System Optimization Losses (Gains), Net

6 Months Ended

Jul. 02, 2023

System optimization losses (gains), net

The Company’s system optimization initiative included 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 achieved 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 and drive new restaurant development. During the six months ended July 2, 2023 and July 3, 2022, the Company facilitated 88 and 46 Franchise Flips, respectively.

Gains and losses recognized on dispositions are recorded to “System optimization losses (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.” 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				Six Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Post-closing adjustments on sales of restaurants (a)	$	—	$	75	$	—	$	3,522
(Loss) gain on sales of other assets, net (b)	(6)		77		(1)		164
System optimization (losses) gains, net	$	(6)	$	152	$	(1)	$	3,686

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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 six months ended July 2, 2023, the Company received net cash proceeds of $280 primarily from the sale of surplus and other properties. During the three and six months ended July 3, 2022, the Company received net cash proceeds of $690 and $858, respectively, primarily from the sale of surplus and other properties.

The Company also received cash proceeds of $63 and $158 during the three and six months ended July 3, 2022, respectively, related to a note receivable issued in connection with the sale of the Manhattan Company-operated restaurants.

Assets Held for Sale

As of July 2, 2023 and January 1, 2023, the Company had assets held for sale of $1,379 and $1,661, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”