Baskin Robbins 2015 Annual Report Download - page 60

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uncertain. Additionally, liabilities to employees and former employees under deferred compensation arrangements
totaling $9.1 million are excluded from the table above, as timing of payment is uncertain.
(3) We have various supply chain contracts that provide for purchase commitments or exclusivity, the majority of which
result in our being contingently liable upon early termination of the agreement or engaging with another supplier. As
of December 26, 2015, we were contingently liable under such supply chain agreements for approximately $157.8
million, and considering various factors including internal forecasts, prior history, and ability to extend contract terms,
no accrual was required related to these supply chain commitments. Such amounts are not included in the table above
as timing of payment, if any, is uncertain.
(4) We are guarantors of and are contingently liable for certain lease arrangements primarily as the result of our assigning
our interest. As of December 26, 2015, we were contingently liable for $3.7 million under these guarantees, which are
discussed further above in “Off balance sheet obligations.” Additionally, in certain cases, we issue guarantees to
financial institutions so that franchisees can obtain financing. If all outstanding guarantees, which are discussed further
below in “Critical accounting policies,” came due as of December 26, 2015, we would be liable for approximately
$2.0 million. Such amounts are not included in the table above as timing of payment, if any, is uncertain.
(5) Income tax liabilities for uncertain tax positions, gift card/certificate liabilities, and liabilities to various advertising
funds are excluded from the table above as we are not able to make a reasonably reliable estimate of the amount and
period of related future payments. As of December 26, 2015, we had a liability for uncertain tax positions, including
accrued interest and penalties thereon, of $4.0 million. As of December 26, 2015, we had a gift card/certificate liability
of $176.1 million and a gift card breakage liability of $24.0 million (see note 2(v) to our consolidated financial
statements included herein). As of December 26, 2015, we had a net payable of $11.6 million to various advertising
funds.
Critical accounting policies
Our significant accounting policies are more fully described under the heading “Summary of significant accounting policies” in
Note 2 of the notes to the consolidated financial statements. However, we believe the accounting policies described below are
particularly important to the portrayal and understanding of our financial position and results of operations and require
application of significant judgment by our management. In applying these policies, management uses its judgment in making
certain assumptions and estimates.
These judgments involve estimations of the effect of matters that are inherently uncertain and may have a significant impact on
our quarterly and annual results of operations or financial condition. Changes in estimates and judgments could significantly
affect our result of operations, financial condition, and cash flow in future years. The following is a description of what we
consider to be our most significant critical accounting policies.
Revenue recognition
Initial franchise fee revenue is recognized upon substantial completion of the services required of us as stated in the franchise
agreement, which is generally upon opening of the respective restaurant. Fees collected in advance are deferred until earned.
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. Rental
income for base rentals is recorded on a straight-line basis over the lease term. Contingent rent is recognized as earned, and any
amounts received from lessees in advance of achieving stipulated thresholds are deferred until such threshold is actually
achieved. Revenue from the sale of ice cream is recognized when title and risk of loss transfers to the buyer, which is generally
upon delivery. Licensing fees are recognized when earned, which is generally upon sale of the underlying products by the
licensees. Retail store revenues at company-operated restaurants are recognized when payment is tendered at the point of sale,
net of sales tax and other sales-related taxes. Gains on the refranchise or sale of a restaurant are recognized when the sale
transaction closes, the franchisee has a minimum amount of the purchase price in at risk equity, and we are satisfied that the
buyer can meet its financial obligations to us.
Allowances for franchise, license, and lease receivables / guaranteed financing
We reserve all or a portion of a franchisee’s receivable balance when deemed necessary based upon detailed review of such
balances, and apply a pre-defined reserve percentage based on an aging criteria to other balances. We perform our reserve
analysis during each fiscal quarter or when events or circumstances indicate that we may not collect the balance due. While we
use the best information available in making our determination, the ultimate recovery of recorded receivables is also dependent
upon future economic events and other conditions that may be beyond our control.
In limited instances, we issue guarantees to financial institutions so that our franchisees can obtain financing with terms of
approximately three to ten years for various business purposes. We recognize a liability and offsetting asset for the fair value of