9
81.6
6.3
257.0
245.0
12.0
General and administrative 46.2
46.5
(0.3 ) 146.3
146.1
0.2
Depreciation and amortization 33.3
29.1
4.2
98.0
94.6
3.4
System optimization gains, net (1.0 ) (0.5 ) (0.5 ) (1.2 ) —
(1.2 )
Reorganization and realignment costs 0.4
0.9
(0.5 ) 4.8
6.7
(1.9 )
Impairment of long-lived assets —
0.3
(0.3 ) 1.7
2.2
(0.5 )
Other operating income, net (2.4 ) (1.6 ) (0.8 ) (9.4 ) (4.7 ) (4.7 )
358.9
323.3
35.6
1,055.9
988.0
67.9
Operating profit 79.0
77.3
1.7
225.9
204.1
21.8
Interest expense, net (27.9 ) (29.6 ) 1.7
(86.9 ) (89.9 ) 3.0
Loss on early extinguishment of debt —
—
—
(7.2 ) (11.5 ) 4.3
Investment income, net 0.3
450.1
(449.8 ) 1.0
450.4
(449.4 )
Other income, net 1.9
1.1
0.8
6.1
2.4
3.7
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
Net income $ 46.1
$ 391.2
$ (345.1 ) $ 110.4
$ 441.3
$ (330.9 )


	Second Quarter														Six Months
	2020		% of Total Revenues		2019		% of Total Revenues		2020		% of Total Revenues		2019		% of Total Revenues
Revenues:
Sales	$	164.2	40.8	%	$	181.1	41.6	%	$	331.0	41.0	%	$	348.7	41.3	%
Franchise royalty revenue and fees:
Royalty revenue	97.2		24.2	%	102.8		23.6	%	192.6		23.9	%	197.7		23.4	%
Franchise fees	5.9		1.4	%	6.3		1.5	%	12.3		1.5	%	13.4		1.6	%
Total franchise royalty revenue and fees	103.1		25.6	%	109.1		25.1	%	204.9		25.4	%	211.1		25.0	%
Franchise rental income	56.9		14.2	%	58.5		13.4	%	114.7		14.2	%	117.0		13.9	%
Advertising funds revenue	78.1		19.4	%	86.6		19.9	%	156.7		19.4	%	167.1		19.8	%
Total revenues	$	402.3	100.0	%	$	435.3	100.0	%	$	807.3	100.0	%	$	843.9	100.0	%

	Second Quarter														Six Months
	2020		% of Sales		2019		% of Sales		2020		% of Sales		2019		% of Sales
Cost of sales:
Food and paper	$	49.3	30.0	%	$	57.8	31.9	%	$	101.8	30.8	%	$	110.0	31.5	%
Restaurant labor	54.0		32.9	%	53.8		29.7	%	111.0		33.5	%	105.4		30.2	%
Occupancy, advertising and other operating costs	37.3		22.7	%	39.5		21.9	%	77.8		23.5	%	78.3		22.5	%
Total cost of sales	$	140.6	85.6	%	$	151.1	83.5	%	$	290.6	87.8	%	$	293.7	84.2	%


	Second Quarter														Six Months
	2020		% of Sales		2019		% of Sales		2020		% of Sales		2019		% of Sales
Restaurant margin	$	23.6	14.4	%	$	30.0	16.5	%	$	40.4	12.2	%	$	55.0	15.8	%

Third Quarter Nine Months
2019
% of
Total Revenues
2018
% of
Total Revenues
2019
% of
Total Revenues
2018
% of
Total Revenues
Revenues:
Sales $ 182.0
41.6 % $ 165.3
41.3 % $ 530.7
41.4 % $ 486.3
40.8 %
Franchise royalty revenue and fees:
Royalty revenue 102.3
23.4 % 95.5
23.8 % 300.0
23.4 % 283.6
23.8 %
Franchise fees 6.9
1.5 % 7.7
1.9 % 20.3
1.6 % 25.1
2.1 %
Total franchise royalty revenue and fees 109.2
24.9 % 103.2
25.7 % 320.3
25.0 % 308.7
25.9 %
Franchise rental income 59.9
13.7 % 50.5
12.6 % 176.9
13.8 % 152.1
12.8 %
Advertising funds revenue 86.8
19.8 % 81.6
20.4 % 253.9
19.8 % 245.0
20.5 %
Total revenues $ 437.9
100.0 % $ 400.6
100.0 % $ 1,281.8
100.0 % $ 1,192.1
100.0 %

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

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

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

Global same-restaurant sales growth:
Company-operated 4.7 % 1.2 % 2.5 % 1.4 %
Franchised (a) 4.4 % (0.1 )% 2.5 % 1.3 %
Systemwide (a) 4.4 % 0.0 % 2.5 % 1.3 %


	Second Quarter						Six Months
	2020		2019		2020		2019
Key business measures:
U.S. same-restaurant sales:
Company-operated restaurants	(10.0)	%	0.8	%	(5.5)	%	1.4	%
Franchised restaurants	(4.0)	%	1.4	%	(2.0)	%	1.3	%
Systemwide	(4.4)	%	1.3	%	(2.3)	%	1.3	%

International same-restaurant sales (a)	(18.4)	%	3.9	%	(10.1)	%	3.3	%

Global same-restaurant sales:
Company-operated restaurants	(10.0)	%	0.8	%	(5.5)	%	1.4	%
Franchised restaurants (a)	(5.5)	%	1.6	%	(2.9)	%	1.5	%
Systemwide (a)	(5.8)	%	1.6	%	(3.1)	%	1.5	%

________________

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


	Third Quarter				Nine Months					Second Quarter						Six Months
	2019		2018		2019		2018			2020		2019		2020		2019
Key business measures (continued):									Key business measures (continued):
Systemwide sales: (a)									Systemwide sales: (a)
Company-operated	$	182.0	$	165.3	$	530.7	$	486.3	Company-operated	$	164.2	$	181.1	$	331.0	$	348.7
North America franchised	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
U.S. franchised									U.S. franchised	2,239.2		2,321.6		4,413.4		4,471.9
U.S. systemwide									U.S. systemwide	2,403.4		2,502.7		4,744.4		4,820.6
International franchised (b)	137.8		126.5		410.8		385.8		International franchised (b)	220.2		301.0		492.8		574.3
Global systemwide	$	2,798.0	$	2,650.3	$	8,192.9	$	7,915.5	Global systemwide	$	2,623.6	$	2,803.7	$	5,237.2	$	5,394.9

________________

~~(a)~~

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

(a) During the second quarter of 2020 and 2019, global systemwide sales decreased 6.2% and increased 3.3%, respectively, U.S. systemwide sales decreased 4.0% and increased 2.5%, respectively, and international franchised sales decreased 24.5% and increased 10.4%, respectively, on a constant currency basis. During the first six months of 2020 and 2019, global systemwide sales decreased 2.7% and increased 3.3%, respectively, U.S. systemwide sales decreased 1.6% and increased 2.5%, respectively, and international franchised sales decreased 12.4% and increased 10.3%, respectively, on a constant currency basis.

Third Quarter
Company-operated North America Franchised International Franchised Systemwide
Restaurant count:
Restaurant count at June 30, 2019 358
5,828
533
6,719
Opened —
27
13
40
Closed (2 ) (10 ) (4 ) (16 )
Net purchased from (sold by) franchisees —
—
—
—
Restaurant count at September 29, 2019 356
5,845
542
6,743

Nine Months
Company-operated North America Franchised International Franchised Systemwide
Restaurant count:
Restaurant count at December 30, 2018 353
5,825
533
6,711
Opened —
76
35
111
Closed (2 ) (51 ) (26 ) (79 )
Net purchased from (sold by) franchisees 5
(5 ) —
—
Restaurant count at September 29, 2019 356
5,845
542
6,743

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

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


	Second Quarter
	Company-operated	U.S. Franchised	International Franchised	Systemwide
Restaurant count:
Restaurant count at March 29, 2020	358	5,503	944	6,805
Opened	2	17	3	22
Closed (a)	(2)	(16)	(3)	(21)

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

	Six Months
	Company-operated	U.S. Franchised	International Franchised	Systemwide

Restaurant count at December 29, 2019	357	5,495	936	6,788
Opened	3	43	17	63
Closed (a)	(2)	(34)	(9)	(45)

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

________________

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


Sales	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Sales	$	164.2	$	181.1	$	(16.9)	$	331.0	$	348.7	$	(17.7)

The ~~increase~~decrease in sales for the ~~third~~second quarter and the first ~~nine~~six months of ~~2019~~2020 was primarily due to a ~~net increase in the number of Company-operated restaurants in operation during 2019 compared to 2018. In addition, sales for the third quarter~~10.0% and ~~the first nine months of 2019 benefited from a 4.7% and 2.5% increase~~5.5% decrease in Company-operated same-restaurant sales, respectively. Company-operated same-restaurant sales ~~improved~~decreased 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.~~

count as a result of the COVID-19 pandemic, partially offset by (1) higher average check and (2) the positive impact from the launch of breakfast on March 2, 2020.

