Dunkin' Donuts 2015 Annual Report Download - page 22

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Sub-franchisees could take actions that could harm our business and that of our master franchisees.
In certain of our international markets, we enter into agreements with master franchisees that permit the master franchisee to
develop and operate restaurants in defined geographic areas. As permitted by our master franchisee agreements, certain master
franchisees elect to sub-franchise rights to develop and operate restaurants in the geographic area covered by the master
franchisee agreement. Our master franchisee agreements contractually obligate our master franchisees to operate their
restaurants in accordance with specified operations, safety, and health standards and also require that any sub-franchise
agreement contain similar requirements. However, we are not party to the agreements with the sub-franchisees and, as a result,
are dependent upon our master franchisees to enforce these standards with respect to sub-franchised restaurants. As a result, the
ultimate success and quality of any sub-franchised restaurant rests with the master franchisee. If sub-franchisees do not
successfully operate their restaurants in a manner consistent with required standards, franchise fees and royalty income paid to
the applicable master franchisee and, ultimately, to us could be adversely affected and our brand image and reputation may be
harmed, which could materially and adversely affect our business and operating results.
We cannot predict the impact that the following may have on our business: (i) new or improved technologies, (ii) alternative
methods of delivery, or (iii) changes in consumer behavior facilitated by these technologies and alternative methods of
delivery.
Advances in technologies or alternative methods of delivery, including advances in vending machine technology and home
coffee makers, or certain changes in consumer behavior driven by these or other technologies and methods of delivery could
have a negative effect on our business. Moreover, technology and consumer offerings continue to develop, and we expect that
new or enhanced technologies and consumer offerings will be available in the future. We may pursue certain of those
technologies and consumer offerings if we believe they offer a sustainable customer proposition and can be successfully
integrated into our business model. However, we cannot predict consumer acceptance of these delivery channels or their impact
on our business. In addition, our competitors, some of whom have greater resources than us, may be able to benefit from
changes in technologies or consumer acceptance of alternative methods of delivery, which could harm our competitive position.
There can be no assurance that we will be able to successfully respond to changing consumer preferences, including with
respect to new technologies and alternative methods of delivery, or to effectively adjust our product mix, service offerings, and
marketing and merchandising initiatives for products and services that address, and anticipate advances in, technology and
market trends. If we are not able to successfully respond to these challenges, our business, financial condition, and operating
results could be harmed.
Economic conditions adversely affecting consumer discretionary spending may negatively impact our business and
operating results.
We believe that our franchisees’ sales, customer traffic, and profitability are strongly correlated to consumer discretionary
spending, which is influenced by general economic conditions, unemployment levels, and the availability of discretionary
income. Our franchisees’ sales are dependent upon discretionary spending by consumers; any reduction in sales at franchised
restaurants will result in lower royalty payments from franchisees to us and adversely impact our profitability. In an economic
downturn our business and results of operations could be materially and adversely affected. In addition, the pace of new
restaurant openings may be slowed and restaurants may be forced to close, reducing the restaurant base from which we derive
royalty income.
Our substantial indebtedness could adversely affect our financial condition.
We have a significant amount of indebtedness. As of December 26, 2015, we had total indebtedness of approximately $2.5
billion under our securitized debt facility, excluding $26.3 million of undrawn letters of credit and $73.7 million of unused
commitments.
Subject to the limits contained in the agreements governing our securitized debt facility, we may be able to incur substantial
additional debt from time to time to finance capital expenditures, investments, acquisitions, or for other purposes. If we do
incur substantial additional debt, the risks related to our high level of debt could intensify. Specifically, our high level of
indebtedness could have important consequences, including:
• limiting our ability to obtain additional financing to fund capital expenditures, investments, acquisitions, or other
general corporate requirements;
• requiring a substantial portion of our cash flow to be dedicated to payments to service our indebtedness instead of
other purposes, thereby reducing the amount of cash flow available for capital expenditures, investments, acquisitions,
and other general corporate purposes;
• increasing our vulnerability to and the potential impact of adverse changes in general economic, industry, and