Download words - Investor Relations Solutions

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the year ended December 28, 2013
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from
to
Commission file number 001-35258
____________________________
DUNKIN’ BRANDS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
20-4145825
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
130 Royall Street
Canton, Massachusetts 02021
(Address of principal executive offices) (zip code)
(781) 737-3000
(Registrants’ telephone number, including area code)
____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value per share
Name of each exchange on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: NONE
____________________________
Yes 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes 
No 
No 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes  No 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer

Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Accelerated filer

Smaller Reporting Company

Yes 
No 
The aggregate market value of the voting and non-voting stock of the registrant held by non-affiliates of Dunkin’ Brands Group, Inc. computed by reference to the closing price of
the registrant’s common stock on the NASDAQ Global Select Market as of June 29, 2013 , was approximately $4.55 billion .
As of February 18, 2014 , 106,423,121 shares of common stock of the registrant were outstanding.
____________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 2014 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K, are incorporated by reference in Part III, Items 10-14 of this Form 10-K.
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Part I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
1
9
21
21
22
23
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part II.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
23
26
30
50
52
97
97
98
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part III.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
99
100
100
100
100
Part IV.
100
Table of Contents
Forward-Looking Statements
This report on Form 10-K, as well as other written reports and oral statements that we make from time to time, includes statements that express
our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or
may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of
forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,”
“may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements
include all matters that are not historical facts.
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. Our actual results and the timing of certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this
report and in our other public filings with the Securities and Exchange Commission, or SEC.
Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that
forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity,
and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking
statements contained in this report. In addition, even if our results of operations, financial condition and liquidity, and the development of the
industry in which we operate, are consistent with the forward-looking statements contained in this report, those results or developments may
not be indicative of results or developments in subsequent periods.
Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of
the date hereof. We undertake no obligation to update any forward-looking statements or to publicly announce the results of any revisions to
any of those statements to reflect future events or developments.
Table of Contents
PART I
Item 1. Business.
Our Company
We are one of the world's leading franchisors of quick service restaurants (“QSRs”) serving hot and cold coffee and baked goods, as well as
hard serve ice cream. We franchise restaurants under our Dunkin' Donuts and Baskin-Robbins brands. With more than 18,000 points of
distribution in nearly 60 countries, we believe that our portfolio has strong brand awareness in our key markets.
We believe that our nearly 100% franchised business model offers strategic and financial benefits. For example, because we do not own or
operate a significant number of stores, our Company is able to focus on menu innovation, marketing, franchisee coaching and support, and
other initiatives to drive the overall success of our brand. Financially, our franchised model allows us to grow our points of distribution and
brand recognition with limited capital investment by us.
We operate our business in four segments: Dunkin' Donuts U.S., Dunkin' Donuts International, Baskin-Robbins International and
Baskin-Robbins U.S. In 2013, our Dunkin' Donuts segments generated revenues of $539.5 million , or 77% of our total segment revenues, of
which $521.2 million was in the U.S. segment and $18.3 million was in the international segment. In 2013, our Baskin-Robbins segments
generated revenues of $162.5 million , of which $120.3 million was in the international segment and $42.2 million was in the U.S. segment. As
of December 28, 2013 , there were 10,858 Dunkin' Donuts points of distribution, of which 7,677 were in the U.S. and 3,181 were international,
and 7,300 Baskin-Robbins points of distribution, of which 4,833 were international and 2,467 were in the U.S. See note 12 to our consolidated
financial statements included herein for segment revenues and segment profit for fiscal years 2013, 2012, and 2011.
We generate revenue from five primary sources: (i) royalty income and fees associated with franchised restaurants; (ii) rental income from
restaurant properties that we lease or sublease to franchisees; (iii) sales of ice cream products to franchisees in certain international markets;
(iv) retail store revenue at our company-owned restaurants, and (v) other income including fees for the licensing of the Dunkin' Donuts brand
for products sold in non-franchised outlets (such as retail packaged coffee), the licensing of the rights to manufacture Baskin-Robbins ice
cream to a third party for ice cream and related products sold to U.S. franchisees, refranchising gains, transfer fees from franchisees, and online
training fees.
Our history
Both of our brands have a rich heritage dating back to the 1940s, when Bill Rosenberg founded his first restaurant, subsequently renamed
Dunkin' Donuts, and Burt Baskin and Irv Robbins each founded a chain of ice cream shops that eventually combined to form Baskin-Robbins.
Baskin-Robbins and Dunkin' Donuts were individually acquired by Allied Domecq PLC in 1973 and 1989, respectively. The brands were
organized under the Allied Domecq Quick Service Restaurants subsidiary, which was renamed Dunkin' Brands, Inc. in 2004. Allied Domecq
was acquired in July 2005 by Pernod Ricard S.A. In March of 2006, we were acquired by investment funds affiliated with Bain Capital
Partners, LLC, The Carlyle Group and Thomas H. Lee Partners, L.P. through a holding company that was incorporated in Delaware on
November 22, 2005, and was later renamed Dunkin' Brands Group, Inc. In July 2011, we completed our initial public offering (the “IPO”).
Upon the completion of the IPO, our common stock became listed on the NASDAQ Global Select Market under the symbol “DNKN.”
Our brands
Dunkin' Donuts-U.S.
Dunkin' Donuts is a leading U.S. QSR concept, and is among the QSR market leaders in coffee, donut, bagel, muffin and breakfast sandwich
categories. Since the late 1980s, Dunkin' Donuts has transformed itself into a coffee and beverage-based concept, and is the national QSR
leader in servings in the hot regular/decaf/flavored coffee category, with sales of over 1 billion servings of coffee annually. From the fiscal year
ended August 31, 2003 to the fiscal year ended December 28, 2013 , Dunkin' Donuts U.S. systemwide sales have grown at an 8.2% compound
annual growth rate. Total U.S. Dunkin' Donuts points of distribution grew from 4,021 at August 31, 2003 to 7,677 as of December 28, 2013 .
Approximately 84% of these points of distribution are traditional restaurants consisting of end-cap, in-line and stand-alone restaurants, many
with drive-thrus, and gas and convenience locations. In addition, we have alternative points of distribution ("APODs"), such as full- or
self-service kiosks in grocery stores, hospitals, airports, offices and other smaller-footprint properties. We believe that Dunkin' Donuts
continues to have significant growth potential in the U.S. given its strong brand awareness and variety of restaurant formats. For fiscal year
2013, the Dunkin' Donuts franchise system generated U.S. franchisee-reported sales of $6.7 billion, which accounted for approximately 72.4%
of our global franchisee-reported sales, and had 7,677 U.S. points of distribution (including more than 3,600 restaurants with drive-thrus) at
period end.
-1-
Table of Contents
Baskin-Robbins-U.S.
Baskin-Robbins is one of the leading QSR chains in the U.S. for servings of hard-serve ice cream and develops and sells a full range of frozen
ice cream treats such as cones, cakes, sundaes and frozen beverages. Baskin-Robbins enjoys 90% aided brand awareness in the U.S., and we
believe the brand is known for its innovative flavors, popular “Birthday Club” program and ice cream flavor library of over 1,000 different
offerings. Additionally, our Baskin-Robbins U.S. segment has experienced comparable store sales growth in each of the last three fiscal years.
We believe we can capitalize on the brand's strengths and continue generating renewed excitement for the brand. Baskin-Robbins' “31 flavors,”
offering consumers a different flavor for each day of the month, is recognized by ice cream consumers nationwide. For fiscal year 2013, the
Baskin-Robbins franchise system generated U.S. franchisee-reported sales of $513 million, which accounted for approximately 5.5% of our
global franchisee-reported sales, and had 2,467 U.S. points of distribution at period end.
International operations
Our international business is primarily conducted via joint ventures and country or territorial license arrangements with “master franchisees,”
who both operate and sub-franchise the brand within their licensed areas. Increasingly, in certain high potential markets, we are migrating to a
model with multiple franchisees in one country, including markets in the United Kingdom, Germany, and China. Our international franchise
system, predominantly located across Asia and the Middle East, generated franchisee-reported sales of $2.0 billion for fiscal year 2013, which
represented 22.1% of Dunkin' Brands' global franchisee-reported sales. Dunkin' Donuts had 3,181 restaurants in 32 countries (excluding the
U.S.), representing $684 million of international franchisee-reported sales for fiscal year 2013, and Baskin-Robbins had 4,833 restaurants in 46
countries (excluding the U.S.), representing approximately $1.4 billion of international franchisee-reported sales for the same period. From
August 31, 2003 to December 28, 2013 , total international Dunkin' Donuts points of distribution grew from 1,720 to 3,181, and total
international Baskin-Robbins points of distribution grew from 2,475 to 4,833. We believe that we have opportunities to continue to grow our
Dunkin' Donuts and Baskin-Robbins concepts internationally in new and existing markets through brand and menu differentiation.
Overview of franchising
Franchising is a business arrangement whereby a service organization, the franchisor, grants an operator, the franchisee, a license to sell the
franchisor's products and services and use its system and trademarks in a given area, with or without exclusivity. In the context of the restaurant
industry, a franchisee pays the franchisor for its concept, strategy, marketing, operating system, training, purchasing power, and brand
recognition.
Franchisee relationships
We seek to maximize the alignment of our interests with those of our franchisees. For instance, we do not derive additional income through
serving as the supplier to our domestic franchisees. In addition, because the ability to execute our strategy is dependent upon the strength of our
relationships with our franchisees, we maintain a multi-tiered advisory council system to foster an active dialogue with franchisees. The
advisory council system provides feedback and input on all major brand initiatives and is a source of timely information on evolving consumer
preferences, which assists new product introductions and advertising campaigns.
Unlike certain other QSR franchise systems, we generally do not guarantee our franchisees' financing obligations. As of December 28, 2013 , if
all of our outstanding guarantees of franchisee financing obligations came due, we would be liable for $3.0 million. We intend to continue our
past practice of limiting our guarantee of financing for franchisees.
Franchise agreement terms
For each franchised restaurant in the U.S., we enter into a franchise agreement covering a standard set of terms and conditions. A prospective
franchisee may elect to open either a single-branded distribution point or a multi-branded distribution point. In addition, and depending upon
the market, a franchisee may purchase the right to open a franchised restaurant at one or multiple locations (via a store development agreement,
or “SDA”). When granting the right to operate a restaurant to a potential franchisee, we will generally evaluate the potential franchisee's prior
food-service experience, history in managing profit and loss operations, financial history, and available capital and financing. We also evaluate
potential new franchisees based on financial measures, including liquid asset and net worth minimums for each brand.
The typical franchise agreement in the U.S. has a 20-year term. The majority of our franchisees have entered into prime leases with a
third-party landlord. The Company is the lessee on certain land leases (the Company leases the land and erects a building) or improved leases
(lessor owns the land and building) covering restaurants and other properties. In addition, the Company has leased and subleased land and
buildings to other franchisees. When we sublease properties to franchisees, the sublease generally follows the prime lease term. Our leases to
franchisees are typically for an overall term of 20 years.
-2-
Table of Contents
We help domestic franchisees select sites and develop restaurants that conform to the physical specifications of our typical restaurant. Each
domestic franchisee is responsible for selecting a site, but must obtain site approval from us based on accessibility, visibility, proximity to other
restaurants, and targeted demographic factors including population density and traffic patterns. Additionally, the franchisee must also refurbish
and remodel each restaurant periodically (typically every five and ten years, respectively).
We currently require each domestic franchisee's managing owner and designated manager to complete initial and ongoing training programs
provided by us, including minimum periods of classroom and on-the-job training. We monitor quality and endeavor to ensure compliance with
our standards for restaurant operations through restaurant visits in the U.S. In addition, a formal restaurant review is conducted throughout our
domestic operations at least once per year. To complement these procedures, we use “Guest Satisfaction Surveys” in the U.S. to assess
customer satisfaction with restaurant operations, such as product quality, restaurant cleanliness, and customer service.
Store development agreements
We grant domestic franchisees the right to open one or more restaurants within a specified geographic area pursuant to the terms of store
development agreements ("SDAs"). An SDA specifies the number of restaurants and the mix of the brands represented by such restaurants that
a franchisee is obligated to open. Each SDA also requires the franchisee to meet certain milestones in the development and opening of the
restaurant and, if the franchisee meets those obligations, we agree, during the term of such SDA, not to operate or franchise new restaurants in
the designated geographic area covered by such SDA. In addition to an SDA, a franchisee signs a separate franchise agreement for each
restaurant developed under such SDA.
Master franchise model and international arrangements
Master franchise arrangements are used on a limited basis domestically (the Baskin-Robbins brand has two “territory” franchise agreements for
certain Midwestern and Northwestern markets) but more widely internationally for both the Baskin-Robbins brand and the Dunkin' Donuts
brand. In addition, international arrangements include joint venture agreements in Korea (both brands), Spain (Dunkin' Donuts brand),
Australia (Baskin-Robbins brands), and Japan (Baskin-Robbins brand), as well as single unit franchises, such as in Canada (both brands). We
are increasingly utilizing a multi-franchise system in certain high potential markets, including in the United Kingdom, Germany, and China.
Master franchise agreements are the most prevalent international relationships for both brands. Under these agreements, the applicable brand
grants the master franchisee the exclusive right to develop and operate a certain number of restaurants within a particular geographic area, such
as selected cities, one or more provinces or an entire country, pursuant to a development schedule that defines the number of restaurants that
the master franchisee must open annually. Those development schedules customarily extend for five to ten years. If the master franchisee fails
to perform its obligations, the exclusivity provision of the agreement terminates and additional franchise agreements may be put in place to
develop restaurants.
The master franchisee is required to pay an upfront initial franchise fee for each developed restaurant and, for the Dunkin' Donuts brand,
royalties. For the Baskin-Robbins brand, the master franchisee is typically required to purchase ice cream from Baskin-Robbins or an approved
supplier. In most countries, the master franchisee is also required to spend a certain percentage of gross sales on advertising in such foreign
country in order to promote the brand. Generally, the master franchise agreement serves as the franchise agreement for the underlying
restaurants operating pursuant to such model. Depending on the individual agreement, we may permit the master franchisee to subfranchise
within its territory.
Within each of our master franchisee and joint venture organizations, training facilities have been established by the master franchisee or joint
venture based on our specifications. From those training facilities, the master franchisee or joint venture trains future staff members of the
international restaurants. Our master franchisees and joint venture entities also periodically send their primary training managers to the U.S. for
re-certification.
Franchise fees
In the U.S., once a franchisee is approved, a restaurant site is approved, and a franchise agreement is signed, the franchisee will begin to
develop the restaurant. Franchisees pay us an initial franchise fee for the right to operate a restaurant for one or more franchised brands. The
franchisee is required to pay all or part of the initial franchise fee upfront upon execution of the franchise agreement, regardless of when the
restaurant is actually opened. Initial franchise fees vary by brand, type of development agreement and geographic area of development, but
generally range from $25,000 to $100,000, as shown in the table below.
-3-
Table of Contents
Initial franchise
fee*
Restaurant type
Dunkin’ Donuts Single-Branded Restaurant
Baskin-Robbins Single-Branded Restaurant
Dunkin’ Donuts/Baskin-Robbins Multi-Branded Restaurant
*
$
$ 40,000-90,000
25,000
$ 50,000-100,000
Fees effective as of January 1, 2014 and excludes alternative points of distribution
In addition to the payment of initial franchise fees, our U.S. Dunkin' Donuts brand franchisees, U.S. Baskin-Robbins brand franchisees, and our
international Dunkin' Donuts brand franchisees pay us royalties on a percentage of the gross sales made from each restaurant. In the U.S., the
majority of our franchise agreement renewals and the vast majority of our new franchise agreements require our franchisees to pay us a royalty
of 5.9% of gross sales. During 2013, our effective royalty rate in the Dunkin' Donuts U.S. segment was approximately 5.4% and in the
Baskin-Robbins U.S. segment was approximately 5.0%. The arrangements for Dunkin' Donuts in the majority of our international markets
require royalty payments to us of 5.0% of gross sales. However, many of our larger international partners, including our Korean joint venture
partner, have agreements at a lower rate, resulting in an effective royalty rate in the Dunkin' Donuts international segment in 2013 of
approximately 2.1%. We typically collect royalty payments on a weekly basis from our domestic franchisees. For the Baskin-Robbins brand in
international markets, we do not generally receive royalty payments from our franchisees; instead we earn revenue from such franchisees as a
result of our sale of ice cream products to them, and in 2013 our effective royalty rate in this segment was approximately 0.7%. In certain
instances, we supplement and modify certain SDAs, and franchise agreements entered into pursuant to such SDAs, for restaurants located in
certain new or developing markets, by (i) reducing the royalties for a specified period of the term of the franchise agreements depending on the
details related to each specific incentive program; (ii) reimbursing the franchisee for certain local marketing activities in excess of the minimum
required; and (iii) providing certain development incentives. To qualify for any or all of these incentives, the franchisee must meet certain
requirements, each of which are set forth in an addendum to the SDA and the franchise agreement. We believe these incentives will lead to
accelerated development in our less mature markets.
Franchisees in the U.S. also pay advertising fees to the brand-specific advertising funds administered by us. Franchisees make weekly
contributions, generally 5% of gross sales, to the advertising funds. Franchisees may elect to increase the contribution to support general
brand-building efforts or specific initiatives. In the first quarter of 2013, the Baskin-Robbins franchisees voted to increase the advertising fee
contribution rate from 5.0% to 5.25% for a twelve month period beginning in May 2013. The advertising funds for the U.S., which received
$356.1 million in contributions from franchisees in fiscal year 2013, are almost exclusively franchisee-funded and cover all expenses related to
marketing, research and development, innovation, advertising and promotion, including market research, production, advertising costs, public
relations, and sales promotions. We use no more than 20% of the advertising funds to cover the administrative expenses of the advertising
funds and for other strategic initiatives designed to increase sales and to enhance the reputation of the brands. As the administrator of the
advertising funds, we determine the content and placement of advertising, which is done through print, radio, television, online, billboards,
sponsorships, and other media, all of which is sourced by agencies. Under certain circumstances, franchisees are permitted to conduct their own
local advertising, but must obtain our prior approval of content and promotional plans.
Other franchise related fees
We lease and sublease properties to franchisees in the U.S. and in Canada, generating net rental fees when the cost charged to the franchisee
exceeds the cost charged to us. For fiscal year 2013, we generated 13.5%, or $96.1 million, of our total revenue from rental fees from
franchisees and incurred related occupancy expenses of $52.1 million.
We also receive a license fee from Dean Foods Co. (“Dean Foods”) as part of an arrangement whereby Dean Foods manufactures and
distributes ice cream products to Baskin-Robbins franchisees in the U.S. In connection with this agreement, Dunkin' Brands receives a license
fee based on total gallons of ice cream sold. For fiscal year 2013, we generated 1.0%, or $7.0 million, of our total revenue from license fees
from Dean Foods.
We distribute ice cream products to Baskin-Robbins franchisees who operate Baskin-Robbins restaurants located in certain foreign countries
and receive revenue associated with those sales. For fiscal year 2013, we generated 15.7%, or $112.3 million, of our total revenue from the sale
of ice cream products to franchisees in certain foreign countries.
Other revenue sources include online training fees, licensing fees earned from the sale of retail packaged coffee, net refranchising gains, and
other one-time fees such as transfer fees and late fees. For fiscal year 2013, we generated 2.7%, or $19.5 million, of our total revenue from
these other sources.
-4-
Table of Contents
International operations
Our international business is organized by brand and by country and/or region. Operations are primarily conducted through master franchise
agreements with local operators. In certain instances, the master franchisee may have the right to sub-franchise. In addition, we have joint
ventures with a local, publicly-traded company in Japan, and with local companies in Australia for the Baskin-Robbins brand, in Spain for the
Dunkin' Donuts brand, and in South Korea for both the Dunkin' Donuts and Baskin-Robbins brands. By teaming with local operators, we
believe we are better able to adapt our concepts to local business practices and consumer preferences. We have had an international presence
since 1961 when the first Dunkin' Donuts restaurant opened in Canada. As of December 28, 2013 , there were 4,833 Baskin-Robbins
restaurants in 46 countries outside the U.S. and 3,181 Dunkin' Donuts restaurants in 32 countries outside the U.S. Baskin-Robbins points of
distribution represent the majority of our international presence and accounted for 67% of international franchisee-reported sales and 87% of
our international revenues for fiscal year 2013.
Our key markets for both brands are predominantly based in Asia and the Middle East, which accounted for approximately 71.8% and 15.4%,
respectively, of international franchisee-reported sales for fiscal year 2013. For fiscal year 2013, $2.0 billion of total franchisee-reported sales
were generated by restaurants located in international markets, which represented 22.1% of total franchisee-reported sales, with the Dunkin'
Donuts brand accounting for $684 million and the Baskin-Robbins brand accounting for $1.4 billion of our international franchisee-reported
sales. For the same period, our revenues from international operations totaled $138.6 million, with the Baskin-Robbins brand generating
approximately 87% of such revenues.
Overview of key markets
As of December 28, 2013 , the top foreign countries and regions in which the Dunkin' Donuts brand and/or the Baskin-Robbins brand operated
were:
Country
Type
South Korea
Joint Venture
Japan
Middle East
Joint Venture
Master Franchise Agreements
Franchised brand(s)
Dunkin’ Donuts
Baskin-Robbins
Baskin-Robbins
Dunkin’ Donuts
Baskin-Robbins
Number of restaurants
902
1,065
1,157
338
706
South Korea
Restaurants in South Korea accounted for approximately 38% of total franchisee-reported sales from international operations for fiscal year
2013. Baskin-Robbins accounted for 61% of such sales. In South Korea, we conduct business through a 33.3% ownership stake in a
combination Dunkin' Donuts brand/Baskin-Robbins brand joint venture, with South Korean shareholders owning the remaining 66.7% of the
joint venture. The joint venture acts as the master franchisee for South Korea, sub-franchising the Dunkin' Donuts and Baskin-Robbins brands
to franchisees. The joint venture also manufactures and supplies the franchisees operating restaurants located in South Korea with ice cream,
donuts and coffee products.
Japan
Restaurants in Japan accounted for approximately 22% of total franchisee-reported sales from international operations for fiscal year 2013,
100% of which came from Baskin-Robbins. We conduct business in Japan through a 43.3% ownership stake in a Baskin-Robbins brand joint
venture. Our partner also owns a 43.3% interest in the joint venture, with the remaining 13.4% owned by public shareholders. The joint venture
manufactures and sells ice cream to franchisees operating restaurants in Japan and acts as master franchisee for the country.
Middle East
The Middle East represents another key region for us. Restaurants in the Middle East accounted for approximately 15% of total
franchisee-reported sales from international operations for fiscal year 2013. Baskin-Robbins accounted for approximately 76% of such sales.
We conduct operations in the Middle East through master franchise arrangements.
Industry overview
According to The NPD Group/CREST ® (“CREST ® ”), the QSR segment of the U.S. restaurant industry accounted for approximately $255
billion of the total $423 billion restaurant industry sales in the US for the twelve months ended December 2013. The U.S. restaurant industry is
generally categorized into segments by price point ranges, the types of food and beverages offered, and service available to consumers. QSR is
a restaurant format characterized by counter or drive-thru ordering and
-5-
Table of Contents
limited, or no, table service. QSRs generally seek to capitalize on consumer desires for quality and convenient food at economical prices.
Technomic Information Services (“Technomic”) reports that, in 2012, QSRs comprised seven of the top ten chain restaurants by U.S.
systemwide sales and nine of the top ten chain restaurants by number of units.
Our Dunkin' Donuts brand competes in the QSR segment categories and subcategories that include coffee, donuts, muffins, bagels, and
breakfast sandwiches. In addition, in the U.S., our Dunkin' Donuts brand has historically focused on the breakfast daypart, which we define to
include the portion of each day from 5:00 a.m. until 11:00 a.m. While, according to The NPD Group/CREST ® (“CREST ® ”) data, the
compound annual growth rate for total QSR daypart visits in the U.S. has been flat over the five-year period ended December 2013, the
compound annual growth rate for QSR visits in the U.S. during the breakfast daypart averaged 1% over the same five-year period. There can be
no assurance that such growth rates will be sustained in the future.
For the twelve months ended December 2013, there were sales of nearly 7.7 billion restaurant servings of coffee in the U.S., 82% of which
were attributable to the QSR segment, according to CREST ® data. Over the years, our Dunkin' Donuts brand has evolved into a predominantly
coffee-based concept, with approximately 57% of Dunkin' Donuts' U.S. franchisee-reported sales for fiscal year 2013 generated from coffee
and other beverages. We believe QSRs, including Dunkin' Donuts, are positioned to capture additional coffee market share through an
increased focus on coffee offerings.
Our Baskin-Robbins brand competes primarily in QSR segment categories and subcategories that include hard-serve ice cream as well as those
that include soft serve ice cream, frozen yogurt, shakes, malts, and floats. While both of our brands compete internationally, over 65% of
Baskin-Robbins restaurants are located outside of the U.S. and represent the majority of our total international sales and points of distribution.
Competition
We compete primarily in the QSR segment of the restaurant industry and face significant competition from a wide variety of restaurants,
convenience stores, and other outlets that provide consumers with coffee, baked goods, sandwiches, and ice cream on an international, national,
regional, and local level. We believe that we compete based on, among other things, product quality, restaurant concept, service, convenience,
value perception, and price. Our competition continues to intensify as competitors increase the breadth and depth of their product offerings,
particularly during the breakfast daypart, and open new units. Although new competitors may emerge at any time due to the low barriers to
entry, our competitors include: 7-Eleven, Burger King, Cold Stone Creamery, Cumberland Farms, Dairy Queen, McDonald's, Panera Bread,
Quick Trip, Starbucks, Subway, Tim Hortons, WaWa, and Wendy's, among others. Additionally, we compete with QSRs, specialty restaurants,
and other retail concepts for prime restaurant locations and qualified franchisees.
Licensing
We derive licensing revenue from agreements with Dean Foods for domestic ice cream sales, with The J.M. Smucker Co. (“Smuckers”) for the
sale of packaged coffee in non-franchised outlets (primarily grocery retail) as well as from other licensees. Dean Foods manufactures and sells
ice cream to U.S. Baskin-Robbins brand franchisees and pays us a royalty on each gallon sold. The Dunkin' Donuts branded 12 oz. original
blend coffee, which is distributed by Smuckers, is the #1 stock-keeping unit nationally in the premium coffee category. According to Nielsen,
for the 52 weeks ending December 28, 2013 , sales of our 12 oz. original blend, as expressed in total equivalent units and dollar sales, were
double that of the next closest competitor.
Marketing
We coordinate domestic advertising and marketing at the national and local levels. The goals of our marketing strategy include driving
comparable store sales and brand differentiation, increasing our total coffee and beverage sales, protecting and growing our morning daypart
sales, and growing our afternoon daypart sales. Generally, our domestic franchisees contribute 5% of weekly gross retail sales to fund brand
specific advertising funds. The funds are used for various national and local advertising campaigns including print, radio, television, online,
mobile, loyalty, billboards, and sponsorships. Over the past ten years, our U.S. franchisees have invested approximately $2.3 billion on
advertising to increase brand awareness and restaurant performance across both brands. Additionally, we have various pricing strategies, so that
our products appeal to a broad range of customers. In August 2012, we launched the Dunkin' Donuts mobile application for payment and
gifting, which built the foundation for one-to-one marketing with our customers. In January 2014, we launched a new DD Perks® Rewards
loyalty program nationally, which is fully integrated with the Dunkin' Donuts mobile application and allows us to engage our customers in
these one-to-one marketing interactions. As of December 28, 2013, our mobile application had over five million downloads.
-6-
Table of Contents
The supply chain
Domestic
We do not typically supply products to our domestic franchisees. With the exception of licensing fees paid by Dean Foods on domestic ice
cream sales, we do not typically derive revenues from product distribution. Our franchisees' suppliers include Rich Products Corp., Dean Foods
Co., The Coca-Cola Company, and Green Mountain Coffee Roasters, Inc. In addition, our franchisees' primary coffee roasters currently are
New England Tea & Coffee Co., Inc., Mother Parkers Tea & Coffee Inc., S&D Coffee, Inc., and Massimo Zanetti Beverage USA, Inc., and
their primary donut mix suppliers currently are General Mills, Inc., Harlan Foods, and Aryzta. Our franchisees also purchase donut mix from
CSM Bakery Products NA, Inc. and EFCO Products, Inc. We periodically review our relationships with licensees and approved suppliers and
evaluate whether those relationships continue to be on competitive or advantageous terms for us and our franchisees.
Purchasing
Purchasing for the Dunkin' Donuts brand is facilitated by National DCP, LLC (the “NDCP”), which is a Delaware limited liability company
operated as a cooperative owned by its franchisee members. The NDCP is managed by a staff of supply chain professionals who report directly
to the NDCP's executive management team, members of which in turn report directly to the NDCP's board of directors. The NDCP has over
1,100 employees including executive leadership, sourcing professionals, warehouse staff, and drivers. The NDCP board of directors has eight
franchisee members. In addition, the Senior Vice President, Chief Supply Officer from Dunkin' Brands, Inc. is a voting member of the NDCP
board. The NDCP engages in purchasing, warehousing, and distribution of food and supplies on behalf of participating restaurants and some
international markets. The NDCP program provides franchisee members nationwide the benefits of scale while fostering consistent product
quality across the Dunkin' Donuts brand. We do not control the NDCP and have only limited contractual rights associated with managing that
franchisee-owned purchasing and distribution cooperative.
Manufacturing of Dunkin' Donuts bakery goods
Centralized production is another element of our supply chain that is designed to support growth for the Dunkin' Donuts brand. Centralized
manufacturing locations ("CMLs") are franchisee-owned and -operated facilities for the centralized production of donuts and bakery goods.
The CMLs deliver freshly baked products to Dunkin' Donuts restaurants on a daily basis and are designed to provide consistent quality
products while simplifying restaurant-level operations. As of December 28, 2013 , there were 114 CMLs (of varying size and capacity) in the
U.S. CMLs are an important part of franchise economics, and we believe the brand is supportive of profit building initiatives as well as
protecting brand quality standards and consistency.
Certain of our Dunkin' Donuts brand restaurants produce donuts and bakery goods on-site rather than relying upon CMLs. Many of such
restaurants, known as full producers, also supply other local Dunkin' Donuts restaurants that do not have access to CMLs. In addition, in newer
markets, Dunkin' Donuts brand restaurants rely on donuts and bakery goods that are finished in restaurants. We believe that this “just baked on
demand” donut manufacturing platform enables the Dunkin' Donuts brand to more efficiently expand its restaurant base in newer markets
where franchisees may not have access to a CML.
Baskin-Robbins ice cream
Prior to 2000, we manufactured and sold ice cream products to substantially all of our Baskin-Robbins brand franchisees. Beginning in 2000,
we made the strategic decision to outsource the manufacturing and distribution of ice cream products for the domestic Baskin-Robbins brand
franchisees to Dean Foods. The transition to this outsourcing arrangement was completed in 2003. We believe that this outsourcing
arrangement was an important strategic shift and served the dual purpose of further strengthening our relationships with franchisees and
allowing us to focus on our core franchising operations.
International
Dunkin' Donuts
International Dunkin' Donuts franchisees are responsible for sourcing their own supplies, subject to compliance with our standards. They also
produce their own donuts following the Dunkin' Donuts brand's approved processes. In certain countries, our international franchisees source
virtually everything locally within their market while in others our international franchisees may source virtually everything from the NDCP.
Where supplies are sourced locally, we help identify and approve those suppliers. Supplies that cannot be sourced locally are sourced through
the NDCP. In addition, we assist our international franchisees in identifying regional and global suppliers with the goal of leveraging the
purchasing volume for pricing and product continuity advantages.
-7-
Table of Contents
Baskin-Robbins
The Baskin-Robbins manufacturing network is comprised of nine facilities, none of which are owned or operated by us, that supply our
international markets with ice cream products. We utilize a facility owned by Dean Foods to produce ice cream products which we purchase
and distribute to many of our international markets. Certain international franchisees rely on third party-owned facilities to supply ice cream
products to them, including facilities in Ireland and Canada. The Baskin-Robbins brand restaurants in India and Russia are supported by master
franchisee-owned facilities in those respective countries while the restaurants in Japan and South Korea are supported by the joint
venture-owned facilities located within each country.
Research and development
New product innovation is a critical component of our success. We believe the development of successful new products for each brand attracts
new customers, increases comparable store sales, and allows franchisees to expand into other dayparts. New product research and development
is located in a state-of-the-art facility at our headquarters in Canton, Massachusetts. The facility includes a sensory lab, a quality assurance lab
and a demonstration test kitchen. We rely on our internal culinary team, which uses consumer research, to develop and test new products.
Operational support
Substantially all of our executive management, finance, marketing, legal, technology, human resources, and operations support functions are
conducted from our global headquarters in Canton, Massachusetts. In the U.S. and Canada, our franchise operations for both brands are
organized into regions, each of which is headed by a regional vice president and directors of operations supported by field personnel who
interact directly with the franchisees. Our international businesses, excluding Canada, are organized by brand, and each brand has dedicated
marketing and restaurant operations support teams. These teams, which are organized by geographic regions, work with our master licensees
and joint venture partners to improve restaurant operations and restaurant-level economics. Management of a franchise restaurant is the
responsibility of the franchisee, who is trained in our techniques and is responsible for ensuring that the day-to-day operations of the restaurant
are in compliance with our operating standards. We have implemented a computer-based disaster recovery program to address the possibility
that a natural (or other form of) disaster may impact the information technology systems located at our Canton, Massachusetts headquarters.
Regulatory matters
Domestic
We and our franchisees are subject to various federal, state, and local laws affecting the operation of our respective businesses, including
various health, sanitation, fire, and safety standards. In some jurisdictions our restaurants are required by law to display nutritional information
about our products. Each restaurant is subject to licensing and regulation by a number of governmental authorities, which include zoning,
health, safety, sanitation, building, and fire agencies in the jurisdiction in which the restaurant is located. Franchisee-owned NDCP and CMLs
are licensed and subject to similar regulations by federal, state, and local governments.
We and our franchisees are also subject to the Fair Labor Standards Act and various other laws governing such matters as minimum wage
requirements, overtime and other working conditions, and citizenship requirements. A significant number of food-service personnel employed
by franchisees are paid at rates related to the federal minimum wage.
Our franchising activities are subject to the rules and regulations of the Federal Trade Commission (“FTC”) and various state laws regulating
the offer and sale of franchises. The FTC's franchise rule and various state laws require that we furnish a franchise disclosure document
(“FDD”) containing certain information to prospective franchisees and a number of states require registration of the FDD with state authorities.
We are operating under exemptions from registration in several states based on our experience and aggregate net worth. Substantive state laws
that regulate the franchisor-franchisee relationship exist in a substantial number of states, and bills have been introduced in Congress from time
to time that would provide for federal regulation of the franchisor-franchisee relationship. The state laws often limit, among other things, the
duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a
franchisor to designate sources of supply. We believe that our FDDs for each of our Dunkin' Donuts brand and our Baskin-Robbins brand,
together with any applicable state versions or supplements, and franchising procedures, comply in all material respects with both the FTC
franchise rule and all applicable state laws regulating franchising in those states in which we have offered franchises.
-8-
Table of Contents
International
Internationally, we and our franchisees are subject to national and local laws and regulations that often are similar to those affecting us and our
franchisees in the U.S., including laws and regulations concerning franchises, labor, health, sanitation, and safety. International Baskin-Robbins
brand and Dunkin' Donuts brand restaurants are also often subject to tariffs and regulations on imported commodities and equipment, and laws
regulating foreign investment. We believe that the international disclosure statements, franchise offering documents, and franchising
procedures for our Baskin-Robbins brand and Dunkin' Donuts brand comply in all material respects with the laws of the applicable countries.
Environmental
Our operations, including the selection and development of the properties we lease and sublease to our franchisees and any construction or
improvements we make at those locations, are subject to a variety of federal, state, and local laws and regulations, including environmental,
zoning, and land use requirements. Our properties are sometimes located in developed commercial or industrial areas and might previously
have been occupied by more environmentally significant operations, such as gasoline stations and dry cleaners. Environmental laws sometimes
require owners or operators of contaminated property to remediate that property, regardless of fault. While we have been required to, and are
continuing to, clean up contamination at a limited number of our locations, we have no known material environmental liabilities.
Employees
As of December 28, 2013 , excluding employees at our company-owned restaurants, we employed 1,144 people, 1,103 of whom were based in
the U.S. and 41 of whom were based in other countries. Of our domestic employees, 480 worked in the field and 623 worked at our corporate
headquarters or our satellite office in California. Of these employees, 181, who are almost exclusively in marketing positions, were paid by
certain of our advertising funds. None of our employees are represented by a labor union, and we believe our relationships with our employees
are healthy.
Our franchisees are independent business owners, so they and their employees are not included in our employee count.
Additional Information
The Company makes available, free of charge, through its internet website www.dunkinbrands.com, its annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, proxy statements, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after electronically filing such material
with the Securities and Exchange Commission. You may read and copy any materials filed with the Securities and Exchange Commission at
the Securities and Exchange Commission's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information
on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. This information is
also available at www.sec.gov . The reference to these website addresses does not constitute incorporation by reference of the information
contained on the websites and should not be considered part of this document.
Item 1A. Risk Factors.
Risks related to our business and industry
Our financial results are affected by the operating results of our franchisees.
We receive a substantial majority of our revenues in the form of royalties, which are generally based on a percentage of gross sales at
franchised restaurants, rent, and other fees from franchisees. Accordingly, our financial results are to a large extent dependent upon the
operational and financial success of our franchisees. If sales trends or economic conditions worsen for franchisees, their financial results may
deteriorate and our royalty, rent, and other revenues may decline and our accounts receivable and related allowance for doubtful accounts may
increase. In addition, if our franchisees fail to renew their franchise agreements, our royalty revenues may decrease which in turn could
materially and adversely affect our business and operating results.
Our franchisees could take actions that could harm our business.
Our franchisees are contractually obligated to operate their restaurants in accordance with the operations, safety, and health standards set forth
in our agreements with them. However, franchisees are independent third parties whom we do not control. The franchisees own, operate, and
oversee the daily operations of their restaurants. As a result, the ultimate success and quality of any franchised restaurant rests with the
franchisee. If franchisees do not successfully operate restaurants in a manner consistent with required standards, franchise fees paid to us and
royalty income will be adversely affected and brand image and
-9-
Table of Contents
reputation could be harmed, which in turn could materially and adversely affect our business and operating results.
Although we believe we generally enjoy a positive working relationship with the vast majority of our franchisees, active and/or potential
disputes with franchisees could damage our brand reputation and/or our relationships with the broader franchisee group.
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.
Our success depends substantially on the value of our brands.
Our success is dependent in large part upon our ability to maintain and enhance the value of our brands, our customers' connection to our
brands and a positive relationship with our franchisees. Brand value can be severely damaged even by isolated incidents, particularly if the
incidents receive considerable negative publicity or result in litigation. Some of these incidents may relate to the way we manage our
relationship with our franchisees, our growth strategies, our development efforts in domestic and foreign markets, or the ordinary course of our,
or our franchisees', business. Other incidents may arise from events that are or may be beyond our ability to control and may damage our
brands, such as actions taken (or not taken) by one or more franchisees or their employees relating to health, safety, welfare, or otherwise;
litigation and claims; security breaches or other fraudulent activities associated with our electronic payment systems; and illegal activity
targeted at us or others. Consumer demand for our products and our brands' value could diminish significantly if any such incidents or other
matters erode consumer confidence in us or our products, which would likely result in lower sales and, ultimately, lower royalty income, which
in turn could materially and adversely affect our business and operating results.
The quick service restaurant segment is highly competitive, and competition could lower our revenues.
The QSR segment of the restaurant industry is intensely competitive. The beverage and food products sold by our franchisees compete directly
against products sold at other QSRs, local and regional beverage and food operations, specialty beverage and food retailers, supermarkets, and
wholesale suppliers, many bearing recognized brand names and having significant customer loyalty. In addition to the prevailing baseline level
of competition, major market players in noncompeting industries may choose to enter the restaurant industry. Key competitive factors include
the number and location of restaurants, quality and speed of service, attractiveness of facilities, effectiveness of advertising, marketing, and
operational programs, price, demographic patterns and trends, consumer preferences and spending patterns, menu diversification, health or
dietary preferences and perceptions, and new product development. Some of our competitors have substantially greater financial and other
resources than us, which may provide them with a competitive advantage. In addition, we compete within the restaurant industry and the QSR
segment not only for customers but also for qualified franchisees. We cannot guarantee the retention of any, including the top-performing,
franchisees in the future, or that we will maintain the ability to attract, retain, and motivate sufficient numbers of franchisees of the same
caliber, which could materially and adversely affect our business and operating results. If we are unable to maintain our competitive position,
we could experience lower demand for products, downward pressure on prices, the loss of market share, and the inability to attract, or loss of,
qualified franchisees, which could result in lower franchise fees and royalty income, and materially and adversely affect our business and
operating results.
If we or our franchisees or licensees are unable to protect our customers' credit card data and other personal information, we or our
franchisees could be exposed to data loss, litigation, and liability, and our reputation could be significantly harmed.
Privacy protection is increasingly demanding and the use of electronic payment methods and collection of other personal information exposes
us and our franchisees to increased risk of privacy and/or security breaches as well as other risks. In connection with credit card transactions
in-store and online, we and our franchisees collect and transmit confidential credit card information by way of secure private retail networks.
Additionally, we collect and store personal information from individuals,
- 10 -
Table of Contents
including our customers, franchisees, and employees. We rely on commercially available systems, software, tools, and monitoring to provide
security for processing, transmitting, and storing confidential information. Further, the systems currently used for transmission and approval of
electronic payment transactions, and the technology utilized in electronic payment themselves, all of which can put electronic payment at risk,
are determined and controlled by the payment card industry, not by us. In addition, our franchisees, contractors, or third parties with whom we
do business or to whom we outsource business operations may attempt to circumvent our security measures in order to misappropriate such
information, and may purposefully or inadvertently cause a breach involving such information. Third parties may have the technology or
know-how to breach the security of the personal information collected, stored, or transmitted by us or our franchisees, and our franchisees' and
our security measures, as well as those of our technology vendors, may not effectively prohibit others from obtaining improper access to this
information. Advances in computer and software capabilities and encryption technology, new tools, and other developments may increase the
risk of such a breach. If a person is able to circumvent our data security measures or that of third parties with whom we do business, he or she
could destroy or steal valuable information or disrupt our operations. Any security breach could expose us to risks of data loss, litigation,
liability, and could seriously disrupt our operations. Any resulting negative publicity could significantly harm our reputation and 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. Negative consumer sentiment
in the wake of the economic downturn has been widely reported over the past five years and may continue in 2014. 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. If the economic downturn continues for a prolonged period of time or becomes
more pervasive, 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. As long as
the weak economic environment continues, our franchisees' sales and profitability and our overall business and operating results could be
adversely affected.
Our substantial indebtedness could adversely affect our financial condition.
We have a significant amount of indebtedness. As of December 28, 2013, we had total indebtedness of approximately $1.8 billion, excluding
$3.0 million of undrawn letters of credit and $97.0 million of unused commitments under our senior credit facility.
Subject to the limits contained in the credit agreement governing our senior credit facility and our other debt instruments, we may be able to
incur substantial additional debt from time to time to finance working capital, capital expenditures, investments, or acquisitions, or for other
purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important
consequences, including:
•
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, or other general
corporate requirements;
- 11 -
Table of Contents
•
•
•
•
•
•
requiring a substantial portion of our cash flow to be dedicate to debt service payments instead of other purposes, thereby reducing the
amount of cash flow available for working capital, capital expenditures, acquisitions, and other general corporate purposes;
increasing our vulnerability to adverse changes in general economic, industry, and competitive conditions;
exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the senior credit facility,
are at variable rates of interest;
limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt at more favorable
interest rates; and
increasing our costs of borrowing.
Our variable rate debt exposes us to interest rate risk which could adversely affect our cash flow.
The borrowings under our senior credit facility bear interest at variable rates. Other debt we incur also could be variable rate debt. If market
interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect our cash flow. Although we
have variable-to-fixed interest rate swap agreements to hedge the floating interest rate on $900.0 million notional amount of our outstanding
term loan borrowings to limit our exposure to higher interest rates, they do not offer complete protection from this risk given the total amount
of our outstanding variable rate indebtedness.
The terms of our indebtedness restrict our current and future operations, particularly our ability to respond to changes or to take certain
actions.
The credit agreement governing our senior credit facility contains a number of restrictive covenants that impose significant operating and
financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our
ability to:
•
incur certain liens;
•
incur additional indebtedness and guarantee indebtedness;
•
pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;
•
prepay, redeem, or repurchase certain debt;
•
make investments, loans, advances, and acquisition;
•
sell or otherwise dispose of assets, including capital stock of our subsidiaries;
•
enter into transactions with affiliates;
•
alter the business we conduct;
•
enter into agreements restricting our subsidiaries' ability to pay dividends; and
•
consolidate, merge, or sell all or substantially all of our assets.
In addition, the restrictive covenants in the credit agreement governing our senior credit facility require us to maintain specified financial ratios
and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control.
A breach of the covenants under the credit agreement governing our senior credit facility could result in an event of default under the
applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other
debt to which a cross-acceleration or cross-default provision applies, including our interest rate swap agreements. In addition, an event of
default under the credit agreement governing our senior credit facility would permit the lenders under our senior credit facility to terminate all
commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our senior
credit facility, those lenders could proceed against the collateral granted to them to secure that indebtedness, which could force us into
bankruptcy or liquidation. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient
assets to repay that indebtedness.
If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our senior credit facility to
avoid being in default. If we breach our covenants under our senior credit facility and seek a waiver, we may
- 12 -
Table of Contents
not be able to obtain a waiver from the required lenders. If this occurs we would be in default under our senior credit facility, the lenders could
exercise their rights, as described above, and we could be forced into bankruptcy or liquidation. See “Management's discussion and analysis of
financial condition and results of operations—Liquidity and capital resources,” and “Description of indebtedness.”
Infringement, misappropriation, or dilution of our intellectual property could harm our business.
We regard our Dunkin' Donuts ® and Baskin-Robbins ® trademarks as having significant value and as being important factors in the marketing
of our brands. We have also obtained trademark protection for several of our product offerings and advertising slogans, including “America
Runs on Dunkin' ® ” and “What are you Drinkin'? ® ”. We believe that these and other intellectual property are valuable assets that are critical
to our success. We rely on a combination of protections provided by contracts, as well as copyright, patent, trademark, and other laws, such as
trade secret and unfair competition laws, to protect our intellectual property from infringement, misappropriation, or dilution. We have
registered certain trademarks and service marks and have other trademark and service mark registration applications pending in the U.S. and
foreign jurisdictions. However, not all of the trademarks or service marks that we currently use have been registered in all of the countries in
which we do business, and they may never be registered in all of those countries. Although we monitor trademark portfolios both internally and
through external search agents and impose an obligation on franchisees to notify us upon learning of potential infringement, there can be no
assurance that we will be able to adequately maintain, enforce, and protect our trademarks or other intellectual property rights. We are aware of
names and marks similar to our service marks being used by other persons in certain geographic areas in which we have restaurants. Although
we believe such uses will not adversely affect us, further or currently unknown unauthorized uses or other infringement of our trademarks or
service marks could diminish the value of our brands and may adversely affect our business. Effective intellectual property protection may not
be available in every country in which we have or intend to open or franchise a restaurant. Failure to adequately protect our intellectual
property rights could damage our brands and impair our ability to compete effectively. Even where we have effectively secured statutory
protection for our trade secrets and other intellectual property, our competitors may misappropriate our intellectual property and our employees,
consultants, and suppliers may breach their contractual obligations not to reveal our confidential information, including trade secrets. Although
we have taken measures to protect our intellectual property, there can be no assurance that these protections will be adequate or that third
parties will not independently develop products or concepts that are substantially similar to ours. Despite our efforts, it may be possible for
third-parties to reverse-engineer, otherwise obtain, copy, and use information that we regard as proprietary. Furthermore, defending or
enforcing our trademark rights, branding practices, and other intellectual property, and seeking an injunction and/or compensation for
misappropriation of confidential information, could result in the expenditure of significant resources and divert the attention of management,
which in turn may materially and adversely affect our business and operating results.
