UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~October 1, 2017~~September 29, 2019

ORor



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

For the transition period from ______________ to _______________

Commission file number: 1-2207

THE WENDY’S COMPANY

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



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

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

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

(Registrant’s telephone number, including area code)

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



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

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

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

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

~~Large accelerated filer [x] Accelerated filer [ ]~~



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

~~Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ]~~

~~Emerging growth company [ ]~~

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

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

Yes ~~[ ]~~☐ No ~~[x]~~☒

There were ~~242,196,738~~230,047,087 shares of The Wendy’s Company common stock outstanding as of ~~November 2, 2017.~~

October 30, 2019.

THE WENDY’S COMPANY AND SUBSIDIARIES

INDEX TO FORM 10-Q



	Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements	34
Unaudited Condensed Consolidated Balance Sheets as of ~~October 1, 2017~~September 29, 2019 and ~~January 1, 2017~~ December 30, 2018	34
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended ~~October 1, 2017~~September 29, 2019 and ~~October 2, 2016~~September 30, 2018	45
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended ~~October 1, 2017~~September 29, 2019 and ~~October 2, 2016~~September 30, 2018	56
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 29, 2019 and September 30, 2018	7
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended ~~October 1, 2017~~September 29, 2019 and ~~October 2, 2016~~September 30, 2018	69
Notes to Condensed Consolidated Financial Statements	811
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2433
Item 3. Quantitative and Qualitative Disclosures about Market Risk	3545
Item 4. Controls and Procedures	3646

PART II: OTHER INFORMATION	3747
Item 1. Legal Proceedings	3949
Item 1A. Risk Factors	3949
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4051
Item 6. Exhibits	4152
Signatures	4253

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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


	October 1, 2017			January 1, 2017			September 29, 2019			December 30, 2018
ASSETS	(Unaudited)						(Unaudited)
Current assets:
Cash and cash equivalents	$	186,629		$	198,240		$	439,421		$	431,405
Restricted cash	34,042			57,612			28,769			29,860
Accounts and notes receivable, net	115,390			98,825			105,017			109,805
Inventories	2,895			2,851			3,549			3,687
Prepaid expenses and other current assets	23,762			19,244			12,638			14,452
Advertising funds restricted assets	58,163			75,760			84,380			76,509
Total current assets	420,881			452,532			673,774			665,718
Properties	1,252,246			1,192,339			980,872			1,023,267
Finance lease assets							198,415			189,969
Operating lease assets							871,108			—
Goodwill	743,508			741,410			755,588			747,884
Other intangible assets	1,332,130			1,322,531			1,251,699			1,294,153
Investments	58,171			56,981			46,898			47,660
Net investment in direct financing leases	213,649			123,604
Net investment in sales-type and direct financing leases							250,602			226,477
Other assets	69,688			49,917			107,264			96,907
Total assets	$	4,090,273		$	3,939,314		$	5,136,220		$	4,292,035

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	29,359		$	24,652		$	22,750		$	23,250
Current portion of finance lease liabilities							10,584			8,405
Current portion of operating lease liabilities							43,474			—
Accounts payable	25,776			27,635			23,793			21,741
Accrued expenses and other current liabilities	121,124			102,034			146,693			150,636
Advertising funds restricted liabilities	58,163			75,760			90,152			80,153
Total current liabilities	234,422			230,081			337,446			284,185
Long-term debt	2,696,520			2,487,630			2,270,866			2,305,552
Long-term finance lease liabilities							471,704			447,231
Long-term operating lease liabilities							911,213			—
Deferred income taxes	419,293			446,513			273,097			269,160
Deferred franchise fees							91,437			92,232
Other liabilities	277,443			247,354			130,866			245,226
Total liabilities	3,627,678			3,411,578			4,486,629			3,643,586
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 242,565 and 246,574 shares outstanding, respectively	47,042			47,042
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 230,371 and 231,233 shares outstanding, respectively							47,042			47,042
Additional paid-in capital	2,883,504			2,878,589			2,885,404			2,884,696
Accumulated deficit	(305,703		)	(290,857		)
Common stock held in treasury, at cost; 227,859 and 223,850 shares, respectively	(2,117,232		)	(2,043,797		)
Retained earnings							186,282			146,277
Common stock held in treasury, at cost; 240,053 and 239,191 shares, respectively							(2,415,027		)	(2,367,893		)
Accumulated other comprehensive loss	(45,016		)	(63,241		)	(54,110		)	(61,673		)
Total stockholders’ equity	462,595			527,736			649,591			648,449
Total liabilities and stockholders’ equity	$	4,090,273		$	3,939,314		$	5,136,220		$	4,292,035

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Amounts)


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016			September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
	(Unaudited)												(Unaudited)
Revenues:
Sales	$	158,843		$	228,644		$	467,914		$	747,211		$	181,977		$	165,323		$	530,724		$	486,316
Franchise royalty revenue and fees	98,882			98,039			306,120			275,886			109,155			103,212			320,233			308,679
Franchise rental income	50,275			37,329			140,127			102,420			59,918			50,474			176,931			152,110
Advertising funds revenue													86,830			81,541			253,923			245,011
	308,000			364,012			914,161			1,125,517			437,880			400,550			1,281,811			1,192,116
Costs and expenses:
Cost of sales	132,387			186,546			385,154			603,836			152,425			139,348			446,096			409,721
Franchise support and other costs													9,739			5,349			19,823			18,553
Franchise rental expense	24,076			17,534			64,841			49,684			32,364			22,260			92,842			69,829
Advertising funds expense													87,883			81,541			257,031			245,011
General and administrative	52,960			58,938			156,690			184,708			46,169			46,545			146,266			146,064
Depreciation and amortization	31,216			29,362			91,690			92,456			33,306			29,070			97,975			94,649
System optimization losses (gains), net	106			(37,756		)	39,749			(48,106		)
System optimization gains, net													(1,040		)	(486		)	(1,162		)	(8		)
Reorganization and realignment costs	2,888			2,129			20,768			7,866			403			941			4,771			6,691
Impairment of long-lived assets	1,041			361			1,804			12,991			—			347			1,684			2,156
Other operating expense (income), net	1,669			810			5,294			(13,483		)
Other operating income, net													(2,392		)	(1,713		)	(9,377		)	(4,643		)
	246,343			257,924			765,990			889,952			358,857			323,202			1,055,949			988,023
Operating profit	61,657			106,088			148,171			235,565			79,023			77,348			225,862			204,093
Interest expense	(29,977		)	(28,731		)	(87,887		)	(85,483		)
Other (expense) income, net	(125		)	498			3,108			1,036
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	31,555			77,855			63,392			151,118			53,311			498,917			138,934			555,534
Provision for income taxes	(17,298		)	(28,965		)	(28,639		)	(50,385		)	(7,184		)	(107,668		)	(28,527		)	(114,250		)
Net income	$	14,257		$	48,890		$	34,753		$	100,733		$	46,127		$	391,249		$	110,407		$	441,284

Net income per share:
Basic	$	.06		$	.19		$	.14		$	.38		$	.20		$	1.65		$	.48		$	1.85
Diluted	.06			.18			.14			.37			.20			1.60			.47			1.79

Dividends per share	$	.07		$	.06		$	.21		$	.18

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

Three Months Ended Nine Months Ended
October 1,
2017 October 2,
2016 October 1,
2017 October 2,
2016
(Unaudited)

Net income $ 14,257
$ 48,890
$ 34,753
$ 100,733
Other comprehensive income (loss), net:
Foreign currency translation adjustment 8,787
(3,369 ) 16,797
10,887
Change in unrecognized pension loss, net of income tax (provision) benefit of $(60) and $34 for the nine months ended October 1, 2017 and October 2, 2016, respectively —
—
96
(56 )
Effect of cash flow hedges, net of income tax provision of $279 and $838 for both the three and nine months ended October 1, 2017 and October 2, 2016, respectively 444
444
1,332
1,332
Other comprehensive income (loss), net 9,231
(2,925 ) 18,225
12,163
Comprehensive income $ 23,488
$ 45,965
$ 52,978
$ 112,896



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

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED

(In Thousands)



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

See accompanying notes to condensed consolidated financial statements.

Table of Contents

THE WENDY’S COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	Nine Months Ended						Nine Months Ended
	October 1, 2017			October 2, 2016			September 29, 2019			September 30, 2018
	(Unaudited)						(Unaudited)
Cash flows from operating activities:
Net income	$	34,753		$	100,733		$	110,407		$	441,284
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	91,690			94,056			97,975			94,649
Share-based compensation	16,356			14,260			13,989			14,401
Impairment of long-lived assets	1,804			12,991			1,684			2,156
Deferred income tax	945			(17,024		)	5,524			(1,527		)
Non-cash rental income, net	(8,348		)	(5,138		)
Non-cash rental expense (income), net							18,722			(10,868		)
Change in operating lease liabilities							(31,481		)	—
Net receipt of deferred vendor incentives	4,547			4,110			2,269			2,689
System optimization losses (gains), net	39,749			(48,106		)
System optimization gains, net							(1,162		)	(8		)
Gain on sale of investments, net	(1,807		)	—			(130		)	(450,000		)
Distributions received from TimWen joint venture	5,524			8,451
Equity in earnings in joint ventures, net	(6,113		)	(6,495		)
Accretion of long-term debt	927			914
Amortization of deferred financing costs	5,954			5,668
Reclassification of unrealized losses on cash flow hedges	2,170			2,170
Other, net	2,395			4,229
Changes in operating assets and liabilities:
Restricted cash	233			181
Accounts and notes receivable, net	(14,193		)	(29,118		)
Inventories	(44		)	126
Prepaid expenses and other current assets	(1,281		)	(3,958		)
Accounts payable	(1,557		)	(6,412		)
Accrued expenses and other current liabilities	3,039			5,677
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	176,743			137,315			237,500			229,662
Cash flows from investing activities:
Capital expenditures	(53,711		)	(108,744		)	(40,984		)	(39,717		)
Acquisitions	(86,788		)	(2,209		)	(5,052		)	(21,401		)
Dispositions	80,058			173,849			2,038			2,863
Proceeds from sale of investments	3,282			—			130			450,000
Notes receivable, net							(1,834		)	(283		)
Payments for investments	(375		)	(172		)	—			(13		)
Notes receivable, net	(4,174		)	(2,282		)
Changes in restricted cash	23,624			1,912
Other, net	—			103
Net cash (used in) provided by investing activities	(38,084		)	62,457			(45,702		)	391,449
Cash flows from financing activities:
Proceeds from long-term debt							850,000			934,837
Repayments of long-term debt	(20,291		)	(18,678		)	(883,564		)	(888,689		)
Repayments of finance lease liabilities							(5,178		)	(4,350		)
Deferred financing costs	(1,069		)	(1,017		)	(14,008		)	(17,340		)
Repurchases of common stock	(90,065		)	(161,194		)	(76,948		)	(140,199		)
Dividends	(51,464		)	(47,793		)	(69,280		)	(60,786		)
Proceeds from stock option exercises	10,419			10,623			24,069			42,299
Payments related to tax withholding for share-based compensation	(4,484		)	(4,142		)	(8,447		)	(10,464		)
Contingent consideration payment							—			(6,269		)
Net cash used in financing activities	(156,954		)	(222,201		)	(183,356		)	(150,961		)
Net cash used in operations before effect of exchange rate changes on cash	(18,295		)	(22,429		)
Net cash provided by operations before effect of exchange rate changes on cash							8,442			470,150
Effect of exchange rate changes on cash	6,684			3,997			2,755			(2,195		)
Net decrease in cash and cash equivalents	(11,611		)	(18,432		)
Cash and cash equivalents at beginning of period	198,240			327,216
Cash and cash equivalents at end of period	$	186,629		$	308,784
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
October 1,
2017 October 2,
2016
(Unaudited)
Supplemental cash flow information:
Cash paid for:

Interest $ 93,701
$ 85,753
Income taxes, net of refunds 22,092
63,775

Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable $ 9,621
$ 20,108
Capitalized lease obligations 239,721
102,748



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

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

See accompanying notes to condensed consolidated financial statements.

710

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements. In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of ~~October 1, 2017~~ ~~and~~September 29, 2019, the results of our operations for the three and nine months ended ~~October 1, 2017~~September 29, 2019 and ~~October 2, 2016~~September 30, 2018 and cash flows for the nine months ended ~~October 1, 2017~~September 29, 2019 and ~~October 2, 2016.~~September 30, 2018. The results of operations for the three and nine months ended ~~October 1, 2017~~September 29, 2019 are not necessarily indicative of the results to be expected for the full ~~2017~~2019 fiscal year. ~~These~~The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended ~~January 1, 2017~~December 30, 2018 (the “Form 10-K”).

The principal 100% owned subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). The Company manages and internally reports its business geographically. The operation and franchising of Wendy’s^®restaurants in North America (defined as the United States of America (“U.S.”) and Canada) comprises virtually all of our current operations and represents a single reportable segment. The revenues and operating results of Wendy’s restaurants outside of North America are not material. As a result of the realignment of our management and operating structure in May 2019, the Company is continuing to evaluate the impact these changes will have on its existing operating segment structure. The Company currently expects to report its results in the following three segments beginning with our Annual Report on Form 10-K for the fiscal year ended December 29, 2019: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. See Note 6 for further information.

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

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

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

(2) New Accounting Standards

New Accounting Standards

Credit Losses

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

New Accounting Standards Adopted

Cloud Computing

In August 2018, the FASB issued new guidance on accounting for implementation costs of a cloud computing arrangement that is a service contract. The new guidance aligns the accounting for such implementation costs of a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The Company 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.

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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 and source:



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

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

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

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

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Contract Balances

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



	September 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

_______________


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


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


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

Significant changes in deferred franchise fees are as follows:



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

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:
2019 (a)	$	2,164
2020	7,399
2021	6,118
2022	5,858
2023	5,633
Thereafter	73,579
	$	100,751

_______________


(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.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(4) Acquisitions

During the nine months ended September 29, 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 and such transactions were not significant to our condensed consolidated financial statements. The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for restaurants acquired from franchisees:



	Nine Months Ended
	September 29, 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.

(5) System Optimization ~~Losses (Gains),~~Gains, Net

~~In July 2013, the Company announced a~~The Company’s system optimization initiative ~~as part of its brand transformation, which~~ 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. In February 2015,~~transfers (“Franchise Flips”). As of January 1, 2017, the Company ~~announced plans~~completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total ~~system, which~~system. While the Company ~~completed as of January 1, 2017. Wendy’s will~~has no plans to reduce its ownership below the approximately 5% level, the Company expects to continue to optimize ~~its~~the Wendy’s system ~~by facilitating franchisee-to-franchisee restaurant transfers,~~through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, ~~and~~ drive new restaurant development and accelerate ~~reimages in the Image Activation format.~~reimages.

