Wendy's 2010 Annual Report Download - page 99

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
(3) DFR Notes
(Wendy’s/Arby’s)
On December 21, 2007, Wendy’s/Arby’s sold its 63.6% capital interest in Deerfield & Company, LLC
(“Deerfield”), an asset management business and a subsidiary of the Company until its sale, to DFR (the “Deerfield
Sale”). The Deerfield Sale resulted in non-cash proceeds to the Company aggregating approximately $134,608
consisting of (1) 9,629 convertible preferred shares (the “Preferred Stock”) of a subsidiary of DFR with an estimated
fair value of $88,398 at the date of the Deerfield Sale and (2) $47,986 principal amount of the DFR Notes due in
December 2012 with an estimated fair value of $46,210 at the date of the Deerfield Sale.
A portion of the gain on the Deerfield Sale ($6,945) could not be recognized at the sale date due to the
Company’s approximate 15% (at December 31, 2007) continuing interest in DFR through its ownership in the
Preferred Stock, on an as-if converted basis, and common stock of DFR it already owned. Certain former officers of
Wendy’s/Arby’s had an approximate 1.5% ownership interest in DFR as of December 30, 2007. We accounted for
the DFR Preferred Stock as an available-for-sale debt security due to their mandatory redemption requirement.
On March 11, 2008, DFR stockholders approved the one-for-one conversion of all its outstanding convertible
preferred stock into DFR common stock which converted the Preferred Stock we held into a like number of shares of
DFR common stock. On March 11, 2008, our Board of Directors approved the distribution of our shares of DFR
common stock to our stockholders. The distribution in the form of a dividend, which was valued at $14,464, was
paid in 2008 to holders of record of our then outstanding Class A common stock and 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 DFR common shares 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 losses 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 $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 common shares of DFR already owned discussed above which were accounted
for under the equity method through the Determination Date.
During the fourth quarter of 2008, the Company recognized an allowance for collectability of $21,227 to
reduce the then carrying amount of the DFR Notes to $24,983. On June 9, 2010, pursuant to a March 2010
agreement between Wendy’s/Arby’s and DFR, the Company received cash proceeds of $31,330, including interest, in
consideration for the repayment and cancellation of the DFR Notes. The proceeds represented 64.1% of the $47,986
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