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


Franchise Royalty Revenue and Fees	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Royalty revenue	$	97.2	$	102.8	$	(5.6)	$	192.6	$	197.7	$	(5.1)
Franchise fees	5.9		6.3		(0.4)		12.3		13.4		(1.1)
	$	103.1	$	109.1	$	(6.0)	$	204.9	$	211.1	$	(6.2)

The ~~increase~~decrease in franchise royalty revenue during the ~~third~~second quarter and the first ~~nine~~six months of ~~2019~~2020 was primarily due to a ~~4.4%~~5.5% and ~~2.5% increase~~2.9% decrease in franchise same-restaurant sales, ~~respectively. Royalty revenue was also positively impacted~~respectively, which reflects the impact of the COVID-19 pandemic, partially offset by ~~a net increase in~~ the ~~number~~positive impact from the launch of ~~franchise restaurants in operation.~~

breakfast on March 2, 2020. The decrease in franchise fees during the ~~third~~second quarter and the first six months of ~~2019~~2020 was primarily due to lower other miscellaneous franchise fees, partially offset by higher fees for providing information technology and other services to franchisees. The decrease in franchise fees during the first nine months of 2019 was primarily due to lower other miscellaneous franchise fees and facilitating fewer franchisee-to-franchisee restaurant transfers (“Franchise Flips”) in 2019, partially offset by higher fees for providing information technology and other services to franchisees.fees.


Franchise Rental Income	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Franchise rental income	$	56.9	$	58.5	$	(1.6)	$	114.7	$	117.0	$	(2.3)

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

The ~~increase~~decrease in franchise rental income during the ~~third~~second quarter ~~and the first nine months of 2019~~ was primarily due to the adoption of new accounting guidance for leases. Under the new guidance, lessees’ payments to the Company for executory costs are recorded on a gross basis as revenue with a corresponding expense. See “Franchise Rental Expense” below. The increase during the first nine months of 2019 wasamending certain existing leases, partially offset by the ~~assignment~~impact of assigning certain leases to a franchisee during the second quarter of 2019. The decrease in franchise rental income during the first six months of 2020 was primarily due to amending certain existing leases and the impact of assigning certain leases to a franchisee.


Advertising Funds Revenue	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Advertising funds revenue	$	78.1	$	86.6	$	(8.5)	$	156.7	$	167.1	$	(10.4)

Advertising Funds Revenue Third Quarter Nine Months
2019 2018 Change 2019 2018 Change
Advertising funds revenue $ 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. The ~~increase~~decrease in advertising funds revenue during the ~~third~~second quarter and the first ~~nine~~six months of ~~2019~~2020 was primarily due to ~~an increase~~a decrease in ~~North America~~ franchise same-restaurant sales as ~~well as~~ a ~~net increase in~~result of the ~~number of North America franchise restaurants in operation. These increases were partially offset by reductions in advertising receipts under the Company’s restaurant development incentive program.~~COVID-19 pandemic.


Cost of Sales, as a Percent of Sales	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Food and paper	30.0	%	31.9	%	(1.9)	%	30.8	%	31.5	%	(0.7)	%
Restaurant labor	32.9	%	29.7	%	3.2	%	33.5	%	30.2	%	3.3	%
Occupancy, advertising and other operating costs	22.7	%	21.9	%	0.8	%	23.5	%	22.5	%	1.0	%
	85.6	%	83.5	%	2.1	%	87.8	%	84.2	%	3.6	%

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

The ~~decrease~~increase in cost of sales, as a percent of sales, during the ~~third~~second quarter and the first ~~nine~~six months of ~~2019~~2020 was primarily due to ~~benefits from strategic price~~(1) a decrease in customer count, reflecting the impact of the COVID-19 pandemic, and (2) restaurant labor rate increases, ~~on certain of our menu items~~which included incremental recognition pay during April and ~~changes in product mix. This decrease was~~May. These impacts were partially offset by ~~an increase in restaurant~~(1) higher average check and (2) labor ~~rates~~efficiencies and ~~commodity costs.~~other dining room closure related efficiencies.


Franchise Support and Other Costs	Third Quarter						Nine Months						Franchise Support and Other Costs	Second Quarter										Six Months
	2019		2018		Change		2019		2018		Change			2020		2019		Change		2020		2019		Change
Franchise support and other costs	$	9.7	$	5.4	$	4.3	$	19.8	$	18.6	$	1.2	Franchise support and other costs	$	5.5	$	4.0	$	1.5	$	13.5	$	10.1	$	3.4

The increase in franchise support and other costs during the ~~third~~second quarter ~~and the first nine months of 2019~~ was primarily due to higher costs incurred to provide information technology and other services to our franchisees. The increase in franchise support and other costs during the ~~purchase~~first six months of ~~digital scanning equipment for~~2020 was primarily due to (1) investments to support U.S. franchisees in preparation of ~~$3.9 million, partially offset by lower~~the launch of breakfast across the U.S. system on March 2, 2020 and (2) higher costs incurred to provide information technology and other services to our franchisees.


Franchise Rental Expense	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Franchise rental expense	$	31.3	$	28.0	$	3.3	$	60.6	$	60.5	$	0.1

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

The increase in franchise rental expense during the ~~third~~second quarter and the first ~~nine~~six months of ~~2019~~2020 was primarily due to the adoption of new accounting guidance for leases. Under the new guidance, lessees’ payments to the Company for executory costs are recorded on a gross basis as revenue with a corresponding expense. See “Franchise Rental Income” above. The increase during the first nine months of 2019 was partially offset by the impact of assigning certain leases to a ~~franchisee.~~franchisee in 2019.


Advertising Funds Expense	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Advertising funds expense	$	81.3	$	88.7	$	(7.4)	$	161.3	$	169.1	$	(7.8)

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

The ~~increase~~decrease in advertising funds expense during the ~~third~~second quarter and the first ~~nine~~six months of ~~2019~~2020 was primarily due to the same ~~factors~~factor as described above for ~~advertising funds revenue.~~“Advertising Funds Revenue.” On an interim basis, advertising funds expense is recognized in proportion to advertising funds revenue. During the ~~third~~second quarter and the first ~~nine~~six months of ~~2019,~~2020, advertising funds expense exceeded advertising funds revenue by ~~$1.1~~$3.2 million and ~~$3.1~~$4.6 million, respectively, reflecting a portion of the expected advertising spend in excess of advertising funds revenue for 2020. The second quarter and the ~~remainder~~first six months of ~~2019. This~~2020 include $2.2 million related to the Company’s decision in June to fund incremental advertising during 2020. The excess of advertising funds expense over advertising funds revenue for ~~2019~~2020 is expected to ~~approximate~~be approximately $20.0 million, which includes (1) up to $15.0 million of Company funding of incremental advertising and (2) the amount by which advertising funds revenue exceeded advertising funds expense in ~~2018.~~2019 and 2018 of approximately $5.0 million.


General and Administrative	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Employee compensation and related benefits	$	26.9	$	27.7	$	(0.8)	$	57.2	$	56.2	$	1.0
Severance expense	—		0.3		(0.3)		1.2		0.4		0.8
Travel-related expenses	0.8		3.2		(2.4)		3.9		5.8		(1.9)
Other, net	20.9		19.6		1.3		37.9		37.7		0.2
	$	48.6	$	50.8	(2.2)		$	100.2	$	100.1	0.1

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

The decrease in general and administrative expenses during the ~~third~~second quarter of ~~2019~~2020 was primarily due to a ~~reduction~~decrease in ~~legal reserves~~travel-related expenses as a result of ~~an increase in anticipated insurance proceeds available for use related to~~reduced travel during 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 an increase in incentive compensation accruals.

