Baskin Robbins 2013 Annual Report Download - page 32

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The majority of our Dunkin’ Donuts restaurants have their fresh baked goods delivered to them from franchisee-owned and -
operated CMLs.
Baskin-Robbins traditional restaurant formats include free standing restaurants and end-caps. A free-standing building typically
ranges in size from 600 to 1,200 square feet, and may include a drive-thru window. An end-cap typically ranges in size from
800 to 1,200 square feet and may include a drive-thru window. We also have other restaurants, consisting of small full-service
restaurants and/or self-serve kiosks (collectively referred to as APODs). APODs typically range in size between 400 to 1,000
square feet.
In the U.S., Baskin-Robbins can also be found in 1,182 combination restaurants (“combos”) that also include a Dunkin’ Donuts
restaurant, and are typically either free-standing or an end-cap. These combos, which we count as both a Dunkin’ Donuts and a
Baskin-Robbins point of distribution, typically range from 1,400 to 3,500 square feet.
Of the 10,108 U.S. franchised restaurants, 92 were sites owned by the Company and leased to franchisees, 852 were leased by
us, and in turn, subleased to franchisees, with the remainder either owned or leased directly by the franchisee. Our land or land
and building leases are generally for terms of ten to 20 years, and often have one or more five-year or ten-year renewal options.
In certain lease agreements, we have the option to purchase, or the right of first refusal to purchase, the real estate. Certain
leases require the payment of additional rent equal to a percentage of annual sales in excess of specified amounts.
Of the sites owned or leased by the Company in the U.S., 17 are locations that no longer have a Dunkin’ Donuts or Baskin-
Robbins restaurant (“surplus properties”). Some of these surplus properties have been sublet to other parties while the
remaining are currently vacant.
We have 10 leased franchised restaurant properties and 2 surplus leased properties in Canada. We also have leased office space
in Australia, China, Dubai, and the United Kingdom.
The following table sets forth the Company’s owned and leased office and training facilities, including the approximate square
footage of each facility. None of these owned properties, or the Company’s leasehold interest in leased property, is encumbered
by a mortgage.
Location Type Owned/Leased Approximate Sq. Ft.
Canton, MA Office Leased 175,000
Braintree, MA (training facility) Office Owned 15,000
Burbank, CA (training facility) Office Leased 19,000
Dubai, United Arab Emirates (regional office space) Office Leased 3,200
Shanghai, China (regional office space) Office Leased 1,700
Various (regional sales offices) Office Leased Range of 150 to 300
Item 3. Legal Proceedings.
In May 2003, a group of Dunkin’ Donuts franchisees from Quebec, Canada filed a lawsuit against the Company on a variety of
claims, based on events which primarily occurred 10 to 15 years ago, including but not limited to, alleging that the Company
breached its franchise agreements and provided inadequate management and support to Dunkin’ Donuts franchisees in Quebec
(“Bertico litigation”). On June 22, 2012, the Quebec Superior Court found for the plaintiffs and issued a judgment against the
Company in the amount of approximately C$16.4 million (approximately $15.9 million), plus costs and interest, representing
loss in value of the franchises and lost profits. During the second quarter of 2012, the Company increased its estimated liability
related to the Bertico litigation by $20.7 million to reflect the judgment amount and estimated plaintiff legal costs and interest.
During fiscal years 2013 and 2012, the Company accrued additional interest on the judgment amount of $952 thousand and
$493 thousand, respectively, resulting in an estimated liability of $25.1 million, including the impact of foreign exchange, as of
December 28, 2013. The Company strongly disagrees with the decision reached by the Court and believes the damages
awarded were unwarranted. As such, the Company is vigorously appealing the decision in the Quebec Court of Appeals
(Montreal).
In addition, the Company is engaged in several matters of litigation arising in the ordinary course of its business as a franchisor.
Such matters include disputes related to compliance with the terms of franchise and development agreements, including claims
or threats of claims of breach of contract, negligence, and other alleged violations by the Company. While the Company intends
to vigorously defend its positions against all claims in these lawsuits and disputes, it is reasonably possible that the losses in
connection with all matters could increase by up to an additional $12.0 million based on the outcome of ongoing litigation or
negotiations.