Discontinued Operations

Sale of the Bakery

On May 31, 2015, Wendy’s completed the sale of 100% of its membership interest in the Bakery to East Balt US, LLC (the “Buyer”) for $78,500 in cash (subject to customary purchase price adjustments). The Company also assigned certain capital leases for transportation equipment to the Buyer but retained the related obligation. Pursuant to the sale agreement, the Company was obligated to continue to provide health insurance benefits to the Bakery’s employees at the Company’s expense through December 31, 2015. The Company recorded a pre-tax gain on the disposal of the Bakery of $25,529 during the year ended January 3, 2016, which included transaction closing costs and a reduction of goodwill. The Company recognized income tax expense associated with the gain on disposal of $14,860 during the year ended January 3, 2016, which included the impact of the disposal of non-deductible goodwill.

In conjunction with the Bakery sale, Wendy’s entered into a transition services agreement with the Buyer, pursuant to which Wendy’s will provide certain continuing corporate and shared services to the Buyer through March 31, 2016 for no additional consideration. A purchasing cooperative, Quality Supply Chain Co-op, Inc., established by Wendy’s and its franchisees, agreed to continue to source sandwich buns from the Bakery, for a specified time period following the sale of the Bakery. As a result, Wendy’s paid the Buyer $8,358 for the purchase of sandwich buns during the period from June 1, 2015 through January 3, 2016, which has been recorded to “Cost of sales.”

Information related to the Bakery has been reflected in the accompanying consolidated financial statements as follows:


•	Balance sheets - As a result of our sale of the Bakery on May 31, 2015, there are no remaining Bakery assets and liabilities. The Bakery’s assets and liabilities as of December 28, 2014 have been presented as discontinued operations.


•	Statements of operations - The Bakery’s results of operations for the period from December 29, 2014 through May 31, 2015 and the years ended December 28, 2014 and December 29, 2013 have been presented as discontinued operations. In addition, the gain on disposal of the Bakery has been included in “Net income (loss) from discontinued operations” for the year ended January 3, 2016.

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Statements of cash flows - The Bakery’s cash flows prior to its sale (for the period from December 29, 2014 through May 31, 2015 and for the years ended December 28, 2014 and December 29, 2013) have been included in, and not separately reported from, our consolidated cash flows. The consolidated statement of cash flows for the year ended January 3, 2016 also includes the effects of the sale of the Bakery.

The following table presents the Bakery’s results of operations and the gain on disposal which have been included in discontinued operations:



	Year Ended
	2015			2014			2013
Revenues (a)	$	25,885		$	62,561		$	63,741
Cost of sales (b)	(7,543		)	(45,710		)	(58,809		)
	18,342			16,851			4,932
General and administrative	(1,093		)	(2,525		)	(2,248		)
Depreciation and amortization (c)	(2,297		)	(5,471		)	(6,968		)
Other expense, net (d)	(19		)	(126		)	(256		)
Income (loss) from discontinued operations before income taxes	14,933			8,729			(4,540		)
(Provision for) benefit from income taxes	(4,439		)	(3,719		)	1,903
Income (loss) from discontinued operations, net of income taxes	10,494			5,010			(2,637		)
Gain on disposal of discontinued operations before income taxes	25,529			—			—
Provision for income taxes on gain on disposal	(14,860		)	—			—
Gain on disposal of discontinued operations, net of income taxes	10,669			—			—
Net income (loss) from discontinued operations	$	21,163		$	5,010		$	(2,637	)

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(a)	Includes sales of sandwich buns and related products previously reported in “Sales” as well as rental income.

(b)

The year ended January 3, 2016 includes employee separation-related costs of $791 as a result of the sale of the Bakery. In addition, includes a $13,500 charge to cost of sales during the year ended December 29, 2013 resulting from the Bakery’s withdrawal from a multiemployer pension plan and the subsequent reversal during the year ended January 3, 2016 of $12,486. See Note 19 for further discussion.


(c)	Included in “Depreciation and amortization” in our consolidated statements of cash flows for the periods presented.


(d)	Includes net gains on sales of other assets. During 2015, 2014 and 2013, the Bakery received cash proceeds of $50, $52 and $114, respectively, resulting in net gains on sales of other assets of $32, $69 and $96, respectively.

The Bakery’s capital expenditures were $2,693, $2,613 and $3,106 for the years ended January 3, 2016, December 28, 2014 and December 29, 2013, respectively, which are included in “Capital expenditures” in our consolidated statements of cash flows.

The following table summarizes the gain on the disposal of our Bakery, which has been included in discontinued operations:



	Year Ended
	2015
Proceeds from sale of the Bakery (a)	$	78,408
Net working capital (b)	(5,655		)
Net properties sold (c)	(30,664		)
Goodwill allocated to the sale of the Bakery	(12,067		)
Other (d)	(2,684		)
	27,338
Post-closing adjustments on the sale of the Bakery	(1,809		)
	25,529
Provision for income taxes (e)	(14,860		)
Gain on disposal of discontinued operations, net of income taxes	$	10,669

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(a)	Represents net proceeds received, which includes the purchase price of $78,500 less transaction closing costs paid directly by the Buyer on the Company’s behalf.


(b)	Primarily represents accounts receivable, inventory, prepaid expenses and accounts payable.


(c)	Net properties sold consisted primarily of buildings, equipment and capital leases for transportation equipment.


(d)	Primarily includes the recognition of the Company’s obligation, pursuant to the sale agreement, to provide health insurance benefits to the Bakery’s employees through December 31, 2015 of $1,993 and transaction closing costs paid directly by the Company.


(e)	Includes the impact of non-deductible goodwill disposed of as a result of the sale.

Sale of Arby’s

On July 4, 2011, Wendy’s Restaurants completed the sale of 100% of the common stock of Arby’s, its then wholly-owned subsidiary, to ARG IH Corporation (“ARG”), a wholly-owned subsidiary of ARG Holding Corporation (“ARG Parent”), for $130,000 in cash (subject to customary purchase price adjustments) and 18.5% of the common stock of ARG Parent (through which Wendy’s Restaurants indirectly retained an 18.5% interest in Arby’s) with a fair value of $19,000. ARG and ARG Parent were formed for purposes of this transaction. ARG also assumed approximately $190,000 of Arby’s debt, consisting primarily of capital lease and sale-leaseback obligations.

Information related to Arby’s has been reflected in the accompanying consolidated financial statements as follows:


•	Balance sheets - As a result of our sale of Arby’s on July 4, 2011, there are no remaining Arby’s assets and liabilities for the periods presented.


•	Statements of operations - Net loss from discontinued operations for the year ended December 29, 2013 includes certain post-closing Arby’s related transactions of $266, which is comprised of losses from discontinued operations before income taxes of $425 offset by a benefit from income taxes of $159.


•	Statements of cash flows - The statement of cash flows for the year ended December 29, 2013 includes the effect of certain post-closing Arby’s related transactions.