Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 29, 2019

Disclosure Summary Of Significant Accounting Policies Additional Information [Abstract]

Unaudited Financial Statements

Unaudited consolidated financial statements

The consolidated balance sheet as of June 29, 2019, the consolidated statements of operations, comprehensive income, and stockholders' deficit for the three and six months ended June 29, 2019 and June 30, 2018, and the consolidated statements of cash flows for the six months ended June 29, 2019 and June 30, 2018 are unaudited.

The accompanying unaudited consolidated financial statements include the accounts of DBGI and its consolidated subsidiaries and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. All significant transactions and balances between subsidiaries and affiliates have been eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements in accordance with U.S. GAAP have been recorded. Such adjustments consisted only of normal recurring items. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 29, 2018, included in the Company's Annual Report on Form 10-K.

Fiscal Year

Fiscal year

The Company operates and reports financial information on a 52- or 53-week year on a 13-week quarter basis with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the fourth fiscal quarter). The data periods contained within the three- and six-month periods ended June 29, 2019 and June 30, 2018 reflect the results of operations for the 13-week and 26-week periods ended on those dates. Operating results for the three- and six-month periods ended June 29, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 2019.

Restricted Cash

Cash, cash equivalents, and restricted cash

In accordance with the Company’s securitized financing facility, certain cash accounts have been established in the name of Citibank, N.A. (the “Trustee”) for the benefit of the Trustee and the noteholders, and are restricted in their use. The Company holds restricted cash which primarily represents (i) cash collections held by the Trustee, (ii) interest, principal, and commitment fee reserves held by the Trustee related to the Company’s notes (see note 4), and (iii) real estate reserves used to pay real estate obligations.

Cash, cash equivalents, and restricted cash within the consolidated balance sheets that are included in the consolidated statements of cash flows as of June 29, 2019 and December 29, 2018 were as follows (in thousands):

	June 29, 2019		December 29, 2018
Cash and cash equivalents	$	474,265	517,594
Restricted cash	88,562		79,008
Restricted cash, included in Other assets	1,589		1,719
Total cash, cash equivalents, and restricted cash	$	564,416	598,321

Fair Value of Financial Instruments

Fair value of financial instruments

Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Financial assets and liabilities measured at fair value on a recurring basis as of June 29, 2019 and December 29, 2018 are summarized as follows (in thousands):

	June 29, 2019			December 29, 2018
	Significant other observable inputs (Level 2)		Total	Significant other observable inputs (Level 2)	Total
Assets:
Company-owned life insurance	$	11,661	11,661	9,906	9,906
Total assets	$	11,661	11,661	9,906	9,906
Liabilities:
Deferred compensation liabilities	$	10,777	10,777	9,759	9,759
Total liabilities	$	10,777	10,777	9,759	9,759

The deferred compensation liabilities relate to the Dunkin’ Brands, Inc. non-qualified deferred compensation plans (“NQDC Plans”), which allow for pre-tax deferral of compensation for certain qualifying employees and directors. Changes in the fair value of the deferred compensation liabilities are derived using quoted prices in active markets of the asset selections made by the participants. The deferred compensation liabilities are classified within Level 2, as defined under U.S. GAAP, because their inputs are derived principally from observable market data by correlation to hypothetical investments. The Company holds company-owned life insurance policies to partially offset the Company’s liabilities under the NQDC Plans. The changes in the fair value of any company-owned life insurance policies are derived using determinable cash surrender value. As such, the company-owned life insurance policies are classified within Level 2, as defined under U.S. GAAP.

The carrying value and estimated fair value of total long-term debt as of June 29, 2019 and December 29, 2018 were as follows (in thousands):

	June 29, 2019			December 29, 2018
	Carrying value		Estimated fair value	Carrying value	Estimated fair value
Financial liabilities
Total long-term debt	$	3,048,510	3,164,732	3,042,276	3,011,843

The estimated fair value of our long-term debt is estimated primarily based on current market rates for debt with similar terms and remaining maturities or current midpoint prices for our long-term debt. Judgment is required to develop these estimates. As such, the estimated fair value of long-term debt is classified within Level 2, as defined under U.S. GAAP.

