Revenue

Nature of Goods and Services

The Company generates revenues from sales at Company-operated restaurants and earns fees and rental income from franchised restaurants. Revenues are recognized upon delivery of food to the customer at Company-operated restaurants or upon the fulfillment of terms outlined in the franchise agreement for franchised restaurants. The franchise agreement provides the franchisee the right to construct, own and operate a Wendy’s restaurant upon a site accepted by Wendy’s and to use the Wendy’s system in connection with the operation of the restaurant at that site. The franchise agreement generally provides for a 20-year term and a 10-year renewal subject to certain conditions. The initial term may be extended up to 25 years and the renewal extended up to 20 years for qualifying restaurants under certain new restaurant development and reimaging programs.

The franchise agreement requires that the franchisee pay a royalty based on a percentage of sales at the franchised restaurant, as well as make contributions to the Advertising Funds based on a percentage of sales. Wendy’s may offer development incentive programs from time to time that provide for a discount or lesser royalty amount or Advertising Fund contribution for a limited period of time. The agreement also typically requires that the franchisee pay Wendy’s a technical assistance fee. The technical assistance fee is used to defray some of the costs to Wendy’s for training, start-up and transitional services related to new and existing franchisees acquiring restaurants and in the development and opening of new restaurants.

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

Wendy’s owns and leases sites from third parties, which it leases and/or subleases to franchisees. Noncancelable lease terms are generally initially between 15 and 20 years and, in most cases, provide for rent escalations and renewal options. The initial lease term for properties leased or subleased to franchisees is generally set to be coterminous with the initial 20-year term of the related franchise agreement and any renewal term is coterminous with the 10-year renewal term of the related franchise agreement.

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

Disaggregation of Revenue

The following table disaggregates revenue by primary geographical market and source for 2018:



	U.S.		Canada		Other International		Total
Sales at Company-operated restaurants	$	651,577	$	—	$	—	$	651,577
Franchise royalty revenue	335,500		23,629		18,817		377,946
Franchise fees	25,044		5,199		854		31,097
Franchise rental income	177,076		26,221		—		203,297
Advertising funds revenue	306,442		19,577		—		326,019
Total revenues	$	1,495,639	$	74,626	$	19,671	$	1,589,936

Contract Balances

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



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

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


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


(c)	Deferred franchise fees of $9,973 and $92,232 are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees,” respectively.

Significant changes in deferred franchise fees are as follows:



	2018
Deferred franchise fees at beginning of period	$	102,492
Revenue recognized during the period	(9,641		)
New deferrals due to cash received and other	9,354
Deferred franchise fees at end of period	$	102,205

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	$	8,309
2020	6,304
2021	5,873
2022	5,672
2023	5,442
Thereafter	70,605
	$	102,205