Dunkin' Donuts 2011 Annual Report Download - page 83

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Company’s maximum exposure to loss resulting from involvement with potential VIEs is attributable to aged
trade and notes receivable balances, outstanding loan guarantees (see note 16(b)), and future lease payments due
from franchisees (see note 10).
(c) Accounting estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of
estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses,
and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period
then ended. Significant estimates are made in the calculations and assessments of the following: (a) allowance for
doubtful accounts and notes receivables, (b) impairment of tangible and intangible assets, (c) income taxes,
(d) real estate reserves, (e) lease accounting estimates, (f) gift certificate breakage, and (g) contingencies.
Estimates are based on historical experience, current conditions, and various other assumptions that are believed
to be reasonable under the circumstances. These estimates form the basis for making judgments about the
carrying values of assets and liabilities when they are not readily apparent from other sources. We adjust such
estimates and assumptions when facts and circumstances dictate. Actual results may differ from these estimates
under different assumptions or conditions. Illiquid credit markets, volatile equity and foreign currency markets,
and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and
assumptions.
(d) Cash and cash equivalents and restricted cash
The Company continually monitors its positions with, and the credit quality of, the financial institutions in which
it maintains its deposits and investments. As of December 31, 2011 and December 25, 2010, we maintained
balances in various cash accounts in excess of federally insured limits. All highly liquid instruments purchased
with an original maturity of three months or less are considered cash equivalents.
As part of the securitization transaction (see note 8), certain cash accounts were established in the name of
Citibank, N.A. (the “Trustee”) for the benefit of Ambac Assurance Corporation (“Ambac”), the Trustee, and the
holders of our ABS Notes, and were restricted in their use. Historically, restricted cash primarily represented
(i) cash collections held by the Trustee, (ii) interest, insurer premiums, and commitment fee reserves held by the
Trustee related to our ABS Notes (see note 8), (iii) product sourcing and real estate reserves used to pay ice
cream product obligations to affiliates and real estate obligations, respectively, (iv) cash collections related to the
advertising funds and gift card/certificate programs, and (v) cash collateral requirements associated with our
Canadian guaranteed financing arrangements (see note 16(b)). Changes in restricted cash held for interest, insurer
premiums, commitment fee reserves, or other financing arrangements are presented as a component of cash flows
from financing activities in the accompanying consolidated statements of cash flows. Other changes in restricted
cash are presented as a component of operating activities. In connection with the repayment of the ABS Notes in
December 2010 (see note 8), the cash restrictions associated with the ABS Notes were released.
Cash held related to the advertising funds and the Company’s gift card/certificate programs are classified as
unrestricted cash as there are no legal restrictions on the use of these funds; however, the Company intends to use
these funds solely to support the advertising funds and gift card/certificate programs rather than to fund
operations. Total cash balances related to the advertising funds and gift card/certificate programs as of
December 31, 2011 and December 25, 2010 were $123.1 million and $82.3 million, respectively.
(e) Fair value of financial instruments
The carrying amounts of accounts receivable, notes and other receivables, assets and liabilities related to the
advertising funds, accounts payable, and other current liabilities approximate fair value because of their short-
term nature. For long-term receivables, we review the creditworthiness of the counterparty on a quarterly basis,
and adjust the carrying value as necessary. We believe the carrying value of long-term receivables of
$4.8 million as of December 31, 2011 and December 25, 2010 approximates fair value.
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