Wendy's 2008 Annual Report Download - page 52

Depreciation and Amortization
2008 2007 Change
(In Millions)
Arby’s restaurants, primarily properties ............................... $61.2 $56.9 $ 4.3
Wendy’s restaurants, primarily properties ............................. 23.8 — 23.8
Asset management.................................................. — 4.9 (4.9)
General corporate, primarily properties ............................... 3.3 4.4 (1.1)
$88.3 $66.2 $22.1
Goodwill Impairment
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
Statement of Financial Accounting Standard (“SFAS”) No. 142 “Goodwill and Other Intangible Assets” (“SFAS
142”).
The Company tests the carrying value of goodwill for impairment annually, or more frequently if events
or changes in circumstances indicate that the asset may be impaired, by comparing the fair value of each
reporting unit, using discounted cash flows or market multiples based on earnings, to determine if there is an
indication that a potential impairment may exist. If we determine that an impairment may exist, we then
measure the amount of the impairment loss as the excess, if any, of the carrying amount of the goodwill over
its implied fair value. In determining the implied fair value of the reporting unit’s goodwill, the Company
allocates the fair value of a reporting unit to all of the assets and liabilities of that unit as if the unit had been
acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the
reporting unit. The excess of the fair value of the unit over the amounts assigned to the assets and liabilities is
the implied fair value of goodwill. If the carrying amount of a reporting unit’s goodwill exceeds the implied
fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
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 $460.1 million (with a $68.3 million 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.
Impairment of Other Long-Lived Assets
2008 2007 Change
(In Millions)
Restaurants, primarily properties at underperforming locations . . ......... $ 9.6 $2.6 $ 7.0
Asset management................................................... — 4.5 (4.5)
General corporate, aircraft ............................................ 9.6 — 9.6
$19.2 $7.1 $12.1
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