DUNKIN' BRANDS REPORTS FOURTH QUARTER AND FULL YEAR 2012 RESULTS

CANTON, Mass., Jan. 31, 2013 /PRNewswire/ --

Fourth quarter highlights include:

  • 3.2 percent Dunkin' Donuts U.S. comparable store sales growth
  • Added 256 net new restaurants worldwide including 149 net new Dunkin' Donuts in the U.S.
  • Adjusted operating income up 16.1% on a 13-week basis
  • Adjusted operating income margin to 47.6%
  • Adjusted EPS up approximately 21% to $0.34 on a 13-week basis

Fiscal year 2012 highlights include:

  • Added 665 net new restaurants worldwide including 291 net new Dunkin' Donuts in the U.S.
  • Revenue up 6.1% and adjusted operating income up 15.3% on a 52-week basis
  • Adjusted operating income margin to 46.3%
  • Adjusted EPS up approximately 38% to $1.28 on a 52-week basis
  • Board of Directors declare $0.19 first quarter dividend for a 27% increase over the Company's fourth quarter 2012 dividend

Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' Donuts (DD) and Baskin-Robbins(BR), today reported results for the fourth quarter and fiscal year ended December 29, 2012.

(Logo: http://photos.prnewswire.com/prnh/20120516/NE07970LOGO )

"The fourth quarter was strong, and we finished 2012 delivering 15 percent plus adjusted operating income growth and nearly 40 percent adjusted earnings per share growth year-over-year," said Nigel Travis, Chief Executive Officer, Dunkin' Brands Group, Inc., and President, Dunkin' Donuts U.S. "We have the unique combination of strong brand heritage and significant U.S. and global restaurant expansion opportunities, which we are capitalizing on to drive profitable growth for both our franchisees and shareholders. Our contiguous, strategic development approach is working, and we're excited to begin selling Dunkin' Donuts franchises in California. Despite macro-economic instability and a tough competitive environment, consumer and franchisee demand for Dunkin' Donuts is high, our franchisee relationships are strong, and we continue to leverage our asset-light business model giving us confidence to target 15 percent plus adjusted earnings per share growth in 2013."

FISCAL YEAR 2012 KEY FINANCIAL HIGHLIGHTS

                         

($ in millions, except per share data)

Fiscal year ended

 

Increase (Decrease)

% Change 
Excluding
Impact of 
Extra Week1

 

December 29,
2012

December 31, 
2011

 

$/#

%

             

Franchisee reported sales

$

8,771.3

8,343.9

 

427.5

5.1%

 

Systemwide sales growth

5.2%

9.1%

     

7.0%

Comparable store sales growth:

           

DD U.S. comparable store sales growth

4.2%

5.1%

       

BR U.S. comparable store sales growth

3.8%

0.5%

       

DD International comparable store sales growth

2.0%

         

BR International comparable store sales growth

2.8%

         

Development data:

           

Consolidated net POD development

665

601

 

64

10.6%

 

DD global PODs at period end

10,479

10,083

 

396

3.9%

 

BR global PODs at period end

6,980

6,711

 

269

4.0%

 

Consolidated global PODs at period end

17,459

16,794

 

665

4.0%

 

Financial data:

           

Revenues

$

658.2

628.2

 

30.0

4.8%

6.1%

Operating income

239.4

205.3

 

34.1

16.6%

19.1%

Operating income margin

36.4%

32.7%

       

Adjusted operating income2

$

307.2

270.7

 

36.4

13.5%

15.3%

Adjusted operating income margin2

46.3%

43.1%

       

Net income

$

108.3

34.4

 

73.9

214.5%

231.9%

Adjusted net income2

149.7

101.7

 

48.0

47.1%

49.8%

Earnings (loss) per share:

           

Class L — basic and diluted

$ n/a

6.14

 

n/a

n/a

 

Common — basic

0.94

(1.41)

 

2.35

n/a

 

Common — diluted

0.93

(1.41)

 

2.34

n/a

 

Diluted adjusted earnings per pro forma

common share2

1.28

0.94

 

0.34

36.2%

37.6%

Pro forma weighted average number of

common shares — diluted (in millions)

116.6

107.7

 

8.9

8.3%

 

(amounts and percentages may not recalculate due to rounding)

FOURTH QUARTER 2012 KEY FINANCIAL HIGHLIGHTS

($ in millions, except per share data)

Three months ended

 

Increase (Decrease)

% Change
Excluding
Impact of
Extra Week1

 

December 29,
2012

December 31,
2011

 

$/#

%

             

Franchisee reported sales

$

2,212.2

2,222.9

 

(10.6)

(0.5)%

 

Systemwide sales growth

(0.4)%

15.0%

     

6.0%

Comparable store sales growth:

           

DD U.S. comparable store sales growth

3.2%

7.4%

       

BR U.S. comparable store sales growth

1.5%

5.8%

       

DD International comparable store sales growth

0.0%

         

BR International comparable store sales growth

0.0%

         

Development data:

           

Consolidated net POD development

256

269

 

(13)

(4.8)%

 

Financial data:

           

Revenues

$

161.7

168.5

 

(6.8)

(4.0)%

0.7%

Operating income

67.8

44.6

 