COVID-19 pandemic. The increase in general and administrative expenses during the first ~~nine~~six months of ~~2019~~2020 was primarily due to ~~higher~~increases in (1) employee compensation and related ~~expenses, reflecting an increase in incentive compensation accruals~~benefits and ~~additional expenditures to support our digital experience and international organizations. This increase was partially~~(2) severance expense. These increases were offset by ~~(1)~~ a ~~reduction~~decrease in ~~legal reserves~~travel-related expenses as a result of ~~an increase in anticipated insurance proceeds available for use related to~~reduced travel during 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.COVID-19 pandemic.


Depreciation and Amortization	Third Quarter							Nine Months						Depreciation and Amortization	Second Quarter										Six Months
	2019		2018		Change			2019		2018		Change			2020		2019		Change		2020		2019		Change
Restaurants	$	21.8	$	17.4	$	4.4		$	63.7	$	60.3	$	3.4	Restaurants	$	23.0	$	20.0	$	3.0	$	42.5	$	41.9	$	0.6
Corporate and other	11.5		11.7		(0.2		)	34.3		34.3		—		Corporate and other	11.7		11.5		0.2		23.3		22.8		0.5
	$	33.3	$	29.1	$	4.2		$	98.0	$	94.6	$	3.4		$	34.7	$	31.5	$	3.2	$	65.8	$	64.7	$	1.1

The increase in ~~restaurant~~ depreciation and amortization during the ~~third~~second quarter and the first ~~nine~~six months of ~~2019~~2020 was primarily due to (1) changes in useful lives for certain asset categories and (2) the assignment of certain leases to a franchisee in ~~2018,~~2019, resulting in the write-off of the related net investment in the leases. These increases were partially offset by (1) assets becoming fully depreciated and (2) a decrease in depreciation on assets classified as held for sale resulting from the expected sale of 43 restaurants in New York to franchisees in the first quarter of 2021.


System Optimization Gains, Net	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
System optimization gains, net	$	(2.0)	$	(0.1)	$	(1.9)	$	(2.3)	$	(0.1)	$	(2.2)

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, net for the ~~third~~second quarter and the first ~~nine~~six months of ~~2019 and 2018~~2020 were primarily comprised of ~~post-closing adjustments~~gains on ~~previous sales~~the sale of ~~restaurants.~~surplus and other properties.


Reorganization and Realignment Costs	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
IT realignment	$	2.8	$	—	$	2.8	$	6.4	$	—	$	6.4
G&A realignment	0.1		3.5		(3.4)		0.3		4.3		(4.0)
System optimization initiative	—		0.1		(0.1)		0.1		0.1		—
	$	2.9	$	3.6	$	(0.7)	$	6.8	$	4.4	$	2.4

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

In December 2019, the Company’s Board of Directors approved a plan to realign and reinvest resources in its IT organization to strengthen its ability to accelerate growth. Additionally, in June 2020, the Company made changes to its leadership structure that included the creation of a Chief Information Officer position and the elimination of the Chief Digital Experience Officer position. During the second quarter and the first six months of 2020, the Company recognized costs associated with this plan totaling $2.8 million and $6.4 million, respectively, which primarily included third-party and other costs of $1.9 million and $5.1 million, respectively, and severance and related employee costs of $0.8 million and $1.0 million, respectively.

In May 2017, the Company initiated a ~~G&A realignment~~ plan to further reduce its G&A expenses. In addition, in May 2019, the Company announced changes to its ~~leadership structure in May 2019.~~management and operating structure. G&A realignment costs for the ~~third~~second quarter and the first ~~nine~~six months of ~~2019~~2020 were primarily comprised of share-based compensation. G&A realignment costs for the second quarter and ~~2018~~the first six months 2019 were primarily comprised of severance and related employee costs and share-based compensation. The Company does not expect to incur any additional material costs under the plan.


Impairment of Long-Lived Assets	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Impairment of long-lived assets	$	0.1	$	0.2	$	(0.1)	$	4.7	$	1.7	$	3.0

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

The 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 changeincrease in impairment charges during the first ~~nine~~six months of ~~2019~~2020 was primarily driven by ~~lower impairment charges~~the Company testing its Company-operated restaurant long-lived assets for recoverability as a result of the adverse impacts of the COVID-19 pandemic. As a result of this analysis, the Company recorded impairment charges due primarily to the expected deterioration in operating performance of certain Company-operated restaurants when compared to the first nine months of 2018, partially offset by higher impairment charges as a result of closing Company-operated restaurants and classifying such surplus properties as held for sale.restaurants.


Other Operating Income, Net	Third Quarter									Nine Months									Other Operating Income, Net	Second Quarter										Six Months
	2019			2018			Change			2019			2018			Change				2020		2019		Change		2020		2019		Change
Equity in earnings in joint ventures, net	$	(2.1	)	$	(2.2	)	$	0.1		$	(7.0	)	$	(5.8	)	$	(1.2	)	Equity in earnings in joint ventures, net	$	(0.9)	$	(3.1)	$	2.2	$	(2.4)	$	(4.9)	$	2.5
Losses (gains) on sales-type leases	0.1			—			0.1			(1.9		)	—			(1.9		)
Lease buyout	(0.4		)	0.3			(0.7		)	(0.6		)	0.9			(1.5		)
Gains on sales-type leases																			Gains on sales-type leases	(0.6)		—		(0.6)		(1.2)		(2.0)		0.8

Other, net	—			0.3			(0.3		)	0.1			0.2			(0.1		)	Other, net	0.1		—		0.1		0.3		(0.2)		0.5
	$	(2.4	)	$	(1.6	)	$	(0.8	)	$	(9.4	)	$	(4.7	)	$	(4.7	)		$	(1.4)	$	(3.1)	$	1.7	$	(3.3)	$	(7.1)	$	3.8

The change in other operating income, net during the ~~third~~second quarter and the first six months of ~~2019~~2020 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 (3) an increase~~decrease in the equity in earnings from our TimWen joint venture.


Interest Expense, Net	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Interest expense, net	$	29.1	$	29.9	$	(0.8)	$	57.6	$	59.0	$	(1.4)

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

Interest expense, net decreased during the ~~third~~second quarter and the first ~~nine~~six months of ~~2019~~2020 primarily due to ~~lower outstanding principal amounts of long-term debt, reflecting~~ the impact of the completion of refinancing a portion of the Company’s securitized financing facility ~~during the first nine months of~~in June 2019. ~~Interest expense, net also decreased during the first nine months of 2019 due to the timing of interest expense on the Company’s finance lease obligations.~~


Loss on Early Extinguishment of Debt	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Loss on early extinguishment of debt	$	—	$	7.2	$	(7.2)	$	—	$	7.2	$	(7.2)

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

During the second quarter of 2019, in connection with the refinancing of a portion of the Company’s securitized financing facility, the Company incurred a loss on the early extinguishment of debt as a result of repaying its outstanding Series 2015-1 Class A-2-II Notes primarily with the proceeds from the issuance of its Series 2019-1 Class A-2 Notes. The loss on the early extinguishment of debt of $7.2 million was comprised of the write-off of certain deferred financing costs.

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 issuance of 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.


Other (Expense) Income, Net	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Other (expense) income, net	$	(0.2)	$	2.2	$	(2.4)	$	0.9	$	5.0	$	(4.1)

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~~Other (expense) income, net decreased during the ~~third~~second quarter and the first ~~nine~~six months of ~~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.~~

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~~2020 primarily due to ~~higher~~lower interest income earned on our cash equivalents.