Although we monitor and restrict franchisee activities through our franchise and license agreements, franchisees may refer to our brands
improperly in writings or conversation, resulting in the dilution of our intellectual property. Franchisee noncompliance with the terms and
conditions of our franchise or license agreements may reduce the overall goodwill of our brands, whether through the failure to meet health and
safety standards, engage in quality control or maintain product consistency, or through the participation in improper or objectionable business
practices. Moreover, unauthorized third parties may use our intellectual property to trade on the goodwill of our brands, resulting in consumer
confusion or dilution. Any reduction of our brands' goodwill, consumer confusion, or dilution is likely to impact sales, and could materially and
adversely impact our business and operating results.
Under certain license agreements, our subsidiaries have licensed to Dunkin' Brands the right to use certain trademarks, and in connection with
those licenses, Dunkin' Brands monitors the use of trademarks and the quality of the licensed products. While courts have generally approved
the delegation of quality-control obligations by a trademark licensor to a licensee under appropriate circumstances, there can be no guarantee
that these arrangements will not be deemed invalid on the ground that the trademark owner is not controlling the nature and quality of goods
and services sold under the licensed trademarks.
The restaurant industry is affected by consumer preferences and perceptions. Changes in these preferences and perceptions may lessen the
demand for our products, which could reduce sales by our franchisees and reduce our royalty revenues.
The restaurant industry is affected by changes in consumer tastes, national, regional, and local economic conditions, and demographic trends.
For instance, if prevailing health or dietary preferences cause consumers to avoid donuts and other products we offer in favor of foods that are
perceived as more healthy, our franchisees' sales would suffer, resulting in lower royalty payments to us, and our business and operating results
would be harmed.
If we fail to successfully implement our growth strategy, which includes opening new domestic and international restaurants, our ability to
increase our revenues and operating profits could be adversely affected.
Our growth strategy relies in part upon new restaurant development by existing and new franchisees. We and our franchisees
- 13 -
Table of Contents
face many challenges in opening new restaurants, including:
•
availability of financing;
•
selection and availability of suitable restaurant locations;
•
competition for restaurant sites;
•
negotiation of acceptable lease and financing terms;
•
securing required domestic or foreign governmental permits and approvals;
•
consumer tastes in new geographic regions and acceptance of our products;
•
employment and training of qualified personnel;
•
impact of inclement weather, natural disasters, and other acts of nature; and
•
general economic and business conditions.
In particular, because the majority of our new restaurant development is funded by franchisee investment, our growth strategy is dependent on
our franchisees' (or prospective franchisees') ability to access funds to finance such development. We do not provide our franchisees with direct
financing and therefore their ability to access borrowed funds generally depends on their independent relationships with various financial
institutions. If our franchisees (or prospective franchisees) are not able to obtain financing at commercially reasonable rates, or at all, they may
be unwilling or unable to invest in the development of new restaurants, and our future growth could be adversely affected.
To the extent our franchisees are unable to open new stores as we anticipate, our revenue growth would come primarily from growth in
comparable store sales. Our failure to add a significant number of new restaurants or grow comparable store sales would adversely affect our
ability to increase our revenues and operating income and could materially and adversely harm our business and operating results.
Increases in commodity prices may negatively affect payments from our franchisees and licensees.
Coffee and other commodity prices are subject to substantial price fluctuations, stemming from variations in weather patterns, shifting political
or economic conditions in coffee-producing countries, and delays in the supply chain. If commodity prices rise, franchisees may experience
reduced sales, due to decreased consumer demand at retail prices that have been raised to offset increased commodity prices, which may reduce
franchisee profitability. Any such decline in franchisee sales will reduce our royalty income, which in turn may materially and adversely affect
our business and operating results.
Our joint ventures in Japan and South Korea (the “International JVs”), as well as our licensees in Russia and India, manufacture ice cream
products independently. Each of the International JVs owns a manufacturing facility in its country of operation. The revenues derived from the
International JVs differ fundamentally from those of other types of franchise arrangements in the system because the income that we receive
from the International JVs is based in part on the profitability, rather than the gross sales, of the restaurants operated by the International JVs.
Accordingly, in the event that the International JVs experience staple ingredient price increases that adversely affect the profitability of the
restaurants operated by the International JVs, that decrease in profitability would reduce distributions by the International JVs to us, which in
turn could materially and adversely impact our business and operating results.
Shortages of coffee could adversely affect our revenues.
If coffee consumption continues to increase worldwide or there is a disruption in the supply of coffee due to natural disasters, political unrest,
or other calamities, the global coffee supply may fail to meet demand. If coffee demand is not met, franchisees may experience reduced sales
which, in turn, would reduce our royalty income. Such a reduction in our royalty income may materially and adversely affect our business and
operating results.
We and our franchisees rely on computer systems to process transactions and manage our business, and a disruption or a failure of such
systems or technology could harm our ability to effectively manage our business.
Network and information technology systems are integral to our business. We utilize various computer systems, including our FAST System
and our EFTPay System, which are customized, web-based systems. The FAST System is the system by which our U.S. and Canadian
franchisees report their weekly sales and pay their corresponding royalty fees and required advertising fund contributions. When sales are
reported by a U.S. or Canadian franchisee, a withdrawal for the authorized amount is initiated from the franchisee's bank after 12 days (from
the week ending or month ending date). The FAST System is critical to our ability to accurately track sales and compute royalties due from our
U.S. and Canadian franchisees. The EFTPay System is
- 14 -
Table of Contents
used by our U.S. and Canadian franchisees to make payments against open, non-fee invoices (i.e., all invoices except royalty and advertising
funds). When a franchisee selects an invoice and submits the payment, on the following day a withdrawal for the selected amount is initiated
from the franchisee's bank. Despite the implementation of security measures, our systems, including the FAST System and the EFTPay System,
are subject to damage and/or interruption as a result of power outages, computer and network failures, computer viruses and other disruptive
software, security breaches, catastrophic events, and improper usage by employees. Such events could result in a material disruption in
operations, a need for a costly repair, upgrade or replacement of systems, or a decrease in, or in the collection of, royalties paid to us by our
franchisees. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or
inappropriate disclosure of confidential or proprietary information, we could incur liability which could materially affect our results of
operations.
Interruptions in the supply of product to franchisees and licensees could adversely affect our revenues.
In order to maintain quality-control standards and consistency among restaurants, we require through our franchise agreements that our
franchisees obtain food and other supplies from preferred suppliers approved in advance. In this regard, we and our franchisees depend on a
group of suppliers for ingredients, foodstuffs, beverages, and disposable serving instruments including, but not limited to, Rich Products Corp.,
Dean Foods Co., The Coca-Cola Company, and Silver Pail Dairy, Ltd. as well as four primary coffee roasters and three primary donut mix
suppliers. In 2013, we and our franchisees purchased products from over 400 approved domestic suppliers, with approximately 12 of such
suppliers providing half, based on dollar volume, of all products purchased domestically. We look to approve multiple suppliers for most
products, and require any single sourced supplier, such as The Coca-Cola Company, to have contingency plans in place to ensure continuity of
supply. In addition we believe that, if necessary, we could obtain readily available alternative sources of supply for each product that we
currently source through a single supplier. To facilitate the efficiency of our franchisees' supply chain, we have historically entered into several
preferred-supplier arrangements for particular food or beverage items.
The Dunkin' Donuts system is supported domestically by the franchisee-owned purchasing and distribution cooperative known as the National
Distributor Commitment Program. We have a long-term agreement with the National DCP, LLC (the “NDCP”) for the NDCP to provide
substantially all of the goods needed to operate a Dunkin' Donuts restaurant in the U.S. The NDCP also supplies some international markets.
The NDCP aggregates the franchisee demand, sends requests for proposals to approved suppliers, and negotiates contracts for approved items.
The NDCP also inventories the items in its seven regional distribution centers and ships products to franchisees at least one time per week. We
do not control the NDCP and have only limited contractual rights under our agreement with the NDCP associated with supplier certification
and quality assurance and protection of our intellectual property. While the NDCP maintains contingency plans with its approved suppliers and
has a contingency plan for its own distribution function to restaurants, our franchisees bear risks associated with the timeliness, solvency,
reputation, labor relations, freight costs, price of raw materials, and compliance with health and safety standards of each supplier (including
those of the International JVs) including, but not limited to, risks associated with contamination to food and beverage products. We have little
control over such suppliers. Disruptions in these relationships may reduce franchisee sales and, in turn, our royalty income.
Overall difficulty of suppliers (those of the International JVs) meeting franchisee product demand, interruptions in the supply chain, obstacles
or delays in the process of renegotiating or renewing agreements with preferred suppliers, financial difficulties experienced by suppliers, or the
deficiency, lack, or poor quality of alternative suppliers could adversely impact franchisee sales which, in turn, would reduce our royalty
income and could materially and adversely affect our business and operating results.
We may not be able to recoup our expenditures on properties we sublease to franchisees.
Pursuant to the terms of certain prime leases we have entered into with third-party landlords, we may be required to construct or improve a
property, pay taxes, maintain insurance, and comply with building codes and other applicable laws. The subleases we enter into with
franchisees related to such properties typically pass through such obligations, but if a franchisee fails to perform the obligations passed through
to them, we will be required to perform those obligations, resulting in an increase in our leasing and operational costs and expenses.
Additionally, in some locations, we may pay more rent and other amounts to third-party landlords under a prime lease than we receive from the
franchisee who subleases such property. Typically, our franchisees' rent is based in part on a percentage of gross sales at the restaurant, so a
downturn in gross sales would negatively affect the level of the payments we receive.
If the international markets in which we compete are affected by changes in political, social, legal, economic, or other factors, our business
and operating results may be materially and adversely affected.
As of December 28, 2013 , we had 8,014 international restaurants located in 54 foreign countries. The international operations of our
franchisees may subject us to additional risks, which differ in each country in which our franchisees operate, and such risks may negatively
affect our result in a delay in or loss of royalty income to us.
- 15 -
Table of Contents
The factors impacting the international markets in which restaurants are located may include:
•
recessionary or expansive trends in international markets;
•
changes in foreign currency exchange rates and hyperinflation or deflation in the foreign countries in which we or the International
JVs operate;
•
the imposition of restrictions on currency conversion or the transfer of funds;
•
availability of credit for our franchisees, licensees, and International JVs to finance the development of new restaurants;
•
increases in the taxes paid and other changes in applicable tax laws;
•
legal and regulatory changes and the burdens and costs of local operators' compliance with a variety of laws, including trade
restrictions and tariffs;
•
interruption of the supply of product;
•
increases in anti-American sentiment and the identification of the Dunkin' Donuts brand and Baskin-Robbins brand as American
brands;
•
political and economic instability; and
•
natural disasters and other calamities.
Any or all of these factors may reduce distributions from our International JVs or other international partners and/or royalty income, which in
turn may materially and adversely impact our business and operating results.
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 franchisee, and in
particular cases, expansion after minimum requirements are met is subject to the discretion of the master franchisee. In fiscal years 2013, 2012,
and 2011, we derived approximately 15.7%, 13.7%, and 15.1%, 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 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, as well as reports of incidents involving food-borne
illnesses or food tampering, whether or not accurate, could harm our brands and our business.
Some of our products contain caffeine, dairy products, sugar, 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, 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-calorie foods, have led to a rapidly rising rate of obesity. In the U.S. 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, 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. Similarly, instances or reports, whether true
or not,
- 16 -
Table of Contents
of unclean water supply, food-borne illnesses, and food tampering have in the past severely injured the reputations of companies in the food
processing, grocery, and QSR segments and could in the future affect us as well. Any report linking us or our franchisees to the use of unclean
water, food-borne illnesses, or food tampering could damage our brands' value immediately, severely hurt sales of beverages and food
products, and possibly lead to product liability claims. In addition, instances of food-borne illnesses or food tampering, even those occurring
solely at the restaurants of competitors, could, by resulting in negative publicity about the foodservice or restaurant industry, adversely affect
our sales on a regional or global basis. 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 28, 2013 , less than 1%
of our stores were operating without a written agreement. There is a risk that either category of these franchise arrangements may not be
enforceable under federal, state, and 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 breaches of
contract or wrongful termination under the franchise arrangements. In addition, we are, from time to time, the subject of complaints or
litigation from customers alleging illness, injury, or other food-quality, health, or operational concerns and from suppliers alleging breach of
contract. We may also be subject to employee claims based on, among other things, discrimination, harassment, or wrongful termination.
Finally, litigation against a franchisee or its affiliates by third parties, whether in the ordinary course of business or otherwise, may include
claims against us by virtue of our relationship with the defendant-franchisee. In addition to decreasing the ability of a defendant-franchisee to
make royalty payments and diverting our management resources, adverse publicity resulting from such allegations may materially and
adversely affect us and our brands, regardless of whether such allegations are valid or whether we are liable. Our international operations may
be subject to additional risks related to litigation, including difficulties in enforcement of contractual obligations governed by foreign law due
to differing interpretations of rights and obligations, compliance with multiple and potentially conflicting laws, new and potentially untested
laws and judicial systems, and reduced or diminished protection of intellectual property. A substantial unsatisfied judgment against us or one of
our subsidiaries could result in bankruptcy, which would materially and adversely affect our business and operating results.
Our business is subject to various laws and regulations and changes in such laws and regulations, and/or failure to comply with existing or
future laws and regulations, could adversely affect us.
We are subject to state franchise registration requirements, the rules and regulations of the Federal Trade Commission (the “FTC”), various
state laws regulating the offer and sale of franchises in the U.S. through the provision of franchise disclosure documents containing certain
mandatory disclosures, and certain rules and requirements regulating franchising arrangements in foreign countries. Although we believe that
the Franchisors' Franchise Disclosure Documents, together with any applicable state-specific versions or supplements, and franchising
procedures that we use comply in all material respects with both the FTC guidelines and all applicable state laws regulating franchising in those
states in which we offer new franchise arrangements, noncompliance could reduce anticipated royalty income, which in turn may materially
and adversely affect our business and operating results.
Our franchisees are subject to various existing U.S. federal, state, local, and foreign laws affecting the operation of the restaurants including
various health, sanitation, fire, and safety standards. Franchisees may in the future become subject to regulation (or further regulation) seeking
to tax or regulate high-fat foods, to limit the serving size of beverages containing sugar, to ban the use of certain packaging materials (including
polystyrene used in the iconic Dunkin' Donuts cup), or requiring
- 17 -
Table of Contents
the display of detailed nutrition information. Each of these regulations would be costly to comply with and/or could result in reduced demand
for our products.
In connection with the continued operation or remodeling of certain restaurants, franchisees may be required to expend funds to meet U.S.
federal, state, and local and foreign regulations. Difficulties in obtaining, or the failure to obtain, required licenses or approvals could delay or
prevent the opening of a new restaurant in a particular area or cause an existing restaurant to cease operations. All of these situations would
decrease sales of an affected restaurant and reduce royalty payments to us with respect to such restaurant.
The franchisees are also subject to the Fair Labor Standards Act of 1938, as amended, and various other laws in the U.S. and in foreign
countries governing such matters as minimum-wage requirements, overtime and other working conditions, and citizenship requirements. A
significant number of our franchisees' food-service employees are paid at rates related to the U.S. federal minimum wage, and past increases in
the U.S. federal minimum wage have increased labor costs, as would future increases. Any increases in labor costs might result in franchisees
inadequately staffing restaurants. Understaffed restaurants could reduce sales at such restaurants, decrease royalty payments, and adversely
affect our brands.
Our and our franchisees' operations and properties are subject to extensive U.S. federal, state, and local laws and regulations, including those
relating to environmental, building, and zoning requirements. Our development of properties for leasing or subleasing to franchisees depends to
a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic, and other
regulations and requirements. Failure to comply with legal requirements could result in, among other things, revocation of required licenses,
administrative enforcement actions, fines, and civil and criminal liability. We may incur investigation, remediation, or other costs related to
releases of hazardous materials or other environmental conditions at our properties, regardless of whether such environmental conditions were
created by us or a third party, such as a prior owner or tenant. We have incurred costs to address soil and groundwater contamination at some
sites, and continue to incur nominal remediation costs at some of our other locations. If such issues become more expensive to address, or if
new issues arise, they could increase our expenses, generate negative publicity, or otherwise adversely affect us.
Our tax returns and positions are subject to review and audit by foreign, federal, state, and local taxing authorities, and adverse outcomes
resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition.
We are subject to income taxes in both the United States and numerous foreign jurisdictions. The Internal Revenue Service (“IRS”) concluded
its examination of the federal income tax returns for the fiscal year 2010 during fiscal year 2013 and agreed to a settlement regarding the
recognition of revenue for gift cards and other matters. The Company made a cash payment for the additional federal tax due totaling $3.0
million . Based on this and previous settlements, additional state taxes and federal and state interest owed, net of federal and state benefits, are
approximately $1.5 million , of which approximately $0.8 million was paid during fiscal year 2013. As the additional federal and state taxes
owed for all periods represent temporary differences that will be deductible in future years, the potential tax expense is limited to federal and
state interest, net of federal and state benefits, which we do not expect to be material. See Note 16 of the notes to our audited consolidated
financial statements included herein.
We are subject to a variety of additional risks associated with our franchisees.
Our franchise system subjects us to a number of risks, any one of which may impact our ability to collect royalty payments from our
franchisees, may harm the goodwill associated with our brands, and/or may materially and adversely impact our business and results of
operations.
Bankruptcy of U.S. Franchisees. A franchisee bankruptcy could have a substantial negative impact on our ability to collect payments due under
such franchisee's franchise arrangements and, to the extent such franchisee is a lessee pursuant to a franchisee lease/sublease with us, payments
due under such franchisee lease/sublease. In a franchisee bankruptcy, the bankruptcy trustee may reject its franchise arrangements and/or
franchisee lease/sublease pursuant to Section 365 under the United States bankruptcy code, in which case there would be no further royalty
payments and/or franchisee lease/sublease payments from such franchisee, and there can be no assurance as to the proceeds, if any, that may
ultimately be recovered in a bankruptcy proceeding of such franchisee in connection with a damage claim resulting from such rejection.
Franchisee Changes in Control. The franchise arrangements prohibit “changes in control” of a franchisee without our consent as the franchisor,
except in the event of the death or disability of a franchisee (if a natural person) or a principal of a franchisee entity. In such event, the
executors and representatives of the franchisee are required to transfer the relevant franchise arrangements to a successor franchisee approved
by the franchisor. There can be, however, no assurance that any such successor would be found or, if found, would be able to perform the
former franchisee's obligations under such franchise arrangements or successfully operate the restaurant. If a successor franchisee is not found,
or if the successor franchisee that is found is not as successful in operating the restaurant as the then-deceased or disabled franchisee or
franchisee principal, the
- 18 -
Table of Contents
sales of the restaurant could be adversely affected.
Franchisee Insurance. The franchise arrangements require each franchisee to maintain certain insurance types and levels. Certain extraordinary
hazards, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with
respect to many other risks. Moreover, any loss incurred could exceed policy limits and policy payments made to franchisees may not be made
on a timely basis. Any such loss or delay in payment could have a
material and adverse effect on a franchisee's ability to satisfy its obligations under its franchise arrangement, including its ability to make
royalty payments.
Some of Our Franchisees are Operating Entities. Franchisees may be natural persons or legal entities. Our franchisees that are operating
companies (as opposed to limited purpose entities) are subject to business, credit, financial, and other risks, which may be unrelated to the
operations of the restaurants. These unrelated risks could materially and adversely affect a franchisee that is an operating company and its
ability to make its royalty payments in full or on a timely basis, which in turn may materially and adversely affect our business and operating
results.
Franchise Arrangement Termination; Nonrenewal. Each franchise arrangement is subject to termination by us as the franchisor in the event of
a default, generally after expiration of applicable cure periods, although under certain circumstances a franchise arrangement may be
terminated by us upon notice without an opportunity to cure. The default provisions under the franchise arrangements are drafted broadly and
include, among other things, any failure to meet operating standards and actions that may threaten our licensed intellectual property.
In addition, each franchise agreement has an expiration date. Upon the expiration of the franchise arrangement, we or the franchisee may, or
may not, elect to renew the franchise arrangements. If the franchisee arrangement is renewed, the franchisee will receive a “successor”
franchise arrangement for an additional term. Such option, however, is contingent on the franchisee's execution of the then-current form of
franchise arrangements (which may include increased royalty payments, advertising fees, and other costs), the satisfaction of certain conditions
(including modernization of the restaurant and related operations), and the payment of a renewal fee. If a franchisee is unable or unwilling to
satisfy any of the foregoing conditions, the expiring franchise arrangements will terminate upon expiration of the term of the franchise
arrangements.
Product Liability Exposure. We require franchisees to maintain general liability insurance coverage to protect against the risk of product
liability and other risks and demand strict franchisee compliance with health and safety regulations. However, franchisees may receive through
the supply chain (from central manufacturing locations (“CMLs”), NDCP, or otherwise), or produce defective food or beverage products,
which may adversely impact our brands' goodwill.
Americans with Disabilities Act. Restaurants located in the U.S. must comply with Title III of the Americans with Disabilities Act of 1990, as
amended (the “ADA”). Although we believe newer restaurants meet the ADA construction standards and, further, that franchisees have
historically been diligent in the remodeling of older restaurants, a finding of noncompliance with the ADA could result in the imposition of
injunctive relief, fines, an award of damages to private litigants, or additional capital expenditures to remedy such noncompliance. Any
imposition of injunctive relief, fines, damage awards, or capital expenditures could adversely affect the ability of a franchisee to make royalty
payments, or could generate negative publicity, or otherwise adversely affect us.
Franchisee Litigation. Franchisees are subject to a variety of litigation risks, including, but not limited to, customer claims, personal-injury
claims, environmental claims, employee allegations of improper termination and discrimination, claims related to violations of the ADA,
religious freedom, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and
intellectual-property claims. Each of these claims may increase costs and limit the funds available to make royalty payments and reduce the
execution of new franchise arrangements.
Potential Conflicts with Franchisee Organizations . Although we believe our relationship with our franchisees is open and strong, the nature of
the franchisor-franchisee relationship can give rise to conflict. In the U.S., our approach is collaborative in that we have established district
advisory councils, regional advisory councils, and a national brand advisory council for each of the Dunkin' Donuts brand and the
Baskin-Robbins brand. The councils are comprised of franchisees, brand employees, and executives, and they meet to discuss the strengths,
weaknesses, challenges, and opportunities facing the brands as well as the rollout of new products and projects. Internationally, our operations
are primarily conducted through joint ventures with local licensees, so our relationships are conducted directly with our licensees rather than
separate advisory committees. No material disputes exist in the U.S. or internationally at this time.
Failure to retain our existing senior management team or the inability to attract and retain new qualified personnel could hurt our business
and inhibit our ability to operate and grow successfully.
Our success will continue to depend to a significant extent on our executive management team and the ability of other key management
personnel to replace executives who retire or resign. We may not be able to retain our executive officers and key
- 19 -
Table of Contents
personnel or attract additional qualified management personnel to replace executives who retire or resign. Failure to retain our leadership team
and attract and retain other important personnel could lead to ineffective management and operations, which could materially and adversely
affect our business and operating results.
Unforeseen weather or other events may disrupt our business.
Unforeseen events, including war, terrorism, and other international, regional, or local instability or conflicts (including labor issues),
embargos, public health issues (including tainted food, food-borne illnesses, food tampering, or water supply or widespread/pandemic illness
such as the avian or H1N1 flu), and natural disasters such as earthquakes, tsunamis, hurricanes, or other adverse weather and climate
conditions, whether occurring in the U.S. or abroad, could disrupt our operations or that of our franchisees or suppliers; or result in political or
economic instability. These events could reduce traffic in our restaurants and demand for our products; make it difficult or impossible for our
franchisees to receive products from their suppliers; disrupt or prevent our ability to perform functions at the corporate level; and/or otherwise
impede our or our franchisees' ability to continue business operations in a continuous manner consistent with the level and extent of business
activities prior to the occurrence of the unexpected event or events, which in turn may materially and adversely impact our business and
operating results.
Risks related to our common stock
Our stock price could be extremely volatile and, as a result, you may not be able to resell your shares at or above the price you paid for
them.
Since our initial public offering in July 2011, the price of our common stock, as reported by NASDAQ, has ranged from a low of $23.24 on
December 15, 2011 to a high of $50.80 on February 19, 2014. In addition, the stock market in general has been highly volatile. As a result, the
market price of our common stock is likely to be similarly volatile, and investors in our common stock may experience a decrease, which could
be substantial, in the value of their stock, including decreases unrelated to our operating performance or prospects, and could lose part or all of
their investment. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those
described elsewhere in this report and others such as:
•
variations in our operating performance and the performance of our competitors;
•
actual or anticipated fluctuations in our quarterly or annual operating results;
•
publication of research reports by securities analysts about us, our competitors, or our industry;
•
our failure or the failure of our competitors to meet analysts' projections or guidance that we or our competitors may give to the
market;
•
additions and departures of key personnel;
•
strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments, or
changes in business strategy;
•
the passage of legislation or other regulatory developments affecting us or our industry;
•
speculation in the press or investment community;
•
changes in accounting principles;
•
terrorist acts, acts of war, or periods of widespread civil unrest;
•
natural disasters and other calamities; and
•
changes in general market and economic conditions.
As we operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry, our products, or to a
lesser extent our markets. In the past, securities class action litigation has often been initiated against companies following periods of volatility
in their stock price. This type of litigation could result in substantial costs and divert our management's attention and resources, and could also
require us to make substantial payments to satisfy judgments or to settle litigation.
- 20 -
Table of Contents
Provisions in our charter documents and Delaware law may deter takeover efforts that you feel would be beneficial to stockholder value.
Our certificate of incorporation and bylaws and Delaware law contain provisions which could make it harder for a third party to acquire us,
even if doing so might be beneficial to our stockholders. These provisions include a classified board of directors and limitations on actions by
our stockholders. In addition, our board of directors has the right to issue preferred stock without stockholder approval that could be used to
dilute a potential hostile acquirer. Our certificate of incorporation also imposes some restrictions on mergers and other business combinations
between us and a holder of 15% or more of our outstanding common stock. As a result, you may lose your ability to sell your stock for a price
in excess of the prevailing market price due to these protective measures, and efforts by stockholders to change the direction or management of
the company may be unsuccessful.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters, located in Canton, Massachusetts, houses substantially all of our executive management and employees who
provide our primary corporate support functions: legal, marketing, technology, human resources, public relations, financial and research and
development.
As of December 28, 2013, we owned 98 properties and leased 911 locations across the U.S. and Canada, a majority of which we leased or
subleased to franchisees. For fiscal year 2013, we generated 13.5%, or $96.1 million, of our total revenue from rental fees from franchisees
who lease or sublease their properties from us.
The remaining balance of restaurants selling our products are situated on real property owned by franchisees or leased directly by franchisees
from third-party landlords. All international restaurants (other than 10 located in Canada) are owned by licensees and their sub-franchisees or
leased by licensees and their sub-franchisees directly from a third-party landlord.
Nearly 100% of Dunkin’ Donuts and Baskin-Robbins restaurants are owned and operated by franchisees. We have construction and site
management personnel who oversee the construction of restaurants by outside contractors. The restaurants are built to our specifications as to
exterior style and interior decor. As of December 28, 2013, there were 10,858 Dunkin' Donuts points of distribution, operating in 40 states and
the District of Columbia in the U.S. and 32 foreign countries. Baskin-Robbins points of distribution totaled 7,300, operating in 43 states and the
District of Columbia in the U.S. and 46 foreign countries. All but 36 of the Dunkin’ Donuts and Baskin-Robbins points of distribution were
franchisee-owned. The following table illustrates domestic and international points of distribution by brand and whether they are operated by
the Company or our franchisees as of December 28, 2013.
Franchisee-owned points of
distribution
Company-owned points of
distribution
Dunkin’ Donuts—US*
Dunkin’ Donuts—International
Total Dunkin’ Donuts*
7,648
3,181
10,829
29
—
29
Baskin-Robbins—US*
Baskin-Robbins—International
Total Baskin-Robbins*
2,460
4,833
7,293
7
—
7
10,108
8,014
36
—
Total US
Total International
*
Combination restaurants, as more fully described below, count as both a Dunkin’ Donuts and a Baskin-Robbins point of distribution.
Dunkin’ Donuts and Baskin-Robbins restaurants operate in a variety of formats. Dunkin’ Donuts traditional restaurant formats include free
standing restaurants, end-caps (i.e., end location of a larger multi-store building), and gas and convenience locations. A free-standing building
typically ranges in size from 1,200 to 2,500 square feet, and may include a drive-thru window. An end-cap typically ranges in size from 1,000
to 2,000 square feet and may include a drive-thru window. Dunkin’ Donuts also has other restaurants designed to fit anywhere, consisting of
small full-service restaurants and/or self-serve kiosks in offices, hospitals, colleges, airports, grocery stores, and drive-thru-only units on
smaller pieces of property (collectively referred to as alternative points of distributions or “APODs”). APODs typically range in size between
400 to 1,800 square feet.
- 21 -
Table of Contents
The majority of our Dunkin’ Donuts restaurants have their fresh baked goods delivered to them from franchisee-owned and -operated CMLs.
Baskin-Robbins traditional restaurant formats include free standing restaurants and end-caps. A free-standing building typically ranges in size
from 600 to 1,200 square feet, and may include a drive-thru window. An end-cap typically ranges in size from 800 to 1,200 square feet and
may include a drive-thru window. We also have other restaurants, consisting of small full-service restaurants and/or self-serve kiosks
(collectively referred to as APODs). APODs typically range in size between 400 to 1,000 square feet.
In the U.S., Baskin-Robbins can also be found in 1,182 combination restaurants (“combos”) that also include a Dunkin’ Donuts restaurant, and
are typically either free-standing or an end-cap. These combos, which we count as both a Dunkin’ Donuts and a Baskin-Robbins point of
distribution, typically range from 1,400 to 3,500 square feet.
Of the 10,108 U.S. franchised restaurants, 92 were sites owned by the Company and leased to franchisees, 852 were leased by us, and in turn,
subleased to franchisees, with the remainder either owned or leased directly by the franchisee. Our land or land and building leases are
generally for terms of ten to 20 years, and often have one or more five-year or ten-year renewal options. In certain lease agreements, we have
the option to purchase, or the right of first refusal to purchase, the real estate. Certain leases require the payment of additional rent equal to a
percentage of annual sales in excess of specified amounts.
Of the sites owned or leased by the Company in the U.S., 17 are locations that no longer have a Dunkin’ Donuts or Baskin-Robbins restaurant
(“surplus properties”). Some of these surplus properties have been sublet to other parties while the remaining are currently vacant.
We have 10 leased franchised restaurant properties and 2 surplus leased properties in Canada. We also have leased office space in Australia,
China, Dubai, and the United Kingdom.
The following table sets forth the Company’s owned and leased office and training facilities, including the approximate square footage of each
facility. None of these owned properties, or the Company’s leasehold interest in leased property, is encumbered by a mortgage.
Location
Type
Canton, MA
Braintree, MA (training facility)
Burbank, CA (training facility)
Dubai, United Arab Emirates (regional office space)
Shanghai, China (regional office space)
Various (regional sales offices)
Item 3. Legal Proceedings.
Owned/Leased
Office
Office
Office
Office
Office
Office
Leased
Owned
Leased
Leased
Leased
Leased
Approximate Sq. Ft.
175,000
15,000
19,000
3,200
1,700
Range of 150 to 300
In May 2003, a group of Dunkin’ Donuts franchisees from Quebec, Canada filed a lawsuit against the Company on a variety of claims, based
on events which primarily occurred 10 to 15 years ago , including but not limited to, alleging that the Company breached its franchise
agreements and provided inadequate management and support to Dunkin’ Donuts franchisees in Quebec (“Bertico litigation”). On June 22,
2012, the Quebec Superior Court found for the plaintiffs and issued a judgment against the Company in the amount of approximately C$16.4
million (approximately $15.9 million ), plus costs and interest, representing loss in value of the franchises and lost profits. During the second
quarter of 2012, the Company increased its estimated liability related to the Bertico litigation by $20.7 million to reflect the judgment amount
and estimated plaintiff legal costs and interest. During fiscal years 2013 and 2012, the Company accrued additional interest on the judgment
amount of $952 thousand and $493 thousand , respectively, resulting in an estimated liability of $25.1 million , including the impact of foreign
exchange, as of December 28, 2013 . The Company strongly disagrees with the decision reached by the Court and believes the damages
awarded were unwarranted. As such, the Company is vigorously appealing the decision in the Quebec Court of Appeals (Montreal).
In addition, 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. 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 all matters could increase by up to an
additional $12.0 million based on the outcome of ongoing litigation or negotiations.
- 22 -
Table of Contents
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock has been listed on the NASDAQ Global Select Market under the symbol “DNKN” since July 27, 2011. Prior to that time,
there was no public market for our common stock. The following table sets forth for the periods indicated the high and low sale prices of our
common stock on the NASDAQ Global Select Market.
Fiscal Quarter
High
Low
2013
Fourth Quarter (13 weeks ended December 28, 2013)
Third Quarter (13 weeks ended September 28, 2013)
Second Quarter (13 weeks ended June 29, 2013)
First Quarter (13 weeks ended March 30, 2013)
$
$
$
$
49.48
46.50
43.52
40.00
$
$
$
$
43.91
40.51
36.67
32.32
2012
Fourth Quarter (13 weeks ended December 29, 2012)
Third Quarter (13 weeks ended September 29, 2012)
Second Quarter (13 weeks ended June 30, 2012)
First Quarter (13 weeks ended March 31, 2012)
$
$
$
$
33.49
36.11
37.02
32.44
$
$
$
$
28.62
27.93
29.58
24.35
On February 18, 2014, we had 547 holders of record of our common stock.
Dividend policy
During fiscal years 2013 and 2012, the Company paid dividends on common stock as follows:
Total amount (in
thousands)
Dividend per share
Payment date
Fiscal year 2013:
First quarter
Second quarter
Third quarter
Fourth quarter
$
$
$
$
0.19
0.19
0.19
0.19
$
$
$
$
20,191
20,259
20,257
20,301
February 20, 2013
June 6, 2013
September 4, 2013
November 26, 2013
Fiscal year 2012:
First quarter
Second quarter
Third quarter
Fourth quarter
$
$
$
$
0.15
0.15
0.15
0.15
$
$
$
$
18,046
18,068
18,075
15,880
March 28, 2012
May 16, 2012
August 24, 2012
November 14, 2012
On February 6, 2014 , we announced that our board of directors approved an increase to the next quarterly dividend to $0.23 per share of
common stock payable March 19, 2014 .
- 23 -
Table of Contents
The following table contains information regarding purchases of our common stock made during the quarter ended December 28, 2013 by or
on behalf of Dunkin' Brands Group, Inc. or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Securities Exchange Act of 1934:
Issuer Purchases of Equity Securities
Period
09/29/2013 - 10/26/2013
10/27/2013 - 11/30/2013
12/01/2013 - 12/28/2013
Total
Total Number of
Shares Purchased
—
31,200
199,500
230,700
Average Price Paid Per
Share
$
—
46.84
46.66
$
46.69
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (a)
—
31,200
199,500
230,700
Approximate Dollar
Value of Shares that
May Yet be Purchased
Under the Plans or
Programs (a)
$
32,813,356
31,351,948
22,043,278
On July 25, 2012, our board of directors approved a share repurchase program of up to $500 million of outstanding shares of our common
stock. Under the authorization, purchases may be made in the open market or in privately negotiated transactions from time to time subject to
market conditions. This repurchase authorization expires two years from the date of approval.
(a)
On February 4, 2014, our board of directors approved an additional share repurchase program of up to $125 million of outstanding shares of
our common stock. Under the authorization, purchases may be made in the open market or in privately negotiated transactions from time to
time subject to market conditions. This repurchase authorization expires two years from the date of approval.
Securities authorized for issuance under our equity compensation plans
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
TOTAL
(a)
(b)
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
4,328,068
$
16.52
9,831,164
—
4,328,068
$
—
16.52
—
9,831,164
- 24 -
Table of Contents
Performance Graph
The following graph depicts the total return to shareholders from July 27, 2011, the date our common stock became listed on the NASDAQ
Global Select Market, through December 28, 2013 , relative to the performance of the Standard & Poor’s 500 Index and the Standard & Poor’s
500 Consumer Discretionary Sector, a peer group. The graph assumes an investment of $100 in our common stock and each index on July 27,
2011 and the reinvestment of dividends paid since that date. The stock price performance shown in the graph is not necessarily indicative of
future price performance.
7/27/2011
Dunkin’ Brands Group, Inc. (DNKN)
S&P 500
S&P Consumer Discretionary
$
$
$
- 25 -
100.00
100.00
100.00
12/31/2011
$
$
$
99.92
94.42
95.65
12/29/2012
$
$
$
132.02
105.29
114.27
12/28/2013
$
$
$
198.43
138.25
163.04
Table of Contents
Item 6. Selected Financial Data.
The following table sets forth our selected historical consolidated financial and other data, and should be read in conjunction with
“Management’s discussion and analysis of financial condition and results of operations” and the consolidated financial statements and the
related notes thereto appearing elsewhere in this Annual Report on Form 10-K. The selected historical financial data has been derived from our
audited consolidated financial statements. Historical results are not necessarily indicative of the results to be expected for future periods. The
data in the following table related to adjusted operating income, adjusted net income, points of distribution, comparable store sales growth,
franchisee-reported sales, company-owned store sales, and systemwide sales growth are unaudited for all periods presented. The data for fiscal
year 2011 reflects the results of operations for a 53-week period. All other periods presented reflect the results of operations for 52-week
periods.
Fiscal Year
2013
Consolidated Statements of Operations
Data:
Franchise fees and royalty income
Rental income
Sales of ice cream products
Sales at company-owned restaurants
Other revenues
Total revenues
Amortization of intangible assets
$
Long-lived asset impairment charges
Other operating costs and expenses (1)(2)
Total operating costs and expenses
Net income (loss) of equity method
investments (3)
Operating income
Interest expense, net
Gain (loss) on debt extinguishment and
refinancing transactions
Other gains (losses), net
Income before income taxes
Net income attributable to Dunkin' Brands $
Earnings (loss) per share:
Class L—basic and diluted
Common—basic
$
Common—diluted
2012
2011
2010
($ in thousands, except per share data or as otherwise noted)
2009
453,976
96,082
112,276
24,976
26,530
713,840
26,943
563
406,288
433,794
418,940
96,816
94,659
22,922
24,844
658,181
26,943
1,278
412,882
441,103
398,474
92,145
100,068
12,154
25,357
628,198
28,025
2,060
389,329
419,414
359,927
91,102
84,989
17,362
23,755
577,135
32,467
7,075
361,893
401,435
344,020
93,651
75,256
2,170
22,976
538,073
35,994
8,517
323,318
367,829
18,370
304,736
(79,831 )
22,351
239,429
(73,488)
(3,475)
205,309
(104,449)
17,825
193,525
(112,532)
14,301
184,545
(115,019)
(5,018 )
(1,799 )
218,088
146,903
(3,963)
23
162,001
108,308
(34,222)
175
66,813
34,442
(61,955)
408
19,446
26,861
3,684
1,066
74,276
35,008
6.14
(1.41)
(1.41)
4.87
(2.04)
(2.04)
n/a
1.38
1.36
n/a
0.94
0.93
- 26 -
4.57
(1.69)
(1.69)
Table of Contents
Fiscal Year
2013
2012
2011
2010
($ in thousands, except per share data or as otherwise noted)
2009
Consolidated Balance Sheet Data:
Total cash, cash equivalents, and restricted cash
(4)
$
257,238
3,234,690
1,831,037
2,822,402
—
407,358
252,985
3,217,513
1,857,580
2,867,538
—
349,975
246,984
3,224,018
1,473,469
2,478,082
—
745,936
$
31,099
340,396
165,761
22,398
307,157
149,700
7,677
3,181
2,467
4,833
18,158
7,306
3,043
2,463
4,556
17,368
Total assets
Total debt (5)
Total liabilities
Common stock, Class L (6)
Total stockholders’ equity (deficit) (6)
Other Financial Data:
Capital expenditures
Adjusted operating income (7)
Adjusted net income (7)
Points of Distribution (8) :
Dunkin’ Donuts U.S.
Dunkin’ Donuts International (9)
Baskin-Robbins U.S.
Baskin-Robbins International (9)
Total distribution points
Comparable Store Sales Growth (Decline) (10)
:
Dunkin’ Donuts U.S.
Dunkin’ Donuts International (11)
Baskin-Robbins U.S.
Baskin-Robbins International (11)
Franchisee-Reported Sales ($ in millions) (12)
:
Dunkin’ Donuts U.S.
$
Dunkin’ Donuts International
Baskin-Robbins U.S.
Baskin-Robbins International
Total franchisee-reported sales
$
Company-Owned Store Sales ($ in millions)
(13) :
Dunkin’ Donuts U.S.
Baskin-Robbins U.S.
Systemwide Sales Growth (14) :
Dunkin’ Donuts U.S.
Dunkin’ Donuts International
Baskin-Robbins U.S.
Baskin-Robbins International
Total systemwide sales growth
(1)
(2)
$
3.4 %
(0.4 )%
0.8 %
1.9 %
4.2%
2.0%
3.8%
2.8%
134,504
3,147,288
1,864,881
2,841,047
840,582
(534,341)
171,403
3,224,717
1,451,757
2,454,109
1,232,001
(461,393)
18,596
270,740
101,744
15,358
233,067
87,759
18,012
229,056
59,504
7,015
2,871
2,493
4,217
16,596
6,772
2,931
2,585
3,848
16,136
6,566
2,600
2,637
3,570
15,373
5.1%
n/a
0.5%
n/a
2.3 %
n/a
(5.2)%
n/a
(1.3)%
n/a
(6.0)%
n/a
6,717.5
683.6
513.3
1,362.0
9,276.4
6,242.0
663.2
509.3
1,356.8
8,771.3
5,919.2
636.7
501.7
1,286.3
8,343.9
5,403.3
583.6
500.6
1,151.5
7,639.0
5,173.8
508.1
530.4
963.2
7,175.5
24.6
0.4
22.2
0.7
11.6
0.5
16.9
0.4
1.8
0.4
9.4%
9.1%
0.2%
11.7%
9.1%
4.7 %
15.0 %
(5.6)%
19.5 %
6.7 %
7.6 %
3.1 %
0.7 %
0.4 %
5.8 %
5.6%
4.2%
1.5%
5.5%
5.2%
3.4 %
(4.0)%
(6.5)%
21.5 %
4.1 %
Includes management fees paid to our former private equity owners of $16.4 million for fiscal year 2011, and $3.0 million for each of
the fiscal years 2010 and 2009 under a management agreement, which was terminated in connection with our IPO.
Fiscal year 2012 includes a $20.7 million incremental legal reserve recorded in the second quarter 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 (approximately $15.9 million), plus costs and interest.
- 27 -
Table of Contents
(3)
(4)
(5)
(6)
(7)
Fiscal year 2013 includes an impairment of the investments in the Spain joint venture of $873 thousand. Fiscal year 2011 includes an
impairment of the investment in the Korea joint venture of $19.8 million.
Amount as of December 26, 2009 includes cash held in restricted accounts pursuant to the terms of a securitization indebtedness of
$118.2 million. Following the redemption and discharge of the securitization indebtedness in fiscal year 2010, this amount is no
longer restricted. The amount also includes cash held as advertising funds or reserved for gift card/certificate programs.
Includes capital lease obligations of $7.4 million , $7.6 million , $5.2 million, $5.4 million, and $5.4 million as of December 28,
2013 , December 29, 2012, December 31, 2011, December 25, 2010, and December 26, 2009, respectively.
Prior to our IPO in fiscal year 2011, the Company had two classes of common stock, Class L and common. Class L common stock
was classified outside of permanent equity at its preferential distribution amount, as the Class L stockholders controlled the timing
and amount of distributions. Immediately prior to our IPO, each share of Class L common stock converted into 2.4338 shares of
common stock, and the preferential distribution amount of Class L common stock at the date of conversion was reclassified into
additional paid-in capital within permanent equity.
Adjusted operating income 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. The Company uses adjusted operating income and adjusted net income as key
performance measures for the purpose of evaluating performance internally. We also believe adjusted operating income and adjusted
net income provide our investors with useful information regarding our historical operating results. These non-GAAP measurements
are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms adjusted operating
income and adjusted net income may differ from similar measures reported by other companies. Adjusted operating income and
adjusted net income are reconciled from operating income and net income, respectively, determined under GAAP as follows:
- 28 -
Table of Contents
Fiscal Year
2013
2012
2011
(Unaudited, $ in thousands)
2010
2009
Operating income
Adjustments:
Amortization of other intangible assets
Impairment charges
Third-party product volume guarantee
Sponsor termination fee
Secondary offering costs
Peterborough plant closure (a)
Korea joint venture impairment, net (b)
Bertico litigation (c)
Adjusted operating income
$
304,736
239,429
205,309
193,525
184,545
$
26,943
563
7,500
—
—
654
—
—
340,396
26,943
1,278
—
—
4,783
14,044
—
20,680
307,157
28,025
2,060
—
14,671
1,899
—
18,776
—
270,740
32,467
7,075
—
—
—
—
—
—
233,067
35,994
8,517
—
—
—
—
—
—
229,056
Net income attributable to Dunkin' Brands
Adjustments:
Amortization of other intangible assets
Impairment charges
Third-party product volume guarantee
Sponsor termination fee
Secondary offering costs
Peterborough plant closure (a)
Korea joint venture impairment, net (b)
Bertico litigation (c)
Loss (gain) on debt extinguishment and
refinancing transactions
Tax impact of adjustments, excluding
Bertico litigation (d)
Tax impact of Bertico adjustment (e)
Income tax audit settlements (f)
State tax apportionment (g)
Adjusted net income
$
146,903
108,308
34,442
26,861
35,008
26,943
563
7,500
—
—
654
—
—
26,943
1,278
—
—
4,783
14,044
—
20,680
28,025
2,060
—
14,671
1,899
—
18,776
—
32,467
7,075
—
—
—
—
—
—
35,994
8,517
—
—
—
—
—
—
5,018
3,963
34,222
61,955
(3,684)
(32,351)
—
—
—
101,744
(40,599)
—
—
—
87,759
(16,331)
—
—
—
59,504
(a)
(b)
(c)
(d)
(e)
(f)
$
(16,271)
—
(8,417)
2,868
165,761
(20,404)
(3,980)
(10,514)
4,599
149,700
For fiscal year 2013, the adjustment represents transition-related general and administrative costs incurred related to the closure of the
Baskin-Robbins ice cream manufacturing plant in Peterborough, Canada, such as information technology integration, project management,
and transportation costs. For fiscal year 2012, the adjustment included $3.4 million of severance and other payroll-related costs, $4.2
million of accelerated depreciation, $2.7 million of incremental costs of ice cream products, and $1.6 million of other transition-related
costs. The amount for fiscal year 2012 also reflects 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.
Amount consists of an impairment of the investment in the Korea joint venture of $19.8 million, less a reduction in depreciation and
amortization, net of tax, of $1.0 million resulting from the allocation of the impairment charge to the underlying intangible and long-lived
assets of the joint venture.
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 (approximately $15.9 million), plus costs and interest.
Tax impact of adjustments calculated at a 40% effective tax rate for each period presented, excluding the Korea joint venture impairment
in fiscal year 2011 as there was no tax impact related to that charge and the Bertico litigation adjustment for which the tax impact is
calculated separately.
Tax impact of Bertico litigation adjustment calculated as if the incremental reserve had not been recorded, considering statutory tax rates
and deductibility.
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.
- 29 -
Table of Contents
(g)
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.
(8)
(9)
Represents period end points of distribution.
During fiscal year 2013, the Company performed an internal review of international franchised points of distribution, and determined
that certain franchises opened and closed had not been accurately reported in prior years. As such, the points of distribution
information above has been adjusted to reflect the results of this internal review for fiscal years 2012, 2011, 2010, and 2009 for
Dunkin’ Donuts International, and fiscal years 2012 and 2011 for Baskin-Robbins International. The adjustments to the prior years
were not material, and had no impact on the Company's financial position or results of operations.
(10)
Represents the growth in average weekly sales for franchisee- and company-owned restaurants that have been open at least 54 weeks
that have reported sales in the current and comparable prior year week.
