Baskin Robbins 2015 Annual Report Download - page 74

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internal specialists based on the present value of anticipated future cash flows or, if required, by independent third-party
valuation specialists, depending on the nature of the assets or asset group.
(k) Equity method investments
The Company’s equity method investments consist of interests in B-R 31 Ice Cream Co., Ltd. (“Japan JV”), BR-Korea Co.,
Ltd. (“South Korea JV”), Coffee Alliance, S.L. (“Spain JV”), and Palm Oasis Pty. Ltd. (“Australia JV”), which are accounted
for in accordance with the equity method. As a result of the acquisition of the Company by three private equity firms on
March 1, 2006 (“BCT Acquisition”), the Company recorded a step-up in the basis of our investment in the Japan JV. The basis
difference was comprised of amortizable franchise rights and related tax liabilities and nonamortizable goodwill. The franchise
rights and related tax liabilities were amortized in a manner that reflected the estimated benefits from the use of the intangible
asset over a period of 14 years. The franchise rights were valued based on an estimate of future cash flows to be generated from
the ongoing management of the contracts over their remaining useful lives.
The Company evaluates its equity method investments for impairment whenever an event or change in circumstances occurs
that may have a significant adverse impact on the fair value of the investment. If a loss in value has occurred and is deemed to
be other than temporary, an impairment loss is recorded. Several factors are reviewed to determine whether a loss has occurred
that is other than temporary, including absence of an ability to recover the carrying amount of the investment, the length and
extent of the fair value decline, and the financial condition and future prospects of the investee.
(l) Goodwill and other intangible assets
Goodwill and trade names (“indefinite-lived intangibles”) have been assigned to our reporting units, which are also our
operating segments, for purposes of impairment testing. All of our reporting units have indefinite-lived intangibles associated
with them.
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. We
first assess qualitative factors to determine whether it is more likely than not that a trade name is impaired. In the event we
were to determine that the carrying value of a trade name would more likely than not exceed its fair value, quantitative testing
would be performed. Quantitative testing 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. For goodwill, we first perform a
qualitative assessment to determine if the fair value of the reporting unit is more likely than not greater than the carrying
amount. In the event we were to determine that a reporting unit’s carrying value would more likely than not exceed its fair
value, quantitative testing would be performed which 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. 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.
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 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. The weighted average amortization period for all unfavorable operating
leases acquired is 18 years.
Management makes adjustments to the carrying amount of such intangible assets and unfavorable operating leases acquired if
they are deemed to be impaired using the methodology for long-lived assets (see note 2(j)), or when such license or lease
agreements are reduced or terminated.