Popeye's 2013 Annual Report Download - page 45

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not considered recoverable are written down to their estimated fair market value, which we generally measure by
discounting estimated future cash flows. We performed our annual evaluation of property and equivalent during the
fourth quarter 2013 and determined that no impairment was indicated.
Estimates of future cash flows are highly subjective judgments and can be significantly impacted by changes in the
business or economic conditions. The discount rate used in the fair value calculations is our estimate of the required
rate of return that athird party would expect to receive when purchasing asimilar restaurant and the related long-lived
assets. We believe the discount is commensurate with the risks and uncertainty inherent in the forecasted cash flows.
Impairment of Goodwill and Trademarks. We evaluate goodwill and trademarks for impairment on an annual basis
(during the fourth quarter of each year) or more frequently when circumstances arise indicating that a particular asset
may be impaired. Our goodwill impairment evaluation includes acomparison of the fair value of our reporting units
with their carrying value. Our reporting units are our business segments. Intangible assets, including goodwill, are
allocated to each reporting unit. The estimated fair value of each reporting unit is the amount for which the reporting
unit could be sold in a current transaction between willing parties. We estimate the fair value of our reporting units
using adiscounted cash flow model or market price, if available. The operating assumptions used in the discounted
cash flow model are generally consistent with the reporting unit’spast performance and with the projections and
assumptions that are used in our current operating plans. Such assumptions are subject to change as a result of changing
economic and competitive conditions. The discount rate is our estimate of the required rate of return that athird-party
buyer would expect to receive when purchasing abusiness from us that constitutes areporting unit. We believe the
discount rate is commensurate with the risks and uncertainty inherent in the forecasted cash flows. If areporting unit’s
carrying value exceeds its fair value, goodwill is written down to its implied fair value. The Company follows asimilar
analysis for the evaluation of trademarks, but that analysis is performed on a company-wide basis.
During the fourth quarter of fiscal year 2013, we performed our annual assessment of recoverability of goodwill
and trademarks and determined that no impairment was indicated. Our company-operated restaurants segment has
goodwill of $2.2 million as of the end of 2013.The assumptions used in determining fair value for this reporting unit
are generally consistent with the reporting unit’spast performance and with the projections and assumptions that are
used in the Company’s current operating plans. While our operating assumptions reflect what we believe are reasonable
and achievable growth rates, failure to realize these growth rates could result in future impairment of the recorded
goodwill. If we believe the risks inherent in the business increase, the resulting change in the discount rate could also
result in future impairment of the recorded goodwill.
Fair Value Measurements. Fair value is the price the Company would receive to sell an asset or pay to transfer a
liability (exit price) in an orderly transaction between market participants. For those assets and liabilities recorded or
disclosed at fair value, we determine fair value based upon the quoted market price, if available. If a quoted market
price is not available for identical assets, we determine fair value based upon the quoted market price of similar assets
or the present value of expected future cash flows considering the risks involved, including counterparty performance
risk if appropriate, and using discount rates appropriate for the duration. The fair values are assigned a level within the
fair value hierarchy, depending on the source of the inputs into the calculation.
Level 1 Inputs based upon quoted prices in active markets for identical assets.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset, either
directly or indirectly.
Level 3 Inputs that are unobservable for the asset.
Allowances for Accounts and Notes Receivable and Contingent Liabilities. We reserve a franchisee’s receivable
balance based upon pre-defined aging criteria and upon the occurrence of other events that indicate that we may or
may not collect the balance due. In the case of notes receivable, we perform this evaluation on anote-by-note basis,
whereas this analysis is performed in the aggregate for accounts receivable. We provide for an allowance for
uncollectibility based on such reviews.