System Optimization Gains, Net

6 Months Ended

Jul. 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 six months ended July 3, 2022 and July 4, 2021, the Company facilitated 46 and 19 Franchise Flips, respectively. In addition, during the three months ended July 4, 2021, the Company completed the sale of 47 Company-operated restaurants in New York (including Manhattan) to franchisees. No Company-operated restaurants were sold to franchisees during the six months ended July 3, 2022.

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				Six Months Ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Number of restaurants sold to franchisees	—		47		—		47

Proceeds from sales of restaurants (a)	$	—	$	50,518	$	—	$	50,518
Net assets sold (b)	—		(16,939)		—		(16,939)
Goodwill related to sales of restaurants	—		(4,847)		—		(4,847)
Net unfavorable leases (c)	—		(2,939)		—		(2,939)
Gain on sales-type leases	—		7,156		—		7,156
Other (d)	—		(2,148)		—		(2,148)
	—		30,801		—		30,801
Post-closing adjustments on sales of restaurants (e)	75		—		3,522		515
Gain on sales of restaurants, net	75		30,801		3,522		31,316

Gain (loss) on sales of other assets, net (f)	77		(35)		164		(34)
System optimization gains, net	$	152	$	30,766	$	3,686	$	31,282

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(a)In addition to the proceeds noted herein, the Company 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.

(b)Net assets sold consisted primarily of equipment.

(c)During the three and six months ended July 4, 2021, the Company recorded favorable lease assets of $3,799 and unfavorable lease liabilities of $6,738 as a result of leasing and/or subleasing land, buildings and/or leasehold improvements to franchisees, in connection with the sale of the New York Company-operated restaurants (including Manhattan).

(d)The three and six months ended July 4, 2021 include a deferred gain of $3,500 as a result of certain contingencies related to the extension of lease terms.

(e)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.

(f)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. During the three and six months ended July 4, 2021, the Company received net cash proceeds of $10 and $13, respectively, primarily from the sale of surplus and other properties.

Assets Held for Sale

As of July 3, 2022 and January 2, 2022, the Company had assets held for sale of $3,754 and $3,541, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”