Baskin Robbins 2013 Annual Report Download - page 75

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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 available, breakage income for gift cards was
generally recognized five years from the last date of activity on the card through the first quarter of fiscal year 2013. During the
second quarter of fiscal year 2013, the Company determined that sufficient historical redemption patterns existed to revise
breakage estimates related to unredeemed Dunkin’ Donuts gift cards. Based on historical redemption rates, breakage on
Dunkin' Donuts gift cards is now estimated and recognized over time in proportion to actual gift card redemptions. The
Company recognizes breakage as income only up to the amount of gift card program costs incurred. Any incremental breakage
that exceeds gift card program costs has been committed to franchisees to fund future initiatives that will benefit the gift card
program, and is recorded as gift card breakage liability within other current liabilities in the consolidated balance sheets (see
note 10).
For fiscal years 2013, 2012, and 2011, total breakage income recognized on gift cards, as well as historical gift certificate
programs, was $10.2 million, $7.9 million, and $2.5 million, respectively, and is recorded as a reduction to general and
administrative expenses, net. Breakage income for fiscal year 2013 includes a $5.4 million recovery of historical Dunkin'
Donuts gift card program costs incurred prior to fiscal year 2013. 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 28, 2013, one master licensee and majority
owned subsidiaries of the master licensee accounted for approximately 17% of total accounts and notes receivable, which was
due primarily to the timing of orders and shipments of ice cream to the master licensee. At December 29, 2012, no individual
franchisee or master licensee accounted for more than 10% of total accounts and notes receivable. No individual franchisee or
master licensee accounted for more than 10% of total revenues for the fiscal years ended 2013, 2012, or 2011.
(x) Recent accounting pronouncements
In July 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance which requires presentation of an
unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax
credit carryforward, except in certain circumstances. This guidance is effective for the Company in fiscal year 2014 with early
adoption permitted. The Company has not adopted this guidance as of December 28, 2013, and does not expect the adoption of
this guidance to have any impact on the Company's consolidated financial statements.
In February 2013, the 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 was adopted by the Company in fiscal year 2013. The adoption of this guidance did not have a material
impact on the Company’s consolidated financial statements.
In December 2011, the FASB issued guidance which enhanced existing disclosures about financial instruments and derivative
instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement
or similar agreement, irrespective of whether they are offset on the statement of financial position. In January 2013, the FASB
issued new guidance to clarify that the guidance issued in December 2011 on offsetting financial assets and financial liabilities
was limited to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities
lending transactions that are either offset in accordance with specific criteria or subject to a master netting arrangement or
similar agreement. It further clarifies that ordinary trade receivables and other receivables are not in the scope of the existing
guidance. This guidance was adopted by the Company in fiscal year 2013. The adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements.