Dunkin' Donuts 2015 Annual Report Download - page 81

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-71-
During the fourth quarter of fiscal year 2015, the Company assessed if there was an other-than-temporary loss in value of its
investment in the Japan JV based on various factors, including continued declines in the operating performance and reduced
future expectations of the Baskin-Robbins business in Japan, as well as an announced reconsideration of the amount of semi-
annual dividend payments by the Japan JV. Accordingly, the Company engaged a third-party valuation specialist to assist the
Company in determining the fair value of its investment in the Japan JV. Although public shareholders do hold a minority stake
in the Japan JV, it was determined that the public stock price was not indicative of fair value. This determination was based
primarily on the limited trading volumes of the Japan JV’s shares relative to other more liquid securities, the lack of market
reaction to the sustained underperformance of the Japan JV and other public disclosures, and the unsupportable implied
valuation multiples of the public stock price relative to peer companies and the Japan JV’s historical valuation multiples.
Therefore, the valuation of the investment was determined using a combination of market and income approaches to valuation.
Based in part on the fair value determined by the independent third-party valuation specialist, the Company concluded that the
carrying value of the investment in the Japan JV exceeded fair value by $54.3 million and that this reduction in value was
other-than-temporary. As such, the Company recorded an impairment charge for that amount in the fourth quarter of fiscal year
2015.
The impairment of the Japan JV is reflected as a reduction to the Company’s equity method investments in the consolidated
balance sheet as of December 26, 2015. As the Company had previously recorded a step-up in the basis of our investment in the
Japan JV comprising amortizable franchise rights and nonamortizable goodwill (see note 2(k)), the impairment was first
allocated to fully impair these investor-level assets. The remaining impairment was recorded to the underlying assets of the
Japan JV by fully impairing the underlying property, plant, and equipment, net of any related tax impact, with any residual
impairment allocated ratably to other non-financial long-term assets.
The comparison between the carrying value of the Company’s investments in the Japan JV and the South Korea JV and the
underlying equity in net assets of those investments is presented in the table below (in thousands):
Japan JV South Korea JV
December 26,
2015
December 27,
2014
December 26,
2015
December 27,
2014
Carrying value of investment $ 8,666 66,820 98,386 97,458
Underlying equity in net assets of investment 34,271 37,941 103,899 103,589
Carrying value in excess of (less than) the underlying
equity in net assets(a) $(25,605) 28,879 (5,513)(6,131)
(a) The excess carrying values over the underlying equity in net assets of the Japan JV as of December 27, 2014 is
primarily comprised of amortizable franchise rights and related tax liabilities and nonamortizable goodwill, all of
which were established in the BCT Acquisition. The deficits of cost relative to the underlying equity in net assets of
the Japan JV as of December 26, 2015 and the South Korea JV are primarily comprised of impairments of long-lived
assets, net of tax, recorded in fiscal years 2015 and 2011, respectively.
The carrying values of our investments in the Spain JV and the Australia JV were not material for any period presented. During
the third quarter of fiscal year 2013, the Company fully reserved all outstanding notes and accounts receivable totaling $2.8
million, and fully impaired its equity investment in the Spain JV of $873 thousand. During fiscal years 2015 and 2014, the
Company reduced reserves on the notes receivable in the amount of $160 thousand and $441 thousand, respectively, based on
expected and actual payments received. The reserves and recoveries on accounts and notes receivable are included in general
and administrative expenses, net, and the impairment of the equity investment is included in net income of equity method
investments in the consolidated statements of operations.