Burger King 2010 Annual Report Download - page 80

Table of Contents
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
and declines in consumer spending have increased and may continue to affect the uncertainty inherent in such estimates and
assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these
estimates.
Foreign Currency Translation
The foreign currency of each foreign subsidiary is generally the local currency. Foreign currency balance sheets are translated
using the end of period exchange rates, and statements of income are translated at the average exchange rates for each period. The
translation adjustments resulting from the translation of foreign currency financial statements are recorded in accumulated other
comprehensive income (loss) within stockholders’ equity.
Foreign Currency Transaction Gain or Losses
Foreign currency transaction gains or losses resulting from the re−measurement of foreign−denominated assets and liabilities of
the Company or its subsidiaries are reflected in earnings in the period when the exchange rates change and are included within other
operating (income) expenses, net in the consolidated statements of income.
Cash and Cash Equivalents
Cash and cash equivalents include short−term, highly liquid investments with original maturities of three months or less and credit
card receivables.
Allowance for Doubtful Accounts
The Company evaluates the collectibility of its trade accounts receivable from franchisees based on a combination of factors,
including the length of time the receivables are past due and the probability of collection from litigation or default proceedings, where
applicable. The Company records a specific allowance for doubtful accounts in an amount required to adjust the carrying values of such
balances to the amount that the Company estimates to be net realizable value. The Company writes off a specific account when (a) the
Company enters into an agreement with a franchisee that releases the franchisee from outstanding obligations, (b) franchise agreements
are terminated and the projected costs of collections exceed the benefits expected to be received from pursuing the balance owed
through legal action, or (c) franchisees do not have the financial wherewithal or unprotected assets from which collection is reasonably
assured.
Notes receivable represent loans made to franchisees arising from re−franchisings of Company restaurants, sales of property, and
in certain cases when past due trade receivables from franchisees are restructured into an interest−bearing note. Trade receivables which
are restructured to interest−bearing notes are generally already fully reserved, and as a result, are transferred to notes receivable at a net
carrying value of zero. Notes receivable with a carrying value greater than zero are written down to net realizable value when it is
probable or likely that the Company is unable to collect all amounts due under the contractual terms of the loan agreement.
Inventories
Inventories are stated at the lower of cost (first−in, first−out) or net realizable value, and consist primarily of restaurant food items
and paper supplies. Inventories are included in prepaids and other current assets in the accompanying consolidated balance sheets.
Property and Equipment, net
Property and equipment, net, owned by the Company are recorded at historical cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight−line method based on the estimated useful lives of the
assets. Leasehold improvements to properties where the Company is the lessee are amortized over the lesser of the remaining term of
the lease or the estimated useful life of the improvement. When
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