Baskin Robbins 2013 Annual Report Download - page 26

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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;
• interruption of 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 years 2013, 2012, and 2011, we derived approximately 15.7%, 13.7%, 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 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.
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,