Provision for Income Taxes	Second Quarter															Six Months
	2020			2019			Change			2020			2019			Change
Income before income taxes	$	31.4		$	45.7		$	(14.3)		$	52.7		$	85.6		$	(32.9)
Provision for income taxes	(6.5)			(13.3)			6.8			(13.4)			(21.3)			7.9
Effective tax rate on income	20.8		%	29.2		%	(8.4)		%	25.4		%	24.9		%	0.5		%

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 for the ~~third~~second quarter of ~~2019~~2020 and ~~2018~~2019 were impacted by variations in income before income taxes, including uncertainty in 2020 income before income taxes arising from the COVID-19 pandemic, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items. ~~Discrete items, which may occur~~The decrease in ~~any given year but are not consistent from year~~the effective tax rate for the second quarter of 2020 compared with the second quarter of 2019 was primarily due to ~~year, include~~(1) an increase in the ~~following: (1)~~benefit of share-based compensation and (2) a reduction in unrecognized tax benefits due to a lapse of statute of limitations in the third quarter of 2019, (2) a 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, respectively, and (3) an increase due tostate income taxes, including non-recurring changes to state deferred ~~taxes.~~taxes net of federal benefits.

Our effective tax rates for the first ~~nine~~six months of ~~2019~~2020 and ~~2018~~2019 were impacted by variations in income before income taxes, including uncertainty in 2020 income before income taxes arising from the COVID-19 pandemic, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items. ~~Discrete items, which may occur~~The increase in ~~any given year but are not consistent from year~~the effective tax rate for the first six months of 2020 compared with the first six months of 2019 was primarily due to ~~year, include~~an increase in tax on our foreign operations, offset by (1) an increase in the ~~following: (1)~~benefit of share-based compensation and (2) a reduction in unrecognized tax benefits due to a lapse of statute of limitations in the first nine months of 2019, (2) a 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, respectively, and (3) an increase due tostate income taxes, including non-recurring changes to state deferred ~~taxes.~~

taxes net of federal benefits.

Segment Information

See Note 19 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information regarding the Company’s segments.

Wendy’s U.S.


	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Sales	$	164.2	$	181.1	$	(16.9)	$	331.0	$	348.7	$	(17.7)
Franchise royalty revenue	88.1		91.5		(3.4)		173.0		175.8		(2.8)
Franchise fees	5.4		5.2		0.2		10.6		10.7		(0.1)
Advertising fund revenue	73.6		81.4		(7.8)		147.7		157.4		(9.7)
Total revenues	$	331.3	$	359.2	$	(27.9)	$	662.3	$	692.6	$	(30.3)
Segment profit	$	93.1	$	103.0	$	(9.9)	$	175.0	$	192.6	$	(17.6)

The decrease in Wendy’s U.S. revenues during the second quarter and the first six months of 2020 was primarily due to a decrease in same-restaurant sales resulting from the impact of the COVID-19 pandemic. This decrease in same-restaurant sales was driven by a decrease in customer count, partially offset by (1) higher average check and (2) the positive impact from the launch of breakfast on March 2, 2020.

The decrease in Wendy’s U.S. segment profit during the second quarter and the first six months of 2020 was primarily due to (1) lower revenues and (2) higher cost of sales, as a percent of sales, for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales.”

Wendy’s International


	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Franchise royalty revenue	$	9.1	$	11.4	$	(2.3)	$	19.6	$	21.8	$	(2.2)
Franchise fees	0.4		0.4		—		0.9		1.5		(0.6)
Advertising fund revenue	4.5		5.2		(0.7)		9.0		9.7		(0.7)
Total revenues	$	14.0	$	17.0	$	(3.0)	$	29.5	$	33.0	$	(3.5)
Segment profit	$	3.6	$	5.5	$	(1.9)	$	8.7	$	11.2	$	(2.5)

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

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

Global Real Estate & Development


	Second Quarter										Six Months
	2020		2019		Change		2020		2019		Change
Franchise fees	$	0.1	$	0.7	$	(0.6)	$	0.8	$	1.3	$	(0.5)
Franchise rental income	56.9		58.5		(1.6)		114.7		117.0		(2.3)
Total revenues	$	57.0	$	59.2	$	(2.2)	$	115.5	$	118.3	$	(2.8)
Segment profit	$	23.7	$	29.9	$	(6.2)	$	50.2	$	56.9	$	(6.7)

The decrease in Global Real Estate & Development revenues during the second quarter and the first six months of 2020 was primarily due to lower franchise rental income. See “Franchise Rental Income” above for further information.

The decrease in Global Real Estate & Development segment profit during the second quarter and the first six months of 2020 was primarily due to (1) a decrease in net rental income, reflecting the impact of assigning certain leases to a franchisee during 2019 and (2) a decrease in the equity in earnings from the TimWen joint venture.

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 stockholders.

~~Our anticipated~~During the six months ended June 28, 2020, the Company made a payment of $24.7 million related to the settlement of the financial institutions class action (the “FI Case”) (see Note 23 of the Financial Statements and Supplementary Data contained in Item 8 of the Form 10-K for further information).

In response to the COVID-19 pandemic, the Company has taken the following actions impacting its liquidity and capital resources during and subsequent to the six months ended June 28, 2020:

•increased its cash ~~requirements for~~position by draw downs of its Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “2019-1 Class A-1 Notes”), which was repaid subsequent to June 28, 2020, and the ~~remainder~~Company’s other lines of ~~2019, exclusive~~credit in March 2020, as discussed below in “Long-Term Debt, Including Current Portion;”

•enhanced its debt capacity by issuing $100.0 million of ~~operating~~Series 2020-1 Variable Funding Senior Secured Notes, Class A-1 (the “2020-1 Class A-1 Notes”) in June 2020, which remain undrawn as of the date of this report, as discussed below in “Long-Term Debt, Including Current Portion;”

•reduced its quarterly cash ~~flow requirements, consist principally of:~~

~~capital expenditures~~dividend from $.12 per share in the first quarter of ~~approximately $34.0 million~~2020 to ~~$39.0 million, resulting~~$.05 per share in ~~total anticipated cash capital expenditures for~~ the ~~year~~second and third quarters of ~~approximately $75.0 million to $80.0 million;~~

~~cash dividends aggregating up to approximately $27.6 million~~2020, as discussed below in “Dividends;”

•temporarily suspended all share repurchase activity under the February 2020 share repurchase authorization. The Company now intends to resume share repurchases in 2020, subject to market conditions 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,~~ prevailing economic factors, as discussed below in “Stock ~~Repurchases.~~Repurchases;”

•evaluated its planned 2020 general and administrative expenses and capital plan and identified approximately $10.0 million and $20.0 million, respectively, for a total of $30.0 million in savings. The Company now expects to realize approximately $5.0 million of the previously identified general and administrative expense savings, primarily as a result of a higher incentive compensation accrual;

•revised its planned 2020 advertising expenses in March 2020 to eliminate Company funding of incremental advertising. In June 2020, the Company reevaluated its marketing plans and now plans to fund up to $15.0 million of incremental advertising during the remainder of 2020;

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

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

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

In addition, ~~to the anticipated cash requirements above,~~ the Company expects to ~~make one-time investments during 2019 of approximately $20.0 million~~benefit from the technical amendments under the CARES Act by treating qualified improvement property (“QIP”) as 15-year property and allowing such property to ~~support~~be eligible for the ~~U.S. system~~100 percent bonus depreciation for QIP placed in ~~preparation of the launch of breakfast in the first quarter of 2020.~~service after December 31, 2017.

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.

We currently believe we have the ability to pursue additional sources of liquidity if needed or desired to fund operating cash requirements or for other purposes. However, there can be no assurance that additional liquidity will be readily available or available on terms acceptable to us.

