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’ 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. Incentives provided to franchisees in conjunction with a franchise/license agreement, territory agreement, or renewal agreement are recognized over the remaining term of the respective agreement. 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’ 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’ 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’ 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’ 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 September 29, 2018 Dunkin' U.S. Baskin-Robbins U.S. Dunkin' 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 $ 124,805 8,626 5,192 2,140 — 140,763 4,812 145,575 Franchise fees 4,840 319 1,054 203 — 6,416 — 6,416 Advertising fees and related income — — — — 118,208 118,208 8,312 126,520 Other revenues 597 2,994 3 7 — 3,601 8,754 12,355 Total revenues recognized over time 130,242 11,939 6,249 2,350 118,208 268,988 21,878 290,866 Revenues recognized at a point in time: Sales of ice cream and other products — 906 — 28,625 — 29,531 (4,664 ) 24,867 Other revenues 405 63 7 45 — 520 260 780 Total revenues recognized at a point in time 405 969 7 28,670 — 30,051 (4,404 ) 25,647 Total revenues recognized under ASC 606 130,647 12,908 6,256 31,020 118,208 299,039 17,474 316,513 Revenues not subject to ASC 606 Advertising fees and related income — — — — — — 5,951 5,951 Rental income 26,637 773 — 137 — 27,547 — 27,547 Total revenues not subject to ASC 606 26,637 773 — 137 — 27,547 5,951 33,498 Total revenues $ 157,284 13,681 6,256 31,157 118,208 326,586 23,425 350,011 (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 September 30, 2017 Dunkin' U.S. Baskin-Robbins U.S. Dunkin' 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 $ 118,831 8,501 4,442 1,966 — 133,740 4,380 138,120 Franchise fees 4,638 190 460 326 — 5,614 — 5,614 Advertising fees and related income — — — — 113,862 113,862 547 114,409 Other revenues 528 3,015 3 6 — 3,552 8,498 12,050 Total revenues recognized over time 123,997 11,706 4,905 2,298 113,862 256,768 13,425 270,193 Revenues recognized at a point in time: Sales of ice cream and other products — 771 — 26,512 — 27,283 (4,110 ) 23,173 Other revenues 405 47 8 24 — 484 257 741 Total revenues recognized at a point in time 405 818 8 26,536 — 27,767 (3,853 ) 23,914 Total revenues recognized under ASC 606 124,402 12,524 4,913 28,834 113,862 284,535 9,572 294,107 Revenues not subject to ASC 606 Advertising fees and related income — — — — — — 8,251 8,251 Rental income 26,786 798 — 129 — 27,713 — 27,713 Total revenues not subject to ASC 606 26,786 798 — 129 — 27,713 8,251 35,964 Total revenues $ 151,188 13,322 4,913 28,963 113,862 312,248 17,823 330,071 (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.” Nine months ended September 29, 2018 Dunkin' U.S. Baskin-Robbins U.S. Dunkin' 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 $ 360,859 24,040 14,862 5,837 — 405,598 12,222 417,820 Franchise fees 14,312 911 2,037 660 — 17,920 — 17,920 Advertising fees and related income — — — — 341,549 341,549 17,062 358,611 Other revenues 1,720 8,400 5 8 — 10,133 24,877 35,010 Total revenues recognized over time 376,891 33,351 16,904 6,505 341,549 775,200 54,161 829,361 Revenues recognized at a point in time: Sales of ice cream and other products — 2,426 — 84,006 — 86,432 (11,648 ) 74,784 Other revenues 960 213 (25 ) 164 — 1,312 705 2,017 Total revenues recognized at a point in time 960 2,639 (25 ) 84,170 — 87,744 (10,943 ) 76,801 Total revenues recognized under ASC 606 377,851 35,990 16,879 90,675 341,549 862,944 43,218 906,162 Revenues not subject to ASC 606 Advertising fees and related income — — — — — — 16,406 16,406 Rental income 76,734 2,303 — 388 — 79,425 — 79,425 Total revenues not subject to ASC 606 76,734 2,303 — 388 — 79,425 16,406 95,831 Total revenues $ 454,585 38,293 16,879 91,063 341,549 942,369 59,624 1,001,993 (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.” Nine months ended September 30, 2017 Dunkin' U.S. Baskin-Robbins U.S. Dunkin' 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 $ 345,103 24,265 13,011 5,255 — 387,634 11,353 398,987 Franchise fees 13,500 589 1,368 899 — 16,356 — 16,356 Advertising fees and related income — — — — 330,007 330,007 1,270 331,277 Other revenues 1,645 8,515 7 7 — 10,174 23,913 34,087 Total revenues recognized over time 360,248 33,369 14,386 6,161 330,007 744,171 36,536 780,707 Revenues recognized at a point in time: Sales of ice cream and other products — 2,179 — 82,602 — 84,781 (10,423 ) 74,358 Other revenues 1,129 261 (29 ) 133 — 1,494 556 2,050 Total revenues recognized at a point in time 1,129 2,440 (29 ) 82,735 — 86,275 (9,867 ) 76,408 Total revenues recognized under ASC 606 361,377 35,809 14,357 88,896 330,007 830,446 26,669 857,115 Revenues not subject to ASC 606 Advertising fees and related income — — — — — — 23,947 23,947 Rental income 76,842 2,346 — 355 — 79,543 — 79,543 Total revenues not subject to ASC 606 76,842 2,346 — 355 — 79,543 23,947 103,490 Total revenues $ 438,219 38,155 14,357 89,251 330,007 909,989 50,616 960,605 (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): September 29, December 30, Balance Sheet Classification Receivables $ 103,097 76,455 Accounts receivable, net and Notes and other receivables, net Deferred revenue: Current $ 30,724 27,724 Deferred revenue—current Long-term 354,472 361,458 Deferred revenue—long term Total $ 385,196 389,182 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 decrease in the deferred revenue balance as of September 29, 2018 is primarily driven by $24.0 million of revenues recognized that were included in the deferred revenue balance as of December 30, 2017, as well as franchisee incentives provided during fiscal year 2018, offset by cash payments received or due in advance of satisfying our performance obligations. As of September 29, 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 September 29, 2018 is as follows (in thousands): Fiscal year: 2018 (a) $ 9,279 2019 26,031 2020 22,744 2021 22,628 2022 22,441 Thereafter 244,692 Total $ 347,815 (a) Represents the estimate for remainder of fiscal year 2018 which excludes the nine months ended September 29, 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 September 29, 2018 . Additionally, the table above excludes $63.6 million of consideration allocated to restaurants that are not yet open at September 29, 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’ 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 September 30, 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 $ 151,809 (12,453 ) — 4,378 — 143,734 Advertising fees and related income — — 122,660 — — 122,660 Rental income 27,713 — — — — 27,713 Sales of ice cream and other products 27,551 — — (4,378 ) — 23,173 Other revenues 17,095 (2,346 ) — — (1,958 ) 12,791 Total revenues 224,168 (14,799 ) 122,660 — (1,958 ) 330,071 Operating costs and expenses: Occupancy expenses—franchised restaurants 15,333 — — — — 15,333 Cost of ice cream and other products 19,457 — — — — 19,457 Advertising expenses — — 124,080 — — 124,080 General and administrative expenses, net 61,996 — (1,416 ) — — 60,580 Depreciation 4,941 — — — — 4,941 Amortization of other intangible assets 5,341 — — — — 5,341 Long-lived asset impairment charges 536 — — — — 536 Total operating costs and expenses 107,604 — 122,664 — — 230,268 Net income of equity method investments 5,466 — — — — 5,466 Other operating income, net 3 — — — — 3 Operating income 122,033 (14,799 ) (4 ) — (1,958 ) 105,272 Other income (expense), net: Interest income 624 — — — — 624 Interest expense (24,436 ) — — — — (24,436 ) Other gains, net 155 — — — — 155 Total other expense, net (23,657 ) — — — — (23,657 ) Income before income taxes 98,376 (14,799 ) (4 ) — (1,958 ) 81,615 Provision (benefit) for income taxes 46,130 (4,716 ) — — (969 ) 40,445 Net income $ 52,246 (10,083 ) (4 ) — (989 ) 41,170 Earnings per share—basic $ 0.58 0.46 Earnings per share—diluted 0.57 0.45 Consolidated Statements of Operations Nine months ended September 30, 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 $ 426,944 (22,953 ) — 11,352 — 415,343 Advertising fees and related income — — 355,224 — — 355,224 Rental income 79,543 — — — — 79,543 Sales of ice cream and other products 85,710 — — (11,352 ) — 74,358 Other revenues 41,165 (4,501 ) — — (527 ) 36,137 Total revenues 633,362 (27,454 ) 355,224 — (527 ) 960,605 Operating costs and expenses: Occupancy expenses—franchised restaurants 43,758 — — — — 43,758 Cost of ice cream and other products 58,578 — — — — 58,578 Advertising expenses — — 358,828 — — 358,828 General and administrative expenses, net 185,613 — (3,590 ) — — 182,023 Depreciation 15,096 — — — — 15,096 Amortization of other intangible assets 16,001 — — — — 16,001 Long-lived asset impairment charges 643 — — — — 643 Total operating costs and expenses 319,689 — 355,238 — — 674,927 Net income of equity method investments 12,612 — — — — 12,612 Other operating income, net 591 — — — — 591 Operating income 326,876 (27,454 ) (14 ) — (527 ) 298,881 Other income (expense), net: Interest income 1,370 — — — — 1,370 Interest expense (74,192 ) — — — — (74,192 ) Other gains, net 370 — — — — 370 Total other expense, net (72,452 ) — — — — (72,452 ) Income before income taxes 254,424 (27,454 ) (14 ) — (527 ) 226,429 Provision (benefit) for income taxes 99,007 (8,550 ) — — (583 ) 89,874 Net income $ 155,417 (18,904 ) (14 ) — 56 136,555 Earnings per share—basic $ 1.71 1.50 Earnings per share—diluted 1.68 1.48 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) Nine months ended September 30, 2017 Previously reported Adjustments for new revenue recognition guidance Restated Net cash provided by operating activities $ 121,529 4,651 126,180 Net cash used in investing activities (9,099 ) (4,651 ) (13,750 ) Net cash used in financing activities (201,106 ) — (201,106 ) Decrease in cash, cash equivalents, and restricted cash (88,100 ) — (88,100 ) |