23.2

52.0%

68.2%

Operating income margin

41.9%

26.4%

       

Adjusted operating income2

$

79.8

73.0

 

6.8

9.3%

16.1%

Adjusted operating income margin2

47.6%

43.3%

       

Net income

$

34.3

11.6

 

22.7

196.2%

251.0%

Adjusted net income2

36.6

36.2

 

0.5

1.3%

6.6%

Earnings per share:

           

Common — basic

$

0.32

0.10

 

0.22

220.0%

 

Common — diluted

0.32

0.10

 

0.22

220.0%

 

Diluted adjusted earnings per pro forma

common share2

0.34

0.30

 

0.04

13.3%

21.4%

Weighted average number of common

shares — diluted (in millions)

107.9

121.0

 

(13.1)

(10.8)%

 

(amounts and percentages may not recalculate due to rounding)

 

1Fiscal year 2011 and the fourth quarter of 2011 include 53 weeks and 14 weeks, respectively. Please refer to "Non-GAAP Measures and Statistical Data" and "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations" for further detail.

2 Adjusted operating income, adjusted operating income margin, and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for amortization of intangible assets, impairment charges, and other non-recurring, infrequent, or unusual charges, net of the tax impact of such adjustments in the case of adjusted net income. Diluted adjusted earnings per pro forma common share is a non-GAAP measure, calculated using adjusted net income, and gives effect to the conversion of Class L common stock as if the conversion were completed at the beginning of the respective fiscal period for which such shares were outstanding, if any. Please refer to "Non-GAAP Measures and Statistical Data," "Dunkin' Brands Group, Inc.Non-GAAP Reconciliations," and "Dunkin' Brands Group, Inc. Diluted Adjusted Earnings per Pro Forma Common Share" for further detail.

On a 13-week basis, global systemwide sales growth in the fourth quarter was primarily attributable to Dunkin' Donuts U.S. comparable store sales growth (which includes stores open 54 weeks or more) and global store development, and growth in Baskin-Robbins International sales.

Dunkin' Donuts U.S. comparable store sales growth in the fourth quarter was driven by increased average ticket and higher traffic resulting from our continued focus on product and marketing innovation. This includes strong total coffee sales growth, led by flavored hot and iced espresso beverages; continued momentum across the core breakfast sandwich platform and strong sales of November's limited time offer Smoked Sausage breakfast sandwich; continued growth in Bakery Sandwiches; and sales of limited time offer Dunkin' Donuts K-Cup® portion packs in Pumpkin, Peppermint Mocha, and Hot Cocoa flavors.

Baskin-Robbins U.S. comparable store sales growth was driven by sales of Flavors of the Month, including holiday-inspired flavors such as Pumpkin Pie, Peppermint, and Winter White Chocolate; limited time offer sundaes such as the Warm Belgian Waffle sundae with Pralines n' Cream ice cream; and Take Home pints and quarts.

In the fourth quarter, Dunkin' Brands franchisees and licensees opened 256 net new restaurants across the globe. This includes 149 net new Dunkin' Donuts U.S. locations, 89 net new Baskin-Robbins Internationallocations, 47 net new Dunkin' Donuts International locations, and 29 net closures for Baskin-Robbins U.S. Additionally, Dunkin' Donuts U.S. franchisees remodeled 205 restaurants during the quarter.

Revenues for the fourth quarter declined 4.0 percent compared to the prior year, primarily from the extra week in the fourth quarter of 2011 and a one-time delay in revenue recognition related to the shift in manufacturing to Dean Foods that impacted fourth quarter sales of ice cream products in 2012. Without the effect of these two items, revenues would have increased by $7.0 million, or 4.4 percent, driven by increased royalty income from the increase in systemwide sales (both on a 13-week basis).

Operating income for the fourth quarter increased $23.2 million, or 52.0 percent, from the prior year primarily as a result of an $18.8 million net non-cash impairment charge incurred in the prior year related to the Company's investment in its South Korean joint venture, as well as the increase in royalty income on a 13-week basis, offset by the impact of the extra week in the fourth quarter of 2011. Adjusted operating income increased $6.8 million, or 9.3 percent, from the fourth quarter of 2011 primarily as a result of the increase in royalty income on a 13-week basis and an increase in income from joint ventures, offset by the impact of the extra week in the fourth quarter of 2011.

Net income for the fourth quarter increased by $22.7 million, or 196.2 percent, compared to the prior year as a result of the $23.2 million increase in operating income, offset by an increase in interest expense. Adjusted net income increased by $0.5 million, or 1.3 percent, compared to the fourth quarter of 2011 as a result of the increase in adjusted operating income, offset by increases in interest expense and income tax expense.

Adjusted earnings per pro forma common share increased by 13.3 percent on a diluted basis to $0.34 for the fourth quarter of 2012, as a result of a decline in shares outstanding due to the repurchase of 15 million shares in August 2012 from the Company's former private equity owners, as well as the increase in adjusted net income.

FOURTH QUARTER 2012 SEGMENT RESULTS

The information below reflects operating segment results for the 13-weeks ended December 29, 2012 and the 14-weeks ended December 31, 2011.

Amounts and percentages may not recalculate due to rounding

 

Three months ended

 

Increase (Decrease)

Dunkin' Donuts U.S.

