System Optimization Gains, Net

12 Months Ended

Dec. 31, 2023

Properties


	Year End
	December 31, 2023		January 1, 2023
Land	$	373,634	$	371,347
Buildings and improvements	519,244		510,685
Leasehold improvements	432,051		422,330
Office, restaurant and transportation equipment	344,623		314,223
	1,669,552		1,618,585
Accumulated depreciation and amortization	(778,472)		(722,807)
	$	891,080	$	895,778

Depreciation and amortization expense related to properties was $70,108, $69,239 and $68,298 during 2023, 2022 and 2021, respectively.

System Optimization

System optimization gains, net

System Optimization 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 Franchise Flips. As of December 31, 2023, Company-operated restaurant ownership was 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 2023, 2022 and 2021, the Company facilitated 99, 79 and 34 Franchise Flips, respectively. Additionally, during 2021, the Company completed the sale of 47 Company-operated restaurants in New York (including Manhattan) to franchisees and, during 2022, the Company completed the sale of one Company-operated restaurant to a franchisee. No Company-operated restaurants were sold to franchisees during 2023.

Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our 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:


	Year Ended
	2023		2022		2021
Number of restaurants sold to franchisees	—		1		47

Proceeds from sales of restaurants (a)	$	—	$	79	$	50,518
Net assets sold (b)	—		(141)		(16,939)
Goodwill related to sales of restaurants	—		—		(4,847)
Net unfavorable leases (c)	—		(360)		(2,939)
Gain on sales-type leases	—		—		7,156
Other (d)	—		6		(2,148)
	—		(416)		30,801
Post-closing adjustments on sales of restaurants (e) (f)	858		2,877		1,218
Gain on sales of restaurants, net	858		2,461		32,019

Gain on sales of other assets, net (g)	22		4,318		1,526
System optimization gains, net	$	880	$	6,779	$	33,545

_______________

(a)In addition to the proceeds noted herein, the Company received cash proceeds of $378 and $39 during 2022 and 2021, 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 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)2021 includes a deferred gain of $3,500 as a result of certain contingencies related to the extension of lease terms.

(e)2021 includes a gain on sales-type leases of $1,625 and the write-off of certain lease assets of $927 as a result of an amendment to lease terms in connection with a Manhattan Company-operated restaurant previously sold to a franchisee.

(f)2023, 2022 and 2021 include the recognition of deferred gains of $858, $3,522 and $515, respectively, as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees.

(g)During 2023, 2022 and 2021, the Company received cash proceeds of $2,115, $7,780 and $4,561, respectively, primarily from the sale of surplus and other properties.

Assets Held for Sale

As of December 31, 2023 and January 1, 2023, the Company had assets held for sale of $2,689 and $1,661, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”