Leases

6 Months Ended

Jul. 02, 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 July 2, 2023, Wendy’s and its franchisees operated 7,115 Wendy’s restaurants. Of the 414 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 144 restaurants and held leases covering the land and building for 111 restaurants. Wendy’s also owned 488 and leased 1,189 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 are as follows:


	Three Months Ended				Six Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Finance lease cost:
Amortization of finance lease assets	$	4,058	$	4,106	$	8,121	$	8,170
Interest on finance lease liabilities	10,743		10,693		21,493		21,338
	14,801		14,799		29,614		29,508
Operating lease cost	21,429		22,324		42,878		42,985
Variable lease cost (a)	17,519		16,456		33,600		31,259
Short-term lease cost	1,461		1,405		2,967		2,838
Total operating lease cost (b)	40,409		40,185		79,445		77,082
Total lease cost	$	55,210	$	54,984	$	109,059	$	106,590

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(a)Includes expenses for executory costs of $10,172 and $9,245 for the three months ended July 2, 2023 and July 3, 2022, respectively, and $20,020 and $18,853 for the six months ended July 2, 2023 and July 3, 2022, respectively, for which the Company is reimbursed by sublessees.

(b)Includes $32,329 and $32,071 for the three months ended July 2, 2023 and July 3, 2022, respectively, and $62,927 and $60,996 for the six months ended July 2, 2023 and July 3, 2022, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees. Also includes $7,546 and $7,479 for the three months ended July 2, 2023 and July 3, 2022, respectively, and $15,411 and $14,773 for the six months ended July 2, 2023 and July 3, 2022, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

Leases, Company as Lessor

Company as Lessor

The components of lease income are as follows:


	Three Months Ended				Six Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Sales-type and direct-financing leases:
Selling profit	$	1,072	$	1,677	$	1,201	$	2,157
Interest income (a)	7,868		7,753		15,730		15,493

Operating lease income	40,629		42,174		82,785		85,488
Variable lease income	17,404		16,436		33,055		30,993
Franchise rental income (b)	$	58,033	$	58,610	$	115,840	$	116,481

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

(b)Includes sublease income of $42,961 and $43,689 recognized during the three months ended July 2, 2023 and July 3, 2022, respectively, and $85,912 and $86,854 recognized during the six months ended July 2, 2023 and July 3, 2022, respectively. Sublease income includes lessees’ variable payments to the Company for executory costs of $10,115 and $9,250 for the three months ended July 2, 2023 and July 3, 2022, respectively, and $19,893 and $18,785 for the six months ended July 2, 2023 and July 3, 2022, respectively.