Leases

12 Months Ended

Jan. 02, 2022

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 January 2, 2022, Wendy’s and its franchisees operated 6,949 Wendy’s restaurants. Of the 408 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for 159 restaurants, owned the building and held long-term land leases for 141 restaurants and held leases covering the land and building for 108 restaurants. Wendy’s also owned 485 and leased 1,235 properties that were either leased or subleased principally to franchisees. The Company also leases restaurant, office and transportation equipment.

Company as Lessee

The components of lease cost for 2021, 2020 and 2019 are as follows:


	Year Ended
	2021		2020		2019
Finance lease cost:
Amortization of finance lease assets	$	13,992	$	13,395	$	11,241
Interest on finance lease liabilities	41,419		40,682		37,012
	55,411		54,077		48,253
Operating lease cost	89,283		91,475		90,537
Variable lease cost (a)	63,853		59,076		58,978
Short-term lease cost	5,102		4,641		4,717
Total operating lease cost (b)	158,238		155,192		154,232
Total lease cost	$	213,649	$	209,269	$	202,485

_______________

(a)Includes expenses for executory costs of $39,646, $38,652, and $37,758 for 2021, 2020 and 2019, respectively, for which the Company is reimbursed by sublessees.

(b)Includes $132,158, $125,553 and $123,899 for 2021, 2020 and 2019, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees. Also includes $23,558, $26,866 and $27,419 for 2021, 2020 and 2019, 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:


	Year Ended
	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	42,277	$	39,349	$	39,887
Operating cash flows from operating leases	91,930		85,689		91,824
Financing cash flows from finance leases	13,640		8,383		6,835
Right-of-use assets obtained in exchange for lease obligations:
Finance lease liabilities	82,032		34,918		50,061
Operating lease liabilities	58,770		18,327		15,411

The following table includes supplemental information related to leases:


	Year End
	January 2, 2022			January 3, 2021
Weighted-average remaining lease term (years):
Finance leases	15.8			16.2
Operating leases	14.1			14.6

Weighted average discount rate:
Finance leases	8.91		%	9.54		%
Operating leases	4.94		%	5.06		%

Supplemental balance sheet information:
Finance lease assets, gross	$	307,965		$	261,308
Accumulated amortization	(63,686)			(55,155)
Finance lease assets	244,279			206,153
Operating lease assets	812,620			821,480

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of January 2, 2022:


	Finance Leases				Operating Leases
Fiscal Year	Company-Operated		Franchise and Other		Company-Operated		Franchise and Other
2022	$	6,361	$	51,720	$	20,521	$	69,692
2023	6,317		52,957		20,989		69,158
2024	6,410		53,383		20,956		69,133
2025	6,610		53,876		20,745		68,910
2026	6,754		55,117		21,198		68,093
Thereafter	84,693		624,335		192,250		630,404
Total minimum payments	$	117,145	$	891,388	$	296,659	$	975,390
Less interest	(41,554)		(391,879)		(82,860)		(288,546)
Present value of minimum lease payments (a) (b)	$	75,591	$	499,509	$	213,799	$	686,844

_______________

(a)The present value of minimum finance lease payments of $15,513 and $559,587 are included in “Current portion of finance lease liabilities” and “Long-term finance lease liabilities,” respectively.

(b)The present value of minimum operating lease payments of $47,315 and $853,328 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively.

Leases, Company as Lessor

Company as Lessor

The components of lease income for 2021, 2020 and 2019 are as follows:


	Year Ended
	2021		2020		2019
Sales-type and direct-financing leases:
Selling profit	$	4,244	$	1,995	$	2,285
Interest income (a)	30,648		29,067		26,333

Operating lease income	173,442		174,452		176,629
Variable lease income	63,213		58,196		56,436
Franchise rental income (b)	$	236,655	$	232,648	$	233,065

_______________

(a)Included in “Interest expense, net.”

(b)Includes sublease income of $174,327, $169,921 and $171,126 recognized during 2021, 2020 and 2019, respectively. Sublease income includes lessees’ variable payments to the Company for executory costs of $39,650, $38,636 and $37,739 for 2021, 2020 and 2019, respectively.

The following table illustrates the Company’s future minimum rental receipts for non-cancelable leases and subleases as of January 2, 2022:


	Sales-Type and Direct Financing Leases				Operating Leases
Fiscal Year	Subleases		Owned Properties		Subleases		Owned Properties
2022	$	33,883	$	2,543	$	110,714	$	53,076
2023	34,933		2,589		111,330		53,384
2024	36,929		2,599		111,591		54,490
2025	35,803		2,717		111,102		55,086
2026	36,950		2,887		110,537		56,845
Thereafter	438,518		31,876		1,020,240		647,591
Total future minimum receipts	617,016		45,211		$	1,575,514	$	920,472
Unearned interest income	(331,403)		(24,851)
Net investment in sales-type and direct financing leases (a)	$	285,613	$	20,360

_______________

(a)The present value of minimum sales-type and direct financing rental receipts of $6,266 and $299,707 are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively. The present value of minimum sales-type and direct financing rental receipts includes a net investment in unguaranteed residual assets of $549.

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


	Year End
	January 2, 2022		January 3, 2021
Land	$	258,513	$	279,956
Buildings and improvements	288,782		309,605
Restaurant equipment	1,701		1,701
	548,996		591,262
Accumulated depreciation and amortization	(173,243)		(170,722)
	$	375,753	$	420,540