Baskin Robbins 2011 Annual Report Download - page 113

tax audit could result in higher tax costs, penalties, and interests, thereby negatively and adversely impacting our
financial condition, results of operations, or cash flows.
A summary of the changes in the Company’s unrecognized tax benefits is as follows (in thousands):
Fiscal year ended
December 31,
2011
December 25,
2010
December 26,
2009
Balance at beginning of year .................................. $17,549 27,092 16,861
Increases related to prior year tax positions .................. 23,922 792 8,580
Increases related to current year tax positions ................ — 1,373 1,823
Decreases related to prior year tax positions .................. — (4,721) —
Decreases related to settlements ........................... — (6,622) —
Lapses of statutes of limitations ........................... (43) (534) (828)
Effect of foreign currency adjustments ...................... (49) 169 656
Balance at end of year ....................................... $41,379 17,549 27,092
(16) Commitments and contingencies
(a) Lease commitments
The Company is party to various leases for property, including land and buildings, leased automobiles and office
equipment under noncancelable operating and capital lease arrangements (see note 10).
(b) Guarantees
The Company has established agreements with certain financial institutions whereby the Company’s franchisees
can obtain financing with terms of approximately five to ten years for various business purposes. Substantially all
loan proceeds are used by the franchisees to finance store improvements, new store development, new central
production locations, equipment purchases, related business acquisition costs, working capital, and other costs. In
limited instances, the Company guarantees a portion of the payments and commitments of the franchisees, which
is collateralized by the store equipment owned by the franchisee. Under the terms of the agreements, in the event
that all outstanding borrowings come due simultaneously, the Company would be contingently liable for
$6.9 million and $7.7 million at December 31, 2011 and December 25, 2010, respectively. At December 31,
2011 and December 25, 2010, there were no amounts under such guarantees that were due. The fair value of the
guarantee liability and corresponding asset recorded on the consolidated balance sheets was $754 thousand and
$874 thousand, respectively, at December 31, 2011 and $1.0 million and $1.5 million, respectively, at
December 25, 2010. The Company assesses the risk of performing under these guarantees for each franchisee
relationship on a quarterly basis. As of December 31, 2011 and December 25, 2010, the Company had recorded
reserves for such guarantees of $390 thousand and $1.2 million, respectively.
The Company has 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 ten-year period. As product is purchased by
the Company’s franchisees over the term of the agreement, the amount of the guarantee is reduced. As of
December 31, 2011 and December 25, 2010, the Company was contingently liable for $7.8 million and
$8.6 million, respectively, under this guarantee. Based on current internal forecasts, the Company believes the
franchisees will achieve the required volume of purchases, and therefore, the Company would not be required to
make payments under this agreement. Additionally, the Company has 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. Based on prior history and the
Company’s ability to extend contract terms, we have not recorded any liabilities related to these commitments.
As of December 31, 2011, we were contingently liable under such supply chain agreements for approximately
$23.9 million.
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