Wendy's 2014 Annual Report Download - page 77

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THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
System Optimization Initiative
In July 2013, the Company announced a system optimization initiative, as part of its brand transformation,
which included a plan to sell approximately 425 U.S. company-owned restaurants to franchisees. The Company
completed this plan during the first quarter of 2014 with the sale of 174 U.S. company-owned restaurants to
franchisees, bringing the aggregate total to 418 during 2013 and 2014. This initiative also included the consolidation
of regional and divisional territories which was substantially completed by the end of the second quarter of 2014.
In August 2014, the Company announced a plan to sell all of its company-owned restaurants in Canada to
franchisees as part of its ongoing system optimization initiative, which it now anticipates completing by the end of the
second quarter of 2015. During the second half of 2014, the Company completed the sale of 29 Canadian restaurants
and classified its remaining Canadian restaurants’ assets that will be sold as held for sale.
As a result of the system optimization initiative, the Company has recorded losses 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 which are illustrated in the table below. These costs have
been substantially offset by net gains recognized on sales of restaurants, 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 $1,000 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 TimWen. For additional information on
the joint venture see Note 6.
The following is a summary of the activity recorded under our system optimization initiative:
Year Ended Total Incurred
Since Inception2014 2013
Gain on sales of restaurants, net ......................... $(69,631) $(46,667) $(116,298)
System Optimization Remeasurement (a) .................. 8,628 20,506 29,134
Accelerated depreciation and amortization (b) .............. 507 16,907 17,414
Severance and related employee costs ..................... 7,608 9,650 17,258
Professional fees ..................................... 3,424 2,389 5,813
Share-based compensation (c) .......................... 3,760 1,253 5,013
Other ............................................. 3,678 863 4,541
Total system optimization initiative .................. $(42,026) $ 4,901 $ (37,125)
(a) Includes remeasurement of land, buildings, leasehold improvements and favorable lease assets at all
company-owned restaurants included in our system optimization initiative. See Note 11 for more information
on non-recurring fair value measurements.
(b) Primarily includes accelerated amortization of previously acquired franchise rights related to company-owned
restaurants in territories that were sold in connection with our system optimization initiative.
(c) Represents incremental share-based compensation resulting from the modification of stock options and
performance-based awards in connection with the termination of employees under our system optimization
initiative.
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