Prior to the adoption of CECL, the Company recorded incurred loss reserves against receivable balances based on current and historical information, with delinquency status being the primary indicator of a deterioration in credit quality. The recently adopted CECL reserve methodology requires companies to measure expected credit losses on financial instruments based on the total estimated amount to be collected over the lifetime of the instrument. Under the CECL model, reserves may be established against financial asset balances even if the risk of loss is remote or has not yet manifested itself.

Upon adoption of the CECL methodology, the Company developed its estimated loss reserves in the following manner. The Company continued to record specific reserves against account balances of franchisees deemed “at-risk” when a potential loss is likely or imminent as a result of prolonged payment delinquency (greater than 90 days past due) and where notable credit deterioration has become evident. For financial assets that are not currently deemed “at-risk,” an allowance is recorded based on expected loss rates derived pursuant to the following CECL methodology that assesses four components - historical losses, current conditions, reasonable and supportable forecasts, and a reversion to history, if applicable.

Historical loss rates over a five-year span were calculated for financial assets with common risk characteristics. The Company determined historical loss rate data for each franchise brand concept was more relevant than a single blended rate. Historical losses were determined based on the average charge off method. Historical loss rates are further adjusted by factors related to current conditions and forecasts of future economic conditions.

The Company identified three metrics that it believes provide the most relevant reflection of the current risks inherent in the Company’s franchisee-based restaurant business, as follows: (1) delinquency status, (2) system-wide same-restaurant sales, and (3) four-wall EBITDA profitability. The current conditions adjustment factor was increased to account for the impact of the COVID-19 pandemic.

The third component in the CECL methodology involves consideration of macroeconomic conditions that can impact the estimate of expected credit losses in the future. The Company has not developed an internal methodology in this regard; rather, the Company utilizes existing, publicly accessible sources of economic data, primarily forecasts of overall unemployment rate as well as consumer spending based on the personal consumption expenditure (PCE) index.

The Company has determined that reversion to history was not required since the remaining average lives of the Company’s financial assets are not exceedingly lengthy.

Notes receivable balances primarily relate to the conversion of certain Applebee's franchisee accounts receivable to notes receivable, cash loans to franchisees for working capital purposes, a note receivable in connection with the sale of IHOP company restaurants in June 2017, and IHOP franchise fee and other notes. The notes are typically collateralized by the franchise. Due to the riskier nature of Applebee's notes that were converted from previously delinquent franchisee accounts receivable balances, a significant portion of these notes have specific reserves recorded against them amounting to $11.8 million as of June 30, 2020.

Direct financing lease receivables relate to IHOP franchise development activity prior to 2003 when IHOP typically leased or purchased the restaurant site, built and equipped the restaurant, then franchised the restaurant to a franchisee. IHOP provided the financing for leasing or subleasing the site. Direct financing leases at June 30, 2020, comprised 102 leases with a weighted average remaining life of 3.6 years, and relate to locations that IHOP is leasing from third parties and subleasing to franchisees.

Equipment leases receivable also relate to IHOP franchise development activity prior to 2003. Equipment lease contracts are collateralized by the equipment in the restaurant. The estimated fair value of the equipment collateralizing these lease contracts are not deemed to be significant given the very seasoned and mature nature of this portfolio. The weighted average remaining life of the Company’s equipment leases is 5.9 years as of June 20, 2020.

Receivables due from distributors are related to the sale of IHOP’s proprietary pancake and waffle dry mix to franchisees through the Company’s network of suppliers and distributors.

Gift card receivables consist primarily of amounts due from third-party vendors. Receivables related to gift card sales are subject to seasonality and usually peak around year end as a result of the December holiday season.


	June 30, 2020		December 31, 2019
	(In millions)
Accounts receivable	$	103.7	$	60.8
Gift card receivables	5.8		46.7
Notes receivable	29.2		28.9
Financing receivables:
Equipment leases receivable	50.0		56.3
Direct financing leases receivable	26.3		34.0
Franchise fee notes receivable	0.1		0.1
Other	3.2		7.3
	218.3		234.2
Less: allowance for doubtful accounts and notes receivable	(19.7)		(11.3)
	198.6		222.9
Less: current portion	(124.6)		(136.9)
Long-term receivables	$	74.0	$	86.0



	Accounts Receivable		Notes receivable, short-term		Notes receivable, long-term		Lease Receivables		Equipment Notes		Other⁽¹⁾		Total
	(In thousands)
Balance, December 31, 2019	$	0.7	$	2.4	$	8.2	$	—	$	—	$	—	$	11.3
Increase due to CECL adoption	0.3		0.0		0.1		0.1		0.1		0.1		0.7
Bad debt expense for the six months ended June 30, 2020	3.9		2.0		(0.7)		0.1		0.1		0.2		5.6
Advertising provision adjustment	2.1		(0.2)		—		—		—		—		1.9
Write-offs	0.1		0.1		—		—		—		—		0.2
Recoveries	—		—		—		0.0		—		—		0.0
Balance, June 30, 2020	$	7.1	$	4.3	$	7.6	$	0.2	$	0.2	$	0.3	$	19.7

The Company's primary credit quality indicator for all portfolio segments is delinquency. The delinquency status of receivables (other than accounts receivable, gift card receivables and distributor receivables) at June 30, 2020 was as follows:



	Notes receivable, short-term		Notes receivable, long-term		Lease Receivables		Equipment Notes		Other⁽¹⁾		Total
	(In millions)
Current	$	4.1	$	19.5	$	10.3	$	19.6	$	1.2	$	54.7
30-59 days	0.3		1.2		5.5		10.6		—		17.6
60-89 days	0.4		1.9		9.4		17.2		—		28.9
90-119 days	0.1		0.6		1.1		2.2		—		4.0
120+ days	1.2		—		—		0.4		—		1.6
Total	$	6.1	$	23.2	$	26.3	$	50.0	$	1.2	$	106.8



	Notes receivable, short and long-term		Lease Receivables		Equipment Notes		Total
	(In millions)
2020	$	1.7	$	—	$	—	$	1.7
2019	7.9		0.9		—		8.8
2018	13.1		—		—		13.1
2017	6.4		—		—		6.4
2016	—		1.3		—		1.3
Prior	0.2		24.1		50.0		74.3
Total	$	29.3	$	26.3	$	50.0	$	105.6