Dunkin' Donuts 2015 Annual Report Download - page 62

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transaction between willing parties. If the carrying value of a reporting unit exceeds its fair value, goodwill is written down to
its implied fair value. We have selected the first day of our fiscal third quarter as the date on which to perform our annual
impairment test for all indefinite-lived intangible assets. We also test for impairment whenever events or circumstances indicate
that the fair value of such indefinite-lived intangibles has been impaired. No impairment of indefinite-lived intangible assets
was recorded during fiscal years 2015, 2014, or 2013.
We have intangible assets other than goodwill and trade names that are amortized on a straight-line basis over their estimated
useful lives or terms of their related agreements. Other intangible assets consist primarily of franchise and international license
rights (“franchise rights”), ice cream distribution and territorial franchise agreement license rights (“license rights”), and
operating lease interests acquired related to our prime leases and subleases (“operating leases acquired”). Franchise rights,
license rights, and operating leases acquired recorded in the consolidated balance sheets were valued using an appropriate
valuation method during the period of acquisition. Amortization of franchise rights, license rights, and favorable operating
leases acquired is recorded as amortization expense in the consolidated statements of operations and amortized over the
respective franchise, license, and lease terms using the straight-line method. Unfavorable operating leases acquired related to
our prime leases and subleases are recorded in the liability section of the consolidated balance sheets and are amortized into
rental expense and rental income, respectively, over the base lease term of the respective leases using the straight-line method.
Our amortizable intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying amount of the intangible asset may not be recoverable. An intangible asset that is deemed impaired is written down to
its estimated fair value, which is based on discounted cash flows.
As a result of the impairment of our investment in the Japan JV, we assessed if there was any impairment of intangible assets
within the Baskin-Robbins International reporting unit, and concluded such assets were not impaired.
Income taxes
Our major tax jurisdictions subject to income tax are the U.S. and Canada. The majority of our U.S. legal entities are limited
liability companies (“LLCs”), which are single member entities that are treated as disregarded entities and included as part of
DBGI in a consolidated federal income tax return. We also have subsidiaries in foreign jurisdictions that file separate tax
returns in their respective countries and local jurisdictions, as required. In addition to Canada, the foreign jurisdictions that our
subsidiaries file tax returns include the United Kingdom, Australia, Spain, China, Brazil, and Germany. Additionally, we have a
foreign subsidiary located in Dubai within the United Arab Emirates, for which no income tax return is required to be filed. The
current income tax liabilities for our foreign subsidiaries are calculated on a stand-alone basis. The current federal tax liability
for each entity included in our consolidated federal income tax return is calculated on a stand-alone basis, including foreign
taxes, for which a separate company foreign tax credit is calculated in lieu of a deduction for foreign withholding taxes paid. As
a matter of course, we are regularly audited by federal, state, and foreign tax authorities.
Deferred tax assets and liabilities are recorded for the expected future tax consequences of items that have been included in our
consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences
between the financial statement carrying amounts of assets and liabilities and the respective tax bases of assets and liabilities
using enacted tax rates that are expected to apply in years in which the temporary differences are expected to reverse. The
effects of changes in tax rate and changes in apportionment of income between tax jurisdictions on deferred tax assets and
liabilities are recognized in the consolidated statements of operations in the year in which the law is enacted or change in
apportionment occurs. Valuation allowances are provided when we do not believe it is more likely than not that we will realize
the benefit of identified tax assets.
A tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than
not that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the
largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Estimates of interest
and penalties on unrecognized tax benefits are recorded in the provision for income taxes.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in
making this assessment.