(11)
Comparable store sales growth data was not available for our international segments until fiscal year 2012.
(12)
Franchisee-reported sales include sales at franchisee restaurants, including joint ventures.
(13)
Company-owned store sales include sales at restaurants majority owned and operated by Dunkin’ Brands.
(14)
Systemwide sales growth represents 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 average comparable store sales and
changes in the number of restaurants.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with the selected financial data and
the audited financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains
forward-looking statements about our markets, the demand for our products and services and our future results and involves numerous risks
and uncertainties. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and
generally contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,”
“estimates,” “anticipates,” or similar expressions. Our forward-looking statements are subject to risks and uncertainties, which may cause
actual results to differ materially from those projected or implied by the forward-looking statement. Forward-looking statements are based on
current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance.
You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. See “Risk factors” for a discussion
of factors that could cause our actual results to differ from those expressed or implied by forward-looking statements.
Introduction and overview
We are one of the world’s leading franchisors of quick service restaurants (“QSRs”) serving hot and cold coffee and baked goods, as well as
hard serve ice cream. We franchise restaurants under our Dunkin’ Donuts and Baskin-Robbins brands. With more than 18,000 points of
distribution in nearly 60 countries worldwide, we believe that our portfolio has strong brand awareness in our key markets. QSR is a restaurant
format characterized by counter or drive-thru ordering and limited or no table service. As of December 28, 2013 , Dunkin’ Donuts had 10,858
global points of distribution with restaurants in 40 U.S. states and the District of Columbia and in 32 foreign countries. Baskin-Robbins had
7,300 global points of distribution as of the same date, with restaurants in 43 U.S. states and the District of Columbia and in 46 foreign
countries.
We are organized into four reporting segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., and
Baskin-Robbins International. We generate revenue from five primary sources: (i) royalty income and franchise fees associated with franchised
restaurants, (ii) rental income from restaurant properties that we lease or sublease to franchisees, (iii) sales of ice cream products to franchisees
in certain international markets, (iv) retail store revenue at our company-owned restaurants, and (v) other income including fees for the
licensing of our brands for products sold in non-franchised outlets, the licensing of the right to manufacture Baskin-Robbins ice cream sold to
U.S. franchisees, refranchising gains, transfer fees from franchisees, and online training fees.
Approximately 64% of our revenue for fiscal year 2013 was derived from royalty income and franchise fees. Rental income from franchisees
that lease or sublease their properties from us accounted for 13% of our revenue for fiscal year 2013 . An additional 16% of our revenue for
fiscal year 2013 was generated from sales of ice cream products to Baskin-Robbins franchisees in certain international markets. The balance of
our revenue for fiscal year 2013 consisted of revenue from our company-owned restaurants, license fees on products sold in non-franchised
outlets, license fees on sales of ice cream products to Baskin-Robbins franchisees in the U.S., refranchising gains, transfer fees from
franchisees, and online training fees.
- 30 -
Table of Contents
Franchisees fund the vast majority of the cost of new restaurant development. As a result, we are able to grow our system with lower capital
requirements than many of our competitors. With only 36 company-owned points of distribution as of December 28, 2013 , we are less affected
by store-level costs, profitability, and fluctuations in commodity costs than other QSR operators.
Our franchisees fund substantially all of the advertising that supports both brands. Those advertising funds also fund the cost of our marketing,
research and development, and innovation personnel. Royalty payments and advertising fund contributions typically are made on a weekly
basis for restaurants in the U.S., which limits our working capital needs. For fiscal year 2013 , franchisee contributions to the U.S. advertising
funds were $356.1 million.
We operate and report financial information on a 52- or 53-week year on a 13-week quarter basis with the fiscal year ending on the last
Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the
fourth fiscal quarter). The data periods contained within fiscal years 2013 , 2012 , and 2011 reflect the results of operations for the 52-week,
52-week, and 53-week periods ending on December 28, 2013 , December 29, 2012 , and December 31, 2011 , respectively. Certain financial
measures and other metrics have been presented with the impact of the additional week on the results for fiscal year 2011. The impact of the
additional week in fiscal year 2011 reflects our estimate of the 53 rd week on systemwide sales growth, revenues, and expenses.
Selected operating and financial highlights
Fiscal year
2013
Systemwide sales growth
Comparable store sales growth (decline):
Dunkin’ Donuts U.S.
Dunkin' Donuts International (1)
Baskin-Robbins U.S.
Baskin-Robbins International (1)
Total revenues
Operating income
Adjusted operating income
Net income attributable to Dunkin’ Brands
Adjusted net income
$
2012
2011
5.8 %
5.2%
9.1%
3.4 %
(0.4)%
0.8 %
1.9 %
713,840
304,736
340,396
146,903
165,761
4.2%
2.0%
3.8%
2.8%
658,181
239,429
307,157
108,308
149,700
5.1%
n/a
0.5%
n/a
628,198
205,309
270,740
34,442
101,744
(1) Comparable store sales growth data was not available for our international segments until fiscal year 2012.
Adjusted operating income and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for
amortization of intangible assets, long-lived asset impairments, and other non-recurring, infrequent, or unusual charges, net of the tax impact of
such adjustments in the case of adjusted net income. The Company uses adjusted operating income and adjusted net income as key
performance measures for the purpose of evaluating performance internally. We also believe adjusted operating income and adjusted net
income provide our investors with useful information regarding our historical operating results. These non-GAAP measurements are not
intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms adjusted operating income and adjusted
net income may differ from similar measures reported by other companies. See note 7 to "Selected Financial Data" for reconciliations of
operating income and net income determined under GAAP to adjusted operating income and adjusted net income, respectively.
Fiscal year 2013 compared to fiscal year 2012
Overall growth in systemwide sales of 5.8% for fiscal year 2013 , resulted from the following:
•
Dunkin’ Donuts U.S. systemwide sales growth of 7.6% , which was the result of comparable store sales growth of 3.4% driven by
both increased average ticket and transaction counts, as well as net development of 371 restaurants in 2013 . The increase in average
ticket resulted primarily from guests purchasing more units per transaction, including add-on items, and positive mix as guests
purchased more premium-priced cold beverages and differentiated sandwiches. Increased traffic was driven by our focus on
operational excellence and product and marketing innovation, resulting in strong growth in beverages, breakfast sandwiches, donuts,
and our afternoon platform.
- 31 -
Table of Contents
•
•
•
Dunkin’ Donuts International systemwide sales growth of 3.1% as a result of sales increases in the Middle East, Southeast Asia, and
Germany driven by net new restaurant development, offset by a decline in systemwide sales in South Korea and a decline in
comparable store sales of 0.4% .
Baskin-Robbins U.S. systemwide sales growth of 0.7% resulting primarily from comparable store sales growth of 0.8% .
Baskin-Robbins U.S. comparable store sales growth was driven by new product news and signature Flavors of the Month, custom
cake sales, and take-home ice cream quarts.
Baskin-Robbins International systemwide sales growth of 0.4% resulting from increased sales in South Korea and the Middle East,
which resulted from both comparable store sales growth and net development. Offsetting this growth was a decrease in systemwide
sales in Japan driven by unfavorable foreign currency impact.
Changes in systemwide sales are impacted, in part, by changes in the number of points of distribution. Points of distribution and net openings
as of and for the fiscal years ended December 28, 2013 and December 29, 2012 were as follows:
Points of distribution, at period end:
Dunkin’ Donuts U.S.
Dunkin’ Donuts International
Baskin-Robbins U.S.
Baskin-Robbins International
Consolidated global points of distribution
December 28, 2013
December 29, 2012
7,677
3,181
2,467
4,833
18,158
7,306
3,043
2,463
4,556
17,368
Fiscal year ended
Net openings (closings), during the period:
Dunkin’ Donuts U.S.
Dunkin’ Donuts International
Baskin-Robbins U.S.
Baskin-Robbins International
Consolidated global net openings
December 28, 2013
December 29, 2012
371
138
4
277
790
291
172
(30)
339
772
The increase in total revenues of $55.7 million , or 8.5% , for fiscal year 2013 resulted primarily from a $35.0 million increase in franchise fees
and royalty income driven by the increase in Dunkin’ Donuts U.S. systemwide sales and favorable development mix. Additionally, sales of ice
cream products increased by $17.6 million due primarily to additional sales of ice cream products in the Middle East and an increase in
distribution costs billed to customers, as well as 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 the prior year.
Operating income increased $65.3 million , or 27.3% , for fiscal year 2013 driven by the $35.0 million increase in franchise fees and royalty
income, as well as a gain of $6.3 million recognized on the sale of 80% of our Baskin-Robbins Australia business. The increase in operating
income was also attributable to a $20.7 million increase in the Bertico litigation legal reserve recorded in the prior year, as well as an
unfavorable impact of approximately $14.0 million associated with the closure of our ice cream manufacturing plant in Peterborough, Ontario,
Canada in fiscal year 2012. Offsetting these increases in operating income was a $7.5 million charge related to a third-party product volume
guarantee recorded in fiscal year 2013, as well as $3.7 million in write-downs related to our investments in the Dunkin’ Donuts Spain joint
venture.
Adjusted operating income increased $33.2 million , or 10.8% , for fiscal year 2013 driven by the $35.0 million increase in franchise fees and
royalty income and the $6.3 million gain recognized on the Baskin-Robbins Australia sale, offset by additional general and administrative costs
and write-downs related to our investments in the Dunkin' Donuts Spain joint venture.
Net income attributable to Dunkin’ Brands increased $38.6 million , or 35.6% , for fiscal year 2013 as a result of the $65.3 million increase in
operating income, offset by a $17.4 million increase in income tax expense driven by increased profit before tax, and a $6.3 million increase in
net interest expense due to additional term loan borrowings in August 2012.
- 32 -
Table of Contents
Adjusted net income increased $16.1 million , or 10.7% , for fiscal year 2013 resulting primarily from a $33.2 million increase in adjusted
operating income, offset by an $8.9 million increase in income tax expense, and the $6.3 million increase in net interest expense.
Fiscal year 2012 compared to fiscal year 2011
Overall growth in systemwide sales of 5.2% for fiscal year 2012, or 7.0% on a 52-week basis, resulted from the following:
•
Dunkin’ Donuts U.S. systemwide sales growth of 5.6%, which was the result of comparable store sales growth of 4.2% driven by both
increased average ticket and transaction counts, as well as net development of 291 restaurants in 2012, offset by approximately 190
basis points of a decline attributable to the extra week in fiscal year 2011. Increases in average ticket and transactions resulted from
our continued focus on product and marketing innovation resulting in strong beverage sales growth, especially in cold beverages,
strong breakfast sandwich sales across both core and limited-time offerings, continued growth in bakery sandwiches, and sales of
Dunkin' Donuts K-Cup® portion packs including successful limited-time offerings.
•
Dunkin’ Donuts International systemwide sales growth of 4.2% as a result of sales increases in the Middle East and Southeast Asia
driven by net new restaurant development and comparable store sales growth of 2.0%, offset by an unfavorable foreign currency
impact.
•
Baskin-Robbins U.S. systemwide sales growth of 1.5% resulting primarily from comparable store sales growth of 3.8%, offset by
approximately 140 basis points of a decline attributable to the extra week in fiscal year 2011, as well as 30 net restaurant closures
during 2012. Baskin-Robbins U.S. comparable store sales growth was driven by new product news and signature Flavors of the
Month, custom cake sales, and new beverages.
•
Baskin-Robbins International systemwide sales growth of 5.5% resulting from increased sales in South Korea and Japan, which
resulted from both comparable store sales growth and net development. Offsetting this growth was approximately 170 basis points of
a decline attributable to the extra week in fiscal year 2011, as well as an unfavorable foreign currency impact.
Changes in systemwide sales are impacted, in part, by changes in the number of points of distribution. Points of distribution and net openings
as of and for the fiscal years ended December 29, 2012 and December 31, 2011 were as follows:
Points of distribution, at period end:
Dunkin’ Donuts U.S.
Dunkin’ Donuts International
Baskin-Robbins U.S.
Baskin-Robbins International
Consolidated global points of distribution
December 29, 2012
December 31, 2011
7,306
3,043
2,463
4,556
17,368
7,015
2,871
2,493
4,217
16,596
Fiscal year ended
Net openings (closings), during the period:
Dunkin’ Donuts U.S.
Dunkin’ Donuts International
Baskin-Robbins U.S.
Baskin-Robbins International
Consolidated global net openings
December 29, 2012
December 31, 2011
291
172
(30)
339
772
243
80
(90)
368
601
The increase in total revenues of $30.0 million, or 4.8%, for fiscal year 2012 primarily resulted from a $20.5 million increase in franchise fees
and royalty income driven by the increase in Dunkin’ Donuts U.S. systemwide sales, a $10.8 million increase in sales at company-owned
restaurants due to additional locations acquired, and a $4.7 million increase in rental income. The overall $30.0 million growth in revenues
reflects the unfavorable impact of the extra week in fiscal year 2011, which contributed approximately $8.0 million of incremental revenue in
the prior year consisting primarily of additional royalty income and sales of ice cream products. Sales of ice cream products were also
unfavorably impacted by approximately $5.8 million in the fourth quarter of 2012 from a one-time delay in revenue recognition as a result of a
change in shipping terms related to the shift in ice cream manufacturing to Dean Foods.
- 33 -
Table of Contents
Operating income increased $34.1 million, or 16.6%, for fiscal year 2012 driven by the $20.5 million increase in franchise fees and royalty
income, as well as a $25.8 million increase in income from equity method investments driven by an impairment of the investment in the Korea
joint venture recorded in fiscal year 2011. The increase in operating income was also attributable to a $14.7 million expense incurred in the
prior year related to the termination of the Sponsor management agreement in connection with the Company's initial public offering, as well as
a $4.5 million increase in net rental income. Offsetting these increases in operating income was a $20.7 million increase in the Bertico litigation
legal reserve recorded in the second quarter of 2012, and an approximately $14.0 million unfavorable impact associated with the closure of our
ice cream manufacturing plant in Peterborough, Ontario, Canada.
Adjusted operating income increased $36.4 million, or 13.5%, for fiscal year 2012 driven by the $20.5 million increase in franchise fees and
royalty income, a $7.1 million increase in income from equity method investments driven by our Korea joint venture, and a $4.5 million
increase in net rental income.
Net income attributable to Dunkin’ Brands increased $73.9 million, or 214.5%, for fiscal year 2012 as a result of the $34.1 million increase in
operating income, a $31.0 million decrease in net interest expense, and a $30.3 million decrease in loss on debt extinguishment and refinancing
transactions, offset by a $22.0 million increase in income tax expense driven by increased profit before tax.
Adjusted net income increased $48.0 million, or 47.1%, for fiscal year 2012 resulting primarily from a $36.4 million increase in adjusted
operating income and a $31.0 million decrease in net interest expense, offset by a $20.0 million increase in income tax expense.
Earnings per share
Earnings per common share and adjusted earnings per pro forma common share were as follows:
Fiscal year
2013
Earnings (loss) per share:
Class L – basic and diluted
Common – basic
Common – diluted
Diluted adjusted earnings per pro forma common share
$
2012
n/a
1.38
1.36
1.53
2011
n/a
0.94
0.93
1.28
$
6.14
(1.41)
(1.41)
0.94
On August 1, 2011, the Company completed an initial public offering in which 22,250,000 shares of common stock were sold at an initial
public offering price of $19.00 per share. 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 fiscal year 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 respective fiscal year. 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. Shares sold in the offering are included in the diluted adjusted earnings per pro forma common share calculation
beginning on the date that such shares were actually issued. Diluted adjusted earnings per pro forma common share is calculated using adjusted
net income, as defined above.
Diluted adjusted earnings per pro forma common share is not a presentation made in accordance with GAAP, and our use of the term diluted
adjusted earnings per pro forma common share may vary from similar measures reported by others in our industry due to the potential
differences in the method of calculation. Diluted adjusted earnings per pro forma common share should not be considered as an alternative to
earnings (loss) per share derived in accordance with GAAP. Diluted adjusted earnings per pro forma common share has important limitations
as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because of
these limitations, we rely primarily on our GAAP results. However, we believe that presenting diluted adjusted earnings per pro forma common
share is appropriate to provide additional information to investors to compare our performance prior to and after the completion of our initial
public offering and related conversion of Class L shares into common stock as well as to provide investors with useful information regarding
our historical operating results. The following table sets forth the computation of diluted adjusted earnings per pro forma common share:
- 34 -
Table of Contents
Fiscal year
2013
Adjusted net income available to common shareholders (in thousands):
Adjusted net income
$
Less: Adjusted net income allocated to participating securities
Adjusted net income available to common shareholders
$
165,761
—
165,761
$
—
—
—
—
—
106,501,733
106,501,733
1,715,278
108,217,011
1.53
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 (1)
Adjustment to weight Class L shares over respective fiscal year (1)
Weighted average number of Class L shares over fiscal year
Class L conversion factor
Weighted average number of converted Class L shares
Weighted average number of common shares
Pro forma weighted average number of common shares – basic
Incremental dilutive common shares (2)
Pro forma weighted average number of common shares – diluted
Diluted adjusted earnings per pro forma common share
(1)
(2)
2012
2011
149,700
(179)
149,521
—
—
—
—
—
114,584,063
114,584,063
1,989,281
116,573,344
1.28
101,744
(494)
101,250
22,845,378
(9,790,933)
13,054,445
2.4338
31,772,244
74,835,697
106,607,941
1,064,587
107,672,528
0.94
The weighted average number of Class L shares in the actual Class L earnings per share calculation for fiscal year 2011 represents 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.
Represents the dilutive effect of restricted shares and stock options, using the treasury stock method.
Results of operations
Fiscal year 2013 compared to fiscal year 2012
Consolidated results of operations
Fiscal year
2013
Franchise fees and royalty income
Rental income
Sales of ice cream products
Sales at company-owned restaurants
Other revenues
Total revenues
$
$
453,976
96,082
112,276
24,976
26,530
713,840
Increase (Decrease)
2012
$
(In thousands, except percentages)
418,940
96,816
94,659
22,922
24,844
658,181
35,036
(734)
17,617
2,054
1,686
55,659
%
8.4 %
(0.8)%
18.6 %
9.0 %
6.8 %
8.5 %
Total revenues increased $55.7 million , or 8.5% , in fiscal year 2013 , driven by an increase in franchise fees and royalty income of $35.0
million , or 8.4% , primarily as a result of Dunkin’ Donuts U.S. systemwide sales growth and favorable development mix. Sales of ice cream
products increased $17.6 million primarily due to increases in sales of ice cream products in the Middle East and an increase in distribution
costs billed to customers, as well as 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 the prior year. Sales at company-owned restaurants also increased $2.1 million , or 9.0% , driven
by higher average sales volumes and the timing of acquisitions and development of restaurants during the periods.
- 35 -
Table of Contents
Fiscal year
2013
Occupancy expenses – franchised restaurants
Cost of ice cream products
Company-owned restaurant expenses
General and administrative expenses, net
Depreciation and amortization
Long-lived asset impairment charges
Total operating costs and expenses
Net income of equity method investments
Other operating income, net
Operating income
$
$
$
52,097
79,278
24,480
228,010
49,366
563
433,794
18,370
6,320
304,736
Increase (Decrease)
2012
$
(In thousands, except percentages)
52,072
69,019
23,133
239,574
56,027
1,278
441,103
22,351
—
239,429
25
10,259
1,347
(11,564)
(6,661)
(715)
(7,309)
(3,981)
6,320
65,307
%
—%
14.9 %
5.8 %
(4.8)%
(11.9)%
(55.9)%
(1.7)%
(17.8)%
n/m
27.3 %
Occupancy expenses for franchised restaurants for fiscal year 2013 remained flat with the prior year as increases in base rent and sales-based
rental expense was offset by fewer reserves recorded for leased locations.
Cost of ice cream products increased $10.3 million , or 14.9% , from the prior year, as a result of the 18.6% increase in sales of ice cream
products driven primarily by the increases in sales of ice cream products in the Middle East and the prior year being unfavorably impacted by
the one-time delay in revenue recognition as a result of the change in shipping terms. The increases were offset by a reduced cost of ice cream
products primarily resulting from the shift in manufacturing to Dean Foods.
Company-owned restaurant expenses increased $1.3 million , or 5.8% , from the prior year primarily as a result of higher sales volumes, offset
by operating efficiencies realized.
General and administrative expenses for fiscal year 2012 included an incremental legal reserve of $20.7 million recorded upon the Canadian
court’s ruling in June 2012 in the Bertico litigation, as well as $5.0 million of costs associated with the closure of our ice cream manufacturing
plant in Canada, consisting primarily of severance, payroll, and other transition-related costs. General and administrative expenses for fiscal
year 2012 also included $4.8 million of transaction costs and incremental share-based compensation related to the secondary offerings and
share repurchases that were completed in April and August 2012. General and administrative expenses for fiscal year 2013 were impacted by a
$7.5 million charge related to a third-party product volume guarantee, as well as $0.7 million of costs associated with the closure of our ice
cream manufacturing plant in Canada.
Excluding the items noted above, general and administrative expenses increased $10.8 million, or 5.1%, in fiscal year 2013 . This increase was
driven primarily by a $6.5 million increase in personnel costs related to continued investments in our Dunkin’ Donuts U.S. contiguous growth
strategy and our international brands, as well as additional stock compensation expense, offset by a reduction in incentive compensation
payouts. Also contributing to the increase in general and administrative expenses was $2.8 million of reserves on accounts and notes receivable
from our Dunkin' Donuts Spain joint venture Offsetting these increases was additional breakage income recorded in fiscal year 2013 of $2.3
million on unredeemed gift card and gift certificate balances. The remaining increase in other general and administrative costs of $3.8 million
resulted primarily from additional investments in advertising and other brand-building activities.
Depreciation and amortization decreased $6.7 million in fiscal year 2013 resulting primarily from accelerated depreciation recorded in the prior
year as a result of the closure of the ice cream manufacturing plant in Canada.
As a result of the closure of our ice cream manufacturing plant, the Company expects to incur additional costs of approximately $3 million to
$4 million primarily related to the settlement of our Canadian pension plan upon final government approval, which will likely be obtained in
2014.
The decrease in impairment charges in fiscal year 2013 of $0.7 million resulted primarily from the timing of lease terminations in the ordinary
course, which results in the write-off of favorable lease intangible assets and leasehold improvements.
Net income of equity method investments decreased $4.0 million in fiscal year 2013 driven by a decline of $1.6 million in the reduction of
depreciation and amortization expense for South Korea resulting from the impairment charge recorded by the Company in fiscal year 2011
related to the underlying long-lived assets of the South Korea joint venture. Also contributing to the decrease in net income of equity method
investments was a decline in income from our Japan joint venture, losses realized from our Dunkin’ Donuts joint venture in Spain, as well as a
$0.9 million impairment of our investment in the Dunkin’ Donuts Spain joint venture. Partially offsetting these declines was an increase in
income from our South Korea joint venture. Net
- 36 -
Table of Contents
income of equity method investments for the years ended December 28, 2013 and December 29, 2012 also includes an unfavorable adjustment
of $0.7 million and a favorable adjustment of $0.3 million, respectively, related to differences between local accounting principles applied by
our Japan and South Korea joint ventures and U.S. GAAP, which contributed to the decrease for the year.
Other operating income of $6.3 million in fiscal year 2013 represents the gain, net of transaction costs, recognized on the Baskin-Robbins
Australia sale.
Fiscal year
2013
Interest expense, net
Loss on debt extinguishment and refinancing transactions
Other losses (gains), net
Total other expense
$
$
79,831
5,018
1,799
86,648
Increase (Decrease)
2012
$
(In thousands, except percentages)
73,488
3,963
(23)
77,428
%
6,343
1,055
1,822
9,220
8.6%
26.6%
n/m
11.9%
The increase in net interest expense for fiscal year 2013 resulted primarily from incremental interest expense on $400.0 million of additional
term loan borrowings, which were used along with cash on hand to repurchase 15.0 million shares of common stock from certain shareholders
in August 2012. Also contributing to the increase in interest expense was incremental interest incurred as a result of entering into
variable-to-fixed interest rate swap agreements in September 2012 on $900.0 million notional amount of our outstanding term loan borrowings.
Offsetting these increases in interest expense was a reduction in the interest rate on the term loans by 25 basis points as a result of the February
2013 repricing. Considering the February 2014 amendment of the senior credit facility and amended interest rate swaps agreements more fully
described under "Liquidity and capital resources" contained herein, we expect net interest expense to be approximately $70 million in fiscal
year 2014.
The loss on debt extinguishment and refinancing transactions for fiscal year 2013 of $5.0 million resulted from the February 2013 repricing
transaction. The loss on debt extinguishment and refinancing transactions for fiscal year 2012 of $4.0 million related primarily to the $400.0
million of additional term loan borrowings in August 2012.
Other losses (gains), net, for fiscal year 2013 was driven primarily by foreign exchange losses resulting from the Baskin-Robbins Australia sale
due to the strengthening of the U.S. dollar against the Australian dollar, as well as an overall negative impact of foreign exchange resulting
from the general strengthening of the U.S. dollar compared to other currencies.
Fiscal year
2013
2012
(In thousands, except percentages)
Income before income taxes
Provision for income taxes
Effective tax rate
$
218,088
71,784
32.9 %
162,001
54,377
33.6%
The reduced effective tax rate for fiscal year 2013 primarily resulted from the net reversal of approximately $8.4 million of reserves for
uncertain tax positions for which settlement with taxing authorities was reached during the year. Additionally, the effective tax rate for fiscal
year 2013 reflects an approximately $3.1 million benefit resulting from a change in mix of income between domestic and international tax
jurisdictions resulting from changes in operations, which we expect to continue to favorably impact the effective tax rate in future years.
The effective tax rate for fiscal year 2012 reflects the impact of net tax benefits of $10.2 million related to the reversal of reserves for uncertain
tax positions for which settlement with the taxing authorities was reached during the period. Offsetting these tax benefits was $4.6 million of
deferred tax expense recorded in fiscal year 2012 primarily related 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.
Operating segments
We operate four reportable operating segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., and
Baskin-Robbins International. We evaluate the performance of our segments and allocate resources to them based on earnings before interest,
taxes, depreciation, amortization, impairment charges, loss on debt extinguishment and refinancing transactions, other gains and losses, and
unallocated corporate charges, referred to as segment profit. Segment profit for the Dunkin’ Donuts International and Baskin-Robbins
International segments includes net income (loss) of equity method investments, except for the impairment charge, net of the related reduction
in depreciation and amortization, net of tax, recorded in fiscal year 2011 on
- 37 -
Table of Contents
the investment in our South Korea joint venture. For a reconciliation to total revenues and income before income taxes, see note 12 to our
consolidated financial statements. Revenues for all segments include only transactions with unaffiliated customers and include no intersegment
revenues. Revenues not included in segment revenues include revenue earned through arrangements with third parties in which our brand
names are used and revenue generated from online training programs for franchisees that are not allocated to a specific segment.
Dunkin’ Donuts U.S.
Fiscal year
2013
Royalty income
Franchise fees
Rental income
Sales at company-owned restaurants
Other revenues
Total revenues
$
Segment profit
Increase (Decrease)
2012
$
(In thousands, except percentages)
%
$
362,342
36,192
91,918
24,976
5,751
521,179
337,170
29,445
92,049
22,765
3,970
485,399
25,172
6,747
(131)
2,211
1,781
35,780
7.5 %
22.9 %
(0.1)%
9.7 %
44.9 %
7.4 %
$
379,751
355,274
24,477
6.9 %
The increase in Dunkin’ Donuts U.S. revenues for fiscal year 2013 was primarily driven by an increase in royalty income of $25.2 million as a
result of an increase in systemwide sales, as well as increased franchise fees of $6.7 million due to additional gross development, favorable
development mix, and incremental franchise renewals. The increase in revenues was also driven by an increase in sales at company-owned
restaurants of $2.2 million driven by higher average sales volumes and the timing of acquisitions and development of restaurants during the
periods, as well as an increase in gains from refranchising transactions.
The increase in Dunkin’ Donuts U.S. segment profit for fiscal year 2013 was primarily driven by revenue growth, partially offset by the $7.5
million third-party product volume guarantee charge and an increase in personnel costs of $2.7 million as a result of continued investments in
our Dunkin’ Donuts U.S. contiguous growth strategy.
Dunkin’ Donuts International
Fiscal year
2013
Royalty income
Franchise fees
Rental income
Other revenues
Total revenues
$
Segment profit
Increase (Decrease)
2012
$
(In thousands, except percentages)
%
$
14,249
3,531
133
403
18,316
13,474
1,715
179
117
15,485
775
1,816
(46)
286
2,831
5.8 %
105.9 %
(25.7)%
244.4 %
18.3 %
$
7,479
9,670
(2,191)
(22.7)%
The increase in Dunkin’ Donuts International revenue for fiscal year 2013 resulted primarily from an increase in franchise fees of $1.8 million
due to income recognized in connection with the termination of development agreements in Asia and franchise fees for openings in new
international markets, and an increase in royalty income of $0.8 million driven by the increase in systemwide sales. Dunkin’ Donuts
International revenues for fiscal year 2013 also includes a $0.3 million increase in other revenues driven by incremental transfer fee income.
The decrease in Dunkin’ Donuts International segment profit for fiscal year 2013 was primarily driven by $3.7 million in write-downs related
to our investments in the Dunkin’ Donuts Spain joint venture, as well as a decline in net income of equity method investments of $0.9 million.
For Dunkin’ Donuts International, net income of equity method investments includes an unfavorable adjustment of $0.3 million for fiscal year
2013 and a favorable adjustment of $0.6 million for fiscal year 2012 related to differences between local accounting principles applied by our
South Korea joint venture and U.S. GAAP, which were drivers for the decline in net income of equity method investments for the segment.
Losses realized from our Spain joint venture were offset by increased net income from our South Korea joint venture. In addition to the decline
in net income of equity method investments, segment profit also declined as a result of investments in personnel, marketing, and other
initiatives to grow the Dunkin’ Donuts International business, offset by the increase in total revenues.
- 38 -
Table of Contents
Baskin-Robbins U.S.
Fiscal year
2013
Royalty income
Franchise fees
Rental income
Sales of ice cream products
Sales at company-owned restaurants
Other revenues
Total revenues
$
Segment profit
Increase (Decrease)
2012
$
(In thousands, except percentages)
$
25,728
1,160
3,420
3,808
—
8,036
42,152
25,768
775
3,949
3,942
157
7,483
42,074
(40)
385
(529)
(134)
(157)
553
78
$
27,081
26,274
807
%
(0.2)%
49.7 %
(13.4)%
(3.4)%
(100.0)%
7.4 %
0.2 %
3.1 %
Baskin-Robbins U.S. revenue remained consistent from fiscal year 2012 to fiscal year 2013 . Franchise fees increased $0.4 million driven
primarily by incremental franchise renewals, while other revenues increased by $0.6 million primarily due to additional income received from
the licensing of ice cream manufacturing. The increases in revenue were offset by decreases in rental income of $0.5 million due to a reduction
in the number of leased locations, as well as decreases in sales at company-owned restaurants and sales of ice cream products.
Baskin-Robbins U.S. segment profit for fiscal year 2013 increased primarily as a result of additional breakage income of $0.5 million related to
unredeemed gift certificate balances, as well as increases in franchise fees and other revenues, offset by an increase in personnel costs.
Baskin-Robbins International
Fiscal year
2013
Royalty income
Franchise fees
Rental income
Sales of ice cream products
Other revenues
Total revenues
$
Segment profit
Increase (Decrease)
2012
$
(In thousands, except percentages)
%
$
9,109
1,665
535
108,435
589
120,333
9,301
1,292
561
90,717
104
101,975
(192)
373
(26)
17,718
485
18,358
(2.1)%
28.9 %
(4.6)%
19.5 %
466.3 %
18.0 %
$
54,321
42,004
12,317
29.3 %
The increase in Baskin-Robbins International revenues for fiscal year 2013 was driven by a $17.7 million increase in sales of ice cream
products, primarily due to increases in sales of ice cream products in the Middle East and an increase in distribution costs billed to customers,
as well as a one-time delay in revenue recognition related to the shift in manufacturing to Dean Foods which unfavorably impacted fiscal year
2012 revenue by approximately $5.8 million.
Baskin-Robbins International segment profit increased $12.3 million for fiscal year 2013 primarily due to an increase in net margin on ice
cream of $7.9 million driven by increased sales volumes and cost savings from the transition to Dean Foods, partially offset by Australia
inventory write-offs. Also contributing to the increase was the $6.3 million gain recognized on the sale of the Baskin-Robbins Australia
business. The increases in segment profit were offset by a decrease in net income of equity method investments of $0.7 million, driven by a
decrease in income from our Japan joint venture, partially offset by an increase in income from our South Korea joint venture. Offsetting these
increases were incremental costs incurred to support the growth of the Baskin-Robbins international segment.
- 39 -
Table of Contents
Fiscal year 2012 compared to fiscal year 2011
Consolidated results of operations
Fiscal year
2012
Franchise fees and royalty income
Rental income
Sales of ice cream products
Sales at company-owned restaurants
Other revenues
Total revenues
$
$
Increase (Decrease)
2011
$
(In thousands, except percentages)
418,940
96,816
94,659
22,922
24,844
658,181
$
398,474
92,145
100,068
12,154
25,357
628,198
%
20,466
4,671
(5,409)
10,768
(513)
29,983
5.1 %
5.1 %
(5.4)%
88.6 %
(2.0)%
4.8 %
Total revenues for the prior year benefited approximately $8.0 million from the impact of an extra week, consisting primarily of additional
royalty income and sales of ice cream products. Additionally, total revenues for fiscal year 2012 were unfavorably impacted by approximately
$5.8 million from a one-time delay in revenue recognition as a result of a change in shipping terms related to the shift in ice cream
manufacturing to Dean Foods.
Without the effect of these two items, total revenues increased $43.8 million, or 7.1%, in fiscal year 2012 driven by an increase in royalty
income, on a 52-week basis, of $28.4 million, or 7.9%, mainly as a result of Dunkin’ Donuts U.S. systemwide sales growth. Sales at
company-owned restaurants also increased $10.8 million, or 88.6%, as a result of company-owned stores acquired during 2012 and the full year
impact of company-owned stores acquired at the end of 2011. Also contributing to the increase in total revenues was an increase in rental
income of $4.7 million, or 5.1%, driven by incremental sales-based rental income resulting from growth in Dunkin' Donuts U.S. systemwide
sales.
Fiscal year
2012
Occupancy expenses – franchised restaurants
Cost of ice cream products
Company-owned restaurant expenses
General and administrative expenses, net
Depreciation and amortization
Impairment charges
Total operating costs and expenses
Net income (loss) of equity method investments
Operating income
$
$
$
52,072
69,019
23,133
239,574
56,027
1,278
441,103
22,351
239,429
Increase (Decrease)
2011
$
(In thousands, except percentages)
51,878
72,329
12,854
227,771
52,522
2,060
419,414
(3,475)
205,309
194
(3,310)
10,279
11,803
3,505
(782)
21,689
25,826
34,120
%
0.4 %
(4.6)%
80.0 %
5.2 %
6.7 %
(38.0)%
5.2 %
n/m
16.6 %
Occupancy expenses for franchised restaurants for fiscal year 2012 remained flat with the prior year as an increase in sales-based rental
expense was offset by a decline in the number of leased properties.
Cost of ice cream products declined $3.3 million, or 4.6% from the prior year, as a result of the 5.4% decline in sales of ice cream products
driven by the one-time delay in revenue recognition as a result of the change in shipping terms.
General and administrative expenses for fiscal year 2012 were impacted by an incremental legal reserve of $20.7 million recorded upon the
Canadian court’s ruling in June 2012 in the Bertico litigation, as well as $5.0 million of costs associated with the announced closure of our ice
cream manufacturing plant in Canada, consisting primarily of severance, payroll, and other transition-related costs. General and administrative
expenses for fiscal year 2012 also include $4.8 million of transaction costs and incremental share-based compensation related to the secondary
offerings and share repurchases that were completed in April and August 2012. For fiscal year 2011, general and administrative expenses
include $14.7 million related to the termination of the Sponsor management agreement upon completion of the Company’s initial public
offering ("IPO"), $1.8 million of Sponsor management fees prior to the IPO, and $2.6 million of share-based compensation expense recognized
for awards that became eligible to vest upon completion of the IPO. General and administrative expenses for fiscal year 2011 also include
transaction costs of $1.0 million and share-based compensation expense of $0.9 million related to the secondary offering completed in
November 2011.
- 40 -
Table of Contents
Excluding the items noted above, general and administrative expenses increased $2.3 million, or 1.1%, in fiscal year 2012. This increase was
driven by a $10.3 million increase in personnel costs related to continued investments in our Dunkin’ Donuts U.S. contiguous growth strategy
and our international brands, additional stock compensation expense, and higher incentive compensation payouts. Offsetting this increase was
additional breakage income recorded in fiscal year 2012 of $5.4 million on unredeemed gift card and gift certificate balances. The remaining
decrease in other general and administrative costs of $2.6 million resulted primarily from costs incurred in the prior year related to the roll-out
of a new point-of-sale system for Baskin-Robbins franchisees and additional contributions made in 2011 to the advertising funds to support
brand-building advertising.
Depreciation and amortization increased $3.5 million in fiscal year 2012 resulting primarily from accelerated depreciation recorded as a result
of the announced closure of the ice cream manufacturing plant in Canada, offset by terminations of lease agreements in the normal course of
business resulting in the write-off of favorable lease intangible assets, which thereby reduced future amortization.
The Company incurred a $14.0 million reduction to operating income associated with the plant closing and transition in fiscal year 2012,
including $5.0 million of general and administrative costs related to severance and other transition-related costs, $4.2 million of accelerated
depreciation on property, plant, and equipment, $2.7 million of incremental ice cream production costs, and a one-time delay in revenue
recognition, net of related cost of ice cream products, as a result of the change in shipping terms of $2.1 million. The remaining costs to be
incurred associated with the plant closing and transition primarily consist of a loss of approximately $3 million to $4 million related to the
settlement of our Canadian pension plan.
The decrease in impairment charges in fiscal year 2012 of $0.8 million resulted primarily from the timing of lease terminations in the ordinary
course, which results in the write-off of favorable lease intangible assets and leasehold improvements.
Net income (loss) of equity method investments increased $25.8 million in fiscal year 2012 primarily as a result of a $19.8 million impairment
charge recorded in the fourth quarter of 2011 on the investment in our South Korea joint venture. Additionally, the allocation of the impairment
charge to the underlying intangible and long-lived assets of the joint venture reduced depreciation and amortization, resulting in an increase in
income from the joint venture in fiscal year 2012 of $2.6 million. The remaining increase in net income (loss) of equity method investments
resulted from stronger sales and earnings performance at our South Korea joint venture.
Fiscal year
2012
Interest expense, net
Loss on debt extinguishment and refinancing transactions
Other gains, net
Total other expense
$
$
73,488
3,963
(23 )
77,428
Increase (Decrease)
2011
$
(In thousands, except percentages)
104,449
34,222
(175)
138,496
(30,961)
(30,259)
152
(61,068)
%
(29.6)%
(88.4)%
(86.9)%
(44.1)%
The decrease in net interest expense for fiscal year 2012 resulted primarily from the repayment of $375.0 million of 9.625% senior notes with
proceeds from the Company’s initial public offering completed in August 2011. Net interest expense for fiscal year 2012 also benefited from
the re-pricing of outstanding term loans in conjunction with additional term loan borrowings in February and May 2011, the proceeds of which
were used to repay the higher rate senior notes, as well as the impact of the extra week of interest expense in the prior year. Offsetting these
decreases was incremental interest expense on $400.0 million of additional term loan borrowings at an interest rate of 4.0%, which were used
to repurchase 15.0 million shares of common stock from certain shareholders in August 2012.
The loss on debt extinguishment and refinancing transactions for fiscal year 2012 of $4.0 million primarily related to the $400.0 million of
additional term loan borrowings in August 2012. The loss on debt extinguishment and refinancing transactions of $34.2 million for fiscal year
2011 resulted from the term loan refinancing transactions and related repayments of senior notes completed in the first and second quarters of
2011, as well as the repayment of senior notes with proceeds from the Company's initial public offering in the third quarter of 2011.
The decline in other gains from fiscal year 2011 to fiscal year 2012 resulted primarily from reduced net foreign exchange gains.
- 41 -
Table of Contents
Fiscal year
2012
2011
(In thousands, except percentages)
Income before income taxes
Provision for income taxes
Effective tax rate
$
162,001
54,377
33.6%
66,813
32,371
48.5%
The reduced effective tax rate for fiscal year 2012 primarily resulted from net tax benefits of $10.2 million related to the reversal of reserves for
uncertain tax positions for which settlement with the taxing authorities was reached during the period. Offsetting these tax benefits was $4.6
million of deferred tax expense recorded in fiscal year 2012 primarily related 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.
The higher effective tax rate for fiscal year 2011 primarily resulted from the impairment related to the Korea joint venture investment, which
reduced income before income taxes but for which there is no corresponding tax benefit, as well as enacted increases in state tax rates that
resulted in additional deferred tax expense of approximately $1.9 million.
Operating segments
Dunkin’ Donuts U.S.
Fiscal year
2012
Royalty income
Franchise fees
Rental income
Sales at company-owned restaurants
Other revenues
Total revenues
$
Segment profit
Increase (Decrease)
2011
$
(In thousands, except percentages)
%
$
337,170
29,445
92,049
22,765
3,970
485,399
317,203
29,905
86,590
11,764
4,030
449,492
19,967
(460)
5,459
11,001
(60)
35,907
6.3 %
(1.5)%
6.3 %
93.5 %
(1.5)%
8.0 %
$
355,274
334,308
20,966
6.3 %
The increase in Dunkin’ Donuts U.S. revenues for fiscal year 2012 was primarily driven by an increase in royalty income of $20.0 million as a
result of an increase in systemwide sales, as well as an increase in sales at company-owned restaurants of $11.0 million as a result of
company-owned stores acquired during 2012 and the full year impact of company-owned stores acquired at the end of 2011. An increase in
rental income of $5.5 million also contributed to the increase in Dunkin' Donuts U.S. revenues. Overall, Dunkin' Donuts U.S. revenues were
unfavorably impacted by approximately $6.4 million as a result of the extra week in the prior year.
The increase in Dunkin’ Donuts U.S. segment profit for fiscal year 2012 was primarily driven by the increases in royalty income and rental
income totaling $25.4 million, offset by an increase in personnel costs of $4.5 million primarily related to continued investment in our Dunkin’
Donuts U.S. contiguous growth strategy and higher projected incentive compensation payouts.
Dunkin’ Donuts International
Fiscal year
2012
Royalty income
Franchise fees
Rental income
Other revenues
Total revenues
$
Segment profit
Increase (Decrease)
2011
$
(In thousands, except percentages)
%
$
13,474
1,715
179
117
15,485
12,657
2,294
258
44
15,253
817
(579)
(79)
73
232
6.5 %
(25.2)%
(30.6)%
165.9 %
1.5 %
$
9,670
11,528
(1,858)
(16.1)%
- 42 -
Table of Contents
The increase in Dunkin’ Donuts International revenue for fiscal year 2012 resulted primarily from an increase in royalty income of $0.8 million
driven by the increase in systemwide sales, slightly offset by a decrease of $0.6 million in franchise fees as a result of the prior year including a
deposit retained from a former licensee in Mexico and fewer store openings.
The decrease in Dunkin’ Donuts International segment profit for fiscal year 2012 was primarily driven by a $3.4 million increase in general and
administrative costs primarily as a result of investments in personnel and advertising. Offsetting this decline in segment profit was an increase
in income from the South Korea joint venture of $1.4 million, as well as the increase in total revenues.
Baskin-Robbins U.S.
Fiscal year
2012
Royalty income
Franchise fees
Rental income
Sales of ice cream products
Sales at company-owned restaurants
Other revenues
Total revenues
$
Segment profit
Increase (Decrease)
2011
$
(In thousands, except percentages)
%
$
25,768
775
3,949
3,942
157
7,483
42,074
25,177
1,271
4,544
3,780
390
8,293
43,455
591
(496)
(595)
162
(233)
(810)
(1,381)
2.3 %
(39.0)%
(13.1)%
4.3 %
(59.7)%
(9.8)%
(3.2)%
$
26,274
21,593
4,681
21.7 %
The decline in Baskin-Robbins U.S. revenue for fiscal year 2012 resulted from a decline in other revenues of $0.8 million primarily due to a
decrease in licensing income related to the sale of Baskin-Robbins ice cream products to franchisees. Additionally, rental income declined $0.6
million due to a reduction in the number of leased locations, and franchise fees declined $0.5 million driven by fewer store openings. Offsetting
these declines in revenue was an increase in royalty income of $0.6 million driven by the increase in systemwide sales. Approximately $0.3
million of the overall decrease in total revenues was attributable to the extra week in fiscal year 2011.
Baskin-Robbins U.S. segment profit for fiscal year 2012 increased as a result of a $4.6 million decline in general and administrative expenses
driven by costs incurred in the prior year related to the roll-out of a new point-of-sale system for Baskin-Robbins franchisees and additional
contributions made to the Baskin-Robbins advertising fund to support brand-building advertising in the prior year. Additionally, occupancy
expenses declined $1.5 million from the prior year as a result of a reduction in the number of leased locations, as well as reserves recorded on
leased locations in the prior year. Offsetting these increases in segment profit was the $1.4 million decline in total revenues.
Baskin-Robbins International
Fiscal year
2011
Royalty income
Franchise fees
Rental income
Sales of ice cream products
Other revenues
Total revenues
$
Segment profit
Increase (Decrease)
2010
$
(In thousands, except percentages)
$
9,301
1,292
561
90,717
104
101,975
8,422
1,593
616
96,288
(32)
106,887
$
42,004
42,844
%
879
(301)
(55)
(5,571)
136
(4,912)
10.4 %
(18.9)%
(8.9)%
(5.8)%
n/m
(4.6)%
(840)
(2.0)%
The decline in Baskin-Robbins International revenues for fiscal year 2012 was driven by a $5.6 million decline in sales of ice cream products,
primarily from a one-time delay in revenue recognition as a result of a change in shipping terms related to the shift in ice cream manufacturing
to Dean Foods, which unfavorably impacted fiscal year 2012 revenue by approximately $5.8 million. The decline in sales of ice cream products
also resulted from the impact of the extra week in the prior year, which contributed approximately $1.2 million of revenue in fiscal year 2011.
Without the effect of these two items, Baskin-Robbins
- 43 -
Table of Contents
International sales of ice cream products increased $1.4 million driven by strong sales to the Middle East, offset by a decline in sales to
Afghanistan as a result of the border closure earlier in 2012.
Offsetting the decline in sales of ice cream products was an increase in royalty income of $0.9 million primarily as a result of higher sales and
additional royalties earned in South Korea and Russia.
The decrease in Baskin-Robbins International segment profit for fiscal year 2012 resulted primarily from an increase in general and
administrative expenses of $2.0 million driven primarily by investments in personnel and advertising, as well as a $1.6 million decline in net
margin on sales of ice cream products due primarily to the one-time delay in revenue recognition and the extra week in the prior year.
Offsetting these declines in segment profit was an increase in income from the South Korea joint venture of $2.2 million, as well as the increase
in royalty income of $0.9 million.
Liquidity and capital resources
As of December 28, 2013 , we held $256.9 million of cash and cash equivalents, which included $134.5 million of cash held for advertising
funds and reserved for gift card/certificate programs. In addition, as of December 28, 2013 , we had a borrowing capacity of $97.0 million
under our $100.0 million revolving credit facility. During fiscal year 2013 , net cash provided by operating activities was $141.8 million , as
compared to net cash provided by operating activities of $154.4 million for fiscal year 2012 . Net cash provided by operating activities for
fiscal years 2013 and 2012 includes net cash inflows of $2.0 million and $2.3 million , respectively, related to advertising funds and gift
card/certificate programs. Excluding cash flows related to advertising funds and gift card/certificate programs, we generated $116.9 million and
$129.2 million of free cash flow during fiscal years 2013 and 2012 , respectively.
The decrease in free cash flow from fiscal year 2012 to 2013 was primarily due to an unfavorable impact from changes in operating assets and
liabilities, driven by a delay in cash collections of accounts receivable as a result of a change in shipping terms related to ice cream shipments
to certain international markets, as well as fluctuations in other current liabilities, due primarily to the timing of interest payments. The
unfavorable impacts were offset by the increase in net income.
