Wendy's 2009 Annual Report Download - page 88

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the amounts assigned to the assets and liabilities is the implied fair value of goodwill. If the carrying amount
of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized
in an amount equal to that excess.
Our fair value estimates are subject to change as a result of many factors including, among others, any
changes in our business plans, changing economic conditions and the competitive environment. Should actual
cash flows and our future estimates vary adversely from those estimates we use, we may be required to
recognize additional goodwill impairment charges in future years.
Other intangible assets and deferred costs
Amortizing intangible assets are amortized on the straight-line basis using the following estimated useful
lives of the related classes of intangibles: the terms of the respective leases, including periods covered by
renewal options that the Company is reasonably assured of exercising, for favorable leases; 19 to 21 years for
franchise agreements; 1 to 5 years for costs of computer software; 20 years for reacquired rights under franchise
agreements; 20 years for trademarks with a definite life and distribution rights; and 3 to 8 years for non-
compete agreements. Trademarks acquired in the Wendy’s Merger have an indefinite life and are not
amortized. Asset management contracts, through the date of the Deerfield Sale, were amortized on the straight-
line basis over their estimated lives of 5 to 27 years for CDO contracts and 15 years for contracts under which
the company managed investment funds (the “Funds”).
The Company reviews intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the intangible asset may not be recoverable. Indefinite lived intangible
assets are also reviewed for impairment annually. If such review indicates the intangible asset may not be
recoverable, an impairment loss is recognized for the excess of the carrying amount over the fair value of the
intangible asset.
Deferred financing costs are amortized as interest expense over the lives of the respective debt using the
interest rate method.
Derivative instruments
The Company’s derivative instruments, excluding those that may be settled in its own stock, are recorded
at fair value (the “Company’s Derivative Instruments”). Changes in fair value of the Company’s Derivative
Instruments that have been designated as fair value hedging instruments are recorded as an adjustment to the
underlying debt balance being hedged to the extent of the effectiveness of such hedging instruments. Changes
in fair value of the Company’s Derivative Instruments that have been designated as cash flow hedging
instruments are included in the “Unrealized gain (loss) on cash flow hedges” component of “Accumulated other
comprehensive income (loss)” to the extent of the effectiveness of such hedging instruments. Any ineffective
portion of the change in fair value of the designated hedging instruments is included in results of operations.
Share-based compensation
The Company measures the cost of employee services received in exchange for an award of equity
instruments, including grants of employee stock options and restricted stock, based on the fair value of the
award at the date of grant. The Company recognizes share-based compensation expense net of estimated
forfeitures, determined based on historical experience. The Company uses (1) the Black-Scholes-Merton option
pricing model (the “Black-Scholes Model”) for purposes of determining the fair value of stock options granted
and (2) recognizes compensation costs ratably over the requisite service period for each separately vesting
portion of the award.
Foreign currency translation
At January 3, 2010, substantially all of the Company’s foreign operations were in Canada where the
functional currency is the Canadian dollar. Financial statements of foreign subsidiaries are prepared in their
81
Wendy’s/Arby’s Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)