Dunkin' Donuts 2012 Annual Report Download - page 73

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(v) Gift card/certificate breakage
The Company and our franchisees sell gift cards that are redeemable for product in our Dunkin' Donuts and Baskin-Robbins
restaurants. The Company manages the gift card program, and therefore collects all funds from the activation of gift cards and
reimburses franchisees for the redemption of gift cards in their restaurants. A liability for unredeemed gift cards, as well as
historical gift certificates sold, is included in other current liabilities in the consolidated balance sheets.
There are no expiration dates on our gift cards, and we do not charge any service fees. While our franchisees continue to honor
all gift cards presented for payment, we may determine the likelihood of redemption to be remote for certain cards due to long
periods of inactivity. In these circumstances, we may recognize income from unredeemed gift cards ("breakage income") if
they are not subject to unclaimed property laws. Based on redemption data currently available, breakage income for gift cards
is generally recognized five years from the last date of activity on the card. For fiscal years 2012, 2011, and 2010 breakage
income recognized on gift cards, as well as historical gift certificate programs, was $7.9 million, $2.5 million, and $521
thousand, respectively, and is recorded as a reduction to general and administrative expenses, net. Breakage income for fiscal
year 2012 includes $3.5 million related to historical Baskin-Robbins gift certificates as a result of shifting to gift cards, and
represents the balance of gift certificates for which the Company believes the likelihood of redemption by the customer is
remote based on historical redemption patterns.
(w) Concentration of credit risk
The Company is subject to credit risk through its accounts receivable consisting primarily of amounts due from franchisees and
licensees for franchise fees, royalty income, and sales of ice cream products. In addition, we have note and lease receivables
from certain of our franchisees and licensees. The financial condition of these franchisees and licensees is largely dependent
upon the underlying business trends of our brands and market conditions within the quick service restaurant industry. This
concentration of credit risk is mitigated, in part, by the large number of franchisees and licensees of each brand and the short-
term nature of the franchise and license fee and lease receivables. At December 29, 2012, no individual franchisee or master
licensee accounts for more than 10% of total revenues or accounts and notes receivable. At December 31, 2011, one master
licensee accounted for approximately 17% of total accounts receivable, net, which was primarily due to the timing of orders
and shipments of ice cream to the master licensee.
(x) Recent accounting pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance which requires disclosure of
significant amounts reclassified out of accumulated other comprehensive income by component and their corresponding effect
on the respective line items of net income. This guidance is effective for the Company in fiscal year 2013. The Company does
not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In July 2012, the FASB issued new guidance, which permits an entity to first assess qualitative factors to determine whether it
is necessary to perform the quantitative impairment test for indefinite-lived intangible assets. An entity that elects to perform a
qualitative assessment is required to perform the quantitative impairment test for an indefinite-lived intangible asset if it is
more likely than not that the asset is impaired. This guidance was adopted by the Company in fiscal year 2012. The adoption of
this guidance did not have a material impact on the Company's consolidated financial statements.
In September 2011, the FASB issued new guidance, which permits an entity to make a qualitative assessment of whether it is
more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill
impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its
carrying amount, it would not need to perform the two-step impairment test for that reporting unit. This guidance was adopted
by the Company in fiscal year 2012. The adoption of this guidance did not have a material impact on the Company's
consolidated financial statements.
In May 2011, the FASB issued new guidance to clarify existing fair value guidance and to develop common requirements for
measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International
Financial Reporting Standards. This guidance was effective for the Company beginning in fiscal year 2012. The adoption of
this guidance did not have a material impact on our consolidated financial statements.
(y) Reclassifications
The Company has revised the presentation of certain captions within the consolidated statements of operations to separately
present sales at company-owned restaurants and company-owned restaurant expenses. In prior periods, these sales and
expenses were presented in other revenues and general and administrative expenses, net, respectively. Prior period financial
statements have been revised to conform to the current period presentation. The revisions had no impact on total revenues,
operating income, income before income taxes, or net income.