Free cash flow is a non-GAAP measure reflecting net cash provided by operating and investing activities, excluding the cash flows related to
advertising funds and gift card/certificate programs. The Company uses free cash flow as a key performance measure for the purpose of
evaluating performance internally and our ability to generate cash. We also believe free cash flow provides our investors with useful
information regarding our historical cash flow results. This non-GAAP measurement is not intended to replace the presentation of our financial
results in accordance with GAAP. Use of the term free cash flow may differ from similar measures reported by other companies.
Free cash flow is reconciled from net cash provided by operating activities determined under GAAP as follows (in thousands):
Fiscal year
2013
Net cash provided by operating activities
Less: Increase related to advertising funds and gift card/certificate programs
Less: Net cash used in investing activities
Free cash flow
$
$
141,799
(2,006 )
(22,906 )
116,887
2012
154,420
(2,315)
(22,947)
129,158
Net cash provided by operating activities of $141.8 million during fiscal year 2013 was primarily driven by net income of $146.3 million ,
increased by depreciation and amortization of $49.4 million , and dividends received from joint ventures of $7.2 million , offset by $21.2
million of other net non-cash reconciling adjustments, as well as $39.9 million of changes in operating assets and liabilities. The $21.2 million
of other net non-cash reconciling adjustments primarily resulted from net income from equity method investments, gain on sale of 80% of our
Baskin-Robbins Australia business, and a deferred tax benefit, offset by share-based compensation expense, loss on debt extinguishment and
refinancing transactions, and the amortization of deferred financing costs and original issue discount. The $39.9 million of changes in operating
assets and liabilities was primarily driven by cash paid for income taxes, increases in accounts receivable related to sales of ice cream products,
and increases in receivables related to gift cards, offset by the reserve related to the third-party product volume guarantee. During fiscal year
2013 , we invested $31.1 million in capital additions to property and equipment, and received net proceeds from the Baskin-Robbins Australia
sale of $6.7 million . Net cash used in financing activities was $114.2 million during fiscal year 2013 , driven primarily by dividend payments
of $81.0 million , the repurchase of common stock of $28.0 million , and repayment of long-term debt of $24.2 million , offset by additional tax
benefits of $15.4 million realized from the exercise of stock options.
Net cash provided by operating activities of $154.4 million during fiscal year 2012 was primarily driven by net income of $107.6 million,
increased by depreciation and amortization of $56.0 million, and dividends received from joint ventures of $6.5
- 44 -
Table of Contents
million, offset by $15.1 million of other net non-cash reconciling adjustments, as well as $0.6 million of changes in operating assets and
liabilities. The $15.1 million of other net non-cash reconciling adjustments primarily resulted from net income from equity method investments
and a deferred tax benefit, offset by share-based compensation expense and the amortization of deferred financing costs and original issue
discount. The $0.6 million of changes in operating assets and liabilities was primarily driven by cash paid for income taxes, offset by the
increase in the legal reserve for the Bertico litigation and an increase in accrued interest based on the timing of interest payments. During fiscal
year 2012, we invested $22.4 million in capital additions to property and equipment. Net cash used in financing activities was $125.6 million
during fiscal year 2012, driven primarily by the repurchase of common stock of $450.4 million and dividend payments of $70.1 million, offset
by net proceeds from the issuance of long-term debt of $380.6 million and additional tax benefits of $12.0 million realized from the exercise of
stock options. The cash used for the repurchase of common stock was related to 15.0 million shares of common stock repurchased directly from
certain shareholders in a private, non-underwritten transaction in August 2012. In connection with that repurchase, we borrowed an additional
$400.0 million, less original issue discount of $4.0 million, under our existing term loan facility.
Our senior credit facility is guaranteed by certain of Dunkin’ Brands, Inc.’s wholly-owned domestic subsidiaries and includes term loan and
revolving credit facilities. The original aggregate borrowings available under the senior credit facility are approximately $2.00 billion,
consisting of a fully-drawn approximately $1.90 billion term loan facility and an undrawn $100.0 million revolving credit facility. As of
December 28, 2013, there was $1.83 billion of total principal outstanding on the term loans, while there was $97.0 million in available
borrowings under the revolving credit facility as $3.0 million of letters of credit were outstanding.
In February 2014, we amended the senior credit facility to reduce the applicable interest rate. The senior credit facility now consists of $1.38
billion in term loans due February 2021 ("2021 Term Loans"), $450.0 million in term loans due September 2017 ("2017 Term Loans"), and a
$100.0 million revolving credit facility due February 2019. Pursuant to the February 2014 amendment to the senior credit facility, principal
amortization repayments are required to be made on the 2017 Term Loans equal to $4.5 million per calendar year, payable in quarterly
installments beginning June 2014 through June 2017. Pursuant to the February 2014 amendment to the senior credit facility, principal
amortization repayments are required to be made on the 2021 Term Loans equal to approximately $13.8 million per calendar year, payable in
quarterly installments beginning June 2015 through December 2020. The final scheduled principal payments on the outstanding borrowings
under the 2017 Term Loans and 2021 Term Loans are due in September 2017 and February 2021, respectively. Additionally, following the end
of each fiscal year, the Company is required to prepay an amount equal to 25% of excess cash flow (as defined in the senior credit facility) for
such fiscal year. If DBI’s leverage ratio, which is a measure of DBI’s outstanding debt to earnings before interest, taxes, depreciation, and
amortization, adjusted for certain items (as specified in the credit facility), is less than 4.75x, no excess cash flow payments are required. The
Company intends to make quarterly payments of $5.0 million.
As a result of the February 2014 amendment to the senior credit facility, the 2021 Term Loans bear interest at a rate per annum equal to an
applicable margin plus, at our option, either (1) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.5%, (b)
the prime rate, (c) the LIBOR rate plus 1.0%, and (d) 1.75% or (2) a LIBOR rate provided that LIBOR shall not be lower than 0.75%. The
applicable margin under the term loan facility is 1.50% for loans based upon the base rate and 2.50% for loans based upon the LIBOR rate.
As a result of the February 2014 amendment to the senior credit facility, the 2017 Term Loans bear interest at a rate per annum equal to an
applicable margin plus, at our option, either (1) a base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.5%, (b)
the prime rate, and (c) the LIBOR rate plus 1.0%, or (2) a LIBOR rate. The applicable margin under the term loan facility is 1.50% for loans
based upon the base rate and 2.50% for loans based upon the LIBOR rate.
As a result of the February 2014 amendment to the senior credit facility, borrowings under the revolving credit facility bear interest at a rate per
annum equal to an applicable margin plus, at our option, either (1) a base rate determined by reference to the highest of (a) the Federal Funds
rate plus 0.5%, (b) the prime rate, and (c) the LIBOR rate plus 1.0%, or (2) a LIBOR rate. The applicable margin under the revolving credit
facility is 1.25% for loans based upon the base rate and 2.25% for loans based upon the LIBOR rate. In addition, we are required to pay a 0.5%
commitment fee per annum on the unused portion of the revolver and a fee for letter of credit amounts outstanding of 2.25%.
As of December 28, 2013 , we had variable-to-fixed interest rate swap agreements to hedge the floating interest rate on $900.0 million notional
amount of our outstanding term loan borrowings. We are required to make quarterly payments on the notional amount at a fixed average
interest rate of approximately 1.37%. In exchange, we receive interest on the notional amount at a variable rate based on three-month LIBOR
spot rate, subject to a 1.0% floor.
As a result of the February 2014 amendment to the senior credit facility, we amended the interest rate swap agreements to align the embedded
floors with the amended term loans. As a result of the amendments to the interest rate swap agreements, we will be required to make quarterly
payments on the notional amount at a fixed average interest rate of approximately 1.22%. In exchange, we will receive interest on the notional
amount at a variable rate based on three-month LIBOR spot rate, subject to a 0.75% floor. There was no change to the notional amount of the
term loan borrowings being hedged.
- 45 -
Table of Contents
The senior credit facility requires us to comply on a quarterly basis with certain financial covenants, including a maximum ratio (the “leverage
ratio”) of debt to adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and a minimum ratio (the “interest
coverage ratio”) of adjusted EBITDA to interest expense, each of which becomes more restrictive over time. As of December 28, 2013, the
terms of the senior credit facility require that we maintain a leverage ratio of no more than 8.00 to 1.00 and a minimum interest coverage ratio
of 1.65 to 1.00. The leverage ratio financial covenant will become more restrictive over time and will require us to maintain a leverage ratio of
no more than 6.25 to 1.00 by the second quarter of fiscal year 2017. The interest coverage ratio financial covenant will also become more
restrictive over time and will require us to maintain an interest coverage ratio of no less than 1.95 to 1.00 by the second quarter of fiscal year
2017. Failure to comply with either of these covenants would result in an event of default under our senior credit facility unless waived by our
senior credit facility lenders. An event of default under our senior credit facility can result in the acceleration of our indebtedness under the
facility. Adjusted EBITDA is a non-GAAP measure used to determine our compliance with certain covenants contained in our senior credit
facility, including our leverage ratio. Adjusted EBITDA is defined in our senior credit facility as net income/(loss) before interest, taxes,
depreciation and amortization and impairment of long-lived assets, as adjusted for the items summarized in the table below. Adjusted EBITDA
is not a presentation made in accordance with GAAP, and our use of the term adjusted EBITDA varies from others in our industry due to the
potential inconsistencies in the method of calculation and differences due to items subject to interpretation. Adjusted EBITDA should not be
considered as an alternative to net income, operating income, or any other performance measures derived in accordance with GAAP, as a
measure of operating performance, or as an alternative to cash flows as a measure of liquidity. Adjusted EBITDA has important limitations as
an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because of
these limitations we rely primarily on our GAAP results. However, we believe that presenting adjusted EBITDA is appropriate to provide
additional information to investors to demonstrate compliance with our financing covenants. As of December 28, 2013, we were in compliance
with our senior credit facility financial covenants, including a leverage ratio of 4.64 to 1.00 and an interest coverage ratio of 4.99 to 1.00, which
were calculated for fiscal year 2013 based upon the adjustments to EBITDA, as provided for under the terms of our senior credit facility. The
following is a reconciliation of our net income to such adjusted EBITDA for fiscal year 2013 (in thousands):
Fiscal year
2013
Net income including noncontrolling interests
Interest expense
Income tax expense
Depreciation and amortization
Impairment charges
EBITDA
Adjustments:
Non-cash adjustments (a)
Loss on debt extinguishment and refinancing transactions (b)
Severance charges (c)
Third-party product volume guarantee
Gain on sale of joint venture
Other (d)
Total adjustments
Adjusted EBITDA
(a)
(b)
(c)
(d)
$
$
146,304
80,235
71,784
49,366
1,436
349,125
12,602
5,018
598
7,500
(6,320)
4,412
23,810
372,935
Represents non-cash adjustments, including stock compensation expense, legal reserves, and other non-cash gains and losses.
Represents transaction costs associated with the refinancing and repayment of long-term debt, including fees paid to third parties and
write-off of deferred financing costs and original issue discount.
Represents severance and related benefits costs associated with reorganizations.
Represents costs and fees associated with various franchisee-related information technology and other investments, bank fees, the
closure of the Company's Canadian ice cream manufacturing plant, as well as the net impact of other insignificant adjustments.
Based upon our current level of operations and anticipated growth, we believe that the cash generated from our operations and amounts
available under our revolving credit facility will be adequate to meet our anticipated debt service requirements, capital
- 46 -
Table of Contents
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:
- 47 -
Table of Contents
(In millions)
Long-term debt (1)
Capital lease obligations
Operating lease obligations
Purchase obligations and guarantees (2)(3)
Short and long-term obligations (4)
Total (5)
(1)
(2)
(3)
(4)
(5)
Total
$
$
Less than
1 year
2,386.8
12.0
639.8
8.4
1.6
3,048.6
68.3
1.0
52.9
7.8
1.6
131.6
1-3
years
170.6
2.1
102.3
0.6
—
275.6
3-5
years
626.2
2.2
100.3
—
—
728.7
More than
5 years
1,521.7
6.7
384.3
—
—
1,912.7
Amounts include mandatory principal payments on long-term debt, as well as estimated interest of $64.9 million, $137.5 million,
$161.0 million, and $189.5 million for less than 1 year, 1-3 years, 3-5 years, and more than 5 years, respectively. Interest on the $1.8
billion of term loans under our senior credit facility is variable, subject to an interest rate floor for a portion of the term loans, and has
been estimated based on a current LIBOR yield curve. Additionally, estimated interest also reflects the impact of our amended
variable-to-fixed interest rate swap agreements. Our term loans also require us to prepay an amount equal to 25% of excess cash flow
(as defined in the senior credit facility) for the preceding fiscal year based on our leverage ratio at the end of the fiscal year. If our
leverage ratio is less than 4.75x, then no excess cash flow prepayment is required. No excess cash flow payment is required related to
fiscal year 2013 based on our current leverage ratio, and therefore no excess cash flow payments have been reflected for any years in
the contractual obligation amounts above.
We have entered into two third-party guarantees with a distribution facility of franchisee products that ensures franchisees will
purchase or sell a certain volume of product. As of December 28, 2013, we were contingently liable for $5.7 million under one of
these guarantees, and are currently obligated to pay $7.5 million in the first quarter of 2014 under the other guarantee. We also have
various supply chain contracts that provide for purchase commitments or exclusivity, the majority of which result in our 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 , and considering various factors including
internal forecasts, prior history, and ability to extend contract terms, we have accrued $0.9 million related to these supply chain
commitments. Such amounts, with the exception of the $7.5 million guarantee payment due in the first quarter of 2014 and the supply
chain commitments accrued, are not included in the table above as timing of payment, if any, is uncertain.
We are guarantors of and are contingently liable for certain lease arrangements primarily as the result of our assigning our interest. As
of December 28, 2013, we were contingently liable for $6.4 million under these guarantees, which are discussed further above in “Off
Balance Sheet Obligations.” Additionally, in certain cases, we issue guarantees to financial institutions so that franchisees can obtain
financing. If all outstanding guarantees, which are discussed further below in “Critical accounting policies,” came due as of
December 28, 2013, we would be liable for approximately $3.0 million . Such amounts are not included in the table above as timing
of payment, if any, is uncertain.
Amounts include obligations to former employees under severance agreements. Excluded from these amounts are any payments that
may be required related to pending litigation, such as the Bertico matter more fully described in note 17(d) to our consolidated
financial statements included herein, as the amount and timing of cash requirements, if any, are uncertain.
Income tax liabilities for uncertain tax positions, gift card/certificate liabilities, and liabilities to various advertising funds are
excluded from the table above as we are not able to make a reasonably reliable estimate of the amount and period of related future
payments. As of December 28, 2013, we had a liability for uncertain tax positions, including accrued interest and penalties thereon, of
$12.4 million. As of December 28, 2013, we had a gift card/certificate liability of $139.7 million and a gift card breakage liability of
$14.1 million (see note 2(v) to our consolidated financial statements included herein). As of December 28, 2013, we had a net payable
of $17.6 million to the various advertising funds.
Critical accounting policies
Our significant accounting policies are more fully described under the heading “Summary of significant accounting policies” in Note 2 of the
notes to the consolidated financial statements. However, we believe the accounting policies described below are particularly important to the
portrayal and understanding of our financial position and results of operations and require application of significant judgment by our
management. In applying these policies, management uses its judgment in making certain assumptions and estimates.
These judgments involve estimations of the effect of matters that are inherently uncertain and may have a significant impact on our quarterly
and annual results of operations or financial condition. Changes in estimates and judgments could significantly affect our result of operations,
financial condition, and cash flow in future years. The following is a description of what we consider to be our most significant critical
accounting policies.
- 48 -
Table of Contents
Revenue recognition
Initial franchise fee revenue is recognized upon substantial completion of the services required of us as stated in the franchise agreement, which
is generally upon opening of the respective restaurant. Fees collected in advance are deferred until earned. Royalty income is based on a
percentage of franchisee gross sales and is recognized when earned, which occurs at the franchisees’ point of sale. Renewal fees are recognized
when a renewal agreement with a franchisee becomes effective. Rental income for base rentals is recorded on a straight-line basis over the
lease term. Contingent rent is recognized as earned, and any amounts received from lessees in advance of achieving stipulated thresholds are
deferred until such threshold is actually achieved. Revenue from the sale of ice cream is recognized when title and risk of loss transfers to the
buyer, which is generally upon delivery. Licensing fees are recognized when earned, which is generally upon sale of the underlying products by
the licensees. Retail store revenues at company-owned restaurants are recognized when payment is tendered at the point of sale, net of sales tax
and other sales-related taxes. Gains on the refranchise or sale of a restaurant are recognized when the sale transaction closes, the franchisee has
a minimum amount of the purchase price in at risk equity, and we are satisfied that the buyer can meet its financial obligations to us.
Allowances for franchise, license, and lease receivables / guaranteed financing
We reserve all or a portion of a franchisee’s receivable balance when deemed necessary based upon detailed review of such balances, and apply
a pre-defined reserve percentage based on an aging criteria to other balances. We perform our reserve analysis during each fiscal quarter or
when events or circumstances indicate that we may not collect the balance due. While we use the best information available in making our
determination, the ultimate recovery of recorded receivables is also dependent upon future economic events and other conditions that may be
beyond our control.
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, the Company had no reserves 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.
Impairment of goodwill and other intangible assets
Goodwill and trade names (“indefinite-lived intangibles”) have been assigned to our reporting units, which are also our operating segments, for
purposes of impairment testing. All of our reporting units have indefinite-lived intangibles associated with them.
We evaluate the remaining useful life of our trade names to determine whether current events and circumstances continue to support an
indefinite useful life. In addition, all of our indefinite-lived intangible assets are tested for impairment annually. We first assess qualitative
factors to determine whether it is more likely than not that a trade name is impaired. In the event we were to determine that the carrying value
of a trade name would more likely than not exceed its fair value, quantitative testing would be performed. Quantitative testing consists of a
comparison of the fair value of each trade name with its carrying value, with any excess of carrying value over fair value being recognized as
an impairment loss. For goodwill, we first perform a qualitative assessment to determine if the fair value of the reporting unit is more likely
than not greater than the carrying amount. In the event we were to determine that a reporting unit's carrying value would more likely than not
exceed its fair value, quantitative testing would be performed which consists of a comparison of each reporting unit’s fair value to its carrying
value. The fair value of a reporting unit is an estimate of the amount for which the unit as a whole could be sold in a current transaction
between willing parties. If the carrying value of a reporting unit exceeds its fair value, goodwill is written down to its implied fair value. We
have selected the first day of our fiscal third quarter as the date on which to perform our annual impairment test for all indefinite-lived
intangible assets. We also test for impairment whenever events or circumstances indicate that the fair value of such indefinite-lived intangibles
has been impaired. No impairment of indefinite-lived intangible assets was recorded during fiscal years 2012, 2011, or 2010.
We have intangible assets other than goodwill and trade names that are amortized on a straight-line basis over their estimated useful lives or
terms of their related agreements. Other intangible assets consist primarily of franchise and international license rights ("franchise rights"), ice
cream distribution and territorial franchise agreement license rights ("license rights"), and operating lease interests acquired related to our
prime leases and subleases ("operating leases acquired"). Franchise rights,
- 49 -
Table of Contents
license rights, and operating leases acquired recorded in the consolidated balance sheets were valued using an appropriate valuation method
during the period of acquisition. Amortization of franchise rights, license rights, and favorable operating leases acquired is recorded as
amortization expense in the consolidated statements of operations and amortized over the respective franchise, license, and lease terms using
the straight-line method. Unfavorable operating leases acquired related to our prime leases and subleases are recorded in the liability section of
the consolidated balance sheets and are amortized into rental expense and rental income, respectively, over the base lease term of the respective
leases using the straight-line method. Our amortizable intangible assets are evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of the intangible asset may not be recoverable. An intangible asset that is deemed impaired is
written down to its estimated fair value, which is based on discounted cash flows.
Income taxes
Our major tax jurisdictions subject to income tax are the U.S. and Canada. The majority of our legal entities were converted to limited liability
companies (“LLCs”) on March 1, 2006 and a number of new LLCs were created on or about March 15, 2006. All of these LLCs are single
member entities which are treated as disregarded entities and included as part of DBGI in the consolidated federal income tax return. We also
have subsidiaries in foreign jurisdictions that file separate tax returns in their respective countries and local jurisdictions, as required. In
addition to Canada, the foreign jurisdictions that our subsidiaries file tax returns include the United Kingdom, Australia, Spain, and China. The
current income tax liabilities for our foreign subsidiaries are calculated on a stand-alone basis. The current federal tax liability for each entity
included in our consolidated federal income tax return is calculated on a stand-alone basis, including foreign taxes, for which a separate
company foreign tax credit is calculated in lieu of a deduction for foreign withholding taxes paid. As a matter of course, we are regularly
audited by federal, state, and foreign tax authorities.
Deferred tax assets and liabilities are recorded for the expected future tax consequences of items that have been included in our consolidated
financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement
carrying amounts of assets and liabilities and the respective tax bases of assets and liabilities using enacted tax rates that are expected to apply
in years in which the temporary differences are expected to reverse. The effects of changes in tax rate and changes in apportionment of income
between tax jurisdictions on deferred tax assets and liabilities are recognized in the consolidated statements of operations in the year in which
the law is enacted or change in apportionment occurs. Valuation allowances are provided when we do not believe it is more likely than not that
we will realize the benefit of identified tax assets.
A tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not that the
position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit
that is greater than fifty percent likely of being realized upon ultimate settlement. Estimates of interest and penalties on unrecognized tax
benefits are recorded in the provision for income taxes.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
Legal contingencies
We are engaged in litigation that arises in the ordinary course of business as a franchisor. Such matters typically 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 us. We record reserves for legal contingencies when information available to us indicates that it is probable that
a liability has been incurred and the amount of the loss can be reasonably estimated. Predicting the outcomes of claims and litigation and
estimating the related costs and exposures involve substantial uncertainties that could cause actual costs to vary materially from estimates.
Legal costs incurred in connection with legal and other contingencies are expensed as the costs are incurred.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign exchange risk
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. Our investments in, and equity income from, joint ventures are denominated in foreign currencies, and are therefore subject to foreign
currency fluctuations. For fiscal year 2013, a 5% change in foreign currencies relative to the U.S. dollar would have had an approximately $0.9
million impact on equity in net income of joint ventures. Additionally, a 5%
- 50 -
Table of Contents
change in foreign currencies as of December 28, 2013 would have had an $8.5 million impact on the carrying value of our investments in joint
ventures. In the future, we may consider the use of derivative financial instruments, such as forward contracts, to manage foreign currency
exchange rate risks.
Interest rate risk
We are subject to interest rate risk in connection with our long-term debt. Our principal interest rate exposure mainly relates to a portion of the
term loans outstanding under our senior credit facility. We have a $1.90 billion term loan facility bearing interest at variable rates. We have
entered into variable-to-fixed interest rate swap agreements to hedge the floating interest rate on $900.0 million notional amount of our
outstanding term loan borrowings. These swaps are scheduled to mature in November 2017. Pursuant to the amendments to the swap
agreements as more fully described in Item 7 under "Liquidity and capital resources," we are required to make quarterly payments on the
notional amount at a fixed average interest rate of approximately 1.22%. In exchange, we receive interest on the notional amount at a variable
rate based on three-month LIBOR spot rate, subject to a 0.75% floor. Based on the principal amount of term loan borrowings outstanding at
December 28, 2013 and considering the amended interest rate swaps, each eighth of a percentage point change in interest rates above the
minimum interest rate specified in the senior credit facility would result in a $1.2 million change in annual interest expense on our term loan
facility. We also have a revolving credit facility, which provides for borrowings of up to $100.0 million and bears interest at variable rates.
Assuming the revolver is fully drawn, each eighth of a percentage point change in interest rates above the minimum interest rate specified in
the senior credit facility would result in a $0.1 million change in annual interest expense on our revolving loan facility. There was no material
impact to our interest rate risk above the minimum interest rate specified as a result of the February 2014 amendment to our senior credit
facility.
In the future, we may enter into additional hedging instruments, involving the exchange of floating for fixed rate interest payments, to reduce
interest rate volatility.
- 51 -
Table of Contents
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Dunkin’ Brands Group, Inc.:
We have audited the accompanying consolidated balance sheets of Dunkin’ Brands Group, Inc. and subsidiaries as of December 28, 2013 and
December 29, 2012, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for
each of the years in the three‑year period ended December 28, 2013. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dunkin’
Brands Group, Inc. and subsidiaries as of December 28, 2013 and December 29, 2012, and the results of their operations and their cash flows
for each of the years in the three‑year period ended December 28, 2013, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Dunkin’ Brands
Group, Inc.’s internal control over financial reporting as of December 28, 2013, based on criteria established in Internal Control - Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
February 20, 2014 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2014
- 52 -
Table of Contents
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
December 28,
2013
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Notes and other receivables, net
Assets held for sale
Deferred income taxes, net
Restricted assets of advertising funds
Prepaid income taxes
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Equity method investments
Goodwill
Other intangible assets, net
Restricted cash
Other assets
Total assets
$
$
Liabilities, Redeemable Noncontrolling Interests, and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt
$
Capital lease obligations
Accounts payable
Liabilities of advertising funds
Deferred income
Other current liabilities
Total current liabilities
Long-term debt, net
Capital lease obligations
Unfavorable operating leases acquired
Deferred income
Deferred income taxes, net
Other long-term liabilities
Total long-term liabilities
Commitments and contingencies (note 17)
Redeemable noncontrolling interests
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued and
outstanding at December 28, 2013 and December 29, 2012, respectively
Common stock, $0.001 par value; 475,000,000 shares authorized; 106,876,919 shares issued and
106,646,219 shares outstanding at December 28, 2013; 106,146,984 shares issued and
outstanding at December 29, 2012
Additional paid-in capital
Treasury stock, at cost
Accumulated deficit
Accumulated other comprehensive income
Total stockholders’ equity of Dunkin' Brands
Noncontrolling interests
December 29,
2012
256,933
47,162
32,603
1,663
46,461
31,493
25,699
19,746
461,760
182,858
170,644
891,598
1,452,205
305
75,320
3,234,690
252,618
32,407
20,649
2,400
47,263
31,849
10,825
21,769
419,780
181,172
174,823
891,900
1,479,784
367
69,687
3,217,513
5,000
432
12,445
49,077
28,426
248,918
344,298
1,818,609
6,996
16,834
11,135
561,714
62,816
2,478,104
26,680
371
16,256
45,594
24,683
239,931
353,515
1,823,278
7,251
19,061
15,720
569,126
79,587
2,514,023
4,930
—
—
—
107
1,196,426
(10,773 )
(779,741 )
1,339
407,358
—
106
1,251,498
—
(914,094)
9,141
346,651
3,324
Total stockholders' equity
Total liabilities, redeemable noncontrolling interests, and stockholders' equity
See accompanying notes to consolidated financial statements.
- 53 -
$
407,358
3,234,690
349,975
3,217,513
Table of Contents
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
December 28,
2013
Revenues:
Franchise fees and royalty income
Rental income
Sales of ice cream products
Sales at company-owned restaurants
Other revenues
Total revenues
Operating costs and expenses:
Occupancy expenses—franchised restaurants
Cost of ice cream products
Company-owned restaurant expenses
General and administrative expenses, net
Depreciation
Amortization of other intangible assets
Long-lived asset impairment charges
Total operating costs and expenses
Net income (loss) of equity method investments:
Net income, excluding impairment
Impairment charge, net of tax
Total net income (loss) of equity method investments
Other operating income, net
Operating income
Other income (expense):
Interest income
Interest expense
Loss on debt extinguishment and refinancing transactions
Other gains (losses), net
Total other expense
Income before income taxes
Provision for income taxes
Net income including noncontrolling interests
Net loss attributable to noncontrolling interests
Net income attributable to Dunkin' Brands
$
$
Earnings (loss) per share:
Class L—basic and diluted
Common—basic
Common—diluted
Cash dividends declared per common share
$
See accompanying notes to consolidated financial statements.
- 54 -
Fiscal year ended
December 29,
2012
December 31,
2011
453,976
96,082
112,276
24,976
26,530
713,840
418,940
96,816
94,659
22,922
24,844
658,181
398,474
92,145
100,068
12,154
25,357
628,198
52,097
79,278
24,480
228,010
22,423
26,943
563
433,794
52,072
69,019
23,133
239,574
29,084
26,943
1,278
441,103
51,878
72,329
12,854
227,771
24,497
28,025
2,060
419,414
19,243
(873 )
18,370
6,320
304,736
22,351
—
22,351
—
239,429
16,277
(19,752 )
(3,475 )
—
205,309
404
(80,235 )
(5,018 )
(1,799 )
(86,648 )
218,088
71,784
146,304
(599 )
146,903
543
(74,031)
(3,963)
23
(77,428)
162,001
54,377
107,624
(684)
108,308
623
(105,072 )
(34,222 )
175
(138,496 )
66,813
32,371
34,442
—
34,442
n/a
1.38
1.36
0.76
n/a
0.94
0.93
0.60
$
6.14
(1.41 )
(1.41 )
—
Table of Contents
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
December 28,
2013
Net income including noncontrolling interests
Other comprehensive income (loss), net:
Effect of foreign currency translation, net of deferred tax expense
(benefit) of $205, $(260), and $295 for the fiscal years ended
December 28, 2013, December 29, 2012, and December 31, 2011,
respectively
Unrealized gains (losses) on interest rate swaps, net of deferred tax
expense (benefit) of $5,290 and $(1,154) for the fiscal years ended
December 28, 2013 and December 29, 2012, respectively
Unrealized loss on pension plan, net of deferred tax benefit of $200,
$415, and $85 for the fiscal years ended December 28, 2013,
December 29, 2012, and December 31, 2011, respectively
Other
Total other comprehensive income (loss)
Comprehensive income including noncontrolling interests
Comprehensive loss attributable to noncontrolling interests
Comprehensive income attributable to Dunkin' Brands
See accompanying notes to consolidated financial statements.
- 55 -
$
$
146,304
Fiscal year ended
December 29,
2012
December 31,
2011
107,624
34,442
(14,909 )
(5,996)
6,560
7,740
(1,655)
—
(612 )
(21 )
(7,802 )
138,502
(599 )
139,101
(1,180)
(1,629)
(10,460)
97,164
(684)
97,848
(233)
(353)
5,974
40,416
—
40,416
Table of Contents
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(In thousands)
Redeemable
noncontrolling
interests
Stockholders' equity
Additional
paid-in
capital
Common stock
Shares
Balance at December 25, 2010
Net income
Other comprehensive
income
Accretion of Class L
preferred return
Conversion of Class L
shares into common
stock
Issuance of common
stock in connection
with initial public
offering
Issuance of common
stock
Exercise of stock options
Share-based
compensation expense
Repurchases of common
stock
Retirement of treasury
stock
Excess tax benefits from
share-based
compensation
Balance at December 31, 2011
Net income
Other comprehensive loss
Exercise of stock options
Contributions from
noncontrolling interests
Dividends paid on
common stock
Share-based
compensation expense
Repurchases of common
stock
Retirement of treasury
stock
Excess tax benefits from
share-based
compensation
Other
Balance at December 29, 2012
Net income
Other comprehensive loss
Exercise of stock options
Reclassification to
redeemable
noncontrolling interests
Contributions from
redeemable
noncontrolling interests
Dividends paid on
common stock
Share-based
compensation expense
Repurchases of common
stock
Retirement of treasury
stock
Excess tax benefits from
share-based
Treasury
stock, at cost
Accumulated
deficit
Accumulated
other
comprehensive
income
Noncontrolling
interests
Total
Amount
13,627
—
(534,341)
—
34,442
—
—
34,442
—
—
5,974
—
5,974
—
—
—
(45,102)
—
—
—
—
887,841
—
—
—
—
—
389,961
—
942
—
—
—
—
942
—
—
266
—
—
—
—
266
—
105
—
4,632
—
—
—
—
4,632
—
—
—
—
(173)
—
—
—
(173)
—
(558)
—
—
—
—
—
—
—
—
1,494
—
19,601
—
745,936
—
(684)
107,624
—
—
(10,460)
—
41,853
$
42
195,212
—
—
—
—
—
—
—
—
—
—
—
—
55,653
55
887,786
—
22,250
22
389,939
129
—
62
(1,980)
(1,807)
1,980
(741,415)
(45,102)
—
—
1,494
—
119,494
119
1,478,291
—
(752,075)
—
—
—
—
108,308
—
—
—
—
—
1,277
2
4,416
—
—
—
—
4,418
—
—
—
—
—
—
—
4,008
4,008
—
—
—
(70,069)
—
—
—
—
(70,069)
—
372
—
6,920
—
—
—
—
6,920
—
—
—
—
—
—
—
—
—
—
—
11,978
—
(15,001)
(450,369)
(15 )
(180,027)
—
—
11,978
—
—
106,142
106
1,251,498
—
(914,094)
—
—
—
—
146,903
(11)
450,369
—
(270,327)
—
(10,460)
—
—
—
—
—
—
—
—
9,141
3,324
—
(239)
(450,369)
(11)
—
—
349,975
—
146,664
(360)
—
—
—
—
—
1,140
1
7,962
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(81,008)
—
—
—
—
(81,008)
—
12
—
7,323
—
—
—
—
7,323
—
—
—
—
—
—
—
(27,963)
—
(417)
—
(4,688)
—
—
—
—
—
—
15,366
—
—
15,366
—
(27,963)
17,190
—
(12,502)
—
(7,802)
—
(7,802)
—
—
7,963
—
(3,085)
(3,085)
—
3,085
2,205
compensation
Other
Balance at December 28,
2013
—
—
106,877
$ 107
—
(27)
1,196,426
(10,773)
(48)
—
—
(779,741)
1,339
—
See accompanying notes to consolidated financial statements.
- 56 -
(75)
407,358
—
4,930
Table of Contents
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
December 28,
2013
Cash flows from operating activities:
Net income including noncontrolling interests
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Amortization of deferred financing costs and original issue discount
Loss on debt extinguishment and refinancing transactions
Impact of unfavorable operating leases acquired
Deferred income taxes
Long-lived asset impairment charges
Provision for (recovery of) bad debt
Share-based compensation expense
Net loss (income) of equity method investments
Dividends received from equity method investments
Gain on sale of joint venture
Other, net
Change in operating assets and liabilities:
Accounts, notes, and other receivables, net
Other current assets
Accounts payable
Other current liabilities
Liabilities of advertising funds, net
Income taxes payable, net
Deferred income
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property and equipment
Proceeds from sale of joint venture
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Repayment of long-term debt
Payment of deferred financing and other debt-related costs
Proceeds from initial public offering, net of offering costs
Repurchases of common stock
Dividends paid on common stock
Exercise of stock options
Excess tax benefits from share-based compensation
Other, net
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information:
Cash paid for income taxes
$
Fiscal year ended
December 29,
2012
December 31,
2011
146,304
107,624
34,442
49,366
4,706
5,018
(2,177 )
(13,191 )
563
3,484
7,323
(18,370 )
7,226
(6,320 )
(2,268 )
56,027
5,727
3,963
(2,352)
(6,946)
1,278
(542)
6,920
(22,351)
6,497
—
(845)
52,522
6,278
34,222
(3,230)
(11,363)
2,060
2,019
4,632
3,475
7,362
—
(2,633)
(27,444 )
1,879
46
8,163
4,795
(27,847 )
(842 )
1,385
141,799
6,321
(1,480)
2,804
38,767
(5,688)
(38,928)
(1,491)
(885)
154,420
19,123
4,406
85
17,904
(3,572)
473
(5,658)
156
162,703
(31,099 )
6,682
1,511
(22,906 )
(22,398)
—
(549)
(22,947)
(18,596)
—
(1,211)
(19,807)
$
—
(24,157 )
(6,157 )
—
(27,963 )
(81,008 )
7,963
15,366
1,782
(114,174 )
(404 )
4,315
252,618
256,933
396,000
(15,441)
(5,978)
—
(450,369)
(70,069)
4,418
11,978
3,859
(125,602)
32
5,903
246,715
252,618
250,000
(654,608)
(20,087)
389,961
(286)
—
266
1,494
3,186
(30,074)
(207)
112,615
134,100
246,715
$
98,483
90,225
43,143
Cash paid for interest
Noncash investing activities:
Property and equipment included in accounts payable and other current
liabilities
Purchase of leaseholds in exchange for capital lease obligations
See accompanying notes to consolidated financial statements.
- 57 -
78,127
54,115
103,147
1,366
173
5,244
2,818
1,641
—
Table of Contents
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Description of business and organization
Dunkin’ Brands Group, Inc. (“DBGI”), together with its consolidated subsidiaries, is one of the world’s largest franchisors of restaurants
serving coffee and baked goods, as well as ice cream, within the quick service restaurant segment of the restaurant industry. We develop,
franchise, and license a system of both traditional and nontraditional quick service restaurants and, in limited circumstances, own and operate
individual locations. Through our Dunkin’ Donuts brand, we develop and franchise restaurants featuring coffee, donuts, bagels, breakfast
sandwiches, and related products. Through our Baskin-Robbins brand, we develop and franchise restaurants featuring ice cream, frozen
beverages, and related products. Additionally, we distribute Baskin-Robbins ice cream products to Baskin-Robbins franchisees and licensees in
certain international markets.
Throughout these consolidated financial statements, “Dunkin’ Brands,” “the Company,” “we,” “us,” “our,” and “management” refer to DBGI
and its consolidated subsidiaries taken as a whole.
(2) Summary of significant accounting policies
(a) Fiscal year
The Company operates and reports financial information on a 52- or 53-week year on a 13-week quarter basis with the fiscal year ending on the
last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the
fourth fiscal quarter). The data periods contained within fiscal years 2013 and 2012 reflect the results of operations for the 52-week periods
ended December 28, 2013 and December 29, 2012 , respectively, and fiscal year 2011 reflects the results of operations for the 53-week period
ended December 31, 2011 .
(b) Basis of presentation and consolidation
The accompanying consolidated financial statements include the accounts of DBGI and subsidiaries and have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S. GAAP”). All significant transactions and balances between
subsidiaries have been eliminated in consolidation.
We consolidate entities in which we have a controlling financial interest, the usual condition of which is ownership of a majority voting
interest. We also consider for consolidation an entity, in which we have certain interests, where the controlling financial interest may be
achieved through arrangements that do not involve voting interests. Such an entity, known as a variable interest entity (“VIE”), is required to be
consolidated by its primary beneficiary. The primary beneficiary is the entity that possesses the power to direct the activities of the VIE that
most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are
significant to it. The principal entities in which we possess a variable interest include franchise entities, the advertising funds (see note 4), and
our equity method investees. We do not possess any ownership interests in franchise entities, except for our investments in various entities that
are accounted for under the equity method or are otherwise consolidated. Additionally, we generally do not provide financial support to
franchise entities in a typical franchise relationship. As our franchise and license arrangements provide our franchisee and licensee entities the
power to direct the activities that most significantly impact their economic performance, we do not consider ourselves the primary beneficiary
of any such entity that might be a VIE. Based on the results of our analysis of potential VIEs, we have not consolidated any franchise entities.
The Company’s maximum exposure to loss resulting from involvement with potential franchise VIEs is attributable to aged trade and notes
receivable balances, outstanding loan guarantees (see note 17(b)), and future lease payments due from franchisees (see note 11).
The Company holds a 51% interest in a limited partnership that owns and operates Dunkin' Donuts restaurants in the Dallas, Texas area. The
Company possesses control of this entity and, therefore, consolidates the results of the limited partnership. During fiscal year 2013, the
Company amended the partnership agreement with the noncontrolling owners to provide the noncontrolling owners the option in early 2017 to
sell their entire interest to the Company. As a result of the amendment, the partnership agreement now contains a redemption feature that is not
currently redeemable, but it is probable to become redeemable in the future. As such, the Company reclassified the noncontrolling interests in
fiscal year 2013 to temporary equity (between liabilities and stockholders’ equity) in the consolidated balance sheets. The net loss and
comprehensive loss attributable to the noncontrolling interest are presented separately in the consolidated statements of operations and
comprehensive income, respectively. As of December 28, 2013 , the consolidated balance sheets included $3.0 million of cash and cash
equivalents and $6.4 million of property and equipment, net for this partnership entity, which may be used only to settle obligations of the
partnership.
- 58 -
Table of Contents
(c) Accounting estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates, judgments, and assumptions
that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities at the date of
the financial statements and for the period then ended. Significant estimates are made in the calculations and assessments of the following:
(a) allowance for doubtful accounts and notes receivables, (b) impairment of tangible and intangible assets, (c) income taxes, (d) real estate
reserves, (e) lease accounting estimates, (f) gift certificate breakage, and (g) contingencies. Estimates are based on historical experience,
current conditions, and various other assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for
making judgments about the carrying values of assets and liabilities when they are not readily apparent from other sources. We adjust such
estimates and assumptions when facts and circumstances dictate. Actual results may differ from these estimates under different assumptions or
conditions. Illiquid credit markets and volatile equity and foreign currency markets have combined to increase the uncertainty inherent in such
estimates and assumptions.
(d) Cash and cash equivalents and restricted cash
The Company continually monitors its positions with, and the credit quality of, the financial institutions in which it maintains its deposits and
investments. As of December 28, 2013 and December 29, 2012 , we maintained balances in various cash accounts in excess of federally
insured limits. All highly liquid instruments purchased with an original maturity of three months or less are considered cash equivalents.
Cash held related to the advertising funds and the Company’s gift card/certificate programs are classified as unrestricted cash as there are no
legal restrictions on the use of these funds; however, the Company intends to use these funds solely to support the advertising funds and gift
card/certificate programs rather than to fund operations. Total cash balances related to the advertising funds and gift card/certificate programs
as of December 28, 2013 and December 29, 2012 were $134.5 million and $125.4 million , respectively.
(e) Fair value of financial instruments
The carrying amounts of accounts receivable, notes and other receivables, assets and liabilities related to the advertising funds, accounts
payable, and other current liabilities approximate fair value because of their short-term nature. For long-term receivables, we review the
creditworthiness of the counterparty on a quarterly basis, and adjust the carrying value as necessary. We believe the carrying value of long-term
receivables of $5.3 million and $5.8 million as of December 28, 2013 and December 29, 2012 , respectively, approximates fair value.
Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair
value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to
unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to
measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the
lowest level input that is significant to the fair value measurement.
- 59 -
Table of Contents
Financial assets and liabilities measured at fair value on a recurring basis as of December 28, 2013 and December 29, 2012 are summarized as
follows (in thousands):
Assets:
Mutual funds
Interest rate swaps
Total assets
Liabilities:
Deferred compensation
liabilities
Interest rate swaps
Total liabilities
$
$
$
$
Quoted prices
in active
markets for
identical assets
(Level 1)
December 28, 2013
Significant
other
observable
inputs
(Level 2)
1,012
—
1,012
—
10,221
10,221
1,012
10,221
11,233
2,505
—
2,505
—
—
—
2,505
—
2,505
—
—
—
7,181
—
7,181
7,181
—
7,181
—
—
—
7,379
2,809
10,188
7,379
2,809
10,188
Total
Quoted prices
in active
markets for
identical assets
(Level 1)
December 29, 2012
Significant
other
observable
inputs
(Level 2)
Total
The deferred compensation liabilities relate primarily to the Dunkin’ Brands, Inc. Non-Qualified Deferred Compensation Plan (“NQDC Plan”),
which allows for pre-tax salary deferrals for certain qualifying employees (see note 18). Changes in the fair value of the deferred compensation
liabilities are derived using quoted prices in active markets of the asset selections made by the participants. The deferred compensation
liabilities are classified within Level 2, as defined under U.S. GAAP, because their inputs are derived principally from observable market data
by correlation to hypothetical investments. The Company holds mutual funds, as well as money market funds, to partially offset the Company’s
liabilities under the NQDC Plan as well as other benefit plans. The changes in the fair value of the mutual funds are derived using quoted prices
in active markets for the specific funds. As such, the mutual funds are classified within Level 1, as defined under U.S. GAAP.
The Company uses readily available market data to value its interest rate swaps, such as interest rate curves and discount factors. Additionally,
the fair value of derivatives includes consideration of credit risk in the valuation. The Company uses a potential future exposure model to
estimate this credit valuation adjustment (“CVA”). The inputs to the CVA are largely based on observable market data, with the exception of
certain assumptions regarding credit worthiness which make the CVA a Level 3 input, as defined under U.S. GAAP. As the magnitude of the
CVA is not a significant component of the fair value of the interest rate swaps as of December 28, 2013 , it is not considered a significant input
and the derivatives are classified as Level 2.
The carrying value and estimated fair value of long-term debt at December 28, 2013 and December 29, 2012 were as follows (in thousands):
December 28, 2013
Carrying
Estimated
value
fair value
Financial liabilities
Term loans
$
1,823,609
1,836,212
December 29, 2012
Carrying
Estimated
value
fair value
1,849,958
1,878,980
The estimated fair value of our term loans is based on current bid prices for our term loans. Judgment is required to develop these estimates. As
such, our term loans are classified within Level 2, as defined under U.S. GAAP.
(f) Inventories
Inventories consist primarily of ice cream products sold to certain international markets that are in-transit from our third-party manufacturer to
our international licensees, during which time we hold title to such products. Inventories are valued at the lower of cost or estimated net
realizable value, and cost is generally determined based on the actual cost of the specific inventory sold. Inventories are included within
prepaid expenses and other current assets in the accompanying consolidated balance sheets.
(g) Assets held for sale
Assets held for sale primarily represent costs incurred by the Company for store equipment and leasehold improvements constructed for sale to
franchisees, as well as restaurants formerly operated by franchisees waiting to be resold. The value of such restaurants and related assets is
reduced to reflect net recoverable values, with such reductions recorded to general and administrative expenses, net in the consolidated
statements of operations. Generally, internal specialists estimate the amount to be recovered from the sale of such assets based on their
knowledge of the (a) market in which the store is located, (b) results of
- 60 -
Table of Contents
the Company’s previous efforts to dispose of similar assets, and (c) current economic conditions. The actual cost of such assets held for sale is
affected by specific factors such as the nature, age, location, and condition of the assets, as well as the economic environment and inflation.
We classify restaurants and their related assets as held for sale and suspend depreciation and amortization when (a) we make a decision to
refranchise or sell the property, (b) the stores are available for immediate sale, (c) we have begun an active program to locate a buyer,
(d) significant changes to the plan of sale are not likely, and (e) the sale is probable within one year.
(h) Property and equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line
method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the shorter of the estimated
useful life or the remaining lease term of the related asset. Estimated useful lives are as follows:
Years
20 – 35
5 – 20
3 – 10
Buildings
Leasehold improvements
Store, production, and other equipment
Routine maintenance and repair costs are charged to expense as incurred. Major improvements, additions, or replacements that extend the life,
increase capacity, or improve the safety or the efficiency of property are capitalized at cost and depreciated. Major improvements to leased
property are capitalized as leasehold improvements and depreciated. Interest costs incurred during the acquisition period of capital assets are
capitalized as part of the cost of the asset and depreciated.
(i) Leases
When determining lease terms, we begin with the point at which the Company obtains control and possession of the leased properties. We
include option periods for which failure to renew the lease imposes a penalty on the Company in such an amount that the renewal appears, at
the inception of the lease, to be reasonably assured, which generally includes option periods through the end of the related franchise agreement
term. We also include any rent holidays in the determination of the lease term.
We record rent expense and rent income for leases and subleases, respectively, that contain scheduled rent increases on a straight-line basis
over the lease term as defined above. In certain cases, contingent rentals are based on sales levels of our franchisees, in excess of stipulated
amounts. Contingent rentals are included in rent income and rent expense as they are earned or accrued, respectively.
We occasionally provide to our sublessees, or receive from our landlords, tenant improvement dollars. Tenant improvement dollars paid to our
sublessees are recorded as a deferred rent asset. For fixed asset and/or leasehold purchases for which we receive tenant improvement dollars
from our landlords, we record the property and equipment and/or leasehold improvements gross and establish a deferred rent obligation. The
deferred lease assets and obligations are amortized on a straight-line basis over the determined sublease and lease terms, respectively.
