Dunkin' Donuts 2015 Annual Report Download - page 76

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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 our restaurants to new or existing franchisees. Licensing fees are recognized
when earned, which is generally upon sale of the underlying products by the licensees. Gains on the refranchise or sale of a
restaurant are recognized when the sale transaction closes, the franchisee has a minimum amount of the purchase price in at-
risk equity, and we are satisfied that the buyer can meet its financial obligations to us. If the criteria for gain recognition are not
met, we defer the gain to the extent we have any remaining financial exposure in connection with the sale transaction. Deferred
gains are recognized when the gain recognition criteria are met.
(p) Allowance for doubtful accounts
We monitor the financial condition of our franchisees and licensees and record provisions for estimated losses on receivables
when we believe that our franchisees or licensees are unable to make their required payments. While we use the best
information available in making our determination, the ultimate recovery of recorded receivables is also dependent upon future
economic events and other conditions that may be beyond our control. Included in the allowance for doubtful notes and
accounts receivables is a provision for uncollectible royalty, lease, and licensing fee receivables.
(q) Share-based payments
We measure compensation cost at fair value on the date of grant for all share-based awards and recognize compensation
expense over the service period that the awards are expected to vest. The Company has elected to recognize compensation cost
for graded-vesting awards subject only to a service condition over the requisite service period of the entire award.
(r) Income taxes
Deferred tax assets and liabilities are recorded for the expected future tax consequences of items that have been included in our
consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences
between the financial statement carrying amounts of assets and liabilities and the respective tax bases of assets and liabilities
using enacted tax rates that are expected to apply in years in which the temporary differences are expected to reverse. The
effects of changes in tax rates and changes in apportionment of income between tax jurisdictions on deferred tax assets and
liabilities are recognized in the consolidated statements of operations in the year in which the law is enacted or change in
apportionment occurs. Valuation allowances are provided when the Company does not believe it is more likely than not that it
will realize the benefit of identified tax assets.
A tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than
not that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the
largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Estimates of interest
and penalties on unrecognized tax benefits are recorded in the provision for income taxes.
(s) Comprehensive income
Comprehensive income is primarily comprised of net income, foreign currency translation adjustments, gains and losses on
interest rate swaps, and pension gains and losses, and is reported in the consolidated statements of comprehensive income, net
of taxes, for all periods presented.
(t) Debt issuance costs
Debt issuance costs primarily represent capitalizable costs incurred related to the issuance and refinancing of the Company’s
long-term debt (see note 8). As of December 26, 2015 and December 27, 2014, debt issuance costs of $35.7 million and $11.5
million, respectively, are included in long-term debt, net in the consolidated balance sheets, and are being amortized over the
remaining maturities of the debt, based on projected required repayments, using the effective interest rate method.
(u) Derivative instruments and hedging activities
The Company used derivative instruments to hedge interest rate risks which were terminated on December 23, 2014 (see note
9). These derivative contracts were entered into with financial institutions. The Company did not use derivative instruments for
trading purposes and we had procedures in place to monitor and control their use.
The Company recorded all derivative instruments in the consolidated balance sheets at fair value. For derivative instruments
that were designated and qualified as a cash flow hedge, the effective portion of the gain or loss on the derivative instruments
was reported as a component of other comprehensive loss, net and reclassified into earnings in the same period or periods