Wendy's 2014 Annual Report Download - page 71

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THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
(2) international franchise 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 reporting 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 testing purposes, the long-lived asset group includes our company-owned restaurant assets and
their definite-lived intangible assets, which include 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.
The Company records losses on remeasuring long-lived assets to fair value upon determination that the assets
will be leased and/or subleased to franchisees in connection with the sale or anticipated sale of restaurants. Such losses
related to sales or anticipated sales of restaurants not included in our system optimization initiative are recorded to
“Impairment of long-lived assets.” Similar losses related to sales or anticipated sales of restaurants in connection with
the Company’s announced system optimization initiative are recorded to “Facilities action (income) charges, net.”
The fair value of the long-lived assets is based upon discounted cash flows of future anticipated lease and sublease
income.
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 used, we may be required to recognize additional
impairment charges in future years.
Other Intangible Assets
Definite-lived intangible assets are amortized on a straight-line basis using the following estimated useful lives of
the related classes of intangibles: for favorable leases, the terms of the respective leases, including periods covered by
renewal options that the Company is reasonably assured of exercising; 5 years for computer software; 3 to 20 years for
reacquired rights under franchise agreements; and 20 years for franchise agreements. Trademarks have an indefinite
life and are not amortized.
The Company reviews definite-lived 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 tested for impairment at least annually by comparing their carrying value to fair value; any excess
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