Wendy's 2011 Annual Report Download - page 82

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THE WENDY’S COMPANY AND SUBSIDIARIES
WENDY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
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.
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 and paper supplies.
Investments
Investments in which the Companies have significant influence over the investees include (1) a 50% share in a
partnership in a Canadian restaurant real estate joint venture (“TimWen”) with Tim Hortons Inc. (“THI”) and (2) a
49% share in a joint venture for the operation of Wendy’s restaurants in Japan (the “Japan JV”). Such investments are
accounted for using the equity method, under which results of operations include our 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, which includes our indirect 18.5% interest in Arby’s, 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
historical 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 for any unrealized
losses deemed to be other than temporary. These investment losses are recognized as a component of “Net income
(loss).” 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
amortization of properties is computed principally on the straight-line basis using the following estimated useful lives
of the related major classes of properties: 1 to 20 years for office and restaurant equipment, 5 to 15 years for
transportation equipment, 7 to 30 years for buildings and 7 to 20 years for owned site improvements. Leased assets
capitalized and leasehold improvements are amortized over the shorter of their estimated useful lives or the terms of
the respective leases, including periods covered by renewal options that the Companies believe they are reasonably
assured of exercising.
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