During the nine months ended ~~October 1, 2017,~~September 29, 2019 and September 30, 2018, the Company ~~recorded post-closing adjustments on sales of restaurants~~facilitated 3 and 73 Franchise Flips, respectively. Additionally, during the nine months ended September 30, 2018, the Company completed the sale of ~~other assets, resulting in net gains totaling $3,385. In addition, the Company facilitated the transfer of 270~~3 Company-operated restaurants ~~between~~to a franchisee. NaN Company-operated restaurants were sold to franchisees during the nine months ended ~~October 1, 2017 (excluding the DavCo~~September 29, 2019.

Gains and ~~NPC transactions discussed below).~~

~~DavCo~~losses recognized on dispositions are recorded to “System optimization gains, net” in our condensed consolidated statements of operations. Costs related to acquisitions and ~~NPC Transactions~~

~~As part of~~dispositions under our system optimization initiative ~~the Company acquired 140 Wendy’s restaurants on May 31, 2017 from DavCo Restaurants, LLC (“DavCo”) for total net cash consideration of $86,788,~~are recorded to “Reorganization and realignment costs,” which ~~were immediately sold~~are further described in Note 6. All other costs incurred related to ~~NPC International, Inc. (“NPC”), an existing franchisee of the Company, for cash proceeds of $70,688 (the “DavCo~~facilitating Franchise Flips are recorded to “Franchise support and NPC transactions”). As part of the transaction, NPC has agreed to remodel 90 acquired restaurants in the Image Activation format by the end of 2021 and build 15 new Wendy’s restaurants by the end of 2022. Prior to closing the DavCo transaction, seven DavCo restaurants were closed. The acquisition of Wendy’s restaurants from DavCo was not contingent on executing the sale agreement with NPC; as such, the Company accounted for the transactions as an acquisition and subsequent disposition of a business. The total consideration paid to DavCo was allocated to net tangible and identifiable intangible assets acquired based on their estimated fair values. As part of the transactions, the Company retained leases for purposes of subleasing such properties to NPC.other costs.”

816

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~The following is a summary of the activity recorded as a result of the DavCo and NPC transactions:~~

Nine Months Ended
October 1,
2017
Acquisition (a)
Total consideration paid $ 86,788
Identifiable assets and liabilities assumed:
Net assets held for sale 70,688
Capital lease assets 49,360
Deferred taxes 27,639
Capital lease obligations (97,046 )
Net unfavorable leases (b) (22,330 )
Other liabilities (c) (6,999 )
Total identifiable net assets 21,312
Goodwill (d) $ 65,476

Disposition
Proceeds $ 70,688
Net assets sold (70,688 )
Goodwill (d) (65,476 )
Net favorable leases (e) 24,034
Other (f) (1,692 )
Loss on DavCo and NPC transactions $ (43,134 )

~~_______________~~

~~(a)~~

The fair values of the identifiable intangible assets and taxes related to the acquisition are provisional amounts as of October 1, 2017, pending final valuations and purchase accounting adjustments. The Company utilized management estimates and consultation with an independent third-party valuation firm to assist in the valuation process. For the three months ended October 1, 2017, the Company recorded adjustments to the fair value of deferred taxes and net unfavorable leases, resulting in a decrease in goodwill of $27.


~~(b)~~	~~Includes favorable lease assets of $1,229 and unfavorable lease liabilities of $23,559.~~


~~(c)~~	Includes a supplemental purchase price estimated at $6,344 to be paid to DavCo for the resolution of certain lease-related matters, which is included in “Accrued expenses and other current liabilities.”


~~(d)~~	~~Includes tax deductible goodwill of $21,870.~~


~~(e)~~	~~The Company recorded favorable lease assets of $30,068 and unfavorable lease liabilities of $6,034 as a result of subleasing land, buildings and leasehold improvements to NPC.~~


~~(f)~~	Includes cash payments for selling and other costs associated with the transaction. For the three and nine months ended October 1, 2017, the Company recorded additional selling and other costs of $12.

Gains and losses recognized on dispositions are recorded to “System optimization losses (gains), net” in our condensed consolidated statements of operations. Costs related to our system optimization initiative were historically recorded to “Reorganization and realignment costs.” Costs incurred during 2017 in connection with the DavCo and NPC transactions continue to be recorded to “Reorganization and realignment costs.” All other costs incurred during 2017 related to facilitating franchisee-to-franchisee restaurant transfers are recorded to “Other operating expense (income), net.” See Note 4 for further information.

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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

Three Months Ended Nine Months Ended
October 1, 2017 October 2,
2016 October 1,
2017 October 2,
2016
Number of restaurants sold to franchisees —
156
—
211

Proceeds from sales of restaurants $ —
$ 124,765
$ —
$ 164,380
Net assets sold (a) —
(58,227 ) —
(75,282 )
Goodwill related to sales of restaurants —
(24,254 ) —
(30,630 )
Net unfavorable leases (b) —
(6,225 ) —
(11,131 )
Other —
(726 ) —
(1,521 )
—
35,333
—
45,816
Post-closing adjustments on sales of restaurants (c) 418
(120 ) 1,345
(1,710 )
Gain on sales of restaurants, net 418
35,213
1,345
44,106

(Loss) gain on sales of other assets, net (d) (539 ) 2,543
2,040
4,000
Gain (loss) on DavCo and NPC transactions 15
—
(43,134 ) —
System optimization (losses) gains, net $ (106 ) $ 37,756
$ (39,749 ) $ 48,106



	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)	~~Net~~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 ~~sold~~that were included in the sale totaled $1,139 and consisted primarily of equipment. In addition, goodwill of $208 was written off in connection with the sale.


(b)	During the three and nine months ended October 2, 2016, the Company recorded favorable lease assets of $2,114 and $2,297, respectively, and unfavorable lease liabilities of $8,339 and $13,428, respectively, as a result of leasing and/or subleasing land, buildings and/or leasehold improvements to franchisees in connection with sales of restaurants.

~~(c)~~

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

~~(d)~~(c)

During the three and nine months ended ~~October 1, 2017,~~September 29, 2019, the Company received cash proceeds of ~~$2,411~~$798 and ~~$9,403,~~$2,038, respectively, ~~primarily from the sale of surplus properties. The nine months ended October 1, 2017 also includes the recognition of a deferred gain of $375 related to the sale of a share in an aircraft. During~~and during the three and nine months ended ~~October 2, 2016, the Company~~September 30, 2018 received cash proceeds of ~~$4,006~~$1,049 and ~~$9,469,~~$1,421, respectively, primarily from the sale of surplus properties.

Assets Held for Sale

As of ~~October 1, 2017~~September 29, 2019 and ~~January 1, 2017,~~December 30, 2018, the Company had assets held for sale of ~~$2,509~~$2,391 and ~~$4,800,~~$2,435, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(3) Acquisitions~~

~~The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for acquisitions of franchised restaurants:~~

Nine Months Ended
October 1,
2017 October 2,
2016
Restaurants acquired from franchisees —
2

Total consideration paid, net of cash received $ —
$ 2,209
Identifiable assets acquired and liabilities assumed:
Properties —
2,218
Deferred taxes and other assets —
9
Other liabilities —
(18 )
Total identifiable net assets —
2,209
Goodwill $ —
$ —

~~On May 31, 2017, the Company also entered into the DavCo and NPC transactions. See Note 2 for further information.~~

~~(4)~~(6) Reorganization and Realignment Costs

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



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

Three Months Ended Nine Months Ended
October 1,
2017 October 2,
2016 October 1,
2017 October 2,
2016
System optimization initiative $ 232
$ 2,091
$ 867
$ 6,895
G&A realignment - November 2014 plan —
38
—
971
G&A realignment - May 2017 plan 2,656
—
19,901
—
Reorganization and realignment costs $ 2,888
$ 2,129
$ 20,768
$ 7,866

~~System Optimization Initiative~~

The Company has recognized costs related to its system optimization initiative, which 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. The Company does not expect to incur additional costs during the remainder of 2017 in connection with the DavCo and NPC transactions. All other costs incurred during 2017 related to facilitating franchisee-to-franchisee restaurant transfers are recorded to “Other operating expense (income), net.”

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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

Three Months Ended Nine Months Ended
Total
Incurred Since Inception
October 1,
2017 October 2,
2016 October 1,
2017 October 2,
2016
Severance and related employee costs $ —
$ 28
$ 3
$ 46
$ 18,237
Professional fees 232
1,991
794
5,137
17,404
Other (a) —
72
70
112
5,813
232
2,091
867
5,295
41,454
Accelerated depreciation and amortization (b) —
—
—
1,600
25,398
Share-based compensation (c) —
—
—
—
5,013
Total system optimization initiative $ 232
$ 2,091
$ 867
$ 6,895
$ 71,865

~~_______________~~


~~(a)~~	~~The nine months ended October 2, 2016 includes a reversal of an accrual of $50 as a result of a change in estimate.~~


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


~~(c)~~	Represents incremental share-based compensation resulting from the modification of stock options and performance-based awards in connection with the termination of employees under our system optimization initiative.

~~The tables below present a rollforward of our accrual for our system optimization initiative, which is included in “Accrued expenses and other current liabilities.”~~

Balance
January 1,
2017
Charges Payments
Balance
October 1, 2017
Severance and related employee costs $ —
$ 3
$ (3 ) $ —
Professional fees 101
794
(885 ) 10
Other —
70
(70 ) —
$ 101
$ 867
$ (958 ) $ 10

Balance
January 3, 2016
Charges Payments
Balance October 2,
2016
Severance and related employee costs $ 77
$ 46
$ (123 ) $ —
Professional fees 708
5,137
(5,740 ) 105
Other 90
112
(202 ) —
$ 875
$ 5,295
$ (6,065 ) $ 105

General and Administrative (“G&A”) Realignment

~~November 2014 Plan~~

In November 2014, the Company initiated a plan to reduce its G&A expenses. The plan included a realignment and reinvestment of resources to focus primarily on accelerated restaurant development and consumer-facing restaurant technology to drive long-term growth. The Company achieved the majority of the expense reductions through the realignment of its U.S. field operations and savings at its Restaurant Support Center in Dublin, Ohio, which was substantially completed by the end of the second quarter of 2015. The Company recognized costs totaling $38 and $971 during the three and nine months ended October 2, 2016, respectively, and $23,960 in aggregate since inception. The Company did not incur any expenses during the three and nine months ended October 1, 2017 and does not expect to incur additional costs related to the plan.

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~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~May 2017 Plan~~

In May 2017, the Company initiated a ~~new~~ plan to further reduce its G&A expenses. ~~The~~Additionally, the Company ~~expects~~announced in May 2019 changes to ~~incur total~~its leadership structure that includes the creation of two new positions, a President, U.S and Chief Commercial Officer and a President, International and Chief Development Officer, and the elimination of the Chief Operations Officer position. During the nine months ended September 29, 2019 and September 30, 2018, the Company recognized costs ~~aggregating approximately $28,000 to $33,000~~ related to the ~~plan. The Company recognized costs~~plan totaling ~~$2,656~~$4,695 and ~~$19,901 during the three and nine months ended October 1, 2017,~~$6,375, respectively, which primarily included severance and related employee costs and share-based compensation. The Company expects to incur additional costs aggregating approximately ~~$8,000 to $13,000,~~$2,700, comprised of (1) severance and related employee costs of approximately ~~$3,000,~~$1,900, (2) recruitment and relocation costs of approximately ~~$4,000,~~$450, (3) third-party and other costs of approximately ~~$1,000~~$50 and (4) share-based compensation of approximately ~~$3,000.~~$300. The Company expects to incur total costs aggregating approximately $35,000 to ~~be recognized during~~$38,000 related to the ~~remainder~~plan.

Table of ~~2017~~Contents

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 ~~continue into 2019,~~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 ~~approximately two-thirds to be recognized during 2017.~~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 ~~May 2017~~G&A realignment plan:


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

_______________


(a)	Primarily represents incremental share-based compensation resulting from the modification of stock options in connection with the termination of employees under our ~~May 2017~~G&A realignment plan. ~~The three and nine months ended October 1, 2017 includes incremental share-based compensation of $652 related to the modification of stock options granted during August 2017.~~

~~As of October 1, 2017, the~~The accruals for our ~~May 2017~~G&A realignment plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled ~~$7,766~~$3,491 and ~~$5,429,~~$507 as of September 29, 2019, respectively, and $6,817 and $1,432 as of September 30, 2018, respectively. The ~~table~~tables below ~~presents~~present a rollforward of our accruals for the ~~May 2017~~ plan.


	Balance January 1, 2017		Charges		Payments			Balance October 1, 2017		Balance December 30, 2018		Charges		Payments			Balance September 29, 2019
Severance and related employee costs	$	—	$	14,436	$	(1,350	)	$	13,086	$	7,241	$	2,816	$	(6,216	)	$	3,841
Recruitment and relocation costs	—		145		(36		)	109		83		654		(580		)	157
Third-party and other costs	—		821		(821		)	—		—		112		(112		)	—
	$	—	$	15,402	$	(2,207	)	$	13,195	$	7,324	$	3,582	$	(6,908	)	$	3,998



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

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 under the initiative since inception and does not expect to incur any additional costs during the remainder of 2019.

~~(5)~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(7) Investments

Equity Investments

Wendy’s has a 50% share in a partnership in a Canadian restaurant real estate joint venture (“TimWen”) with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company that owns the Tim Hortons^® brand. (Tim Hortons^™is a registered trademark of Tim Hortons USA Inc.) In addition, a wholly-owned subsidiary of Wendy’s has a 20% share in a joint venture for the operation of Wendy’s restaurants in Brazil (the “Brazil JV”). The Company has significant influence over these investees. Such investments are accounted for using the equity method of accounting, under which our results of operations include our share of the income (loss) of the investees in “Other operating ~~expense (income),~~income, net.”

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

During the three months ended October 1, 2017, a wholly-owned subsidiary of Wendy’s agreed to lend the Brazil JV an aggregate amount up to, but not to exceed, $4,800, which is in addition to $8,000 previously loaned. During the three months ended October 1, 2017, $1,500 was loaned to the Brazil JV under this agreement. The loans are denominated in U.S. Dollars, which is also the functional currency of the subsidiary; therefore, there is no exposure to changes in foreign currency rates. The loans are due October 20, 2020 and bear interest at 6.5% per year.

