Dunkin' Donuts 2012 Annual Report Download - page 55

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otherwise to enable us to service our indebtedness, including our senior secured credit facility, or to make anticipated capital
expenditures. Our future operating performance and our ability to service, extend or refinance the senior secured credit facility
will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our
control.
Off balance sheet obligations
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
such guarantees. The fair value of a guarantee is based on historical default rates of our total guaranteed loan pool. We monitor
the financial condition of our franchisees and record provisions for estimated losses on guaranteed liabilities of our franchisees
if we believe that our franchisees are unable to make their required payments. As of December 29, 2012, if all of our
outstanding guarantees of franchisee financing obligations came due simultaneously, we would be liable for approximately $4.7
million. As of December 29, 2012, we had recorded reserves for such guarantees of $389 thousand. We generally have cross-
default provisions with these franchisees that would put the franchisee in default of its franchise agreement in the event of non-
payment under such loans. We believe these cross-default provisions significantly reduce the risk that we would not be able to
recover the amount of required payments under these guarantees and, historically, we have not incurred significant losses under
these guarantees due to defaults by our franchisees.
We have entered into a third-party guarantee with a distribution facility of franchisee products that ensures franchisees will
purchase a certain volume of product over a 10-year period. As product is purchased by our franchisees over the term of the
agreement, the amount of the guarantee is reduced. As of December 29, 2012, we were contingently liable for $6.8 million,
under this guarantee. We have also entered into a third-party guarantee with this distribution facility that ensures franchisees
will sell a certain volume of product each year over a 5-year period. As of December 29, 2012, we were contingently liable for
$7.5 million under this guarantee. Additionally, we have various supply chain contracts that provide for purchase commitments
or exclusivity, the majority of which result in the Company being contingently liable upon early termination of the agreement
or engaging with another supplier. As of December 29, 2012, we were contingently liable under such supply chain agreements
for approximately $57.5 million. We assess the risk of performing under each of these guarantees on a quarterly basis, and,
based on various factors including internal forecasts, prior history, and ability to extend contract terms, we have not recorded
any liabilities related to these commitments
As a result of assigning our interest in obligations under property leases as a condition of the refranchising of certain
restaurants and the guarantee of certain other leases, we are contingently liable on certain lease agreements. These leases have
varying terms, the latest of which expires in 2026. As of December 29, 2012, the potential amount of undiscounted payments
we could be required to make in the event of nonpayment by the primary lessee was $5.6 million. Our franchisees are the
primary lessees under the majority of these leases. We generally have cross-default provisions with these franchisees that would
put them in default of their franchise agreement in the event of nonpayment under the lease. We believe these cross-default
provisions significantly reduce the risk that we will be required to make payments under these leases, and we have not recorded
a liability for such contingent liabilities.
Contractual obligations
The following table sets forth our contractual obligations as of December 29, 2012, and additionally reflects the impact of the
February 2013 refinancing transaction:
(In millions) Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
Long-term debt(1) $ 2,420.8 92.4 182.6 188.0 1,957.8
Capital lease obligations 12.7 1.0 2.0 2.1 7.6
Operating lease obligations 619.1 53.7 100.2 92.9 372.3
Purchase obligations and guarantees(2)(3) —————
Short and long-term obligations(4) 2.5 2.4 0.1 — —
Total(5) $ 3,055.1 149.5 284.9 283.0 2,337.7
(1) Amounts include mandatory principal payments on long-term debt excluding the impact of any additional principal
payments previously made, as well as estimated interest of $73.4 million, $144.7 million, $150.1 million, and $194.5
million for less than 1 year, 1-3 years, 3-5 years, and more than 5 years, respectively. Interest on the $1.9 billion of
term loans under our senior credit facility is variable, subject to an interest rate floor, and has been estimated based on
a LIBOR yield curve. Additionally, estimated interest also reflects the impact of our variable-to-fixed interest rate