Revenue Recognition | (a) Updated revenue recognition policies Franchise fees and royalty income Domestically, the Company sells individual franchises as well as territory agreements in the form of store development agreements (“SDAs”) that grant the right to develop restaurants in designated areas. The franchise agreements and SDAs typically require the franchisee to pay initial nonrefundable franchise fees prior to opening the respective restaurants and continuing fees, or royalty income, on a weekly basis based upon a percentage of franchisee gross sales. The initial term of domestic franchise agreements is typically 20 years. Prior to the end of the franchise term or as otherwise provided by the Company, a franchisee may elect to renew the term of a franchise agreement, and, if approved, will typically pay a renewal fee upon execution of the renewal term. If approved, a franchisee may transfer a franchise agreement or SDA to a new or existing franchisee, at which point a transfer fee is paid. Occasionally, the Company offers incentive programs to franchisees in conjunction with a franchise/license agreement, territory agreement, or renewal agreement. Internationally, the Company sells master franchise agreements that grant the master franchisee the right to develop and operate, and in some instances sub-franchise, a certain number of restaurants within a particular geographic area. The master franchisee is typically required to pay an upfront market entry fee upon entering into the master franchise agreement and an upfront initial franchise fee for each developed restaurant prior to each respective opening. For the Dunkin’ Donuts brand and in certain Baskin-Robbins international markets, the master franchisee will also pay continuing fees, or royalty income, generally on a monthly basis based upon a percentage of sales. Generally, the master franchise agreement serves as the franchise agreement for the underlying restaurants, and the initial franchise term provided for each restaurant typically ranges between 10 and 20 years. Generally, the franchise license granted for each individual restaurant within an arrangement represents a single performance obligation. Therefore, initial franchise fees and market entry fees for each arrangement are allocated to each individual restaurant and recognized over the term of the respective franchise agreement from the date of the restaurant opening. Royalty income is also recognized over the term of the respective franchise agreement based on the royalties earned each period as the underlying sales occur. Renewal fees are generally recognized over the renewal term for the respective restaurant from the start of the renewal period. Transfer fees are recognized over the remaining term of the franchise agreement beginning at the time of transfer. Additionally, for Baskin-Robbins international markets that do not pay a royalty, a portion of the consideration from sales of ice cream and other products is allocated to royalty income as consideration for the use of the franchise license, which is recognized when the related sales occur and is estimated based on royalty rates in effect for markets where the franchise license is sold on a standalone basis. Fees received or receivable that are expected to be recognized as revenue within one year are classified as current deferred revenue in the consolidated balance sheets. Advertising fees and related income Domestically and in limited international markets, franchise agreements typically require the franchisee to pay continuing advertising fees on a weekly basis based on a percentage of franchisee gross sales, which are recognized over the term of the respective franchise agreement based on the fees earned each period as the underlying sales occur. The Company and its franchisees sell gift cards that are redeemable for products in our Dunkin’ Donuts and Baskin-Robbins restaurants. The Company manages the gift card program, and therefore collects all funds from the activation of gift cards and reimburses franchisees for the redemption of gift cards in their restaurants. A liability for unredeemed gift cards, as well as historical gift certificates sold, is included in other current liabilities in the consolidated balance