The table below summarizes our cash flows from operating, investing and financing activities for the first ~~nine~~six months of ~~2019~~2020 and ~~2018:~~2019:


	Six Months
	2020		2019		Change
Net cash provided by (used in):
Operating activities	$	30.6	$	154.1	$	(123.5)
Investing activities	(24.9)		(29.9)		5.0
Financing activities	48.3		(130.2)		178.5
Effect of exchange rate changes on cash	(3.2)		3.8		(7.0)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	50.8	$	(2.2)	$	53.0

Nine Months
2019 2018 Change
Net cash provided by (used in):
Operating activities $ 237.5
$ 229.7
$ 7.8
Investing activities (45.7 ) 391.4
(437.1 )
Financing activities (183.4 ) (151.0 ) (32.4 )
Effect of exchange rate changes on cash 2.8
(2.1 ) 4.9
Net increase in cash, cash equivalents and restricted cash $ 11.2
$ 468.0
$ (456.8 )

Operating Activities

~~Cash provided by operating activities was $237.5 million and $229.7 million in the first nine months of 2019 and 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 $7.8~~was $30.6 million ~~during~~and $154.1 million in the first ~~nine~~six months of 2020 and 2019, ~~as compared to the first nine months of 2018,~~respectively. The change was primarily due to (1) ~~higher~~the extension of payment terms for royalties beginning in April 2020 for a three month period, (2) lower net income, ~~from operations,~~ adjusted for non-cash expenses, (3) a cash payment of $24.7 million related to the settlement of the FI Case in January 2020 and ~~(2) a decrease~~(4) an increase in payments for incentive compensation. These favorable changes were partially offset by (1) the timing of collections of royalty receivables and (2) changes in receivables for income tax refunds. Further, income taxes payable 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 offset the income tax expense recognized in net incomecompensation for the ~~first nine months of 2018).~~2019 fiscal year paid in 2020.

Investing Activities

Cash used in investing activities ~~increased $437.1~~was $24.9 million ~~during~~and $29.9 million in the first ~~nine~~six months of 2020 and 2019, ~~as compared to the first nine months of 2018,~~respectively. The change was primarily due to the proceeds from the sale of our ownership interest in Inspire Brands during the first nine months of 2018 of $450.0 million. This change was partially offset by a decrease in cash used for the Company’s acquisition(1) no acquisitions of restaurants from franchisees in the first six months of ~~$16.3~~2020 compared with cash used for acquisitions of $5.1 million in the first six months of 2019 and (2) an increase in proceeds from dispositions of $3.1 million. These changes were partially offset by an increase in capital expenditures of $3.9 million.

Financing Activities

Cash ~~used in~~provided by (used in) financing activities ~~increased $32.4~~was $48.3 million ~~during~~and $(130.2) million in the first ~~nine~~six months of 2020 and 2019, ~~as compared to the first nine months of 2018,~~respectively. The change was primarily due to (1) a net increase in cash ~~used for~~provided by long-term debt activities of ~~$76.4~~$168.8 million, reflecting the ~~respective impacts~~impact of the ~~completion~~draw downs under the 2019-1 Class A-1 Notes and certain other lines of ~~debt refinancing transactions during the first nine months~~credit, (2) a decrease in dividends of ~~2019~~$8.2 million and ~~2018, (2)~~(3) a decrease in repurchases of common stock of $5.6 million. These changes were partially offset by a decrease in proceeds from stock option exercises, net of payments related to tax withholding for share-based compensation, of ~~$16.2 million, and (3) an increase in dividends of $8.5~~$4.0 million. These changes were partially offset by (1) a decrease in repurchases of common stock of $63.3 million and (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 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 ~~30, 2018.~~29, 2019. The Company was in compliance with its debt covenants as of ~~September 29, 2019.~~June 28, 2020. See Note ~~8 to~~9 of the ~~Condensed Consolidated~~ Financial Statements contained in Item 1 herein for further information related to our long-term debt obligations.

~~On June 26, 2019,~~ Wendy’s Funding, LLC, ~~(the “Master Issuer”),~~ a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of The Wendy’s Company, is the ~~Company, completed a debt refinancing transaction under which the Master Issuer issued fixed rate~~master issuer (the “Master Issuer”) of outstanding senior secured notes under a securitized financing facility that was entered into in the following 2019-1 series: Class A-2-I with an interest rate of 3.783% and initial principal amount of $400.0 million and Class A-2-II with an interest rate of 4.080% and initial principal amount of $450.0 million (collectively, the “Series 2019-1 Class A-2 Notes”). The Master Issuer’s outstanding Series 2015-1 Class A-2-II Notes were redeemed as part of the refinancing transaction.

~~In connection with the issuance of the Series 2019-1 Class A-2 Notes,~~June 2015. Under this facility, in June 2019, the Master Issuer also ~~entered into a revolving financing facility of Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Series~~issued outstanding 2019-1 Class A-1 ~~Notes”),~~Notes, which ~~allows~~allow for the ~~drawing~~borrowing of up to $150.0 million from time to time on a revolving basis using various credit instruments, including a letter of credit facility. ~~No amounts were borrowed~~In March 2020, the Company drew down $120.0 million under the ~~Series~~ 2019-1 Class A-1 ~~Notes during~~Notes. As a result, as of June 28, 2020, the ~~nine months ended September 29, 2019. The Series~~Company had outstanding borrowings of $120.0 million under the 2019-1 Class A-1 ~~Notes replaced~~Notes. Subsequent to June 28, 2020, the ~~Company’s $150.0~~Company repaid the $120.0 million ~~Series 2018-1~~outstanding balance under the 2019-1 Class A-1 Notes. In June 2020, the Master Issuer also issued outstanding 2020-1 Class A-1 Notes, which ~~were canceled~~allow for the borrowing of up to $100.0 million from time to time on a revolving basis using various credit instruments. The Company had no outstanding borrowings under the ~~closing date and the letters of credit outstanding against the Series 2018-1~~2020-1 Class A-1 Notes as of June 28, 2020.

A Canadian subsidiary of Wendy’s has a revolving credit facility of C$6.0 million. In March 2020, the Company drew down C$5.5 million under the revolving credit facility. As a result, as of June 28, 2020, the Company had outstanding borrowings of C$5.5 million under the revolving credit facility.

Wendy’s U.S. advertising fund has a revolving line of credit of $25.0 million, which was established to support the advertising fund operations. In February 2020, the Company drew down $4.4 million under the revolving line of credit, which the Company repaid in February 2020. In March 2020, the Company drew down $25.0 million under the revolving line of credit. As a result, as of June 28, 2020, the Company had outstanding borrowings of $25.0 million under the revolving line of credit. Subsequent to June 28, 2020, the Company renewed the revolving line of credit, which is now guaranteed by Wendy’s.

The increased borrowings were ~~transferred~~taken as precautionary measures to provide enhanced financial flexibility considering the ~~Series 2019-1 Class A-1 Notes.~~uncertain market conditions arising from the COVID-19 pandemic.

Dividends

On March 16, 2020 and June 15, ~~2019, June 17, 2019 and September 17, 2019,~~2020, the Company paid quarterly cash dividends ~~of $.10~~ per share ~~on its common stock,~~of $.12 and $.05, respectively, aggregating ~~$69.3~~$38.0 million. On ~~October 11, 2019,~~August 5, 2020, the Company ~~declared~~announced a dividend of ~~$.12~~$.05 per share to be paid on ~~December 16, 2019~~September 15, 2020 to stockholders of record as of ~~December 2, 2019. As a result of the October 11 declaration,~~September 1, 2020. If the Company ~~expects that its~~pays regular quarterly cash dividends for the remainder of 2020 at the same rate as declared in the third quarter of 2020, the Company’s total cash ~~requirements~~requirement for dividends for the ~~fourth quarter~~remainder of ~~2019~~2020 will be approximately ~~$27.6~~$22.4 million based on the number of shares of its common stock outstanding at ~~October 30, 2019.~~July 29, 2020. 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 or of the amount or timing of such dividends, if any.

Stock Repurchases

In February 2020, our Board of Directors authorized a repurchase program for up to $100.0 million of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally permissible. In July 2020, the Company’s Board of Directors approved an extension of the February 2020 authorization by one year, through February 28, 2022, when and if market and economic conditions warrant and to the extent legally permissible. During the six months ended June 28, 2020, the Company repurchased 0.8 million shares under the February 2020 repurchase authorization with an aggregate purchase price of $14.5 million, excluding commissions. As of June 28, 2020, the Company had $85.5 million of availability remaining under its February 2020 authorization. As previously announced, beginning in March 2020, the Company temporarily suspended all share repurchase activity under the February 2020 authorization in connection with the Company’s response to the COVID-19 pandemic. The Company now intends to resume share repurchases in 2020, subject to market conditions and prevailing economic factors.

