| New Accounting Pronouncements | 12. New Accounting Pronouncements
Recently Adopted Accounting Standards
Accounting Standards Update 2014-09, Revenue
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting
Standards Update 2014-09, Revenue
from Contracts with Customers (Topic 606)
The Company recognized the cumulative effect of initially applying
ASC 606 as an adjustment to the opening balance of retained
deficit. The comparative information has not been restated and
continues to be reported under the accounting standards in effect
for those periods.
The Company has determined that the store opening fees received
from international franchisees do not relate to separate and
distinct performance obligations from the franchise right and those
upfront fees will therefore be recognized as revenue over the term
of each respective franchise store agreement, which is typically 10
years. In the past, the Company recognized such fees as revenue
when the related store opened. An adjustment to beginning retained
deficit and a corresponding contract liability of approximately
$15.0 million (of which $2.4 million is current and
$12.6 million is long-term) was established on the date of
adoption associated with the fees received through
December 31, 2017 that would have been deferred and recognized
over the term of each respective franchise store agreement if the
new guidance had been applied in the past. A deferred tax asset of
$3.5 million related to this contract liability was also
established on the date of adoption.
The Company has also determined that ASC 606 requires a gross
presentation on the consolidated statement of income for franchisee
contributions received by and related expenses of DNAF, the
Company’s consolidated not-for-profit subsidiary.
Upon the adoption of ASC 606, the Company determined that there are
not performance obligations associated with the franchise
advertising contributions received by DNAF that are separate from
our domestic royalty payment stream and as a result, these
franchise contributions and the related expenses are presented
gross in the Company’s consolidated statement of income and
consolidated statement of cash flows. While this change will
materially impact the gross amount of reported franchise revenues
and expenses, the impact will generally be an offsetting increase
to both revenues and expenses such that the impact on income from
operations and net income is not expected to be material. An
adjustment to beginning retained deficit and advertising fund
liabilities of approximately $6.4 million related to the
timing of advertising expense recognition was recorded on the date
of adoption. A deferred tax liability (which is reflected net
against deferred tax assets in the consolidated balance sheet) of
approximately $1.6 million related to this adjustment was also
established on the date of adoption.
The cumulative effect of the changes made to our consolidated
balance sheet as of January 1, 2018 for the adoption of
ASC 606 were as follows (in thousands):
Balance at Adjustments Balance at
Assets
Other assets:
Deferred income taxes $ 2,750 $ 1,878 $ 4,628
Liabilities and stockholders’ deficit
Current liabilities:
Advertising fund liabilities 120,223 (6,425 ) 113,798
Other accrued liabilities 58,578 2,365 60,943
Long-term liabilities:
Other accrued liabilities 21,751 12,639 34,390
Stockholders’ deficit:
Retained deficit (2,739,437 ) (6,701 ) (2,746,138 )
In accordance with the new revenue standard requirements, the
disclosure of the impact of adoption on the Company’s
condensed consolidated statement of income and condensed
consolidated balance sheet for the period ended March 25,
2018 was as follows (in thousands):
First Quarter
As Reported Balances Effect of (Lower)
Revenues:
Domestic franchise royalties and fees $ 89,490 $ 94,068 $ (4,578 )
International franchise royalties and fees 52,421 52,383 38
Domestic franchise advertising 82,211
— 82,211
General and administrative 84,178 88,746 (4,568 )
Domestic franchise advertising 82,211
— 82,211
Income from operations 133,476 133,428 48
Income before provision for income taxes 103,670 103,622 48
Provision for income taxes 14,843 14,832 11
Net income 88,827 88,790 37
As Reported Balances Effect of
Assets
Other assets:
Deferred income taxes $ 4,069 $ 2,202 $ 1,867
Liabilities and stockholders’ deficit
Current liabilities:
Advertising fund liabilities 105,830 112,265 (6,435 )
Other accrued liabilities 112,143 109,747 2,396
Long-term liabilities:
Other accrued liabilities 35,843 23,273 12,570
Stockholders’ deficit:
Retained deficit (2,768,591 ) (2,761,927 ) (6,664 )
ASU 2016-04, 405-20)
In March 2016, the FASB issued ASU 2016-04, Liabilities
– Extinguishment of Liabilities (Subtopic 405-20): Recognition
of Breakage for Certain Prepaid Stored-Value
Products 2016-04”). ASU 2016-04 aligns for non-financial liabilities.
ASU 2016-18, Statement
In November 2016, the FASB issued ASU 2016-18, Statement of
Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which ASU 2016-18 is
ASU 2018-02,
In February 2018, the FASB issued ASU 2018-02, Income
Statement – Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income
Accounting Standards Not Yet Adopted
The Company has considered all new accounting pronouncements issued
by the FASB and concluded the following accounting pronouncements
may have a material impact on its consolidated financial
statements, or represent accounting pronouncements for which the
Company has not yet completed its assessment.
ASU 2016-02,
In February 2016, the FASB issued ASU 2016-02, Leases
(Topic
842) 2016-02”). ASU 2016-02 requires ASU 2016-02 is of right-of-use assets Form 10-K.
ASU 2016-13,
In June 2016, the FASB issued ASU 2016-13, Measurement
of Credit Losses on Financial Instruments (Topic 326): Measurement
of Credit Losses on Financial
Instruments 2016-13”). ASU 2016-13 requires ASU 2016-13 is
ASU 2017-04,
In January 2017, the FASB issued ASU 2017-04 , Intangibles
– Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies ASU 2017-04 is |