sheets. There are no expiration dates or service fees charged on the gift cards. While the franchisees continue to honor all gift cards presented for payment, the likelihood of redemption may be determined to be remote for certain cards due to long periods of inactivity. In these circumstances, the Company may recognize revenue from unredeemed gift cards (“breakage revenue”) if they are not subject to unclaimed property laws. For Dunkin’ Donuts gift cards enrolled in the DD Perks® Rewards loyalty program and other cards with expected similar redemption behavior, breakage is estimated and recognized at the point in time when the likelihood of redemption of any remaining card balance becomes remote, generally after a period of sufficient inactivity. Breakage on all other Dunkin’ Donuts gift cards and all Baskin-Robbins gift cards is estimated and recognized over time in proportion to actual gift card redemptions, based on historical redemption rates. The Company also collects gift card program service fees from franchisees to offset the costs to administer the gift card program. The gift card program service fees are based on the volume of gift card transactions processed and are recognized as the underlying transactions occur. Rental income Rental income for base rentals is recorded on a straight-line basis over the lease term, including the amortization of any tenant improvement dollars paid. The differences between the straight-line rent amounts and amounts receivable under the leases are recorded as deferred rent assets in current or long-term assets, as appropriate. Contingent rental income is recognized as earned, and any amounts received from lessees in advance of achieving stipulated thresholds are deferred until such thresholds are actually achieved. Deferred contingent rentals are recorded as deferred revenue in current liabilities in the consolidated balance sheets. Sales of ice cream and other products We distribute Baskin-Robbins ice cream products and, in limited cases, Dunkin’ Donuts products to franchisees in certain international locations. Revenue from the sale of ice cream and other products is recognized when title and risk of loss transfers to the buyer, which is generally upon delivery. Payment for ice cream and other products is generally due within a relatively short period of time subsequent to delivery. Other revenues Other revenues include fees generated by licensing our brand names and other intellectual property, as well as gains, net of losses and transactions costs, from the sales of restaurants that were not company-operated to new or existing franchisees. Licensing fees are recognized over the term of the expected license agreement, with sales-based license fees being recognized based on the amount earned each period as the underlying sales occur. Gains on the refranchise or sale of a restaurant are recognized over the term of the related agreement. (b) Disaggregation of revenue Revenues are disaggregated by timing of revenue recognition and reconciled to reportable segment revenues as follows (in thousands): Three months ended June 30, 2018 Dunkin' Donuts U.S. Baskin-Robbins U.S. Dunkin' Donuts International Baskin-Robbins International U.S. Advertising Funds Total reportable segment revenues Other (a) Total revenues Revenues recognized under ASC 606 Revenues recognized over time: Royalty income $ 125,221 9,005 4,732 2,154 — 141,112 4,276 145,388 Franchise fees 4,765 303 535 251 — 5,854 — 5,854 Advertising fees and related income — — — — 119,174 119,174 8,491 127,665 Other revenues 588 3,129 — 1 — 3,718 7,969 11,687 Total revenues recognized over time 130,574 12,437 5,267 2,406 119,174 269,858 20,736 290,594 Revenues recognized at a point in time: Sales of ice cream and other products — 842 — 31,409 — 32,251 (4,111 ) 28,140 Other revenues 310 57 (9 ) 72 — 430 202 632 Total revenues recognized at a point in time 310 899 (9 ) 31,481 — 32,681 (3,909 ) 28,772 Total revenues recognized under ASC 606 130,884 13,336 5,258 33,887 119,174 302,539 16,827 319,366 Revenues not subject to ASC 606 Advertising fees and related income — — — — — — 3,874 3,874 Rental income 26,506 763 — 131 — 27,400 — 27,400 Total revenues not subject to ASC 606 26,506 763 — 131 — 27,400 3,874 31,274 Total