Baskin Robbins 2011 Annual Report Download - page 89

(q) Share-based payment
We measure compensation cost at fair value on the date of grant for all stock-based awards and recognize
compensation expense over the service period that the awards are expected to vest. The Company has elected to
recognize compensation cost for graded-vesting awards subject only to a service condition over the requisite
service period of the entire award.
(r) Income taxes
Deferred tax assets and liabilities are recorded for the expected future tax consequences of items that have been
included in our consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined
based on the differences between the financial statement carrying amounts of assets and liabilities and the
respective tax bases of assets and liabilities using enacted tax rates that are expected to apply in years in which
the temporary differences are expected to reverse. The effects of changes in tax rates on deferred tax assets and
liabilities are recognized in the consolidated statements of operations in the year in which the law is enacted.
Valuation allowances are provided when the Company does not believe it is more likely than not that it will
realize the benefit of identified tax assets.
A tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is
more likely than not that the position would be sustained upon examination by tax authorities. A recognized tax
position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized
upon ultimate settlement. Estimates of interest and penalties on unrecognized tax benefits are recorded in the
provision (benefit) for income taxes.
(s) Comprehensive income
Comprehensive income is primarily comprised of net income, foreign currency translation adjustments,
unrealized gains and losses on investments, and pension adjustments for changes in funded status, and is reported
in the consolidated statements of comprehensive income, net of taxes, for all periods presented.
(t) Deferred financing costs
Deferred financing costs primarily represent capitalizable costs incurred related to the issuance and refinancing
of the Company’s long-term debt (see note 8). Deferred financing costs are being amortized over a weighted
average period of approximately 7 years, based on projected required repayments, using the effective interest rate
method.
(u) 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 31, 2011, one master licensee accounted for approximately 17% of total
accounts receivable, net. No other individual franchisee or master licensee accounts for more than 10% of total
revenues or accounts and notes receivable.
(v) Recent accounting pronouncements
In September 2011, the Financial Accounting Standards Board (“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
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