Baskin Robbins 2012 Annual Report Download - page 26

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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 years 2012, 2011, and 2010, we derived approximately 13.7%, 15.1%, and 14.6%, 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 operation of one of our brands in a particular market or markets. Any such delay or interruption would result
in a delay in, or loss of, royalty income to us whether by way of delayed royalty income or delayed revenues from the sale of
ice cream products by us to franchisees internationally, or reduced sales. Any interruption in operations due to the termination
of an arrangement with a master franchisee similarly could result in lower revenues for us, particularly if we were to determine
to close restaurants following the termination of an arrangement with a master franchisee.
Our contracts with the U.S. military are non-exclusive and may be terminated with little notice.
We have contracts with the U.S. military, including with the Army & Air Force Exchange Service and the Navy Exchange
Service Command. These military contracts are predominantly between the U.S. military and Baskin-Robbins. We derive
revenue from the arrangements provided for under these contracts mainly through the sale of ice cream to the U.S. military
(rather than through royalties) for resale on base locations and in field operations. While revenues derived from arrangements
with the U.S. military represented less than 1% of our total revenues and less than 0.5% of our international revenues for 2012,
because these contracts are non-exclusive and cancellable with minimal notice and have no minimum purchase requirements,
revenues attributable to these contracts may vary significantly year to year. Any changes in the U.S. military's domestic or
international needs, or a decision by the U.S. military to use a different supplier, could result in lower revenues for us.
Fluctuations in exchange rates affect our revenues.
We are subject to inherent risks attributed to operating in a global economy. Most of our revenues, costs and debts are
denominated in U.S. dollars. However, sales made by franchisees outside of the U.S. are denominated in the currency of the
country in which the point of distribution is located, and this currency could become less valuable prior to calculation of our
royalty payments in U.S. dollars as a result of exchange rate fluctuations. As a result, currency fluctuations could reduce our
royalty income. Unfavorable currency fluctuations could result in a reduction in our revenues. Income we earn from our joint
ventures is also subject to currency fluctuations. These currency fluctuations affecting our revenues and costs could adversely
affect our business and operating results.
Adverse public or medical opinions about the health effects of consuming our products, as well as reports of incidents
involving food-borne illnesses or food tampering, whether or not accurate, could harm our brands and our business.
Some of our products contain caffeine, dairy products, sugar and other active compounds, the health effects of which are the
subject of increasing public scrutiny, including the suggestion that excessive consumption of caffeine, dairy products, sugar and
other active compounds can lead to a variety of adverse health effects. There has also been greater public awareness that
sedentary lifestyles, combined with excessive consumption of high-calorie foods, have led to a rapidly rising rate of obesity. In
the U.S. and certain other countries, there is increasing consumer awareness of health risks, including obesity, as well as
increased consumer litigation based on alleged adverse health impacts of consumption of various food products. While we offer
some healthier beverage and food items, including reduced fat items, an unfavorable report on the health effects of caffeine or
other compounds present in our products, or negative publicity or litigation arising from other health risks such as obesity,
could significantly reduce the demand for our beverages and food products. Similarly, instances or reports, whether true or not,
of unclean water supply, food-borne illnesses and food tampering have in the past severely injured the reputations of companies
in the food processing, grocery and QSR segments and could in the future affect us as well. Any report linking us or our
franchisees to the use of unclean water, food-borne illnesses or food tampering could damage our brands' value immediately,
severely hurt sales of beverages and food products, and possibly lead to product liability claims. In addition, instances of food-
borne illnesses or food tampering, even those occurring solely at the restaurants of competitors, could, by resulting in negative
publicity about the foodservice or restaurant industry, adversely affect our sales on a regional or global basis. A decrease in
customer traffic as a result of these health concerns or negative publicity could materially and adversely affect our brands and
our business.