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


	Nine Months Ended						Nine Months Ended
	October 1, 2017			October 2, 2016			September 29, 2019			September 30, 2018
Balance at beginning of period	$	54,545		$	55,541		$	47,021		$	55,363

Investment	375			172			—			13

Equity in earnings for the period	7,844			8,207			8,812			7,566
Amortization of purchase price adjustments (a)	(1,731		)	(1,712		)	(1,700		)	(1,756		)
	6,113			6,495			7,112			5,810
Distributions received ~~(b)~~	(8,128		)	(8,451		)	(10,038		)	(9,060		)
Foreign currency translation adjustment included in “Other comprehensive income, net”	4,304			3,204
Foreign currency translation adjustment included in “Other comprehensive (loss) income, net” and other							2,164			(191		)
Balance at end of period	$	57,209		$	56,961		$	46,259		$	51,935

_______________


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


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

Other Investments in Equity Securities

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

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(8) Long-Term Debt

Long-term debt consisted of the following:



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

On June 26, 2019, Wendy’s Funding, LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of the Company, completed a debt refinancing transaction under which the Master Issuer issued fixed rate senior secured notes in the following 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 on a quarterly basis. The legal final maturity date of the Series 2019-1 Class A-2 Notes is 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, 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 Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (the “Series 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 for the drawing of up to $150,000 on a revolving basis using various credit instruments, including a letter of credit facility. NaN amounts were borrowed under the Series 2019-1 Class A-1 Notes during the nine months ended September 29, 2019. The Series 2019-1 Class A-1 Notes replaced the Company’s $150,000 Series 2018-1 Class A-1 Notes, which were canceled on the closing date, and the letters of credit outstanding against the Series 2018-1 Class A-1 Notes were transferred to the Series 2019-1 Class A-1 Notes.

The Series 2019-1 Senior Notes are secured by substantially all of the assets of the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company that act as guarantors (the “Guarantors”), excluding certain real estate assets and subject to certain limitations. The Series 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.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

During the nine months ended September 29, 2019, the Company incurred debt issuance costs of $14,008 in connection with the issuance of 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.

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

~~(6)~~(9) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. These inputs are classified into the following hierarchy:

Level 1 Inputs - Quoted prices for identical assets or liabilities in active markets.

Level 2 Inputs - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs - Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation.

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Financial Instruments

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


	October 1, 2017				January 1, 2017					September 29, 2019				December 30, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements
Financial assets
Cash equivalents	$	337	$	337	$	5,335	$	5,335	Level 1	$	206,094	$	206,094	$	222,228	$	222,228	Level 1
Non-current cost method investments (a)	962		325,869		2,436		326,283		Level 3
Other investments in equity securities (a)										639		1,818		639		2,181		Level 3

Financial liabilities
Series 2015-1 Class A-2-I Notes (b)	857,500		863,417		864,063		857,349		Level 2
Series 2019-1 Class A-2-I Notes (b)										399,000		405,863		—		—		Level 2
Series 2019-1 Class A-2-II Notes (b)										448,875		463,598		—		—		Level 2
Series 2018-1 Class A-2-I Notes (b)										442,125		448,580		445,500		424,026		Level 2
Series 2018-1 Class A-2-II Notes (b)										466,688		476,208		470,250		439,353		Level 2
Series 2015-1 Class A-2-II Notes (b)	882,000		900,169		888,750		880,005		Level 2	—		—		870,750		865,342		Level 2
Series 2015-1 Class A-2-III Notes (b)	490,000		504,112		493,750		474,543		Level 2	480,000		492,624		483,750		482,522		Level 2
7% debentures, due in 2025 (b)	89,204		106,000		88,277		99,750		Level 2	91,722		107,500		90,769		102,750		Level 2
Guarantees of franchisee loan obligations (c)	224		224		280		280		Level 3	2		2		17		17		Level 3

_______________

(a)

The fair value of our indirect investment in Arby’s Restaurant Group, Inc. (“Arby’s”) is based on applying a multiple to Arby’s adjusted earnings before income taxes, depreciation and amortization per its current unaudited financial information. The carrying value of our indirect investment in Arby’s was reduced to zero during 2013 in connection with the receipt of a dividend. The fair values of our ~~remaining~~ investments are not significant and are based on our review of information provided by the investment managers or investees which was based on (1) valuations performed by the investment managers or investees, (2) quoted market or broker/dealer prices for similar investments and (3) quoted market or broker/dealer prices adjusted by the investment managers for legal or contractual restrictions, risk of nonperformance or lack of marketability, depending upon the underlying investments.

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)


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

(c)

Wendy’s has provided loan guarantees to various lenders on behalf of franchisees entering into debt arrangements for ~~new restaurant development and~~ equipment financing. ~~In addition, during 2012, Wendy’s provided a guarantee to a lender for a franchisee in connection with the refinancing of the franchisee’s debt.~~ We have accrued a liability for the fair value of these guarantees, the calculation of which was based upon a weighted average risk ~~percentage established at inception and adjusted for a history of defaults.~~percentage.

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

~~Derivative Instruments~~

The Company’s primary objective for entering into interest rate swap agreements was to manage its exposure to changes in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt.

Our derivative instruments for 2015 included seven forward-starting interest rate swaps designated as cash flow hedges to change the floating rate interest payments for $350,000 and $100,000 in borrowings associated with the Term A and Term B Loans, respectively, under the Company’s prior credit agreement, to fixed rate interest payments beginning June 30, 2015 and maturing on December 31, 2017. In May 2015, the Company terminated these interest rate swaps and paid $7,275, which was recorded against the derivative liability. The unrealized loss on the cash flow hedges at termination of $7,275 is being reclassified on a straight-line basis from “Accumulated other comprehensive loss” to “Interest expense” beginning June 30, 2015 (the original effective date of the interest rate swaps) through December 31, 2017 (the original maturity date of the interest rate swaps).

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Reclassifications of unrealized losses on cash flow hedges from “Accumulated other comprehensive loss” to “Interest expense” were $723 and $2,170 for both the three and nine months ended October 1, 2017 and October 2, 2016, respectively.

Non-Recurring Fair Value Measurements

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

Total impairment losses may reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements, ~~and~~ favorable lease assets and ROU assets) to fair value as a result of (1) declines in operating performance at Company-operated restaurants and (2) the Company’s decision to lease and/or sublease the land and/or buildings to franchisees in connection with the sale or anticipated sale of restaurants, ~~and (2) declines in operating performance at Company-operated restaurants.~~including any subsequent lease modifications. The fair ~~value~~values of long-lived assets held and used presented in the tables below represents the remaining carrying value and ~~was~~were estimated based on either discounted cash flows of future anticipated lease and sublease income or ~~current market values.~~discounted cash flows of future anticipated Company-operated restaurant performance.

Total impairment losses may also include the impact of remeasuring long-lived assets held for sale, which primarily include surplus properties. The fair ~~value~~values of long-lived assets held for sale presented in the tables below represents the remaining carrying value and ~~was~~were estimated based on current market values. See Note 710 for further information on impairment of our long-lived assets.



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



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

Fair Value Measurements
October 1,
2017 Level 1 Level 2 Level 3
Held and used $ 915
$ —
$ —
$ 915
Held for sale 1,290
—
—
1,290
Total $ 2,205
$ —
$ —
$ 2,205

Fair Value Measurements
January 1,
2017 Level 1 Level 2 Level 3
Held and used $ 5,462
$ —
$ —
$ 5,462
Held for sale 1,552
—
—
1,552
Total $ 7,014
$ —
$ —
$ 7,014

Total impairment losses for the three and nine months ended October 1, 2017 included remeasuring long-lived assets held and used of $928 and $1,146, respectively, and remeasuring long-lived assets held for sale of $113 and $658, respectively. Total impairment losses for the three and nine months ended October 2, 2016 included remeasuring long-lived assets held and used of $242 and $12,768, respectively, and remeasuring long-lived assets held for sale of $119 and $223, respectively.

In addition, the Company measured assets acquired and liabilities assumed at fair value as part of the DavCo and NPC transactions during the three and nine months ended October 1, 2017. See Note 2 for further information.

~~(7)~~(10) Impairment of Long-Lived Assets

~~During the three and nine months ended October 1, 2017 and October 2, 2016, the~~The Company ~~recorded~~records impairment charges ~~on long-lived assets~~ as a result of (1) closing Company-operated restaurants and classifying such surplus properties as held for sale, (2) the deterioration of operating performance of certain Company-operated restaurants and (3) the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of Company-operated restaurants, (2) closing Company-operated restaurants and classifying such surplus properties as held for sale and (3) the deterioration in operating performance of certain Company-operated restaurants and charges for capital improvements in previously impaired restaurants that did not subsequently recover. The Company may recognize additional impairment charges resulting from leasing or subleasing additional properties to franchisees in connection with sales of Company-operated restaurants to franchisees.including any subsequent lease modifications.

1622

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following is a summary of impairment losses recorded, which represent the excess of the carrying amount over the fair value of the affected assets and are included in “Impairment of long-lived ~~assets.~~assets:”



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

Three Months Ended Nine Months Ended
October 1,
2017 October 2,
2016 October 1,
2017 October 2,
2016
Restaurants leased or subleased to franchisees $ 95
$ 163
$ 95
$ 12,654
Surplus properties 113
119
658
223
Company-operated restaurants 833
79
1,051
114
$ 1,041
$ 361
$ 1,804
$ 12,991

~~(8)~~(11) Income Taxes

The Company’s effective tax rate for the three months ended ~~October 1, 2017~~September 29, 2019 and ~~October 2, 2016~~September 30, 2018 was ~~54.8%~~13.5% and ~~37.2%,~~21.6% respectively. The Company’s effective tax rate ~~varies~~varied from the U.S. federal statutory rate of ~~35%~~21% primarily due to ~~the effect~~(1) a reduction in unrecognized tax benefits due to a lapse of ~~(1) the system optimization initiative provision~~statute of ~~$5,019 and $2,332~~limitations in the ~~third quarter~~three months ended September 29, 2019, (2) a reduction for stock-based compensation, which included net excess tax benefits of ~~2017~~$1,103 and ~~2016,~~$5,251 for the three months ended September 29, 2019 and September 30, 2018, respectively, ~~reflecting goodwill adjustments, changes~~and (3) an increase due to ~~valuation allowances on state net operating loss carryforwards and state deferred taxes, (2)~~ state income taxes, ~~net of federal benefits,~~ including non-recurring changes to state deferred taxes ~~(3) the adoption~~net of an amendment issued by the Financial Accounting Standards Board (“FASB”), which requires that excess tax benefits and tax deficiencies related to share-based payments be recognized in net income and (4) the rate differential between foreign and domestic taxes.federal benefits.

The Company’s effective tax rate for the nine months ended ~~October 1, 2017~~September 29, 2019 and ~~October 2, 2016~~September 30, 2018 was ~~45.2%~~20.5% and ~~33.3%,~~20.6% respectively. The Company’s effective tax rate ~~varies~~varied immaterially from the U.S. federal statutory rate of ~~35%~~21% primarily due to ~~the effect of~~ (1) the system optimization initiative, reflecting goodwill adjustments, changes to valuation allowances on state net operating loss carryforwards and state deferred taxes (including corrections to prior years identified and recordeda reduction in ~~the first nine months of 2017 and 2016, which resulted in a benefit of $2,248 and $7,113, respectively), (2) the adoption of an amendment issued by the FASB, which requires that excess~~unrecognized tax benefits ~~and tax deficiencies related~~due to ~~share-based payments be recognized~~a lapse of statute of limitations in ~~net income, which resulted in a benefit of $5,205 during~~ the nine months ended ~~October 1, 2017,~~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, ~~net of federal benefits,~~ including non-recurring 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 ~~(4)~~a net expense of $991 related to limitations on the ~~rate differential between~~deductibility of certain executive compensation, partially offset by $1,341 for the tax benefit of foreign tax credits.

Unrecognized tax benefits for the Company decreased by $5,639 and ~~domestic taxes.~~

$6,475 during the three and nine months ended September 29, 2019, respectively. The decrease was primarily related to the lapse of statutes of limitations during the third quarter of 2019. During the next twelve months, we believe ~~that~~ it is reasonably possible the ~~Company will reduce its~~Company’s unrecognized tax benefits will decrease by up to ~~$7,030, primarily~~$2,081 due to the lapse of statutes of limitations and expected settlements with taxing authorities.

The current portion of refundable income taxes was ~~$16,165~~$6,719 and ~~$18,111~~$14,475 as of ~~October 1, 2017~~September 29, 2019 and ~~January 1, 2017,~~December 30, 2018, respectively, and is included in “Accounts and notes receivable, net” in the condensed consolidated balance sheets. ~~Long-term~~There were 0 long-term refundable income taxes ~~are included in “Other assets” and amounted to $960 and $239~~ as of ~~October 1, 2017~~September 29, 2019 and ~~January 1, 2017, respectively.~~December 30, 2018.

~~(9)~~

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(12) Net Income Per Share

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

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



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

Three Months Ended Nine Months Ended
October 1,
2017 October 2,
2016 October 1,
2017 October 2,
2016
Common stock:
Weighted average basic shares outstanding 243,354
260,976
245,073
265,702
Dilutive effect of stock options and restricted shares 8,383
3,832
8,103
4,239
Weighted average diluted shares outstanding 251,737
264,808
253,176
269,941

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Diluted net income per share for the three and nine months ended ~~October 1, 2017~~September 29, 2019 and ~~October 2, 2016~~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 ~~1,617~~3,257 and ~~618~~2,488 for the three and nine months ended ~~October 1, 2017,~~September 29, 2019, respectively, and ~~2,233~~1,121 and ~~2,072~~1,287 for the three and nine months ended ~~October 2, 2016,~~September 30, 2018, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

~~(10)~~(13) Stockholders’ Equity

~~Stockholders’ Equity~~Dividends

~~The following is a summary~~During each of the ~~changes in stockholders’ equity:~~first three quarters of 2019, the Company paid quarterly cash dividends of $.10 per share. During each of the first three quarters of 2018, the Company paid quarterly cash dividends of $.085 per share.

Nine Months Ended
October 1,
2017 October 2,
2016
Balance at beginning of period $ 527,736
$ 752,914
Comprehensive income 52,978
112,896
Cash dividends (51,464 ) (47,793 )
Repurchases of common stock (90,964 ) (162,492 )
Share-based compensation 16,356
14,260
Exercises of stock options 10,194
10,600
Vesting of restricted shares (4,260 ) (3,853 )
Cumulative effect of change in accounting principle (a) 1,880
—
Tax benefit from share-based compensation —
1,898
Other 139
145
Balance at end of period $ 462,595
$ 678,575

~~_______________~~


~~(a)~~	During the nine months ended October 1, 2017, the Company recognized a tax benefit as a reduction to the Company’s deferred tax liability with an equal offsetting increase to “Accumulated deficit.” The adjustment was recognized as a result of adoption of an amendment to the accounting for employee share-based payment transactions. See Note 15 for further information.

