Wendy's 2010 Annual Report Download - page 92

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
Cash Equivalents
All highly liquid investments with a maturity of three months or less when acquired are considered cash
equivalents. The Companies’ cash equivalents principally consist of cash in bank, money market and mutual fund
money market accounts and are primarily not in Federal Deposit Insurance Corporation insured accounts.
We believe that our vulnerability to risk concentrations in our cash equivalents is mitigated by (1) our policies
restricting the eligibility, credit quality and concentration limits for our placements in cash equivalents and
(2) insurance from the Securities Investor Protection Corporation of up to $500 per account as well as supplemental
private insurance coverage maintained by substantially all of our brokerage firms, to the extent our cash equivalents
are held in brokerage accounts.
Accounts and Notes Receivable
Accounts and notes receivable consist primarily of royalties, franchise fees, rents due principally from
franchisees, and credit card receivables. The need for an allowance for doubtful accounts is reviewed on a specific
identification basis based upon past due balances and the financial strength of the obligor. As of January 3, 2010,
notes receivable (non-current) for Wendy’s/Arby’s also included the series A senior notes that Wendy’s/Arby’s
received from Deerfield Capital Corp. (“DFR”) (the “DFR Notes”) in connection with the sale of our interest in DFR
in 2007. See Note 3—DFR Notes for additional information.
Inventories
The Companies’ inventories are stated at the lower of cost or market, with cost determined in accordance with
the first-in, first-out method, and consist primarily of restaurant food items, kids’ meal toys and paper supplies.
Investments
Investments in which the Companies have significant influence over the investees includes their 50% share in a
partnership in a Canadian restaurant real estate joint venture (“TimWen”) with Tim Hortons Inc. (“THI”). Such
investments are accounted for on the equity method under which results of operations include their share of the
income or loss of the investees. Investments in limited partnerships and other non-current investments in which the
Companies do not have significant influence over the investees are recorded at cost, with related realized gains and
losses reported as income or loss in the period in which the securities are sold or otherwise disposed.
The difference, if any, between the carrying value of equity investments and the underlying equity in the net
assets of each investee is accounted for as if the investee were a consolidated subsidiary. Accordingly, the carrying
value difference is amortized over the estimated lives of the assets of the investee to which such difference would have
been allocated if the equity investment were a consolidated subsidiary. To the extent the carrying value difference
represents goodwill, it is not amortized.
The Companies review investments with unrealized losses and recognize investment losses currently for any
unrealized losses deemed to be other than temporary. These investment losses are recognized as a component of net
(loss) income. The Companies consider such factors as the length of time the market value of an investment has been
below its carrying value, the severity of the decline, the financial condition of the investee and the prospect for future
recovery in the market value of the investment, including the Companies’ ability and intent to hold the investments
for a period of time sufficient for a forecasted recovery. The cost-basis component of investments represents original
cost less a permanent reduction for any unrealized losses that were deemed to be other than temporary.
Properties and Depreciation and Amortization
Properties are stated at cost, including internal costs of employees to the extent such employees are dedicated to
specific restaurant construction projects, less accumulated depreciation and amortization. Depreciation and
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