System Optimization Gains, Net

3 Months Ended

Apr. 03, 2022

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 franchisee-to-franchisee restaurant transfers (“Franchise Flips”). As of January 1, 2017, the Company completed its plan to reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total system. While the Company has no plans to move its ownership away from approximately 5% of the total system, the Company expects to continue to optimize the Wendy’s 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, drive new restaurant development and accelerate reimages. During the three months ended April 3, 2022, the Company facilitated five Franchise Flips. During the three months ended April 4, 2021, the Company facilitated no Franchise Flips.

Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our condensed consolidated statements of operations. Costs related to acquisitions and dispositions under our system optimization initiative are 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 3, 2022		April 4, 2021
Post-closing adjustments on sales of restaurants (a)	$	3,447	$	515
Gain on sales of other assets, net (b)	87		1
System optimization gains, net	$	3,534	$	516

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(a)Represents the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

(b)During the three months ended April 3, 2022 and April 4, 2021, the Company received net cash proceeds of $168 and $3, respectively, primarily from the sale of surplus and other properties.

The Company also received cash proceeds of $95 during the three months ended April 3, 2022 related to a note receivable issued in connection with the sale of the Manhattan Company-operated restaurants during 2021.

Assets Held for Sale

As of April 3, 2022 and January 2, 2022, the Company had assets held for sale of $3,485 and $3,541, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”