Repurchases of Common Stock

In February ~~2017,~~2019, our Board of Directors authorized a repurchase program for up to ~~$150,000~~$225,000 of our common stock through March ~~4, 2018,~~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 ~~October 1, 2017,~~September 29, 2019, the Company repurchased ~~6,131~~4,153 shares with an aggregate purchase price of ~~$90,876,~~$76,165, of which ~~$899~~$1,102 was accrued at ~~October 1, 2017~~September 29, 2019, and excluding commissions of ~~$88.~~$58, under the November 2018 and February 2019 authorizations. As of ~~October 1, 2017,~~September 29, 2019, the Company had ~~$59,124~~$170,292 of availability remaining under its February ~~2017~~2019 authorization. Subsequent to September 29, 2019 through October ~~1, 2017 through November 2, 2017,~~30, 2019, the Company repurchased ~~428~~443 shares under the February 2019 authorization with an aggregate purchase price of ~~$6,628,~~$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.

~~On June 1, 2015,~~In February 2018, our Board of Directors authorized a repurchase program for up to ~~$1,400,000~~$175,000 of our common stock through ~~January 1, 2017,~~March 3, 2019, when and if market conditions warranted and to the extent legally permissible. During the nine months ended ~~October 2, 2016,~~September 30, 2018, the Company repurchased ~~16,034~~6,896 shares under the February 2018 repurchase authorization with an aggregate purchase price of $118,866, of which $2,675 was accrued at September 30, 2018, and excluding commissions of $97. Additionally, during the nine months ended September 30, 2018, the Company completed its previous February 2017 repurchase authorization for up to $150,000 of our common stock with the repurchase of 1,385 shares with an aggregate purchase price of ~~$162,252, of which $2,998 was accrued at October 2, 2016 and~~$22,633, excluding commissions of ~~$240.~~$19.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Accumulated Other Comprehensive Loss

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



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

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

Foreign Currency Translation Cash Flow Hedges (a) Pension Total
Balance at January 1, 2017 $ (60,299 ) $ (1,797 ) $ (1,145 ) $ (63,241 )
Current-period other comprehensive income 16,797
1,332
96
18,225
Balance at October 1, 2017 $ (43,502 ) $ (465 ) $ (1,049 ) $ (45,016 )

Balance at January 3, 2016 $ (66,163 ) $ (3,571 ) $ (1,089 ) $ (70,823 )
Current-period other comprehensive income (loss) 10,887
1,332
(56 ) 12,163
Balance at October 2, 2016 $ (55,276 ) $ (2,239 ) $ (1,145 ) $ (58,660 )

~~_______________~~

~~(a)~~

Current-period other comprehensive income (loss) includes the reclassification of unrealized losses on cash flow hedges from “Accumulated other comprehensive loss” to our condensed consolidated statements of operations of $444 and $1,332 for both the three and nine months ended October 1, 2017 and October 2, 2016, respectively. The reclassification of unrealized losses on cash flow hedges consists of $723 and $2,170 for both the three and nine months ended October 1, 2017 and October 2, 2016, respectively, recorded to “Interest expense,” net of the related income tax benefit of $279 and $838 for both the three and nine months ended October 1, 2017 and October 2, 2016, respectively, recorded to “Provision for income taxes.” See Note 6 for further information.

~~(11)~~(14) 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 ~~October 1, 2017,~~September 29, 2019, Wendy’s and its franchisees operated ~~6,586~~6,743 Wendy’s restaurants. Of the ~~333~~356 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for ~~146~~143 restaurants, owned the building and held long-term land leases for ~~137~~144 restaurants and held leases covering the land and building for 5069 restaurants. Wendy’s also owned ~~521~~512 and leased ~~1,270~~1,255 properties that were either leased or subleased principally to franchisees. The Company also leases restaurant, office and transportation equipment.

~~Rental expense~~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 ~~following components:~~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.

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Rental expense:
Minimum rentals $ 23,997
$ 19,137
$ 66,701
$ 59,139
Contingent rentals 5,395
5,254
14,405
13,786
Total rental expense (a) $ 29,392
$ 24,391
$ 81,106
$ 72,925

~~_______________~~


~~(a)~~	Amounts exclude sublease income of $35,022 and $92,434 recognized during the three and nine months ended October 1, 2017, respectively, and $25,127 and $68,400 recognized during the three and nine months ended October 2, 2016, respectively.

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

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Rental income:
Minimum rentals $ 44,682
$ 31,902
$ 124,847
$ 87,409
Contingent rentals 5,593
5,427
15,280
15,011
Total rental income $ 50,275
$ 37,329
$ 140,127
$ 102,420
Sales-Type and Direct Financing Leases

~~The following table illustrates the Company’s future minimum rental payments~~For sales-type and ~~rental receipts for non-cancelable leases and subleases, including rental receipts for~~ 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 ~~October 1, 2017. Rental receipts below are presented separately for owned properties~~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 ~~for leased properties based on~~unguaranteed residual assets at the ~~classification~~end of the lease term. The Company’s main component of this estimate is the expected fair value of the underlying ~~lease.~~

Rental Payments Rental Receipts
Fiscal Year
Capital
Leases

Operating
Leases

Capital
Leases

Operating
Leases

Owned
Properties
2017 (a) $ 11,989
$ 24,894
$ 15,868
$ 18,782
$ 13,436
2018 43,406
93,431
60,844
75,167
53,896
2019 42,717
93,272
61,368
75,267
54,866
2020 43,660
92,434
62,469
74,983
55,489
2021 45,249
91,892
64,260
74,672
57,102
Thereafter 748,736
1,188,165
1,045,693
973,428
1,008,243
Total minimum payments $ 935,757
$ 1,584,088
$ 1,310,502
$ 1,292,299
$ 1,243,032
Less interest (499,703 )
Present value of minimum capital lease payments (b) $ 436,054

~~_______________~~


~~(a)~~	~~Represents future minimum rental payments and rental receipts for non-cancelable leases and subleases for the remainder of our 2017 fiscal year.~~


~~(b)~~	~~The present value of minimum capital lease payments of $6,608 and $429,446 are included in “Current portion of long-term debt” and “Long-term debt,” respectively.~~

~~Properties owned by~~assets, primarily the fair value of land. Lessees’ variable payments to the Company for executory costs under sales-type and ~~leased~~direct financing leases are recognized on a gross basis as “Franchise rental income” with a corresponding expense recorded to ~~franchisees and other third parties under operating leases include:~~“Franchise rental expense.”

October 1, 2017 January 1, 2017
Land $ 271,840
$ 271,160
Buildings and improvements 312,796
312,067
Restaurant equipment 1,491
1,507
586,127
584,734
Accumulated depreciation and amortization (122,970 ) (110,166 )
$ 463,157
$ 474,568

2026

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~Our net investment in~~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:

October 1, 2017 January 1, 2017
Future minimum rental receipts $ 630,352
$ 401,452
Unearned interest income (416,221 ) (277,747 )
Net investment in direct financing leases 214,131
123,705
Net current investment in direct financing leases (a) (482 ) (101 )
Net non-current investment in direct financing leases (b) $ 213,649
$ 123,604



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

_______________


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

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.~~leases,” respectively. The present value of minimum direct financing rental receipts includes a net investment in unguaranteed residual assets of $195.

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



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

_______________


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

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THE WENDY’S COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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



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

~~(12)~~(15) Transactions with Related Parties

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

TimWen Lease and Management Fee Payments

A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen for the operation of Wendy’s/Tim Hortons combo units in Canada. During the nine months ended ~~October 1, 2017~~September 29, 2019 and ~~October 2, 2016,~~September 30, 2018, Wendy’s paid TimWen ~~$9,362~~$12,710 and ~~$8,926,~~$9,967, respectively, under these lease agreements. In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of ~~$158~~$155 and ~~$156~~$161 during the nine months ended ~~October 1, 2017~~September 29, 2019 and ~~October 2, 2016,~~September 30, 2018, respectively, which has been included as a reduction to “General and administrative.”

~~(13)~~(16) Guarantees and Other Commitments and Contingencies

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

~~Franchisee Image Activation Incentive Programs~~

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

Lease Guarantees

Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees, amounting to ~~$56,299~~$74,898 as of ~~October 1, 2017.~~September 29, 2019. These leases extend through 2056. We have not received any notice of default related to these leases as of ~~October 1, 2017.~~September 29, 2019. In the event of default by a franchise owner, Wendy’s generally retains the right to acquire possession of the related restaurant locations.

~~Wendy’s is contingently liable for certain other leases which have been assigned~~Letters of Credit

As of September 29, 2019, the Company had outstanding letters of credit with various parties totaling $25,082. 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 ~~unrelated third parties who have indemnified Wendy’s against future liabilities amounting to $637 as~~result from these letters of ~~October 1, 2017. These leases expire on various dates through 2021.~~credit.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

~~Letters~~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 ~~Credit~~

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 ~~October 1, 2017,~~September 29, 2019, the Company ~~had outstanding letters~~estimates future purchases to be approximately $2,700 for the remainder of ~~credit with various parties totaling $32,575,~~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 which $3,205 were cash collateralized. The outstanding letters of credit include amounts outstanding against the securitized financing facility. The related cash collateral is classified as “Restricted cash” in the condensed consolidated balance sheets. We do not expect any material lossusage at Company-operated restaurants to ~~result from these letters of credit.~~usage at franchised restaurants.

~~(14)~~(17) Legal and Environmental Matters

~~We are~~The Company is involved in litigation and claims incidental to our current and prior businesses. We provide accruals for such litigation and claims when payment is probable and reasonably estimable. ~~As of October 1, 2017, the Company had~~We believe we have adequate accruals for continuing operations for all of ~~its~~our legal and environmental ~~matters aggregating $1,639.~~matters. We cannot estimate the aggregate possible range of loss ~~due~~for various reasons, including, but not limited to, ~~most~~many proceedings ~~including those described below,~~ being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur ~~and~~and/or significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently ~~difficult. Based on currently available information, including legal defenses available~~difficult and future developments could cause these actions or claims, individually or in aggregate, to ~~us, and given the aforementioned accruals and our insurance coverage, we do not believe that the outcome of these legal and environmental matters will~~ have a material adverse effect on ~~our consolidated~~the Company’s financial ~~position or~~condition, results of ~~operations.~~operations or cash flows of a particular reporting period.

We previously described certain legal proceedings ~~under Note 14 to our Condensed Consolidated Financial Statements~~ in ~~our Quarterly Report on~~the Form ~~10-Q for the second quarter of 2017, as filed with the SEC on August 9, 2017.~~10-K. Except as set forth below, there were no material developments in those legal proceedings ~~during the third quarter~~as of ~~2017.~~September 29, 2019.

As previously reported, the Company ~~has been~~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”~~Case”). ~~The operative complaint seeks~~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 consumers, or in the alternative, statewide classes of consumers for Florida, New York, New Jersey, Texas, and Tennessee, as well as statewide classes of consumers under those states’ consumer protection and unfair trade practices laws.financial institutions that issued payment cards that were allegedly impacted. Those cases were consolidated into a single case (the “FI Case”). On ~~October 27, 2017,~~February 13, 2019, the Company ~~moved~~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 ~~dismiss~~pay approximately $25,000 of this amount. In exchange, the ~~operative complaint.~~Company and its franchisees will receive a full release of all claims that have or could have been brought by financial institutions who do not opt out of the settlement related to the cybersecurity incidents described herein. On February 26, 2019, the court preliminarily approved the settlement agreement and scheduled a final approval hearing for November 6, 2019. The ~~Company’s motion is pending before~~settlement agreement remains subject to a notice and objection process and final court approval. If approved, the ~~court.~~

~~(15) New Accounting Standards~~

~~New Accounting Standards~~

~~In May 2017, the FASB issued new guidance on the scope of modification accounting for share-based~~Company anticipates that payment ~~arrangements. The new guidance~~ will ~~provide relief to entities that make non-substantive changes to their share-based payment arrangements.~~occur in early 2020. The Company ~~does not expect the amendment, which requires prospective adoption~~recorded a liability of $50,000 and ~~is effective commencing with our 2018 fiscal year, to have a material impact on our consolidated financial statements.~~

~~In March 2017, the FASB issued new guidance on the presentation~~insurance receivables of net periodic benefit costs that requires entities to disaggregate the current service cost component from the other components of net benefit cost in the income statement. The Company does not expect the amendment, which requires retrospective adoption and is effective commencing with our 2018 fiscal year, to have a material impact on our consolidated financial statements.

~~In February 2016, the FASB issued new guidance on leases, which outlines principles~~$22,500 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 with lease terms of more than 12 months. The amendment requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements and plan to reflect adoption when effective in the first quarter of our 2019 fiscal year.FI case during 2018. As shown in Note 11, there are $1,584,088 in future minimum rental payments for operating leases that are not currently on our balance sheet; therefore, we expect this will have a material impact on our balance sheet and related disclosures.

In May 2014, the FASB issued amended guidance for revenue recognition. The new guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the guidance is

~~Table of Contents~~

~~THE WENDY’S COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The new guidance supersedes most current revenue recognition guidance, including industry-specific guidance, and is effective commencing with our 2018 fiscal year. The guidance allows for either a full retrospective or modified retrospective transition method. We currently expect to apply the modified retrospective method upon adoption. This guidance will not impact our recognition of revenue from Company-operated restaurant sales or our recognition of continuing royalty revenues from franchisees, which are based on a percentage of franchise sales. Under current guidance, we recognize initial fees from franchisees when we have performed all material obligations and services, which generally occurs when the franchised restaurant opens. Additionally, under current guidance, our advertising fund contributions from franchisees and the related advertising expenditures are reported on a net basis in our consolidated balance sheet as “Advertising funds restricted assets” and “Advertising funds restricted liabilities.” Under the new guidance, we anticipate recognizing the initial fees from franchisees over the life of the related franchise agreements and we expect to consolidate the operations and cash flow results of our national advertising funds, both of which will have a material impact on our consolidated financial statements.

~~New Accounting Standards Adopted~~

In March 2016, the FASB issued an amendment related to equity method accounting, which eliminates the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in level of ownership interest or degree of influence. The Company adopted this amendment, prospectively, during the first quarter of 2017. The adoption of this guidance did not impact our consolidated financial statements.

In March 2016, the FASB issued an amendment that clarifies the steps for assessing triggering events of embedded contingent put and call options within debt instruments. The Company adopted this amendment during the first quarter of 2017. The adoption of this guidance did not impact our consolidated financial statements.

