Baskin Robbins 2011 Annual Report Download - page 35

We may not be able to recoup our expenditures on properties we sublease to franchisees.
Pursuant to the terms of certain prime leases we have entered into with third-party landlords, we may be required
to construct or improve a property, pay taxes, maintain insurance and comply with building codes and other
applicable laws. The subleases we enter into with franchisees related to such properties typically pass through
such obligations, but if a franchisee fails to perform the obligations passed through to them, we will be required
to perform those obligations, resulting in an increase in our leasing and operational costs and expenses.
Additionally, in some locations, we may pay more rent and other amounts to third-party landlords under a prime
lease than we receive from the franchisee who subleases such property. Typically, our franchisees’ rent is based
in part on a percentage of gross sales at the restaurant, so a downturn in gross sales would negatively affect the
level of the payments we receive.
If the international markets in which we compete are affected by changes in political, social, legal, economic
or other factors, our business and operating results may be materially and adversely affected.
As of December 31, 2011, we had 7,322 restaurants located in 57 foreign countries. The international operations
of our franchisees may subject us to additional risks, which differ in each country in which our franchisees
operate, and such risks may negatively affect our result in a delay in or loss of royalty income to us.
The factors impacting the international markets in which restaurants are located may include:
• recessionary or expansive trends in international markets;
• changes in foreign currency exchange rates and hyperinflation or deflation in the foreign countries in
which we or the International JVs operate;
• the imposition of restrictions on currency conversion or the transfer of funds;
• availability of credit for our franchisees, licensees and International JVs to finance the development of
new restaurants;
• increases in the taxes paid and other changes in applicable tax laws;
• legal and regulatory changes and the burdens and costs of local operators’ compliance with a variety of
laws, including trade restrictions and tariffs;
• interruptions in the supply of product;
• increases in anti-American sentiment and the identification of the Dunkin’ Donuts brand and Baskin-
Robbins brand as American brands;
• political and economic instability; and
• natural disasters and other calamities.
Any or all of these factors may reduce distributions from our International JVs or other international partners
and/or royalty income, which in turn may materially and adversely impact our business and operating results.
Termination of an arrangement with a master franchisee could adversely impact our revenues.
Internationally, and in limited cases domestically, we enter into relationships with “master franchisees” to
develop and operate restaurants in defined geographic areas. Master franchisees are granted exclusivity rights
with respect to larger territories than the typical franchisee, and in particular cases, expansion after minimum
requirements are met is subject to the discretion of the master franchisee. In fiscal 2009, 2010 and 2011, we
derived approximately 14.1%, 14.6%, and 15.1%, respectively, of our total revenues from master franchisee
arrangements. The termination of an arrangement with a master franchisee or a lack of expansion by certain
master franchisees could result in the delay of the development of franchised restaurants, or an interruption in the
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