Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 27, 2014 |
Disclosure Summary Of Significant Accounting Policies Additional Information [Abstract] | ' |
Unaudited Financial Statements | ' |
Unaudited Consolidated Financial Statements |
The consolidated balance sheet as of September 27, 2014, the consolidated statements of operations and comprehensive income for the three and nine months ended September 27, 2014 and September 28, 2013, and the consolidated statements of cash flows for the nine months ended September 27, 2014 and September 28, 2013, 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 28, 2013, 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 our three- and nine-month periods ended September 27, 2014 and September 28, 2013 reflect the results of operations for the 13-week and 39-week periods ended on those dates. Operating results for the three- and nine-month periods ended September 27, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 27, 2014. |
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 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 September 27, 2014 and December 28, 2013 are summarized as follows (in thousands): |
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| | | | | | | | | | | | | | | | | | |
| 27-Sep-14 | | 28-Dec-13 |
| Quoted prices | | Significant | | Total | | Quoted prices | | Significant | | Total |
in active | other | in active | other |
markets for | observable | markets for | observable |
identical assets | inputs | identical assets | inputs |
(Level 1) | (Level 2) | (Level 1) | (Level 2) |
Assets: | | | | | | | | | | | |
Mutual funds | $ | — | | | — | | | — | | | 1,012 | | | — | | | 1,012 | |
|
Interest rate swaps | — | | | 8,469 | | | 8,469 | | | — | | | 10,221 | | | 10,221 | |
|
Total assets | $ | — | | | 8,469 | | | 8,469 | | | 1,012 | | | 10,221 | | | 11,233 | |
|
Liabilities: | | | | | | | | | | | |
Deferred compensation liabilities | $ | — | | | 8,138 | | | 8,138 | | | — | | | 7,181 | | | 7,181 | |
|
Total liabilities | $ | — | | | 8,138 | | | 8,138 | | | — | | | 7,181 | | | 7,181 | |
|
The deferred compensation liabilities primarily relate to the Dunkin’ Brands, Inc. Non-Qualified Deferred Compensation Plan (“NQDC Plan”), which allows for pre-tax salary deferrals for certain qualifying individuals. 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 assets, which may include mutual funds, to partially offset the Company’s liabilities under certain benefit plans. The changes in the fair value of any mutual funds held are derived using quoted prices in active markets for the specific funds. As such, the mutual funds are classified within Level 1, as defined under U.S. GAAP. |
The Company uses readily available market data to value its interest rate swaps, such as interest rate curves and discount factors. Additionally, the fair value of derivatives includes consideration of credit risk in the valuation. The Company uses a potential future exposure model to estimate this credit valuation adjustment (“CVA”). The inputs to the CVA are largely based on observable market data, with the exception of certain assumptions regarding credit worthiness which make the CVA a Level 3 input, as defined under U.S. GAAP. As the magnitude of the CVA is not a significant component of the fair value of the interest rate swaps as of September 27, 2014, it is not considered a significant input and the derivatives are classified as Level 2. |
The carrying value and estimated fair value of long-term debt as of September 27, 2014 and December 28, 2013 were as follows (in thousands): |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| 27-Sep-14 | | 28-Dec-13 | | | | | | |
| Carrying Value | | Estimated fair value | | Carrying Value | | Estimated fair value | | | | | | |
Financial liabilities | | | | | | | | | | | | | |
Term loans | $ | 1,809,116 | | | 1,777,291 | | | 1,823,609 | | | 1,836,212 | | | | | | | |
| | | | | |
The estimated fair value of our term loans is estimated based on current bid prices for our term loans. Judgment is required to develop these estimates. As such, our term loans are classified within Level 2, as defined under U.S. GAAP. |
Derivative Instruments and Hedging Activities | ' |
Derivative Instruments and Hedging Activities |
The Company uses derivative instruments to hedge interest rate risks. These derivative contracts are entered into with financial institutions. The Company does not use derivative instruments for trading purposes and we have procedures in place to monitor and control their use. |
We record all derivative instruments on our consolidated balance sheets at fair value. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instruments is reported as other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the gain or loss on the derivative instruments for a cash flow hedge is recorded in the consolidated statements of operations immediately. Cash flows associated with the Company's interest rate swap agreements are classified as cash flows from operating activities in the consolidated statements of cash flows which is consistent with the classification of cash flows of the underlying hedged item. See note 5 for a discussion of the Company's use of derivative instruments, management of credit risk inherent in derivative instruments, and fair value information. |
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, and sales of ice cream 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. At September 27, 2014 and December 28, 2013, one master licensee, including its majority-owned subsidiaries, accounted for approximately 25% and 17%, respectively, of total accounts and notes receivable, which was primarily due to the timing of orders and shipments of ice cream to the master licensee. For the nine months ended September 27, 2014, one master licensee, including its majority-owned subsidiaries, accounted for approximately 10% of total revenues. No individual franchisee or master licensee accounted for more than 10% of total revenues for the three months ended September 27, 2014 or for the three or nine months ended September 28, 2013. |
Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements |
In August 2014, the Financial Accounting Standards Board ("FASB") issued new guidance which requires management to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern. This guidance is effective for the Company in fiscal year 2017 and early adoption is permitted. The Company has not adopted this guidance as of September 27, 2014, and based on the Company's financial condition as of September 27, 2014, the Company does not expect the adoption of this guidance to have any impact on the Company's consolidated financial statements. |
In May 2014, the FASB issued new guidance for revenue recognition related to contracts with customers, except for contracts within the scope of other standards, which supersedes nearly all existing revenue recognition guidance. The new guidance provides a single framework in which revenue is required to be recognized to depict the transfer of goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. This guidance is effective for the Company in fiscal year 2017 and early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the impact the adoption of this new standard will have on the Company’s accounting policies, consolidated financial statements, and related disclosures. |
In July 2013, the FASB issued new guidance which requires presentation of an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except in certain circumstances. This guidance was adopted by the Company in fiscal year 2014. The adoption of this guidance did not have any impact on the Company’s consolidated financial statements. |
Reclassifications | ' |
Reclassifications |
The Company has revised the presentation of certain income generating transactions that historically were recorded within general and administrative expenses, net in the consolidated statements of operations. Income from these transactions totaling $751 thousand and $2.7 million have been reclassified into other operating income, net, for the three and nine months ended September 28, 2013, respectively, in the consolidated statements of operations to conform to the current year presentation. There was no impact to total revenues, operating income, income before income taxes, or net income as a result of these reclassifications. |
The Company has also revised the presentation of certain asset captions within the consolidated balance sheets to conform to the current period presentation, including combining 'assets held for sale' with 'prepaid expenses and other current assets' and combining 'restricted cash' with 'other assets'. The revisions had no impact on total current assets or total assets. |
Additionally, the Company has revised the presentation of certain captions for the nine months ended September 28, 2013 within the consolidated statements of cash flows to conform to the current period presentation. The revisions had no impact on net cash provided by operating, used in investing, or used in financing activities. |
Subsequent Events | ' |
Subsequent Events |
Subsequent events have been evaluated through the date these consolidated financial statements were filed. |