Wendy's 2012 Annual Report Download - page 70

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
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: 5 to 20 years for office and restaurant equipment, 5 to 15 years for
transportation equipment and 7 to 30 years for buildings and improvements. When the Company commits to a plan
to cease using certain properties before the end of their estimated useful lives, depreciation expense is accelerated to
reflect the use of the assets over their shortened useful lives. 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 Company is reasonably assured of exercising.
The Company reviews 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. Goodwill associated with our company-owned restaurants is reduced as a result of restaurant
dispositions and is included in the carrying value of the restaurant in determining the gain or loss on disposal. For
goodwill impairment testing purposes, we include two reporting units comprised of our (1) North America
company-owned and franchise restaurants and (2) international franchise restaurants. Substantially all goodwill at
December 30, 2012 and January 1, 2012 was associated with our North America restaurants. The Company tests
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 Company determines 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 Company allocates 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 goodwill impairment
charges in future years.
Impairment of Long-Lived Assets
For impairment test purposes, long-lived assets include our company-owned restaurant assets and their
definite-lived intangible assets, which include franchise agreements, favorable leases and reacquired rights under
franchise agreements. We review our long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. We assess the recoverability of long-lived assets
by comparing the carrying amount of the asset group to future undiscounted net cash flows expected to be generated
by our individual company-owned restaurants. If the carrying amount of the long-lived asset group is not recoverable
on an undiscounted cash flow basis, then impairment is recognized to the extent that the carrying amount exceeds its
fair value and is included in “Impairment of long-lived assets.” Our restaurant impairment losses principally reflect
impairment charges resulting from the deterioration in operating performance of certain company-owned restaurants.
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