Management regularly reviews sublease arrangements, where we are the lessor, for losses on sublease arrangements. We recognize a loss,
discounted using credit-adjusted risk-free rates, when costs expected to be incurred under an operating prime lease exceed the anticipated future
revenue stream of the operating sublease. Furthermore, for properties where we do not currently have an operational franchise or other
third-party sublessee and are under long-term lease agreements, the present value of any remaining liability under the lease, discounted using
credit-adjusted risk-free rates and net of estimated sublease recovery, is recognized as a liability and charged to operations at the time we cease
use of the property. The value of any equipment and leasehold improvements related to a closed store is assessed for potential impairment
(see note 2(j)).
(j) Impairment of long-lived assets
Long-lived assets that are used in operations are tested for recoverability whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable through undiscounted future cash flows. Recognition and measurement of a potential impairment is
performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the
cash flows of other assets and liabilities. An impairment loss is the amount by which the carrying amount of a long-lived asset or asset group
exceeds its estimated fair value. Fair value is generally estimated by internal specialists based on the present value of anticipated future cash
flows or, if required, by independent third-party valuation specialists, depending on the nature of the assets or asset group.
- 61 -
Table of Contents
(k) Equity method investments
The Company's equity method investments consist of interests in B-R 31 Ice Cream Co., Ltd. (“BR Japan”), BR-Korea Co., Ltd. (“BR Korea”),
Coffee Alliance, S.L. (“Spain JV”), and Palm Oasis Pty. Ltd. (“Australia JV”), which are accounted for in accordance with the equity method.
As a result of the acquisition of the Company by BCT (see note 19(a)) on March 1, 2006 (“BCT Acquisition”), the Company has recorded a
step-up in the basis of our investment in BR Japan. The basis difference is comprised of amortizable franchise rights and related tax liabilities
and nonamortizable goodwill. The franchise rights and related tax liabilities are amortized in a manner that reflects the estimated benefits from
the use of the intangible asset over a period of 14 years. The franchise rights were valued based on an estimate of future cash flows to be
generated from the ongoing management of the contracts over their remaining useful lives.
(l) Goodwill and other intangible assets
Goodwill and trade names (“indefinite-lived intangibles”) have been assigned to our reporting units, which are also our operating segments, for
purposes of impairment testing. All of our reporting units have indefinite-lived intangibles associated with them.
We evaluate the remaining useful life of our trade names to determine whether current events and circumstances continue to support an
indefinite useful life. In addition, all of our indefinite-lived intangible assets are tested for impairment annually. We first assess qualitative
factors to determine whether it is more likely than not that a trade name is impaired. In the event we were to determine that the carrying value
of a trade name would more likely than not exceed its fair value, quantitative testing would be performed. Quantitative testing consists of a
comparison of the fair value of each trade name with its carrying value, with any excess of carrying value over fair value being recognized as
an impairment loss. For goodwill, we first perform a qualitative assessment to determine if the fair value of the reporting unit is more likely
than not greater than the carrying amount. In the event we were to determine that a reporting unit's carrying value would more likely than not
exceed its fair value, quantitative testing would be performed which consists of a comparison of each reporting unit’s fair value to its carrying
value. The fair value of a reporting unit is an estimate of the amount for which the unit as a whole could be sold in a current transaction
between willing parties. If the carrying value of a reporting unit exceeds its fair value, goodwill is written down to its implied fair value. We
have selected the first day of our fiscal third quarter as the date on which to perform our annual impairment test for all indefinite-lived
intangible assets. We also test for impairment whenever events or circumstances indicate that the fair value of such indefinite-lived intangibles
has been impaired.
Other intangible assets consist primarily of franchise and international license rights (“franchise rights”), ice cream distribution and territorial
franchise agreement license rights (“license rights”), and operating lease interests acquired related to our prime leases and subleases (“operating
leases acquired”). Franchise rights, license rights, and operating leases acquired recorded in the consolidated balance sheets were valued using
an appropriate valuation method during the period of acquisition. Amortization of franchise rights, license rights, and favorable operating
leases acquired is recorded as amortization expense in the consolidated statements of operations and amortized over the respective franchise,
license, and lease terms using the straight-line method.
Unfavorable operating leases acquired related to our prime and subleases are recorded in the liability section of the consolidated balance sheets
and are amortized into rental expense and rental income, respectively, over the base lease term of the respective leases using the straight-line
method. The weighted average amortization period for all unfavorable operating leases acquired is 17 years.
Management makes adjustments to the carrying amount of such intangible assets and unfavorable operating leases acquired if they are deemed
to be impaired using the methodology for long-lived assets (see note 2(j)), or when such license or lease agreements are reduced or terminated.
(m) Contingencies
The Company records reserves for legal and other contingencies when information available to the Company indicates that it is probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. Predicting the outcomes of claims and litigation and
estimating the related costs and exposures involve substantial uncertainties that could cause actual costs to vary materially from estimates.
Legal costs incurred in connection with legal and other contingencies are expensed as the costs are incurred.
(n) Foreign currency translation
We translate assets and liabilities of non-U.S. operations into U.S. dollars at rates of exchange in effect at the balance sheet date, and revenues
and expenses at the average exchange rates prevailing during the period. Resulting translation adjustments
- 62 -
Table of Contents
are recorded as a separate component of comprehensive income and stockholders’ equity, net of deferred taxes. Foreign currency translation
adjustments primarily result from our equity method investments, as well as subsidiaries located in Canada, the UK, Australia, and Spain.
Business transactions resulting in foreign exchange gains and losses are included in the consolidated statements of operations.
(o) Revenue recognition
Franchise fees and royalty income
Domestically, the Company sells individual franchises as well as territory agreements in the form of store development agreements (“SDAs”)
that grant the right to develop restaurants in designated areas. Our franchise agreements and SDAs typically require the franchisee to pay an
initial nonrefundable fee and continuing fees, or royalty income, based upon a percentage of sales. The franchisee will typically pay us a
renewal fee if we approve a renewal of the franchise agreement. Such fees are paid by franchisees to obtain the rights associated with these
franchise agreements or SDAs. Initial franchise fee revenue is recognized upon substantial completion of the services required of the Company
as stated in the franchise agreement, which is generally upon opening of the respective restaurant. Fees collected in advance are deferred until
earned, with deferred amounts expected to be recognized as revenue within one year classified as current deferred income in the consolidated
balance sheets. Royalty income is based on a percentage of franchisee gross sales and is recognized when earned, which occurs at the
franchisees’ point of sale. Renewal fees are recognized when a renewal agreement with a franchisee becomes effective. Occasionally, the
Company offers incentive programs to franchisees in conjunction with a franchise agreement, SDA, or renewal agreement and, when
appropriate, records the costs of such programs as reductions of revenue.
For our international business, we sell master territory and/or license agreements that typically allow the master licensee to either act as the
franchisee or to sub-franchise to other operators. Master license and territory fees are generally recognized upon substantial completion of the
services required of the Company as stated in the franchise agreement, which is generally upon opening of the first restaurant or as stores are
opened, depending on the specific terms of the agreement. Royalty income is based on a percentage of franchisee gross sales and is recognized
when earned, which generally occurs at the franchisees’ point of sale. Renewal fees are recognized when a renewal agreement with a franchisee
or licensee becomes effective.
Rental income
Rental income for base rentals is recorded on a straight-line basis over the lease term, including the amortization of any tenant improvement
dollars paid (see note 2(i)). The difference between the straight-line rent amounts and amounts receivable under the leases is recorded as
deferred rent assets in current or long-term assets, as appropriate. Contingent rental income is recognized as earned, and any amounts received
from lessees in advance of achieving stipulated thresholds are deferred until such threshold is actually achieved. Deferred contingent rentals are
recorded as deferred income in current liabilities in the consolidated balance sheets.
Sales of ice cream products
We distribute Baskin-Robbins ice cream products to Baskin-Robbins franchisees and licensees in certain international locations. Revenue from
the sale of ice cream products is recognized when title and risk of loss transfers to the buyer, which was generally upon shipment through
November 2012. Beginning in December 2012, title and risk of loss generally transfers to the buyer upon delivery.
Sales at company-owned restaurants
Retail store revenues at company-owned restaurants are recognized when payment is tendered at the point of sale, net of sales tax and other
sales-related taxes.
Other revenues
Other revenues include fees generated by licensing our brand names and other intellectual property, as well as gains, net of losses and
transactions costs, from the sales of our restaurants to new or existing franchisees. Licensing fees are recognized when earned, which is
generally upon sale of the underlying products by the licensees. Gains on the refranchise or sale of a restaurant are recognized when the sale
transaction closes, the franchisee has a minimum amount of the purchase price in at-risk equity, and we are satisfied that the buyer can meet its
financial obligations to us. If the criteria for gain recognition are not met, we defer the gain to the extent we have any remaining financial
exposure in connection with the sale transaction. Deferred gains are recognized when the gain recognition criteria are met.
- 63 -
Table of Contents
(p) Allowance for doubtful accounts
We monitor the financial condition of our franchisees and licensees and record provisions for estimated losses on receivables when we believe
that our franchisees or licensees are unable to make their required payments. While we use the best information available in making our
determination, the ultimate recovery of recorded receivables is also dependent upon future economic events and other conditions that may be
beyond our control. Included in the allowance for doubtful notes and accounts receivables is a provision for uncollectible royalty, lease, and
licensing fee receivables.
(q) Share-based payment
We measure compensation cost at fair value on the date of grant for all share-based awards and recognize compensation expense over the
service period that the awards are expected to vest. The Company has elected to recognize compensation cost for graded-vesting awards subject
only to a service condition over the requisite service period of the entire award.
(r) Income taxes
Deferred tax assets and liabilities are recorded for the expected future tax consequences of items that have been included in our consolidated
financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement
carrying amounts of assets and liabilities and the respective tax bases of assets and liabilities using enacted tax rates that are expected to apply
in years in which the temporary differences are expected to reverse. The effects of changes in tax rates and changes in apportionment of income
between tax jurisdictions on deferred tax assets and liabilities are recognized in the consolidated statements of operations in the year in which
the law is enacted or change in apportionment occurs. Valuation allowances are provided when the Company does not believe it is more likely
than not that it will realize the benefit of identified tax assets.
A tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not that the
position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit
that is greater than fifty percent likely of being realized upon ultimate settlement. Estimates of interest and penalties on unrecognized tax
benefits are recorded in the provision for income taxes.
(s) Comprehensive income
Comprehensive income is primarily comprised of net income, foreign currency translation adjustments, unrealized gains and losses on interest
rate swaps, and unrealized pension gains and losses, and is reported in the consolidated statements of comprehensive income, net of taxes, for
all periods presented.
(t) Deferred financing costs
Deferred financing costs primarily represent capitalizable costs incurred related to the issuance and refinancing of the Company’s long-term
debt (see note 8). As of December 28, 2013 and December 29, 2012 , deferred financing costs of $19.2 million and $25.0 million , respectively,
are included in other assets in the consolidated balance sheets, and are being amortized over the remaining maturities of the debt using the
effective interest rate method.
(u) Derivative instruments and hedging activities
The Company uses derivative instruments to hedge interest rate risks. These derivative contracts are entered into with financial institutions. The
Company does not use derivative instruments for trading purposes and we have procedures in place to monitor and control their use.
We record all derivative instruments on our consolidated balance sheets at fair value. For derivative instruments that are designated and qualify
as a cash flow hedge, the effective portion of the gain or loss on the derivative instruments is reported as a component of other comprehensive
income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any ineffective
portion of the gain or loss on the derivative instrument for a cash flow hedge is recorded in the consolidated statements of operations
immediately. See note 9 for a discussion of our use of derivative instruments, management of credit risk inherent in derivative instruments, and
fair value information.
(v) Gift card/certificate breakage
The Company and our franchisees sell gift cards that are redeemable for product in our Dunkin' Donuts and Baskin-Robbins restaurants. The
Company manages the gift card program, and therefore collects all funds from the activation of gift cards and reimburses franchisees for the
redemption of gift cards in their restaurants. A liability for unredeemed gift cards, as well as historical gift certificates sold, is included in other
current liabilities in the consolidated balance sheets.
- 64 -
Table of Contents
There are no expiration dates on our gift cards, and we do not charge any service fees. While our franchisees continue to honor all gift cards
presented for payment, we may determine the likelihood of redemption to be remote for certain cards due to long periods of inactivity. In these
circumstances, we may recognize income from unredeemed gift cards (“breakage income”) if they are not subject to unclaimed property laws.
Based on redemption data available, breakage income for gift cards was generally recognized five years from the last date of activity on the
card through the first quarter of fiscal year 2013. During the second quarter of fiscal year 2013, the Company determined that sufficient
historical redemption patterns existed to revise breakage estimates related to unredeemed Dunkin’ Donuts gift cards. Based on historical
redemption rates, breakage on Dunkin' Donuts gift cards is now estimated and recognized over time in proportion to actual gift card
redemptions. The Company recognizes breakage as income only up to the amount of gift card program costs incurred. Any incremental
breakage that exceeds gift card program costs has been committed to franchisees to fund future initiatives that will benefit the gift card
program, and is recorded as gift card breakage liability within other current liabilities in the consolidated balance sheets (see note 10).
For fiscal years 2013 , 2012 , and 2011 , total breakage income recognized on gift cards, as well as historical gift certificate programs, was
$10.2 million , $7.9 million , and $2.5 million , respectively, and is recorded as a reduction to general and administrative expenses, net.
Breakage income for fiscal year 2013 includes a $5.4 million recovery of historical Dunkin' Donuts gift card program costs incurred prior to
fiscal year 2013 . Breakage income for fiscal year 2012 includes $3.5 million related to historical Baskin-Robbins gift certificates as a result of
shifting to gift cards, and represents the balance of gift certificates for which the Company believes the likelihood of redemption by the
customer is remote based on historical redemption patterns.
(w) Concentration of credit risk
The Company is subject to credit risk through its accounts receivable consisting primarily of amounts due from franchisees and licensees for
franchise fees, royalty income, and sales of ice cream products. In addition, we have note and lease receivables from certain of our franchisees
and licensees. The financial condition of these franchisees and licensees is largely dependent upon the underlying business trends of our brands
and market conditions within the quick service restaurant industry. This concentration of credit risk is mitigated, in part, by the large number of
franchisees and licensees of each brand and the short-term nature of the franchise and license fee and lease receivables. At December 28, 2013 ,
one master licensee and majority owned subsidiaries of the master licensee accounted for approximately 17% of total accounts and notes
receivable, which was due primarily to the timing of orders and shipments of ice cream to the master licensee. At December 29, 2012 , no
individual franchisee or master licensee accounted for more than 10% of total accounts and notes receivable. No individual franchisee or
master licensee accounted for more than 10% of total revenues for the fiscal years ended 2013 , 2012 , or 2011 .
(x) Recent accounting pronouncements
In July 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance which requires presentation of an unrecognized tax
benefit as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except in
certain circumstances. This guidance is effective for the Company in fiscal year 2014 with early adoption permitted. The Company has not
adopted this guidance as of December 28, 2013, and does not expect the adoption of this guidance to have any impact on the Company's
consolidated financial statements.
In February 2013, the FASB issued new guidance which requires disclosure of significant amounts reclassified out of accumulated other
comprehensive income by component and their corresponding effect on the respective line items of net income. This guidance was adopted by
the Company in fiscal year 2013. The adoption of this guidance did not have a material impact on the Company’s consolidated financial
statements.
In December 2011, the FASB issued guidance which enhanced existing disclosures about financial instruments and derivative instruments that
are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective
of whether they are offset on the statement of financial position. In January 2013, the FASB issued new guidance to clarify that the guidance
issued in December 2011 on offsetting financial assets and financial liabilities was limited to derivatives, repurchase agreements and reverse
purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria or
subject to a master netting arrangement or similar agreement. It further clarifies that ordinary trade receivables and other receivables are not in
the scope of the existing guidance. This guidance was adopted by the Company in fiscal year 2013. The adoption of this guidance did not have
a material impact on the Company’s consolidated financial statements.
- 65 -
Table of Contents
(y) Reclassifications
The Company has revised the presentation of certain captions for prior periods within the consolidated statements of cash flows to conform to
the current period presentation. The revisions had no impact on net cash provided by (used in) operating, investing, or financing activities.
(z) Subsequent events
Subsequent events have been evaluated up through the date that these consolidated financial statements were filed.
(3) Franchise fees and royalty income
Franchise fees and royalty income consisted of the following (in thousands):
Fiscal year ended
December 28, 2013
Royalty income
Initial franchise fees and renewal income
Total franchise fees and royalty income
$
$
411,428
42,548
453,976
December 29, 2012
385,713
33,227
418,940
December 31, 2011
363,458
35,016
398,474
The changes in franchised and company-owned points of distribution were as follows:
Fiscal year ended
December 28, 2013
Systemwide points of distribution:
Franchised points of distribution in operation—beginning of year
Franchises opened
Franchises closed
Net transfers from (to) company-owned points of distribution
Franchised points of distribution in operation—end of year
Company-owned points of distribution—end of year
Total systemwide points of distribution—end of year
17,333
1,388
(600)
1
18,122
36
18,158
December 29, 2012
16,565
1,470
(701)
(1)
17,333
35
17,368
December 31, 2011
16,105
1,403
(944)
1
16,565
31
16,596
During fiscal year 2013 , the Company performed an internal review of international franchised points of distribution, and determined that
certain franchises opened and closed had not been accurately reported in prior years. As such, the points of distribution information for fiscal
years 2012 and 2011 above have been adjusted to reflect the results of this internal review. The adjustments to the prior years were not
material, and had no impact on the Company's financial position or results of operations. Franchised points of distribution in
operation—beginning of year were reduced by 198 and 57 for fiscal years 2012 and 2011 , respectively. Franchised points of distribution in
operation—end of year were reduced by 91 and 198 for fiscal years 2012 and 2011 , respectively.
(4) Advertising funds
On behalf of certain Dunkin’ Donuts and Baskin-Robbins advertising funds, the Company collects a percentage, which is generally 5% , of
gross retail sales from Dunkin’ Donuts and Baskin-Robbins franchisees to be used for various forms of advertising for each brand. In most of
our international markets, franchisees manage their own advertising expenditures, which are not included in the advertising fund results.
The Company administers and directs the development of all advertising and promotion programs in the advertising funds for which it collects
advertising fees, in accordance with the provisions of our franchise agreements. The Company acts as, in substance, an agent with regard to
these advertising contributions. We consolidate and report all assets and liabilities held by these advertising funds as restricted assets of
advertising funds and liabilities of advertising funds within current assets and current liabilities, respectively, in the consolidated balance
sheets. The assets and liabilities held by these advertising funds consist primarily of receivables, accrued expenses, other liabilities, and any
cumulative surplus or deficit related specifically to the advertising funds. The revenues, expenses, and cash flows of the advertising funds are
not included in the Company’s consolidated statements of operations or consolidated statements of cash flows because the Company does not
have complete discretion over the usage of the funds. Contributions to these advertising funds are restricted to advertising, product
- 66 -
Table of Contents
development, public relations, merchandising, and administrative expenses and programs to increase sales and further enhance the public
reputation of each of the brands.
At December 28, 2013 and December 29, 2012 , the Company had a net payable of $17.6 million and $13.7 million , respectively, to the
various advertising funds.
To cover administrative expenses of the advertising funds, the Company charges each advertising fund a management fee for items such as
rent, accounting services, information technology, data processing, product development, legal, administrative support services, and other
operating expenses, which amounted to $5.5 million , $5.6 million , and $5.7 million for fiscal years 2013 , 2012 , and 2011 , respectively.
Such management fees are included in the consolidated statements of operations as a reduction in general and administrative expenses, net.
The Company made discretionary contributions to certain advertising funds for the purpose of supplementing national and regional advertising
in certain markets of $2.4 million , $863 thousand , and $2.0 million for fiscal years 2013 , 2012 , and 2011 , respectively, which are included
in general and administrative expenses, net in the consolidated statements of operations. Additionally, the Company made net contributions to
the advertising funds based on retail sales as owner and operator of company-owned restaurants of $1.0 million , $808 thousand , and $289
thousand for fiscal years 2013 , 2012 , and 2011 , respectively, which are included in company-owned restaurant expenses in the consolidated
statements of operations. During fiscal year 2013 , the Company also made $5.9 million of contributions to fund future initiatives that will
benefit the gift card program, which was contributed from the gift card breakage liability included within other current liabilities in the
consolidated balance sheets (see note 2(v) and note 10); no such contributions were made in fiscal years 2012 or 2011 .
(5) Property and equipment
Property and equipment at December 28, 2013 and December 29, 2012 consisted of the following (in thousands):
Land
Buildings
Leasehold improvements
Store, production, and other equipment
Construction in progress
Property and equipment, gross
Accumulated depreciation and amortization
Property and equipment, net
$
$
December 28, 2013
December 29, 2012
34,052
47,946
154,491
43,124
9,079
288,692
(105,834)
182,858
31,080
45,447
158,797
50,046
5,549
290,919
(109,747)
181,172
The Company recognized impairment charges on leasehold improvements, typically due to termination of the underlying lease agreement, and
other corporately-held assets of $119 thousand , $319 thousand , and $1.4 million during fiscal years 2013 , 2012 , and 2011 , respectively,
which are included in long-lived asset impairment charges in the consolidated statements of operations.
(6) Equity method investments
The Company’s ownership interests in its equity method investments as of December 28, 2013 and December 29, 2012 were as follows:
Ownership
December 28,
2013
Entity
BR Japan
BR Korea
Spain JV
Australia JV
43.3%
33.3%
33.3%
20.0%
December 29,
2012
43.3%
33.3%
33.3%
n/a
In June 2013, the Company sold 80% of the Baskin-Robbins Australia franchising business, resulting in a gain of $6.3 million , net of
transaction costs, which is included in other operating income in the consolidated statements of operations for the fiscal year 2013. The gain
consisted of net proceeds of $6.5 million , offset by the carrying value of the business included in the sale, which totaled $216 thousand . As of
December 28, 2013, unpaid transaction-related costs totaling $146 thousand are included in
- 67 -
Table of Contents
other current liabilities in the consolidated balance sheets. The Company retained the remaining 20% ownership of the Australia JV, and
therefore accounts for the Australia JV in accordance with the equity method.
Summary financial information for the equity method investments on an aggregated basis was as follows (in thousands):
December 28,
2013
Current assets
Current liabilities
Working capital
Property, plant, and equipment, net
Other assets
Long-term liabilities
Equity of equity method investments
$
$
December 28,
2013
Revenues
Net income
$
673,537
51,407
December 29,
2012
261,546
106,280
155,266
139,378
173,491
52,389
415,746
Fiscal year ended
December 29,
2012
687,676
51,046
248,371
102,787
145,584
144,570
163,511
62,351
391,314
December 31,
2011
659,319
44,156
The comparison between the carrying value of our investments in BR Japan and BR Korea and the underlying equity in net assets of those
investments is presented in the table below (in thousands):
BR Japan
December 28,
2013
Carrying value of investment
Underlying equity in net assets of investment
Carrying value in excess of (less than) the underlying
equity in net assets (a)
(a)
BR Korea
December 29,
2012
$
79,472
45,682
95,776
54,410
$
33,790
41,366
December 28,
2013
91,121
100,766
(9,645)
December 29,
2012
77,749
88,514
(10,765)
The excess carrying values over the underlying equity in net assets of BR Japan is primarily comprised of amortizable franchise rights
and related tax liabilities and nonamortizable goodwill, all of which were established in the BCT Acquisition. The deficit of cost
relative to the underlying equity in net assets of BR Korea is primarily comprised of an impairment of long-lived assets, net of tax,
recorded in fiscal year 2011.
The carrying value of our investments in the Spain JV and the Australia JV was not material for any period presented.
The aggregate fair value of the Company's investment in BR Japan, based on its quoted market price on the last business day of the year, is
approximately $163.9 million . No quoted market prices are available for the Company's other equity method investments.
Net income (loss) of equity method investments in the consolidated statements of operations for fiscal years 2013 , 2012 , and 2011 includes
$505 thousand , $689 thousand , and $868 thousand , respectively, of net expense related to the amortization of intangible franchise rights and
related deferred tax liabilities noted above. As required under the equity method of accounting, such net expense is recorded in the consolidated
statements of operations directly to net income (loss) of equity method investments and not shown as a component of amortization expense.
- 68 -
Table of Contents
Total estimated amortization expense, net of deferred tax benefits, to be included in net income of equity method investments for fiscal years
2014 through 2018 is as follows (in thousands):
Fiscal year:
2014
2015
2016
2017
2018
$
408
345
277
205
128
During the third quarter of 2013, the Company fully reserved all outstanding notes and accounts receivable totaling $2.8 million , and fully
impaired its equity investment in the Spain JV of $873 thousand . The reserves on accounts and notes receivable are included in general and
administrative expenses, net, and the impairment of the equity investment is included in net income (loss) of equity method investments in the
consolidated statements of operations.
During the fourth quarter of 2011, management concluded that indicators of potential impairment were present related to our investment in BR
Korea based on continued declines in the operating performance and future projections of the Korea Dunkin’ Donuts business. Accordingly,
the Company engaged an independent third-party valuation specialist to assist the Company in determining the fair value of our investment in
BR Korea. The valuation was completed using a combination of discounted cash flow and income approaches to valuation. Based in part on the
fair value determined by the independent third-party valuation specialist, the Company determined that the carrying value of the investment in
BR Korea exceeded fair value by $19.8 million , and as such the Company recorded an impairment charge for that amount in the fourth quarter
of 2011. The impairment charge was allocated to the underlying goodwill, intangible assets, and long-lived assets of BR Korea, and therefore
resulted in a reduction in depreciation and amortization, net of tax, of $2.0 million , $3.6 million , and $1.0 million , in fiscal years 2013 , 2012
, and 2011 , respectively, which is recorded within net income (loss) of equity method investments in the consolidated statements of operations.
(7) Goodwill and other intangible assets
The changes and carrying amounts of goodwill by reporting unit were as follows (in thousands):
Dunkin’ Donuts U.S.
Goodwill
Balances at
December 31, 2011 $
Goodwill
acquired
Effects of
foreign currency
adjustments
Balances at
December 29, 2012
Goodwill
disposed
Effects of
foreign currency
adjustments
Balances at
December 28, 2013 $
1,151,140
895
—
1,152,035
Accumulated
impairment
charges
(270,441)
—
—
(270,441)
Dunkin’ Donuts International
Net
Balance
Goodwill
—
10,293
24,037
—
—
—
—
Net Balance
Goodwill
880,699
10,293
895
Accumulated
impairment charges
Baskin-Robbins International
—
13
—
13
—
881,594
10,306
—
10,306
24,037
Accumulated
impairment
charges
Total
Net Balance
Goodwill
Accumulated
impairment
charges
—
1,185,470
(294,478)
—
—
895
—
—
13
—
1,186,378
(24,037)
(24,037)
—
—
(294,478)
Net Balance
890,992
895
13
891,900
(260 )
—
(260)
—
—
—
—
—
—
(260)
—
(260)
—
—
—
(42)
—
(42)
—
—
—
(42)
—
(42)
881,334
10,264
—
1,151,775
(270,441)
10,264
24,037
(24,037)
—
1,186,076
(294,478)
891,598
The goodwill acquired and disposed during fiscal years 2013 and 2012 is related to the acquisition and sale of certain company-owned points of
distribution.
- 69 -
Table of Contents
Other intangible assets at December 28, 2013 consisted of the following (in thousands):
Weighted
average
amortization
period
(years)
Definite-lived intangibles:
Franchise rights
Favorable operating leases acquired
License rights
Indefinite-lived intangible:
Trade names
20
16
10
Gross
carrying
amount
$
N/A
$
Net
carrying
amount
Accumulated
amortization
383,465
71,788
6,230
(159,719)
(35,653)
(4,876)
223,746
36,135
1,354
1,190,970
1,652,453
—
(200,248)
1,190,970
1,452,205
Other intangible assets at December 29, 2012 consisted of the following (in thousands):
Weighted
average
amortization
period
(years)
Definite-lived intangibles:
Franchise rights
Favorable operating leases acquired
License rights
Indefinite-lived intangible:
Trade names
20
15
10
Gross
carrying
amount
$
N/A
$
Net
carrying
amount
Accumulated
amortization
384,065
77,653
6,230
(139,677)
(35,207)
(4,250)
244,388
42,446
1,980
1,190,970
1,658,918
—
(179,134)
1,190,970
1,479,784
The changes in the gross carrying amount of other intangible assets and weighted average amortization period from December 29, 2012 to
December 28, 2013 are primarily due to the impairment of favorable operating leases acquired resulting from lease terminations and the impact
of foreign currency fluctuations. Impairment of favorable operating leases acquired, net of accumulated amortization, totaled $444 thousand ,
$959 thousand , and $624 thousand , for fiscal years 2013 , 2012 , and 2011 , respectively, and is included within long-lived asset impairment
charges in the consolidated statements of operations.
Total estimated amortization expense for other intangible assets for fiscal years 2014 through 2018 is as follows (in thousands):
Fiscal year:
2014
2015
2016
2017
2018
$
25,357
25,069
22,180
21,673
21,258
(8) Debt
Debt at December 28, 2013 and December 29, 2012 consisted of the following (in thousands):
December 28,
2013
Term loans
Less current portion of long-term debt
Total long-term debt
$
$
- 70 -
1,823,609
5,000
1,818,609
December 29,
2012
1,849,958
26,680
1,823,278
Table of Contents
Senior credit facility
The Company’s senior credit facility consists of $1.90 billion aggregate principal amount term loans and a $100.0 million revolving credit
facility, which were entered into by DBGI’s subsidiary, Dunkin’ Brands, Inc. (“DBI”) in November 2010. The term loans and revolving credit
facility mature in February 2020 and February 2018 , respectively. As of December 28, 2013 and December 29, 2012 , $1.83 billion and $1.86
billion , respectively, of principal was outstanding on the term loans. As of December 28, 2013 and December 29, 2012 , $3.0 million and
$11.5 million , respectively, of letters of credit were outstanding against the revolving credit facility. There were no amounts drawn down on
these letters of credit.
Borrowings under the term loans bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) a base rate
determined by reference to the highest of (a) the Federal Funds rate plus 0.5% , (b) the prime rate, (c) the LIBOR rate plus 1.0% , and
(d) 2.0% or (2) a LIBOR rate provided that LIBOR shall not be lower than 1.0% (the “LIBOR floor”). The applicable margin under the term
loan facility is 1.75% for loans based upon the base rate and 2.75% for loans based upon the LIBOR rate. The effective interest rate for term
loans, including the amortization of original issue discount and deferred financing costs, was 4.0% at December 28, 2013 .
Borrowings under the revolving credit facility bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) a
base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.5% , (b) the prime rate, and (c) the LIBOR rate plus 1.0% ,
or (2) a LIBOR rate. The applicable margin under the revolving credit facility is 1.5% for loans based upon the base rate and 2.5% for loans
based upon the LIBOR rate. In addition, we are required to pay a 0.5% commitment fee per annum on the unused portion of the revolver and a
fee for letter of credit amounts outstanding of 2.5% .
Repayments are required to be made under the term loans equal to $19.0 million per calendar year, payable in quarterly installments through
December 2019 , with the remaining principal balance due in February 2020 . Additionally, following the end of each fiscal year, the Company
is required to prepay an amount equal to 25% of excess cash flow (as defined in the senior credit facility) for such fiscal year. If DBI’s leverage
ratio, which is a measure of DBI’s outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items
(as specified in the senior credit facility), is less than 4.75x , no excess cash flow payments are required. If DBI’s leverage ratio is greater than
5.50 x, the Company is required to prepay an amount equal to 50% of excess cash flow. The excess cash flow payments may be applied to
required principal payments. During fiscal year 2013 , the Company made total principal payments of $24.2 million , including an excess cash
flow payment in the first quarter of 2013 of $4.2 million based on 2012 excess cash flow and leverage ratio requirements. Based on all
payments made, including the required excess cash flow payment in the first quarter of 2013, no additional principal payments would be
required in the next twelve months as of December 28, 2013 , though the Company may elect to make voluntary payments. The Company has
reflected a $5.0 million voluntary payment, which was paid during the first week of fiscal year 2014, within the current portion of long-term
debt as of December 28, 2013 . Other events and transactions, such as certain asset sales and incurrence of debt, may trigger additional
mandatory prepayments.
The senior credit facility contains certain financial and nonfinancial covenants, which include restrictions on liens, investments, additional
indebtedness, asset sales, certain dividend payments, and certain transactions with affiliates. At December 28, 2013 and December 29, 2012 ,
the Company was in compliance with all of its covenants under the senior credit facility.
Certain of the Company’s wholly owned domestic subsidiaries guarantee the senior credit facility. All obligations under the senior credit
facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all assets of DBI and the subsidiary
guarantors.
During 2011, the Company increased the size of the term loans from $1.25 billion to $1.50 billion . The incremental proceeds of the term loans
were used to repay $250.0 million of the Company’s senior notes. Additionally, the Company completed two separate re-pricing transactions to
reduce the stated interest rate on the senior credit facility. As a result of the additional term loan borrowings and the re-pricings of the term
loans, the Company recorded a loss on debt extinguishment and refinancing transactions of $8.2 million in fiscal year 2011, which includes
debt extinguishment of $477 thousand related to the write-off of original issuance discount and deferred financing costs, and $7.7 million of
costs paid to creditors and third parties.
In August 2012 , DBI amended its senior credit facility to provide for additional term loan borrowings of $400.0 million . The additional
borrowings were issued with an original issue discount of $4.0 million , resulting in net cash proceeds of $396.0 million . The proceeds were
used to fund a repurchase of common stock from certain shareholders (see note 13(c)). In addition, the amendment provides certain changes to
the negative covenants contained in the senior credit facility and permits increases in future incremental facilities subject to the Company and
DBI remaining in compliance with certain specified leverage ratios. In connection with the amendment, the Company recorded costs of $4.0
million , which consisted primarily of fees paid to third parties, within loss on debt extinguishment and refinancing transactions in the
consolidated statements of operations.
In February 2013, the Company amended its senior credit facility, resulting in a reduction of the interest rates and an extension of the maturity
dates for both the term loans and the revolving credit facility. In connection with the amendment, certain
- 71 -
Table of Contents
lenders, holding $214.3 million of term loans, exited the term loan lending syndicate. The principal of the exiting lenders was replaced with
additional loans from both existing and new lenders. As a result, during the first quarter of 2013, the Company recorded a loss on debt
extinguishment and refinancing transactions of $5.0 million , including $3.9 million related to the write-off of original issuance discount and
deferred financing costs and $1.1 million of fees paid to third parties. The amended term loans were issued with an original issue discount of
0.25% , or $4.6 million , which was recorded as a reduction to long-term debt.
Cumulative debt issuance costs incurred and capitalized in relation to the senior credit facility were $35.0 million , including costs incurred and
capitalized in connection with all refinancing transactions. The term loans, including additional term loan borrowings, were issued with an
original issue discount of $14.9 million . Total amortization of original issue discount and debt issuance costs related to the senior credit facility
was $4.7 million , $5.7 million , and $5.3 million for fiscal years 2013 , 2012 , and 2011 , respectively, which is included in interest expense in
the consolidated statements of operations.
In February 2014, the Company amended its senior credit facility, which now consists of $1.38 billion in term loans due February 2021 (“2021
Term Loans”), $450 million in term loans due September 2017 (“2017 Term Loans”), and a $100 million revolving credit facility due February
2019. The interest rate on the 2021 Term Loans is LIBOR plus 2.50% with a LIBOR floor of 0.75% , while the interest rate on the 2017 Term
Loans is LIBOR plus 2.50% with no LIBOR floor. The new interest rate for the revolving credit facility is LIBOR plus 2.25% with no LIBOR
floor. The total principal as of the date of the amendment and all other material provisions, including covenants under the existing senior credit
facility, remain unchanged.
Senior notes
DBI issued $625.0 million face amount senior notes in November 2010 with a maturity of December 2018 and interest payable semi-annually
at a rate of 9.625% per annum.
The senior notes were issued with an original issue discount of $9.4 million . Total debt issuance costs incurred and capitalized in relation to
the senior notes were $15.6 million . Total amortization of original issue discount and debt issuance costs related to the senior notes was $1.0
million for fiscal year 2011, which is included in interest expense in the consolidated statements of operations.
In conjunction with the additional term loan borrowings during 2011, the Company repaid $250.0 million of senior notes. Using funds raised
by the Company’s initial public offering (see note 13(a)) in August 2011 , the Company repaid the full remaining principal balance on the
senior notes. In conjunction with the repayment of senior notes, the Company recorded a loss on debt extinguishment of $26.0 million , which
includes the write-off of original issuance discount and deferred financing costs totaling $22.8 million , as well as prepayment premiums and
third-party costs of $3.2 million .
Maturities of long-term debt
The Company intends to make quarterly principal payments of $5.0 million . However, considering the February 2014 amendment to the senior
credit facility and voluntary prepayments made, the aggregate contractual maturities of long-term debt for 2014 through 2018 are as follows (in
thousands):
2017 Term Loans
2014
2015
2016
2017
2018
$
3,375
4,500
4,500
437,625
—
2021 Term Loans
—
10,342
13,789
13,789
13,789
Total
3,375
14,842
18,289
451,414
13,789
(9) Derivative instruments and hedging transactions
The Company is exposed to global market risks, including the effect of changes in interest rates, and may use derivative instruments to mitigate
the impact of these changes. The Company does not use derivatives with a level of complexity or with a risk higher than the exposures to be
hedged and does not hold or issue derivatives for trading purposes. The Company's hedging instruments consist solely of interest rate swaps at
December 28, 2013 . The Company's risk management objective and strategy with respect to the interest rate swaps is to limit the Company's
exposure to increased interest rates on its variable rate debt by reducing the potential variability in cash flow requirements relating to interest
payments on a portion of its outstanding debt. The Company documents its risk management objective and strategy for undertaking hedging
transactions, as well as all relationships between hedging instruments and hedged items.
- 72 -
Table of Contents
In September 2012, the Company entered into variable-to-fixed interest rate swap agreements with three counterparties to hedge the risk of
increases in cash flows (interest payments) attributable to increases in three-month LIBOR above 1.0% , the designated benchmark interest rate
being hedged, through November 2017. The notional value of the swaps totals $900.0 million , and the Company is required to make quarterly
payments on the notional amount at a fixed average interest rate of approximately 1.37% , resulting in a total interest rate of approximately
4.12% on the hedged amount when considering the applicable margin in effect at December 28, 2013 . In exchange, the Company receives
interest on the notional amount at a variable rate based on a three-month LIBOR spot rate, subject to a 1.0% floor. Interest is settled quarterly
on a net basis with each counterparty. The swaps have been designated as hedging instruments and are classified as cash flow hedges. They are
recognized on the Company's consolidated balance sheets at fair value and classified based on the instruments' maturity dates. Changes in the
fair value measurements of the derivative instruments are reflected as adjustments to other comprehensive income (loss) and/or current
earnings.
The fair values of derivatives instruments consisted of the following (in thousands):
December 28,
2013
Interest rate swaps - asset
Total fair values of derivative instruments - asset
$
$
December 29,
2012
10,221
10,221
December 28,
2013
Interest rate swaps - liability
Total fair values of derivative instruments - liability
—
—
$
$
—
—
Consolidated balance sheet
classification
Other assets
December 29,
2012
Consolidated balance sheet
classification
2,809
2,809
Other long-term liabilities
The tables below summarizes the effects of derivative instruments on the consolidated statements of operations and comprehensive income for
fiscal year 2013 :
Derivatives designated as
cash flow hedging
instruments
Interest rate swaps
Income tax effect
Net of income taxes
Amount of gain (loss)
recognized in other
comprehensive income (loss)
$
$
9,648
(3,909)
5,739
Amount of net gain (loss)
reclassified into earnings
(3,382)
1,381
(2,001)
Consolidated statement of operations
classification
Interest expense
Provision for income taxes
Total effect on other
comprehensive income
(loss)
13,030
(5,290)
7,740
The tables below summarizes the effects of derivative instruments on the consolidated statements of operations and comprehensive income for
fiscal year 2012 :
Amount of gain (loss)
recognized in other
comprehensive income
(loss)
Derivatives designated as
cash flow hedging
instruments
Interest rate swaps
Income tax effect
Net of income taxes
$
$
(3,673 )
1,509
(2,164 )
Amount of net gain (loss)
reclassified into earnings
(864)
355
(509)
Consolidated statement of operations
classification
Interest expense
Provision for income taxes
Total effect on other
comprehensive income
(loss)
(2,809)
1,154
(1,655)
There was no ineffectiveness of the interest rate swaps since inception, and therefore, ineffectiveness had no impact on the consolidated
statements of operations for fiscal years 2012 and 2013 . As of December 28, 2013 and December 29, 2012 , $836 thousand and $864 thousand
, respectively, of interest expense related to interest rate swaps is accrued in other current liabilities in the consolidated balance sheets. As of
December 28, 2013 , the Company estimates that $3.4 million will be reclassified from accumulated other comprehensive income as an
increase to interest expense during the next twelve months, based on current projections of LIBOR.
The Company is exposed to credit-related losses in the event of non-performance by the counterparties to its hedging instruments. To mitigate
counterparty credit risk, the Company only enters into contracts with major financial institutions based upon their credit ratings and other
factors, and continually assesses the creditworthiness of its counterparties. At December 28, 2013 , all of the counterparties to the interest rate
swaps had investment grade ratings. To date, all counterparties have performed in accordance with their contractual obligations.
- 73 -
Table of Contents
The Company has agreements with each of its derivative counterparties that contain a provision whereby if the Company defaults on any of its
indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be
declared in default on its derivative obligations. As of December 28, 2013 , the Company has not posted any collateral related to these
agreements. The Company holds one derivative instrument with each of its derivative counterparties, each of which is settled net with the
respective counterparties in accordance with the swap agreements. There is no offsetting of these financial instruments on the consolidated
balance sheets. As of December 28, 2013 , the termination value of derivatives is a net asset position of $9.6 million , which includes accrued
interest but excludes any adjustment for nonperformance risk, related to these agreements.
As a result of the February 2014 amendment to the senior credit facility, the Company amended the interest rate swap agreements to align the
embedded floors with the amended term loans. As a result of the amendments to the interest rate swap agreements, the Company will be
required to make quarterly payments on the notional amount at a fixed average interest rate of approximately 1.22% . In exchange, the
Company will receive interest on the notional amount at a variable rate based on three-month LIBOR spot rate, subject to a 0.75% floor. There
was no change to the notional amount of the term loan borrowings being hedged.
(10) Other current liabilities
Other current liabilities at December 28, 2013 and December 29, 2012 consisted of the following (in thousands):
December 28,
2013
Gift card/certificate liability
Gift card breakage liability
Accrued salary and benefits
Accrued legal liabilities (see note 17(d))
$
Accrued interest
Accrued professional costs
Other
Total other current liabilities
$
139,721
14,093
26,713
26,633
9,999
2,938
28,821
248,918
December 29,
2012
145,981
—
31,136
27,305
13,564
2,996
18,949
239,931
(11) Leases
The Company is the lessee on certain land leases (the Company leases the land and erects a building) or improved leases (lessor owns the land
and building) covering restaurants and other properties. In addition, the Company has leased and subleased land and buildings to others. Many
of these leases and subleases provide for future rent escalation and renewal options. In addition, contingent rentals, determined as a percentage
of annual sales by our franchisees, are stipulated in certain prime lease and sublease agreements. The Company is generally obligated for the
cost of property taxes, insurance, and maintenance relating to these leases. Such costs are typically charged to the sublessee based on the terms
of the sublease agreements. The Company also leases certain office equipment and a fleet of automobiles under noncancelable operating leases.
Included in the Company’s consolidated balance sheets are the following amounts related to capital leases (in thousands):
December 28,
2013
Leased property under capital leases (included in property and equipment)
Accumulated depreciation
Net leased property under capital leases
Capital lease obligations:
Current
Long-term
Total capital lease obligations
$
$
$
$
December 29,
2012
7,888
(2,326 )
5,562
7,902
(2,003)
5,899
432
6,996
7,428
371
7,251
7,622
Capital lease obligations exclude that portion of the minimum lease payments attributable to land, which are classified separately as operating
leases. Interest expense associated with the capital lease obligations is computed using the incremental borrowing rate at the time the lease is
entered into and is based on the amount of the outstanding lease obligation. Depreciation on capital lease assets is included in depreciation
expense in the consolidated statements of operations. Interest expense related to capital leases for fiscal years 2013 , 2012 , and 2011 was $618
thousand , $600 thousand , and $481 thousand , respectively.
- 74 -
Table of Contents
Included in the Company’s consolidated balance sheets are the following amounts related to assets leased to others under operating leases,
where the Company is the lessor (in thousands):
December 28,
2013
Land
Buildings
Leasehold improvements
Store, production, and other equipment
Construction in progress
Assets leased to others, gross
Accumulated depreciation
Assets leased to others, net
$
$
29,701
41,721
135,177
146
1,363
208,108
(71,535 )
136,573
December 29,
2012
27,210
39,242
141,264
149
1,384
209,249
(71,100)
138,149
Future minimum rental commitments to be paid and received by the Company at December 28, 2013 for all noncancelable leases and subleases
are as follows (in thousands):
Receipts
Subleases
Payments
Capital
leases
Fiscal year:
2014
2015
2016
2017
2018
Thereafter
Total minimum rental commitments
$
Less amount representing interest
Present value of minimum capital lease obligations $
Net
leases
Operating
leases
1,031
1,064
1,068
1,090
1,106
6,655
12,014
$
52,930
51,710
50,563
50,467
49,811
384,354
639,835
(61,929)
(61,043)
(61,026)
(60,525)
(59,305)
(347,138)
(650,966)
(7,968)
(8,269)
(9,395)
(8,968)
(8,388)
43,871
883
4,586
7,428
Rental expense under operating leases associated with franchised locations and company-owned locations is included in occupancy
expenses—franchised restaurants and company-owned restaurant expenses, respectively, in the consolidated statements of operations. Rental
expense under operating leases for all other locations, including corporate facilities, is included in general and administrative expenses, net, in
the consolidated statements of operations. Total rental expense for all operating leases consisted of the following (in thousands):
December 28,
2013
Base rentals
Contingent rentals
Total rental expense
$
53,462
5,869
59,331
$
Fiscal year ended
December 29,
2012
52,821
5,227
58,048
December 31,
2011
52,214
4,510
56,724
Total rental income for all leases and subleases consisted of the following (in thousands):
December 28,
2013
Base rentals
Contingent rentals
Total rental income
$
$
- 75 -
66,540
29,542
96,082
Fiscal year ended
December 29,
2012
67,988
28,828
96,816
December 31,
2011
66,061
26,084
92,145
Table of Contents
The impact of the amortization of our unfavorable operating leases acquired resulted in an increase in rental income and a decrease in rental
expense as follows (in thousands):
December 28,
2013
Increase in rental income
Decrease in rental expense
Total increase in operating income
$
973
1,204
2,177
$
Fiscal year ended
December 29,
2012
December 31,
2011
1,065
1,287
2,352
1,392
1,838
3,230
Following is the estimated impact of the amortization of our unfavorable operating leases acquired for each of the next five years
(in thousands):
Decrease in
rental expense
Fiscal year:
2014
2015
2016
2017
2018
$
1,051
949
893
893
859
Increase in
rental income
847
789
719
681
632
Total increase
in operating
income
1,898
1,738
1,612
1,574
1,491
(12) Segment information
The Company is strategically aligned into two global brands, Dunkin’ Donuts and Baskin-Robbins, which are further segregated between
U.S. operations and international operations. As such, the Company has determined that it has four operating segments, which are its reportable
segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., and Baskin-Robbins International. Dunkin’ Donuts U.S.,
Baskin-Robbins U.S., and Dunkin’ Donuts International primarily derive their revenues through royalty income, franchise fees, and rental
income. Baskin-Robbins U.S. also derives revenue through license fees from a third-party license agreement. Baskin-Robbins International
primarily derives its revenues from sales of ice cream products, as well as royalty income, franchise fees, and license fees. The operating results
of each segment are regularly reviewed and evaluated separately by the Company’s senior management, which includes, but is not limited to,
the chief executive officer. Senior management primarily evaluates the performance of its segments and allocates resources to them based on
earnings before interest, taxes, depreciation, amortization, impairment charges, loss on debt extinguishment and refinancing transactions, other
gains and losses, and unallocated corporate charges, referred to as segment profit. When senior management reviews a balance sheet, it is at a
consolidated level. The accounting policies applicable to each segment are consistent with those used in the consolidated financial statements.