In March 2016, the FASB issued an amendment that modifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as statement of cash flows presentation. The transition requirement is generally modified retrospective, with the exception of recognition of excess tax benefits and tax deficiencies that requires prospective adoption. The Company adopted this amendment during the first quarter of 2017. The cash flows used in financing activitiescost savings related to the ~~excess tax benefits from share-based compensation arrangements, which amounted to $2,376 during~~settlement of the ~~nine~~Torres Case in the three months ended October 2, 2016, was reclassified retrospectively to cash flows provided by operating activities. Additionally, during the nine months ended October 2, 2016, $4,142 was paid to taxing authorities for withheld shares on share-based compensation arrangement activities, which was reclassified retrospectively from cash flows provided by operating activities to cash flows used in financing activities. Upon adopting the amendment in the first quarter of 2017,September 29, 2019, the Company ~~recognized $1,880 in unrecognized tax benefits~~adjusted its insurance receivables for ~~deductions in excess of cumulative compensation costs relating~~the FI case to the exercise of stock options and vesting of restricted stock. This tax benefit was recognized as a reduction to the Company’s deferred tax liability with an equal offsetting increase to “Accumulated deficit.” The Company will continue to estimate forfeitures each period.approximately $25,000.

In July 2015, the FASB issued an amendment that requires entities to measure inventory at the lower of cost and net realizable value, rather than the lower of cost or market, with market value represented by replacement cost, net realizable value or net realizable value less a normal profit margin. The Company adopted this amendment during the first quarter of 2017. The adoption of this guidance did not impact our consolidated financial statements.

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 ~~January 1, 2017~~December 30, 2018 (the “Form 10-K”). There have been no material changes as of ~~October 1, 2017~~September 29, 2019 to the application of our critical accounting policies as described in Item 7 of the Form 10-K. Certain statements we make under this Item 2 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II - Other Information” ~~preceding Item 1 of Part II~~ of this report. You should consider our forward-looking statements in light of our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report, the Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”).

The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s Restaurants, LLC (“Wendy’s Restaurants”). The principal 100% owned subsidiary of Wendy’s Restaurants is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). Wendy’s franchises and operates Wendy’s^® quick-service restaurants specializing in hamburger sandwiches throughout North America (defined as the United States of America (“U.S.”) and Canada). Wendy’s also has franchised restaurants in 2930 foreign countries and U.S. territories.

Each Wendy’s ~~restaurants offer~~restaurant offers an extensive menu specializing in hamburger sandwiches and featuring ~~fillet~~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 breakfast in more than 300 restaurants in the United States.

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

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

We adopted the new accounting guidance for 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 ~~October 1, 2017,~~September 29, 2019, the Wendy’s restaurant system was comprised of ~~6,586~~6,743 restaurants, of which ~~333~~356 were owned and operated by the Company. All of our Company-operated restaurants are located in the ~~U.S.~~United States.

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

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

Wendy’s revenues for the first nine months of 2017 include (1) $467.9 million of sales at Company-operated restaurants, (2) $306.1 million of franchise royalty revenue and fees and (3) $140.2 million of franchise rental income. Substantially all of our Wendy’s royalty agreements provide for royalties of 4.0% of franchisees’ revenues.

Key Business Measures

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

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

Restaurant Margin - We define restaurant margin as sales from Company-operated restaurants less cost of sales divided by sales from Company-operated restaurants. Cost of sales includes food and paper, restaurant labor and occupancy, advertising and other operating costs. Restaurant margin is influenced by factors such as ~~restaurant openings, remodels and closures,~~ 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 and fluctuations in food and labor~~ 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 ~~therefore on the Company’s~~ profitability.

The Company ~~reviews~~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.

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

The non-GAAP financial measure discussed above does not replace the presentation of the Company’s financial results in accordance with GAAP. Because all companies do not calculate non-GAAP financial measures in the same way, this measure as used by other companies may not be consistent with the way the Company calculates such measure.

Breakfast Launch

In ~~July 2013,~~September 2019, the Company announced that it plans to launch breakfast across the U.S. system in the first quarter of 2020. The Company expects to make one-time investments during 2019 of approximately $20.0 million to support the U.S. system in preparation of the national launch. The 2019 investments are primarily comprised of (1) the purchase of smallwares and menuboards for franchisees and (2) a ~~system optimization initiative, as part of its brand transformation, which includes a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions~~national recruiting advertising campaign and ~~dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers. In February 2015,~~other talent acquisition costs.

Other Investments in Equity Securities

On October 11, 2019, the Company announced plans to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total system, which the Company completed as of January 1, 2017. Wendy’s will continue to optimize its system by facilitating franchisee-to-franchisee restaurant transfers, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base and drive new restaurant development and accelerate reimages in the Image Activation format.

During the first nine months of 2017, the Company recorded post-closing adjustments on sales of restaurants and completed the sale of other assets, resulting in net gains totaling $3.4 million. Gains and losses recognized on dispositions are recorded to “System optimization losses (gains), net” in our condensed consolidated statements of operations. In addition, the Company facilitated the transfer of 270 restaurants between franchisees during the first nine months of 2017 (excluding the DavCo and NPC transactions discussed below).

~~DavCo and NPC Transactions~~

~~As part of our system optimization initiative, the Company acquired 140 Wendy’s restaurants on May 31, 2017 from DavCo Restaurants, LLC (“DavCo”) for total net~~received a $25.0 million cash consideration of $86.8 million, which were immediately sold to NPC International, Inc. (“NPC”), an existing franchisee of the Company, for cash proceeds of $70.7 million (the “DavCo and NPC transactions”). As part of the transaction, NPC has agreed to remodel 90 acquired restaurants in the Image Activation format by the end of 2021 and build 15 new Wendy’s restaurants by the end of 2022. Prior to closing the DavCo transaction, seven DavCo restaurants were closed. The acquisition of Wendy’s restaurants from DavCo was not contingent on executing the sale agreement with NPC; as such, the Company accounted for the transactions as an acquisition and subsequent disposition of a business. The total consideration paid to DavCo was allocated to net tangible and identifiable intangible assets acquired based on their estimated fair values. As part of the transactions, the Company retained leases for purposes of subleasing such properties to NPC. As a result of the transactions, the Company recognized a loss of $43.1 million during the first nine months of 2017.

~~Costs~~settlement related to our system optimization initiative were historically recorded to “Reorganization and realignment costs.” Costs incurred during 2017 in connection with the DavCo and NPC transactions continue to be recorded to “Reorganization and realignment costs.” All other costs incurred during 2017 related to facilitating franchisee-to-franchisee restaurant transfers are recorded to “Other operating expense (income), net.” During the first nine months of 2017, the Company recognized reorganization and realignment costs totaling $0.9 million, which primarily included professional fees. The Company does not expect to incur additional costs during the remainder of 2017 in connection with the DavCo and NPC transactions.a previously held investment.

General and Administrative (“G&A”) Realignment

~~November 2014 Plan~~

In November 2014, the Company initiated a plan to reduce its G&A expenses. The plan included a realignment and reinvestment of resources to focus primarily on accelerated restaurant development and consumer-facing restaurant technology to drive long-term growth. The Company achieved the majority of the expense reductions through the realignment of its U.S. field operations and savings at its Restaurant Support Center in Dublin, Ohio, which was substantially completed by the end of the second quarter of 2015. Costs related to the plan are recorded to “Reorganization and realignment costs.” The Company recognized costs totaling $1.0 million during the first nine months of 2016 and $24.0 million in aggregate since inception. The Company did not incur any expenses during the first nine months of 2017 and does not expect to incur additional costs related to the plan.

~~May 2017 Plan~~

In May 2017, the Company initiated a ~~new~~ plan to further reduce its G&A expenses. ~~The~~Additionally, the Company ~~expects~~announced in May 2019 changes to its leadership structure that ~~approximately three-quarters~~includes the creation of two new positions, a President, U.S and Chief Commercial Officer and a President, International and Chief Development Officer, and the elimination of the ~~total G&A expense reduction of approximately $35.0 million will be realized by~~Chief Operations Officer position. During the ~~end of~~nine months ended September 29, 2019 and September 30, 2018, ~~with~~ the ~~remainder of the savings being realized in 2019. The~~ Company ~~expects to incur total~~recognized costs aggregating approximately $28.0 million to $33.0 million, of which $23.0 million to $27.0 million will be cash expenditures, related to such savings. The cash expenditures are expected to continue into 2019, with approximately half of the total cash expenditures occurring in 2018. Costs related to the plan ~~are recorded to “Reorganization~~totaling $4.7 million and ~~realignment costs.” The Company recognized costs totaling $19.9~~$6.4 million, ~~during the first nine months of 2017,~~respectively, which primarily included severance and related employee costs and share-based compensation. The Company expects to incur additional costs aggregating approximately ~~$8.0 million to $13.0~~$2.7 million, comprised of (1) severance and related employee costs of approximately ~~$3.0~~$1.9 million, (2) recruitment and relocation costs of approximately ~~$4.0~~$0.4 million, (3) third-party and other costs of approximately ~~$1.0~~$0.1 million and (4) share-based compensation of approximately ~~$3.0~~$0.3 million. The Company expects to incur total costs aggregating approximately $35.0 million to $38.0 million, of which $26.0 million to $29.0 million will be ~~recognized during~~cash expenditures, related to the ~~remainder~~plan. The Company expects to realize a total G&A expense reduction through the plan of ~~2017~~approximately $35.0 million.

~~Related Party Transactions~~

~~TimWen Lease and Management Fee Payments~~

~~A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen~~our Annual Report on Form 10-K for the ~~operation of Wendy’s/Tim Hortons combo units in Canada. During the first nine months of 2017~~fiscal year ended December 29, 2019: (1) Wendy’s U.S., (2) Wendy’s International and 2016, Wendy’s paid TimWen $9.4 million and $8.9 million, respectively, under these lease agreements. In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $0.2 million during both the first nine months of 2017 and 2016, which has been included as a reduction to “General and administrative.”(3) Global Real Estate & Development.

~~Cybersecurity Incident~~

The Company first reported unusual payment card activity affecting some franchise-owned restaurants in February 2016 and that malware had been discovered on certain systems. Subsequently, on June 9, 2016, the Company reported that an additional malware variant had been identified and disabled. On July 7, 2016, the Company, on behalf of affected franchise locations, provided information about specific restaurant locations that may have been impacted by these attacks, all of which are located in the United States, along with support for customers who may have been affected by the malware variants. See “Item 1 - Financial Statements,” Note 14 to the Condensed Consolidated Financial Statements for further information.

Results of Operations

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the third quarter and the first nine months of ~~2017~~2019 and ~~2016.~~2018.


	Third Quarter									Nine Months									Third Quarter									Nine Months
	2017			2016			Change			2017			2016			Change			2019			2018			Change			2019			2018			Change
Revenues:
Sales	$	158.8		$	228.6		$	(69.8	)	$	467.9		$	747.2		$	(279.3	)	$	182.0		$	165.3		$	16.7		$	530.7		$	486.3		$	44.4
Franchise royalty revenue and fees	98.9			98.0			0.9			306.1			275.9			30.2			109.2			103.2			6.0			320.3			308.7			11.6
Franchise rental income	50.3			37.4			12.9			140.2			102.4			37.8			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
	308.0			364.0			(56.0		)	914.2			1,125.5			(211.3		)	437.9			400.6			37.3			1,281.8			1,192.1			89.7
Costs and expenses:
Cost of sales	132.4			186.5			(54.1		)	385.2			603.8			(218.6		)	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	24.1			17.5			6.6			64.8			49.7			15.1			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	52.9			58.9			(6.0		)	156.7			184.7			(28.0		)	46.2			46.5			(0.3		)	146.3			146.1			0.2
Depreciation and amortization	31.2			29.4			1.8			91.7			92.4			(0.7		)	33.3			29.1			4.2			98.0			94.6			3.4
System optimization losses (gains), net	0.1			(37.8		)	37.9			39.7			(48.1		)	87.8
System optimization gains, net																			(1.0		)	(0.5		)	(0.5		)	(1.2		)	—			(1.2		)
Reorganization and realignment costs	2.9			2.1			0.8			20.8			7.9			12.9			0.4			0.9			(0.5		)	4.8			6.7			(1.9		)
Impairment of long-lived assets	1.0			0.4			0.6			1.8			13.0			(11.2		)	—			0.3			(0.3		)	1.7			2.2			(0.5		)
Other operating expense (income), net	1.7			0.9			0.8			5.3			(13.5		)	18.8
Other operating income, net																			(2.4		)	(1.6		)	(0.8		)	(9.4		)	(4.7		)	(4.7		)
	246.3			257.9			(11.6		)	766.0			889.9			(123.9		)	358.9			323.3			35.6			1,055.9			988.0			67.9
Operating profit	61.7			106.1			(44.4		)	148.2			235.6			(87.4		)	79.0			77.3			1.7			225.9			204.1			21.8
Interest expense	(30.0		)	(28.7		)	(1.3		)	(87.9		)	(85.5		)	(2.4		)
Other (loss) income, net	(0.1		)	0.5			(0.6		)	3.1			1.0			2.1
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	31.6			77.9			(46.3		)	63.4			151.1			(87.7		)	53.3			498.9			(445.6		)	138.9			555.5			(416.6		)
Provision for income taxes	(17.3		)	(29.0		)	11.7			(28.6		)	(50.4		)	21.8			(7.2		)	(107.7		)	100.5			(28.5		)	(114.2		)	85.7
Net income	$	14.3		$	48.9		$	(34.6	)	$	34.8		$	100.7		$	(65.9	)	$	46.1		$	391.2		$	(345.1	)	$	110.4		$	441.3		$	(330.9	)


	Third Quarter								Nine Months								Third Quarter								Nine Months
	2017		% of Total Revenues		2016		% of Total Revenues		2017		% of Total Revenues		2016		% of Total Revenues		2019		% of Total Revenues		2018		% of Total Revenues		2019		% of Total Revenues		2018		% of Total Revenues
Revenues:
Sales	$	158.8	51.6	%	$	228.6	62.8	%	$	467.9	51.2	%	$	747.2	66.4	%	$	182.0	41.6	%	$	165.3	41.3	%	$	530.7	41.4	%	$	486.3	40.8	%
Franchise royalty revenue and fees:
Royalty revenue	93.7		30.4	%	87.9		24.1	%	275.0		30.1	%	255.0		22.6	%	102.3		23.4	%	95.5		23.8	%	300.0		23.4	%	283.6		23.8	%
Franchise fees	5.2		1.7	%	10.1		2.8	%	31.1		3.4	%	20.9		1.9	%	6.9		1.5	%	7.7		1.9	%	20.3		1.6	%	25.1		2.1	%
Total franchise royalty revenue and fees	98.9		32.1	%	98.0		26.9	%	306.1		33.5	%	275.9		24.5	%	109.2		24.9	%	103.2		25.7	%	320.3		25.0	%	308.7		25.9	%
Franchise rental income	50.3		16.3	%	37.4		10.3	%	140.2		15.3	%	102.4		9.1	%	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	$	308.0	100.0	%	$	364.0	100.0	%	$	914.2	100.0	%	$	1,125.5	100.0	%	$	437.9	100.0	%	$	400.6	100.0	%	$	1,281.8	100.0	%	$	1,192.1	100.0	%

