Popeye's 2013 Annual Report Download - page 69

Popeyes Louisiana Kitchen, Inc.
Notes to Consolidated Financial Statements
For Fiscal Years 2013, 2012, and 2011 — (Continued)
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analysis for the evaluation of trademarks, but that analysis is performed on aconsolidated basis. During 2013, 2012,
and 2011, there was no impairment of goodwill or trademarks identified during the Company’s annual impairment
testing.
Costs incurred to renew or extend the term of recognized intangibles are expensed as incurred and reported as a
component of “General and administrative expenses.”
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.
Debt Issuance Costs. Costs incurred to secure new debt facilities are capitalized and then amortized utilizing a
method that approximates the effective interest method for term loans and the straight-line method for revolving credit
facilities. Absent a basis for cost deferral, debt amendment fees are expensed as incurred. In the Company’sConsolidated
Statements of Operations, the amortization of debt issuance costs, any write-offof debt issuance costs when a debt
facility is modified or prematurely paid off, and debt amendment fees are included as a component of “Interest expense,
net". During 2013, the Company wrote off$0.4 million due to the retirement of the 2010 Credit Facility.
Advertising Cooperative. The Company maintains an advertising cooperative that receives contributions from the
Company and from its franchisees, based upon a percentage of restaurant sales, as required by their franchise agreements.
This cooperative is used exclusively for marketing of the Popeyes brand. The Company acts as an agent for the
franchisees with regards to their contributions to the advertising cooperative.
In the Company’sconsolidated financial statements, contributions received and expenses of the advertising
cooperative are excluded from the Company’sConsolidated Statements of Operations and the Consolidated Statements
of Cash Flow.The Company reports all assets and liabilities of the advertising cooperative as “Advertising cooperative
assets, restricted” and “Advertising cooperative liabilities” in the Consolidated Balance Sheet. The advertising
cooperatives assets, consisting primarily of cash and accounts receivable from the franchisees, can only be used for
selected purposes and are considered restricted. The advertising cooperative liabilities represent the corresponding
obligation arising from the receipt of the contributions to purchase advertising and promotional programs.
The Company’scontributions to the advertising cooperative based on company-operated restaurant sales are reflected
in the Company’sConsolidated Statements of Operations as a component of “Restaurant employee, occupancy and
other expenses.” Additional contributions to the advertising cooperative for national media advertising and other
marketing related costs are expensed as a component of “General and administrative expenses.” During 2013, 2012,
and 2011, the Company’sadvertising costs were approximately $2.9 million,$2.3 million, and $2.4 million, respectively.
Leases. When determining the lease term, the Company includes option periods for which failure to renew the lease
imposes economic penalty on the Company in such an amount that a renewal appears, at the inception of the lease, to
be reasonably assured. The lease term commences on the date when the Company has the right to control the use of
the leased property, which can occur before the rent payments are due under the terms of the lease.