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Leases

12 Months Ended

Jan. 03, 2021

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 3, 2021, Wendy’s and its franchisees operated 6,828 Wendy’s restaurants. Of the 361 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for 142 restaurants, owned the building and held long-term land leases for 149 restaurants and held leases covering the land and building for 70 restaurants. Wendy’s also owned 509 and leased 1,245 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 2020 and 2019 are as follows:


	Year Ended
	2020		2019
Finance lease cost:
Amortization of finance lease assets	$	13,395	$	11,241
Interest on finance lease liabilities	40,682		37,012
	54,077		48,253
Operating lease cost	91,475		90,537
Variable lease cost (a)	59,076		58,978
Short-term lease cost	4,641		4,717
Total operating lease cost (b)	155,192		154,232
Total lease cost	$	209,269	$	202,485

_______________

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

(b)Includes $125,553 and $123,899 for 2020 and 2019, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees. Also includes $26,866 and $27,419 for 2020 and 2019, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

The components of rental expense for operating leases for 2018, as accounted for under previous guidance, were as follows:


	Year Ended
	2018
Rental expense:
Minimum rentals	$	95,749
Contingent rentals	18,971
Total rental expense (a)	$	114,720

_______________

(a)Includes rental expense related to (1) leases for Company-operated restaurants recorded to “Cost of sales,” (2) leased properties that are subsequently leased to franchisees recorded to “Franchise rental expense” and (3) leases for corporate offices and equipment recorded to “General and administrative.”

Amortization of finance lease assets was $11,603 for 2018.

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


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

The following table includes supplemental information related to leases:


	Year End
	January 3, 2021			December 29, 2019
Weighted-average remaining lease term (years):
Finance leases	16.2			17.1
Operating leases	14.6			15.4

Weighted average discount rate:
Finance leases	9.54		%	9.87		%
Operating leases	5.06		%	5.09		%

Supplemental balance sheet information:
Finance lease assets, gross	$	261,308		$	242,889
Accumulated amortization	(55,155)			(42,745)
Finance lease assets	206,153			200,144
Operating lease assets	821,480			857,199

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of January 3, 2021:


	Finance Leases				Operating Leases
Fiscal Year	Company-Operated		Franchise and Other		Company-Operated		Franchise and Other
2021 (a)	$	4,779	$	47,503	$	19,195	$	70,730
2022	4,963		49,000		19,010		70,633
2023	4,927		50,632		19,037		70,460
2024	5,045		51,007		19,111		70,328
2025	5,140		51,423		19,065		69,977
Thereafter	59,126		628,162		167,441		699,756
Total minimum payments	$	83,980	$	877,727	$	262,859	$	1,051,884
Less interest	(30,716)		(412,810)		(77,388)		(326,684)
Present value of minimum lease payments (b) (c)	$	53,264	$	464,917	$	185,471	$	725,200

_______________

(a)In addition to the 2021 future minimum rental payments, the Company expects to pay $5,439 primarily during 2021 related to rent deferrals obtained due to the COVID-19 pandemic. The related payable is included in “Accrued expenses and other current liabilities.” See Note 7 for further information.

(b)The present value of minimum finance lease payments of $12,105 and $506,076 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 $45,346 and $865,325 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 2020 and 2019 are as follows:


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

Operating lease income	174,452		176,629
Variable lease income	58,196		56,436
Franchise rental income (b)	$	232,648	$	233,065

_______________

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

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

The components of rental income for operating leases and subleases for 2018, as accounted for under previous guidance, were as follows:


	Year Ended
	2018
Rental income:
Minimum rentals	$	184,154
Contingent rentals	19,143
Total rental income (a)	$	203,297

_______________

(a)Includes sublease income of $138,363.

During 2018, the Company recognized $27,638 in interest income related to our direct financing leases, which is included in “Interest expense, net.”

The following table illustrates the Company’s future minimum rental receipts for non-cancelable leases and subleases as of January 3, 2021:


	Sales-Type and Direct Financing Leases				Operating Leases
Fiscal Year	Subleases		Owned Properties		Subleases		Owned Properties
2021 (a)	$	31,128	$	3,573	$	110,920	$	54,543
2022	31,953		2,037		111,605		56,017
2023	32,994		2,081		112,498		56,220
2024	34,965		2,089		112,541		57,311
2025	33,844		2,196		111,953		57,904
Thereafter	440,802		21,231		1,115,693		743,814
Total future minimum receipts	605,686		33,207		$	1,675,210	$	1,025,809
Unearned interest income	(348,692)		(16,015)
Net investment in sales-type and direct financing leases (b)	$	256,994	$	17,192

_______________

(a)In addition to the 2021 future minimum rental receipts, the Company expects to collect $5,226 primarily during 2021 related to the offer to defer base rent payments in response to the COVID-19 pandemic. The related receivable is included in “Accounts and notes receivable, net.” See Note 7 for further information.

(b)The present value of minimum direct financing rental receipts of $5,965 and $268,221 are included in “Accounts and notes receivable, net” and “Net investment in sales-type and direct financing leases,” respectively. The present value of minimum direct financing rental receipts includes a net investment in unguaranteed residual assets of $215.

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


	Year End
	January 3, 2021		December 29, 2019
Land	$	279,956	$	281,792
Buildings and improvements	309,605		311,047
Restaurant equipment	1,701		1,727
	591,262		594,566
Accumulated depreciation and amortization	(170,722)		(157,130)
	$	420,540	$	437,436