Wendy's 2008 Annual Report Download - page 104

See Note 18 for further disclosure related to the Company’s impairment charges.
Derivative Instruments
The Company’s derivative instruments, excluding those that may be settled in its own stock and therefore
not subject to the guidance in SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS 133”), are recorded at fair value (the “Company’s Derivative Instruments”). Changes in fair value of the
Company’s Derivative Instruments that have been designated as cash flow hedging instruments are included in
the “Unrealized gain (loss) on cash flow hedges” component of “Accumulated other comprehensive income
(loss)” in the accompanying Consolidated Statements of Stockholders’ Equity to the extent of the effectiveness
of such hedging instruments. Any ineffective portion of the change in fair value of the designated hedging
instruments is included in the Consolidated Statements of Operations. Changes in fair value of the Company’s
Derivative Instruments that have not been designated as hedging instruments are included in the Consolidated
Statements of Operations.
See Note 12 for further disclosure related to the Company’s derivative instruments.
Share-Based Compensation
Effective January 2, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment”
(“SFAS 123(R)”), which revised SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).
As a result, the Company now measures the cost of employee services received in exchange for an award of
equity instruments, including grants of employee stock options and restricted stock, based on the fair value of
the award at the date of grant. The Company previously used the intrinsic value method. Under the intrinsic
value method, compensation cost for the Company’s stock options was measured as the excess, if any, of the
market price of the Company’s Class A common stock (the “Class A Common Stock” or “Class A Common
Shares”), and/or Class B common stock, series 1 (the “Class B Common Stock” or “Class B Common Shares”),
as applicable, at the date of grant, or at any subsequent measurement date as a result of certain types of
modifications to the terms of its stock options, over the amount an employee must pay to acquire the stock.
The Company is using the modified prospective application method under SFAS 123(R) and has elected not to
use retrospective application. Thus, amortization of the fair value of all nonvested grants as of January 2, 2006,
as determined under the previous pro forma disclosure provisions of SFAS 123, except as adjusted for estimated
forfeitures, is included in the Company’s results of operations commencing January 2, 2006. As required under
SFAS 123(R), the Company reversed the unamortized “Unearned compensation” component of “Stockholders’
equity” with an equal offsetting reduction of “Additional paid-in capital” as of January 2, 2006 and is now
recognizing compensation expense during the year determined in accordance with SFAS 123(R) as disclosed
herein with an equal offsetting increase in “Additional paid-in capital.” Additionally, effective with the
adoption of SFAS 123(R), the Company recognizes share-based compensation expense net of estimated
forfeitures, determined based on historical experience. Previously, forfeitures were recognized as incurred.
Under SFAS 123(R), the Company has chosen (1) the Black-Scholes-Merton option pricing model (the “Black-
Scholes Model”) for purposes of determining the fair value of stock options granted commencing January 2,
2006 and (2) to continue recognizing compensation costs ratably over the requisite service period for each
separately vesting portion of the award.
As permitted under the Financial Accounting Standards Board (the “FASB”) Staff Position No. FAS
123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” the
Company elected the specified “short-cut” method to calculate its beginning hypothetical pool of additional
paid-in capital (the “APIC Pool”) representing excess tax benefits available to absorb tax deficiencies, if any,
recognized subsequent to the adoption of SFAS 123(R) both determined in connection with and as of the dates
of the exercises of share-based awards. Such “short-cut” method provides a simplified approach to calculating
the APIC Pool based on the cumulative annual net increases or decreases in excess tax benefits rather than an
award-by-award analysis since the effective date of SFAS 123 in 1995. This accounting policy election had no
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Wendy’s/Arby’s Group, Inc. and Subsidiaries
(Formerly Triarc Companies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)