Discontinued Operations

6 Months Ended

Jul. 03, 2016

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 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, which was settled during 2015. 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 $27,338 in the second quarter of 2015, which included transaction closing costs and a reduction of goodwill. The Company recognized income tax expense associated with the gain on disposal of $12,199 during the second quarter of 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 provided 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 $5,265 and $996 for the purchase of sandwich buns during the six months ended July 3, 2016 and for the period from June 1, 2015 through June 28, 2015, respectively, 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.

• Statements of operations - The Bakery’s results of operations for the period from December 29, 2014 through May 31, 2015 have been presented as discontinued operations. In addition, the gain on disposal of the Bakery has been included in “Net income from discontinued operations” for the three and six months ended June 28, 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) have been included in, and not separately reported from, our consolidated statement of cash flows. The consolidated statement of cash flows for the six months ended June 28, 2015 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:

	Three Months Ended			Six Months Ended
	June 28, 2015			June 28, 2015
Revenues (a)	$	11,408		$	25,885
Cost of sales (b)	(9,175		)	(7,336		)
	2,233			18,549
General and administrative	(483		)	(1,097		)
Depreciation and amortization (c)	(962		)	(2,297		)
Other expense, net (d)	(12		)	(34		)
Income from discontinued operations before income taxes	776			15,121
Provision for income taxes	(545		)	(5,533		)
Income from discontinued operations, net of income taxes	231			9,588
Gain on disposal of discontinued operations before income taxes	27,338			27,338
Provision for income taxes on gain on disposal	(12,199		)	(12,199		)
Gain on disposal of discontinued operations, net of income taxes	15,139			15,139
Net income from discontinued operations	$	15,370		$	24,727

_______________

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

(b) The three and six months ended June 28, 2015 include employee separation costs of $791 as a result of the sale of the Bakery. In addition, the six months ended June 28, 2015 includes a reduction to cost of sales of $12,486, as further described in the Form 10-K, resulting from the reversal of a liability recorded during 2013 associated with the Bakery’s withdrawal from a multiemployer pension plan.

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

(d) Includes net gains on sales of other assets.  During the three and six months endedJune 28, 2015, the Bakery received cash proceeds of $41 and $50, respectively, resulting in net gains on sales of other assets of $40 and $32, respectively.

The Bakery’s capital expenditures were $2,106 and $2,693 for the three and six months endedJune 28, 2015, 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:

	Three and Six Months Ended
	June 28, 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
Provision for income taxes (e)	(12,199		)
Gain on disposal of discontinued operations, net of income taxes	$	15,139

_______________

(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.