Wendy's 2008 Annual Report Download - page 72

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 value of the Wendy’s franchise reporting unit approximated its carrying value at September 29,
2008. Should current economic trends deteriorate or should we experience adverse changes in the
Wendy’s business, we could be required to record impairment charges related to Wendy’s goodwill.
The fair values of the reporting units were determined by management with the assistance of an
independent third-party valuation firm.
•Provisions for impairment of long-lived assets:
Long-lived assets include our Wendy’s and Arby’s Company-owned restaurants assets and their
intangible assets, which include trademarks, franchise agreements, favorable leases and reacquired rights
under franchise agreements.
As of December 28, 2008, the net carrying value of Wendy’s restaurant segment long-lived assets and
intangible assets were $1,259.2 million and $1,365.2 million, respectively and Arby’s restaurant
segment long-lived assets and intangible assets were $495.8 million and $46.2 million, respectively.
We review long-lived tangible and amortizing intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If that
review indicates such assets may not be recoverable based upon forecasted undiscounted cash flows, an
impairment loss is recognized for the excess of the carrying amount over the fair value of the asset. The
fair value is generally estimated to be the present value of the associated cash flows. Non-amortizing
intangible assets are tested for impairment annually by comparing their carrying value to fair value; any
excess of carrying value over fair value would represent impairment and a corresponding charge would
be recorded. Our critical estimates in this review process include the anticipated future cash flows of
each of Arby’s and Wendy’s Company-owned restaurants used in assessing the recoverability of their
respective long-lived assets.
Arby’s restaurants impairment losses reflect impairment charges resulting from the deterioration in
operating performance of certain Company-owned restaurants in 2008, 2007, and 2006. In addition, we
recognized impairment losses for the TJ Cinnamons brand (“TJ Cinnamons”) and asset management
contracts in 2008, 2007 and 2006. The fair values of the impaired assets were estimated to be the
present value of the anticipated cash flows associated with each affected Arby’s Company-owned
restaurant, the TJ Cinnamons trademark and the asset management contracts. Those estimates are or
were subject to change as a result of many factors including, among others, any changes in our business
plans, changing economic conditions and the competitive environment. Should actual cash flows and
our future estimates vary adversely from those estimates we used, we may be required to recognize
additional impairment charges in future years. Further, the fair value of the long-lived assets can be
determined under several different methods, of which discounted cash flows is one alternative. Had we
utilized an alternative method, the amounts of the respective impairment charges might have differed
significantly from the charges reported.
We are in the process of disposing of one of our Company-owned aircraft. As a result, we have recorded
a general corporate impairment charge to reflect its fair value as a result of an appraisal related to the
potential sale.
Our Company-owned restaurants, corporate assets, and other long-lived assets could require testing for
impairment should future events or changes in circumstances indicate that they may not be recoverable.
We no longer have any asset management contracts as a result of the Deerfield sale.
•Unrealized losses on certain investments deemed to be other than temporary:
We account for other than temporary losses under the guidance set forth in SFAS No. 115 and other
authoritative guidance, which specify that investments with unrealized losses should be evaluated for
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