System Optimization Gains, Net

3 Months Ended

Apr. 02, 2017

Property, Plant and Equipment [Abstract]

In July 2013, the Company announced a system optimization initiative, as part of its brand transformation, which includes a shift from Company-operated 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 reduce its ongoing Company-operated restaurant ownership to approximately 5% of the total system, which the Company completed as of January 1, 2017. Wendy’s will continue to optimize its system by facilitating franchisee-to-franchisee restaurant transfers, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, drive new restaurant development and accelerate Image Activation adoption.

During the three months ended April 2, 2017, the Company recorded post-closing adjustments on sales of restaurants and completed the sale of other assets, resulting in net gains totaling $1,407. In addition, the Company facilitated the transfer of 116 restaurants between franchisees during the three months ended April 2, 2017.

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 were historically recorded to “Reorganization and realignment costs.” Costs incurred during 2017 in connection with an in-process transaction as of January 1, 2017 will continue to be recorded to “Reorganization and realignment costs.” All other costs incurred during 2017 related to facilitating franchisee-to-franchisee restaurant transfers will be recorded to “Other operating expense (income), net.” See Note 4 for further information.

The following is a summary of the disposition activity recorded as a result of our system optimization initiative:



	Three Months Ended
	April 2, 2017		April 3, 2016
Number of restaurants sold to franchisees	—		55

Proceeds from sales of restaurants	$	—	$	39,615
Net assets sold (a)	—		(17,055		)
Goodwill related to sales of restaurants	—		(6,376		)
Net unfavorable leases (b)	—		(4,906		)
Other	—		(795		)
	—		10,483
Post-closing adjustments on sales of restaurants (c)	900		(2,135		)
Gain on sales of restaurants, net	900		8,348

Gain on sales of other assets, net (d)	507		78
System optimization gains, net	$	1,407	$	8,426

_______________


(a)	Net assets sold consisted primarily of equipment.


(b)	During the three months ended April 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.


(c)	The three months ended April 2, 2017 includes the recognition of a deferred gain of $312 as a result of the resolution of certain contingencies related to the extension of lease terms for a Canadian restaurant.


(d)	During the three months ended April 2, 2017 and April 3, 2016, the Company received cash proceeds of $1,650 and $1,570, respectively, primarily from the sale of surplus properties. The three months ended April 2, 2017 also includes the recognition of a deferred gain of $375 related to the sale of a share in an aircraft.

As of April 2, 2017 and January 1, 2017, the Company had assets held for sale of $4,110 and $4,800, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”