Wendy's 2008 Annual Report Download - page 108

sales”—both on a straight-line basis over the remaining term of the leases. Upon early termination of a lease,
the favorable or unfavorable lease balance associated with the lease is recognized as a loss or gain, respectively,
in the Consolidated Statements of Operations.
Management, with the assistance of a valuation firm, makes certain estimates and assumptions regarding
each new lease agreement, lease renewal, and lease amendment, including, but not limited to property values,
property lives, discount rates, and probable term, all of which can impact (i) the classification and accounting
for a lease as capital or operating, (ii) the rent holiday and/or escalations in payment that are taken into
consideration when calculating straight-line rent and (iii) the term over which leasehold improvements for each
restaurant are amortized. These estimates and assumptions may produce materially different amounts of
depreciation and amortization, interest and rent expense that would be reported if different assumed lease terms
were used.
Accounting for Planned Major Maintenance Activities
Effective January 1, 2007 the Company accounts for scheduled major aircraft maintenance overhauls in
accordance with the direct expensing method in accordance with the provisions of FASB Staff Position
No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities” (“FSP AIR-1”). Under these
provisions the actual cost of such overhauls is recognized as expense in the period it is incurred. Previously, the
Company accounted for scheduled major maintenance activities in accordance with the accrue-in-advance
method under which the estimated cost of such overhauls was recognized as expense in the periods through the
scheduled date of the respective overhaul with any difference between estimated and actual costs recorded in
results of operations at the time of the actual overhaul.
Materiality of Unrecorded Adjustments
The Company does not record all immaterial adjustments in its consolidated financial statements. The
Company performs a materiality analysis based on all relevant quantitative and qualitative factors. Effective
December 31, 2006 the Company quantifies the materiality of unrecorded adjustments in accordance with Staff
Accounting Bulletin 108, “Considering the Effects of Prior Year Misstatements when Quantifying
Measurements in Current Year Financial Statements” (“SAB 108”) issued by the Securities and Exchange
Commission (the “SEC”). The impact on the current year financial statements of recording all potential
adjustments, including both the carryover and reversing effects of amounts not recorded in prior years, are
considered. Unrecorded adjustments are quantified using a balance sheet and an income statement approach
which considers both (1) the amount of the misstatement originating in the current year income statement
(generally referred to as the “Rollover” approach) and (2) the cumulative amount of the misstatements at the
end of the current year (generally referred to as the “Iron Curtain” approach). Prior to December 31, 2006, the
Company used only the Rollover approach to quantify the materiality of unrecorded adjustments.
See Note 15 for further disclosure related to the Company’s adoption of SAB 108 and related adjustment
to retained earnings as of January 2, 2006.
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2007, FASB issued SFAS 141(R) and SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). These statements change
the way companies account for business combinations and noncontrolling interests by, among other things,
requiring (1) more assets and liabilities to be measured at fair value as of the acquisition date, including a
valuation of the entire company being acquired where less than 100% of the company is acquired, (2) an
acquirer in preacquisition periods to expense all acquisition-related costs, (3) changes in acquisition related
deferred tax balances after the completion of the purchase price allocation be recognized in the statement of
operations as opposed to through goodwill and (4) noncontrolling interests in subsidiaries initially to be
100
Wendy’s/Arby’s Group, Inc. and Subsidiaries
(Formerly Triarc Companies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)