Wendy's 2015 Annual Report Download - page 84

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
(3) System Optimization Gains, Net
In July 2013, the Company announced a system optimization initiative, as part of its brand transformation,
which includes a shift from company-owned restaurants to franchised restaurants over time, through acquisitions and
dispositions, as well as helping to facilitate franchisee-to-franchisee restaurant transfers. In February 2015, the
Company announced plans to sell approximately 540 additional restaurants to franchisees and reduce its ongoing
company-owned restaurant ownership to approximately 5% of the total system by the end of 2016. During 2015,
2014 and 2013, the Company completed the sale of 327, 255 and 244 company-owned restaurants to franchisees,
respectively, which included the sale of all of its company-owned restaurants in Canada. In addition, during 2015 the
Company helped facilitate the transfer of 71 restaurants between franchisees. The Company expects to complete its
plan to reduce its company-owned restaurant ownership to approximately 5% with the sale of approximately 315
restaurants during 2016, of which 99 restaurants were classified as held for sale as of January 3, 2016.
Gains and losses recognized on dispositions are recorded to “System optimization gains, net” in our
consolidated statements of operations. Costs related to our system optimization initiative are recorded to
“Reorganization and realignment costs,” and include severance and employee related costs, professional fees and other
associated costs, which are further described in Note 5.
The following is a summary of the disposition activity recorded as a result of our system optimization initiative:
Year Ended
2015 2014 (a) (b) 2013 (a)
Number of restaurants sold to franchisees ................... 327 237 244
Proceeds from sales of restaurants ......................... $193,860 $128,292 $130,154
Net assets sold (c) ..................................... (86,493) (53,043) (60,895)
Goodwill related to sales of restaurants ..................... (29,970) (18,032) (20,578)
Net (unfavorable) favorable leases (d) ...................... (846) 34,335 (57)
Other (e) ............................................ (5,499) (5,692) (1,957)
71,052 85,860 46,667
Post-closing adjustments on sales of restaurants (f) ............ 1,285 (1,280) —
Gain on sales of restaurants, net ...................... 72,337 84,580 46,667
Gain on sales of other assets, net (g) ................... 1,672 5,089 4,609
System optimization gains, net ................... $ 74,009 $ 89,669 $ 51,276
(a) Reclassifications have been made to the prior year presentation to include sales of restaurants previously reported
in “Other operating expense, net” to conform to the current year presentation. Reclassifications have also been
made to reflect the Bakery’s gain on sales of other assets as discontinued operations. See Note 1 for further
details.
(b) In addition, during 2014 Wendy’s acquired and immediately sold 18 restaurants to a franchisee for cash
proceeds of $15,779 and recognized a gain on sale of $1,841. No goodwill was recognized on this acquisition
and as a result no goodwill was allocated to the sale. See Note 4 for further details.
(c) Net assets sold consisted primarily of cash, inventory and equipment.
(d) During 2015, 2014 and 2013, the Company recorded favorable lease assets of $34,437, $63,120 and $37,749,
respectively, and unfavorable lease liabilities of $35,283, $28,785 and $37,806, respectively, as a result of leasing
and/or subleasing land, buildings, and/or leasehold improvements to franchisees, in connection with sales of
restaurants.
(e) 2015 includes a deferred gain of $4,568 on the sale of 17 restaurants to franchisees during 2015 as a result of
certain contingencies related to the extension of lease terms. 2014 includes a deferred gain of $1,995 (C$2,300)
on the sale of eight Canadian restaurants to a franchisee as a result of Wendy’s providing a guarantee to a lender
on behalf of the franchisee. See Note 21 for further information on the guarantee.
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