Baskin Robbins 2011 Annual Report Download - page 69

(g) Represents one-time costs and fees associated with entry into new markets, costs associated with various
franchisee information technology and one-time market research programs, and the net impact of other
non-recurring and individually insignificant adjustments.
Based upon our current level of operations and anticipated growth, we believe that the cash generated from our
operations and amounts available under our revolving credit facility will be adequate to meet our anticipated debt
service requirements, capital expenditures and working capital needs for at least the next twelve months. We
believe that we will be able to meet these obligations even if we experience no growth in sales or profits. There
can be no assurance, however, that our business will generate sufficient cash flows from operations or that future
borrowings will be available under our revolving credit facility or 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
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. As product is purchased by our franchisees over the term
of the agreement, the amount of the guarantee is reduced. As of December 31, 2011, we were contingently liable
for $7.8 million, under this guarantee. Based on current internal forecasts, we believe the franchisees will achieve
the required volume of purchases, and therefore, we 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.
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 31, 2011, the
potential amount of undiscounted payments we could be required to make in the event of nonpayment by the
primary lessee was $10.5 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.
We do not have any other material off balance sheet obligations other than the guaranteed financing
arrangements discussed below in “Critical accounting policies.”
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