revenues $ 157,390 14,099 5,258 34,018 119,174 329,939 20,701 350,640 (a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other." Three months ended July 1, 2017 Dunkin' Donuts U.S. Baskin-Robbins U.S. Dunkin' Donuts International Baskin-Robbins International U.S. Advertising Funds Total reportable segment revenues Other (a) Total revenues Revenues recognized under ASC 606 Revenues recognized over time: Royalty income $ 119,096 9,080 4,157 1,858 — 134,191 4,183 138,374 Franchise fees 4,564 193 475 288 — 5,520 — 5,520 Advertising fees and related income — — — — 113,824 113,824 668 114,492 Other revenues 577 3,187 — 1 — 3,765 7,506 11,271 Total revenues recognized over time 124,237 12,460 4,632 2,147 113,824 257,300 12,357 269,657 Revenues recognized at a point in time: Sales of ice cream and other products — 883 — 31,685 — 32,568 (3,889 ) 28,679 Other revenues 221 150 (20 ) 63 — 414 149 563 Total revenues recognized at a point in time 221 1,033 (20 ) 31,748 — 32,982 (3,740 ) 29,242 Total revenues recognized under ASC 606 124,458 13,493 4,612 33,895 113,824 290,282 8,617 298,899 Revenues not subject to ASC 606 Advertising fees and related income — — — — — — 7,869 7,869 Rental income 26,533 763 — 112 — 27,408 — 27,408 Total revenues not subject to ASC 606 26,533 763 — 112 — 27,408 7,869 35,277 Total revenues $ 150,991 14,256 4,612 34,007 113,824 317,690 16,486 334,176 (a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other." Six months ended June 30, 2018 Dunkin' Donuts U.S. Baskin-Robbins U.S. Dunkin' Donuts International Baskin-Robbins International U.S. Advertising Funds Total reportable segment revenues Other (a) Total revenues Revenues recognized under ASC 606 Revenues recognized over time: Royalty income $ 236,054 15,414 9,670 3,697 — 264,835 7,410 272,245 Franchise fees 9,472 592 983 457 — 11,504 — 11,504 Advertising fees and related income — — — — 223,341 223,341 8,750 232,091 Other revenues 1,123 5,406 2 1 — 6,532 16,123 22,655 Total revenues recognized over time 246,649 21,412 10,655 4,155 223,341 506,212 32,283 538,495 Revenues recognized at a point in time: Sales of ice cream and other products — 1,520 — 55,381 — 56,901 (6,984 ) 49,917 Other revenues 555 150 (32 ) 119 — 792 445 1,237 Total revenues recognized at a point in time 555 1,670 (32 ) 55,500 — 57,693 (6,539 ) 51,154 Total revenues recognized under ASC 606 247,204 23,082 10,623 59,655 223,341 563,905 25,744 589,649 Revenues not subject to ASC 606 Advertising fees and related income — — — — — — 10,455 10,455 Rental income 50,097 1,530 — 251 — 51,878 — 51,878 Total revenues not subject to ASC 606 50,097 1,530 — 251 — 51,878 10,455 62,333 Total revenues $ 297,301 24,612 10,623 59,906 223,341 615,783 36,199 651,982 (a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other." Six months ended July 1, 2017 Dunkin' Donuts U.S. Baskin-Robbins U.S. Dunkin' Donuts International Baskin-Robbins International U.S. Advertising Funds Total reportable segment revenues Other (a) Total revenues Revenues recognized under ASC 606 Revenues recognized over time: Royalty income $ 226,271 15,764 8,569 3,289 — 253,893 6,974 260,867 Franchise fees 8,862 399 908 573 — 10,742 — 10,742 Advertising fees and related income — — — — 216,145 216,145 723 216,868 Other revenues 1,117 5,500 4 1 — 6,622 15,415 22,037 Total revenues recognized over time 236,250 21,663 9,481 3,863 216,145 487,402 23,112 510,514 Revenues recognized at a point in time: Sales of ice cream and other products — 1,409 — 56,089 — 57,498 (6,313 ) 51,185 Other revenues 724 214 (36 ) 109 — 1,011 298 1,309 Total revenues recognized at a point in time 724 1,623 (36 ) 56,198 — 58,509 (6,015 ) 52,494 Total revenues recognized under ASC 606 236,974 23,286 9,445 60,061 216,145 545,911 17,097 563,008 Revenues not subject to ASC 606 Advertising fees and related income — — — — — — 15,696 15,696 Rental income 50,057 1,547 — 226 — 51,830 — 51,830 Total revenues not subject to ASC 606 50,057 1,547 — 226 — 51,830 15,696 67,526 Total revenues $ 287,031 24,833 9,445 60,287 216,145 597,741 32,793 630,534 (a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other." (c) Contract balances Information about receivables and deferred revenue subject to ASC 606 is as follows (in thousands): June 30, December 30, Balance