	Third Quarter								Nine Months								Third Quarter								Nine Months
	2017		% of Sales		2016		% of Sales		2017		% of Sales		2016		% of Sales		2019		% of Sales		2018		% of Sales		2019		% of Sales		2018		% of Sales
Cost of sales:
Food and paper	$	51.8	32.6	%	$	69.3	30.3	%	$	147.1	31.4	%	$	226.9	30.4	%	$	57.2	31.4	%	$	53.0	32.1	%	$	167.3	31.5	%	$	154.8	31.8	%
Restaurant labor	45.6		28.7	%	64.8		28.4	%	135.8		29.0	%	211.7		28.3	%	54.7		30.1	%	48.4		29.3	%	160.1		30.2	%	144.1		29.6	%
Occupancy, advertising and other operating costs	35.0		22.0	%	52.4		22.9	%	102.3		21.9	%	165.2		22.1	%	40.5		22.3	%	37.9		22.9	%	118.7		22.4	%	110.8		22.8	%
Total cost of sales	$	132.4	83.3	%	$	186.5	81.6	%	$	385.2	82.3	%	$	603.8	80.8	%	$	152.4	83.8	%	$	139.3	84.3	%	$	446.1	84.1	%	$	409.7	84.2	%

Third Quarter Nine Months
2017
% of
Sales
2016
% of
Sales
2017
% of
Sales
2016
% of
Sales
Restaurant margin $ 26.4
16.7 % $ 42.1
18.4 % $ 82.7
17.7 % $ 143.4
19.2 %



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


	Third Quarter				Nine Months				Third Quarter				Nine Months
	2017		2016		2017		2016		2019		2018		2019		2018
Key business measures:
North America same-restaurant sales:
North America same-restaurant sales growth:
Company-operated	(0.5	)%	2.7	%	0.7	%	2.9	%	4.7	%	1.2	%	2.5	%	1.4	%
Franchised	2.1	%	1.2	%	2.4	%	1.7	%	4.3	%	(0.3	)%	2.4	%	1.1	%
Systemwide	2.0	%	1.4	%	2.3	%	1.8	%	4.4	%	(0.2	)%	2.4	%	1.1	%

Total same-restaurant sales:
Global same-restaurant sales growth:
Company-operated	(0.5	)%	2.7	%	0.7	%	2.9	%	4.7	%	1.2	%	2.5	%	1.4	%
Franchised (a)	2.1	%	1.3	%	2.4	%	1.6	%	4.4	%	(0.1	)%	2.5	%	1.3	%
Systemwide (a)	1.9	%	1.4	%	2.3	%	1.7	%	4.4	%	0.0	%	2.5	%	1.3	%

________________

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


	Third Quarter				Nine Months				Third Quarter				Nine Months
	2017		2016		2017		2016		2019		2018		2019		2018
Key business measures (continued):
Systemwide sales: (a)
Company-operated	$	158.8	$	228.6	$	467.9	$	747.2	$	182.0	$	165.3	$	530.7	$	486.3
North America franchised	2,347.2		2,198.2		6,897.4		6,381.8		2,478.2		2,358.5		7,251.4		7,043.4
North America systemwide									2,660.2		2,523.8		7,782.1		7,529.7
International franchised (b)	119.4		106.9		351.6		309.6		137.8		126.5		410.8		385.8
Global systemwide sales	$	2,625.4	$	2,533.7	$	7,716.9	$	7,438.6
Global systemwide									$	2,798.0	$	2,650.3	$	8,192.9	$	7,915.5

________________

(a)

During the third quarter of ~~2017~~2019 and ~~2016,~~2018, global systemwide sales increased 5.7% and 1.7%, respectively, North America systemwide sales increased ~~3.0%~~5.5% and ~~1.8%~~1.2%, respectively, and international franchised sales increased ~~13.4%~~9.2% and ~~9.0%, respectively, and global systemwide sales increased 3.4% and 2.1%~~13.2%, respectively, on a constant currency basis. During the first nine months of ~~2017~~2019 and ~~2016,~~2018, global systemwide sales increased 4.1% and 2.7%, respectively, North America systemwide sales increased ~~3.2%~~3.8% and ~~2.9%~~2.2%, respectively, and international franchised sales increased ~~15.0%~~9.8% and ~~4.1%, respectively, and global systemwide sales increased 3.7% and 3.0%~~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 ~~Venezuela’s~~the highly inflationary ~~economy.~~economies of those countries.


	Third Quarter								Third Quarter
	Company-operated		North America Franchised		International Franchised		Systemwide		Company-operated		North America Franchised		International Franchised		Systemwide
Restaurant count:
Restaurant count at July 2, 2017	331		5,762		471		6,564
Restaurant count at June 30, 2019									358		5,828		533		6,719
Opened	4		25		13		42		—		27		13		40
Closed	(2	)	(15	)	(3	)	(20	)	(2	)	(10	)	(4	)	(16	)
Restaurant count at October 1, 2017	333		5,772		481		6,586
Net purchased from (sold by) franchisees									—		—		—		—
Restaurant count at September 29, 2019									356		5,845		542		6,743

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

Restaurant count at January 1, 2017	330		5,768		439		6,537
Restaurant count:
Restaurant count at December 30, 2018									353		5,825		533		6,711
Opened	7		50		53		110		—		76		35		111
Closed	(4	)	(46	)	(11	)	(61	)	(2	)	(51	)	(26	)	(79	)
Restaurant count at October 1, 2017	333		5,772		481		6,586
Net purchased from (sold by) franchisees									5		(5	)	—		—
Restaurant count at September 29, 2019									356		5,845		542		6,743


Sales	Change						Third Quarter						Nine Months
	Third Quarter			Nine Months			2019		2018		Change		2019		2018		Change
Sales	$	(69.8	)	$	(279.3	)	$	182.0	$	165.3	$	16.7	$	530.7	$	486.3	$	44.4

The ~~decrease~~increase in sales for ~~both~~ the third quarter and the first nine months of ~~2017~~2019 was primarily due to a net increase in the ~~impact~~number of ~~Wendy’s~~ Company-operated restaurants ~~sold under our system optimization initiative, which resulted~~ in ~~a reduction in~~operation during 2019 compared to 2018. In addition, sales ~~of $74.1 million and $295.9 million during~~for the third quarter and the first nine months of ~~2017, respectively. For the third quarter of 2017,~~2019 benefited from a 4.7% and 2.5% increase in Company-operated same-restaurant sales, declined due to a decrease in customer count, which was partially offset by an increase in our average per customer check amount. A portion of the customer count decline in the third quarter of 2017 resulted from the hurricanes in the U.S. For the first nine months of 2017,respectively. Company-operated same-restaurant sales ~~benefited from~~improved due to an increase in our average per customer check amount, ~~which was partially offset by a decrease in customer count. Our per customer check amount increased during the third quarter and the first nine months of 2017 primarily due to~~reflecting benefits from strategic price increases on our menu items and changes in product mix. ~~Sales also benefited from higher sales growth at our new and remodeled Image Activation restaurants.~~These benefits were partially offset by a decrease in customer count.


Franchise Royalty Revenue and Fees	Change					Third Quarter							Nine Months
	Third Quarter			Nine Months		2019		2018		Change			2019		2018		Change
Royalty revenue	$	5.8		$	20.0	$	102.3	$	95.5	$	6.8		$	300.0	$	283.6	$	16.4
Franchise fees	(4.9		)	10.2		6.9		7.7		(0.8		)	20.3		25.1		(4.8		)
	$	0.9		$	30.2	$	109.2	$	103.2	$	6.0		$	320.3	$	308.7	$	11.6

The increase in franchise royalty revenue during the third quarter and the first nine months of 2019 was primarily due to a 4.4% and 2.5% increase in franchise same-restaurant sales, respectively. Royalty revenue was also positively impacted by a net increase in the number of franchise restaurants in operation.

The decrease in franchise fees during the third quarter of ~~2017~~2019 was primarily due to ~~higher royalty revenue resulting from sales of Company-operated restaurants to franchisees under our system optimization initiative. Royalty revenue also benefited from a 2.1% increase in~~lower other miscellaneous franchise ~~same-restaurant sales. These increases were largely~~fees, partially offset by ahigher fees for providing information technology and other services to franchisees. The decrease in franchise ~~fees driven by lower initial franchise fees because no sales of Company-operated restaurants or franchisee-to-franchisee restaurant transfers occurred during the third quarter of 2017.~~

~~The increase in franchise royalty revenue and~~ fees during the first nine months of ~~2017~~2019 was primarily due to ~~sales of Company-operated restaurants to franchisees~~lower other miscellaneous franchise fees and facilitating fewer franchisee-to-franchisee restaurant transfers ~~under our system optimization initiative. Royalty revenue also benefited from a 2.4% increase~~(“Franchise Flips”) in ~~franchise same-restaurant sales.~~2019, partially offset by higher fees for providing information technology and other services to franchisees.


Franchise Rental Income	Change				Third Quarter						Nine Months
	Third Quarter		Nine Months		2019		2018		Change		2019		2018		Change
Franchise rental income	$	12.9	$	37.8	$	59.9	$	50.5	$	9.4	$	176.9	$	152.1	$	24.8

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

Cost of Sales, as a Percent of Sales Change
Third
Quarter Nine
Months
Food and paper 2.3 % 1.0 %
Restaurant labor 0.3 % 0.7 %
Occupancy, advertising and other operating costs (0.9 )% (0.2 )%
1.7 % 1.5 %



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 in advertising funds revenue during the third quarter and the first nine months of 2019 was primarily due to an increase in North America franchise same-restaurant sales, as well as a net increase in the number of North America franchise restaurants in operation. These increases were partially offset by reductions in advertising receipts under the Company’s restaurant development incentive program.



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 in cost of sales, as a percent of sales, during the third quarter ~~of 2017 was primarily due to an increase in commodity costs, reflecting higher beef~~ and ~~bacon costs.~~

~~The increase in cost of sales, as a percent of sales, during~~ the first nine months of ~~2017~~2019 was primarily due to benefits from strategic price increases on certain of our menu items and changes in product mix. This decrease was partially offset by an increase in restaurant labor rates and commodity costs.



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

The increase in franchise support and other costs ~~reflecting higher chicken~~during the third quarter and ~~bacon costs. The~~the first nine months of ~~2017 were also negatively impacted~~2019 was primarily due to the purchase of digital scanning equipment for franchisees of $3.9 million, partially offset by ~~increased restaurant labor rates.~~lower costs incurred to provide information technology and other services to our franchisees.


Franchise Rental Expense	Change				Third Quarter						Nine Months
	Third Quarter		Nine Months		2019		2018		Change		2019		2018		Change
Franchise rental expense	$	6.6	$	15.1	$	32.4	$	22.3	$	10.1	$	92.8	$	69.8	$	23.0

The increase in franchise rental expense during the third quarter and the first nine months of ~~2017~~2019 was primarily due to ~~subleasing properties to franchisees that were previously Company-operated restaurants and as such, had been previously recorded in cost~~the adoption of ~~sales. Rental expense also increased as a result of entering into~~ new ~~leases in connection with facilitating franchisee-to-franchisee restaurant transfers~~accounting guidance for ~~purposes of subleasing such properties~~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.

General and Administrative Change
Third
Quarter Nine
Months
Professional services $ (5.5 ) $ (11.7 )
Employee compensation and related expenses (2.2 ) (7.7 )
Severance (0.7 ) (3.5 )
Share-based compensation (0.2 ) (2.4 )
Incentive compensation 1.1
(2.0 )
Other, net 1.5
(0.7 )
$ (6.0 ) $ (28.0 )



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 in advertising funds expense during the third quarter and the first nine months of 2019 was primarily due to the same factors as described above for advertising funds revenue. On an interim basis, advertising funds expense is recognized in proportion to advertising funds revenue. During the third quarter and the first nine months of 2019, advertising funds expense exceeded advertising funds revenue by $1.1 million and $3.1 million, respectively, reflecting a portion of the expected advertising spend in excess of advertising funds revenue for the remainder of 2019. This excess for 2019 is expected to approximate the amount by which advertising funds revenue exceeded advertising funds expense in 2018.



General and Administrative	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 quarter of ~~2017~~2019 was primarily due to ~~decreases~~a reduction in ~~(1) professional services due~~legal reserves as a result of an increase in anticipated insurance proceeds available for use related to ~~legal and other costs associated with~~ the ~~cybersecurity incident recognized during~~proposed settlement of the ~~third quarter of 2016~~Financial Institutions case (see ~~“Item 1 - Financial Statements,”~~ Note 1417 to the Condensed Consolidated Financial Statements contained in Item 1 of Part 1 herein for further information) ~~and (2)~~. This decrease was offset by higher employee compensation and related expenses, ~~primarily as a result of changes~~reflecting an increase in ~~staffing driven by our system optimization initiative.~~incentive compensation accruals.

The ~~decrease~~increase in general and administrative expenses during the first nine months of ~~2017~~2019 was primarily due to ~~decreases~~higher employee compensation and related expenses, reflecting an increase in incentive compensation accruals and additional expenditures to support our digital experience and international organizations. This increase was partially offset by (1) ~~professional services due~~a reduction in legal reserves as a result of an increase in anticipated insurance proceeds available for use related to ~~legal and other costs associated with~~ the ~~cybersecurity incident recognized during~~proposed settlement of the ~~first nine months of 2016~~Financial Institutions case (see ~~“Item 1 - Financial Statements,”~~ Note 1417 to the Condensed Consolidated Financial Statements contained in Item 1 of Part 1 herein for further information), and (2) ~~employee compensation and related expenses primarily as a result of~~ changes in staffing driven by our system optimization initiative, (3) severance expense, (4) share-based compensation primarily as a result of awards granted and timing of expense recognition and (5) incentive compensation accruals due to a decrease in operating performance as compared to plan in 2017 versus 2016.G&A realignment plan.


