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 facilitating 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.

During the six months ended July 3, 2016 and June 28, 2015, the Company completed the sale of 55 and 100 company-owned restaurants to franchisees, respectively. The Company recognized net gains totaling $$10,350 and $14,849 on the sale of company-owned restaurants and other assets during the six months ended July 3, 2016 and June 28, 2015, respectively. In addition, the Company facilitated the transfer of 126 restaurants between franchisees during the six months ended July 3, 2016. The Company expects to complete its plan to reduce company-owned restaurant ownership to approximately 5% of the total system with the sale of 258 restaurants during the remainder of 2016, all of which were classified as held for sale as of July 3, 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
	July 3, 2016		June 28, 2015			July 3, 2016			June 28, 2015
Number of restaurants sold to franchisees	—		83			55			100

Proceeds from sales of restaurants	$	—	$	31,468		$	39,615		$	36,049
Net assets sold (a)	—		(15,158		)	(17,055		)	(17,380		)
Goodwill related to sales of restaurants	—		(6,840		)	(6,376		)	(7,863		)
Net favorable (unfavorable) leases (b)	—		7,923			(4,906		)	7,395
Other (c)	—		(2,822		)	(795		)	(3,224		)
	—		14,571			10,483			14,977
Post-closing adjustments on sales of restaurants (d)	545		934			(1,590		)	(639		)
Gain on sales of restaurants, net	545		15,505			8,893			14,338

Gain on sales of other assets, net (e)	1,379		149			1,457			511
System optimization gains, net	$	1,924	$	15,654		$	10,350		$	14,849

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

(b)

During the six months ended July 3, 2016, the Company recorded favorable lease assets of $183 and unfavorable lease liabilities of $5,089 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 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.

(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)	The three and six months ended June 28, 2015 includes the recognition of a gain on sale of $2,450 related to the repayment of notes receivable from franchisees in connection with sales of restaurants in 2014.


(e)	During the three and six months ended July 3, 2016, the Company received cash proceeds of $3,893 and $5,463, respectively, primarily from the sale of surplus properties. During the three and six months ended June 28, 2015, the Company received cash proceeds of $905 and $2,598, respectively.

Assets Held for Sale



	July 3, 2016		January 3, 2016
Number of restaurants classified as held for sale	258		99
Net restaurant assets held for sale (a)	$	114,720	$	50,262

Other assets held for sale (a)	$	6,026	$	7,124

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(a)	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.”

Subsequent to July 3, 2016, the Company completed sales of certain assets used in the operation of 82 Wendy’s company-owned restaurants for cash proceeds of approximately $66,300, subject to customary purchase price adjustments.