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This excerpt taken from the WEN 10-K filed Apr 3, 2006. Acquisition of RTM On July 25, 2005, the Company completed the acquisition (the “RTM Acquisition”) of substantially all of the equity interests or the assets of the entities comprising RTM. RTM was the largest franchisee of Arby's restaurants with 775 Arby's in 22 states as of the date of acquisition. The total consideration in connection with the RTM Acquisition is currently estimated to be $368,718,000, subject to a post-closing adjustment, consisting of (1) $175,000,000 in cash, (2) 9,684,000 shares of the Company's Class B Common Stock issued from treasury with a fair value of $145,265,000 as of July 25, 2005 based on the closing price of the Company's Class B Common Stock on such date and the two prior days of $15.00 per share, (3) the payment of $21,817,000 of debt, including related accrued interest and prepayment penalties, that was not an obligation of the entities included in the RTM Acquisition, (4) the vested portion of stock options to purchase 774,000 shares of the Company's Class B Common Stock, with a fair value of $4,127,000 as of July 25, 2005, issued in exchange for existing RTM stock options and (5) $22,509,000 of related expenses. The $145,265,000 fair value of the stock issued reduced “Common stock held in treasury” by $81,542,000 representing the average cost of our treasury shares as of July 25, 2005 and increased “Additional paid-in capital” by the remaining $63,723,000. The total consideration represents $17,024,000 for the settlement loss from unfavorable franchise rights and $351,694,000 for the aggregate purchase price for RTM. The settlement loss from unfavorable franchise rights, included in the accompanying consolidated statement of operations for the year ended January 1, 2006, was recognized in accordance with accounting principles generally accepted in the United States of America that require that any preexisting business relationship between the parties to a business combination be evaluated and accounted for separately. Under this accounting guidance, the franchise agreements acquired in the RTM Acquisition with royalty rates below the current 4% royalty rate that the Company receives on new franchise agreements were required to be valued and recognized as an expense and excluded from the purchase price paid for RTM. The amount of the settlement loss represents the estimated amount of royalties by which the royalty rate is unfavorable over the remaining life of the franchise agreements. The closing price on July 25, 2005 of the Company's Class B Common Stock and the two prior days was used to value the 9,684,000 shares since July 25, 2005 was the date that the final terms of the RTM Acquisition were agreed to and announced. The value of the vested portion of the options to purchase 774,000 shares represents the fair value of the total options calculated using the Black-Scholes-Merton option pricing model (the “Black-Scholes Model”) less the intrinsic value of the nonvested portion of the options related to future service of the employees. In August 2005, the Company filed a registration statement with the Securities and Exchange Commission (the “SEC”) that is not yet currently effective, covering the resale of the 9,684,000 shares of the Class B Common Stock that were issued by the Company as a portion of the purchase price for RTM, as previously disclosed. In connection with the RTM Acquisition, the Company refinanced all of the $268,381,000 existing indebtedness of its restaurant segment and $211,974,000 of then existing RTM debt (see Note 11). 95
Triarc Companies, Inc. and Subsidiaries The preliminary allocation of the purchase price of RTM to the assets acquired and liabilities assumed is reflected in the table at the end of this footnote under “Purchase Price Allocations of Acquisitions.” Such allocation remains preliminary and is subject to finalization. The RTM Acquisition resulted in $397,814,000 of goodwill, of which $157,410,000 will be fully deductible for income tax purposes, and was assigned entirely to the Company's restaurant segment. Such goodwill reflects the substantial value of RTM's historically profitable restaurant business and the Company's expectation of being able to grow RTM's restaurant business and to improve operating efficiencies of the Company's previously existing restaurants through economies of scale. All of the acquired
identifiable intangible assets, aggregating $43,620,000, are amortizable and principally include (1) favorable leases of $24,558,000 and (2) reacquired rights under franchise agreements of $17,983,000. Each of those amounts represents the fair value of the respective intangible asset, as determined in accordance with a preliminary independent appraisal. The acquired identifiable intangible assets have a currently estimated weighted average amortization period of approximately 17 years, reflecting a currently estimated weighted average of approximately 15 years for the favorable leases and 20 years for the reacquired rights under franchise agreements. The
independent appraisal of the fair values of the properties and other intangible
assets acquired and the long-term debt and certain other liabilities assumed
have been adjusted since the allocation of the purchase price of RTM as
reported in the Company's condensed consolidated balance sheet as of October 2,
2005. The allocation of the purchase price of RTM as of January 1,
2006 remains preliminary and subject to finalization since, among other items,
the independent appraisal has not been finalized. A reconciliation of the change
in goodwill from the estimated preliminary allocation of the purchase price
of RTM as reported in the Company's unaudited condensed consolidated
balance sheet as of October 2, 2005 to the estimated preliminary allocation
as reported in the accompanying consolidated balance sheet as of January 1,
2006 and as set forth in the table below under “Purchase Price Allocations
of Acquisitions” is summarized as follows (in thousands): Goodwill
related to the RTM acquisition in estimated preliminary allocation
of purchase price at October 2, 2005 Adjustment
to estimated cost of RTM from a decrease in estimated expenses Changes
to fair values of assets acquired and liabilities assumed, principally
as a result of revisions Increase in current assets Decrease in properties Decrease in other intangible assets Increase in deferred costs and other assets Increase in current liabilities Decrease in long-term debt Increase in other liabilities and deferred income Increase
in deferred tax liability due to effects of above adjustments RTM's results of operations and cash flows subsequent to the July 25, 2005 date of the RTM Acquisition have been included in the accompanying consolidated statements of operations and cash flows for the year ended January 1, 2006, as applicable, but are not included in 2003 and 2004. In this regard, net sales of RTM commencing with the Company's acquisition on July 25, 2005 were $357,520,000 in 2005. Royalties and franchise and related fees earned by the Company from RTM through July 25, 2005 were $27,325,000 and $29,275,000 in 2003 and 2004, respectively, and were $16,253,000 through July 25, 2005. Following the RTM Acquisition, royalties and franchise and related fees from RTM of $13,587,000 were eliminated in consolidation. 96
Triarc Companies, Inc. and Subsidiaries |
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