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~~warranted and to the extent legally permissible. In November 2019, the Company entered into an accelerated share repurchase agreement (the “2019 ASR Agreement”) with a third-party financial institution to repurchase common stock as part of the Company’s existing share repurchase program. Under the 2019 ASR Agreement, the Company paid the financial institution an initial purchase price of $100.0 million in cash and received an initial delivery of 4.1 million shares of common stock, representing an estimated 85% of the total shares expected to be delivered under the 2019 ASR Agreement. In February 2020, the Company completed the 2019 ASR Agreement and received an additional 0.6 million shares of common stock. The total number of shares of common stock ultimately purchased by the Company under the 2019 ASR Agreement was based on the average of the daily volume-weighted average prices of the common stock during the term of the 2019 ASR Agreement, less an agreed upon discount. In total, 4.7 million shares were delivered under the 2019 ASR Agreement at an average purchase price of $21.37 per share.

In addition to the shares repurchased in connection with the ~~February~~ 2019 ~~authorization,~~ASR Agreement, during the ~~Company’s previous November 2018 repurchase authorization for up to $220.0 million of our common stock was canceled. During the nine~~six months ended ~~September 29, 2019,~~June 28, 2020, the Company repurchased ~~4.2~~1.3 million shares with an aggregate purchase price of ~~$76.2~~$28.8 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~~authorization. After taking into consideration these repurchases, with the completion of ~~September 29,~~the 2019 ASR Agreement in February 2020, the Company ~~had $170.3 million of availability remaining under~~completed its February 2019 authorization. ~~Subsequent to September 29, 2019 through October~~

During the six months ended June 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 warranted 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. Additionally, during the nine months ended September 30, 2018, the Company completed its previous February 2017 repurchase authorization for up to $150.0 million of our common stock with the repurchase of 1.42.8 million shares with an aggregate purchase price of ~~$22.6~~$49.7 million, of which $0.8 million was accrued at June 30, 2019, and excluding ~~commissions.~~commissions, under the February 2019 authorization and the Company’s previous November 2018 authorization to repurchase up to $220.0 million of our common stock.

General Inflation, Commodities and Changing Prices

We believe that general inflation did not have a significant effect on our consolidated results of 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 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 our business is moderately seasonal, results for a particular quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year. Currently, we are not able to predict the impact that the COVID-19 pandemic may have on the seasonality of our business.

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~~the Form ~~10-K for the fiscal year ended December 30, 2018 (the “Form 10-K”).~~10-K.

As of ~~September 29, 2019,~~June 28, 2020, 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 2. Management’s Discussion and Analysis~~ of ~~Financial Condition and Results of Operation” under “Liquidity and Capital Resources,”~~June 28, 2020, the Company ~~completed an $850.0~~had outstanding borrowings of $120.0 million ~~debt refinancing transaction on June 26, 2019. The Company’s outstanding Series 2015-1 Class A-2-II Notes were repaid as part of~~under the ~~refinancing transaction. In aggregate, the Company’s new Series~~ 2019-1 Class ~~A-2 Notes bear a weighted-average fixed-rate interest at rates slightly lower than our historical effective rates on the Series 2015-1 Class A-2-II~~A-1 Notes. In addition, the ~~principal amounts~~Company had outstanding onborrowings of $25.0 million under the ~~Series 2019-1 Class A-2 Notes are lower than the amounts that were~~U.S. advertising fund revolving line of credit and C$5.5 million of outstanding ~~on the Series 2015-1 Class A-2-II Notes. In connection with the issuance of the Series 2019-1 Class A-2 Notes,~~borrowings under a ~~wholly-owned subsidiary of the Company also entered into a~~Canadian subsidiary’s revolving ~~financing facility, the Series 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 2019-1 Class A-1 Notes replaced~~increased borrowings were taken as precautionary measures to provide enhanced flexibility considering the ~~Company’s $150.0~~uncertain market conditions arising from the COVID-19 pandemic. Subsequent to June 28, 2020, the Company repaid the $120.0 million ~~Series 2018-1 Class A-1 Notes, which were canceled on~~outstanding balance under the ~~closing 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~~Our long-term debt, including the current portion and the advertising fund revolving line of credit, aggregated ~~$2,336.7~~$2,450.1 million as of ~~September 29, 2019~~June 28, 2020 (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~~flows; however, the ~~Series~~ 2019-1 Class A-1 ~~Notes; however,~~Notes and the 2020-1 Class A-1 Notes (collectively, the “Class A-1 Notes”), including the borrowings outstanding under the 2019-1 Class A-1 Notes as of June 28, 2020, accrue interest at a variable interest rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate (“LIBOR”) for U.S. Dollars or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin and as specified in the respective purchase agreements for the Class A-1 Notes. In addition, the U.S. advertising fund revolving line of credit bears interest at LIBOR plus 2.75% and our Canadian subsidiary’s revolving credit facility bears interest at the Bank of Montreal Prime Rate. An increase or decrease of 1.0% in the effective interest rate applied to these outstanding borrowings would result in a pre-tax interest expense fluctuation of approximately $1.5 million on an annualized basis. As described above, subsequent to June 28, 2020, the Company repaid the $120.0 million outstanding balance under the 2019-1 Class A-1 Notes. The Company had no outstanding borrowings under the ~~Series 2019-1~~2020-1 Class A-1 Notes as of ~~September 29, 2019.~~June 28, 2020.

In addition, LIBOR is expected to be discontinued after 2021. If LIBOR is discontinued, we may need to renegotiate certain loan documents and we cannot predict what alternative index would be negotiated with our lenders or the resulting impact on our interest expense.

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~~the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of ~~the Company’s~~its 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 29, 2019.~~June 28, 2020. Based on such evaluations, the Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September 29, 2019,~~June 28, 2020, 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~~second quarter of ~~2019~~2020 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. As previously announced, the Company has realigned and reinvested resources in its IT organization and partnered with a third-party global IT consultant. The Company completed the transition of certain IT services to the consultant in the second quarter of 2020, and, currently, the control environment has not changed, as the consultant is adhering to the Company’s control procedures. The Company will continue to periodically evaluate the impact of this initiative on its internal control over financial reporting, including evaluating potential changes to the control environment as the consultant provides services to the Company in accordance with contractual requirements.

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~~error 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~~Generally, forward-looking statements include the words “may,” “believes,” “plans,” “expects,” “anticipates,” “intends,” “estimate,” “goal,” “upcoming,” “outlook,” “guidance” or the negation thereof, or similar expressions. In addition, all statements that address future operating, financial or business ~~performance;~~performance, strategies or initiatives, ~~or expectations;~~ future ~~synergies,~~ efficiencies or ~~overhead savings;~~savings, anticipated costs or ~~charges;~~charges, future ~~capitalization; and~~capitalization, anticipated ~~financial~~ impacts of recent or pending investments or transactions and statements expressing general views about future results or brand health are forward-looking statements within the meaning of the Reform Act. ~~The forward-looking~~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. For all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Reform Act. 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~~our forward-looking ~~statements contained herein.~~statements. 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:

•the disruption to our business from the novel coronavirus (COVID-19) pandemic and the impact of the pandemic on our results of operations, financial condition and prospects;

•the impact of competition, including ~~pricing pressures, couponing, aggressive marketing and~~from outside the ~~potential impact of competitors’ new unit openings on sales of Wendy’s restaurants;~~quick-service restaurant industry;

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

•prevailing conditions and disruptions in the national and global economies, including areas with a high concentration of Wendy’s restaurants;

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

•the success of our operating, promotional, marketing or new product development initiatives, including risks associated with our entry into the breakfast daypart across the U.S. system;

•our ability to achieve our growth strategy through net new restaurant development, including the availability of suitable locations and terms, and the success of our Image Activation program, including the ability of reimaged restaurants to positively affect sales;

•changes in commodity and other operating costs, including supply, distribution and labor costs;

•our ability to attract and retain qualified restaurant personnel;

•shortages or interruptions in the supply or distribution of food or other products and other risks associated with our independent supply chain purchasing co-op;

•consumer concerns ~~over~~regarding the nutritional aspects of ~~beef, chicken, french fries or other products we sell,~~ our products;

•the ~~ingredients in our products and/or the cooking processes used in our restaurants;~~

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

•the effects of negative publicity that can occur from socially relevant issues or from increased use of social media;

~~success of operating~~•risks associated with our international operations, including our ability to achieve our international growth strategy;

•risks associated with our digital commerce strategy, platforms and ~~marketing initiatives,~~technologies, including ~~advertising and promotional efforts and new product and concept development by us and~~ our ~~competitors;~~

