Wendy's 2008 Annual Report Download - page 128

2006
Income statement information:
Revenues................................................................. $255,140
Income before income taxes................................................ 41,188
Net income .............................................................. 24,008
(9) Goodwill and Other Intangible Assets
The following is a summary of the components of goodwill:
2008 2007
Year End
Goodwill .......................................................... $865,347 $480,350
Accumulated amortization. .......................................... (11,572) (11,572)
$853,775 $468,778
Following the Wendy’s Merger, the Company operates in two business segments consisting of two
restaurant brands: (1) Wendy’s restaurants and (2) Arby’s restaurants. Each segment includes reporting units
for Company-owned restaurants and franchise operations for purposes of measuring goodwill impairment under
SFAS 142.
During the second and third quarters of 2008, we performed interim goodwill impairment tests at our
Arby’s company-owned restaurant and franchise operations reporting units due to the general economic
downturn, a decrease in market valuations, and decreases in Arby’s same store sales. The results of these interim
tests indicated that the fair values of each of these Arby’s reporting units exceeded their carrying values.
During the fourth quarter of 2008, we performed our annual goodwill impairment test. As a result of the
acceleration of the general economic and market downturn as well as continued decreases in Arby’s same store
sales, we concluded that the carrying amount of the Arby’s Company-owned restaurant reporting unit exceeded
its fair value. Accordingly, we completed “step two” of our impairment testing as prescribed in SFAS 142 and
recorded an impairment charge of $460,075 (with a $68,340 tax benefit related to the portion of tax
deductible goodwill) representing all of the goodwill recorded for the Arby’s Company-owned restaurant
reporting unit. We also concluded at that time that there was no impairment of goodwill for the Arby’s
franchise reporting unit or any of the Wendy’s reporting units.
The fair values of the reporting units were determined by management with the assistance of an
independent third-party valuation firm.
Arby’s
Restaurant
Segment
Wendy’s
Restaurant
Segment Total
Arby’s
Restaurant
Segment
Former Asset
Management
Segment (Note 3) Total
2008 2007
Balance at beginning of year . . . . ........................... $468,778 $ — $ 468,778 $466,944 $ 54,111 $521,055
Changes in goodwill:
Wendy’s Merger (Note 3) . . ........................... — 845,631 845,631 — — —
Other restaurant acquisitions (Note 3) . . . . . . . . . . ........ 9,299 — 9,299 2,751 — 2,751
Impairment . . . . . . . . . . . . . . . ........................... (460,075) — (460,075) — — —
Adjustment relating to the RTM Acquisition (Note 3) . . . (385) — (385) (464) — (464)
Disposed of in the Deerfield Sale (Note 3) . . . . . . ........ — — — — (54,111) (54,111)
Other. . .............................................. — — — (453) — (453)
Currency translation adjustment . . . . . . . . . . . . . . . . ........ — (9,473) (9,473) — — —
Balance at end of year . . . . . . . . . . ........................... $ 17,617 $836,158 $ 853,775 $468,778 $ — $468,778
120
Wendy’s/Arby’s Group, Inc. and Subsidiaries
(Formerly Triarc Companies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)