Baskin Robbins 2015 Annual Report Download - page 77

-67-
during which the hedged transaction affected earnings. Any ineffective portion of the gain or loss on the derivative instrument
for a cash flow hedge was recorded in the consolidated statements of operations immediately.
(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.
Breakage on Dunkin’ Donuts gift cards is estimated and recognized over time in proportion to actual gift card redemptions,
based on historical redemption rates. The Company recognizes breakage as income only up to the amount of gift card program
costs. Any incremental breakage that exceeds gift card program costs has been committed to franchisees to fund future
initiatives that will benefit the Dunkin’ Donuts gift card program, and is recorded as a gift card breakage liability within other
current liabilities in the consolidated balance sheets (see note 10). During fiscal year 2014, the Company revised the estimated
breakage rates based on historical redemption patterns related to unredeemed Dunkin’ Donuts gift cards. This change in
estimated breakage rates had no impact on breakage income recognized in fiscal year 2014, but resulted in a decrease in the gift
card/certificate liability and a corresponding increase in the gift card breakage liability.
During fiscal year 2015, the Company determined that sufficient historical redemption patterns existed to record breakage
related to unredeemed Baskin-Robbins gift cards. Based on historical redemption rates, breakage is estimated and recognized
over time in proportion to actual gift card redemptions. The Company recognizes breakage on Baskin-Robbins gift cards as
income only up to the amount of gift card program costs. Any incremental breakage is committed to fund future sales-driving
initiatives for the benefit of Baskin-Robbins franchisees, and is recorded as a gift card breakage liability within other current
liabilities in the consolidated balance sheets (see note 10). As a result of the initial recognition of breakage related to Baskin-
Robbins gift cards, the Company recorded a $3.1 million decrease in the gift card/certificate liability and a corresponding
increase in the gift card breakage liability related to Baskin-Robbins gift cards during fiscal year 2015. This had no impact on
the consolidated statements of operations.
For fiscal years 2015, 2014, and 2013, total breakage income recognized on gift cards, as well as historical gift certificate
programs, was $15.9 million, $8.5 million, and $10.2 million, respectively, and is recorded as a reduction to general and
administrative expenses, net, to offset the related gift card program costs. 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.
(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 and other 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 26, 2015 and December 27, 2014,
one master licensee, including its majority-owned subsidiaries, accounted for approximately 13% and 19%, respectively, of
total accounts and notes receivable. For fiscal year 2014, one master licensee, including its majority-owned subsidiaries,
accounted for approximately 10% of total revenues. No individual franchisee or master licensee accounted for more than 10%
of total revenues for fiscal years 2015 or 2013.
Additionally, the Company engages various third parties to manufacture and/or distribute certain Dunkin’ Donuts and Baskin-
Robbins products under licensing arrangements. As of December 26, 2015, one of these third parties accounted for
approximately 13% of total net accounts and notes receivable. No individual third party accounted for more than 10% of total
accounts and notes receivable as of December 27, 2014.
(x) Recent accounting pronouncements
In November 2015, the Financial Accounting Standards Board (the “FASB”) issued new guidance to simplify the presentation
of deferred income taxes, which requires that deferred tax assets and liabilities, along with any related valuation allowance, be