Wendy's 2014 Annual Report Download - page 70

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when acquired are considered cash
equivalents. The Company’s cash and cash equivalents principally consist of cash in bank and money market mutual
fund 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, rents and franchise fees 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 Company’s 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.
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: 3 to 20 years for office and restaurant equipment, 3 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. Capital leases 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.
The Company classifies assets as held for sale and ceases depreciation of the assets when there is a plan for
disposal of the assets and those assets meet the held for sale criteria. Assets held for sale are included in “Prepaid
expenses and other current assets” in the consolidated balance sheets.
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 based on the relative fair values and is included in the carrying value of the restaurant in determining the
gain or loss on disposal. If a company-owned restaurant is sold within two years of being acquired from a franchisee,
the goodwill associated with the acquisition is written off in its entirety. For goodwill impairment testing purposes, we
include two reporting units comprised of our (1) North America company-owned and franchise restaurants and
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