Wendy's 2008 Annual Report Download - page 111

aggregate, service approximately 33% of Arby’s Company-owned and franchised restaurants. As of December
28, 2008, the Wendy’s restaurants segment has one main in-line distributor of food, packaging and beverage
products, excluding produce and breads, that services approximately 62% of its Company-owned and
franchised restaurants and two additional in-line distributors that, in the aggregate, service approximately 25%
of its Company-owned and franchised restaurants. We believe that our vulnerability to risk concentrations in
our restaurant segments related to significant vendors and sources of its raw materials is mitigated as we
believe that there are other vendors who would be able to service our requirements. However, if a disruption of
service from any of our main in-line distributors was to occur, we could experience short-term increases in our
costs while distribution channels were adjusted.
Because our restaurant operations are generally located throughout the United States, and to a much lesser
extent, Canada and other foreign countries and U.S. territories, we believe the risk of geographic concentration
is not significant. Our restaurant segments could also be adversely affected by changing consumer preferences
resulting from concerns over nutritional or safety aspects of beef, poultry, french fries or other foods or the
effects of food-borne illnesses. Our exposure to foreign exchange risk is primarily related to fluctuations in the
Canadian dollar relative to the U.S. dollar for Canadian operations in the Wendy’s restaurant segment.
However, our exposure to Canadian dollar foreign currency risk is mitigated by the fact that less than 10% of
our restaurants are in Canada.
(3) Business Acquisitions and Dispositions
Merger with Wendy’s International, Inc.
On September 29, 2008, we completed the Wendy’s Merger in an all-stock transaction in which Wendy’s
shareholders received a fixed ratio of 4.25 shares of Wendy’s/Arby’s Class A Common Stock for each share of
Wendy’s common stock owned. We expect that the merger will better position the Company to deliver long-
term value to our stockholders through an expanded platform for growth for both brands with more combined
resources, enhanced operational efficiencies, improved product offerings, and shared services. At September 28,
2008, there were 6,625 Wendy’s restaurants in operation in the United States and in 21 other countries and
U.S. territories. Of these restaurants, 1,404 were operated by Wendy’s and 5,221 by Wendy’s franchisees.
The merger is being accounted for using the purchase method of accounting in accordance with Statement
of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. In accordance with this
standard, we have concluded that Wendy’s/Arby’s is the acquirer for financial accounting purposes. The total
merger consideration has been allocated to Wendy’s net tangible and intangible assets acquired and liabilities
assumed based on their estimated fair values with the excess recognized as goodwill. Wendy’s operating results
have been included in our consolidated financial statements beginning on the merger date.
In accordance with the purchase method of accounting, management, with the assistance of a valuation
firm, has preliminarily allocated the total merger consideration to Wendy’s net tangible and intangible assets
acquired and liabilities assumed based on their estimated fair values as of September 28, 2008 with the excess,
$845,631, recognized as goodwill of the Wendy’s restaurants segment, of which $42,282 is deductible for
income tax purposes. The acquired franchise agreements have a weighted average amortization period of
approximately 21 years and the acquired trademark has an indefinite life so there is no related amortization.
The acquired favorable and unfavorable leases have a weighted average amortization period of approximately 19
and 16 years, respectively. The fair value of these assets and liabilities included in the table below is
preliminary, and is subject to change. A change in the merger consideration allocated to depreciable or
amortizable assets may result in increased future depreciation and/or amortization expense.
The preliminary computation of the total estimated merger consideration, the allocation of the
consideration to the assets acquired and liabilities assumed, the excess of the merger consideration over the
book values of the assets acquired and liabilities assumed, and the resulting adjustment to goodwill are as
follows:
103
Wendy’s/Arby’s Group, Inc. and Subsidiaries
(Formerly Triarc Companies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)