Revenues for all operating segments include only transactions with unaffiliated customers and include no intersegment revenues. Revenues
reported as “Other” include revenue earned through arrangements with third parties in which our brand names are used and revenue generated
from online training programs for franchisees that are not allocated to a specific segment. Revenues by segment were as follows (in thousands):
Revenues
Fiscal year ended
December 28, 2013
Dunkin’ Donuts U.S.
Dunkin’ Donuts International
Baskin-Robbins U.S.
Baskin-Robbins International
Total reportable segments
Other
Total revenues
$
$
- 76 -
521,179
18,316
42,152
120,333
701,980
11,860
713,840
December 29, 2012
485,399
15,485
42,074
101,975
644,933
13,248
658,181
December 31, 2011
449,492
15,253
43,455
106,887
615,087
13,111
628,198
Table of Contents
Revenues for foreign countries are represented by the Dunkin’ Donuts International and Baskin-Robbins International segments above. No
individual foreign country accounted for more than 10% of total revenues for any fiscal year presented.
Expenses included in “Corporate and other” in the segment profit table below include corporate overhead costs, such as payroll and related
benefit costs and professional services, as well as the impairment charge recorded in fiscal year 2011 related to our investment in BR Korea
(see note 6). Segment profit by segment was as follows (in thousands):
Segment profit
Fiscal year ended
Dunkin’ Donuts U.S.
Dunkin’ Donuts International
Baskin-Robbins U.S.
Baskin-Robbins International
Total reportable segments
Corporate and other
Interest expense, net
Depreciation and amortization
Long-lived asset impairment charges
Loss on debt extinguishment and refinancing transactions
Other gains (losses), net
Income before income taxes
$
$
December 28, 2013
December 29, 2012
December 31, 2011
379,751
7,479
27,081
54,321
468,632
(113,967 )
(79,831 )
(49,366 )
(563 )
(5,018 )
(1,799 )
218,088
355,274
9,670
26,274
42,004
433,222
(136,488)
(73,488)
(56,027)
(1,278)
(3,963)
23
162,001
334,308
11,528
21,593
42,844
410,273
(150,382)
(104,449)
(52,522)
(2,060)
(34,222)
175
66,813
Net income (loss) of equity method investments, including amortization on intangibles resulting from the BCT Acquisition, is included in
segment profit for the Dunkin’ Donuts International and Baskin-Robbins International reportable segments. Expenses included in “Other” in
the segment profit table below represent the impairment charge recorded in fiscal year 2011 related to our investment in BR Korea, and the
related ongoing reduction in depreciation and amortization, net of tax (see note 6). Net income (loss) of equity method investments by
reportable segment was as follows (in thousands):
Net income (loss) of equity method investments
Fiscal year ended
December 28, 2013
Dunkin’ Donuts International
Baskin-Robbins International
Total reportable segments
Other
Total net income (loss) of equity method investments
$
$
- 77 -
480
15,913
16,393
1,977
18,370
December 29, 2012
2,211
16,578
18,789
3,562
22,351
December 31, 2011
840
14,461
15,301
(18,776)
(3,475)
Table of Contents
Depreciation and amortization is not included in segment profit for each reportable segment. However, depreciation and amortization is
included in the financial results regularly provided to the Company’s senior management. Depreciation and amortization by reportable
segments was as follows (in thousands):
Depreciation and amortization
Fiscal year ended
December 28, 2013
Dunkin’ Donuts U.S.
Dunkin’ Donuts International
Baskin-Robbins U.S.
Baskin-Robbins International
Total reportable segments
Corporate and other
Total depreciation and amortization
$
$
December 29, 2012
18,506
50
530
135
19,221
30,145
49,366
19,021
92
1,052
643
20,808
35,219
56,027
December 31, 2011
20,068
130
522
866
21,586
30,936
52,522
Property and equipment, net by geographic region as of December 28, 2013 and December 29, 2012 is based on the physical locations within
the indicated geographic regions and are as follows (in thousands):
December 28, 2013
United States
International
Total property and equipment, net
$
$
182,544
314
182,858
December 29, 2012
180,525
647
181,172
(13) Stockholders’ equity
(a) Public offerings
On August 1, 2011, the Company completed an initial public offering in which the Company sold 22,250,000 shares of common stock at an
initial public offering price of $19.00 per share, less underwriter discounts and commissions, resulting in net proceeds to the Company of
approximately $390.0 million after deducting underwriter discounts and commissions and expenses paid or payable by the Company.
Additionally, the underwriters exercised, in full, their option to purchase 3,337,500 additional shares, which were sold by certain existing
stockholders. The Company did not receive any proceeds from the sales of shares by the existing stockholders. The Company used a portion of
the net proceeds from the initial public offering to repay the remaining $375.0 million outstanding under the senior notes, with the remaining
net proceeds being used for working capital and general corporate purposes.
In the fourth quarter of 2011, certain existing stockholders sold a total of 23,937,986 shares of our common stock at a price of $25.62 per share,
less underwriting discounts and commissions, in a secondary public offering. The Company did not receive any proceeds from the sales of
shares by the existing stockholders. The Company incurred approximately $984 thousand of expenses in connection with the offering, which
were paid by the Company in accordance with a registration rights and coordination agreement with our Sponsors (see note 19(a)).
In April 2012 and August 2012, certain existing stockholders sold 30,360,000 and 21,754,659 shares, respectively, of our common stock at
prices of $29.50 and $30.00 per share, respectively, less underwriting discounts and commissions, in secondary public offerings. The Company
did not receive any proceeds from the sales of shares by the existing stockholders. The Company incurred approximately $1.7 million of
expenses in connection with the offerings.
(b) Common stock
Prior to the initial public offering, our charter authorized the Company to issue two classes of common stock, Class L and common. The rights
of the holders of Class L and common shares were identical, except with respect to priority in the event of a distribution, as defined. The
Class L common stock was entitled to a preference with respect to all distributions by the Company until the holders of Class L common stock
had received an amount equal to the Class L base amount of approximately $41.75 per share, plus an amount sufficient to generate an internal
rate of return of 9% per annum on the Class L base amount, compounded quarterly. Thereafter, the Class L and common stock shared ratably
in all distributions by the Company. Class L common stock was classified outside of permanent equity in the consolidated balance sheets at its
preferential distribution amount, as the Class L stockholders controlled the timing and amount of distributions. The Class L
- 78 -
Table of Contents
preferred return of 9% per annum, compounded quarterly, was added to the Class L preferential distribution amount each period and recorded
as an increase to accumulated deficit. Dividends paid on the Class L common stock reduced the Class L preferential distribution amount.
Immediately prior to the initial public offering, each outstanding share of Class L common stock converted into approximately 0.2189 of a
share of common stock plus 2.2149 shares of common stock, which was determined by dividing the Class L preference amount, $38.8274 , by
the initial public offering price net of the estimated underwriting discount and a pro rata portion, based upon the number of shares sold in the
offering, of the estimated offering-related expenses. As such, the 22,866,379 shares of Class L common stock that were outstanding at the time
of the offering converted into 55,652,782 shares of common stock.
The changes in Class L common stock were as follows (in thousands):
Fiscal year ended
December 31, 2011
Shares
Common stock, Class L, beginning of year
Issuance of Class L common stock
Repurchases of Class L common stock
Retirement of treasury stock
Accretion of Class L preferred return
Conversion of Class L shares to common shares
Common stock, Class L, end of year
22,995
65
—
(194)
—
(22,866)
—
Amount
$
$
840,582
2,270
(113 )
—
45,102
(887,841 )
—
Common shares issued and outstanding included in the consolidated balance sheets include vested and unvested restricted shares. Common
stock in the consolidated statement of stockholders’ equity excludes unvested restricted shares.
(c) Treasury stock
During fiscal year 2011, the Company repurchased a total of 23,624 shares of common stock and 3,266 shares of Class L shares that were
originally sold and granted to former employees of the Company. The Company accounts for treasury stock under the cost method, and as such
recorded increases in common treasury stock of $173 thousand during fiscal year 2011, based on the fair market value of the shares on the
respective dates of repurchase. During fiscal year 2011, the Company retired all of its treasury stock, resulting in a $2.0 million reduction in
common treasury stock and additional paid-in-capital.
In August 2012, the Company repurchased a total of 15,000,000 shares of common stock at a price of $30.00 per share from certain existing
stockholders, and incurred approximately $341 thousand of third-party costs in connection with the repurchase. The Company recorded an
increase in common treasury stock of $450.4 million during fiscal year 2012, based on the fair market value of the shares on the date of
repurchase and the direct costs incurred. During fiscal year 2012, the Company retired all outstanding treasury stock, resulting in decreases in
common treasury stock and additional paid-in capital of $15 thousand and $180.0 million , respectively, and an increase in accumulated deficit
of $270.3 million .
During the fiscal year 2013, the Company repurchased a total of 648,000 shares of common stock at a weighted average price per share of
$43.14 from existing stockholders. The Company recorded an increase in common treasury stock of $28.0 million during fiscal year 2013,
based on the fair market value of the shares on the date of repurchase and direct costs incurred. In October 2013, the Company retired 417,300
shares of treasury stock, resulting in decreases in common treasury stock and additional paid-in capital of $17.2 million and $4.7 million ,
respectively, and an increase in accumulated deficit of $12.5 million .
(d) Accumulated other comprehensive income
The components of accumulated other comprehensive income were as follows (in thousands):
Effect of
foreign
currency
translation
Balances at December 29, 2012
Other comprehensive income (loss)
Balances at December 28, 2013
$
$
Unrealized gains
(losses) on
interest rate
swaps
14,914
(14,909 )
5
(1,655)
7,740
6,085
- 79 -
Unrealized loss
on pension
adjustment
(2,486)
(612)
(3,098)
Other
(1,632)
(21)
(1,653)
Accumulated
other
comprehensive
income
9,141
(7,802)
1,339
Table of Contents
(e) Dividends
During fiscal year 2013, the Company paid dividends on common stock as follows:
Total amount (in
thousands)
Dividend per share
Fiscal year 2013:
First quarter
Second quarter
Third quarter
Fourth quarter
$
0.19
0.19
0.19
0.19
$
20,191
20,259
20,257
20,301
Payment date
February 20, 2013
June 6, 2013
September 4, 2013
November 26, 2013
During fiscal year 2012, the Company paid dividends on common stock as follows:
Total amount (in
thousands)
Dividend per share
Fiscal year 2012:
First quarter
Second quarter
Third quarter
Fourth quarter
$
0.15
0.15
0.15
0.15
$
18,046
18,068
18,075
15,880
Payment date
March 28, 2012
May 16, 2012
August 24, 2012
November 14, 2012
On February 6, 2014 , we announced that our board of directors approved an increase to the next quarterly dividend to $0.23 per share of
common stock, payable March 19, 2014 to shareholders of record as of the close of business on March 10, 2014 .
(14) Equity incentive plans
The Company’s 2006 Executive Incentive Plan, as amended, (the “2006 Plan”) provides for the grant of stock-based and other incentive
awards. A maximum of 12,191,145 shares of common stock may be delivered in satisfaction of awards under the 2006 Plan, of which a
maximum of 5,012,966 shares may be awarded as nonvested (restricted) shares and a maximum of 7,178,179 may be delivered in satisfaction
of stock options.
The Dunkin’ Brands Group, Inc. 2011 Omnibus Long-Term Incentive Plan (the “2011 Plan”) was adopted in July 2011, and is the only plan
under which the Company currently grants awards. A maximum of 7,000,000 shares of common stock may be delivered in satisfaction of
awards under the 2011 Plan.
Total share-based compensation expense, which is included in general and administrative expenses, net, consisted of the following (in
thousands):
Fiscal year ended
December 28, 2013
Restricted shares
2006 Plan stock options—executive
2006 Plan stock options—nonexecutive
2011 Plan stock options
Restricted stock units
Total share-based compensation
$
Total related tax benefit
December 29, 2012
December 31, 2011
$
3
977
162
4,668
1,513
7,323
132
4,245
181
2,026
336
6,920
2,739
1,626
202
32
33
4,632
$
2,958
2,768
1,852
The actual tax benefit realized from stock options exercised during fiscal years 2013, 2012, and 2011 was $15.9 million , $14.1 million , and
$438 thousand respectively.
Nonvested (restricted) shares
The Company historically issued restricted shares of common stock to certain executive officers of the Company. The restricted shares
generally vested in three separate tranches with different vesting conditions. In addition to the vesting conditions
- 80 -
Table of Contents
described below, all three tranches of the restricted shares provided for partial or full accelerated vesting upon change in control. Restricted
shares that did not vest were forfeited to the Company.
Tranche 1 shares generally vested in four or five equal annual installments based on a service condition. The weighted average requisite service
period for the Tranche 1 shares was approximately 4.4 years, and compensation cost was recognized ratably over this requisite service period.
The Tranche 2 shares generally vested in five annual installments beginning on the last day of the fiscal year of grant based on a service
condition and performance conditions linked to annual earnings before interest, taxes, depreciation, and amortization targets ("EBITDA
targets"), which were not achieved for fiscal years 2012 and 2011 . Total compensation cost for the Tranche 2 shares was determined based on
the most likely outcome of the performance conditions and the number of awards expected to vest based on those outcomes, and as such, no
compensation cost was recognized in fiscal years 2012 or 2011 related to Tranche 2 shares. All remaining Tranche 2 shares outstanding were
forfeited on the last day of fiscal year 2012 as the EBITDA targets were not achieved.
Tranche 3 shares generally vested in four annual installments based on a service condition, a performance condition, and market conditions.
The Tranche 3 shares did not become eligible to vest until achievement of the performance condition, which was defined as an initial public
offering or change in control. These events were not considered probable of occurring until such events actually occurred. The market
condition related to the achievement of a minimum investor rate of return on the Sponsor’s (see note 19(a)) shares ranging from 20% to 24% as
of specified measurement dates, which occurred on the six month anniversary of an initial public offering and every three months thereafter, or
on the date of a change in control. As the Tranche 3 shares required the satisfaction of multiple vesting conditions, the requisite service period
was the longest of the explicit, implicit, and derived service periods of the service, performance, and market conditions. As the performance
condition could not be deemed probable of occurring until an initial public offering or change of control event was completed, no compensation
cost was recognized related to the Tranche 3 shares prior to fiscal year 2011. Upon completion of the initial public offering in fiscal year 2011,
$2.6 million of expense was recorded related to approximately 0.8 million Tranche 3 restricted shares that were outstanding at the date of the
initial public offering. The entire value of the outstanding Tranche 3 shares was recorded upon completion of the initial public offering as the
requisite service period, which was equivalent to the implicit service period of the performance condition, had been delivered. With the sale of
the Sponsors' remaining shares in August 2012, no further Tranche 3 vesting could occur, and all unvested Tranche 3 shares were accordingly
forfeited.
A summary of the changes in the Company’s restricted shares during fiscal year 2013 is presented below:
Weighted
average
grant-date
fair value
Number of
shares
Nonvested restricted shares at December 29, 2012
Granted
Vested
Forfeited
Nonvested restricted shares at December 28, 2013
1,049
—
(1,049)
—
—
$
5.44
—
5.44
—
—
As of December 28, 2013 , no unrecognized compensation cost remains related to restricted shares. The total grant-date fair value of shares
vested during fiscal years 2013 , 2012 , and 2011 , was $6 thousand , $1.2 million , and $484 thousand , respectively.
2006 Plan stock options—executive
During fiscal year 2011, the Company granted options to executives to purchase 828,040 shares of common stock under the 2006 Plan. The
executive options vest in two separate tranches, 30% allocated as Tranche 4 and 70% allocated as Tranche 5, each with different vesting
conditions. In addition to the vesting conditions described below, both tranches provide for partial accelerated vesting upon change in control.
The maximum contractual term of the executive options is ten years.
The Tranche 4 executive options generally vest in equal annual amounts over a 5 -year period subsequent to the grant date, and as such are
subject to a service condition. Certain options provide for accelerated vesting at the date of grant, with 20% of the Tranche 4 options vesting on
each subsequent anniversary of the grant date over a 3 - or 4 -year period. The requisite service periods over which compensation cost is being
recognized ranges from 3 to 5 years.
The Tranche 5 executive options become eligible to vest based on continued service periods of 3 to 5 years that are aligned with the Tranche 4
executive options (“Eligibility Percentage”). Vesting does not actually occur until the achievement of a
- 81 -
Table of Contents
performance condition, which is the sale of shares by the Sponsors. Additionally, the options are subject to a market condition related to the
achievement of specified investor returns to the Sponsors upon a sale of shares. Upon a sale of shares by the Sponsors and assuming the
requisite service has been provided, Tranche 5 options vest in proportion to the percentage of the Sponsors’ shares sold by them (“Performance
Percentage”), but only if the aggregate return on those shares sold is two times the Sponsors’ original purchase price. Actual vesting is
determined by multiplying the Eligibility Percentage by the Performance Percentage. Additionally, 100% of the Tranche 5 options vest,
assuming the requisite service has been provided, if the aggregate amount of cash received by the Sponsors through sales, distributions, or
dividends is two times the original purchase price of all shares purchased by the Sponsors. As the Tranche 5 options require the satisfaction of
multiple vesting conditions, the requisite service period is the longest of the explicit, implicit, and derived service periods of the service,
performance, and market conditions. Based on dividends received in 2012 and 2011, and the sale of shares by the Sponsors in connection with
public offerings completed in 2012 and 2011, the cumulative Performance Percentage as of December 28, 2013 , December 29, 2012 , and
December 31, 2011 was 100.0% , 100.0% , and 28.5% , respectively, resulting in compensation expense of $478 thousand , $3.6 million , and
$1.1 million being recorded in fiscal years 2013, 2012, and 2011, respectively.
The fair value of the Tranche 4 options was estimated on the date of grant using the Black-Scholes option pricing model. The fair value of the
Tranche 5 options was estimated on the date of grant using a combination of lattice models and Monte Carlo simulations. These models are
impacted by the Company’s stock price and certain assumptions related to the Company’s stock and employees’ exercise behavior.
Additionally, the value of the Tranche 5 options is impacted by the probability of achievement of the market condition. The following weighted
average assumptions were utilized in determining the fair value of executive options granted during fiscal years 2011:
Fiscal year ended (1)
December 31,
2011
Weighted average grant-date fair value of share options granted
Significant assumptions:
Tranche 4 options:
Risk-free interest rate
Expected volatility
Dividend yield
Expected term (years)
Tranche 5 options:
Risk-free interest rate
Expected volatility
Dividend yield
$6.27
2.1%–2.7%
47.0%–72.0%
—
6.5
2.3%–3.2%
47.0%–72.0%
—
(1) The Company did not grant any Tranche 4 or Tranche 5 options during fiscal years 2012 and 2013.
The expected term of the Tranche 4 options was estimated utilizing the simplified method. We utilized the simplified method because the
Company did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The simplified
method was used for all Tranche 4 stock options, as they required only a service vesting condition. The risk-free interest rate assumption was
based on yields of U.S. Treasury securities in effect at the date of grant with terms similar to the expected term. Expected volatility was
estimated based on historical volatility of peer companies over a period equivalent to the expected term. Additionally, the Company did not
anticipate paying dividends on the underlying common stock at the date of grant.
As share-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures
of generally 10% per year. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. Forfeitures were estimated based on historical and forecasted turnover, and actual forfeitures have
not had a material impact on share-based compensation expense.
- 82 -
Table of Contents
A summary of the status of the Company’s executive stock options as of December 28, 2013 and changes during fiscal year 2013 are presented
below:
Weighted
average
exercise
price
Number of
shares
Share options outstanding at December 29, 2012
Exercised
Forfeited or expired
Share options outstanding at December 28, 2013
3,331,993
(932,519)
(193,527)
2,205,947
Share options exercisable at December 28, 2013
1,067,692
$
Weighted
average
remaining
contractual
term (years)
Aggregate
intrinsic
value
(in millions)
3.85
3.68
7.15
3.64
7.3
3.29
6.2
6.3
$
97.3
47.5
The total grant-date fair value of executive stock options vested during fiscal years 2013 , 2012 , and 2011 was $1.8 million , $2.8 million , and
$862 thousand , respectively. The total intrinsic value of executive stock options exercised was $35.3 million , $33.8 million , and $489
thousand for fiscal years 2013 , 2012 , and 2011 , respectively. As of December 28, 2013 , there was $682 thousand of total unrecognized
compensation cost related to Tranche 4 and Tranche 5 options, which is expected to be recognized over a weighted average period of
approximately 1.6 years.
2006 Plan stock options—nonexecutive and 2011 Plan stock options
During fiscal year 2011, the Company granted options to nonexecutives to purchase 50,491 shares of common stock under the 2006 Plan.
Additionally, during fiscal years 2013 , 2012 , and 2011 , the Company granted options to certain employees to purchase 1,177,999 , 746,100 ,
and 292,700 shares, respectively, of common stock under the 2011 Plan. The nonexecutive options and 2011 Plan options vest in equal annual
amounts over either a 4 - or 5 -year period subsequent to the grant date, and as such are subject to a service condition, and also fully vest upon a
change of control. The requisite service period over which compensation cost is being recognized is either four or five years. The maximum
contractual term of the nonexecutive and 2011 Plan options is ten years.
The fair value of nonexecutive and 2011 Plan options was estimated on the date of grant using the Black-Scholes option pricing model. This
model is impacted by the Company’s stock price and certain assumptions related to the Company’s stock and employees’ exercise behavior.
The following weighted average assumptions were utilized in determining the fair value of nonexecutive and 2011 Plan options granted during
fiscal years 2013 , 2012 , and 2011 :
Fiscal year ended
Weighted average grant-date fair value of share options granted
Weighted average assumptions:
Risk-free interest rate
Expected volatility
Dividend yield
Expected term (years)
December 28, 2013
December 29, 2012
December 31, 2011
9.92
10.65
10.27
1.2%
33.0%
2.0%
6.25
0.8%-1.4%
43.0%
1.8%-2.1%
6.25
1.2%-2.7%
43.0%-72.0%
—
6.25-6.5
The expected term was estimated utilizing the simplified method. We utilized the simplified method because the Company does not have
sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free interest rate assumption
was based on yields of U.S. Treasury securities in effect at the date of grant with terms similar to the expected term. Expected volatility was
estimated based on historical volatility of peer companies over a period equivalent to the expected term. Additionally, the dividend yield was
estimated based on dividends currently being paid on the underlying common stock at the date of grant, if any.
As share-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for annualized estimated
forfeitures of generally 10 - 13% . Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. Forfeitures were estimated based on historical and forecasted turnover, and actual forfeitures have
not had a material impact on share-based compensation expense.
- 83 -
Table of Contents
A summary of the status of the Company’s nonexecutive and 2011 Plan options as of December 28, 2013 and changes during fiscal year 2013
is presented below:
Weighted
average
exercise
price
Number of
shares
Share options outstanding at December 29, 2012
Granted
Exercised
Forfeited or expired
Share options outstanding at December 28, 2013
1,295,356
1,177,999
(207,679)
(246,526)
2,019,150
Share options exercisable at December 28, 2013
279,932
$
Weighted
average
remaining
contractual
term (years)
Aggregate
intrinsic
value
(in millions)
24.34
37.26
21.93
29.92
31.45
8.8
20.08
7.3
8.5
$
32.9
7.7
The total grant-date fair value of nonexecutive and 2011 Plan stock options vested during fiscal years 2013 , 2012 , and 2011 was $2.9 million ,
$1.0 million , and $176 thousand , respectively. The total intrinsic value of nonexecutive and 2011 Plan stock options exercised was $4.1
million , $1.5 million , and $605 thousand for fiscal years 2013 , 2012 , and 2011 , respectively. As of December 28, 2013 , there was $13.9
million of total unrecognized compensation cost related to nonexecutive and 2011 Plan options. Unrecognized compensation cost is expected to
be recognized over a weighted average period of approximately 2.8 years.
Restricted stock units
During fiscal years 2013, 2012, and 2011, the Company granted restricted stock units of 94,495 , 22,204 , and 5,618 , respectively, to certain
employees and members of our board of directors. Restricted stock units granted to employees generally vest in three equal installments on
each of the first three anniversaries of the grant date. Restricted stock units granted to our board of directors generally vest in one installment
on the first anniversary of the grant date.
A summary of the changes in the Company’s restricted stock units during fiscal year 2013 is presented below:
Number of
shares
Nonvested restricted stock units at December 29, 2012
Granted
Vested
Forfeited
Nonvested restricted stock units at December 28, 2013
22,204
94,495
(12,655)
(1,073)
102,971
Weighted average grant-date
fair value
$
31.21
37.87
35.44
37.27
37.20
The fair value of each restricted stock unit is determined on the date of grant based on our closing stock price. As of December 28, 2013 , there
was $2.4 million of total unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted
average period of approximately 1.9 years. The total grant-date fair value of restricted stock units vested during fiscal years 2013 and 2012 was
$448 thousand and $118 thousand , respectively. No restricted stock units vested during fiscal year 2011 .
- 84 -
Table of Contents
(15) Earnings per Share
The computation of basic and diluted earnings per common share is as follows (in thousands, except share and per share amounts):
December 28,
2013
Net income attributable to Dunkin' Brands—basic and diluted
Allocation of net income (loss) to common stockholders (1) :
Class L—basic and diluted
Common—basic (2)
Common—diluted (2)
Weighted average number of common shares—basic and diluted:
Class L—basic and diluted (3)
Common—basic
Common—diluted (4)
Earnings (loss) per common share:
Class L—basic
Common—basic
Fiscal year ended
December 29,
2012
December 31,
2011
$
146,903
108,308
34,442
$
n/a
146,903
146,903
n/a
108,176
108,197
140,212
(105,770)
(105,770)
n/a
106,501,733
108,217,011
n/a
114,584,063
116,573,344
n/a
1.38
1.36
n/a
0.94
0.93
$
Common—diluted
22,845,378
74,835,697
74,835,697
$
6.14
(1.41)
(1.41)
(1) As the Company had both Class L and common stock outstanding during fiscal year 2011 , and Class L had preference with respect to all
distributions, earnings per share was calculated using the two-class method, which requires the allocation of earnings to each class of
common stock. The numerator in calculating Class L basic and diluted earnings per share is the Class L preference amount accrued at 9%
per annum during fiscal year 2011 plus, if positive, a pro rata share of an amount equal to consolidated net income less the Class L
preference amount. The Class L preferential distribution amount accrued was $45.1 million during fiscal year 2011 . The Class L shares
converted into common stock immediately prior to the Company’s initial public offering that was completed on August 1, 2011. The
numerator in calculating the Class L basic and diluted earnings per share for fiscal year 2011 includes an amount representing the excess of
the fair value of the consideration transferred to the Class L shareholders upon conversion to common stock over the carrying amount of
the Class L shares at the date of conversion, which occurred immediately prior to the Company’s initial public offering. As the carrying
amount of the Class L shares was equal to the Class L preference amount, the excess fair value of the consideration transferred to the Class
L shareholders was equal to the fair value of the additional 0.2189 of a share of common stock into which each Class L share converted
(“Class L base share”), which totaled $95.1 million , calculated as follows:
Class L shares outstanding immediately prior to the initial public offering
Number of common shares received for each Class L share
Common stock received by Class L shareholders, excluding preferential distribution
Common stock fair value per share (initial public offering price per share)
Fair value of Class L base shares (in thousands)
$
$
22,866,379
0.2189
5,005,775
19.00
95,110
(2) Net income allocated to common shareholders for the fiscal year 2012 excludes $132 thousand and $111 thousand for basic and diluted
earnings per share, respectively, that is allocated to participating securities. Participating securities consist of unvested (restricted) shares
that contain a nonforfeitable right to participate in dividends. No net income was allocated to participating securities for fiscal year 2013 as
all restricted shares were fully vested as of December 28, 2013 , and no net loss was allocated to participating securities for fiscal year
2011 as the participating securities do not participate in losses.
(3) The weighted average number of Class L shares in the Class L earnings per share calculation in fiscal year 2011 represents the weighted
average from the beginning of the period up through the date of conversion of the Class L shares into common shares. There were no Class
L common stock equivalents outstanding during fiscal year 2011 .
- 85 -
Table of Contents
(4) The weighted average number of common shares in the common diluted earnings per share calculation for fiscal years 2013 and 2012
includes the dilutive effect of 1,715,278 and 1,989,281 , respectively, restricted shares and stock options, using the treasury stock method.
The weighted average number of common shares in the common diluted earnings per share calculation for all periods excludes all
performance-based restricted stock awards and stock options outstanding for which the performance criteria were not yet met as of the
fiscal period end. As of December 28, 2013 and December 29, 2012 , there were no common restricted stock awards that were
performance-based and for which the performance criteria were not yet met. As of December 31, 2011 , there were approximately 636,752
common restricted stock awards and 2,422,628 options to purchase common stock that were performance-based and for which the
performance criteria was not yet met. Additionally, the weighted average number of common shares in the common diluted earnings per
share calculation excludes stock options of 1,100,275 and 805,015 for fiscal years 2013 and 2012 , respectively, as they would be
antidilutive. The weighted average number of common shares in the common diluted earnings per share calculation for fiscal year 2011
excludes all restricted stock and stock options outstanding, as they would be antidilutive.
(16) Income taxes
Income (loss) before income taxes was attributed to domestic and foreign taxing jurisdictions as follows (in thousands):
December 28,
2013
Domestic operations
Foreign operations
Income before income taxes
$
$
195,277
22,811
218,088
Fiscal year ended
December 29,
2012
172,576
(10,575)
162,001
December 31,
2011
70,034
(3,221)
66,813
The components of the provision for income taxes were as follows (in thousands):
December 28,
2013
Current:
Federal
State
Foreign
Current tax provision
Deferred:
Federal
State
Foreign
Deferred tax benefit
Provision for income taxes
$
$
$
$
- 86 -
Fiscal year ended
December 29,
2012
December 31,
2011
70,696
11,758
2,521
84,975
52,657
6,065
2,601
61,323
34,282
5,733
3,719
43,734
(11,915 )
(984)
(292)
(13,191)
71,784
(5,071)
4,373
(6,248)
(6,946)
54,377
(11,567)
892
(688)
(11,363)
32,371
Table of Contents
The provision for income taxes from continuing operations differed from the expense computed using the statutory federal income tax rate of
35% due to the following:
December 28,
2013
Computed federal income tax expense, at statutory rate
Permanent differences:
Impairment of investment in BR Korea
Other permanent differences
State income taxes
Benefits and taxes related to foreign operations
Changes in enacted tax rates and apportionment
Uncertain tax positions
Other
Effective tax rate
Fiscal year ended
December 29,
2012
December 31,
2011
35.0 %
35.0 %
35.0 %
—
0.2
4.7
(4.3)
0.8
(3.2)
(0.3)
32.9 %
—
0.7
5.2
(2.9)
2.8
(6.3)
(0.9)
33.6 %
9.8
0.9
6.9
(6.8)
3.0
1.9
(2.2)
48.5 %
During fiscal year 2013, the Company recorded a net tax benefit of $8.4 million related to the reversal of reserves for uncertain tax positions for
which settlement with the taxing authorities was reached, including interest and penalty, net of federal and state tax benefit as applicable, and
recognized a deferred tax expense of $1.7 million due to estimated changes in apportionment and enacted changes in future state income tax
rates. During fiscal year 2012, the Company recorded a net tax benefit of $10.2 million primarily related to the reversal of reserves for
uncertain tax positions, including interest and penalty, net of federal and state tax benefit as applicable, for which settlement with the taxing
authorities was reached, and recognized a deferred tax expense of $4.6 million due to estimated changes in apportionment and enacted changes
in future state income tax rates. In addition, the Company recognized deferred tax expense of $1.9 million in fiscal year 2011 due to enacted
changes in future state income tax rates. These changes in estimates and enacted tax rates affect the tax rate expected to be in effect in future
periods when the deferred tax assets and liabilities reverse.
- 87 -
Table of Contents
The components of deferred tax assets and liabilities were as follows (in thousands):
December 28, 2013
Deferred tax
Deferred tax
assets
liabilities
Current:
Allowance for doubtful accounts
Deferred gift cards and certificates
Rent
Deferred income
Other current liabilities
Other
Total current
Noncurrent:
Capital leases
Rent
Property and equipment
Deferred compensation liabilities
Deferred income
Real estate reserves
Franchise rights and other intangibles
Unused foreign tax credits
Other
$
Valuation allowance
Total noncurrent
$
1,055
20,371
5,307
4,672
13,983
1,073
46,461
2,830
2,243
—
7,747
4,234
1,287
—
6,756
1,103
26,200
(710)
25,490
71,951
December 29, 2012
Deferred tax
Deferred tax
assets
liabilities
—
—
—
—
—
—
—
969
22,561
4,990
3,926
11,422
3,395
47,263
—
—
—
—
—
—
—
—
—
6,315
—
—
—
576,567
—
4,322
587,204
—
587,204
587,204
2,924
2,032
—
6,478
4,905
1,398
—
8,034
—
25,771
—
25,771
73,034
—
—
10,229
—
—
—
584,642
—
26
594,897
—
594,897
594,897
At December 28, 2013 , the valuation allowance for deferred tax assets was $0.7 million . This valuation allowance related to deferred tax
assets for net operating loss carryforwards attributable to our wholly-owned subsidiary in Spain. At December 28, 2013 , the Company had
$6.8 million of unused foreign tax credits, which expire in fiscal years 2020 and 2021.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable
income, and projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes, as of
December 28, 2013 , with the exception of net operating loss carryforwards attributable to our Spain subsidiary, it is more likely than not that
the Company will realize the benefits of the deferred tax assets.
The Company has not recognized a deferred tax liability of $7.1 million for the undistributed earnings of foreign operations, net of foreign tax
credits, relating to our foreign joint ventures that arose in fiscal year 2013 and prior years because the Company currently does not expect those
unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A deferred tax liability will be recognized when
the Company is no longer able to demonstrate that it plans to permanently reinvest undistributed earnings. As of December 28, 2013 and
December 29, 2012 , the undistributed earnings of these joint ventures were approximately $129.7 million and $123.3 million , respectively.
The Company has not recognized a deferred tax liability of $3.1 million for the undistributed earnings of our foreign subsidiaries since such
earnings are considered indefinitely reinvested outside the United States. As of December 28, 2013 , the amount of cash associated with
indefinitely reinvested foreign earnings was approximately $7.5 million . If in the future we decide to repatriate such foreign earnings, we
would incur incremental U.S. federal and state income tax. However, our intent is to keep these funds indefinitely reinvested outside of the
United States and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.
- 88 -
Table of Contents
At December 28, 2013 and December 29, 2012 , the total amount of unrecognized tax benefits related to uncertain tax positions was $8.2
million and $15.4 million , respectively. At December 28, 2013 and December 29, 2012 , the Company had approximately $4.2 million and
$14.9 million , respectively, of accrued interest and penalties related to uncertain tax positions. The Company recorded net income tax benefits
of $ 5.8 million and $0.2 million during fiscal years 2013 and 2012 , respectively, and net income tax expense of $3.1 million during fiscal year
2011 for potential interest and penalties related to uncertain tax positions. At December 28, 2013 and December 29, 2012 , there were $ 6.3
million and $9.4 million , respectively, of unrecognized tax benefits that, if recognized, would impact the annual effective tax rate.
The Company’s major tax jurisdictions subject to income tax are the United States and Canada. For Canada, the Company has open tax years
dating back to tax years ended August 2003 and is currently under audit for the tax periods 2009 through 2012. In the United States, the
Company is currently under audits in certain state jurisdictions for tax periods after December 2006. The audits are in various stages as of
December 28, 2013 .
For U.S. federal taxes, the Internal Revenue Service (“IRS”) concluded its examination of fiscal year 2010 during fiscal year 2013 and agreed
to a settlement regarding the recognition of revenue for gift cards and other matters. The Company made a cash payment for the additional
federal tax due totaling $3.0 million . Based on this and previous settlements, additional state taxes and federal and state interest owed, net of
federal and state benefits, are approximately $1.5 million , of which approximately $0.8 million was paid during fiscal year 2013. As the
additional federal and state taxes owed for all periods represent temporary differences that will be deductible in future years, the potential tax
expense is limited to federal and state interest, net of federal and state benefits, which we do not expect to be material.
A summary of the changes in the Company’s unrecognized tax benefits is as follows (in thousands):
December 28,
2013
Balance at beginning of year
Increases related to prior year tax positions
Increases related to current year tax positions
Decreases related to prior year tax positions
Decreases related to settlements
Lapses of statutes of limitations
Effect of foreign currency adjustments
Balance at end of year
$
$
15,428
855
219
(3,091 )
(4,797 )
—
(401 )
8,213
Fiscal year ended
December 29,
2012
December 31,
2011
41,379
2,063
1,389
(19,675)
(9,792)
(27)
91
15,428
17,549
23,922
—
—
—
(43)
(49)
41,379
(17) Commitments and contingencies
(a) Lease commitments
The Company is party to various leases for property, including land and buildings, leased automobiles, and office equipment under
noncancelable operating and capital lease arrangements (see note 11).
(b) Guarantees
Financial Guarantees
The Company has established agreements with certain financial institutions whereby the Company’s franchisees can obtain financing with
terms of approximately 3 to 10 years for various business purposes. Substantially all loan proceeds are used by the franchisees to finance store
improvements, new store development, new central production locations, equipment purchases, related business acquisition costs, working
capital, and other costs. In limited instances, the Company guarantees a portion of the payments and commitments of the franchisees, which is
collateralized by the store equipment owned by the franchisee. Under the terms of the agreements, in the event that all outstanding borrowings
come due simultaneously, the Company would be contingently liable for $3.0 million and $4.7 million at December 28, 2013 and
December 29, 2012 , respectively. At December 28, 2013 and December 29, 2012 , there were no amounts under such guarantees that were
due. The fair value of the guarantee liability and corresponding asset recorded on the consolidated balance sheets was $277 thousand and $309
thousand , respectively, at December 28, 2013 and $601 thousand and $572 thousand , respectively, at December 29, 2012 . The Company
assesses the risk of performing under these guarantees for each franchisee relationship on a quarterly basis. As of December 29, 2012 , the
Company had recorded reserves for such guarantees of $389 thousand . No reserves were recorded as of December 28, 2013 .
- 89 -
Table of Contents
Supply Chain Guarantees
In 2012, the Company entered into a third-party guarantee with a distribution facility of franchisee products that guarantees 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 , which is included in other current liabilities in the consolidated balance sheets and general and administrative
expenses, net in the consolidated statements of operations. 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.
The Company has 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 the Company’s franchisees over the term of the
agreement, the amount of the guarantee is reduced. As of December 28, 2013 and December 29, 2012 , the Company was contingently liable
for $5.7 million and $6.8 million , respectively, under this guarantee. Additionally, the Company has 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 and December 29, 2012 , we were contingently liable under such
supply chain agreements for approximately $52.6 million and $57.5 million , respectively. The Company assesses the risk of performing under
each of these guarantees on a quarterly basis, and, considering various factors including internal forecasts, prior history, and ability to extend
contract terms, we have accrued $906 thousand related to these commitments as of December 28, 2013 , which is included in other current
liabilities in the consolidated balance sheets. There were no amounts accrued as of December 29, 2012 .
Lease Guarantees
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 and December 29, 2012 , the potential amount of undiscounted payments the Company could be
required to make in the event of nonpayment by the primary lessee was $6.4 million and $5.6 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 28, 2013 and December 29, 2012 , the Company had standby letters of credit outstanding for a total of $3.0 million and $11.5
million , respectively. There were no amounts drawn down on these letters of credit.
(d) Legal matters
In May 2003, a group of Dunkin’ Donuts franchisees from Quebec, Canada filed a lawsuit against the Company on a variety of claims, based
on events which primarily occurred 10 to 15 years ago , including but not limited to, alleging that the Company breached its franchise
agreements and provided inadequate management and support to Dunkin’ Donuts franchisees in Quebec (“Bertico litigation”). On June 22,
2012, the Quebec Superior Court found for the plaintiffs and issued a judgment against the Company in the amount of approximately C$16.4
million (approximately $15.9 million ), plus costs and interest, representing loss in value of the franchises and lost profits. During the second
quarter of 2012, the Company increased its estimated liability related to the Bertico litigation by $20.7 million to reflect the judgment amount
and estimated plaintiff legal costs and interest. During fiscal years 2013 and 2012, the Company accrued additional interest on the judgment
amount of $952 thousand and $493 thousand , respectively, resulting in an estimated liability of $25.1 million , including the impact of foreign
exchange, as of December 28, 2013 . The Company strongly disagrees with the decision reached by the Court and believes the damages
awarded were unwarranted. As such, the Company is vigorously appealing the decision.
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 28, 2013 and December 29, 2012 , contingent liabilities,
excluding the Bertico litigation, totaling $1.5 million 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
- 90 -
Table of Contents
lawsuits and disputes, it is reasonably possible that the losses in connection with all matters could increase by up to an additional $12.0 million
based on the outcome of ongoing litigation or negotiations.
(e) Line of Credit to Distribution Facility
In May 2013, the Company provided a secured revolving line of credit to a distribution facility of franchisee products for an aggregate
maximum principal amount of up to $8.0 million plus interest. The entire principal balance and accrued and unpaid interest is due June 1, 2014.
The purpose of this line of credit is to provide funding for the purchase and storage of certain inventory, which was pledged as collateral under
a security agreement entered into in connection with the line of credit agreement. Through December 28, 2013 , no amounts have been drawn
on this line of credit.
(18) 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 2013 , 2012 , and 2011 , up to a maximum of 4% of the employee’s salary. Employer
contributions for fiscal years 2013 , 2012 , and 2011 , amounted to $3.1 million , $2.9 million , and $2.7 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 2013 , 2012 , and 2011 .
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 in the
consolidated balance sheets, was $7.0 million and $7.4 million at December 28, 2013 and December 29, 2012 , respectively. As of
December 28, 2013 and December 29, 2012 , total investments held for the NQDC Plan were $338 thousand and $3.1 million , respectively,
and have been recorded in other assets in the consolidated balance sheets.
Canadian Pension Plan
The Company sponsors a contributory defined benefit pension plan in Canada, The Baskin-Robbins Employees’ Pension Plan (“Canadian
Pension Plan”), which provides retirement benefits for the majority of its Canadian employees.
During the second quarter of 2012, the Company’s board of directors approved a plan to close our Peterborough, Ontario, Canada
manufacturing plant, where the majority of the Canadian Pension Plan participants were employed (see note 20). As a result of the closure, the
Company terminated the Canadian Pension Plan as of December 29, 2012, and expects the Financial Services Commission of Ontario
("FSCO") to approve the termination of the plan in 2014. Upon approval of the termination, the Company will fund any deficit and the plan
assets will be used to fund transfers to other retirement plans or for the purchase of annuities to fund future retirement payments to participants.
Also upon approval, the Company will recognize any unrealized losses in accumulated other comprehensive income.
- 91 -
Table of Contents
The components of net pension expense were as follows (in thousands):
December 28,
2013
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Net pension expense
—
216
(263 )
74
27
$
$
Fiscal year ended
December 29,
2012
December 31,
2011
262
333
(317)
76
354
222
340
(306)
54
310
The amortization of net actuarial loss included in net pension expense above represents the amount reclassified from accumulated other
comprehensive income during the respective fiscal year. The table below summarizes other balances for fiscal years 2013 , 2012 , and 2011
(in thousands):
December 28,
2013
Change in benefit obligation:
Benefit obligation, beginning of year
Service cost
Interest cost
Employee contributions
Benefits paid
Curtailment gain
Actuarial loss (gain)
Foreign currency loss (gain), net
Benefit obligation, end of year
$
Fiscal year ended
December 29,
2012
December 31,
2011
8,349
—
216
—
(230 )
—
395
(530 )
8,200
6,050
262
333
88
(275)
(1,084)
2,854
121
8,349
6,042
222
340
81
(479)
—
(95)
(61)
6,050
$
5,809
263
626
—
(230 )
(371 )
(307 )
5,790
4,945
317
662
88
(275)
(27)
99
5,809
4,797
306
798
81
(479)
(505)
(53)
4,945
Reconciliation of funded status:
Funded status
Net amount recognized at end of period
$
$
(2,410 )
(2,410 )
(2,540)
(2,540)
(1,105)
(1,105)
Amounts recognized in the balance sheet consist of:
Accrued benefit cost
Net amount recognized at end of period
$
$
(2,410 )
(2,410 )
(2,540)
(2,540)
(1,105)
(1,105)
$
Change in plan assets:
Fair value of plan assets, beginning of year
Expected return on plan assets
Employer contributions
Employee contributions
Benefits paid
Actuarial loss
Foreign currency gain (loss), net
Fair value of plan assets, end of year
$
The investments of the Canadian Pension Plan consisted of a long-term bond fund and a short-term investment fund at December 28, 2013 ,
and a pooled investment fund at December 29, 2012 . These funds are comprised of numerous underlying investments and are valued at the
unit fair value supplied by the funds' administrators, which represent the funds' proportionate share of underlying net assets at market value
determined using closing market prices. The funds are considered Level 2, as defined by U.S. GAAP, because the inputs used to calculate the
fair value are derived principally from observable market data. The Canadian Pension Plan's investment strategy is to mitigate fluctuations in
the wind-up deficit of the plan by holding assets whose fluctuation in fair value will approximate that of the benefit obligation. The Canadian
Pension Plan assumes a
- 92 -
Table of Contents
concentration of risk as it is invested in a limited number of investments. The risk is mitigated as the funds consists of a diverse range of
underlying investments. The allocation of the assets within the plan consisted of the following:
December 28,
2013
Cash and short-term investments
Equity securities
Debt securities
Other
35%
—
65
—
December 29,
2012
—%
60
39
1
The actuarial assumptions used in determining the present value of accrued pension benefits at December 28, 2013 and December 29, 2012
were as follows:
December 28,
2013
Discount rate
Average salary increase for pensionable earnings
2.65%
—
December 29,
2012
2.70%
—
The discount rate used in determining the present value of accrued pension benefits at December 28, 2013 reflects the estimate of the rate at
which pension benefits could be effectively settled. No future salary increases are assumed as of December 28, 2013 or December 29, 2012 as a
result of the termination of the plan.
The actuarial assumptions used in determining the present value of our net periodic benefit cost were as follows:
December 28,
2013
Discount rate
Average salary increase for pensionable earnings
Expected return on plan assets
2.70%
—
4.50
December 29,
2012
5.25%
3.25
6.00
December 31,
2011
5.50%
3.25
6.00
The expected return on plan assets was determined based on the Canadian Pension Plan’s target asset mix, expected long-term asset class
returns based on a mean return over a 30 -year period using a Monte Carlo simulation, the underlying long-term inflation rate, and expected
investment expenses.
The accumulated benefit obligation was $8.2 million and $8.3 million at December 28, 2013 and December 29, 2012 , respectively. We
recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of the
Canadian Pension Plan. At December 28, 2013 , the net liability for the funded status of the Canadian Pension Plan was included in other
current liabilities in consolidated balance sheets. Upon approval of the plan termination by the FSCO, the Company intends on funding the plan
deficit and purchasing annuities to provide accrued benefits to participants.
(19) Related-party transactions
(a) Sponsors
Through the first quarter of fiscal year 2012, DBGI was majority-owned by investment funds affiliated with Bain Capital Partners, LLC, The
Carlyle Group, and Thomas H. Lee Partners, L.P. (collectively, the “Sponsors” or "BCT").
In April 2012, certain existing stockholders, including the Sponsors, sold a total of 30,360,000 shares of our common stock (see note 13(a)). In
August 2012, the Sponsors sold all of their remaining shares through a registered offering and related repurchase of shares by the Company
(see notes 13(a) and 13(c)). One representative of each Sponsor continues to serve on the board of directors.
Prior to the closing of the Company’s initial public offering on August 1, 2011, the Company was charged an annual management fee by the
Sponsors of $1.0 million per Sponsor, payable in quarterly installments. In connection with the completion of the initial public offering in
August 2011, the Company incurred an expense of approximately $14.7 million related to the termination of the Sponsor management
agreement. Including this termination fee, the Company recognized $16.4 million of expense during fiscal year 2011 related to Sponsor
management fees, which is included in general and administrative expenses, net in the consolidated statements of operations.
