Leases

12 Months Ended

Jan. 01, 2023

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 1, 2023, Wendy’s and its franchisees operated 7,095 Wendy’s restaurants. Of the 415 Company-operated Wendy’s restaurants, Wendy’s owned the land and building for 158 restaurants, owned the building and held long-term land leases for 143 restaurants and held leases covering the land and building for 114 restaurants. Wendy’s also owned 488 and leased 1,199 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 2022, 2021 and 2020 are as follows:


	Year Ended
	2022		2021		2020
Finance lease cost:
Amortization of finance lease assets	$	15,440	$	13,992	$	13,395
Interest on finance lease liabilities	42,918		41,419		40,682
	58,358		55,411		54,077
Operating lease cost	86,050		89,283		91,475
Variable lease cost (a)	64,473		63,853		59,076
Short-term lease cost	5,439		5,102		4,641
Total operating lease cost (b)	155,962		158,238		155,192
Total lease cost	$	214,320	$	213,649	$	209,269

_______________

(a)Includes expenses for executory costs of $38,749, $39,646, and $38,652 for 2022, 2021 and 2020, respectively, for which the Company is reimbursed by sublessees.

(b)Includes $123,924, $132,158 and $125,553 for 2022, 2021 and 2020, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees. Also includes $29,648, $23,558 and $26,866 for 2022, 2021 and 2020, 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
	2022		2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	42,979	$	42,277	$	39,349
Operating cash flows from operating leases	88,372		91,930		85,689
Financing cash flows from finance leases	17,312		13,640		8,383
Right-of-use assets obtained in exchange for lease obligations:
Finance lease liabilities	34,478		82,032		34,918
Operating lease liabilities	24,742		58,770		18,327

The following table includes supplemental information related to leases:


	Year End
	January 1, 2023			January 2, 2022
Weighted-average remaining lease term (years):
Finance leases	15.1			15.8
Operating leases	13.7			14.1

Weighted average discount rate:
Finance leases	8.66		%	8.91		%
Operating leases	4.90		%	4.94		%

Supplemental balance sheet information:
Finance lease assets, gross	$	310,686		$	307,965
Accumulated amortization	(76,116)			(63,686)
Finance lease assets	234,570			244,279
Operating lease assets	754,498			812,620

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of January 1, 2023:


	Finance Leases				Operating Leases
Fiscal Year	Company-Operated		Franchise and Other		Company-Operated		Franchise and Other
2023	$	6,590	$	54,163	$	21,948	$	65,838
2024	6,683		54,763		21,891		66,211
2025	6,883		55,357		21,666		66,072
2026	7,028		57,043		22,113		65,314
2027	7,072		57,742		22,047		64,901
Thereafter	81,853		603,101		185,694		537,504
Total minimum payments	$	116,109	$	882,169	$	295,359	$	865,840
Less interest	(39,079)		(369,006)		(78,935)		(242,093)
Present value of minimum lease payments (a) (b)	$	77,030	$	513,163	$	216,424	$	623,747

_______________

(a)The present value of minimum finance lease payments of $18,316 and $571,877 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 $48,120 and $792,051 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 2022, 2021 and 2020 are as follows:


	Year Ended
	2022		2021		2020
Sales-type and direct-financing leases:
Selling profit	$	2,981	$	4,244	$	1,995
Interest income (a)	31,298		30,648		29,067

Operating lease income	170,633		173,442		174,452
Variable lease income	63,832		63,213		58,196
Franchise rental income (b)	$	234,465	$	236,655	$	232,648

_______________

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

(b)Includes sublease income of $175,053, $174,327 and $169,921 recognized during 2022, 2021 and 2020, respectively. Sublease income includes lessees’ variable payments to the Company for executory costs of $38,733, $39,650 and $38,636 for 2022, 2021 and 2020, respectively.

The following table illustrates the Company’s future minimum rental receipts for non-cancelable leases and subleases as of January 1, 2023:


	Sales-Type and Direct Financing Leases				Operating Leases
Fiscal Year	Subleases		Owned Properties		Subleases		Owned Properties
2023	$	36,408	$	2,512	$	107,111	$	53,609
2024	38,425		2,523		107,832		54,743
2025	37,316		2,640		107,923		55,334
2026	38,623		2,810		107,843		57,089
2027	39,190		2,726		107,967		56,698
Thereafter	428,631		29,035		889,728		593,718
Total future minimum receipts	618,593		42,246		$	1,428,404	$	871,191
Unearned interest income	(312,508)		(22,731)
Net investment in sales-type and direct financing leases (a)	$	306,085	$	19,515

_______________

(a)The present value of minimum sales-type and direct financing rental receipts of $8,263 and $317,337 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 $611.

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


	Year End
	January 1, 2023		January 2, 2022
Land	$	260,650	$	258,513
Buildings and improvements	291,659		288,782
Restaurant equipment	1,701		1,701
	554,010		548,996
Accumulated depreciation and amortization	(187,269)		(173,243)
	$	366,741	$	375,753