Discontinued Operations

12 Months Ended

Jan. 01, 2017

Discontinued Operations and Disposal Groups [Abstract]

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, 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 $25,529 during 2015, 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 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., 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 $10,176 and $8,358 for the purchase of sandwich buns during 2016 and for the period from June 1, 2015 through January 3, 2016, respectively, 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.

• Statements of operations - The Bakery’s results of operations for the period from December 29, 2014 through May 31, 2015 and the year ended December 28, 2014 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 year ended January 3, 2016.

• 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 year ended December 28, 2014) 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
Revenues (a)	$	25,885		$	62,561
Cost of sales (b)	(7,543		)	(45,710		)
	18,342			16,851
General and administrative	(1,093		)	(2,525		)
Depreciation and amortization (c)	(2,297		)	(5,471		)
Other expense, net (d)	(19		)	(126		)
Income from discontinued operations before income taxes	14,933			8,729
Provision for income taxes	(4,439		)	(3,719		)
Income from discontinued operations, net of income taxes	10,494			5,010
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 from discontinued operations	$	21,163		$	5,010

_______________

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

(b) 2015 includes employee separation-related costs of $791 as a result of the sale of the Bakery. In addition, 2015 includes a reduction to cost of sales of $12,486 resulting from the reversal of a liability recorded during 2013 associated with the Bakery’s withdrawal from a multiemployer pension plan. 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 and 2014, the Bakery received cash proceeds of $50 and $52, respectively, resulting in net gains on sales of other assets of $32 and $69, respectively.

The Bakery’s capital expenditures were $2,693 and $2,613 for 2015 and 2014, respectively, which are included in “Capital expenditures” in our consolidated statements of cash flows.

The following table summarizes the gain on the disposal of the 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		)
Gain on disposal of discontinued operations before income taxes	25,529
Provision for income taxes (e)	(14,860		)
Gain on disposal of discontinued operations, net of income taxes	$	10,669

_______________

(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.