- 93 -
Table of Contents
At December 29, 2012 , certain affiliates of the Sponsors held $52.4 million , respectively of term loans, issued under the Company’s senior
credit facility. The terms of these loans were identical to all other term loans issued to unrelated lenders in the senior credit facility. As of
December 28, 2013 , there were no term loans held by affiliates of the Sponsors.
The Sponsors have historically held a substantial interest in our Company as well as several other entities. The existence of such common
ownership and management control could result in differences within our operating results or financial position than if the entities were
autonomous; however, we believe such transactions were negotiated at arm's length. The Company made payments to entities in which the
Sponsors have ownership interests totaling approximately $2.1 million , $1.6 million , and $979 thousand during fiscal years 2013 , 2012 , and
2011 , respectively, primarily for the purchase of consulting services, training services, and leasing of restaurant space. At December 29, 2012 ,
the Company had a net payable of $150 thousand to these entities. At December 28, 2013 , the Company had no net payable to these entities.
(b) Equity method investments
The Company recognized royalty income from its equity method investments as follows (in thousands):
December 28,
2013
BR Japan
BR Korea
Spain JV
$
$
2,097
4,156
130
6,383
Fiscal year ended
December 29,
2012
December 31,
2011
2,549
3,662
—
6,211
2,473
3,371
—
5,844
At December 28, 2013 and December 29, 2012 , the Company had $1.4 million and $1.2 million , respectively, of royalties receivable from its
equity method investments which were recorded in accounts receivable, net, in the consolidated balance sheets.
The Company made net payments to its equity method investments totaling approximately $3.8 million , $1.6 million , and $2.8 million , in
fiscal years 2013 , 2012 , and 2011 , respectively, primarily for the purchase of ice cream products and incentive payments.
The Company made loans of $2.1 million and $666 thousand during fiscal years 2013 and 2012, respectively to the Spain JV. As of December
28, 2013 and December 29, 2012, the Company had $2.7 million and $666 thousand , respectively, of notes receivable from the Spain JV,
which are included in other assets in the consolidated balance sheets. During the third quarter of fiscal year 2013, the Company fully reserved
all outstanding notes and accounts receivable from the Spain JV, and fully impaired its equity investment in the Spain JV (see note 6).
During fiscal year 2013, the Company recognized sales of ice cream products of $4.8 million in the consolidated statements of operations from
the sale of ice cream products to the Australia JV. As of December 28, 2013, the Company had $733 thousand of net receivables from the
Australia JV, consisting of accounts receivable and notes and other receivables, net of other current liabilities.
(c) Board of directors
Certain family members of one of our directors, who retired in May 2013, hold an ownership interest in an entity that owns and operates
Dunkin’ Donuts restaurants and holds the right to develop additional restaurants under store development agreements. During fiscal years 2013
, 2012 , and 2011 , the Company received $343 thousand , $961 thousand , and $713 thousand , respectively, in royalty and rental payments
from this entity. During fiscal year 2013 , the Company recognized $6 thousand of income related to initial franchise fees from this entity. All
material terms of the franchise and store development agreements with this entity are consistent with other unrelated franchisees in the market.
(20) Closure of manufacturing plant
During the second quarter of 2012, the Company’s board of directors approved a plan to close our Peterborough, Ontario, Canada
manufacturing plant, which supplied ice cream to certain of Baskin-Robbins' international markets. Manufacturing of ice cream products that
had been produced in Peterborough began transitioning to existing third-party partner suppliers during the third quarter of 2012, and production
ceased at the plant at the end of September 2012. The majority of the costs and activities related to the closure of the plant and transition to
third-party suppliers occurred in fiscal year 2012, with the
- 94 -
Table of Contents
exception of the settlement of our Canadian pension plan, which is subject to government approval that may not be obtained until 2014.
The Company recorded cumulative costs related to the plant closure of $12.6 million , of which, $654 thousand and $11.9 million were
recorded in fiscal years 2013 and 2012 , respectively. Costs recorded in fiscal year 2012 included $4.2 million of accelerated depreciation on
property, plant, and equipment, $2.7 million of incremental ice cream production costs, $2.0 million of ongoing termination benefits, $1.1
million of one-time termination benefits, and $1.9 million of other costs related to the closing and transition. The accelerated depreciation and
the incremental ice cream production costs are included in depreciation and cost of ice cream products, respectively, in the consolidated
statements of operations, while all other costs are included in general and administrative expenses, net in the consolidated statements of
operations. The Company also expects to incur additional costs of approximately $3.0 million to $4.0 million primarily related to the settlement
of our Canadian pension plan upon final government approval.
As of December 29, 2012 , the Company had recorded reserves for ongoing termination benefits and one-time termination benefits of $ 636
thousand and $ 55 thousand , respectively, substantially all of which were paid during fiscal year 2013 .
(21) Allowance for doubtful accounts
The changes in the allowance for doubtful accounts were as follows (in thousands):
Short-term
notes and other
receivables
Accounts
receivable
Balance at December 25, 2010
Provision for doubtful accounts, net
Write-offs and other
Balance at December 31, 2011
Provision for (recovery of) doubtful accounts, net
Write-offs and other
Balance at December 29, 2012
Provision for (recovery of) doubtful accounts, net
Write-offs and other
Balance at December 28, 2013
$
$
5,518
745
(3,550)
2,713
513
(743)
2,483
1,015
(899)
2,599
2,443
1,274
(1,396)
2,321
(1,055)
(62)
1,204
(339)
(206)
659
Long-term
notes and other
receivables
—
—
—
—
—
—
—
2,808
—
2,808
(22) Quarterly financial data (unaudited)
March 30,
2013
Total revenues
Operating income
Net income attributable to Dunkin' Brands
Earnings per share:
Common – basic
Common – diluted
$
Three months ended
June 29,
September 28,
2013
2013
(In thousands, except per share data)
December 28,
2013
161,858
63,459
23,798
182,488
76,805
40,812
186,317
82,237
40,221
183,177
82,235
42,072
0.22
0.22
0.38
0.38
0.38
0.37
0.39
0.39
- 95 -
Table of Contents
March 31,
2012
Total revenues
Operating income (1)
Net income attributable to Dunkin' Brands (1)
Earnings per share (1) :
Common – basic
Common – diluted
(1)
$
Three months ended
June 30,
September 29,
2012
2012
(In thousands, except per share data)
December 29,
2012
152,372
55,195
25,950
172,387
46,138
18,497
171,719
70,345
29,526
161,703
67,751
34,335
0.22
0.21
0.15
0.15
0.26
0.26
0.32
0.32
The second quarter of fiscal year 2012 includes a $20.7 million incremental legal reserve 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 C$16.4 million (approximately $15.9 million ), plus costs and interest (see note 17(d)).
- 96 -
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)), that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
We carried out an evaluation, under the supervision, and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 28, 2013.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 28, 2013, such disclosure
controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting that occurred during the last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rule 13a-15(f) promulgated under the Exchange Act as a process, designed by, or under the supervision of
the Company's principal executive and principal financial officers and effected by the Company's board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial
reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and disposition of assets; providing
reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that
receipts and expenditures are made only in accordance with management and board authorizations; and providing reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our
financial statements.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of
our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may
deteriorate.
Management, with the participation of the Company's principal executive and principal financial officers, conducted an evaluation of the
effectiveness of our internal control over financial reporting as of December 28, 2013 based on the framework and criteria established in
Internal Control - Integrated Framework (1992) , issued by the Committee of Sponsoring Organizations of the Treadway Commission. This
evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating
effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that the Company's internal
control over financial reporting was effective as of December 28, 2013.
Our independent registered public accounting firm, KPMG LLP, audited the effectiveness of our internal control over financial reporting as of
December 28, 2013, as stated in their report which appears herein.
- 97 -
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Dunkin' Brands Group, Inc.:
We have audited Dunkin’ Brands Group, Inc.’s internal control over financial reporting as of December 28, 2013, based on criteria established
in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Dunkin’ Brands Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Dunkin’ Brands Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 28, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets of Dunkin’ Brands Group, Inc. and subsidiaries as of December 28, 2013 and December 29, 2012, and the related consolidated
statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 28, 2013, and our report dated February 20, 2014 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2014
- 98 -
Table of Contents
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers of the Registrant
Set forth below is certain information about our executive officers. Ages are as of February 20, 2014.
Nigel Travis , age 64, has served as Chief Executive Officer of Dunkin’ Brands since January 2009 and assumed the additional role of
Chairman of the Board in May 2013. From 2005 through 2008, Mr. Travis served as President and Chief Executive Officer, and on the board of
directors of Papa John’s International, Inc., a publicly-traded international pizza chain. Prior to Papa John’s, Mr. Travis was with Blockbuster,
Inc. from 1994 to 2004, where he served in increasing roles of responsibility, including President and Chief Operating Officer. Mr. Travis
previously held numerous senior positions at Burger King Corporation. Mr. Travis currently serves on the board of directors of Office Depot,
Inc. and formerly served on the boards of Lorillard, Inc. and Bombay Company, Inc.
Paul Carbone , age 47, was named Senior Vice President and Chief Financial Officer on June 4, 2012. Prior to that, Mr. Carbone had served as
Vice President, Financial Management of Dunkin’ Brands since 2008. Prior to joining Dunkin’ Brands, he most recently served as Senior Vice
President and Chief Financial Officer for Tween Brands, Inc. Before Tween Brands, Mr. Carbone spent seven years with Limited Brands, Inc.,
where his roles included Vice President, Finance, for Victoria’s Secret.
John Costello , age 66, joined Dunkin’ Brands in 2009 and currently serves as our President, Global Marketing & Innovation. Prior to joining
Dunkin’ Brands, Mr. Costello was an independent consultant and served as President and CEO of Zounds, Inc., an early stage developer and
hearing aid retailer, from September 2007 to January 2009. Following his departure, Zounds filed for bankruptcy in March 2009. From October
2006 to August 2007, he served as President of Consumer and Retail for Solidus Networks, Inc. (d/b/a Pay By Touch), which filed for
bankruptcy in March 2008. Mr. Costello previously served as the Executive Vice President of Merchandising and Marketing at The Home
Depot, Senior Executive Vice President of Sears, and Chief Global Marketing Officer of Yahoo!. He has also held leadership roles at several
companies, including serving as President of Nielsen Marketing Research U.S. Mr. Costello currently serves on the board of directors of
Fantex, Inc. and was a director of Ace Hardware Corporation from June 2009 to February 2014.
Richard Emmett , age 58, was named Chief Legal and Human Resources Officer in January 2014, and prior to that, served as Senior Vice
President and Chief Legal Officer since joining Dunkin' Brands in December 2009. Mr. Emmett joined Dunkin’ Brands from QCE HOLDING
LLC (Quiznos) where he served as Executive Vice President, Chief Legal Officer and Secretary. Prior to Quiznos, Mr. Emmett served in
various roles including as Senior Vice President, General Counsel and Secretary for Papa John’s International. Mr. Emmett currently serves on
the board of directors of Francesca’s Holdings Corporation.
Bill Mitchell , age 50, joined Dunkin’ Brands in August 2010 and currently serves as President, Baskin-Robbins U.S and Canada and
Baskin-Robbins and Dunkin’ Donuts for Japan, China, and Korea. Mr. Mitchell joined Dunkin’ Brands from Papa John’s International, where
he had served in a variety of roles since 2000, including President of Global Operations, President of Domestic Operations, Operations VP,
Division VP and Senior VP of Domestic Operations. Prior to Papa John’s, Mr. Mitchell was with Popeyes, a division of AFC Enterprises
where he served in various capacities including Senior Director of Franchise Operations.
Scott Murphy , age 41, was named Senior Vice President and Chief Supply Officer in February 2013. Mr. Murphy joined Dunkin’ Brands in
2004 and prior to his current position, served as Vice President, Global Supply Chain for Dunkin’ Donuts. Mr. Murphy serves on the board of
directors of the National Coffee Association of America as well as the National DCP, LLC, the Dunkin’ Donuts franchisee-owned purchasing
and distribution cooperative.
Karen Raskopf , age 59, joined Dunkin' Brands in 2009 and currently serves as Senior Vice President and Chief Communications Officer. Prior
to joining Dunkin' Brands, she spent 12 years as Senior Vice President, Corporate Communications for Blockbuster, Inc. She also served as
head of communications for 7-Eleven, Inc.
Paul Twohig , age 60, joined Dunkin’ Donuts U.S. in October 2009 and currently serves as President, Dunkin’ Donuts U.S. and Canada, and
Dunkin’ Donuts & Baskin-Robbins Europe and Latin America. Prior to his current position, Mr. Twohig served as Senior Vice President and
Chief Operating Officer. Prior to joining Dunkin’ Brands, Mr. Twohig served as a Division Senior
- 99 -
Table of Contents
Vice President for Starbucks Corporation from December 2004 to March 2009. Mr. Twohig also previously served as Chief Operating Officer
for Panera Bread Company.
John Varughese , age 48, joined Dunkin’ Brands in 2002 and currently serves as Vice President, Middle East, Southeast Asia and India. Prior
to his current position, Mr. Varughese served as Vice President, Baskin-Robbins International Operations and Managing Director,
International, Baskin-Robbins and Dunkin’ Donuts.
The remaining information required by this item will be contained in our definitive Proxy Statement for our 2014 Annual Meeting of
Stockholders, which will be filed not later than 120 days after the close of our fiscal year ended December 28, 2013 (the “Definitive Proxy
Statement”) and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item will be contained in the Definitive Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be contained in the Definitive Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be contained in the Definitive Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item will be contained in the Definitive Proxy Statement and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Financial statements: All financial statements are included in Part II, Item 8 of this report.
2. Financial statement schedules: All financial statement schedules are omitted because they are not required or are not applicable,
or the required information is provided in the consolidated financial statements or notes described in Item 15(a)(1) above.
- 100 -
Table of Contents
3.
Exhibit
Number
Exhibits:
Exhibit Title
3.1
Form of Second Restated Certificate of Incorporation of Dunkin’ Brands Group, Inc. (incorporated by reference to
Exhibit 3.1 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
3.2
Form of Second Amended and Restated Bylaws of Dunkin’ Brands Group, Inc. (incorporated by reference to Exhibit 3.2
to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
4.2
Specimen Common Stock certificate of Dunkin’ Brands Group, Inc. (incorporated by reference to Exhibit 4.6 to the
Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
10.1*
Dunkin’ Brands Group, Inc. (f/k/a Dunkin’ Brands Group Holdings, Inc.) Amended and Restated 2006 Executive
Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1, File No.
333-173898, filed with the SEC on May 4, 2011)
10.2*
Form of Option Award under 2006 Executive Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s
Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
10.3*
Form of Restricted Stock Award under 2006 Executive Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
10.4*
Dunkin’ Brands Group, Inc. Amended & Restated 2011 Omnibus Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.4 to the Company's Annual Report on Form 10-K, File No. 001-35258, filed the with SEC on February 22,
2013)
10.5*
Form of Amended Option Award under 2011 Omnibus Long-Term Incentive Plan
10.6*
Form of Amended Restricted Stock Unit Award under 2011 Omnibus Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K, File No. 001-35258, filed the with SEC on
February 22, 2013)
10.7*
Dunkin’ Brands Group, Inc. Annual Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-K, File No. 001-35258, filed the with SEC on February 22, 2013)
10.8*
Amended and Restated Dunkin’ Brands, Inc. Non-Qualified Deferred Compensation Plan
10.9*
First Amended and Restated Executive Employment Agreement between Dunkin’ Brands, Inc., Dunkin’ Brands Group,
Inc. and Nigel Travis (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1,
File No. 333-173898, filed with the SEC on May 4, 2011)
10.10*
Amendment No. 1 to First Amended and Restated Executive Employment Agreement between Dunkin’ Brands, Inc.,
Dunkin’ Brands Group, Inc. and Nigel Travis (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K, File No. 001-35258, filed with the SEC on December 3, 2012)
10.11*
Offer Letter to Paul Carbone dated June 4, 2012 (incorporated by reference to Exhibit 10.19 to the Company's Annual
Report on Form 10-K, File No. 001-35258, filed the with SEC on February 22, 2013)
10.12*
Offer Letter to John Costello dated September 30, 2009 (incorporated by reference to Exhibit 10.15 to the Company’s
Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
10.13*
Offer Letter to Paul Twohig dated September 10, 2009 (incorporated by reference to Exhibit 10.16 to the Company’s
Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
10.14*
Offer Letter to Richard Emmett dated November 23, 2009 (incorporated by reference to Exhibit 10.14 to the Company’s
Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
10.15*
Form of amendment to Offer Letters (incorporated by reference to Exhibit 10.16(a) to the Company’s Registration
Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
10.16*
Separation Agreement with Giorgio Minardi, dated October 29, 2013 as revised November 15, 2013
10.17*
Transition Agreement of Jon Luther, dated as of June 30, 2010 (incorporated by reference to Exhibit 10.9 to the
Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
- 101 -
Table of Contents
10.18
Form of Non-Competition/Non-Solicitation/Confidentiality Agreement (incorporated by reference to Exhibit 10.17 to the
Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
10.19
Credit Agreement among Dunkin’ Finance Corp, Dunkin’ Brands Holdings, Inc., Dunkin’ Brands, Inc., Barclays Bank
PLC and the other lenders party thereto, dated as of November 23, 2010 (incorporated by reference to Exhibit 10.20 to the
Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on June 7, 2011)
10.20
Joinder to Credit Agreement dated as of December 3, 2010 (incorporated by reference to Exhibit 10.21 to the Company’s
Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
10.21
Amendment 1, dated as of February 18, 2011, to the Credit Agreement among Dunkin’ Brands, Inc., Dunkin’ Brands
Holdings, Inc., Barclays Bank PLC and the other lenders party thereto (incorporated by reference to Exhibit 10.22 to the
Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
10.22
Amendment 2, dated as of May 25, 2011, to the Credit Agreement among Dunkin’ Brands, Inc., Dunkin’ Brands
Holdings, Inc., Barclays Bank PLC and the other lenders party thereto (incorporated by reference to Exhibit 10.29 to the
Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on June 7, 2011)
10.23
Amendment 3, dated as of August 9, 2012, to the Credit Agreement among Dunkin’ Brands, Inc., Dunkin’ Brands
Holdings, Inc., Barclays Bank PLC and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, File No. 001-35258, filed with the SEC on August 9, 2012)
10.24
Amendment 4, dated as of February 14, 2013, to the Credit Agreement among Dunkin’ Brands, Inc., Dunkin’ Brands
Holdings, Inc., Barclays Bank PLC and the other lenders party thereto and Amendment No. 1 to the Guaranty among
Dunkin' Brands Holdings, Inc., the other guarantors named therein and the Administrative Agent (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, File No. 001-35258, filed with the SEC on
February 14, 2013)
10.25
Amendment No. 5 to the Credit Agreement, dated as of February 7, 2014 by and among Dunkin’ Brands, Inc. Dunkin’
Brands Holdings, Inc., Barclays Bank PLC, as administrative agent and the other parties thereto (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, File No. 001-35258, filed with the SEC on
February 7, 2014)
10.26
Security Agreement among the Grantors identified therein and Barclays Bank PLC, dated as of December 3, 2010
(incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1, File No. 333-173898,
filed with the SEC on May 4, 2011)
10.27
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.24 to the Company’s
Registration Statement on Form S-1, File No. 333-173898, as amended on June 7, 2011)
10.28
Lease between 130 Royall, LLC and Dunkin’ Brands, Inc., dated as of December 20, 2013
10.29
Form of Baskin-Robbins Franchise Agreement (incorporated by reference to Exhibit 10.30 to the Company’s Registration
Statement on Form S-1, File No. 333-173898, as amended on June 23, 2011)
10.30
Form of Dunkin’ Donuts Franchise Agreement (incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K, File No. 001-35258, filed the with SEC on February 22, 2013)
10.31
Form of Combined Baskin-Robbins and Dunkin’ Donuts Franchise Agreement (incorporated by reference to Exhibit
10.34 to the Company's Annual Report on Form 10-K, File No. 001-35258, filed the with SEC on February 22, 2013)
10.32
Form of Dunkin’ Donuts Store Development Agreement (incorporated by reference to Exhibit 10.34 to the Company’s
Annual Report on Form 10-K, File No. 001—35258, filed with the SEC on February 24, 2012)
10.33
Form of Baskin-Robbins Store Development Agreement (incorporated by reference to Exhibit 10.35 to the Company’s
Annual Report on Form 10-K, File No. 001—35258, filed with the SEC on February 24, 2012)
21.1
Subsidiaries of Dunkin’ Brands Group, Inc.
23.1
Consent of KPMG LLP
31.1
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 by Chief Executive Officer
31.2
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 by Chief Financial Officer
- 102 -
Table of Contents
*
32.1
Certification of periodic financial report pursuant to Section 906 of Sarbanes Oxley Act of 2002
32.2
Certification of periodic financial report pursuant to Section 906 of Sarbanes Oxley Act of 2002
101
The following financial information from the Company’s Annual Report on Form 10-K for the fiscal year ended
December 28, 2013, formatted in Extensible Business Reporting Language, (i) the Consolidated Balance Sheets, (ii) the
Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the
Consolidated Statements of Stockholders’ Equity (Deficit), (v) the Consolidated Statements of Cash Flows, and (vi) the
Notes to the Consolidated Financial Statements
Management contract or compensatory plan or arrangement
- 103 -
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 20, 2014
DUNKIN’ BRANDS GROUP, INC.
By:
Name:
Title:
/s/ Nigel Travis
Nigel Travis
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
Chairman and Chief Executive Officer (Principal
Executive Officer)
February 20, 2014
Chief Financial Officer (Principal Financial and
Accounting Officer)
February 20, 2014
/s/ Raul Alvarez
Raul Alvarez
Director
February 20, 2014
/s/ Anthony DiNovi
Anthony DiNovi
Director
February 20, 2014
/s/ Michael Hines
Michael Hines
Director
February 20, 2014
/s/ Sandra Horbach
Sandra Horbach
Director
February 20, 2014
/s/ Mark Nunnelly
Mark Nunnelly
Director
February 20, 2014
/s/ Carl Sparks
Carl Sparks
Director
February 20, 2014
/s/ Joseph Uva
Joseph Uva
Director
February 20, 2014
/s/ Nigel Travis
Nigel Travis
/s/ Paul Carbone
Paul Carbone
- 104 -
Name:
Number of Shares of Stock subject to Option:
Price Per Share:
Date of Grant:
[●]
[●]
$[●]
[●]
DUNKIN’ BRANDS GROUP, INC.
2011 OMNIBUS LONG-TERM INCENTIVE PLAN
NON-STATUTORY STOCK OPTION AGREEMENT
This agreement (the “ Agreement ”) evidences a stock option granted by Dunkin’ Brands Group, Inc. (the “
Company ”) to the undersigned (the “ Optionee ”), pursuant to and subject to the terms of the Dunkin’ Brands Group,
Inc. 2011 Omnibus Long-Term Incentive Plan (as amended from time to time, the “ Plan ”), which is incorporated
herein by reference.
1. Grant of Stock Option . The Company grants to the Optionee on the date set forth above (the “ Date of Grant
”) an option (the “ Stock Option ”) to purchase, on the terms provided herein and in the Plan (including, without
limitation, the exercise provisions in Section 6(b)(3) of the Plan), the number of shares of Stock of the Company set
forth above (the “ Shares ”) with an exercise price per Share as set forth above, in each case subject to adjustment
pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof.
The Stock Option evidenced by this Agreement is a non-statutory option (that is, an option that is not to be
treated as a stock option described in subsection (b) of Section 422 of the Code) and is granted to the Optionee in
connection with the Optionee’s employment by the Company and its qualifying subsidiaries. For purposes of the
immediately preceding sentence, “qualifying subsidiary” means a subsidiary of the Company as to which the Company
has a “controlling interest” as described in Treas. Regs. §1.409A-1(b)(5)(iii)(E)(1).
2.
Meaning of Certain Terms . Except as otherwise defined herein, all capitalized terms used herein have the
same meaning as in the Plan. The following terms have the following meanings:
(a)
“ Beneficiary ” means, in the event of the Optionee’s death, the beneficiary named in the written
designation (in form acceptable to the Administrator) most recently filed with the Administrator by the
Optionee prior to the Optionee’s death and not subsequently revoked, or, if there is no such designated
beneficiary, the executor or administrator of the Optionee’s estate. An effective beneficiary designation
will be treated as having been revoked only upon receipt by the Administrator, prior to the Optionee’s
death, of an instrument of revocation in form acceptable to the Administrator.
(b)
“ Good Reason ” means the occurrence of any of the following:
(i) a material diminution in the nature or scope of the Optionee’s responsibilities, duties,
authority or status; provided that each of (A) a change in reporting relationships resulting from the direct
or indirect control of the Company (or a successor corporation) by another corporation, (B) any
diminution of the business of the Company or any of its Affiliates and (C) any sale or transfer of equity,
property or other assets of the Company or any of its Affiliates (including any such sale or transfer or
any other transaction or series of such transactions that results in a Change in Control) will be deemed
not to constitute “Good Reason”;
(ii) relocation of the Optionee’s place of employment, without the Optionee’s consent, to a
location that is more than fifty (50) miles from Canton, Massachusetts; or
(iii) the Company’s failure to perform substantially any material term of this Agreement or any
employment agreement with the Company or any of its Affiliates to which the Optionee is subject;
provided that, if the Optionee is subject to an employment, severance-benefit or other similar agreement
with the Company or an Affiliate containing a separate definition of “Good Reason”, the definition
contained in such agreement will apply for purposes of this Agreement for so long as such agreement is
in effect. A termination will qualify as a termination for Good Reason only if (1) the Optionee gives the
Company notice, within ninety (90) days of its first existence or occurrence (without the Optionee’s
consent), of any or any combination of the eligibility conditions specified above; (2) the Company fails
to cure the eligibility condition(s) within thirty (30) days of receiving such notice; and (3) the Optionee
terminates his or her Employment not later than six months following the end of such 30-day period.
(c)
3.
“ Option Holder ” means the Optionee or, if as of the relevant time the Stock Option has passed to a
Beneficiary, the Beneficiary.
Vesting; Method of Exercise; Treatment of the Stock Option Upon Cessation of Employment .
(a)
Vesting . As used herein with respect to the Stock Option or any portion thereof, the term “vest” means
to become exercisable and the term “vested” as applied to any outstanding Stock Option means that the
Stock Option is then exercisable, subject in each case to the terms of the Plan. Unless earlier terminated,
forfeited, relinquished or expired, and subject to subsection (b) below, the Stock Option shall become
vested as to 25% of the total number of Shares subject to the Stock Option on each of the first four
anniversaries of the Date of Grant. Notwithstanding the foregoing, Shares subject to the Stock Option
shall not vest on any vesting date unless the Optionee has remained in continuous Employment from the
Date of Grant through such vesting date.
(b)
Change in Control . If (i) in connection with a Change in Control the Stock Option, to the extent
outstanding immediately prior to such Change of Control, is assumed or continued, or a new award is
substituted for the Stock Option by the acquiror or survivor (or an affiliate of the acquiror or survivor)
in accordance with the provisions of Section 7 of the Plan, and (ii) at any time within the 18-month
period following the Change in Control, the Optionee’s Employment is terminated by the Company (or
its successor) without Cause or the Optionee terminates his or her Employment for Good Reason, the
Stock Option (or the award substituted for the Stock Option), to the extent then outstanding but not then
vested, will automatically vest in full at the time of such termination.
If in connection with a Change in Control the Stock Option is not assumed or continued, and a new
award is not substituted for the Stock Option by the acquiror or survivor (or an affiliate of the acquiror
or survivor) in accordance with the provisions of Section 7 of the Plan, the Stock Option, to the extent
outstanding immediately prior to such Change in Control but not then vested, will automatically vest in
full upon the occurrence of such Change in Control.
(c)
Exercise of the Stock Option . No portion of the Stock Option may be exercised until such portion vests.
Each election to exercise any vested portion of the Stock Option will be subject to the terms and
conditions of the Plan and shall be in writing, signed by the Option Holder (or in such other form as is
acceptable to the Administrator). Each such written exercise election must be received by the Company
at its principal office or by such other party as the Administrator may prescribe and be accompanied by
payment in full as provided in the Plan. The exercise price may be paid (i) by cash or check acceptable
to the Administrator, (ii) to the extent permitted by the Administrator, through a broker-assisted cashless
exercise program acceptable to the Administrator, (iii) by such other means, if any, as may be
acceptable to the Administrator, or (iv) by any combination of the foregoing permissible forms of
payment. In the event that the Stock Option is exercised by a person other than the Optionee, the
Company will be under no obligation to deliver shares hereunder unless and until it is satisfied as to the
authority of the Option Holder to exercise the Stock Option and compliance with applicable securities
laws. The latest date on which the Stock Option or any portion thereof may be exercised will be the 7th
anniversary of the Date of Grant (the “ Final Exercise Date ”); provided , however , if at such time the
Optionee is prohibited by applicable law or written Company policy applicable to similarly situated
employees from engaging in any open-market sales of Stock, the Final Exercise Date will be
automatically extended to thirty (30) days following the date the Optionee is no longer prohibited from
engaging in such open-market sales. If the Stock Option is not exercised by the Final Exercise Date the
Stock Option or any remaining portion thereof will thereupon immediately terminate.
(d)
Treatment of the Stock Option Upon Cessation of Employment . If the Optionee’s Employment ceases,
the Stock Option, to the extent not already vested will be immediately forfeited, and any vested portion
of the Stock Option that is then outstanding will be treated as follows:
(i)
Subject to clauses (ii) and (iii) below and Section 4 of this Agreement, the Stock Option,
to the extent vested immediately prior to the cessation of the Optionee’s Employment (after
giving effect to any accelerated vesting as provided for herein), will remain exercisable until the
earlier of (A) the date which is three months following the date of such cessation of
Employment, or (B) the Final Exercise Date, and except to the extent previously exercised as
permitted by this Section 3(c)(i) will thereupon immediately terminate.
(ii)
Subject to clauses (iii) below and Section 4 of this Agreement, the Stock Option, to the
extent vested immediately prior to the cessation of the Optionee’s Employment due to death, will
remain exercisable until the earlier of (A) the first anniversary of the Optionee’s death or (B) the
Final Exercise Date, and except to the extent previously exercised as permitted by this Section
3(c)(ii) will thereupon immediately terminate.
(iii)
If the Optionee’s Employment is terminated by the Company and its subsidiaries in
connection with an act or failure to act constituting Cause (as the Administrator, in its sole
discretion, may determine), or such termination occurs in circumstances that in the determination
of the Administrator would have entitled the Company and its subsidiaries to terminate the
Optionee’s Employment for Cause, the Stock Option (whether or not vested) will immediately
terminate and be forfeited upon such termination.
4.
Forfeiture; Recovery of Compensation .
(a)
The Administrator may cancel, rescind, withhold or otherwise limit or restrict the Stock Option at any
time if the Optionee is not in compliance with all applicable provisions of this Agreement and the Plan.
(b)
The Stock Option is subject to Section 6(a)(5) of the Plan. The Stock Option (whether or not vested or
exercisable) is subject to forfeiture, termination and rescission, and the Optionee will be obligated to
return to the Company the value received with respect to the Stock Option (including Shares delivered
under the Stock Option, and any gain realized on a subsequent sale or disposition of Shares), (i) upon or
in connection with (A) a breach by the Optionee of a non-competition, non-solicitation, confidentiality
or similar covenant or agreement with the Company or its subsidiaries or (B) an overpayment to the
Optionee of incentive compensation due to inaccurate financial data, (ii) in accordance with Company
policy relating to the recovery of erroneously-paid incentive compensation, as such policy may be
amended and in effect from time to time, or (iii) as otherwise required by law or applicable stock
exchange listing standards, including, without limitation, the Dodd-Frank Wall Street Reform and
Consumer Protection Act.
5.
Transfer of Stock Option . The Stock Option may not be transferred except as expressly permitted under
Section 6(a)(3) of the Plan.
6.
Withholding . The exercise of the Stock Option will give rise to “wages” subject to withholding. The
Optionee expressly acknowledges and agrees that the Optionee’s rights hereunder, including the right to be issued
shares upon exercise, are subject to the Optionee promptly paying to the Company in cash (or by such other means as
may be acceptable to the Administrator in its discretion) all taxes required to be withheld. No shares will be transferred
pursuant to the exercise of this Stock Option unless and until the person exercising this Stock Option has remitted to the
Company an amount in cash sufficient to satisfy any federal, state, or local withholding tax requirements, or has made
other arrangements satisfactory to the Company with respect to such taxes. The Optionee authorizes the Company and
its subsidiaries to withhold such amount from any amounts otherwise owed to the Optionee, but nothing in this
sentence shall be construed as relieving the Optionee of any liability for satisfying his or her obligation under the
preceding provisions of this Section.
7.
Effect on Employment . Neither the grant of the Stock Option, nor the issuance of shares upon exercise of
the Stock Option, will give the Optionee any right to be retained in the employ of the Company or any of its Affiliates,
affect the right of the Company or any of its Affiliates to discharge or discipline such Optionee at any time, or affect
any right of such Optionee to terminate his or her Employment at any time.
8.
Stock Ownership Guidelines . The Stock Option and any Shares delivered under the Stock Option are
subject to the Company’s Stock Ownership Guidelines, as adopted on May 15, 2012, as such guidelines may be
amended, revised or supplemented from time to time (the “ Guidelines ”). The Optionee acknowledges and agrees to
comply with the terms and conditions of the Guidelines, including the retention ratios set forth therein.
9.
Governing Law . This Agreement and all claims or disputes arising out of or based upon this Agreement
or relating to the subject matter hereof will be governed by and construed in accordance with the domestic substantive
laws of the State of Delaware without giving effect to any choice or conflict of laws provision or rule that would cause
the application of the domestic substantive laws of any other jurisdiction.
By acceptance of the Stock Option, the undersigned agrees to be subject to the terms of the Plan. The Optionee
further acknowledges and agrees that (i) the signature to this Agreement on behalf of the Company is an electronic
signature that will be treated as an original signature for all purposes hereunder and (ii) such electronic signature will
be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by
the Optionee.
[The remainder of this page is intentionally left blank]
Executed as of the ___ day of [●], [●].
Company:
DUNKIN’ BRANDS GROUP,
INC.
By: ______________________________
Name:
Title:
Optionee:
__________________________________
Name:
Address:
-1-
AMENDED AND RESTATED DUNKIN’ BRANDS, INC.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
March 27, 2013
ARTICLE 1. ESTABLISHMENT OF PLAN
ARTICLE 2. DEFINITIONS
1
ARTICLE 3. ADMINISTRATION
3.1. Committee .
1
3
3
3.2. Delegation by Committee .
4
3.4. Claims Review Procedure .
4
3.5. Indemnification .
5
3.6. Benefit Funding .
5
ARTICLE 4. SELECTION OF PARTICIPANTS
6
ARTICLE 5. DEFERRAL OF COMPENSATION
5.1. Deferral Elections .
6
6
5.2. Annual Company Matching Amount .
6
ARTICLE 6. INTEREST EQUIVALENT FACTOR & MEASUREMENT FUNDS
6.1. Measurement Funds .
7
6.2. Upon Change of Control .
7
6.3. Crediting/Debiting of Account Balances .
ARTICLE 7. PARTICIPANT ACCOUNTS
7.1. Establishment of Accounts .
7.2. Adjustments to Accounts .
7
10
10
10
ARTICLE 8. DISTRIBUTION OF ACCOUNT BENEFITS
8.1. Following Separation from Service
10
10
8.2. In-Service Distribution at Specified Date as Elected by the Participant .
8.3. Unforeseeable Emergency .
8.4. Disability .
12
12
8.5. Distributions to Non-Employee Directors .
8.6. Change of Control .
8.9. Default Election .
13
13
8.7. Death of Participant .
8.8. Tax Withholding .
7
13
13
13
8.10. Compliance with Section 409A .
13
ARTICLE 9. BENEFICIARY BENEFITS
14
ARTICLE 10. NATURE OF CLAIM FOR PAYMENTS
ARTICLE 11. ASSIGNMENT OR ALIENATION
11.1. Prohibition on Assignment .
14
14
14
12
11.2. Domestic Relations Orders .
15
ARTICLE 12. NO CONTRACT OF EMPLOYMENT
16
ARTICLE 13. AMENDMENT OR TERMINATION OF PLAN
13.1. Right to Amend .
16
13.2. Amendment Required By Law .
ARTICLE 14. TERMINATION
16
16
14.1. Right to Terminate Future Accruals .
16
14.2. Termination and Liquidation of the Plan .
ARTICLE 15. MISCELLANEOUS
15.1. Entire Agreement .
16
16
16
16
15.2. Payment for the Benefit of an Incapacitated Individual .
15.3. Governing Law .
15.4. Severability .
17
17
15.5. Headings and Subheadings .
17
17
ARTICLE 1.
ESTABLISHMENT OF
PLAN
Dunkin’ Brands, Inc. established the Dunkin’ Brands, Inc. Non-Qualified Deferred Compensation Plan effective
as of January 1, 2005. The purpose of the Plan is to attract, retain and motivate certain executive employees of the
Company, its subsidiaries and affiliates, and members of the Board, by providing them with the opportunity to defer
receipt of certain amounts of compensation. The Plan is intended to be an unfunded plan maintained by the employer
primarily for the purpose of providing deferred compensation for a select group of management or highly compensated
employees within the meaning of Sections 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of ERISA. It is also intended to
be compliant with the requirements of Section 409A of the Code. The Plan shall be administered in a manner consistent
with those intents.
The Plan was amended and restated, effective as of January 1, 2009, to comply with final regulations issued by
the Internal Revenue Service (the “IRS”) under Code Section 409A. The Plan is hereby amended and restated, effective
as of March [_], 2013 (the “Restatement Date”), to permit members of the Board to participate in the Plan and to permit
the deferral of compensation into the Stock Unit Fund.
ARTICL DEFINITION
E 2.
S
As used herein, the masculine pronoun shall include the feminine gender, and the singular shall include the
plural, and the plural, the singular, and the following terms shall have the following meanings unless a different
meaning is clearly required by the context.
“Account” means the separate account for a Participant established pursuant to Article VII, §7.1 which consists
of the Participant’s Deferrals and the Annual Company Matching Amounts (if any) (including earnings and losses
thereon), which may pass to a Beneficiary pursuant to Article 9.
“Annual Company Matching Amount” for any one Plan Year shall be the amount determined in accordance
with Article V, §5.2.
“Beneficiary” means any person or persons so designated in accordance with the provision of Article 9.
“Board” means the Board of Directors of the Company.
“Change of Control” means one of the following circumstances, determined in accordance with Section 409A
and IRS regulations issued thereunder and, in each case, only to the extent meeting the requirements of Section
1.409A-3(i)(5) of the Treasury Regulations: (1) a change in ownership , which occurs when one person (or more than
one person acting as a group) acquires ownership of corporate stock constituting more than 50% of the total fair market
value or total voting power of stock of the Company; (2) a change in effective control , which occurs when any one
person (or more than one person acting as a group) acquires (during the 12-month
1
period ending on the date of the most recent acquisition) ownership of corporate stock constituting 35% or more of the
total voting power of stock of the Company, or when a majority of the Board of Directors is replaced during a
12-month period and such new appointments are not supported by a majority of the members of the current Board; or
(3) a change in ownership of a substantial portion of the assets of the corporation , which occurs when one person (or
more than one person acting as a group) acquires (during the 12-month period ending on the date of the most recent
acquisition by such person) assets from the corporation that have a gross fair market value of at least 40% of the total
gross fair market value of all assets of the Company immediately prior to such acquisitions.
“Code” means the Internal Revenue Code of 1986, as amended.
“Committee” means a committee of no less that two and no more than five persons appointed from time to
time by the Chief Executive Officer or President who is responsible for the administration of the plan and/or, to the
extent necessary or desirable under applicable law, including Section 16 of the Securities Exchange Act of 1934, as
amended, the Compensation Committee of the Board.
“Company” means Dunkin’ Brands, Inc.
“Deferral Date” is defined in Section 8.2.
“Deferrals” means Eligible Deferral Compensation credited to a Participant’s Account during a calendar year
as a result of a Participant’s elections pursuant to Section 5.1, plus, except where the context otherwise requires,
amounts attributable to amounts deferred during such calendar year ( i.e. , earnings and losses).
“Eligible Deferral Compensation” means (as applicable) a Participant’s base salary, annual cash bonus,
executive perquisite allowance, director retainer or meeting fees paid in cash and, if and to the extent designated by the
Committee in respect of a Plan Year, with respect to Non-Employee Directors, equity-based awards (other than stock
options) and, with respect to all Participants, other designated compensation.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Fixed Rate Fund” means a Measurement Fund, as may be selected by the Committee from time to time, that
measures investment performance by an annual interest equivalent factor established by the Committee from time to
time.
“401(k) Savings Plan” means the qualified 401(k) Savings Plan offered by the Company to employees meeting
the proper service requirements.
“Investment Designation Form” means a form prescribed by the Committee and submitted by the Participant
in accordance with Section 6.3.
2
“Measurement Funds” means the funds, as selected by the Committee, to be used as a performance measure
when designated by a Participant for investment of amounts in the Participant’s Account in accordance with Article VI.
“Non-Employee Director” means a member of the Board who is not an employee of the Company or any of its
subsidiaries.
“Participant” means an executive or other senior management-level employee who becomes eligible to
participate in the Plan and who is so notified of such eligibility, as provided in Article 4, or a Non-Employee Director,
in either case, who elects to participate in the Plan, in accordance with Article 4.
“Performance-Based Compensation” means compensation, the amount of which or entitlement to which, is
contingent on the satisfaction of pre-established organizational or individual performance criteria relating to a
performance period of at least 12 consecutive months; provided that such performance criteria are established in
writing not later than 90 days after the commencement of the performance period to which the criteria relate and that
the outcome is not substantially certain at the time the criteria are established.
“Plan” means the Amended and Restated Dunkin’ Brands, Inc. Non-Qualified Deferred Compensation Plan as
set forth herein, as amended and in effect from time to time.
“Plan Year” means the calendar year.
“Section 409A” means Section 409A of the Code, or any successor provision thereto.
“Stock” means the Company’s common stock or any other equity security of the Company (or its successor)
designated by the Committee from time to time.
“Stock Unit” shall mean a unit that is equivalent in value to one share of Stock.
“Stock Unit Fund” means the Measurement Fund notionally invested in Stock.
“Trust” means the trust fund established pursuant to the Plan under the Trust Agreement.
“Trust Agreement” means the Trust Agreement dated as of May 17, 1999, as subsequently amended, or any
successor trust agreement, as in effect from time to time.
“Trustee” means the trustee named in the Trust Agreement establishing the Trust and such successor and/or
additional trustees, as may be named thereafter establishing the Trust
ARTICL ADMINISTRATI
E 3.
ON
3.1.
Committee . The Plan shall be administered by the Committee. The Committee is the administrator of
the Plan and shall have full discretionary authority to (i) interpret the provisions of the Plan, (ii) except as otherwise
provided in the Plan, determine the amount of various types of Eligible Deferral Compensation for a Plan Year, and
(iii) decide all questions
3
and settle all disputes which may arise in connection with the Plan, including the power to determine the rights of
Participants and Beneficiaries, and to remedy any ambiguities, inconsistencies, or omissions in the Plan. All
interpretations, decisions and determinations made by the Committee shall be binding on all persons concerned. No
action of the Committee may reduce the amount of a Participant’s Account below the amount of such Account
immediately before such action. No member of the Committee who is a Participant in the Plan may vote or otherwise
participate in any decision or act with respect to a matter relating solely to himself (or to his Beneficiaries). The
Committee may adopt such rules of procedure and regulations as may be necessary for the proper and efficient
administration of the Plan.
3.2.
Delegation by Committee . Except as the Committee may otherwise provide by written resolution or as
required by applicable law or as otherwise set forth herein, the Committee expressly delegates its duties and
responsibilities under Section 3.1 (except for the duty to establish eligibility criteria under Article 4) to the Vice
President Human Resources or such other person or persons as may be nominated by the Committee, who may further
expressly delegate certain of such duties and responsibilities to other employees of the Company or outside persons or
entities. For purposes of the Plan, any action taken by any such delegate pursuant to such delegation shall be considered
to have been taken by the Committee.
3.3.
Claims Review Procedure .
(a)
The Committee shall notify Participants and, where appropriate, Beneficiaries, of their right to claim
benefits under the claims procedures, and may, if appropriate, make forms available for filing of such claims, and shall
provide the name of the person(s) with whom such claims should be filed.
(b)
The Committee shall establish procedures for action upon claims initially made and the communication
of a decision to the claimant promptly and, in any event, not later than 90 days after the claim is received by the
Committee, unless special circumstances require an extension of time for processing the claim. If an extension is
required, notice of the extension shall be furnished to the claimant prior to the end of the initial 90-day period, which
notice shall indicate the reasons for the extension and the expected decision date. The extension shall not exceed 90
days. The claim may be deemed by the claimant to have been denied for purposes of further review described below in
the event a decision is not furnished to the claimant within the period described in the three preceding sentences. Every
claim for benefits which is denied shall be denied by written notice setting forth in a manner calculated to be
understood by the claimant (i) the specific reason or reasons for the denial, (ii) specific reference to any provisions of
the Plan on which denial is based, (iii) description of any additional material or information necessary for the claimant
to perfect his claim with an explanation of why such material or information is necessary, and (iv) an explanation of the
procedures for further reviewing the denial of the claim under the Plan, including the time limits applicable to such
procedures, and accompanied by a statement of the claimant’s right to bring a civil action under Section 502(a) of
ERISA following an adverse benefit determination on review.
(c)
The Committee shall establish a procedure for review of claim denials, such review to be undertaken by
the Committee. The review given after denial of any claim shall be a
4
full and fair review with the claimant (or his duly authorized representative) having 60 days after receipt of denial of
his claim or after the date of the deemed denial, to request in writing to the Committee a review of the denial notice.
Upon such request for review, the claim shall be reviewed by the Committee (or its designated representative). In
connection with such review, the claimant has the right to review all pertinent documents and the right to submit
documents, records, issues, comments and other information in writing, all of which shall be taken into account
regardless of whether it was submitted in the initial benefit determination. The claimant shall be provided upon request,
and at no charge, reasonable access to, and copies of, all documents, records and other information relevant to the
claimant’s claim for benefits.
(d)
The Committee shall establish a procedure for issuance of a decision by the Committee not later than 60
days after receipt of a request for review from a claimant unless special circumstances, such as the need to hold a
hearing, require a longer period of time, in which case the Committee shall furnish a notice of extension to the claimant
prior to the termination of the 60 day period; provided, however, that in no case will the extension exceed a period of
60 days from the end of the initial period of review. The decision on review shall be in writing and shall include
specific reasons for the decision written in a manner calculated to be understood by the claimant with specific reference
to any provisions of the Plan on which the decision is based. The decision on review shall include a statement that the
claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents,
records, and other information relevant to the claimant’s claim for benefits and a statement of the claimant’s right to
bring an action under Section 502(a) of ERISA. The written decision on review shall be given to the claimant within
the applicable time limit discussed above. If the decision on review is not communicated within the time periods
described in the preceding sentences, the claim shall be deemed to have been denied upon review. All discussions on
review shall be final and binding with respect to all concerned parties.
3.4.
Indemnification . The Company agrees to indemnify and to defend to the fullest possible extent
permitted by law any member of the Committee and any Company employee delegatee (including any persons who
formerly served as a member of the Committee) against any and all liabilities, damages, costs and expenses (including
attorneys’ fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or
omission to act in connection with the Plan, if such act or omission was made in good faith.
3.5.
Benefit Funding . Except as herein provided, the Company shall not be required to set aside or
segregate any assets of any kind to meet its obligations hereunder.
To assist in meeting its obligations under the Plan, the Company has caused the Trust to be established, of
which the Company is treated as the owner under Subpart E of Subchapter J, Chapter I of the Code and may deposit
funds with the Trustee of the Trust. The Trust is a rabbi trust which allows its assets to be subject to the Company’s
creditors in the event of dissolution or insolvency.
Upon a Change of Control, the Company shall promptly appoint an independent discretionary Trustee (which
may not be the Company or any subsidiary or affiliate) for the Trust, and, if at the time of a Change of Control, the
Trust has not been fully funded, the
5
Company shall, within the time and manner specified under such Trust, deposit in such Trust amounts sufficient to
satisfy all obligations under the Plan as of the date of deposit.
