Dunkin' Donuts 2015 Annual Report Download - page 72

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-62-
Financial assets and liabilities measured at fair value on a recurring basis as of December 26, 2015 and December 27, 2014 are
summarized as follows (in thousands):
December 26, 2015 December 27, 2014
Quoted prices
in active
markets for
identical assets
(Level 1)
Significant
other
observable
inputs
(Level 2) Total
Quoted prices
in active
markets for
identical assets
(Level 1)
Significant
other
observable
inputs
(Level 2) Total
Assets:
Company-owned life insurance $ — 5,802 5,802 — 2,975 2,975
Total assets $ — 5,802 5,802 — 2,975 2,975
Liabilities:
Deferred compensation liabilities $ — 9,068 9,068 — 8,488 8,488
Total liabilities $ — 9,068 9,068 — 8,488 8,488
The deferred compensation liabilities relate primarily to the Dunkin’ Brands, Inc. non-qualified deferred compensation plans
(“NQDC Plans”), which allows for pre-tax deferral of compensation for certain qualifying employees and directors (see
note 18). Changes in the fair value of the deferred compensation liabilities are derived using quoted prices in active markets of
the asset selections made by the participants. The deferred compensation liabilities are classified within Level 2, as defined
under U.S. GAAP, because their inputs are derived principally from observable market data by correlation to hypothetical
investments. The Company holds assets, which include company-owned life insurance policies, to partially offset the
Company’s liabilities under the NQDC Plans. The changes in the fair value of any company-owned life insurance policies are
derived using determinable cash surrender value. As such, the company-owned life insurance policies are classified within
Level 2, as defined under U.S. GAAP.
The carrying value and estimated fair value of long-term debt as of December 26, 2015 and December 27, 2014 were as
follows (in thousands):
December 26, 2015 December 27, 2014
Financial liabilities
Carrying
value
Estimated
fair value
Carrying
value
Estimated
fair value
Long-term debt $ 2,445,600 2,443,687 1,799,475 1,778,066
The estimated fair value of our long-term debt is estimated primarily based on current market rates for debt with similar terms
and remaining maturities or current bid prices for our long-term debt. Judgment is required to develop these estimates. As such,
our long-term debt is classified within Level 2, as defined under U.S. GAAP.
(f) Inventories
Inventories consist primarily of ice cream products sold to certain international markets that are in-transit from our third-party
manufacturer to our international licensees, during which time we hold title to such products. Inventories are valued at the
lower of cost or estimated net realizable value, and cost is generally determined based on the actual cost of the specific
inventory sold. Inventories are included within prepaid expenses and other current assets in the accompanying consolidated
balance sheets.
(g) Assets held for sale
Assets held for sale primarily represent costs incurred by the Company for store equipment and leasehold improvements
constructed for sale to franchisees, as well as restaurants formerly operated by franchisees or the Company waiting to be resold.
The value of such restaurants and related assets is reduced to reflect net recoverable values, with such reductions recorded to
general and administrative expenses, net in the consolidated statements of operations. Generally, internal specialists estimate
the amount to be recovered from the sale of such assets based on their knowledge of the (a) market in which the store is
located, (b) results of the Company’s previous efforts to dispose of similar assets, and (c) current economic conditions. The
actual cost of such assets held for sale is affected by specific factors such as the nature, age, location, and condition of the
assets, as well as the economic environment and inflation.
We classify restaurants and their related assets as held for sale and suspend depreciation and amortization when (a) we make a
decision to refranchise or sell the property, (b) the stores are available for immediate sale, (c) we have begun an active program