Depreciation and Amortization	Change						Third Quarter							Nine Months
	Third Quarter			Nine Months			2019		2018		Change			2019		2018		Change
Restaurants	$	(0.1	)	$	(4.7	)	$	21.8	$	17.4	$	4.4		$	63.7	$	60.3	$	3.4
Corporate and other	1.9			4.0			11.5		11.7		(0.2		)	34.3		34.3		—
	$	1.8		$	(0.7	)	$	33.3	$	29.1	$	4.2		$	98.0	$	94.6	$	3.4

The ~~decrease~~increase in restaurant depreciation and amortization during the third quarter and the first nine months of ~~2017~~2019 was primarily due to the assignment of certain leases to a ~~decrease~~franchisee in ~~depreciation on assets sold under our system optimization initiative~~2018, resulting in the write-off of ~~$0.2 million and $3.9 million, respectively. Corporate and other depreciation expense increased due to an increase~~the related net investment in ~~depreciation and amortization for technology investments.~~the leases.

System Optimization Losses (Gains), Net Third Quarter Nine Months
2017 2016 2017 2016
System optimization losses (gains), net $ 0.1
$ (37.8 ) $ 39.7
$ (48.1 )



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	)

~~The change in system~~System optimization ~~losses (gains),~~gains, net ~~was because no sales of Company-operated restaurants occurred during~~for the third quarter ~~of 2017, compared with the sale of 156 restaurants during the third quarter of 2016.~~

~~The change in system optimization losses (gains), net during~~and the first nine months of ~~2017 was due to the DavCo~~2019 and ~~NPC transactions, which resulted in a loss~~2018 were primarily comprised of ~~$43.1 million during the first nine months~~post-closing adjustments on previous sales of ~~2017. During the first nine months of 2016, the Company sold 211 Company-operated restaurants to franchisees.~~restaurants.


Reorganization and Realignment Costs	Third Quarter				Nine Months				Third Quarter							Nine Months
	2017		2016		2017		2016		2019		2018		Change			2019		2018		Change
G&A realignment									$	0.4	$	0.6	$	(0.2	)	$	4.7	$	6.4	(1.7		)
System optimization initiative	$	0.2	$	2.1	$	0.9	$	6.9	—		0.3		(0.3		)	0.1		0.3		(0.2		)
G&A realignment - November 2014 plan	—		—		—		1.0
G&A realignment - May 2017 plan	2.7		—		19.9		—
	$	2.9	$	2.1	$	20.8	$	7.9	$	0.4	$	0.9	$	(0.5	)	$	4.8	$	6.7	$	(1.9	)

During the third quarter of 2017 and 2016, the Company recognized costs associated with its system optimization initiative totaling $0.2 million and $2.1 million, respectively. In both the third quarter of 2017 and 2016, costs primarily included professional fees.

During the first nine months of 2017 and 2016, the Company recognized costs associated with its system optimization initiative totaling $0.9 million and $6.9 million, respectively. In the first nine months of 2017, costs primarily included professional fees. In the first nine months of 2016, costs primarily included professional fees of $5.1 million and accelerated amortization of previously acquired franchise rights of $1.6 million.

In November 2014, the Company initiated the realignment of its U.S. field operations and Restaurant Support Center in Dublin, Ohio to reduce its G&A expenses. During the first nine months of 2016, the Company recognized costs associated with this plan totaling $1.0 million, which primarily included recruitment and relocation costs. The Company did not incur any expenses during the first nine months of 2017 and does not expect to incur additional costs related to the plan.

In May 2017, the Company initiated a ~~new~~G&A realignment plan to further reduce its G&A expenses. ~~During~~In addition, the Company announced changes to its leadership structure in May 2019. G&A realignment costs for the third quarter and the first nine months of ~~2017, the Company recognized costs associated with this plan totaling $2.7 million, which~~2019 and 2018 were primarily ~~included (1)~~comprised of severance and related employee costs and share-based compensation.



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 ~~$1.2 million, (2) share-based compensation~~2019 was primarily driven by lower impairment charges as a result of ~~$0.8 million~~closing Company-operated restaurants and ~~(3) third-party and other costs~~classifying such surplus properties as held for sale when compared to the third quarter of ~~$0.5 million.~~

~~During~~2018. The change in impairment charges during the first nine months of ~~2017, the Company recognized costs associated with its May 2017 plan totaling $19.9 million, which~~2019 was primarily ~~included (1) severance and related employee costs~~driven by lower impairment charges as a result of ~~$14.4 million, (2) share-based compensation of $4.5 million and (3) third-party and other costs of $0.8 million.~~

Impairment of Long-Lived Assets Change
Third
Quarter Nine
Months
Impairment of long-lived assets $ 0.6
$ (11.2 )

~~Impairment of long-lived assets increased during the third quarter of 2017 primarily due to~~ the deterioration in operating performance of certain Company-operated restaurants when compared to the first nine months of 2018, partially offset by higher impairment charges as a result of closing Company-operated restaurants and ~~charges~~classifying such surplus properties as held for ~~capital improvements~~sale.



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

The change in ~~previously impaired restaurants that did not subsequently recover.~~other operating income, net during the third quarter of 2019 was primarily due to lease buyout activity. The change in other operating income, net during the first nine months of 2019 was due to (1) gains on new and modified sales-type leases as a result of the new accounting guidance for leases, (2) lease buyout activity and (3) an increase in the equity in earnings from our TimWen joint venture.

~~Impairment~~



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 quarter and the first nine months of ~~long-lived assets~~2019 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 2019. Interest expense, net also decreased during the first nine months of ~~2017 primarily~~2019 due to ~~lower impairment charges resulting from~~ the ~~remeasurement~~timing of ~~properties to fair value upon determination that~~interest expense on the ~~assets will be leased and/or subleased to franchisees~~Company’s finance lease obligations.



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 ~~sale~~refinancing of ~~Company-operated restaurants. This decrease~~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 ~~partially offset by higher impairment charges due to~~comprised of the ~~deterioration in operating performance~~write-off of certain ~~Company-operated restaurants~~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 ~~charges for capital improvements in previously impaired restaurants that did not subsequently recover.~~a specified make-whole payment.

Other Operating Expense (Income), Net Third Quarter Nine Months
2017 2016 2017 2016
Lease buyout $ 0.2
$ —
$ 0.1
$ (11.6 )
Equity in earnings in joint ventures, net (2.3 ) (2.2 ) (6.1 ) (6.5 )
Other, net 3.8
3.1
11.3
4.6
$ 1.7
$ 0.9
$ 5.3
$ (13.5 )



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	)

~~The change in other operating expense (income),~~Investment income, net decreased during the third quarter ~~of 2017 was primarily due to costs incurred to provide information technology services to our franchisees, as well as costs related to facilitating franchisee-to-franchisee restaurant transfers.~~

~~Other operating expense (income), net during~~and the first nine months of ~~2017 includes costs incurred~~2019 due to ~~provide information technology services to our franchisees, as well as costs related to facilitating franchisee-to-franchisee restaurant transfers. The first nine months~~the $450.0 million gain recorded on the sale of ~~2016 includes a gain recognized~~the Company’s ownership interest in Inspire Brands, Inc. (“Inspire Brands”) on ~~a lease buyout during the first quarter of 2016.~~August 16, 2018.

Interest Expense Change
Third
Quarter Nine
Months
Interest expense $ 1.3
$ 2.4



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

~~Interest expense~~Other income, net increased during the third quarter and the first nine months of ~~2017~~2019 primarily due to ~~an increase in capital lease obligations resulting from facilitating franchisee-to-franchisee restaurant transfers and subleasing such properties to the franchisee.~~higher interest income earned on our cash equivalents.


Provision for Income Taxes	Third Quarter						Nine Months						Third Quarter									Nine Months
	2017			2016			2017			2016			2019			2018			Change			2019			2018			Change
Income before income taxes	$	31.6		$	77.9		$	63.4		$	151.1		$	53.3		$	498.9		$	(445.6	)	$	138.9		$	555.5		$	(416.6	)
Provision for income taxes	17.3			29.0			28.6			50.4			(7.2		)	(107.7		)	100.5			(28.5		)	(114.2		)	85.7
Effective tax rate on income	54.8		%	37.2		%	45.2		%	33.3		%	13.5		%	21.6		%	(8.1		)%	20.5		%	20.6		%	(0.1		)%

Our effective tax rates infor the third quarter of ~~2017~~2019 and ~~2016~~2018 were impacted by variations in income before income taxes, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items. Discrete items, which may occur in any given year but are not consistent from year to year, include the following: (1) ~~our system optimization initiative,~~a reduction in unrecognized tax benefits due to a lapse of statute of limitations in the third quarter of 2019, (2) ~~state income taxes~~a reduction for the impact of stock-based compensation, which included net excess tax benefits of ~~federal benefits, including~~$1.1 million and $5.3 million for the third quarter of 2019 and 2018, respectively, and (3) an increase due to non-recurring changes to state deferred taxes, (3) the adoption of an amendment issued by the Financial Accounting Standards Board (“FASB”), which requires that excess tax benefits and tax deficiencies related to share-based payments be recognized in net income (see “Item 1 - Financial Statements,” Note 15 to the Condensed Consolidated Financial Statements for further information) and (4) the rate differential between foreign and domestic taxes.

Our effective tax rates infor the first nine months of ~~2017~~2019 and ~~2016~~2018 were impacted by variations in income before income taxes, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items. Discrete items, which may occur in any given year but are not consistent from year to year, include the following: (1) ~~our system optimization initiative (including corrections~~a reduction in unrecognized tax benefits due to ~~prior years identified and recorded~~a lapse of statute of limitations in the first nine months of ~~2017 and 2016,~~2019, (2) a reduction for the impact of stock-based compensation, which ~~resulted in a benefit of $2.2 million and $7.1 million, respectively), (2) the adoption of an amendment issued by the FASB, which requires that~~included net excess tax benefits of $4.0 million and ~~tax deficiencies related to share-based payments be recognized in net income, which resulted in a benefit of $5.2~~$12.1 million infor the first nine months of ~~2017 (see “Item 1 - Financial Statements,” Note 15~~2019 and 2018, respectively, and (3) an increase due to ~~the Condensed Consolidated Financial Statements for further information), (3) state income taxes net of federal benefits, including~~ non-recurring changes to state deferred ~~taxes, and (4) the rate differential between foreign and domestic~~ taxes.

The impact of our system optimization initiative on the provision for income taxes included the effects of changes to our state deferred taxes and valuation allowances on state net operating losses caused by the shifting relative taxable presence in the various states as our system optimization initiative is executed, and the disposition of non-deductible goodwill. These items, which are non-recurring, increased the provision for income taxes by $5.0 million and $2.3 million during the third quarter of 2017 and 2016, respectively, and increased the provision for income taxes by $7.1 million and decreased the provision by $1.3 million during the first nine months of 2017 and 2016, respectively.

Deferred income taxes are not recorded for temporary differences related to our investments in non-U.S. subsidiaries that we consider permanently invested outside of the U.S. At October 1, 2017, our cash balances held outside of the U.S. totaled $107.7 million.

Liquidity and Capital Resources

~~The tables included throughout Liquidity and Capital Resources present dollars in millions.~~

Cash Flows

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

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

Our anticipated ~~consolidated sources of cash and~~ cash requirements for the remainder of ~~2017,~~2019, exclusive of operating cash flow requirements, consist principally of:

capital expenditures of approximately ~~$26.0~~$34.0 million to ~~$31.0~~$39.0 million, resulting in total anticipated cash capital expenditures for the year of approximately ~~$80.0~~$75.0 million to ~~$85.0 million.~~$80.0 million;

cash dividends aggregating up to approximately ~~$17.0~~$27.6 million as discussed below in “Dividends;” and

potential stock repurchases of up to ~~$59.1~~$170.3 million, of which ~~$6.6~~$9.2 million was repurchased subsequent to September 29, 2019 through October ~~1, 2017 through November 2, 2017~~30, 2019, as discussed below in “Stock Repurchases.”

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

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

The table below summarizes our cash flows from operating, investing and financing activities for the first nine months of ~~2017~~2019 and ~~2016:~~2018:


	Nine Months									Nine Months
	2017			2016			Change			2019			2018			Change
Net cash provided by (used in):
Operating activities	$	176.7		$	137.3		$	39.4		$	237.5		$	229.7		$	7.8
Investing activities	(38.1		)	62.5			(100.6		)	(45.7		)	391.4			(437.1		)
Financing activities	(156.9		)	(222.2		)	65.3			(183.4		)	(151.0		)	(32.4		)
Effect of exchange rate changes on cash	6.7			4.0			2.7			2.8			(2.1		)	4.9
Net decrease in cash and cash equivalents	$	(11.6	)	$	(18.4	)	$	6.8
Net increase in cash, cash equivalents and restricted cash										$	11.2		$	468.0		$	(456.8	)

Operating Activities

Cash provided by operating activities was ~~$176.7~~$237.5 million and ~~$137.3~~$229.7 million in the first nine months of ~~2017~~2019 and ~~2016,~~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 ~~$39.4~~$7.8 million during the first nine months of ~~2017~~2019 as compared to the first nine months of ~~2016,~~2018, primarily due to (1) ~~an increase of $19.7 million in~~higher net income from operations, adjusted for non-cash expenses and (2) a favorable change in operating assets and liabilities of $19.7 million. The favorable change in operating assets and liabilities resulted primarily from a decrease in income tax payments, net of refunds and a decrease in payments for incentive ~~compensation~~compensation. These favorable changes were partially offset by (1) the timing of collections of royalty receivables and (2) changes in receivables for ~~the 2016 fiscal year.~~

~~Investing Activities~~

~~Cash used~~income tax refunds. Further, income taxes payable decreased significantly in ~~investing activities increased $100.6 million during~~ the first nine months of ~~2017~~2019 as compared to the first nine months of ~~2016,~~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 income for the first nine months of 2018).

Investing Activities

Cash used in investing activities increased $437.1 million during the first nine months of 2019 as compared to the first nine months of 2018, 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 of restaurants from franchisees of $16.3 million.

Financing Activities

Cash used in financing activities increased $32.4 million during the first nine months of 2019 as compared to the first nine months of 2018, primarily due to (1) a net increase in cash used for long-term debt activities of $76.4 million, reflecting the respective impacts of the completion of debt refinancing transactions during the first nine months of 2019 and 2018, (2) a decrease in proceeds from ~~dispositions~~stock option exercises, net of ~~Company-operated restaurants and other assets~~payments related to tax withholding for share-based compensation, of ~~$164.5~~$16.2 million, and ~~(2) net cash used~~(3) an increase in ~~the DavCo and NPC transactions~~dividends of ~~$16.1~~$8.5 million. These ~~unfavorable~~ changes were partially offset by (1) a decrease in repurchases of ~~$55.0~~common stock of $63.3 million ~~in capital expenditures~~ and (2) the settlement of a ~~decrease~~supplemental purchase price liability associated with the acquisition of ~~$21.7 million in restricted cash for the reinvestment in capital assets under our securitized financing facility.~~

~~Financing Activities~~

~~Cash used in financing activities decreased $65.3~~140 Wendy’s restaurants from DavCo Restaurants, LLC of $6.3 million during the first nine months of ~~2017~~2018.

