Allowance for Expected Credit Losses

3 Months Ended

Mar. 29, 2020

The following is a rollforward of the allowance for trade receivable expected credit losses for the period indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 29, 2020
Allowance for credit losses, beginning of period	$	199
Adjustment for adoption of ASU No. 2016-13	1,018
Provision for expected credit losses	3,334
Allowance for credit losses, end of period	$	4,551

The Company is exposed to credit losses through its trade accounts receivable consisting primarily of amounts due for gift card, credit card, vendor, franchise and other receivables. Gift card, vendor and other receivables consist primarily of amounts due from gift card resellers and vendor rebates. Amounts due from franchisees consist of initial franchise fees, royalty income, and advertising fees. See Note 7 - Other Current Assets, Net for disclosure of trades receivables by category as of March 29, 2020 and December 29, 2019. Credit card receivables in the U.S. are recorded within Cash and cash equivalents based on their short duration and reasonably assured settlement.

The Company evaluates the collectability of trade receivables based on historical loss experience and risk pool and records periodic adjustments for factors such as deterioration of economic conditions, specific customer circumstances and changes in the aging of accounts receivable balances. For risk pools where there was no established loss history, S&P speculative-grade default rates are utilized to calculate an estimated loss rate. Losses are charged off in the period in which they are determined to be uncollectable.

The financial condition of the Company’s franchisees is largely dependent on the underlying business trends of its brands and market conditions within the casual dining restaurant industry. In March 2020, the Company fully reserved substantially all of its outstanding franchise receivables in response to the economic impact of the COVID-19 pandemic. See Note 2 - COVID-19 Impact for details regarding the impact of the COVID-19 pandemic on the Company’s financial results.

The Company is also exposed to credit losses from off-balance sheet lease guarantees primarily related to the divestiture of certain formerly Company-owned restaurant sites. See Note 18 - Commitments and Contingencies for details regarding these lease guarantees.