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

ability to adapt to changes in ~~the quick-service restaurant~~ industry ~~spending patterns~~trends and ~~demographic trends, such as~~ consumer ~~trends toward value-oriented products~~preferences;

•our dependence on computer systems 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 franchisees’ obligations due to us or to national or local advertising organizations, and the ability of franchisees to open new restaurants and reimage existing restaurants in accordance with their development and franchise commitments, including their ability to finance restaurant development and 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 of suitable locations and terms 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,~~information technology, including risks associated with the failure, interruption or breach of our ~~Image Activation program;~~systems or technology or other cyber incidents or deficiencies;

•risks associated with the realignment and reinvestment of resources in our IT organization to accelerate growth;

•our ability to effectively manage the acquisition and disposition of restaurants or successfully implement other strategic initiatives;

~~anticipated~~•conditions beyond our control, such as adverse weather conditions, natural disasters, hostilities, social unrest or ~~unanticipated restaurant closures by us and our franchisees;~~other catastrophic events;

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

~~availability of qualified restaurant personnel to us and 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;

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

~~changes in, and~~ •our ability to ~~comply~~protect our intellectual property;

•the continued succession and retention of key personnel and the effectiveness of our leadership structure;

•compliance with legal or 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, policies and practices;

the ~~costs, uncertainties and other effects~~impact of legal or regulatory proceedings and risks associated with an increased focus on environmental, social and ~~administrative proceedings;~~governance issues;

•risks associated with leasing and owning significant amounts of real estate, including a decline in the value of our real estate assets or liability for environmental matters;

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

risks associated with failures, interruptions or security breaches of our computer systems or technology, or the occurrence of cyber incidents or a deficiency in cybersecurity that impacts us or our franchisees, including the cybersecurity incident described in 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 our plan to reduce general and administrative expense, and the future impact on our earnings;~~

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

~~risks associated with~~•the availability, terms and deployment of capital, including the amount and timing of ~~share repurchases under share repurchase programs approved by our Board of Directors;~~equity and debt repurchases;

~~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 ~~the~~this Quarterly Report on Form 10-Q (see especially Part II, “Item 1A. Risk Factors”), our Annual Report on Form 10-K filed with the SEC on February 26, 2020 (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 Securities and Exchange Commission.

In addition to the factors described above, there are risks associated with our predominantly franchised business model that could impact our results, performance and achievements. Such risks include our ability to identify, attract and retain experienced and qualified franchisees and effectively manage the transfer of restaurants between and among franchisees, the business and financial health of franchisees, the ability of franchisees to meet their royalty, advertising, development, reimaging and other commitments, participation by franchisees in brand strategies and the fact that franchisees are independent third parties that own, operate and are responsible for overseeing the operations of their restaurants. Our predominantly franchised business model may also impact the ability of the Wendy’s system to effectively respond and adapt to market changes. Many of these risks have been or in the future may be heightened due to the business disruption and impact from the COVID-19 pandemic.

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.~~above. 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,~~laws, although we may do so from time to time. We do not endorse any projections regarding future performance that may be made by third parties.

Item 1. Legal Proceedings.

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. The~~estimable, and the Company believes it has adequate accruals for continuing operations for all ~~of its legal and environmental~~such matters. We cannot estimate the aggregate possible range of loss for various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and/or significant factual matters unresolved. 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,~~29, 2020, 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 and our Quarterly Report on Form 10-Q for the period ended March ~~31, 2019.~~29, 2020.

In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures have adversely affected customers, workforces, economies and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of our markets. Governmental restrictions and public perceptions of the risks associated with COVID-19 have caused consumers to avoid or limit non-essential travel, gatherings in public places and other social interactions, which has adversely affected, and could continue to adversely affect, our business.

In response to the COVID-19 pandemic, in March 2020, we updated our brand standard to include the closure of all dining rooms except where there were specific needs, or a drive-thru or pick-up window option was not available, subject to applicable federal, state and local requirements. Substantially all Wendy’s ~~plans~~restaurants continued to ~~launch breakfast~~offer drive-thru and delivery service to our customers. During the second quarter of 2020, we began implementing our restaurant and dining room reopening process through a phased approach in accordance with federal, state and local requirements, with customer and team member safety as our top priority. Dining rooms have begun re-opening at each restaurant owner’s discretion, subject to applicable regulatory restrictions. As of August 2, 2020, over 70% of dining rooms were open across the ~~U.S.~~Wendy’s system offering carryout and, in ~~2020.~~some cases, dine in services. The ~~breakfast daypart is competitive~~COVID-19 pandemic has also resulted in the temporary closure of certain restaurants across the Wendy’s system. As of August 2, 2020, approximately 98% of our global systemwide restaurants were operating.

As a result of the COVID-19 pandemic, restaurant ~~industry~~traffic and itsystemwide sales have been significantly negatively impacted. Even as mobility begins to increase, customers have been and may ~~prove difficult~~continue to ~~achieve~~be reluctant to return to in-restaurant dining, and consumer spending may be adversely impacted for an extended period of time as a result of decreased consumer confidence and the impact of lost wages due to increased unemployment.

The COVID-19 pandemic has also adversely affected new restaurant development and restaurant reimaging. Due to the uncertain and challenging economic and market ~~share~~conditions, we have delayed construction of certain new Company-operated restaurants and ~~reach targeted levels~~reimaging of ~~breakfast~~existing Company-operated restaurants and have also delayed the 2020 new restaurant development and Image Activation requirements of our franchisees. These delays could affect our ability to drive future growth in our business.

Our operating results and financial condition are impacted to a large extent by the operational and financial success of our franchisees. The impact of the COVID-19 pandemic has had, and could continue to have, an adverse effect on our franchisees’ operations and financial condition. Because a significant portion of restaurant operating costs are fixed or semi-fixed in nature, the loss of sales during a prolonged period of time negatively impacts operating margins and ~~profits.~~

can result in restaurant operating losses. As previously announced, we have taken certain actions to support our franchisees, including extending payment terms for royalties, extending or abating payment terms for advertising fund contributions and offering to defer base rent payments on

properties owned by the Company and leased to franchisees. These actions have adversely affected and are expected to continue to adversely affect our cash flows and financial condition in the upcoming quarters. To the extent our franchisees experience financial distress, including as a result of the COVID-19 pandemic, it could negatively affect our results of operations, cash flows and financial condition through delayed or reduced payments of royalties, advertising fund contributions or rent. In addition, in the event our franchisees institute insolvency or bankruptcy proceedings, we could be prevented from collecting or retaining certain payments or exercising certain rights under the related franchise, development or other agreements. On July 1, 2020, our largest franchisee, NPC Quality Burgers, Inc. filed for chapter 11 bankruptcy. As of the date of this report, all of NPC’s Wendy’s ~~plans~~restaurants remain open, and NPC has remained current with their continuing obligations to ~~enter~~us and the ~~breakfast daypart~~Wendy’s system, except for certain obligations that were not yet due as of the bankruptcy filing date and for which we expect to receive payment upon resolution of the bankruptcy proceedings. There can be no assurances that NPC’s bankruptcy will not have an adverse impact on our results of operation, cash flows or financial condition or on the performance of the Wendy’s system.

The COVID-19 pandemic has led, and could continue to lead, to interruptions in the delivery of food or other supplies to Wendy’s restaurants arising from delays or restrictions on shipping or manufacturing, closures of supplier or distributor facilities or financial distress or insolvency of suppliers or distributors. These delays or interruptions could impact the availability of certain food items at Wendy’s restaurants, including beef, chicken, pork and other core menu products. For example, as previously disclosed, we experienced disruptions to our beef supply beginning in early May 2020 as beef suppliers across North America faced production challenges. As a result, some menu items were occasionally in short supply at some Wendy’s system restaurants. While we and our supply chain partners effectively managed through this disruption and the beef supply subsequently returned to normal levels across the ~~U.S.~~Wendy’s system, there can be no assurances that we will not see similar disruptions in the ~~first quarter~~future. Our results of ~~2020.~~ operations and those of our franchisees could be adversely affected if our key suppliers or distributors are unable to fulfill their responsibilities and we are unable to identify alternative suppliers or distributors in a timely manner or effectively transition the impacted business to new suppliers or distributors.