Concentration of Credit Risk

Concentration of credit risk

The Company is subject to credit risk through its accounts receivable consisting primarily of amounts due from franchisees and licensees for franchise fees, royalty income, advertising fees, and sales of ice cream and other products. In addition, we have

note and lease receivables from certain of our franchisees and licensees. The financial condition of these franchisees and licensees is largely dependent upon the underlying business trends of our brands and market conditions within the quick service restaurant industry. This concentration of credit risk is mitigated, in part, by the large number of franchisees and licensees of each brand and the short-term nature of the franchise and license fee and lease receivables. As of June 29, 2019 and December 29, 2018, one master licensee, including its majority-owned subsidiaries, accounted for approximately 17% and 11%, respectively, of total accounts and notes receivable. No individual franchisee or master licensee accounted for more than 10% of total revenues for any of the three- and six-month periods ended June 29, 2019 and June 30, 2018.

Recent Accounting Pronouncements

Recent accounting pronouncements

Recently adopted accounting pronouncements

In fiscal year 2019, the Company adopted new guidance for lease accounting, which replaces existing lease accounting guidance. The Company adopted this new guidance in fiscal year 2019 using the modified retrospective transition method and elected the option to not restate comparative periods in the year of adoption, including amounts as of December 29, 2018 and for the three and six months ended June 30, 2018 included herein.

As a result of adopting this new guidance on the first day of fiscal year 2019, substantially all of the Company's operating lease commitments were subject to the new guidance and were recognized as operating lease assets and liabilities, initially measured as the present value of future lease payments for the remaining lease term discounted using the Company’s incremental borrowing rate based on the remaining lease term as of the adoption date. The Company recognized operating lease assets and liabilities of $388.8 million and $435.1 million, respectively, as of the first day of fiscal year 2019. The difference between the assets and liabilities is attributable to the reclassification of certain existing lease-related assets and liabilities as an adjustment to the right-of-use assets. Finance leases, previously known as capital leases, were not impacted by the adoption of the new guidance, as finance lease liabilities and the corresponding assets were recorded on the consolidated balance sheet under the previous guidance. The accounting guidance for lessors remained largely unchanged from previous guidance, with the exception of the presentation of certain lease costs that the Company passes through to lessees, including but not limited to, property taxes, insurance, and maintenance. These costs are generally paid by the Company and reimbursed by the lessee. Historically, these costs have been recorded on a net basis in the consolidated statements of operations, but are now presented on a gross basis upon adoption of the new guidance. The adoption of the new guidance resulted in the recognition of additional rental income and occupancy expenses—franchised restaurants of $4.7 million and $9.4 million related to these lease costs during the three and six months ended June 29, 2019, respectively.

The effects of the changes made to the Company's condensed consolidated balance sheet as of December 30, 2018 for the adoption of the new lease guidance were as follows (in thousands):

	Balance at December 29, 2018		Adjustments due to adoption of the new lease guidance		Balance at December 30, 2018
Assets
Current assets:
Prepaid expenses and other current assets	$	49,491	(4,720	)	44,771
Operating lease assets	—		388,811		388,811
Other intangible assets, net	1,334,767		(13,598	)	1,321,169
Other assets	64,479		(961	)	63,518
Liabilities and Stockholders' Deficit
Current liabilities:
Operating lease liabilities	—		33,822		33,822
Operating lease liabilities	—		401,249		401,249
Other long-term liabilities(a)	83,164		(65,539	)	17,625

(a) Other long-term liabilities at December 29, 2018 reflects certain reclassifications to conform to current period presentation as discussed below.

The adoption of the new guidance had no impact on net cash flows from operating, investing, or financing activities and had no impact on compliance with debt agreements.

The Company elected the package of practical expedients permitted under the new guidance, which among other things, allowed the Company to continue utilizing historical classification of leases. However, the Company did not adopt the hindsight practical expedient, and therefore continued to utilize lease terms determined under previous lease guidance. See note 12 for additional information regarding our lease arrangements and the Company's updated lease accounting policies.

In conjunction with the adoption of this new lease guidance and to conform to the current period presentation, the Company revised the presentation of certain lease liabilities within the consolidated balance sheets. Other current liabilities and other long-term liabilities totaling $0.5 million and $4.6 million as of December 29, 2018 were reclassified to current and long-term deferred revenue, respectively. Amounts separately presented as unfavorable operating leases acquired of $8.2 million as of December 29, 2018 were reclassified to other long-term liabilities. Additionally, amounts separately presented as current capital lease obligations and long-term capital lease obligations of $0.5 million and $7.0 million as of December 29, 2018 were reclassified to other current liabilities and other long-term liabilities, respectively. There was no impact to total current liabilities and total long-term liabilities as a result of these reclassifications.

Subsequent Events

Subsequent events

Subsequent events have been evaluated through the date these consolidated financial statements were filed.