Guarantees and Other Commitments and Contingencies

12 Months Ended

Dec. 29, 2019

Commitments and Contingencies Disclosure [Abstract]

Guarantees and Other Commitments and Contingencies

Guarantees and Other Commitments and Contingencies

Guarantees and Contingent Liabilities

Franchisee Image Activation Incentive Programs

In order to promote new restaurant development, Wendy’s has an incentive program for franchisees that provides for reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants opened by December 31, 2020, with the value of the incentives declining in the later years of the program. In addition, during 2018, Wendy’s announced a restaurant development incentive program that provides for incremental reductions in royalty and national advertising payments for up to the first two years of operation for qualifying new restaurants for existing franchisees that sign up for the program and commit to incremental development of new Wendy’s restaurants under a new development agreement. Wendy’s also provides franchisees with the option of an early 20-year renewal of their franchise agreement upon completion of reimaging utilizing certain approved Image Activation remodel designs.

Wendy’s also had incentive programs for 2017 available to franchisees that commenced Image Activation restaurant remodels by December 15, 2017. The remodel incentive programs provided for reductions in royalty payments for one year after the completion of construction.

Other Loan Guarantees

Wendy’s provides loan guarantees to various lenders on behalf of franchisees entering into debt arrangements for equipment financing. Wendy’s has accrued a liability for the fair value of these guarantees, the calculation of which was based upon a weighted average risk percentage established at the inception of each program which has been adjusted for a history of defaults. Wendy’s potential recourse for the aggregate amount of these loans amounted to $6 as of December 29, 2019. As of December 29, 2019, the fair value of these guarantees totaled $1 and is included in “Other liabilities.”

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 $75,626 as of December 29, 2019. These leases extend through 2056. We have not received any notice of default related to these leases as of December 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.

Insurance

Wendy’s is self-insured for most workers’ compensation losses and purchases insurance for general liability and automotive liability losses, all subject to a $500 per occurrence retention or deductible limit. Wendy’s determines its liability for claims incurred but not reported for the insurance liabilities on an actuarial basis. As of December 29, 2019, the Company had $20,588 recorded for these insurance liabilities. Wendy’s is self-insured for health care claims for eligible participating employees subject to certain deductibles and limitations and determines its liability for health care claims incurred but not reported based on historical claims runoff data. As of December 29, 2019, the Company had $2,349 recorded for these health care insurance liabilities.

Letters of Credit

As of December 29, 2019, the Company had outstanding letters of credit with various parties totaling $25,106. The outstanding letters of credit include amounts outstanding against the Class A-1 Notes. See Note 12 for further information. We do not expect any material loss to result from these letters of credit.

Purchase and Capital Commitments

Beverage Agreement

The Company has an agreement with a beverage vendor, which provides fountain beverage products and certain marketing support funding to the Company and its franchisees. This agreement requires minimum purchases of certain fountain beverages (“Fountain Beverages”) by the Company and its franchisees at 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 minimum usage requirement or December 31, 2025. Beverage purchases made by the Company under this agreement during 2019, 2018 and 2017 were $11,440, $10,108 and $9,370, respectively. The Company estimates future annual purchases to be approximately $11,000 in 2020, $11,300 in 2021, $11,800 in 2022, $12,300 in 2023 and $12,800 in 2024 based on current pricing and the expected ratio of usage at Company-operated restaurants to franchised restaurants. As of December 29, 2019, $2,542 is due to the beverage vendor and is included in “Accounts payable,” principally for annual estimated payments that exceeded usage under this agreement.

IT Services Agreement

In December 2019, the Company entered into an agreement to partner with a third-party global IT consultant on the Company’s new IT organization structure to leverage the consultant’s global capabilities, which the Company believes will enable a more seamless integration between its digital and corporate IT assets. Costs incurred by the Company under this agreement were $1,386 during 2019. The Company’s unconditional purchase obligations under the agreement are approximately $16,800 in 2020, $17,200 in 2021, $15,400 in 2022, $13,000 in 2023 and $12,200 in 2024. As of December 29, 2019, $1,046 is due to the consultant and is included in “Accrued expenses and other current liabilities.”

Marketing Agreement

The Company has an agreement with two national broadcasters that grants the Company certain marketing and media rights. Costs incurred by the Company under this agreement were approximately $11,000 in each of 2019 and 2018, which are included in “Advertising funds expense.” The Company’s unconditional purchase obligations under the agreement are approximately $15,500 in 2020, $12,400 in 2021, $12,900 in 2022, $13,400 in 2023 and $12,700 in 2024.