Wendy's International (WEN)

(18) Impairment

Long-Lived Assets

       The Company recorded impairment losses of $364,000, $3,382,000 and $1,878,000 in 2003, 2004 and 2005, respectively. The impairment loss in 2003 related entirely to restaurant equipment and leasehold

131

Triarc Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
January 1, 2006

improvements of certain of its Company-owned restaurants acquired in the December 2002 acquisition of Sybra (the “Sybra Acquisition”), an owner and operator of Arby's restaurants. The impairment loss in 2004 was comprised of $1,800,000 related to Company-owned restaurants acquired in the Sybra Acquisition and $1,582,000 related to the Company's T.J. Cinnamons trademark. The 2004 impairment loss related to the Company-owned restaurants included $1,712,000 related to equipment, leasehold improvements and leased assets capitalized, $65,000 related to computer software and $23,000 related to favorable leases. The impairment loss in 2005 was comprised of $920,000 related to Company-owned restaurants acquired in the Sybra Acquisition, $499,000 related to the T.J. Cinnamons trademark and $459,000 related to an asset management contract. The portion of the 2005 impairment loss related to Company-owned restaurants included $877,000 related to equipment and leasehold improvements, $32,000 related to construction in progress and $11,000 related to computer software. The restaurant impairment losses in each year predominantly reflected (1) impairment charges resulting from the deterioration in operating performance of certain restaurants including, for 2005, the effect of three restaurants to be closed in 2006 and (2) in 2004 and 2005, additional charges for investments in restaurants impaired in a prior year which did not subsequently recover. The trademark impairment losses in 2004 and 2005 resulted from the Company's assessment of the T.J. Cinnamons brand, which offers, through franchised and Company-owned restaurants, a product line of gourmet cinnamon rolls, coffee rolls, coffees and other related products. These impairment assessments resulted from (1) the Company's decision in 2004 to not actively pursue new T.J. Cinnamons franchisees until additional new product offerings within its existing product line are tested and become available, (2) the corresponding reduction in anticipated T.J. Cinnamons unit growth and (3) in 2005, lower than expected revenues from T.J. Cinnamons coffee and an overall decrease in management's focus on the T.J. Cinnamons brand. The 2005 charge related to the asset management contracts represented a reduction in the value of an asset management contract for a CDO (see Note 3) as a result of that CDO being terminated early during 2005 rather than the projected date in 2010 and the related reduction of the Company's asset management fees to be received. All of these impairment losses represented the excess of the carrying value over the fair value of the affected assets and are included in “Depreciation and amortization, excluding amortization of deferred financing costs” in the accompanying consolidated statements of operations. These impairment losses are all reported in the Company's restaurant business operating segment except for the $459,000 related to the asset management contract in 2005 which is reported in the Company's asset management business operating segment (see Note 29). The fair values of impaired assets discussed above were estimated to be the present values of the anticipated cash flows associated with each affected Company-owned restaurant, the trademark and the asset management contract.

Goodwill

       The Company determined that for the years ended January 2, 2005 and January 1, 2006 its goodwill was recoverable and did not require the recognition of an impairment loss. However, for the year ended December 28, 2003 the Company recorded an impairment loss of $22,000,000 with respect to goodwill relating to Sybra, which at that time was an identified reporting unit one level below the restaurant business operating segment, on a stand-alone basis. The impairment loss represented the excess of the carrying value of the goodwill of this reporting unit over the implied fair value of such goodwill. The implied fair value of the goodwill was determined by allocating the fair value of Sybra to all of the Sybra assets and liabilities based on their estimated fair values with the excess fair value representing goodwill. The fair value of Sybra was estimated to be the present value of the anticipated cash flows associated with the Company-owned restaurant reporting unit. The impairment loss resulted from the overall effect of stiff competition from new product choices in the marketplace and significant cost increases in roast beef, the largest component for Sybra's menu offerings. Consequently, the cash flows during 2003 and anticipated cash flows of the Company-owned restaurant reporting unit were adversely impacted in 2003. In light of the increased competitive pressures and recognizing the unfavorable trend in roast beef costs versus historical averages during 2003, the Company determined that in evaluating the Company-owned restaurants as a separate reporting unit, the expected cash

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Triarc Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
January 1, 2006

flows were not sufficient to fully support the carrying value of the goodwill associated with the Sybra Acquisition.

Although the Company reports its Company-owned restaurants and its franchising of restaurants as one business segment and acquired Sybra and RTM with the expectation of strengthening and increasing the value of its Arby's brand, its Company-owned restaurants are considered to be a separate reporting unit for purposes of measuring goodwill impairment under SFAS 142. The reporting unit was expanded to include RTM stores as part of the RTM Acquisition, as part of the Company-owned restaurants. Accordingly, goodwill is tested for impairment at the Company-owned restaurant level based on its separate cash flows independent of the Company's strategic reasons for owning restaurants.