Baskin Robbins 2011 Annual Report Download - page 72

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We evaluate the remaining useful life of our trade names to determine whether current events and circumstances
continue to support an indefinite useful life. In addition, all of our indefinite lived intangible assets are tested for
impairment annually. The trade name intangible asset impairment test consists of a comparison of the fair value
of each trade name with its carrying value, with any excess of carrying value over fair value being recognized as
an impairment loss. The fair value of trade names is estimated using the relief from royalty method, an income
approach to valuation, which includes projecting future systemwide sales and other estimates. The goodwill
impairment test consists of a comparison of each reporting unit’s fair value to its carrying value. The fair value of
a reporting unit is an estimate of the amount for which the unit as a whole could be sold in a current 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. Fair value of a reporting unit is estimated based on a combination of comparative market
multiples and discounted cash flow valuation approaches. Currently, we have selected the first day of our fiscal
third quarter as the date on which to perform our annual impairment tests 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 2009, 2010, or 2011.
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 manufacturing 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 recorded in the consolidated balance sheets were valued
using an excess earnings approach. The valuation of franchise rights was calculated using an estimation of
future royalty income and related expenses associated with existing franchise contracts at the acquisition date.
Our valuation included assumptions related to the projected attrition and renewal rates on those existing franchise
arrangements being valued. License rights recorded in the consolidated balance sheets were valued based on an
estimate of future revenues and costs related to the ongoing management of the contracts over the remaining
useful lives. Favorable and unfavorable operating leases acquired were recorded on purchased leases based on
differences between contractual rents under the respective lease agreements and prevailing market rents at the
lease acquisition date. Favorable operating leases acquired are included as a component of other intangible assets
in the consolidated balance sheets. Due to the high level of lease renewals made by our Dunkin’ Donuts
franchisees, all lease renewal options for the Dunkin’ Donuts leases were included in the valuation of the
favorable operating leases acquired. 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 flow.
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