Burger King 2012 Annual Report Download - page 80

Table of Contents
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
revenues in the consolidated statement of operations. Amortization of favorable and unfavorable commitment leases for franchise restaurants is included in
franchise and property expenses in the consolidated statement of operations.
Lease incentives we provide to our lessees are recorded as a lease incentive asset and amortized as a reduction of rental income on a straight-line basis
over the lease term.
We recognize a loss on leases and subleases and a related lease liability when expenses to be recorded under the lease exceed future minimum rents to us
under the lease or sublease. The lease liability is amortized on a straight-line basis over the lease term as a reduction of property expense.

Goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment on an annual basis and more often if an event occurs or
circumstances change that indicates impairment might exist. Our indefinite-lived intangible asset consists of the  brand (the “Brand”). During
2010, we changed our annual goodwill impairment testing date from April 1 to October 1 of each year. This change was made to better align impairment testing
procedures with the Company’s new fiscal year, related year-end financial reporting and the annual business planning and budgeting process, which are
performed during the fourth quarter of each year. Our impairment review for goodwill consists of a qualitative assessment of whether it is more-likely-than-not
that a reporting unit’s fair value is less than its carrying amount, and if required, followed by a two-step process of determining the fair value of the reporting
unit and comparing it to the carrying value of the net assets allocated to the reporting unit. If the qualitative assessment demonstrates that it is more-likely-than-
not that the estimated fair value of the reporting unit exceeds its carrying value, it is not necessary to perform the two-step goodwill impairment test. We may
elect to bypass the qualitative assessment and proceed directly to the two-step process, for any reporting unit, in any period. We can resume the qualitative
assessment for any reporting unit in any subsequent period. When performing the two-step process, if the fair value of the reporting unit exceeds its carrying
value, no further analysis or write-down of goodwill is required. If the fair value of the reporting unit is less than the carrying value of its net assets, the
implied fair value of the reporting unit is allocated to all its underlying assets and liabilities, including both recognized and unrecognized tangible and
intangible assets, based on their fair value. If necessary, goodwill is then written down to its implied fair value. Our impairment review for the Brand consists
of a qualitative assessment similar to goodwill and if necessary, a comparison of the fair value of the Brand with its carrying amount on a consolidated
basis. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If the fair value exceeds its carrying
amount, the Brand is not considered impaired.
We completed our goodwill and Brand impairment tests as of October 1, 2012 and 2011 and no impairment resulted. The Predecessor’s goodwill and
Brand impairment tests were completed as of April 1, 2010, in accordance with our previously established annual timeline, and no impairment resulted.
When we dispose of a restaurant business within six months of acquisition, the goodwill recorded in connection with the acquisition is written off.
Otherwise, goodwill is written off based on the relative fair value of the business sold to the reporting unit when disposals occur more than six months after
acquisition. The sale of Company restaurants to franchisees is referred to as a “refranchising.”
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Long-lived assets, such as property and equipment and intangible assets subject to amortization, are tested for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. Some of the events or changes in circumstances that would trigger an
impairment review
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Source: Burger King Worldwide, Inc., 10-K, February 22, 2013 Powered by Morningstar® Document Research℠
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