Baskin Robbins 2012 Annual Report Download - page 71

Download and view the complete annual report

Please find page 71 of the 2012 Baskin Robbins annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 112

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112

-61-
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.
(n) Foreign currency translation
We translate assets and liabilities of non-U.S. operations into U.S. dollars at rates of exchange in effect at the balance sheet date
and revenues and expenses at the average exchange rates prevailing during the period. Resulting translation adjustments are
recorded as a separate component of comprehensive income and stockholders’ equity, net of deferred taxes. Foreign currency
translation adjustments primarily result from our joint ventures, as well as subsidiaries located in Canada, the UK, Australia,
and Spain. Business transactions resulting in foreign exchange gains and losses are included in the consolidated statements of
operations.
(o) Revenue recognition
Franchise fees and royalty income
Domestically, the Company sells individual franchises as well as territory agreements in the form of store development
agreements (“SDA agreements”) that grant the right to develop restaurants in designated areas. Our franchise and SDA
agreements typically require the franchisee to pay an initial nonrefundable fee and continuing fees, or royalty income, based
upon a percentage of sales. The franchisee will typically pay us a renewal fee if we approve a renewal of the franchise
agreement. Such fees are paid by franchisees to obtain the rights associated with these franchise or SDA agreements. Initial
franchise fee revenue is recognized upon substantial completion of the services required of the Company as stated in the
franchise agreement, which is generally upon opening of the respective restaurant. Fees collected in advance are deferred until
earned, with deferred amounts expected to be recognized as revenue within one year classified as current deferred income in
the consolidated balance sheets. Royalty income is based on a percentage of franchisee gross sales and is recognized when
earned, which occurs at the franchisees’ point of sale. Renewal fees are recognized when a renewal agreement with a franchisee
becomes effective. Occasionally, the Company offers incentive programs to franchisees in conjunction with a franchise, SDA,
or renewal agreement and, when appropriate, records the costs of such programs as reductions of revenue.
For our international business, we sell master territory and/or license agreements that typically allow the master licensee to
either act as the franchisee or to sub-franchise to other operators. Master license and territory fees are generally recognized over
the term of the development agreement or as stores are opened, depending on the specific terms of the agreement. Royalty
income is based on a percentage of franchisee gross sales and is recognized when earned, which generally occurs at the
franchisees’ point of sale. Renewal fees are recognized when a renewal agreement with a franchisee or licensee becomes
effective.
Rental income
Rental income for base rentals is recorded on a straight-line basis over the lease term, including the amortization of any tenant
improvement dollars paid (see note 2(i)). The difference between the straight-line rent amounts and amounts receivable under
the leases is recorded as deferred rent assets in current or long-term assets, as appropriate. Contingent rental income is
recognized as earned, and any amounts received from lessees in advance of achieving stipulated thresholds are deferred until
such threshold is actually achieved. Deferred contingent rentals are recorded as deferred income in current liabilities in the
consolidated balance sheets.
Sales of ice cream products
We distribute Baskin-Robbins ice cream products to Baskin-Robbins franchisees and licensees in certain international
locations. Revenue from the sale of ice cream products is recognized when title and risk of loss transfers to the buyer, which
was generally upon shipment through November 2012. Beginning in December 2012, title and risk of loss generally transfers
to the buyer upon delivery.
Sales at company-owned restaurants
Retail store revenues at company-owned restaurants are recognized when payment is tendered at the point of sale, net of sales
tax and other sales-related taxes.
Other revenues
Other revenues include fees generated by licensing our brand names and other intellectual property, as well as gains, net of
losses and transactions costs, from the sales of our restaurants to new or existing franchisees. Licensing fees are recognized