Dunkin' Donuts 2011 Annual Report Download - page 88

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
Our subsidiaries in Canada and the UK manufacture and/or distribute Baskin-Robbins ice cream products to
Baskin-Robbins franchisees and licensees in Canada and other international locations. Revenue from the sale of
ice cream is recognized when title and risk of loss transfers to the buyer, which is generally upon shipment.
Other revenues
Other revenues include fees generated by licensing our brand names and other intellectual property, retail stores
sales at company-owned restaurants, and gains, net of losses and transactions costs, from the sales of our
restaurants to new or existing franchisees. Licensing fees are recognized when earned, which is generally upon
sale of the underlying products by the licensees. 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. 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. If the criteria for gain recognition are not met, we defer the gain to the extent we have any
remaining financial exposure in connection with the sale transaction. Deferred gains are recognized when the
gain recognition criteria are met.
(p) Allowance for doubtful accounts
We monitor the financial condition of our franchisees and licensees and record provisions for estimated losses on
receivables when we believe that our franchisees or licensees are unable to make their required payments. 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. Included in
the allowance for doubtful notes and accounts receivables is a provision for uncollectible royalty, lease, and
licensing fee receivables.
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