Wendy's 2008 Annual Report Download - page 73

holding losses that are a result of declines in value, due to market fluctuations or the investee’s business
environment and are considered not to be recoverable. If we determine that the holding losses are not
recoverable during the anticipated investment holding period, then the losses are other than temporary.
We performed a review of our unrealized investment losses in 2008, 2007 and 2006 considering the
severity and duration of the decline in value and the expected holding period of the investments. Based
on this review, we determined that the decreases in 2008 related to the fair value of our investment in
the DFR common stock, certain investments held in the Equities Account and certain cost method
investments were other than temporary due to their severity, duration and our determination that we
are unable to determine whether the value of the investments will be recovered. Therefore, we have
permanently reduced the cost basis component of those investments by $112.7 million as of December
28, 2008 (which includes $68.1 million related to the DFR common stock that was distributed to
shareholders in April 2008 and $21.2 million related to the DFR Notes discussed below). Based on our
review in 2007 and 2006, we also determined that decreases in 2007 and 2006 related to certain
investments held in the Equities account and certain cost investments were other than temporary due to
their severity, duration and our determination that we were unable to determine whether the value of
the investments would be recovered. Therefore, we permanently reduced the cost basis component of
those investments in 2007 and 2006 by $9.9 million and $4.1 million, respectively. Recoveries in the
value of investments, if any, will not be recognized in income until the investments are sold.
Any other than temporary losses on our investments are dependent upon the underlying economics and/
or volatility in their value and may or may not recur in future periods. As of December 28, 2008, we
have aggregate unrealized holding gains and losses on our available-for-sale marketable securities of
$0.4 million and ($0.2) million, respectively. The Equities Account, including restricted cash
equivalents and equity derivatives, had a fair value of $37.7 million as of December 28, 2008. As of
February 27, 2009, there has been a decrease of approximately $3.6 million in the fair value of the
available for sale securities held in the Equities Account as compared to their value on December 28,
2008. Should any of those investments losses in the Equities Account not recover or any of our
investments accounted for under the cost method, totaling approximately $12.8 million at December
28, 2008, experience declines in value due to conditions that we deem to be other than temporary, we
may recognize additional other than temporary losses.
•Losses due to investment collectability
DFR Notes:
The repayment of the $48.0 million principal amount of DFR Notes due in 2012 received in
connection with the Deerfield Sale and the payment of related interest are dependent on the cash flow of
DFR, including Deerfield. DFR’s investment portfolio is comprised primarily of fixed income
investments, including mortgage-backed securities and corporate debt and its activities also include the
asset management business of Deerfield. Among the factors that may affect DFR’s ability to continue to
pay the DFR Notes and related interest is the current dislocation in the sub-prime mortgage sector and
the continuing weakness in the broader credit market, both of which could continue to adversely affect
DFR and one or more of its lenders, which could result in increases in its borrowing costs, reductions in
its liquidity and reductions in the value of its investments in its portfolio, all of these factors could
reduce cash flows and may result in an additional provision for uncollectible notes receivable. We have
received all four cash quarterly interest payments on the DFR Notes to date on a timely basis as well as
dividends on the cumulative preferred stock which was previously held. Due to significant financial
weakness in the credit markets, current publicly available information of DFR, and our ongoing
assessment of the likelihood of full repayment of the principal amount of the DFR Notes, we recorded
an allowance for doubtful collectability of $21.2 million on the DFR Notes which is included in the
$112.7 million other than temporary losses on investments disclosed above.
•Valuations of some of our investments:
Our investments as of December 28, 2008 include available-for-sale investments, investment
derivatives, other investments accounted for under the cost method and various investment instruments
in liability positions. The available-for-sale securities, investment derivatives, and various investments
in liability positions include those managed under the Equities Account. We determine the fair value of
our available-for-sale securities and investment derivatives principally using quoted market prices,
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