Dunkin' Donuts 2011 Annual Report Download - page 114

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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 2026. As of December 31, 2011 and
December 25, 2010, the potential amount of undiscounted payments the Company could be required to make in
the event of nonpayment by the primary lessee was $10.5 million and $7.2 million, respectively. Our franchisees
are the primary lessees under the majority of these leases. The Company generally has 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. Accordingly, we do not believe it is probable that the Company will be
required to make payments under such leases, and we have not recorded a liability for such contingent liabilities.
(c) Letters of credit
At December 31, 2011 and December 25, 2010, the Company had standby letters of credit outstanding for a total
of $11.2 million. There were no amounts drawn down on these letters of credit.
(d) Legal matters
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. At December 31, 2011 and December 25, 2010, contingent liabilities totaling $4.7 million and
$4.2 million, respectively, were included in other current liabilities in the consolidated balance sheets to reflect
the Company’s estimate of the potential loss which may be incurred in connection with these matters. 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 these matters could increase by up to an additional
$6.0 million based on the outcome of ongoing litigation or negotiations.
(17) Retirement plans
401(k) Plan
Employees of the Company, excluding employees of certain international subsidiaries, participate in a defined
contribution retirement plan, the Dunkin’ Brands, Inc. 401(k) Retirement Plan (“401(k) Plan”), under
Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, employees may contribute up to 80% of
their pre-tax eligible compensation, not to exceed the annual limits set by the IRS. The 401(k) Plan allows the
Company to match participants’ contributions in an amount determined in the sole discretion of the Company.
The Company matched participants’ contributions during fiscal years 2011 and 2010 and January through
February 2009, up to a maximum of 4% of the employee’s salary. The Company provided a 1% match for
participants’ contributions that were made between March and December 2009. Employer contributions for fiscal
years 2011, 2010, and 2009, amounted to $2.7 million, $2.1 million, and $1.1 million, respectively. The
401(k) Plan also provides for an additional discretionary contribution of up to 2% of eligible wages for eligible
participants based on the achievement of specified performance targets. No such discretionary contributions were
made during fiscal years 2011, 2010, and 2009.
NQDC Plan
The Company, excluding employees of certain international subsidiaries, also offers to a limited group of management
and highly compensated employees, as defined by the Employee Retirement Income Security Act (“ERISA”), the
ability to participate in the NQDC Plan. The NQDC Plan allows for pre-tax contributions of up to 50% of a
participant’s base annual salary and other forms of compensation, as defined. The Company credits the amounts
deferred with earnings based on the investment options selected by the participants and holds investments to partially
offset the Company’s liabilities under the NQDC Plan. The NQDC Plan liability, included in other long-term liabilities
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