Sheet Classification Receivables $ 99,950 76,455 Accounts receivable, net and Notes and other receivables, net Deferred revenue: Current $ 30,550 27,724 Deferred revenue—current Long-term 366,246 361,458 Deferred revenue—long term Total $ 396,796 389,182 Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, sales of ice cream and other products, and licensing fees. Deferred revenue primarily represents the Company’s remaining performance obligations under its franchise and license agreements for which consideration has been received or is receivable, and is generally recognized on a straight-line basis over the remaining term of the related agreement. The increase in the deferred revenue balance for the six months ended June 30, 2018 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $16.7 million of revenues recognized that were included in the deferred revenue balance as of December 30, 2017. As of June 30, 2018 and December 30, 2017 , there were no contract assets from contracts with customers. (d) Transaction price allocated to remaining performance obligations Estimated revenue expected to be recognized in the future related to performance obligations that are either unsatisfied or partially satisfied at June 30, 2018 is as follows (in thousands): Fiscal year: 2018 (a) $ 16,541 2019 25,091 2020 23,851 2021 23,614 2022 23,341 Thereafter 247,568 Total $ 360,006 (a) Represents the estimate for remainder of fiscal year 2018 which excludes the six months ended June 30, 2018. The estimated revenue in the table above does not contemplate future franchise renewals or new franchise agreements for restaurants for which a franchise agreement or SDA does not exist at June 30, 2018 . Additionally, the table above excludes $61.9 million of consideration allocated to restaurants that are not yet open as of June 30, 2018 . The Company has applied the sales-based royalty exemption which permits exclusion of variable consideration in the form of sales-based royalties from the disclosure of remaining performance obligations in the table above. Additionally, the Company has applied the transition practical expedient that allows the Company to omit the above disclosures for the fiscal year ended December 30, 2017 . (e) Change in accounting principle In fiscal year 2018, the Company adopted new revenue recognition guidance which 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. The Company adopted the guidance using the full retrospective transition method which results in restating each prior reporting period presented. The restated amounts include the application of a practical expedient that permitted the Company to reflect the aggregate effect of all modifications that occurred prior to fiscal year 2016 when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations. The Company implemented new business processes, internal controls, and modified information technology systems to assist in the ongoing application of the new guidance. Franchise Fees The adoption of the new guidance changed the timing of recognition of initial franchise fees, including master license and territory fees for our international business, and renewal and transfer fees. Previously, these fees were generally recognized upfront upon either opening of the respective restaurant, when a renewal agreement became effective, or upon transfer of a franchise agreement. The new guidance generally requires these fees to be recognized over the term of the related franchise license for the respective restaurant. Additionally, transfer fees were previously included within other revenues, but are now included within franchise fees and royalty income in the consolidated statements of operations. The new guidance did not materially impact the recognition of royalty income. Advertising The adoption of the new guidance changed the reporting of advertising fund contributions from franchisees and the related advertising fund expenditures, which were not previously included in the consolidated statements of operations. The new guidance requires these advertising fund contributions and expenditures to be reported on a gross basis in the consolidated statements of operations. The assets and liabilities held by the advertising funds, which were previously