Wendy's 2011 Annual Report Download - page 83

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)
The Companies review properties for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset group may not be recoverable. If such review indicates an asset group may not be
recoverable, an impairment loss is recognized for the excess of the carrying amount over the fair value of an asset
group to be held and used or over the fair value less cost to sell of an asset to be disposed. Asset groups are primarily
comprised of our individual restaurant properties.
Goodwill
Goodwill, representing the excess of the cost of an acquired entity over the fair value of the acquired net assets,
is not amortized. For goodwill purposes, Wendy’s includes two reporting units comprised of its (1) North America
company-owned and franchise restaurants and (2) international franchise restaurants. Substantially all goodwill at
January 1, 2012 and January 2, 2011 was associated with Wendy’s North America restaurants. The Companies test
goodwill for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances
indicate that the asset may be impaired.
If the Companies determine that impairment may exist, the amount of the impairment loss is measured as the
excess, if any, of the carrying amount of the goodwill over its implied fair value. In determining the implied fair value
of the reporting unit’s goodwill, the Companies allocate the fair value of a reporting unit to all of the assets and
liabilities of that unit as if the unit had been acquired in a business combination and the fair value of the reporting
unit was the price paid to acquire the reporting unit. The excess of the fair value of the unit over 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 Companies are reasonably assured of exercising, for favorable leases; 19 to 21 years for franchise agreements; 2 to
5 years for costs of computer software; and 3 to 19 years for reacquired rights under franchise agreements. Trademarks
have an indefinite life and are not amortized.
The Companies review 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 reviews indicate 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 effective
interest rate method.
Derivative Instruments
The Companies’ derivative instruments are recorded at fair value. Changes in the fair value of 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. Any ineffective
portion of the change in fair value of the designated hedging instruments is included in results of operations.
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