Discontinued Operations (Notes)

9 Months Ended

Sep. 27, 2015

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

On May 31, 2015, Wendy’s completed the sale of 100% of its membership interest in The New Bakery Company, LLC (the “Bakery”), its 100% owned subsidiary, 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 is 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 $27,526 during the nine months ended September 27, 2015, which included transaction closing costs and a reduction of goodwill. The Company recognized income tax expense associated with the gain on disposal of $12,709 during the nine months ended September 27, 2015, 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. (“QSCC”), 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 $4,699 for the purchase of sandwich buns during the period from June 1, 2015 through the end of the third quarter of 2015, which has been recorded to “Cost of sales.”

Information related to the Bakery has been reflected in the accompanying condensed 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 three and nine months ended September 28, 2014 have been presented as discontinued operations. In addition, the (loss) gain on disposal of the Bakery has been included in “Net (loss) income from discontinued operations” for the three and nine months ended September 27, 2015.

• 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 nine months ended September 28, 2014) have been included in, and not separately reported from, our consolidated cash flows. The consolidated statement of cash flows for the nine months ended September 27, 2015 also includes the effects of the sale of the Bakery.

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

	Three Months Ended						Nine Months Ended
	September 27, 2015 (e)			September 28, 2014			September 27, 2015			September 28, 2014
Revenues (a)	$	—		$	15,819		$	25,885		$	47,913
Cost of sales (b)	(207		)	(11,162		)	(7,543		)	(34,626		)
	(207		)	4,657			18,342			13,287
General and administrative	4			(601		)	(1,093		)	(1,905		)
Depreciation and amortization (c)	—			(1,401		)	(2,297		)	(4,339		)
Other income (expense), net (d)	15			(30		)	(19		)	(89		)
(Loss) income from discontinued operations before income taxes	(188		)	2,625			14,933			6,954
Provision for income taxes	(229		)	(928		)	(5,762		)	(2,283		)
(Loss) income from discontinued operations, net of income taxes	(417		)	1,697			9,171			4,671
Gain on disposal of discontinued operations before income taxes	188			—			27,526			—
Provision for income taxes on gain on disposal	(510		)	—			(12,709		)	—
(Loss) gain on disposal of discontinued operations, net of income taxes	(322		)	—			14,817			—
Net (loss) income from discontinued operations	$	(739	)	$	1,697		$	23,988		$	4,671

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

(b) The nine months ended September 27, 2015 include employee separation-related costs of $791 as a result of the sale of the Bakery. In addition, the nine months ended September 27, 2015 includes a reduction to cost of sales of $12,486 resulting from the reversal of a liability associated with the Bakery’s withdrawal from a multiemployer pension plan. See Note 15 for further discussion.

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

(d) Includes net gains on sales of other assets.  During the nine months ended September 27, 2015, the Bakery received cash proceeds of $50 resulting in net gains on sales of other assets of $32. During the three and nine months ended September 28, 2014, the Bakery received cash proceeds of $10 and $47, resulting in net gains on sales of other assets of $28 and $65, respectively.

(e) Represents post-closing adjustments recorded during the third quarter of 2015.

The Bakery’s capital expenditures were $2,693 for the nine months ended September 27, 2015, and $808 and $2,361 for the three and nine months endedSeptember 28, 2014, respectively, which are included in “Capital expenditures” in our condensed consolidated statements of cash flows.

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

	Nine Months Ended
	September 27, 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	188
	27,526
Provision for income taxes (e)	(12,709		)
Gain on disposal of discontinued operations, net of income taxes	$	14,817

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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.