The ~~Company and franchisee leadership have worked closely~~COVID-19 pandemic could also lead to ~~align with~~labor shortages or increased labor costs. Because COVID-19 can be transmitted through human contact, the ~~U.S. system on a breakfast program~~risk or perceived risk of contracting the virus could adversely affect the ability or cost of adequately staffing restaurants, which could be exacerbated to the extent that the Company ~~believes will drive incremental sales~~or franchisees have employees who test positive for the virus. If a significant percentage of our or our franchisees’ workforce is unable to work, whether because of illness, quarantine, travel limitations or other governmental actions or restrictions, our operations 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 engagementoperations 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 employeesmay be negatively impacted, which could ~~adversely~~materially affect our ~~operations.~~ results of operations and financial condition. As previously disclosed, we have taken several actions to help support our employees and protect the health and safety of our employees and customers, such as implementing a new emergency sick leave policy, providing temporary wage increases to restaurant employees in April and May and purchasing additional sanitation supplies and personal protective materials, which have contributed to increased operating costs.

The ~~launch of breakfast will also require significant financial resources, including~~impacts from 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 strategyCOVID-19 pandemic could have a material adverse ~~impact~~effect on our liquidity and capital resources. We currently believe we have the ability to pursue additional sources of liquidity if needed or desired to fund operating cash requirements or for other purposes. However, there can be no assurance that additional liquidity will be readily available or available on terms acceptable to us. If the disruptions caused by COVID-19 worsen or last longer than we currently expect, our ability to comply with certain debt covenants under our securitized financing facility could be adversely affected. Additionally, negative changes to our credit ratings due to the impact or expected impact of COVID-19 could have an adverse effect on our existing indebtedness, our ability to access additional capital, our cost of borrowing and our overall liquidity position and financial condition.

We cannot predict the duration, scope or severity of the COVID-19 pandemic. COVID-19 has disrupted and is expected to continue to disrupt our business, which has materially affected and could continue to materially affect our results of operations, financial condition and ~~results~~prospects for an extended period of ~~operations.~~time.

~~Wendy’s planned expansion into~~In addition to the ~~United Kingdom~~risks described above, the COVID-19 pandemic has had, and could continue to have, the effect of heightening 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~~disclosed in the ~~United Kingdom beginning~~“Risk Factors” section of our Form 10-K, including, but not limited to, risks related to competition, consumer preferences and spending, economic conditions and disruptions, labor, supply chain and purchasing, new restaurant development and reimaging, performance of the breakfast daypart, franchisee actions, results and financial condition, leasing and ownership of real estate, complaints or litigation, legal or regulatory requirements, international operations and expansion, digital commerce and technology, cybersecurity, asset impairments, our securitized financing facility and levels of indebtedness, and payment of future dividends. Because the COVID-19 pandemic is unprecedented and continuously evolving, the potential impacts to the risk factors that are further described 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.Form 10-K remain uncertain.

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~~second quarter of 2020:

~~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)
March 30, 2020 through May 3, 2020	511	$13.67	—	$85,462,519
May 4, 2020 through May 31, 2020	13,458	$19.41	—	$85,462,519
June 1, 2020 through June 28, 2020	2,896	$20.98	—	$85,462,519
Total	16,865	$19.51	—	$85,462,519

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 75,141~~(1) Represents 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 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.

~~Subsequent to September 29, 2019 through October 30, 2019,~~ the Company ~~repurchased 0.4~~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 fair market value of the Company’s common stock on the vesting or exercise date of such awards, as set forth in the applicable plan document.

(2) In February 2020, our Board of Directors authorized the repurchase of up to $100.0 million ~~shares under~~of our common stock through February 28, 2021, when and if market conditions warranted and to the extent legally permissible. In July 2020, the Company’s Board of Directors approved an extension of the February ~~2019~~2020 authorization by one year, through February 28, 2022, when and if market and economic conditions warrant and to the extent legally permissible. As previously announced, in March 2020, the Company temporarily suspended all share repurchase activity in connection with ~~an aggregate purchase price of $9.2 million, excluding commissions.~~the Company’s response to the COVID-19 pandemic. The Company now intends to resume share repurchases in 2020, subject to market conditions and prevailing economic factors.

Item 6. Exhibits.



EXHIBIT NO.			DESCRIPTION

~~31.1~~4.1			Series 2020-1 Supplement to Base Indenture, dated as of June 17, 2020, by and between Wendy’s Funding, LLC, as Master Issuer of the Series 2020-1 variable funding senior notes, Class A-1, and Citibank, N.A., as Trustee and Series 2020-1 Securities Intermediary, incorporated herein by reference to Exhibit 4.1 of The Wendy’s Company Current Report on Form 8-K filed on June 18, 2020 (SEC file no. 001-02207).
4.2			Fifth Supplement to the Base Indenture, dated as of June 17, 2020, by and between Wendy’s Funding, LLC, as Master Issuer, and Citibank, N.A., as Trustee, incorporated herein by reference to Exhibit 4.2 of The Wendy’s Company Current Report on Form 8-K filed on June 18, 2020 (SEC file no. 001-02207).
10.1			The Wendy’s Company 2020 Omnibus Award Plan, incorporated herein by reference to Exhibit 10.1 of The Wendy’s Company Current Report on Form 8-K filed on May 28, 2020 (SEC file no. 001-02207).**
10.2			Form of Nonqualified Stock Option Award Agreement under The Wendy’s Company 2020 Omnibus Award Plan, incorporated herein by reference to Exhibit 10.2 of The Wendy’s Company Current Report on Form 8-K filed on May 28, 2020 (SEC file no. 001-02207).**
10.3			Form of Restricted Stock Unit Award Agreement under The Wendy’s Company 2020 Omnibus Award Plan (Cliff Vesting), incorporated herein by reference to Exhibit 10.3 of The Wendy’s Company Current Report on Form 8-K filed on May 28, 2020 (SEC file no. 001-02207).**
10.4			Form of Restricted Stock Unit Award Agreement under The Wendy’s 2020 Omnibus Award Plan (Ratable Vesting), incorporated herein by reference to Exhibit 10.4 of The Wendy’s Company Current Report on Form 8-K filed on May 28, 2020 (SEC file no. 001-02207).**
10.5			Form of Non-Employee Director Restricted Stock Award Agreement under The Wendy’s Company 2020 Omnibus Award Plan, incorporated herein by reference to Exhibit 10.5 of The Wendy’s Company Current Report on Form 8-K filed on May 28, 2020 (SEC file no. 001-02207).**
10.6			Class A-1 Note Purchase Agreement, dated as of June 17, 2020, by and among Wendy’s Funding, LLC, as Master Issuer, each of Quality Is Our Recipe, LLC, Wendy’s Properties, LLC and Wendy’s SPV Guarantor, LLC, as Guarantors, Wendy’s International, LLC, as Manager, the conduit investors party thereto, the financial institutions party thereto, certain funding agents, and Coöperatieve Rabobank, U.A., New York Branch, as L/C Provider, Swingline Lender and Administrative Agent, incorporated herein by reference to Exhibit 10.1 of The Wendy’s Company Current Report on Form 8-K filed on June 18, 2020 (SEC file no. 001-02207).
10.7			Amendment No. 3 to the Wendy’s/Arby’s Group, Inc. 2009 Directors’ Deferred Compensation Plan.* **
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 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.* Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101			The following financial information from The Wendy’s Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 29, 2019~~June 28, 2020 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.
104			The cover page from The Wendy’s Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 29, 2019,~~June 28, 2020, formatted in Inline XBRL and contained in Exhibit 101.

____________________


*		Filed herewith.
**		Identifies a management contract or compensatory plan or arrangement.

*	~~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, 2019~~August 5, 2020			By: /s/ Gunther Plosch
			Gunther Plosch
			Chief Financial Officer
			(On behalf of the registrant)

Date: ~~November 6, 2019~~August 5, 2020			By: /s/ Leigh A. Burnside
			Leigh A. Burnside
			Senior Vice President, Finance and Chief Accounting Officer
			(Principal Accounting Officer)



	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



	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



	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



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



	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



	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	)



	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



	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



	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



	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



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	)



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