System Optimization Losses (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. 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 end of 2016. During the third quarter of 2015, the Company completed the sale of nine restaurants. As of September 27, 2015, the company had classified 274 restaurants as held for sale.

Gains and losses recognized on dispositions are recorded to “System optimization losses (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						Nine Months Ended
	September 27, 2015			September 28, 2014 (f)			September 27, 2015			September 28, 2014 (f)
Number of restaurants sold to franchisees	9			12			109			190

Proceeds from sales of restaurants	$	3,084		$	2,689		$	39,133		$	104,249
Net assets sold (a)	(1,867		)	(1,301		)	(19,247		)	(43,317		)
Goodwill related to sales of restaurants	(483		)	(478		)	(8,346		)	(14,136		)
Net (unfavorable) favorable leases (b)	(1,506		)	(1,080		)	5,889			23,901
Other (c)	—			(84		)	(3,224		)	216
	(772		)	(254		)	14,205			70,913
Post-closing adjustments on sales of restaurants (d)	(495		)	(421		)	(1,134		)	(1,538		)
(Loss) gain on sales of restaurants, net	(1,267		)	(675		)	13,071			69,375

Gain on sales of other assets, net (e)	1,169			307			1,680			4,652
System optimization (losses) gains, net	$	(98	)	$	(368	)	$	14,751		$	74,027

_______________


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

(b)

During the three and nine months ended September 27, 2015, the Company recorded favorable lease assets of $185 and $25,992, respectively, and unfavorable lease liabilities of $1,691 and $20,103, 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 three and nine months ended September 28, 2014, the Company recorded favorable lease assets of $1,814 and $49,206, respectively, and unfavorable lease liabilities of $2,894 and $25,305, respectively.

(c)

The nine months ended September 27, 2015 includes a deferred gain of $2,658 related to the sale of 14 Canadian restaurants to a franchisee during the second quarter of 2015, as a result of certain contingencies related to the extension of lease terms. The deferred gain is included in “Other liabilities.” The nine months ended September 27, 2015 also includes a note receivable of $1,801 from a franchisee in connection with the sale of 16 Canadian restaurants, which was recognized as part of the overall loss on sale during the second quarter of 2015.


(d)	During the nine months ended September 27, 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 nine months ended September 27, 2015, Wendy’s received cash proceeds of $4,576 and $7,174, respectively, primarily from the sale of surplus properties. During the three and nine months ended September 28, 2014, Wendy’s received cash proceeds of $989 and $15,596, 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



	September 27, 2015		December 28, 2014 (a)
Number of restaurants classified as held for sale	274		106
Net restaurant assets held for sale (b)	$	103,561	$	25,266

Other assets held for sale (b)	$	5,144	$	13,469

_______________


(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.

(b) 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.”