System Optimization Losses (Gains), Net

The Company’s system optimization initiative includes a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating Franchise Flips. The Company completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total system as of January 1, 2017. While the Company has no plans to reduce its ownership below the 5% level, Wendy’s will continue to optimize its system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base and drive new restaurant development and accelerate reimages in the Image Activation format. During the three months ended April 2, 2017, the Company facilitated 116 Franchise Flips. No Franchise Flips occurred during the three months ended April 1, 2018.

As part of our system optimization initiative, the Company acquired 140 Wendy’s restaurants on May 31, 2017 from DavCo Restaurants, LLC (“DavCo”), which were immediately sold to NPC International, Inc. (“NPC”), an existing franchisee of the Company. As part of the DavCo acquisition, the Company recognized a supplemental purchase price liability of $6,269, of which $6,100 was settled during the three months ended April 1, 2018.

Gains and losses recognized on dispositions are recorded to “System optimization losses (gains), net” in our condensed consolidated statements of operations. Costs related to dispositions under our system optimization initiative were recorded to “Reorganization and realignment costs,” which are further described in Note 5. All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

The following is a summary of the disposition activity recorded as a result of our system optimization initiative:



	Three Months Ended
	April 1, 2018			April 2, 2017
Post-closing adjustments on sales of restaurants (a)	$	(212	)	$	900
(Loss) gain on sales of other assets, net (b)	(358		)	507
System optimization (losses) gains, net	$	(570	)	$	1,407

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(a)	The three months ended April 1, 2018 includes cash proceeds, net of payments of $6. The three months ended April 2, 2017 includes the recognition of a deferred gain of $312 as a result of the resolution of certain contingencies related to the extension of lease terms for a Canadian restaurant.


(b)	During the three months ended April 1, 2018 and April 2, 2017, the Company received cash proceeds of $345 and $1,650, respectively, primarily from the sale of surplus properties. The three months ended April 2, 2017 also includes the recognition of a deferred gain of $375 related to the sale of a share in an aircraft.

As of April 1, 2018 and December 31, 2017, the Company had assets held for sale of $2,437 and $2,235, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”