System Optimization Gains, Net

In July 2013, the Company announced a system optimization initiative, as part of its brand transformation, which includes opportunistic acquisitions and dispositions, as well as a shift from company-owned restaurants to franchised restaurants over time. During 2013 and 2014, the Company completed the sale of 244 and 255 company-owned restaurants to franchisees, respectively. During the second quarter of 2015, the Company completed its plan to sell all of its company-owned restaurants in Canada to franchisees, with the sale of 83 Canadian restaurants, bringing the aggregate total of Canadian restaurants sold to franchisees to 129 during 2014 and 2015. 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 middle of 2016.

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



	Three Months Ended					Six Months Ended
	June 28, 2015			June 29, 2014 (f)		June 28, 2015			June 29, 2014 (f)
Number of restaurants sold to franchisees	83			—		100			178

Proceeds from sales of restaurants	$	31,468		$	—	$	36,049		$	101,560
Net assets sold (a)	(15,158		)	—		(17,380		)	(42,016		)
Goodwill related to sales of restaurants	(6,840		)	—		(7,863		)	(13,658		)
Net (unfavorable) favorable leases (b)	7,923			—		7,395			24,981
Other (c)	(2,822		)	—		(3,224		)	300
	14,571			—		14,977			71,167
Post-closing adjustments on sales of restaurants (d)	934			470		(639		)	(1,117		)
Gain on sales of restaurants, net	15,505			470		14,338			70,050

Gain on sales of other assets, net (e)	149			948		511			4,345
System optimization gains, net	$	15,654		$	1,418	$	14,849		$	74,395

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(a)	Net assets sold consisted primarily of cash, inventory and equipment.

(b)

During the three and six months ended June 28, 2015, the Company recorded favorable lease assets of $23,428 and $25,807, respectively, and unfavorable lease liabilities of $15,505 and $18,412, respectively, as a result of leasing and/or subleasing land, buildings, and/or leasehold improvements to franchisees, in connection with sales of restaurants. During the first quarter of 2014, the Company recorded favorable lease assets of $47,392 and unfavorable lease liabilities of $22,411.

(c)

The three and six months ended June 28, 2015 includes a deferred gain of $2,387 related to the sale of 14 Canadian restaurants to a franchisee, as a result of certain contingencies related to the extension of lease terms. The deferred gain is included in “Other liabilities.” The three and six months ended June 28, 2015 also includes a note receivable of $1,801 from a franchisee in connection with the sale of 16 Canadian restaurants, which has been recognized as part of the overall loss on sale.


(d)	During the three months ended June 28, 2015, notes receivable from franchisees in connection with sales of restaurants in 2014 were repaid and as a result, we recognized the related gain on sale of $2,450.


(e)	During the three and six months ended June 28, 2015, Wendy’s received cash proceeds of $905 and $2,598, respectively, primarily from the sale of surplus properties. During the three and six months ended June 29, 2014, Wendy’s received cash proceeds of $7,725 and $14,607, respectively, primarily from the sale of surplus properties and the sale of a company-owned aircraft.


(f)	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.

Assets Held for Sale



	June 28, 2015		December 28, 2014 (a)
Number of restaurants classified as held for sale	97		106
Net restaurant assets held for sale	$	37,050	$	25,266

Other assets held for sale	$	8,381	$	13,469

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(a)	Reclassifications have been made to the prior year presentation to include restaurants previously excluded from our system optimization initiative to conform to the current year presentation. See Note 1 for further details.

Net restaurant assets held for sale include company-owned restaurants and consist primarily of cash, inventory, equipment and an estimate of allocable goodwill. Other assets held for sale primarily consist of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”