Long-Term Debt, Including Current Portion

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

In connection with the issuance of the Series 2019-1 Class A-2 Notes, the Master Issuer also entered into a revolving financing facility of Series 2019-1 Variable Funding Senior Secured Notes, Class A-1 (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. No amounts were borrowed under the Series 2019-1 Class A-1 Notes during the nine months ended September 29, 2019. The Series 2019-1 Class A-1 Notes replaced the Company’s $150.0 million Series 2018-1 Class A-1 Notes, which were canceled on the closing date and the letters of ~~2016, primarily due~~credit outstanding against the Series 2018-1 Class A-1 Notes were transferred to ~~a decrease in repurchases of common stock of $71.1 million.~~the Series 2019-1 Class A-1 Notes.

Dividends

On March 15, ~~2017,~~2019, June ~~15, 2017~~17, 2019 and September ~~15, 2017, The Wendy’s~~17, 2019, the Company paid quarterly cash dividends of ~~$0.07~~$.10 per share on its common stock, aggregating ~~$51.5~~$69.3 million. On ~~November 2, 2017, The Wendy’s~~October 11, 2019, the Company declared a dividend of ~~$0.07~~$.12 per share to be paid on December ~~15, 2017~~16, 2019 to ~~shareholders~~stockholders of record as of December ~~1, 2017.~~2, 2019. As a result of the October 11 declaration, ~~The Wendy’s Company’s~~the Company expects that its total cash requirements for the fourth quarter of ~~2017~~2019 will be approximately ~~$17.0~~$27.6 million based on the number of shares of its common stock outstanding at ~~November 2, 2017.~~October 30, 2019. The ~~Wendy’s~~ Company currently intends to continue to declare and pay quarterly cash dividends; however, there can be no assurance that any additional quarterly dividends will be declared or paid ~~in the future~~ or of the amount or timing of such dividends, if any.

Stock Repurchases

In February ~~2017,~~2019, our Board of Directors authorized a repurchase program for up to ~~$150.0~~$225.0 million of our common stock through March ~~4, 2018,~~1, 2020, when and if market conditions warrant and to the extent legally permissible. In connection with the February 2019 authorization, the Company’s previous November 2018 repurchase authorization for up to $220.0 million of our common stock was canceled. During the nine months ended ~~October 1, 2017,~~September 29, 2019, the Company repurchased ~~6.1~~4.2 million shares with an aggregate purchase price of ~~$90.9~~$76.2 million, of which ~~$0.9~~$1.1 million was accrued at ~~October 1, 2017~~September 29, 2019, and excluding commissions of $0.1 ~~million.~~million, under the November 2018 and February 2019 authorizations. As of ~~October 1, 2017,~~September 29, 2019, the Company had ~~$59.1~~$170.3 million of availability remaining under its February ~~2017~~2019 authorization. Subsequent to September 29, 2019 through October ~~1, 2017 through November 2, 2017,~~30, 2019, the Company repurchased 0.4 million shares under the February 2019 authorization with an aggregate purchase price of ~~$6.6~~$9.2 million, excluding commissions. As part of the February 2019 authorization, the Company

~~On June 1, 2015,~~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 ~~$1,400.0~~$175.0 million of our common stock through ~~January 1, 2017,~~March 3, 2019, when and if market conditions warranted and to the extent legally permissible. During the nine months ended ~~October 2, 2016,~~September 30, 2018, the Company repurchased ~~16.0~~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 1.4 million shares with an aggregate purchase price of ~~$162.3~~$22.6 million, ~~of which $3.0 million was accrued at October 2, 2016 and~~ excluding ~~commissions of $0.2 million.~~commissions.

General Inflation, Commodities and Changing Prices

We believe that general inflation did not have a significant effect on our ~~condensed~~ consolidated results of ~~operations during the reporting periods.~~operations. We attempt to manage any inflationary costs and commodity price increases ~~primarily~~ 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, ~~corn,~~ pork, cheese and ~~cheese~~grains, could have ~~an unfavorable~~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 ~~timing to increase food prices.~~selective menu price increases.

Seasonality

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

As of ~~October 1, 2017~~September 29, 2019, there were no material changes from the information contained in the Form 10-K, except as described below.

Interest Rate Risk

As discussed in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation” under “Liquidity and Capital Resources,” the Company completed an $850.0 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 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 Notes. In addition, the principal amounts outstanding on the Series 2019-1 Class A-2 Notes are lower than the amounts that were 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, a wholly-owned subsidiary of the Company also entered into a revolving financing facility, the Series 2019-1 Class A-1 Notes, which allows for the ~~fiscal year ended January 1, 2017.~~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 the Company’s $150.0 million Series 2018-1 Class A-1 Notes, which were canceled on the closing date, and the letters of credit outstanding against the Series 2018-1 Class A-1 Notes were transferred to the Series 2019-1 Class A-1 Notes.

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The management of the Company, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of ~~its~~the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of ~~October 1, 2017~~.September 29, 2019. Based on such evaluations, the Chief Executive Officer and Chief Financial Officer concluded that, as of ~~October 1, 2017,~~September 29, 2019, the disclosure controls and procedures of the Company were effective at a reasonable assurance level in (1) recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and (2) ensuring that information required to be disclosed by the Company in such reports is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the internal control over financial reporting of the Company during the third quarter of ~~2017~~2019 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

PART II. OTHER INFORMATION

Special Note Regarding Forward-Looking Statements and Projections

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

development costs, including real estate and construction costs;

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

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

anticipated or unanticipated restaurant closures by us and our franchisees;

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

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

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

availability and cost of insurance;

~~adverse weather conditions;~~

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

changes in, and our ability to comply with, legal, regulatory or similar requirements, including franchising laws, payment card industry rules, overtime rules, minimum wage rates, wage and hour laws, ~~government-mandated health care benefits,~~ tax legislation, federal ethanol policy and accounting standards, ~~(including the amended guidance for revenue recognition that will become effective for the Company’s 2018 fiscal year~~policies and ~~that may impact the Company’s adjusted EBITDA margin goal for 2020, as well as the new guidance on leases that will become effective for fiscal year 2019);~~practices;

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

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

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

risks associated with failures, interruptions or security breaches of ~~the Company’s~~our computer systems or technology, or the occurrence of cyber incidents or a deficiency in cybersecurity that impacts ~~the Company~~us or ~~its~~our franchisees, including the cybersecurity incident described in ~~Item 1 below;~~

~~the difficulty in predicting the impact of the sale of Company-operated restaurants to franchisees on ongoing operations, any tax impact from the sale of restaurants and the future impact to~~ the Company’s ~~earnings, restaurant operating margins, cash flow and depreciation;~~Annual Report on Form 10-K filed with the SEC on February 27, 2019 (the “Form 10-K”);

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

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

risks associated with the amount and timing of share repurchases under ~~the $150.0 million~~ share repurchase ~~program~~programs approved by ~~the~~our Board of Directors;

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

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

risks associated with our evolving organizational and leadership structure;

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

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

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

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

Item 1. Legal Proceedings.

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

~~We previously described certain legal proceedings under~~See Note 17 to the Condensed Consolidated Financial Statements contained in Item 1 of Part ~~II in our Quarterly Report on Form 10-Q~~1 herein for ~~the second quarter of 2017, as filed with the SEC on August 9, 2017. Except as set forth below, there were no material developments in those~~further information regarding certain legal proceedings ~~during the third quarter of 2017.~~in which we are involved.

As we previously reported, the Company has been named as a defendant in putative class action lawsuits alleging, among other things, that the Company failed to safeguard customer credit card information and failed to provide notice that credit card information had been compromised. Jonathan Torres and other consumers filed an action in the U.S. District Court for the Middle District of Florida (the “Torres case”). The operative complaint seeks to certify a nationwide class of consumers, or in the alternative, statewide classes of consumers for Florida, New York, New Jersey, Texas, and Tennessee, as well as statewide classes of consumers under those states’ consumer protection and unfair trade practices laws. On October 27, 2017, the Company moved to dismiss the operative complaint. The Company’s motion is pending before the court.

Item 1A. Risk Factors.

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

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

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

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

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

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

The following table provides information with respect to repurchases of shares of our common stock by us and our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the third quarter of ~~2017~~2019:

Issuer Repurchases of Equity Securities

Period Total Number of Shares Purchased (1)
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans (2)
July 3, 2017
through
August 6, 2017 934,795

$15.64
917,452

$83,214,931
August 7, 2017
through
September 3, 2017 877,515

$15.11
795,500

$71,230,388
September 4, 2017
through
October 1, 2017 806,500

$15.03
806,500

$59,123,593
Total 2,618,810

$15.27
2,519,452

$59,123,593



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 ~~99,358~~75,141 shares reacquired by the Company from holders of share-based awards to satisfy certain requirements associated with the vesting or exercise of the respective awards. The shares were valued at the average of the high and low trading prices of our common stock on the vesting or exercise date of such awards.


(2)	In February ~~2017,~~2019, our Board of Directors authorized ~~the~~a repurchase ofprogram for up to ~~$150~~$225.0 million of our common stock through March ~~4, 2018,~~1, 2020, when and if market conditions warrant and to the extent legally permissible.

Subsequent to September 29, 2019 through October ~~1, 2017 through November 2, 2017,~~30, 2019, the Company repurchased 0.4 million shares under the February 2019 authorization with an aggregate purchase price of ~~$6.6~~$9.2 million, excluding commissions.

Item 6. Exhibits.



EXHIBIT NO.	DESCRIPTION

~~10.1~~	Form of Nonqualified Stock Option Award Agreement under The Wendy’s Company 2010 Omnibus Award 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 Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
~~101.INS~~101	XBRL Instance Document*The following financial information from The Wendy’s Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2019 formatted in Inline eXtensible Business Reporting Language: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
~~101.SCH~~104	The cover page from The Wendy’s Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2019, formatted in Inline XBRL Taxonomy Extension Schema Document*
~~101.CAL~~	XBRL Taxonomy Extension Calculation Linkbase Document*
~~101.DEF~~	XBRL Taxonomy Extension Definition Linkbase Document*
~~101.LAB~~	XBRL Taxonomy Extension Label Linkbase Document*
~~101.PRE~~	XBRL Taxonomy Extension Presentation Linkbase Document*and contained in Exhibit 101.

____________________



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

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 ~~8, 2017~~6, 2019	By: /s/ Gunther Plosch
	Gunther Plosch
	Chief Financial Officer
	(On behalf of the ~~Company)~~registrant)

Date: November ~~8, 2017~~6, 2019	By: /s/ Leigh A. Burnside
	Leigh A. Burnside
	Senior Vice President, Finance and Chief Accounting Officer
	(Principal Accounting Officer)

4253



	Nine Months Ended
	October 1, 2017
Acquisition (a)
Total consideration paid	$	86,788
Identifiable assets and liabilities assumed:
Net assets held for sale	70,688
Capital lease assets	49,360
Deferred taxes	27,639
Capital lease obligations	(97,046		)
Net unfavorable leases (b)	(22,330		)
Other liabilities (c)	(6,999		)
Total identifiable net assets	21,312
Goodwill (d)	$	65,476

Disposition
Proceeds	$	70,688
Net assets sold	(70,688		)
Goodwill (d)	(65,476		)
Net favorable leases (e)	24,034
Other (f)	(1,692		)
Loss on DavCo and NPC transactions	$	(43,134	)



	Three Months Ended						Nine Months Ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Number of restaurants sold to franchisees	—			156			—			211

Proceeds from sales of restaurants	$	—		$	124,765		$	—		$	164,380
Net assets sold (a)	—			(58,227		)	—			(75,282		)
Goodwill related to sales of restaurants	—			(24,254		)	—			(30,630		)
Net unfavorable leases (b)	—			(6,225		)	—			(11,131		)
Other	—			(726		)	—			(1,521		)
	—			35,333			—			45,816
Post-closing adjustments on sales of restaurants (c)	418			(120		)	1,345			(1,710		)
Gain on sales of restaurants, net	418			35,213			1,345			44,106

(Loss) gain on sales of other assets, net (d)	(539		)	2,543			2,040			4,000
Gain (loss) on DavCo and NPC transactions	15			—			(43,134		)	—
System optimization (losses) gains, net	$	(106	)	$	37,756		$	(39,749	)	$	48,106



	Balance January 3, 2016		Charges		Payments			Balance October 2, 2016
Severance and related employee costs	$	77	$	46	$	(123	)	$	—
Professional fees	708		5,137		(5,740		)	105
Other	90		112		(202		)	—
	$	875	$	5,295	$	(6,065	)	$	105



	Foreign Currency Translation			Cash Flow Hedges (a)			Pension			Total
Balance at January 1, 2017	$	(60,299	)	$	(1,797	)	$	(1,145	)	$	(63,241	)
Current-period other comprehensive income	16,797			1,332			96			18,225
Balance at October 1, 2017	$	(43,502	)	$	(465	)	$	(1,049	)	$	(45,016	)

Balance at January 3, 2016	$	(66,163	)	$	(3,571	)	$	(1,089	)	$	(70,823	)
Current-period other comprehensive income (loss)	10,887			1,332			(56		)	12,163
Balance at October 2, 2016	$	(55,276	)	$	(2,239	)	$	(1,145	)	$	(58,660	)



	Rental Payments					Rental Receipts
Fiscal Year	Capital Leases			Operating Leases		Capital Leases		Operating Leases		Owned Properties
2017 (a)	$	11,989		$	24,894	$	15,868	$	18,782	$	13,436
2018	43,406			93,431		60,844		75,167		53,896
2019	42,717			93,272		61,368		75,267		54,866
2020	43,660			92,434		62,469		74,983		55,489
2021	45,249			91,892		64,260		74,672		57,102
Thereafter	748,736			1,188,165		1,045,693		973,428		1,008,243
Total minimum payments	$	935,757		$	1,584,088	$	1,310,502	$	1,292,299	$	1,243,032
Less interest	(499,703		)
Present value of minimum capital lease payments (b)	$	436,054



	October 1, 2017			January 1, 2017
Land	$	271,840		$	271,160
Buildings and improvements	312,796			312,067
Restaurant equipment	1,491			1,507
	586,127			584,734
Accumulated depreciation and amortization	(122,970		)	(110,166		)
	$	463,157		$	474,568



	October 1, 2017			January 1, 2017
Future minimum rental receipts	$	630,352		$	401,452
Unearned interest income	(416,221		)	(277,747		)
Net investment in direct financing leases	214,131			123,705
Net current investment in direct financing leases (a)	(482		)	(101		)
Net non-current investment in direct financing leases (b)	$	213,649		$	123,604