Baskin Robbins 2013 Annual Report Download - page 57

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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
In limited instances, we issue guarantees to financial institutions so that our franchisees can obtain financing with terms of
approximately three to ten years for various business purposes. We recognize a liability and offsetting asset for the fair value of
such guarantees. The fair value of a guarantee is based on historical default rates of our total guaranteed loan pool. We monitor
the financial condition of our franchisees and record provisions for estimated losses on guaranteed liabilities of our franchisees
if we believe that our franchisees are unable to make their required payments. As of December 28, 2013, if all of our
outstanding guarantees of franchisee financing obligations came due simultaneously, we would be liable for approximately $3.0
million. As of December 28, 2013, no reserves had been recorded for such guarantees. We generally have cross-default
provisions with these franchisees that would put the franchisee in default of its franchise agreement in the event of non-
payment under such loans. We believe these cross-default provisions significantly reduce the risk that we would not be able to
recover the amount of required payments under these guarantees and, historically, we have not incurred significant losses under
these guarantees due to defaults by our franchisees.
In 2012, we entered into a third-party guarantee with a distribution facility of franchisee products that guaranteed franchisees
would sell a certain volume of cooler beverages each year over a 4-year period. During the second quarter of fiscal year 2013,
the Company determined that the franchisees will not achieve the required sales volume, and therefore, the Company accrued
the maximum guarantee under the agreement of $7.5 million. The Company expects to make the required guarantee payment
during the first quarter of 2014. No additional guarantee payments will be required under the agreement.
We have also entered into a third-party guarantee with this distribution facility of franchisee products that ensures franchisees
will purchase a certain volume of product over a 10-year period. As product is purchased by our franchisees over the term of
the agreement, the amount of the guarantee is reduced. As of December 28, 2013, we were contingently liable for $5.7 million,
under this guarantee. Additionally, we have 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. As of December 28, 2013, we were contingently liable under such supply chain agreements for
approximately $52.6 million. We assess the risk of performing under each of these guarantees on a quarterly basis, and, based
on various factors including internal forecasts, prior history, and ability to extend contract terms, we have not recorded any
liabilities related to these commitments, except for the liability recorded in connection with the cooler beverage commitment
discussed above.
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 2024. As of December 28, 2013, the potential amount of undiscounted payments
we could be required to make in the event of nonpayment by the primary lessee was $6.4 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.
Contractual obligations
The following table sets forth our contractual obligations as of December 28, 2013, and additionally reflects the impact of the
February 2014 refinancing transaction and related amendments of our interest rate swap agreements: