Dunkin' Donuts 2015 Annual Report Download - page 63

-53-
Legal contingencies
We are engaged in litigation that arises in the ordinary course of business as a franchisor. Such matters typically include
disputes related to compliance with the terms of franchise and development agreements, including claims or threats of claims of
breach of contract, negligence, and other alleged violations by us. We record reserves for legal contingencies when information
available to us indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. Predicting the outcomes of claims and litigation and estimating the related costs and exposures involve substantial
uncertainties that could cause actual costs to vary materially from estimates. Legal costs incurred in connection with legal and
other contingencies are expensed as the costs are incurred.
Recently Issued Accounting Standards
In November 2015, the Financial Accounting Standards Board (the “FASB”) issued new guidance to simplify the presentation
of deferred income taxes, which requires that deferred tax assets and liabilities, along with any related valuation allowance, be
classified as noncurrent in the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax
asset or liability. The guidance does not change the existing guidance which prohibits offsetting deferred tax liabilities from one
jurisdiction against deferred tax assets of another jurisdiction. Based on the effective date for all public companies, this
guidance is effective for us in fiscal year 2017, and early adoption is permitted. The guidance may be applied either
prospectively or retrospectively to all periods presented. We retrospectively adopted this guidance as of December 26, 2015,
which resulted in a reclassification of $49.2 million of current deferred tax assets to other assets and other long-term liabilities
of $7.7 million and $41.5 million, respectively, in the consolidated balance sheet as of December 27, 2014. The adoption of this
guidance did not have any impact in our consolidated statements of operations or cash flows.
In April 2015, the FASB issued new guidance to simplify the presentation of debt issuance costs, which requires that debt
issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with
debt discounts or premiums, instead of as an asset. Based on the effective date for all public companies, this guidance is
effective for us in fiscal year 2016, and early adoption is permitted. The guidance may be applied prospectively or
retrospectively to all periods presented. We retrospectively adopted this guidance as of December 26, 2015, which resulted in a
reclassification of debt issuance costs of $11.5 million from other assets to long-term debt, net in the consolidated balance
sheet, resulting in a corresponding reduction in total assets and total long-term liabilities as of December 27, 2014. The
adoption of this guidance did not have any impact in our consolidated statements of operations or cash flows.
In May 2014, the FASB issued new guidance for revenue recognition related to contracts with customers, except for contracts
within the scope of other standards, which supersedes nearly all existing revenue recognition guidance. The new guidance
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. In August 2015, the FASB issued new guidance to defer the mandatory effective date by one year and permit early
adoption but not before the original effective date. As a result, this guidance is now effective for us in fiscal year 2018 with
early adoption permitted in fiscal year 2017. We expect to adopt this new standard in fiscal year 2018 and are currently
evaluating the impact the adoption of this new standard will have in our accounting policies, consolidated financial statements,
and related disclosures, and have not yet selected a transition method.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign exchange risk
We are subject to inherent risks attributed to operating in a global economy. Most of our revenues, costs and debts are
denominated in U.S. dollars. However, royalty income from our international franchisees is payable in U.S. dollars, and is
generally based on a percentage of franchisee gross sales denominated in the foreign currency of the country in which the point
of distribution is located, and is therefore subject to foreign currency fluctuations. Additionally, our investments in, and equity
income from, joint ventures are denominated in foreign currencies, and are therefore also subject to foreign currency
fluctuations. For fiscal year 2015, a 5% change in foreign currencies relative to the U.S. dollar would have had an
approximately $1.1 million impact on international royalty income and an approximately $0.6 million impact on equity in net
income of joint ventures. Additionally, a 5% change in foreign currencies as of December 26, 2015 would have had a $5.3
million impact on the carrying value of our investments in joint ventures. In the future, we may consider the use of derivative
financial instruments, such as forward contracts, to manage foreign currency exchange rate risks.