reported as restricted assets and liabilities of advertising funds, respectively, are now included within the respective balance sheet caption to which the assets and liabilities relate. Additionally, advertising costs that have been incurred by the Company outside of the advertising funds were previously included within general and administrative expenses, net, but are now included within advertising expenses in the consolidated statements of operations. Previously, breakage from Dunkin’ Donuts and Baskin-Robbins gift cards was recorded as a reduction to general and administrative expenses, net, to offset the related gift card program costs. In accordance with the new guidance, breakage revenue is now reported on a gross basis in the consolidated statements of operations within advertising fees and related income, and the related gift card program costs are included in advertising expenses. Ice Cream Royalty Allocation The adoption of the new guidance requires a portion of sales of ice cream products to be allocated to royalty income as consideration for the use of the franchise license. As such, a portion of sales of ice cream and other products has been reclassified to franchise fees and royalty income in the consolidated statements of operations under the new guidance. This allocation has no impact on the timing of recognition of the related sales of ice cream products or royalty income. Other Revenue Transactions The adoption of the new guidance requires certain fees generated by licensing of our brand names and other intellectual property to be recognized over the term of the related agreement, including a one-time upfront license fee recognized in connection with the Dunkin’ K-Cup® pod licensing agreement in fiscal year 2015. Additionally, gains associated with the refranchise, sale, or transfer of restaurants that were not company-operated to new or existing franchisees are recognized over the term of the related agreement under the new guidance, instead of upon closing of the sale transaction or transfer. Impacts to Prior Period Information The new guidance for revenue recognition impacted the Company's previously reported financial statements as follows: Consolidated Balance Sheets December 30, 2017 (In thousands) Adjustments for new revenue recognition guidance Previously reported Franchise fees Advertising Other revenue transactions Restated Assets Current assets: Cash and cash equivalents $ 1,018,317 — — — 1,018,317 Restricted cash 94,047 — — — 94,047 Accounts receivables, net 51,442 — 18,075 — 69,517 Notes and other receivables, net 51,082 — 1,250 — 52,332 Restricted assets of advertising funds 47,373 — (47,373 ) — — Prepaid income taxes 21,879 — 48 — 21,927 Prepaid expenses and other current assets 32,695 — 15,498 — 48,193 Total current assets 1,316,835 — (12,502 ) — 1,304,333 Property and equipment, net 169,005 — 12,537 — 181,542 Equity method investments 140,615 — — — 140,615 Goodwill 888,308 — — — 888,308 Other intangibles assets, net 1,357,157 — — — 1,357,157 Other assets 65,464 — 14 — 65,478 Total assets $ 3,937,384 — 49 — 3,937,433 Liabilities and Stockholders’ Equity (Deficit) Current liabilities: Current portion of long-term debt $ 31,500 — — — 31,500 Capital lease obligations 596 — — — 596 Accounts payable 16,307 — 37,110 — 53,417 Liabilities of advertising funds 58,014 — (58,014 ) — — Deferred revenue 39,395 1,502 (550 ) 4,529 44,876 Other current liabilities 326,078 — 29,032 — 355,110 Total current liabilities 471,890 1,502 7,578 4,529 485,499 Long-term debt, net 3,035,857 — — — 3,035,857 Capital lease obligations 7,180 — — — 7,180 Unfavorable operating leases acquired 9,780 — — — 9,780 Deferred revenue 11,158 328,183 (7,518 ) 29,635 361,458 Deferred income taxes, net 315,249 (91,488 ) — (9,416 ) 214,345 Other long-term liabilities 77,823 — 30 — 77,853 Total long-term liabilities 3,457,047 236,695 (7,488 ) 20,219 3,706,473 Stockholders’ equity (deficit) Preferred stock — — — — — Common stock 90 — — — 90 Additional paid-in-capital 724,114 — — — 724,114 Treasury stock, at cost (1,060 ) — — — (1,060 ) Accumulated deficit (705,007 ) (238,197 ) (196 ) (24,748 ) (968,148 ) Accumulated other comprehensive loss (9,690 ) — 155 — (9,535 ) Stockholders’ equity (deficit) 8,447 (238,197 ) (41 ) (24,748 ) (254,539 ) Total liabilities and stockholders’ equity (deficit) $ 3,937,384 — 49 — 3,937,433 Consolidated Statements of Operations Three months ended July 1, 2017 (In thousands, except per share data) Adjustments for new revenue recognition guidance Previously reported Franchise fees Advertising Ice cream royalty allocation Other revenue transactions Restated Revenues: Franchise fees and royalty income $ 145,066 (5,355 ) — 4,183 — 143,894 Advertising fees and related income — — 122,361 — — 122,361 Rental income 27,408 — — — — 27,408 Sales of ice cream and other products 32,862 — — (4,183 ) — 28,679 Other revenues 13,186 (1,033 ) — — (319 ) 11,834 Total revenues 218,522 (6,388 ) 122,361 — (319 ) 334,176 Operating costs and expenses: Occupancy expenses—franchised restaurants 14,287 — — — — 14,287 Cost of ice cream and other products 22,199 — — — — 22,199 Advertising expenses — — 123,676 — — 123,676 General and administrative expenses, net 62,382 — (1,308 ) — — 61,074 Depreciation 5,071 — — — — 5,071 Amortization of other intangible assets 5,333 — — — — 5,333 Long-lived asset impairment charges 60 — — — — 60 Total operating costs and expenses 109,332 — 122,368 — — 231,700 Net income of equity method investments 4,327 — — — — 4,327 Other operating income, net 33 — — — — 33 Operating income 113,550 (6,388 ) (7 ) — (319 ) 106,836 Other income (expense), net: Interest income 425 — — — — 425 Interest expense (24,885 ) — — — — (24,885 ) Other gains, net 28 — — — — 28 Total other expense, net (24,432 ) — — — — (24,432 ) Income before income taxes 89,118 (6,388 ) (7 ) — (319 ) 82,404 Provision (benefit) for income taxes 33,414 (1,980 ) — — (122 ) 31,312 Net income $ 55,704 (4,408 ) (7 ) — (197 ) 51,092 Earnings per share—basic $ 0.61 0.56 Earnings per share—diluted 0.60 0.55 Consolidated Statements of Operations Six months ended July 1, 2017 (In thousands, except per share data) Adjustments for new revenue recognition guidance Previously reported Franchise fees Advertising Ice cream royalty allocation Other revenue transactions Restated Revenues: Franchise fees and royalty income $ 275,135 (10,500 ) — 6,974 — 271,609 Advertising fees and related income — — 232,564 — — 232,564 Rental income 51,830 — — — — 51,830 Sales of ice cream and other products 58,159 — — (6,974 ) — 51,185 Other revenues 24,070 (2,155 ) — — 1,431 23,346 Total revenues 409,194 (12,655 ) 232,564 — 1,431 630,534 Operating costs and expenses: Occupancy expenses—franchised restaurants 28,425 — — — — 28,425 Cost of ice cream and other products 39,121 — — — — 39,121 Advertising expenses — — 234,748 — — 234,748 General and administrative expenses, net 123,617 — (2,174 ) — — 121,443 Depreciation 10,155 — — — — 10,155 Amortization of other intangible assets 10,660 — — — — 10,660 Long-lived asset impairment charges 107 — — — — 107 Total operating costs and expenses 212,085 — 232,574 — — 444,659 Net income of equity method investments 7,146 — — — — 7,146 Other operating income, net 588 — — — — 588 Operating income 204,843 (12,655 ) (10 ) — 1,431 193,609 Other income (expense), net: Interest income 746 — — — — 746 Interest expense (49,756 ) — — — — (49,756 ) Other gains, net 215 — — — — 215 Total other expense, net (48,795 ) — — — — (48,795 ) Income before income taxes 156,048 (12,655 ) (10 ) — 1,431 144,814 Provision (benefit) for income taxes 52,877 (3,834 ) — — 386 49,429 Net income $ 103,171 (8,821 ) (10 ) — 1,045 95,385 Earnings per share—basic $ 1.13 1.04 Earnings per share—diluted 1.11 1.03 The adoption of the new revenue recognition guidance had no impact on the Company’s total cash flows. Adjustments presented in the cash flow information below result from full consolidation of the advertising funds, and reflect the investing activities, consisting solely of additions to property, equipment, and software, of such funds. Select Cash Flow Information (In thousands) Six months ended July 1, 2017 Previously reported Adjustments for new revenue recognition guidance Restated Net cash provided by operating activities $ 63,954 3,106 67,060 Net cash used in investing activities (3,723 ) (3,106 ) (6,829 ) Net cash used in financing activities (152,218 ) — (152,218 ) Decrease in cash, cash equivalents, and restricted cash (91,589 ) — (91,589 ) |