Wendy's 2014 Annual Report Download - page 36

As a result of the system optimization initiative, the Company has recorded losses of $8.6 million and
$20.5 million in 2014 and 2013, respectively, on remeasuring long-lived assets to fair value upon determination that
the assets will be leased and/or subleased to franchisees in connection with the sale or anticipated sale of restaurants
(“System Optimization Remeasurement”). In addition, the Company has recognized costs related to the system
optimization initiative of $19.0 million and $31.1 million in 2014 and 2013, respectively, which primarily included
severance and related employee costs, accelerated depreciation and amortization, professional fees and share-based
compensation. These costs have been substantially offset by net gains recognized on sales of restaurants of
$69.6 million and $46.7 million in 2014 and 2013, respectively, all of which were recorded to “Facilities action
(income) charges, net” in our consolidated statements of operations.
The Company anticipates recognizing additional system optimization related costs through the second quarter
of 2015 of approximately $1.0 million, which include severance and related employee costs and professional fees. The
Company is unable to estimate any gains or losses or System Optimization Remeasurement resulting from future sales
of its Canadian restaurants. The Company plans to retain its ownership in a Canadian restaurant real estate joint
venture (“TimWen”) with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company
that owns the Tim Hortons®brand. (Tim Hortons is a registered trademark of The TDL Marks Corporation.)
In February 2015, the Company announced plans to sell approximately 500 additional restaurants to
franchisees and reduce its ongoing company-owned restaurant ownership to approximately 5% of the total system by
the middle of 2016, as part of its ongoing system optimization initiative. As a result, the Company anticipates
recognizing additional System Optimization Remeasurement. However, the Company cannot estimate such charges
or any gains or losses resulting from future sales of its restaurants.
G&A Realignment
As announced in November 2014, the Company initiated a plan to reduce its general and administrative
expenses. The plan includes a realignment and reinvestment of resources to focus primarily on accelerated restaurant
development and consumer-facing restaurant technology to drive long-term growth. The Company expects to achieve
the majority of the expense reductions through the realignment of its U.S. field operations and savings at its
Restaurant Support Center in Dublin, Ohio. As a result, the Company recorded a $12.9 million charge to “Facilities
action (income) charges, net” during the fourth quarter of 2014, which primarily included severance and related
employee costs. The Company expects to incur additional costs aggregating approximately $11.5 million to
$13.5 million during the first half of 2015, comprised of severance and related employee costs of $2.5 million,
recruitment and relocation costs of $5.0 million for the reinvestment in resources to drive long-term growth and
share-based compensation of $4.0 million to $6.0 million. The Company anticipates this initiative will be
substantially completed by the end of the second quarter of 2015.
Sale of Arby’s
On July 4, 2011, Wendy’s Restaurants completed the sale of 100% of the common stock of its then
wholly-owned subsidiary, Arby’s Restaurant Group, Inc. (“Arby’s”) to ARG IH Corporation (“Buyer”), a
wholly-owned subsidiary of ARG Holding Corporation (“Buyer Parent”), for $130.0 million in cash (subject to
customary purchase price adjustments) and 18.5% of the common stock of Buyer Parent (through which Wendy’s
Restaurants indirectly retained an 18.5% interest in Arby’s) with a fair value of $19.0 million.
We received a $40.1 million dividend from our investment in Arby’s in 2013, of which $21.1 million was
recognized in “Investment income, net” with the remainder recorded as a reduction to the carrying value of our
investment in Arby’s. During 2012, we received a $4.6 million dividend from our investment in Arby’s, which was
included in “Investment income, net.”
Related Party Transactions
Supply Chain Relationship Agreement
Wendy’s has a purchasing co-op relationship agreement (the “Wendy’s Co-op”) with its franchisees which
establishes Quality Supply Chain Co-op, Inc. (“QSCC”). QSCC manages, for the Wendy’s system in the U.S. and
Canada, contracts for the purchase and distribution of food, proprietary paper, operating supplies and equipment
under national agreements with pricing based upon total system volume. QSCC’s supply chain management
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