Baskin Robbins 2015 Annual Report Download - page 28

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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 franchisees, and in particular cases, expansion after minimum requirements are met is subject to the discretion of the
master franchisee. In fiscal years 2015, 2014, and 2013, we derived approximately 14.8%, 15.7%, and 15.7%, 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 and other 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, whether or not accurate, could
harm our brands and our business.
Some of our products contain caffeine, dairy products, sugar, other carbohydrates, fats 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, other carbohydrates, fats 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-
carbohydrate, high-fat or high-calorie foods, have led to a rapidly rising rate of obesity. In the United States 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 and reduced sugar 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. 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.
We may not be able to enforce payment of fees under certain of our franchise arrangements.
In certain limited instances, a franchisee may be operating a restaurant pursuant to an unwritten franchise arrangement. Such
circumstances may arise where a franchisee arrangement has expired and new or renewal agreements have yet to be executed
or where the franchisee has developed and opened a restaurant but has failed to memorialize the franchisor-franchisee
relationship in an executed agreement as of the opening date of such restaurant. In certain other limited instances, we may
allow a franchisee in good standing to operate domestically pursuant to franchise arrangements which have expired in their
normal course and have not yet been renewed. As of December 26, 2015, less than 1% of our restaurants were operating
without a written agreement. There is a risk that either category of these franchise arrangements may not be enforceable under
federal, state, or local laws and regulations prior to correction or if left uncorrected. In these instances, the franchise
arrangements may be enforceable on the basis of custom and assent of performance. If the franchisee, however, were to neglect
to remit royalty payments in a timely fashion, we may be unable to enforce the payment of such fees which, in turn, may
materially and adversely affect our business and operating results. While we generally require franchise arrangements in
foreign jurisdictions to be entered into pursuant to written franchise arrangements, subject to certain exceptions, some expired
contracts, letters of intent, or oral agreements in existence may not be enforceable under local laws, which could impair our
ability to collect royalty income, which in turn may materially and adversely impact our business and operating results.
Our business activities subject us to litigation risk that could affect us adversely by subjecting us to significant money
damages and other remedies or by increasing our litigation expense.
In the ordinary course of business, we are the subject of complaints or litigation from franchisees, usually related to alleged