December 29,
2012

 

December 31,
2011

 

$

%

($ in thousands except as otherwise noted)

(13 weeks)

 

(14 weeks)

     
             

Comparable store sales growth

3.2%

 

7.4%

     

Systemwide sales growth

(0.9)%

 

17.4%

     

Franchisee reported sales (in millions)

$1,637.6

 

1,655.6

 

(17.9)

(1.1)%

             

Revenues:

           

Royalty income

$89,093

 

88,918

 

175

0.2%

Franchise fees

8,963

 

9,462

 

(499)

(5.3)%

Rental income

21,865

 

21,002

 

863

4.1%

Sales at company-owned restaurants

6,216

 

3,669

 

2,547

69.4%

Other revenues

1,980

 

841

 

1,139

135.4%

Total revenues

$128,117

 

123,892

 

4,225

3.4%

             

Segment profit

$94,293

 

92,004

 

2,289

2.5%

             

Points of distribution

7,306

 

7,015

 

291

4.1%

Gross openings

180

 

160

 

20

12.5%

Net openings

149

 

120

 

29

24.2%


Dunkin' Donuts U.S. revenues of $128.1 million represented an increase of 3.4 percent year-over-year. The increase in revenue was driven primarily by increased royalty income on a 13-week basis, additional sales at company-owned restaurants (35 stores versus 31 stores in the prior year), and an increase in other revenues. These increases in revenue were offset by the impact of the extra week in the fourth quarter of 2011.

Dunkin' Donuts U.S. segment profit increased to $94.3 million, an increase of 2.5 percent over the prior year. The increase was driven by revenue growth, partially offset by costs related to additional company-owned stores.

 

Amounts and percentages may not recalculate due to rounding

             
 

Three months ended

 

Increase (Decrease)

Dunkin' Donuts International

December 29,
2012

 

December 31,
2011

 

$

 

%

($ in thousands except as otherwise noted)

(13 weeks)

 

(14 weeks)

       
               

Comparable store sales growth

0.0%

           

Systemwide sales growth

9.3%

 

2.9%

       

Franchisee reported sales (in millions)

$174.4

 

159.6

 

14.8

 

9.3%

               

Revenues:

             

Royalty income

$3,526

 

3,185

 

341

 

10.7%

Franchise fees

470

 

649

 

(179)

 

(27.6)%

Rental income

29

 

45

 

(16)

 

(35.6)%

Other revenues

(29)

 

5

 

(34)

 

n/m

Total revenues

$3,996

 

3,884

 

112

 

2.9%

               

Segment profit

$2,174

 

2,701

 

(527)

 

(19.5)%

               

Points of distribution

3,173

 

3,068

 

105

 

3.4%

Gross openings

90

 

105

 

(15)

 

(14.3)%

Net openings

47

 

63

 

(16)

 

(25.4)%

Dunkin' Donuts International systemwide sales increased 9.3 percent from the prior year, driven by sales growth in South Korea and the Middle East. On a constant currency basis, systemwide sales increased by approximately 6 percent.

Dunkin' Donuts International revenues increased 2.9 percent from the prior year to $4.0 million, primarily resulting from an increase in royalty income driven by an increase in systemwide sales.

Segment profit for Dunkin' Donuts International declined 19.5 percent to $2.2 million, driven primarily by continued investments in marketing for theDunkin' Donuts International business, offset by an increase in income from our South Korean joint venture.

Amounts and percentages may not recalculate due to rounding

             
 

Three months ended

 

Increase (Decrease)

Baskin-Robbins U.S.

December 29,
2012

 

December 31,
2011

 

$

 

%

($ in thousands except as otherwise noted)

(13 weeks)

 

(14 weeks)

       
               

Comparable store sales growth

1.5%

 

5.8%

       

Systemwide sales growth

(8.3)%

 

11.1%

       

Franchisee reported sales (in millions)

$90.7

 

98.9

 

(8.2)

 

(8.3)%

               

Revenues:

             

Royalty income

$4,574

 

5,072

 

(498)

 

(9.8)%

Franchise fees

148

 

239

 

(91)

 

(38.1)%

Rental income

913

 

962

 

(49)

 

(5.1)%

Sales of ice cream products

931

 

905

 

26

 

2.9%

Sales at company-owned restaurants

 

76

 

(76)

 

n/m

Other revenues

1,249

 

1,505

 

(256)

 

(17.0)%

Total revenues

$7,815

 

8,759

 

(944)

 

(10.8)%

               

Segment profit

$3,888

 

2,877

 

1,011

 

35.1%

               

Points of distribution

2,463

 

2,493

 

(30)

 

(1.2)%

Gross openings

9

 

15

 

(6)

 

(40.0)%

Net closings

(29)

 

(35)

 

6

 

(17.1)%

Baskin-Robbins U.S. revenue declined 10.8 percent from the prior year to $7.8 million driven primarily by declines in royalty and licensing income, which were due to an 8.3 percent decrease in systemwide sales as a result of the extra week in the fourth quarter of 2011 and net closings.

Segment profit for the Baskin-Robbins U.S. segment increased $1.0 million, or 35.1 percent, year-over-year primarily as a result of non-recurring prior year investments, as well as reserves recorded on leased locations.

Amounts and percentages may not recalculate due to rounding

 

Three months ended

 

Increase (Decrease)

Baskin-Robbins International

December 29,
2012

 

December 31,
2011

 

$

%

($ in thousands except as otherwise noted)

(13 weeks)

 

(14 weeks)

     
   

Comparable store sales growth

0.0%

         

Systemwide sales growth

0.2%

 

10.9%

     

Franchisee reported sales (in millions)

$309.5

 

308.8

 

0.8

0.2%

             

Revenues:

           

Royalty income

$2,033

 

1,805

 

228

12.6%

Franchise fees

314

 

532

 

(218)

(41.0)%

Rental income

133

 

155

 

(22)

(14.2)%

Sales of ice cream products

15,445

 

25,631

 

(10,186)

(39.7)%

Other revenues

46

 

(101)

 

147

n/m

Total revenues

$17,971

 

28,022

 

(10,051)

(35.9)%

             

Segment profit

$6,833

 

10,302

 

(3,469)

(33.7)%

             

Points of distribution

4,517

 

4,218

 

299

7.1%

Gross openings

126

 

162

 

(36)

(22.2)%

Net openings

89

 

121

 

(32)

(26.4)%

Baskin-Robbins International systemwide sales increased 0.2 percent from the prior year, as sales growth in South Korea was offset by sales declines in Japan and Afghanistan. On a constant currency basis, systemwide sales increased by approximately 1 percent.

Baskin-Robbins International revenues declined 35.9 percent year-over-year to $18.0 million, due to a one-time delay in revenue recognition related to the shift in manufacturing to Dean Foods that impacted fourth quarter sales of ice cream products. Also contributing to the decline in revenues was a decline in sales of ice cream resulting from the Afghanistan border being closed earlier in 2012, as well as the extra week in the fourth quarter of 2011.

Segment profit decreased 33.7 percent year-over-year to $6.8 million, resulting from a decrease in net margin on ice cream due to the one-time delay in revenue recognition in the fourth quarter of 2012, the impact of the Afghanistan border being closed earlier in 2012, and the extra week in the fourth quarter of 2011.

COMPANY UPDATES

  • On January 16, 2013, the Company announced that Dunkin' Donuts is expanding to Southern California. The Company is recruiting multi-unit franchisees for Los Angeles, Riverside, San Diego, San Bernardino, Ventura and Orange counties and expects restaurants in these markets will begin to open in 2015.
  • The Company today announced that the Board of Directors declared a first quarter cash dividend of $0.19 per share, payable on February 20, 2013 to shareholders of record as of the close of business on February 11, 2013.
  • The Company today announced that it intends to seek a re-financing of its senior secured credit facilities given the current favorable credit market conditions.

FISCAL YEAR 2013 TARGETS

As described below, the Company is providing certain targets regarding its 2013 expectations.

  • The Company expects Dunkin' Donuts U.S. comparable store sales growth of 3 to 4 percent and Baskin-Robbins U.S. comparable store sales growth of 1 to 3 percent.
  • The Company expects that Dunkin' Donuts U.S. will add between 330 and 360 net new restaurants for 4.5 to 5 percent net unit growth and it expects Baskin-Robbins U.S. will have between 0 and 30 net closures.
  • Internationally, the Company targets opening 400 to 500 net new units across the two brands. Globally, the Company expects to open between 700 and 860 net new units.
  • The Company expects revenue growth of between 6 and 8 percent and adjusted operating income growth of between 10 and 12 percent.
  • The Company expects adjusted earnings per share of $1.48 to $1.51, which would represent 15.6 percent to 17.9 percent year-over-year adjusted earnings per share growth (earnings per share guidance does not reflect any potential benefit from refinancing).

"Our nearly 100-percent, asset-light franchised business model enables us to accelerate our strong restaurant growth rate, while simultaneously returning cash to shareholders," said Paul Carbone, Chief Financial Officer. "The Board's decision to increase our dividend 27 percent in just our second year as a public company further underscores our commitment to delivering shareholder value."

Conference Call

As previously announced, Dunkin' Brands will be holding a conference call today at 8:00 am ET hosted by Nigel Travis, Chief Executive Officer, andPaul Carbone, Chief Financial Officer. The dial-in number is (866) 393-1607 or (914) 495-8556, conference number 87704796. Dunkin' Brands will broadcast the conference call live over the Internet at http://investor.dunkinbrands.com. A replay of the conference call will be available on the Company's website at http://investor.dunkinbrands.com.

The Company's consolidated statements of operations, condensed consolidated balance sheets, condensed consolidated statements of cash flows and other additional information have been provided with this press release. This information should be reviewed in conjunction with this press release.

Forward-Looking Statements

Certain statements contained herein are not based on historical fact and are "forward-looking statements" within the meaning of the applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "plan," "potential," "project," "should," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These risk and uncertainties include, but are not limited to: the ongoing level of profitability of franchisees and licensees; our franchisees' and licensees' ability to sustain same store sales growth; changes in working relationships with our franchisees and licensees and the actions of our franchisees and licensees; our master franchisees' relationships with sub-franchisees; the strength of our brand in the markets in which we compete; changes in competition within the quick-service restaurant segment of the food industry; changes in consumer behavior resulting from changes in technologies or alternative methods of delivery; economic and political conditions in the countries where we operate; our substantial indebtedness; our ability to protect our intellectual property rights; consumer preferences, spending patterns and demographic trends; the success of our growth strategy and international development; changes in commodity and food prices, particularly coffee, dairy products and sugar, and other operating costs; shortages of coffee; failure of our network and information technology systems; interruptions or shortages in the supply of products to our franchisees and licensees; the impact of food borne-illness or food safety issues or adverse public or media opinions regarding the health effects of consuming our products; our ability to collect royalty payments from our franchisees and licensees; the ability of our franchisees and licensees to open new restaurants and keep existing restaurants in operation; our ability to retain key personnel; any inability to protect consumer credit card data and catastrophic events.

Forward-looking statements reflect management's analysis as of the date of this press release. Important factors that could cause actual results to differ materially from our expectations are more fully described in our other filings with the Securities and Exchange Commission, including under the section headed "Risk Factors" in our most recent annual report on Form 10-K and in our quarterly report on Form 10-Q for the quarter ended June 30, 2012. Except as required by applicable law, we do not undertake to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measures and Statistical Data

In addition to the GAAP financial measures set forth in this press release, the Company has included certain non-GAAP measurements, adjusted operating income, adjusted operating income margin, adjusted net income, and diluted adjusted earnings per pro forma common share, which present operating results on a basis adjusted for certain items and/or reflecting the conversion of our previously outstanding Class L common stock into shares of common stock. The Company uses these non-GAAP measures as key performance measures for the purpose of evaluating performance internally. We also believe these non-GAAP measures provide our investors with useful information regarding our historical operating results. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms adjusted operating income, adjusted operating income margin, adjusted net income, and diluted adjusted earnings per pro forma common share may differ from similar measures reported by other companies. Adjusted operating income and adjusted net income are reconciled from the respective measures determined under GAAP in the attached table "Dunkin' Brands Group, Inc. Non-GAAP Reconciliation."

On August 1, 2011, the Company completed its initial public offering. Immediately prior to the offering, each share of the Company's Class L common stock converted into 2.4338 shares of common stock. The number of common shares used in the calculation of diluted adjusted earnings per pro forma common share for the fiscal year ended December 31, 2011 gives effect to the conversion of all outstanding shares of Class L common stock at the conversion factor of 2.4338 common shares for each Class L share, as if the conversion was completed at the beginning of the fiscal period. The calculation of diluted adjusted earnings per pro forma common share also includes the dilutive effect of common restricted shares and stock options, using the treasury stock method. Diluted adjusted earnings per pro forma common share is calculated using adjusted net income, as defined above. See the attached table "Dunkin' Brands Group, Inc. Diluted Adjusted Earnings per Pro Forma Common Share" for further detail.

Additionally, the Company has included metrics such as systemwide sales growth and comparable store sales growth, which are commonly used statistical measures in the quick-service restaurant industry and are important to understanding the Company's performance.

The Company uses "systemwide sales growth" to refer to the percentage change in sales at both franchisee- and company-owned restaurants from the comparable period of the prior year. Changes in systemwide sales are driven by changes in comparable store sales and changes in the number of restaurants.

The Company uses "DD U.S. comparable store sales growth," "BR U.S. comparable store sales growth," "DD International comparable store sales growth," and "BR International comparable store sales growth," which are calculated by including only sales from franchisee- and company-owned restaurants that have been open at least 54 weeks and that have reported sales in the current and comparable prior year week.

Fiscal year 2011 and the fourth quarter of 2011 include 53 weeks and 14 weeks, respectively. Certain financial measures and other metrics in this release have been presented on a 52-week and 13-week basis for fiscal year 2011 and the fourth quarter of 2011, respectively, to provide improved comparability to the respective 2012 periods. Such financial measures and metrics reflect our estimate of the impact of the additional week on systemwide sales growth, revenues, and expenses.

About Dunkin' Brands Group, Inc.

With more than 17,400 points of distribution in nearly 60 countries worldwide, Dunkin' Brands Group, Inc.(Nasdaq: DNKN) is one of the world's leading franchisors of quick service restaurants (QSR) serving hot and cold coffee and baked goods, as well as hard-serve ice cream. At the end of fiscal year 2012, Dunkin' Brands' nearly 100 percent franchised business model included more than 10,400 Dunkin' Donuts restaurants and nearly 7,000Baskin-Robbins restaurants. For the full-year 2012, the company had franchisee-reported sales of approximately $8.8 billion. Dunkin' Brands Group, Inc. is headquartered in Canton, Mass.

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

               
 

Three months ended

 

Fiscal year ended

 

December 29,

 

December 31,

 

December 29,

 

December 31,

 

2012

 

2011

 

2012

 

2011

 

(13 weeks)

 

(14 weeks)

 

(52 weeks)

 

(53 weeks)

Revenues:

             

Franchise fees and royalty income

$109,121

 

109,814

 

418,940

 

398,474

Rental income

22,957

 

22,195

 

96,816

 

92,145

Sales of ice cream products

16,376

 

26,536

 

94,659

 

100,068

Sales at company-owned restaurants

6,216

 

3,745

 

22,922

 

12,154

Other revenues

7,033

 

6,215

 

24,844

 

25,357

Total revenues

161,703

 

168,505

 

658,181

 

628,198

Operating costs and expenses:

             

Occupancy expenses - franchised restaurants

13,275

 

13,600

 

52,072

 

51,878

Cost of ice cream products

13,019

 

19,534

 

69,019

 

72,329

Company-owned restaurant expenses

6,166

 

3,954

 

23,133

 

12,854

General and administrative expenses, net

53,024

 

57,263

 

239,574

 

227,771

Depreciation

6,551

 

6,147

 

29,084

 

24,497

Amortization of other intangible assets

6,626

 

6,919

 

26,943

 

28,025

Impairment charges

328

 

840

 

1,278

 

2,060

Total operating costs and expenses

98,989

 

108,257

 

441,103

 

419,414

Net income (loss) of equity method investments:

             

Net income, excluding impairment

5,037

 

4,071

 

22,351

 

16,277

Impairment charge, net of tax(a)

 

(19,752)

 

 

(19,752)

Total net income (loss) of equity method

investments

5,037

 

(15,681)

 

22,351

 

(3,475)

Operating income

67,751

 

44,567

 

239,429

 

205,309

Other income (expense):

             

Interest income

160

 

220

 

543

 

623

Interest expense

(21,725)

 

(18,167)

 

(74,031)

 

(105,072)

Loss on debt extinguishment and refinancing transactions

 

 

(3,963)

 

(34,222)

Other gains, net

495

 

186

 

23

 

175

Total other expense

(21,070)

 

(17,761)

 

(77,428)

 

(138,496)

Income before income taxes

46,681

 

26,806

 

162,001

 

66,813

Provision for income taxes

12,491

 

15,215

 

54,377

 

32,371

Net income including noncontrolling interests

34,190

 

11,591

 

107,624

 

34,442

Net loss attributable to noncontrolling interests

(145)

 

 

(684)

 

Net income attributable to Dunkin' Brands

$34,335

 

11,591

 

108,308

 

34,442

               

Earnings (loss) per share:

             

Class L - basic and diluted

$n/a

 

n/a

 

n/a

 

6.14

Common - basic

0.32

 

0.10

 

0.94

 

(1.41)

Common - diluted

0.32

 

0.10

 

0.93

 

(1.41)

               

(a) The $19.8 million impairment charge recorded in the fourth quarter of 2011 relates to our investment in the South Korea joint venture, and resulted from declines in operating performance in the Dunkin' Donuts business in that country. The impairment charge was allocated to the underlying intangible and long-lived assets of the joint venture, which resulted in a reduction in depreciation and amortization, net of tax, (and a reduction in the equity in net loss of joint ventures) of $1.0 million in the fourth quarter of 2011.

 

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

   

December 29,

 

December 31,

Assets

 

2012

 

2011

Current assets:

       

Cash and cash equivalents

 

$252,618

 

246,715

Accounts, notes, and other receivables, net

 

53,056

 

58,787

Other current assets

 

114,106

 

100,972

Total current assets

 

419,780

 

406,474

Property and equipment, net

 

181,172

 

185,360

Equity method investments

 

174,823

 

164,636

Goodwill and other intangible assets, net

 

2,371,684

 

2,398,211

Other assets

 

70,054

 

69,337

Total assets

 

$3,217,513

 

3,224,018

Liabilities and Stockholders' Equity

       

Current liabilities:

       

Current portion of long-term debt

 

$26,680

 

14,965

Accounts payable

 

16,256

 

9,651

Other current liabilities

 

310,579

 

291,924

Total current liabilities

 

353,515

 

316,540

Long-term debt, net

 

1,823,278

 

1,453,344

Deferred income taxes, net

 

569,126

 

578,660

Other long-term liabilities

 

121,619

 

129,538

Total long-term liabilities

 

2,514,023

 

2,161,542

         

Total stockholders' equity

 

349,975

 

745,936

Total liabilities and stockholders' equity

 

$3,217,513

 

3,224,018

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

Fiscal year ended

 

December 29,

 

December 31,

 

2012

 

2011

 

(52 weeks)

 

(53 weeks)

       

Net cash provided by operating activities

$154,420

 

162,703

Cash flows from investing activities:

     

Additions to property and equipment

(22,398)

 

(18,596)

Other, net

(549)

 

(1,211)

Net cash used in investing activities

(22,947)

 

(19,807)

Cash flows from financing activities:

     

Proceeds from (repayment of) long-term debt, net

380,559

 

(404,608)

Repurchases of common stock

(450,369)

 

(286)

Payment of deferred financing and other debt-related costs

(5,978)

 

(20,087)

Proceeds from initial public offering, net of offering costs

 

389,961

Dividends paid on common stock

(70,069)

 

Other, net

20,255

 

4,946

Net cash used in financing activities

(125,602)

 

(30,074)

Effect of exchange rates on cash and cash equivalents

32

 

(207)

Increase in cash and cash equivalents

5,903

 

112,615

Cash and cash equivalents, beginning of period

246,715

 

134,100

Cash and cash equivalents, end of period

$252,618

 

246,715

 

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Non-GAAP Reconciliations

(Unaudited, in thousands)

               
 

Three months ended

 

Fiscal year ended

 

December 29,

 

December 31,

 

December 29,

 

December 31,

 

2012

 

2011

 

2012

 

2011

Total revenues

$161,703

 

168,505

 

658,181

 

628,198

Impact of change in ice cream shipping terms(a)

5,802

 

 

5,802

 

Total revenues, excluding change in ice cream shipping terms

$167,505

 

168,505

 

663,983

 

628,198

               

Operating income

$67,751

 

44,567

 

239,429

 

205,309

Operating income margin

41.9%

 

26.4%

 

36.4%

 

32.7%

Adjustments:

             

Amortization of other intangible assets

6,626

 

6,919

 

26,943

 

28,025

Impairment charges

328

 

840

 

1,278

 

2,060

Sponsor termination fee

 

 

 

14,671

Secondary offering costs

9

 

1,899

 

4,783

 

1,899

Peterborough plant closure(b)

5,095

 

 

14,044

 

Korea joint venture impairment, net

 

18,776

 

 

18,776

Bertico litigation(c)

 

 

20,680

 

Adjusted operating income

$79,809

 

73,001

 

307,157

 

270,740

Adjusted operating income margin(d)

47.6%

 

43.3%

 

46.3%

 

43.1%

               

Net income attributable to Dunkin' Brands

$34,335

 

11,591

 

108,308

 

34,442

Adjustments:

             

Amortization of other intangible assets

6,626

 

6,919

 

26,943

 

28,025

Impairment charges

328

 

840

 

1,278

 

2,060

Sponsor termination fee

 

 

 

14,671

Secondary offering costs

9

 

1,899

 

4,783

 

1,899

Loss on debt extinguishment and

refinancing transactions

 

 

3,963

 

34,222

Peterborough plant closure(b)

5,095

 

 

14,044

 

Korea joint venture impairment, net

 

18,776

 

 

18,776

Bertico litigation(c)

 

 

20,680

 

Tax impact of adjustments, excluding

Bertico litigation(e)

(4,823)

 

(3,863)

 

(20,404)

 

(32,351)

Tax impact of Bertico adjustment(f)

979

 

 

(3,980)

 

Income tax audit settlements(g)

(10,514)

 

 

(10,514)

 

State tax apportionment(h)

4,599

 

 

4,599

 

Adjusted net income

$36,634

 

36,162

 

149,700

 

101,744

               

(a) Represents the impact of the one-time delay in revenue recognition as a result of a change in shipping terms related to the shift in manufacturing to Dean Foods, based on actual shipments.

(b) Represents costs incurred related to the announced closure of the Baskin-Robbins ice cream manufacturing plant inPeterborough, Canada, including $315 thousand and $3.4 million of severance and other payroll-related costs for the three months and fiscal year ended December 29, 2012, respectively, $497 thousandand $4.2 million of accelerated depreciation for the three months and fiscal year ended December 29, 2012, respectively, $1.5 million and $2.7 million of incremental costs of ice cream products for the three months and fiscal year ended December 29, 2012, respectively, and $638 thousand and $1.6 million of other transition-related costs for the three months and fiscal year ended December 29, 2012, respectively. Amounts for the three months and fiscal year ended December 29, 2012also reflect the one-time delay in revenue recognition, net of related cost of ice cream products, related to the shift in manufacturing to Dean Foods of $2.1 million.

(c) Represents the incremental legal reserve recorded in the second quarter of 2012 related to the Quebec Superior Court's ruling in the Bertico litigation, in which the Court found for the Plaintiffs and issued a judgment against Dunkin' Brands in the amount of approximately $C16.4 million, plus costs and interest.

(d) Adjusted operating income margin calculated based on total revenues, excluding change in shipping terms.

(e) Tax impact of adjustments, excluding the Bertico litigation and the Korea joint venture impairment charge, calculated at a 40% effective tax rate.

(f) Tax impact of Bertico litigation adjustment calculated as if the incremental reserve had not been recorded. The tax impact recorded in the second quarter of 2012 was a $4.0 million tax benefit representing the actual direct tax benefit expected to be realized, as well as a $2.2 million tax benefit recorded that fully reversed in the third and fourth quarters of 2012 based on interim tax provision requirements. The tax impact for the three months ended December 29, 2012 represents $1.0 millionof the tax benefit that was expected to reverse.

(g) Represents income tax benefits resulting from the settlement of historical tax positions settled during the period, primarily related to the accounting for the acquisition of the Company by private equity firms in 2006.

(h) Represents deferred tax expense recognized due to an increase in our overall state tax rate for a shift in the apportionment of income to state jurisdictions, as a result of the closure of the Peterborough manufacturing plant and transition to Dean Foods.

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Non-GAAP Reconciliations (continued)

(Unaudited, in thousands)

                       
 

Three months ended

 

Fiscal year ended

 

December 29,

 

December 31,

 

%

 

December 29,

 

December 31,

 

%

 

2012

 

2011

 

Change

 

2012

 

2011

 

Change

Total revenues

$161,703

 

168,505

 

(4.0)%

 

658,181

 

628,198

 

4.8%

Impact of extra week(a)

 

(8,005)

     

 

(8,005)

   

Total revenues, 13-week / 52-week basis

$161,703

 

160,500

 

0.7%

 

658,181

 

620,193

 

6.1%

Impact of change in ice

cream shipping terms(b)

5,802

 

     

5,802

 

   

Total revenues, excluding impact of change in shipping terms, 13-week / 52-week basis

$167,505

 

160,500

 

4.4%

 

663,983

 

620,193

 

7.1%

                       

Operating income

$67,751

 

44,567

 

52.0%

 

239,429

 

205,309

 

16.6%

Impact of extra week(a)

 

(4,286)

     

 

(4,286)

   

Operating income, 
13-week / 52-week basis

$67,751

 

40,281

 

68.2%

 

239,429

 

201,023

 

19.1%

                       

Adjusted operating income

$79,809

 

73,001

 

9.3%

 

307,157

 

270,740

 

13.5%

Impact of extra week(a)

 

(4,286)

     

 

(4,286)

   

Adjusted operating income,
13-week / 52-week basis

$79,809

 

68,715

 

16.1%

 

307,157

 

266,454

 

15.3%

                       

Net income attributable toDunkin' Brands

$34,335

 

11,591

 

196.2%

 

108,308

 

34,442

 

214.5%

Impact of extra week(a)

 

(1,810)

     

 

(1,810)

   

Net income, 13-week / 
52-week basis

$34,335

 

9,781

 

251.0%

 

108,308

 

32,632

 

231.9%

                       

Adjusted net income

$36,634

 

36,162

 

1.3%

 

149,700

 

101,744

 

47.1%

Impact of extra week(a)

 

(1,810)

     

 

(1,810)

   

Adjusted net income,
13-week / 52-week basis

$36,634

 

34,352

 

6.6%

 

149,700

 

99,934

 

49.8%

                       

(a) The three months and fiscal year ended December 31, 2011 include 14 weeks and 53 weeks, respectively, as compared to 13 weeks and 52 weeks for the three months and fiscal year ended December 29, 2012, respectively. The impact of the extra week in the three months and fiscal year ended December 31, 2011 reflects our estimate of the additional week in those fiscal periods on certain revenues and expenses, net of tax.

(b) Represents the impact of the one-time delay in revenue recognition as a result of a change in shipping terms related to the shift in manufacturing to Dean Foods, based on actual shipments.

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Diluted Adjusted Earnings per Pro Forma Common Share

(In thousands, except share and per share data)

(Unaudited)

               
 

Three months ended

 

Fiscal year ended

 

December 29,

 

December 31,

 

December 29,

 

December 31,

 

2012

 

2011

 

2012

 

2011

Adjusted net income available to common shareholders:

             

Adjusted net income

$36,634

 

36,162

 

149,700

 

101,744

Less: Adjusted net income allocated to participating securities

(1)

 

(140)

 

(179)

 

(494)

Adjusted net income available to common shareholders

$36,633

 

36,022

 

149,521

 

101,250

Pro forma weighted average number of common shares — diluted:

             

Weighted average number of Class L shares over period in

which Class L shares were outstanding(a)

 

 

 

22,845,378

Adjustment to weight Class L shares over respective fiscal period(a)

 

 

 

(9,790,933)

Weighted average number of Class L shares

 

 

 

13,054,445

Class L conversion factor

 

 

 

2,4338

Weighted average number of converted Class L shares

 

 

 

31,772,244

Weighted average number of common shares

105,837,976

 

119,486,311

 

114,584,063

 

74,835,697

Pro forma weighted average number of common shares — basic

105,837,976

 

119,486,311

 

114,584,063

 

106,607,941

Incremental dilutive common shares(b)

2,078,696

 

1,551,701

 

1,989,281

 

1,064,587

Pro forma weighted average number of common shares — diluted

107,916,672

 

121,038,012

 

116,573,344

 

107,672,528

Diluted adjusted earnings per pro forma common share

$0.34

 

0.30

 

1.28

 

0.94

Impact of extra week(c)

 

(0.02)

 

 

(0.01)

Diluted adjusted earnings per pro forma common share,

13-week / 52-week basis

$0.34

 

0.28

 

1.28

 

0.93

               

(a) The weighted average number of Class L shares in the actual Class L earnings per share calculation for the fiscal year ended December 31, 2011represents the weighted average from the beginning of the fiscal year up through the date of conversion of the Class L shares into common shares. As such, the pro forma weighted average number of common shares includes an adjustment to the weighted average number of Class L shares outstanding to reflect the length of time the Class L shares were outstanding prior to conversion relative to the fiscal year. The converted Class L shares are already included in the weighted average number of common shares outstanding for the period after their conversion. No Class L shares were outstanding during any other period presented.

(b) Represents the dilutive effect of restricted shares and stock options, using the treasury stock method.

(c) The three months and fiscal year ended December 31, 2011 include 14 weeks and 53 weeks, respectively, as compared to 13 weeks and 52 weeks for the three months and fiscal year ended December 29, 2012, respectively. The impact of the extra week in the three months and fiscal year ended December 31, 2011 reflects our estimate of the additional week in those fiscal periods on certain revenues and expenses, net of tax.