Wendy's 2009 Annual Report Download - page 95

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was valued at $14,464, was paid in 2008 to holders of record of our Class A Common Stock and our Class B
Common Stock.
In March 2008, in response to unanticipated credit and liquidity events in the first quarter of 2008, DFR
announced that it was repositioning its investment portfolio to focus on agency-only residential mortgage-
backed securities and away from its principal investing segment to its asset management segment with its fee-
based revenue streams. In addition, it stated that during the first quarter of 2008, its portfolio was adversely
impacted by deterioration of the global credit markets and, as a result, it sold $2,800,000 of its agency and
$1,300,000 of its AAA-rated non-agency mortgage-backed securities and reduced the net notional amount of
interest rate swaps used to hedge a portion of its mortgage-backed securities by $4,200,000, all at a net after-
tax loss of $294,300 to DFR.
Based on the events described above and their negative effect on the market price of DFR common stock,
we concluded that the fair value and, therefore, the carrying value of our investment in the 9,629 common
shares owned by us, as well as the 206 common shares which were distributed to us in connection with the
Deerfield Sale, was impaired. As a result, as of March 11, 2008 we recorded an other than temporary loss which
is included in “Other than temporary losses on investments” for the year ended December 28, 2008 of $67,594
(without tax benefit as described below) which included $11,074 of pre-tax unrealized holding losses
previously recorded as of December 30, 2007 and which were included in “Accumulated other comprehensive
income (loss).” These common shares were considered available-for-sale securities due to the limited period they
were to be held as of March 11, 2008 (the “Determination Date”) before the dividend distribution of the shares
to our stockholders. We also recorded an additional impairment charge, which is also included in “Other than
temporary loses on investments” from March 11, 2008 through the March 29, 2008 record date of the
dividend of $492. As a result of the distribution, the income tax loss that resulted from the decline in value of
our investment of $68,086 is not deductible for income tax purposes and no income tax benefit was recorded
related to this loss.
Additionally, from December 31, 2007 through the Determination Date, we recorded approximately
$754 of equity in net losses of DFR which are included in “Other income (expense), net” for the year ended
December 28, 2008 related to our investment in the 206 common shares of DFR discussed above which were
accounted for under the equity method through the Determination Date.
(3) DFR Notes
On December 21, 2007 the Company received, as a part of the proceeds in the Deerfield Sale, $47,986
principal amount of the DFR Notes with an estimated fair value of $46,210 at the date of the Deerfield Sale.
The fair value of the DFR Notes was based on the present value of the probability weighted average of
expected cash flows from the DFR Notes. The Company believed that this value approximated the fair value of
the DFR Notes as of December 27, 2007 due to the close proximity to the Deerfield Sale date.
The DFR Notes bear interest at the three-month London InterBank Offered Rate (“LIBOR”) (0.25% at
January 3, 2010) plus a factor, initially 5% through December 31, 2009, increasing 0.5% each quarter from
January 1, 2010 through June 30, 2011 and 0.25% each quarter from July 1, 2011 through their maturity.
The DFR Notes are secured by certain equity interests of DFR and certain of its subsidiaries. The $1,776
original imputed discount on the DFR Notes is being accreted to “Other income (expense), net” using the
interest rate method.
We have received timely cash payment of all quarterly interest payments due on the DFR Notes to date.
Additionally, in October 2008 we received a $1,070 dividend payment on the DFR convertible preferred stock
which we previously held. Based on the receipt of these payments, we did not record a reserve on these notes
prior to the fourth quarter of 2008.
The dislocation in the sub-prime mortgage sector and continuing weakness in the broader credit markets
has adversely impacted, and may continue to adversely impact, DFR’s cash flows. Due to the significant
continuing weakness in the credit markets and at DFR and based upon current publicly available information,
88
Wendy’s/Arby’s Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)