In all events, the Company shall remain ultimately liable for the benefits payable under this Plan, and to the
extent the assets at the disposal of the Trustee are insufficient to enable the Trustee to satisfy all benefits, the Company
shall pay all such benefits necessary to meet its obligations under this Plan.
The obligations of the Company hereunder shall be binding upon its successors and assigns, whether by merger,
consolidation or acquisition of all or substantially all of its business or assets.
ARTICL SELECTION OF
E 4.
PARTICIPANTS
The Committee shall select, or shall establish the applicable criteria for determining, the executive or other
senior management-level employees of the Company (or its subsidiaries) who are, or will remain, eligible to participate
in the Plan. When an employee has been selected to participate in the Plan, he will be notified by the Committee in
writing and given the opportunity to elect to defer Eligible Deferral Compensation under the Plan. In addition, all
Non-Employee Directors are automatically eligible to participate in the Plan and will be given the opportunity to elect
to defer Eligible Deferral Compensation under the Plan. An eligible employee or Non-Employee Director who elects to
participate in the Plan is hereinafter referred to as a “Participant.”
ARTICL DEFERRAL OF
E 5.
COMPENSATION
5.1.
Deferral Elections . Prior to December 31 st of a calendar year, a Participant may irrevocably elect, in
accordance with this Article and Article 8, to defer receipt of all or part of his/her Eligible Deferral Compensation to be
earned in the succeeding calendar year; provided, however, that unless the Committee consents, such deferred amount
for the year may not be less than $5,000. In order to participate in the Plan, an eligible employee or Non-Employee
Director must complete and execute (to the satisfaction of the Committee) and return to the Committee a deferral
election (in a form prescribed by the Committee) in the time period prescribed by the Committee. Notwithstanding the
foregoing, a Participant’s election to defer Performance-Based Compensation may be made no later than six months
before the end of the performance period to which the Performance-Based Compensation relates but in no event after
such compensation has become readily ascertainable. In addition, if and to the extent permitted by the Committee, a
Participant may elect, within 30 days of obtaining a legally binding right to any Eligible Deferral Compensation that is
subject to a requirement that the Participant continue to provide services for a period of at least 12 months from the
date the Participant obtains the legally binding right to avoid forfeiture of such Eligible Deferral Compensation, to
defer receipt of such Eligible Deferral Compensation; provided, however, that such election must be made at least 12
months in advance of the earliest date at which the forfeiture condition could lapse. Notwithstanding anything to the
contrary herein, to the extent permitted by Section 409A of the Code, a Participant may also make an election to defer
his/her Eligible Deferral Compensation under the Plan within the first 30 days of him or her first becoming eligible to
participate in the Plan;
6
provided, however, that such election will only apply to Eligible Deferral Compensation earned after the date of such
election.
5.2.
Annual Company Matching Amount . For each Plan Year, the Company, in its sole discretion, may,
but is not required to, credit Annual Company Matching Amounts to the account of any Participant. A Participant’s
Annual Company Matching Amount for a Plan Year shall be equal to a contribution of 5% of the amount of his/her
Deferrals for the Plan Year that, if not made, would have been taken into account as eligible compensation under the
401(k) Savings Plan or such other amount as is determined by the Committee. If a Participant is not employed by the
Company or one of its subsidiaries as of the last day of a Plan Year other than by reason of his or her retirement,
disability or death, the Annual Company Matching Amount for such Plan Year shall be zero. In the event that a
Participant is not employed by the Company or one of its subsidiaries on the last day of the Plan Year by reason of
retirement, disability or death, a Participant shall be credited with the Annual Company Matching Amount for the Plan
Year in which he/she retires, becomes disabled, or dies. For the avoidance of doubt, a Participant who is a
Non-Employee Director during a Plan Year shall not be entitled to an Annual Company Matching Amount for such
Plan Year.
ARTICL INTEREST EQUIVALENT FACTOR & MEASUREMENT
E 6.
FUNDS
6.1.
Measurement Funds . The Participant may elect one or more of the Measurement Funds selected by
the Committee from time to time; provided, however, that unless otherwise permitted or required by the Committee
(but only to the extent permitted or required, as applicable), all Deferrals by Non-Employee Directors will be allocated
to the Stock Unit Fund; and provided, further, that, except to the extent permitted by the Committee, no Participant
other than a Non-Employee Director may allocate any portion of his or her Deferrals to the Stock Unit Fund. The
Committee may, in its sole discretion discontinue, substitute, add or delete a Measurement Fund. Each such action will
take effect as of the first day of the calendar quarter that follows by thirty (30) days the day on which the Committee
gives Participants advance written notice of such change. Notwithstanding the above, the Committee may substitute
measurement funds at any time as it deems necessary and appropriate for growth or performance reasons.
6.2.
Upon Change of Control . For the first 12 months after a Change of Control, the annual interest
equivalent factor applied to a Fixed Rate Fund, if a Fixed Rate Fund is selected by the Committee prior to a Change of
Control, shall not be less than the highest annual interest equivalent factors applicable during the 24 months prior to the
Change of Control. Further, for the first 12 months after a Change of Control, any Measurement Funds in existence
prior to a Change in Control shall continue to be made available; provided, however, that following a Change in
Control there shall be no obligation to make available the Stock Unit Fund.
6.3.
Crediting/Debiting of Account Balances . In accordance with, and subject to, the rules and procedures
that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a
Participant’s Account in accordance with the following rules:
7
(a)
Election of Measurement Funds. Subject to Section 6.1, a Participant, in connection with his or her initial
deferral election in accordance with Section 5.1 above, shall designate, on an Investment Designation Form, one or
more Measurement Fund(s) to be used to determine the additional amounts to be credited or debited to his or her
Account starting with the first day on which the Participant commences participation in the Plan and continuing
thereafter for each subsequent day that the Participant participates in the Plan, unless changed in accordance with the
next sentence. On each day that the Participant participates in the Plan, subject to Section 6.1 and except as provided in
Section 6.3(d) below as it relates to the Stock Unit Fund, the Participant may (but is not required to) elect, by
submitting an Investment Designation Form to the Committee that is accepted by the Committee, to add or delete one
or more Measurement Fund(s) to be used to determine the additional amounts to be credited to his or her Account
Balance, or to change the portion of his or her Account Balance allocated to each previously or newly elected
Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply to the next day and
continue thereafter for each subsequent day in which the Participant participates in the Plan, unless changed in
accordance with the previous sentence.
(b)
Proportionate Allocation. In making any investment designation described in Section 6.3(a) above, the
Participant shall specify on the Investment Designation Form, in increments of 1 percentage points (i.e., 1%), the
percentage of his Account Balance to be allocated to a Measurement Fund (as if the Participant was making an
investment in that Measurement Fund with that portion of his or her Account Balance)
(c)
Crediting or Debiting Method. The performance of each elected Measurement Fund (either positive or
negative) will be determined, by the Committee, in its sole discretion, based on the performance of the Measurement
Funds themselves. Subject to Section 6.3(d), a Participant’s Account balance shall be credited or debited on a daily
basis based on the performance of each Measurement Fund designated by the Participant, as determined by the
Committee in its sole discretion, as though (a) his Account balance were invested in the Measurement Fund(s)
designated by the Participant, in the percentages applicable to such calendar quarter, as of the close of business on the
first business day of such calendar quarter, at the closing price on such date; (b) the portion of the Annual Deferral
Amount that was actually deferred during any calendar quarter were invested in the Measurement Fund(s) selected by
the Participant, in the percentages applicable to such calendar quarter, no later than the close of business on the third
business day after the day on which such amounts are actually deferred from the Participant’s base annual salary or
other Eligible Deferral Compensation through reductions in his or her payroll or reductions in the amounts that
otherwise would be paid, at the closing price on such date; (c) the Participant’s Annual Company Matching Amount
were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar
quarter, as of the close of business on the first business day of the Plan Year following the Plan Year to which it relates;
and (d) any distribution made to a Participant that decreases such Participant’s Account Balance ceased being invested
in the Measurement Fund(s), in the percentages applicable to such calendar quarter, on the seventh business day prior
to the requested distribution date, at the closing price on such date.
8
(d)
Investment in Stock Unit Fund.
(i)
Subject to Section 6.1, a Participant may elect at the time of deferral to have a portion or all of his
or her Eligible Deferral Compensation credited to the Stock Unit Fund on the date such Eligible Deferral Compensation
would otherwise have been paid; it being understood that any Eligible Deferral Compensation that, absent deferral,
would be settled in Stock shall automatically be allocated to the Stock Unit Fund and may not be allocated to any other
Measurement Fund, except as determined by the Committee and, subject to Section 6.1, all Non-Employee Director
Deferrals shall be allocated to the Stock Unit Fund. The amount credited to the Stock Unit Fund on an applicable date
will be a number of Stock Units equal to the number of shares of Stock that could have been purchased on such date
with the amount so deferred had such amount been applied to such purchase using the closing price for the Stock
reported on the Nasdaq Global Market (or, if the Stock is not then traded on the Nasdaq Global Market, the fair market
value of such Stock as determined by the Committee), rounded down to the nearest whole share. Except to the extent
permitted by the Committee, amounts credited to the Stock Unit Fund shall not be permitted to be subsequently
reallocated to any other Measurement Fund. Subject to Section 6(d)(iv) below, except as otherwise determined by the
Committee, amounts allocated to the Stock Unit Fund shall be distributable in the form of Stock.
(ii)
Notional earnings credited to the Stock Unit Fund, including dividends declared with respect to
Stock, shall remain allocated to such Stock Unit Fund and deemed to be reinvested in additional Stock Units until such
amounts are distributed to the Participant or reallocated in accordance with Section 6.3(d)(i) above, except as otherwise
determined by the Committee. In the case of a stock dividend, the number of additional Stock Units credited to the
Stock Unit Fund shall be equal to the number of Stock Units multiplied the by per share Stock dividend (including
fractional shares) declared by the Company, rounded down to the nearest whole share. In the case of a cash dividend,
the number of additional Stock Units credited to the Stock Unit Fund shall be equal to the cash dividend times the
number of Stock Units allocated to the Participant’s Account, divided by the fair market value of a share of Stock as
determined by the Committee in its sole discretion, rounded down to the nearest whole share.
(iii)
The number of Stock Units credited to the Participant’s Stock Unit Fund shall be adjusted by the
Committee, in its sole discretion, to prevent dilution or enlargement of Participants’ rights with respect to the portion of
his or her Account balance allocated to the Stock Unit Fund in the event of any reorganization, reclassification, stock
split, or other corporate transaction or event which, in the Committee’s determination, affects the value of the Stock.
(iv)
Notwithstanding anything to the contrary herein, to the extent required under applicable law,
including applicable listing standards, any Stock Units settled in shares of Stock shall reduce the number of shares
available for grant under the Dunkin’ Brands Group, Inc. 2011 Omnibus Long-Term Incentive Plan, as amended from
time to time. To the extent required under applicable law, including applicable listing standards, if the Committee
determines that settlement of Stock Units in shares of Stock could reasonably be expected to result in an issuance of
shares of Stock in excess of the limit set forth under such plan (as the same may from time to
9
time be increased by amendment, subject to shareholder approval to the extent required), the Committee may require
that a portion or all of the Stock Units in affected Participants’ Accounts be settled in cash.
(e)
Incomplete Investment Designation Forms. If the Committee receives a Participant’s Investment
Designation Form which it finds to be incomplete, unclear or improper, the Participant’s investment designation then in
effect shall remain in effect until the next calendar quarter unless the Committee provides for or permits the application
of corrective action before that date.
(f)
Default Investment. Subject to Section 6.1 and 6.3(d), if the Committee does not receive an Investment
Designation Form from the Participant at the time the initial deferral amounts are credited into the Participant’s
Account or if the Committee possesses at any time designations as to the investment of less than all of a Participant’s
Account balance, the Participant shall be considered to have designated that the undesignated portion of the Account be
deemed to be invested in the investment option selected by the Committee from time to time, and the Committee shall
not be liable for the investment option(s) it selects.
(g)
No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the
contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant’s designation of any
such Measurement Fund, the allocation to his or her Account balance thereto, the calculation of additional amounts and
the crediting or debiting of such amounts to a Participant’s Account shall not be considered or construed in any manner
as an actual investment of his or her Account in any such Measurement Fund. In the event that the Company or the
Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the
Measurement Funds, no Participant shall have any rights in or to such investments themselves. Without limiting the
foregoing, a Participant’s Account Balance shall at all times be a recordkeeping entry only and shall not represent any
investment made on his or her behalf by the Company or the Trust. The Participant shall at all times remain an
unsecured creditor of the Company. No provision in the Plan shall be interpreted so as to give any Participant or
Beneficiary any right in any of assets of the Company or the Trust which right it greater than the rights of any general
unsecured creditor of the Company.
ARTICL PARTICIPANT
E 7.
ACCOUNTS
7.1.
Establishment of Accounts . The Committee shall establish a separate Account for each Participant
reflecting the amounts due the Participant under the Plan and shall cause the Company to establish on its books
Accounts reflecting the Company’s obligation to pay Participants the amounts due under the Plan.
7.2.
Adjustments to Accounts . From time to time, the Committee shall adjust each Participant’s Account
to credit amounts (i) the Participant has elected to defer under Article 5; (ii) the Annual Company Matching Amounts
the Company has contributed under Article 5 (if any); and (iii) amounts based on the annual interest equivalent factors
for a Fixed Rate Fund, if a Fixed Rate Fund is selected by the Committee and elected by the Participant in accordance
with the terms of the Plan, and/or gains or losses based on the applicable allocations in the other
10
Measurement Funds (including the Stock Unit Fund), determined under Article 6. A Participant’s Account shall also be
adjusted to reflect benefit payments and withdrawals under Article 8. A Participant’s Account shall continue to be
adjusted under this Article 7 until the entire amount credited to the Account has been paid to the Participant or his/her
Beneficiary.
ARTICL DISTRIBUTION OF ACCOUNT
E 8.
BENEFITS
The Participant’s Account benefits may not be distributed earlier than: (i) a separation from service;
(ii) disability (as defined in Section 8.4 below); (iii) unforeseeable emergency (as defined in Section 8.3 below); (iv) a
Change in Control; or (v) a specified date as elected by the Participant under the terms of the Plan. The manner and
form of payment of the Account benefits with respect to each event is described below.
8.1.
Following Separation from Service
(h)
Forms of Distribution. Subject to Sections 8.1(b), (c), (d) and (e) and Section 8.5, a Participant may elect
in writing the manner in which his/her entire Account (other than amounts distributed prior to separation from service
in accordance with the provisions of Sections 8.2, 8.3, 8.4 and 8.7) is to be distributed, from among the following
options:
(i)
A lump sum within 90 days after the Participant’s separation from service;
(ii)
A lump sum within 90 days after the later of (1) the Participant’s separation from service or (2) a
specified date which date is not later than the Participant’s 65 th birthday;
(iii)
(iv)
In up to 15 annual installments, commencing within 90 days after the Participant’s separation from
service; or
In up to 15 annual installments, commencing within 90 days after the later of (1) the Participant’s
separation from service or (2) a specified date which date is not later than the Participant’s 65
th birthday.
(i)
Timing of Distribution Election. A distribution election under Section 8.1(a) must be submitted to the
Committee at the time a Participant makes an initial or annual election to defer. Notwithstanding the foregoing, a
Participant who has elected to receive payment at a time and in a form described in Section 8.1(a) may file a changed
election with the Committee; provided, however, that: (i) the election is filed with the Committee at least 12 months
before the initial distribution date (i.e. , the date the lump sum or the first installment is supposed to be paid); (ii) the
changed election does not take effect for 12 months after the date on which the changed election was filed and (iii) the
changed election provides that the initial distribution date (i.e., the date the lump sum or the first installment is
supposed to be paid) is deferred at least five years from the date it was otherwise scheduled.
11
(j)
Termination Before Age 50. Notwithstanding Sections 8.1(a) and (b), if a Participant separates from
service before age 50, the Participant’s Account will be paid in a lump sum within 90 days after the Participant’s
separation from service.
(k)
Automatic Lump Sums. In the event a Participant’s Account is equal to or less than $10,000 as of the
date of separation from service, the Participant’s Account shall be fully paid within 90 days after the Participant’s
separation from service.
(l)
Delay of Distribution to Specified Employees. Notwithstanding any provision of the Plan to the contrary,
if a Participant is a “specified employee,” as defined in Section 409A of the Code and IRS regulations issued
thereunder, as of the Participant’s separation from service, then the payment of any amounts payable under the Plan
shall be postponed in compliance with Section 409A and IRS regulations issued thereunder (without any reduction in
such payments ultimately paid or provided to the Participant) until the first payroll date that occurs after the date that is
six months following the Participant’s separation from service. Any such postponed payments will be paid in a lump
sum to the Participant on the first payroll date that occurs after the date that is six months following the Participant’s
separation from service. If the Participant dies during the postponement period prior to the payment of the postponed
amount, the amounts withheld under this Section 8.1(e) shall be paid pursuant to Article 9.
8.2.
In-Service Distribution at Specified Date as Elected by the Participant . At the time of the initial or
annual deferral election in accordance with Article 5, a Participant may elect to receive payment in a lump sum of a
selected amount or percentage of the total amounts deferred pursuant to such election and interest earnings credited
thereto in accordance with Article 6 at a specified date (“Deferral Date”). Such election shall be effective only if the
Participant is providing services to the Company or one of its subsidiaries or affiliates on the Deferral Date. Thus, if the
Participant separates from service prior to the Deferral Date, any amount subject to an election made pursuant to this
Section 8.2 shall be paid in accordance with the election made by the Participant under Sections 8.1(a) or 8.1(b), if any.
If the Participant has not made any election under Section 8.1(a) or 8.1(b), or if the Participant’s separation from
service occurs prior to his 50 th birthday, any amount subject to an election made pursuant to this Section 8.2 shall be
paid to the Participant in a lump sum within 90 days following his separation from service.
Each In-Service Distribution elected shall be paid in the month and Plan Year designated by the Participant that
is at least three (3) Plan Years after the Plan Year in which the Annual Deferral Amount is actually deferred. By way of
example, if a three year In-Service Distribution is elected for Annual Deferral Amounts that are deferred in the Plan
Year commencing January 1, 2013, the three year In-Service Distribution would become payable during the designated
month commencing in 2017.
Participants may file a changed election with the Committee to further defer their In-Service Distributions,
provided that: (i) the election is filed with Committee at least 12 months before the initial distribution date; (ii) the
changed distribution date is at least 5 years from the date the payment was to be made under the initial election; and
(iii) the changed election shall not take effect for 12 months after the date on which the changed election was filed.
12
8.3.
Unforeseeable Emergency . If prior to separation from service a Participant suffers an unforeseeable
emergency due to circumstances beyond his control, the Participant may receive a distribution of all or any part of his
Account if he has no other assets available to meet his financial hardship or the financial hardship cannot be relieved
through reimbursement or compensation from insurance or otherwise. An unforeseeable emergency is defined as a
severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s
spouse, or a dependent of the Participant, loss of the Participant’s property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. In no
event shall the aggregate amount of the distribution exceed the amount determined by the Committee to be reasonably
necessary to alleviate the Participant’s financial hardship and the anticipated taxes thereon.
8.4.
Disability . Notwithstanding Section 8.1. and 8.2, if prior to separation from service, a Participant
becomes totally disabled, the Participant shall within 90 days thereafter receive a lump sum distribution of his Account.
For purposes of the Plan, a Participant is totally disabled when the employee is unable to engage in substantial gainful
activity by reason of any medically determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than 12 months.
8.5.
Distributions to Non-Employee Directors . Notwithstanding anything to the contrary herein, except as
otherwise determined by the Committee and subject to Section 8.6 and Article 14 of the Plan, all distributions made to
Participants who are Non-Employee Directors shall be made in a single lump sum within 90 days after the date of the
Participant’s separation from service, regardless of the reason for such separation.
8.6.
Change of Control . If upon a Change of Control, the Committee or Company determines to terminate
and liquidate the Plan as permitted in Article 14, §14.2, distributions may be made in accordance with that section.
8.7.
Death of Participant . Unless otherwise provided in Article IX, in the event of the Participant’s death,
the entire balance of the Participant’s account will be distributed to the Participant’s Beneficiary or the Participant’s
estate, as applicable, in a single lump sum within 90 days after the date of the Participant’s death.
8.8.
Tax Withholding . To the extent required by applicable law, federal, state, and other taxes shall be
withheld from a distribution. In addition, the Committee may require that a Participant’s cash or other compensation be
reduced to satisfy any such taxes with respect to any deferral, or vesting of any amount deferred, under the Plan or may
require that a Participant make other arrangements for the payment of such taxes (which other arrangements may
include, if the Committee so determines, but shall not be limited to, a reduction in the Participant’s Account balance to
the extent permitted by Section 409A of the Code).
8.9.
Default Election . If a Participant has an Account hereunder but the Committee, for any reason
whatsoever, does not have an election made by the Participant under Section 8.1 or 8.2 after reasonable due diligence to
locate same, such Participant’s Account shall be paid to him in a lump sum within 90 days following his separation
from service.
13
8.10.
Compliance with Section 409A .
(a)
For purposes of this Plan, references to termination of employment, retirement, separation from service
and similar or correlative terms mean a “separation from service” (as defined at Section 1.409A-1(h) of the Treasury
Regulations) from the Company and from all other corporations and trades or businesses, if any, that would be treated
as a single “service recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations. The
Company may, but need not, elect in writing, subject to the applicable limitations under Section 409A, any of the
special elective rules prescribed in Section 1.409A-1(h) of the Treasury Regulations for purposes of determining
whether a “separation from service” has occurred. Any such written election will be deemed a part of the Plan.
(b)
The Plan is intended to, and shall, be construed in a manner consistent with the requirements of Section
409A of the Code. If the implementation of any of the foregoing provisions of the Plan would subject the Participants
to taxes or penalties under Section 409A of the Code, the implementation of such provision shall be modified to avoid
such taxes and penalties to the maximum extent possible while preserving to the maximum extent possible the benefits
intended to be provided to Participants under the Plan. Notwithstanding anything to the contrary in the Plan, neither the
Company nor any subsidiary, nor the Committee, nor any person acting on behalf of the Company, any subsidiary, or
the Committee, will be liable to any Participant or to the estate or beneficiary of any Participant by reason of any
acceleration of income, or any additional tax (including any interest and penalties), asserted by reason of the failure of
the Plan to satisfy the requirements Section 409A of the Code.
ARTICL BENEFICIARY
E 9.
BENEFITS
A Participant, on a form approved by the Committee, may designate a Beneficiary, or change any prior
designation, to receive the remaining balance of his Account upon his death. A distribution election for payment of
death benefits under Article 9 must be submitted to the Committee at the time the Participant makes the initial election
to defer.
With respect to Deferrals made prior to the Restatement Date, payments to a Beneficiary under this Article 9
shall be made in the same manner as designated by a Participant upon his death. Notwithstanding the preceding
sentence, if a Participant dies after annual installments have commenced, the Beneficiary shall receive any remaining
installments in accordance with the Participant’s installment election. Notwithstanding the preceding two sentences, if a
Beneficiary survives the Participant but dies before the Participant’s entire Account has been distributed, the remaining
balance of, the Participant’s Account balance shall be distributed in a lump sum to the Beneficiary’s estate as soon as
practicable following receipt of notice of the Beneficiary’s death. If no Beneficiary is designated (or if a designated
Beneficiary does not survive the Participant), the Participant’s Account balance shall be paid to the Participant’s estate
in a lump sum as soon as practicable following receipt of notice of the Participant’s death.
With respect to Deferrals made on and after the Restatement Date, upon the death of the Participant, the entire
balance of the Participant’s Account shall be distributed to the Beneficiary
14
(or if no Beneficiary is designated or the Beneficiary does not survive the Participant, the Participant’s estate) in a
single lump sum within 90 days of the date of the Participant’s death.
ARTICLE 10. NATURE OF CLAIM FOR PAYMENTS
A Participant shall have no right on account of the Plan in or to any specific assets of the Company or the Trust.
Any right to any payment the Participant may have on account of the Plan shall be solely that of a general, unsecured
creditor of the Company.
ARTICLE 11. ASSIGNMENT OR ALIENATION
11.1.
Prohibition on Assignment . Except as provided in Section 11.2 or as otherwise required by law, the
interest hereunder of any Participant or Beneficiary shall not be alienable by the Participant or Beneficiary by
assignment or any other method and will not be subject to be taken by his creditors by any process whatsoever, and any
attempt to cause such interest to be so subjected shall not be recognized.
In the event that a Participant’s Account is garnished or attached by order of any Court, the Company may bring
an action for a declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the
benefits to be paid under the Plan. During the pendency of said action, any benefits that become payable shall be held
as credits to the Participant’s Account or, if the Company prefers, paid into the court to be distributable to the proper
recipient.
11.2.
Domestic Relations Orders .
(a)
Notwithstanding anything to the contrary in Article 9, if the Committee receives a Qualified Domestic
Relations Order as described in Section 11.2(b) prior to the Participant’s Account balance being distributed, all or
portion of the Participant’s Account balance under the Plan may be paid to the person as specified in such order.
(b)
A “Qualified Domestic Relations Order” means a judgment, decree, or order (including the approval of a
settlement agreement) which:
(i)
is issued pursuant to a State’s domestic relations law;
(ii)
relates to the provision of child support, alimony payments or marital property rights to a spouse,
former spouse, child or other dependent of the Participant;
(iii)
creates or recognizes the right of a spouse, former spouse, child or other dependent of the Participant
to receive all or a portion of the Participant’s benefits under the Plan;
15
(iv)
clearly specifies the name of the Plan to which such order applies and the name and the last known
mailing address of the Participant and each alternate payee covered by the order;
(v)
clearly specifies the amount or percentage of the Participant’s benefits to be paid by the Plan to each
such alternate payee, or the manner in which such amount or percentage is to be determined;
(vi)
does not require the payment of benefits to an alternate payee which are required to be paid to another
alternate payee under another order previously determined to be a Qualified Domestic Relations order;
and
(vii)
meets such other requirements as established by the Committee.
(c)
The Committee shall determine whether any order received by it is a Qualified Domestic Relations Order
within the meaning of Article 11, §11.2. In making this determination, the Committee may consider (but is not required
to):
(i)
the rules applicable to “domestic relations orders” under section 414(p) of the Internal Revenue Code
of 1986 and section 206(d) of ERISA;
(ii)
the procedures used under the 401(k) Savings Plan to determine the qualified status of domestic
relations orders; and
(iii)
such other rules and procedures as it deems relevant.
ARTICLE 12. NO CONTRACT OF EMPLOYMENT
The Plan shall not be deemed to constitute a contract of employment or other service between the Company and
any Participant, or to be consideration for the employment or other service of any Participant. Nothing contained herein
shall give any Participant the right to be retained in the employment or other service of the Company or affect the right
of the Company to terminate any Participant’s employment or other service.
ARTICLE 13. AMENDMENT OR TERMINATION OF PLAN
13.1.
Right to Amend . The Plan may be altered or amended in writing by the Committee or the Company,
in any manner and at any time and all parties hereto or claiming any interest hereunder shall be bound by such
amendment. However, no such alteration or amendment shall reduce the amount of a Participant’s Account or his or
her rights to such
16
Account as determined under the provisions of the Plan in effect immediately prior to such alteration or amendment.
13.2.
Amendment Required By Law . Notwithstanding the provisions of Section 13.1, the Committee or
the Company may amend the Plan any time, retroactively if required, if found necessary in the opinion of legal counsel
to the Committee or the Company to ensure that: (i) the Plan is characterized as a non-tax-qualified plan of deferred
compensation under Section 409A; (ii) the Participants do not incur tax penalties under Section 409A; (iii) the Trust is
characterized as a grantor trust as described in Sections 671-679 of the Code and a rabbi trust as described in Rev. Proc.
92- 64; and (iv) the Plan and the Trust conform to the provisions and requirements of any other applicable law,
including Sections 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of ERISA.
ARTICLE 14. TERMINATION
14.1.
Right to Terminate Future Accruals . The Committee and Company reserve the right, at any time, to
terminate future accruals under the Plan; provided, however, that no such termination shall deprive any Participant or
Beneficiary of a right accrued hereunder prior to the date of termination.
14.2.
Termination and Liquidation of the Plan . The Committee and Company reserve the right to
terminate and liquidate the Plan through the payment of all benefits hereunder in the circumstances permitted under
IRS regulations issued under Section 409A and any such other circumstances specified in guidance of general
applicability issued by the Internal Revenue Commissioner.
ARTICLE 15. MISCELLANEOUS
15.1.
Entire Agreement . This plan document for the Plan contains the entire agreement between the
Company and the Participants regarding the Plan and there are no promises or understandings of any kind regarding the
Plan other than those stated herein.
15.2.
Payment for the Benefit of an Incapacitated Individual . If the Committee of the 401(k) Savings
Plan determines that payments due to a Participant under the 401(k) Savings Plan must be paid to another individual
because of a Participant’s incapacitation, benefits under the Plan will be paid to that same individual designated for that
purpose under the applicable provisions of the 401(k) Savings Plan.
15.3.
Governing Law . The Plan will be construed, administered, and governed under the laws of the
Commonwealth of Massachusetts, to the extent not preempted by federal law.
15.4.
Severability . If any provision of this Plan is held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions shall continue to be fully effective.
17
15.5.
Headings and Subheadings . Headings and subheadings are inserted for convenience only and are not
to be considered in the construction of the provisions of the Plan.
[Signature page follows]
18
IN WITNESS WHEREOF, this Plan, as amended and restated hereunder, is adopted by the Committee or the Company
on March 27, 2013, and is executed by a duly authorized officer of Dunkin’ Brands, Inc. as of the date indicated below.
DUNKIN’ BRANDS, INC.
130 Royall Street
Canton, MA 02021
/s/ Ted Manley
By:
Title:
Date:
19
Ted Manley
Vice President, Total Rewards and
H.R. Operations
4/29/2013
October 29, 2013, as revised November 15, 2013
Via Hand Delivery
Giorgio Minardi
73 Pheasant Landing Road
Needham, MA 02492
Dear Giorgio:
Per your conversation with Nigel Travis, the following constitutes our mutual agreement (the “Agreement”) regarding the
terms and conditions of the separation of your employment with Dunkin’ Brands, Inc. (the “Company”) due to a reorganization of
the Company’s management:
Separation Agreement and Release of All Claims
1. Separation from Employment. (a) You acknowledge and agree that your employment with the Company is hereby
terminated, effective October 30, 2013 (the “Separation Date”) and that, effective as of the Separation Date, such
termination has resulted in your “Separation from Service” for purposes of Section 409A of the Internal Revenue
Code of 1986, as amended (the “Code”).
(b) Regardless of whether you sign this Agreement, at the time your employment terminates you will receive the
following, less all appropriate taxes, withholdings and/or deductions: (i) Payment at your current rate of salary
for all work you performed for the Company during the last payroll period through the Separation Date; and (ii) A
lump sum payment for all hours of vacation time that you accrued but had not used as of the Separation Date.
2. Severance Payment. As severance, the Company shall provide you with twelve (12) months’ salary, paid at your
current base rate of pay, less appropriate taxes, withholdings, and/or deductions. Payment shall be made on the
Company’s usual payroll schedule, beginning with the first payroll date after the Effective Date of this Agreement,
and in no event later than 60 days from the Separation Date.
3. Outplacement. The Company will pay for twelve (12) months of outplacement services for you following the
Separation Date through a firm selected by the Company.
4. Equity. To view a schedule of your holdings as of the Separation Date, you can log on to
https://www.schwab.com/publis/eac/home. Options must be exercised in accordance with the timetable set forth in
the Company’s post-termination exercise policy and applicable stock agreements. Pursuant to the terms of the
applicable stock agreements, vesting on all stock and stock options shall cease as of the Separation Date, any
unvested shares of restricted stock and unvested stock options shall be forfeited. You remain subject to the
Company’s insider trading policy until the Separation Date, including those provisions applicable to officers or
directors. You acknowledge the Company has provided you with a copy of the policy. In addition, please note that
pursuant to SEC rules, any purchases (not sales) of Company stock made prior to January 30, 2014 are reportable to
the SEC on Form 4.
5. Relocation. The Company will reimburse you for relocation costs, conditional upon return to Italy , or to a different
country or another U.S. state in the event of your employment in that country or state, no later than September 15,
2014 as follows: (a) Business Class airfare for you and your family, in an amount not to exceed that incurred in
conjunction with your move to the United States. The Company’s obligation to reimburse you is subject to your
provision of appropriate receipts and other documentation as required under the Company’s travel and expense
reimbursement policies.
6. Benefits. (a) You may be eligible to convert your Company-provided life insurance to an individual plan, at your
own cost, in accordance with the terms and conditions of that plan.
(b) If you are a current participant, your salary deferral and the Company match to the 401(k) Savings Plan will
cease coincident with the paycheck representing pay through the Separation Date. You will be provided with
information under separate cover on your future participation and certain elections you may make with regard to
the 401(k) plan.
(c) Your current participation and that of your eligible dependents in the Company’s group health and dental
plans will continue through last day of the month in which your employment terminates. Thereafter, you may be
eligible to continue your participation and that of your eligible dependents in the Company’s group health and
dental plans under the federal law known as “COBRA.” Such participation is at your own cost, subject to
paragraph 6(d) below. You will be provided with additional information regarding COBRA under separate cover.
(d) If you are eligible and elect to continue your participation and that of your eligible dependents in the
Company’s group health and dental plans under COBRA, for twelve ( 12 ) months from the last day of the month
in which your employment terminates, i.e., the Separation Date, the Company will continue to pay that share of
the premium cost that it pays for active employees and their covered dependents generally. You will still be
responsible for the applicable employee portion of the premium on a monthly basis, in the manner specified in the
COBRA notice. The Company may satisfy its obligation under this paragraph by either paying the Company’s
portion of the monthly COBRA premiums directly to the applicable insurer or, in its discretion, by paying you a
monthly cash amount equal to the Company’s portion of the monthly COBRA premiums, in each case, for each
month within such 12 month period. At the end of such 12 month period, you will be required to pay on a
monthly basis the entire COBRA premium for the remainder of the COBRA continuation coverage period,
subject to the terms of this Agreement, if you are eligible for and elect to continue COBRA. The Company’s
obligation hereunder shall immediately cease if you become eligible for comparable alternative coverage. You
must notify the Company within one week of becoming eligible for such alternative coverage.
(e) Pursuant to the terms of the Short Term Incentive (STI) Plan, you are not eligible to receive any short term
incentive payment for 2013. However, as additional consideration for this Agreement, the Company shall pay you
$100,000, less appropriate taxes, withholdings, and/or deductions, no later than March 15, 2014.
(f) Except as expressly stated herein, your participation in all Company employee benefit plans will end as of
the Separation Date.
(g) You will be permitted to return to the Company’s office on a Saturday morning on a date to be agreed upon
with the Company, accompanied by your former assistant or a representative from Human Resources, to retrieve
your personal belongings.
(h) No sooner than the expiration of the eighth (8 th ) day after the delivery of a signed Agreement by you as
specified in Paragraph 23, and upon the submission of reasonable documentation, the Company shall reimburse
you for your reasonable attorneys’ fees relating to this Agreement not to exceed $7,500.
7. Release of Claims to the Company . (a) For and in consideration of the payments and benefits set forth herein, to
which you acknowledge you are not otherwise entitled, and for other good and valuable consideration, the sufficiency
of which is hereby acknowledged, you, on your own behalf and on behalf of your heirs, executors, administrators,
beneficiaries, representatives and assigns, hereby release and forever discharge the Company, its parents, subsidiaries
and affiliates, and all of their respective past and present officers, directors, shareholders, officers, employees,
employee benefit plans, insurers, agents, representatives, successors and assigns (collectively hereafter the
“Releasees”), both individually and in their official capacities, from any and all liability, claims, demands, actions and
causes of action of any type which you have had in the past, now have, or might now have, from the beginning of the
world up to the date that you execute this Agreement, in any way resulting from, arising out of or connected with
your employment, its termination, or pursuant to any federal, state or local statute, common law, employment law,
regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, the Family
and Medical Leave Act, the Pregnancy Discrimination Act, the Age Discrimination in Employment Act, the Older
Workers Benefit Protection Act, the Worker’s Adjustment and Retraining Notification Act, the Fair Credit Reporting
Act, the Americans with Disabilities Act, the Rehabilitation Act of 1973, the Occupational Safety and Health Act, the
Equal Pay Act, the Employee Retirement Income Security Act of 1974, Sections 1981 through 1988 of Title 42 of the
United States Code, the Immigration Reform and Control Act, the Massachusetts Wage Act, G.L. c. 149 Sec. 148, the
Massachusetts Fair Employment Practices Act, G.L. c. 151B, all state fair employment practices acts, each as
amended, and any and all claims for wrongful discharge, discrimination, harassment, retaliation, common law claims,
actions in tort, defamation, breach of contract, and claims of interest in unvested stock options, for wages or for
attorneys’ fees) as well as any claims arising from your Offer Letter, dated January 31, 2012, any Company severance
plan, policy or program, including the former Amended and Restated Executive Separation Pay Plan.
(b) Notwithstanding the foregoing, this paragraph 7 shall not apply to any claim to enforce the terms of the
Agreement, any rights that are vested under the terms of an applicable employee benefit plan, retirement or stock
option plan, or that may arise after your execution of this Agreement or any right of indemnification for and by
the Company for acts occurring during your employment as an officer of the Company (i.e., prior to October 30,
2013), including but not limited to the Director and Officer Indemnification Agreement between you and the
Company dated on or about February, 2012, which shall survive this release and shall remain in full force and
effect, and for any other applicable right of indemnification, if any, through the Separation Date .
(c) Nothing in this Agreement is intended to, or shall be interpreted to, discourage or interfere with rights under
the Older Workers Benefit Protection Act to test the knowing and voluntary nature of this Release of Claims
under the Age Discrimination in Employment Act, or to prevent the exercise of such rights. Nothing in this
Release prevents you from participating in or cooperating in any governmental, administrative, or regulatory
investigation or proceeding regarding the Company, but you acknowledge that this Release does prevent you from
obtaining any benefit, damages or remedy from such investigation or proceeding.
8. Transfer of Claims. You represent and warrant that you have not assigned, transferred, or purported to assign or
transfer, to any person, firm, corporation, association, or entity whatsoever, any claim released pursuant to this
Agreement. You further agree to indemnify and hold Company harmless against, without any limitation, any and all
rights, claims, warranties, demands, debts, obligations, liabilities, costs, court costs, expenses (including attorney’s
fees), causes of action or judgments based on or arising out of any such assignment or transfer.
9. Restrictive Covenants. You hereby acknowledge and agree that the Non-Compete/ Non-Solicitation/Confidentiality
agreement between you and the Company dated February 1, 2012, attached hereto as Exhibit A and incorporated
herein by reference, shall survive in its entirety and remain in full force and effect.
10. Confidentiality. (a) You and the Company (except as required in connection with its disclosure obligations as a
public company) agree to keep the terms and conditions of this Agreement and the facts and circumstances leading up
to it confidential and shall not disclose them to anyone except immediate family members, attorneys and financial
advisers, and the Company employees only on a need to know basis as necessary to effectuate the terms of this
Agreement (as the case may be), and only if they agree to keep this information confidential and not disclose it to
others, or pursuant to court order, subpoena or as otherwise required by law. Notwithstanding the foregoing, you may
disclose paragraphs 5-7 of Exhibit A to prospective employers. (b) You expressly acknowledge that, in accordance
with Exhibit A, you may not use, for the benefit of yourself or any other person or entity, any confidential
information, trade secrets or proprietary information of the Company and that you may not disclose such information
to anyone outside the Company, except where required by law. (c) If you are requested or required to disclose any
confidential or proprietary information of the Company, or the terms and conditions of this Agreement to a court or
governmental agency, you shall notify the Company’s General Counsel in writing within 3 business days after you
learn of such obligation or request, and permit the Company to take all lawful actions it deems necessary to prevent
or limit such disclosure.
11. Non-Disparagement. (a) You agree that you will not directly or indirectly disparage, in any way cause
disparagement, or encourage others to disparage, the Company, its affiliates, subsidiaries or any of its directors,
officers or employees, its products, services, marketing or advertising programs, financial status or business.
(b) The Company shall instruct its senior leadership team not to directly or indirectly disparage, or in
any way cause disparagement, or encourage others to disparage you. In the event the Company receives any
request for a reference for you, unless otherwise authorized by you in writing in advance, the Company shall
respond only by confirming your dates of employment, compensation and benefits, level and rates, and title and
that you left your position with the Company due to a reorganization of the Company’s management.
12. Return of Company Property. You represent and warrant that as of the Separation Date, and before the Company is
obligated to provide you with any pay or benefits hereunder, you shall return all Confidential Information of the
Company (as defined in Exhibit A), materials that incorporate or reference such Confidential Information, and all
copies thereof, all Company assets, such as computer(s), PDA(s), telephone(s), vehicles, and credit cards, all
documents, materials, records, files and information, in any media, related to the business of the Company, including
all copies, and all keys or other property of the Company in your possession or control.
13. Cooperation. You agree to cooperate reasonably with the Company in its defense of any investigation, litigation or
administrative proceeding, including any charges or claims filed against it by current or former employees, regarding
all matters occurring during your employment. The Company shall fully reimburse you for reasonable out of pocket
expenses incident to such cooperation provided they are properly documented pursuant to the same Company policies
applicable to other executives and officers .
14. Transition. This Agreement represents your resignation as an Officer of the Company, from any board or committee
memberships and other positions which you hold with the Company, and all of its subsidiaries and affiliates, effective
October 30, 2013. You agree to execute and return to the Company any documents or to take any action it deems
necessary to separately confirm your resignation from such positions. You agree to make yourself reasonably
available to the Company and its officers as necessary to ensure a smooth transition.
15. Breach. Your breach of any of the terms set forth in this Agreement shall constitute a material breach of this
Agreement subject to the terms of this paragraph and Agreement and shall relieve the Company of any further
obligations hereunder. In addition to any other legal or equitable remedy available to the Company, it shall be entitled
to recover any monies paid pursuant to you pursuant to this Agreement. In the event the Company claims a material
breach of this Agreement, it shall provide you with written notice regarding the alleged claim or material breach and
the opportunity to respond to the allegations within 14 days. If after good faith consideration of your response the
Company intends to terminate this Agreement or otherwise ceases any payments or benefits to you under it, the
matter shall be referred to arbitration pursuant to paragraph 22 of this Agreement.
16. Release of Known Claims as to You. (a) For the benefits and covenants set forth herein, to which the Company
acknowledges it is not otherwise entitled, and for other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the Company, for itself and its parents, subsidiaries and affiliates, and all of their respective
past and present officers, directors, shareholders, employees, insurers, agents, representatives, successors and assigns
(collectively hereafter the “Releasors”), both individually and in their official capacities, hereby release and forever
discharge you, on your own behalf and on behalf of your heirs, executors, administrators, beneficiaries,
representatives and assigns (Releasees) from any and all liability, claims, demands, actions, and causes of action of
any type of which the Company has actual knowledge and which the Releasors have had in the past, or nor have,
from the beginning of the world up to the date that Company executes this Agreement, in any way resulting from,
arising out of or in connection with your employment with the Company.
(b) Notwithstanding the foregoing, this Paragraph 16 shall not apply to any claim to enforce the terms of the
Agreement, any claim that the Company does not have actual knowledge of as of the date of this Agreement, or
any claim that may arise after the Company’s execution of this Agreement.
17. No Liability or Wrongdoing. The parties hereto agree and acknowledge that this Agreement is intended only to
settle all matters between the parties and nothing contained in this Agreement, nor any of its terms and provisions,
nor any of the negotiations or proceedings connected with it, constitutes, will be construed to constitute, will be
offered in evidence as or deemed to be evidence of an admission of liability or wrongdoing by any of the Releasees,
and any such liability or wrongdoing is hereby expressly denied by each of the Releasees.
18. Method of Payment. All payments contemplated hereunder will be made by the Company using such payment
method as it may determine in its discretion, including without limitation direct deposit into your bank account,
unless you specifically advise the Company in writing otherwise. Unless you advise the Company of any changes to
your banking information, any payments made by direct deposit will be made into such bank account as is currently
on file with the Company’s payroll department.
19. Accord and Satisfaction. By executing this Agreement, you acknowledge and agree that you are not entitled to any
further wages, compensation, stock, commissions, bonuses, severance, incentives or other monies or payments of any
nature, or to any benefits from the Company except and unless as explicitly provided in this Agreement. You further
acknowledge that no promises, inducements or other consideration not expressly stated in this Agreement have been
made or otherwise exist with respect to the terms and conditions of this Agreement, and that this Agreement may
only be modified in accordance with paragraph 24(a).
20. Re-employment. You agree that you will neither apply for nor accept employment with the Company, any of its
parents, subsidiaries, affiliates, or any other entity controlled by, or under common control with, the Company (the
“Company Entities”), that the Company Entities are not obligated to reinstate or re-employ you in the future in any
capacity, and you hereby discharge the Company Entities from any liability or obligation to reinstate or re-employ
you in any capacity. You acknowledge that your forbearance from doing so is contractual and is in no way
discriminatory, retaliatory or involuntary.
21. Payment of Applicable Taxes and 409A. (a) While this Agreement and the payments and benefits provided
hereunder are intended to be exempt from, or comply with, the requirements of Section 409A of the Code, and at all
times should be interpreted so as to comply, the Company makes no representation or covenant to ensure that any
payment or benefits provided under this Agreement are exempt from, or compliant with Section 409A. The Company
shall have no liability to you or any other party if any payment or benefit under this Agreement is challenged by any
taxing authority or is ultimately determined not to be exempt or compliant. You agree and acknowledge that to the
extent some or all of the payments made in consideration of this Agreement may be taxable to you, you shall be
responsible for all applicable federal, state and local taxes on said payments, and any costs, interest or penalties
incurred as a result of your failure to pay such taxes. In the event that it is determined that you have failed to make
proper payment of such taxes and Company is held liable for your non-payment, or for any fines or penalties
connected therewith, Company will be entitled to full and complete indemnification from you for those amounts
(including taxes, fines and/or penalties) for which Company is held liable.
(b) It is intended that each installment of the severance payment pursuant to paragraph 2, and any payment or
benefit hereunder, be treated as a separate “payment” for purposes of Section 409A of the Code. The Company
shall not have the right to accelerate or defer delivery of such payments or benefits except to the extent permitted
or required pursuant to Section 409A of the Code. All reimbursements and in-kind benefits provided to you under
this Agreement are intended to be made or provided in accordance with the requirements of Section 409A of the
Code to the extent they are subject to Section 409A. Any expenses or other reimbursements paid pursuant hereto
that are taxable income to you shall in no event be paid later than the end of the calendar year next following the
calendar year in which you incur such expenses or pay such related tax.
22. Dispute Resolution. With respect to any claims or disputes arising under or in connection with this Agreement, you
and the Company agree to attempt in good faith to resolve such claim or dispute informally through discussions with
an authorized executive officer of the Company. If after completing the foregoing procedure the dispute is not
resolved, the Company and you agree that the dispute or claim shall be resolved by final and binding arbitration
before the American Arbitration Association (“AAA”). The arbitration shall be held in Boston, Massachusetts and
shall be conducted in accordance with the AAA’s National Rules for the Resolution of Employment Disputes then in
effect at the time of the arbitration, except that in the process of selecting an arbitrator, the parties may strike names
from the AAA’s list of arbitrators for good cause, and with the additional condition that all steps reasonably
necessary to ensure the confidentiality of the proceedings and the arbitrator’s determination will be added to the basic
rules and requirements. Notwithstanding the foregoing, any arbitration pursuant to this paragraph shall not impair
either party’s right to request injunctive or other equitable relief in connection with Exhibit A.
23. Acknowledgement, Acceptance and Revocation. (a) You acknowledge that you are signing this Agreement
knowingly, voluntarily, with full understanding of its terms and effects and without duress, coercion, fraud or undue
influence;
(b) YOU ARE ADVISED, PRIOR TO SIGNING THIS AGREEMENT, TO SEEK THE ADVICE OF AN
ATTORNEY OF YOUR CHOOSING AND ALL OTHER ADVICE YOU MAY REQUIRE REGARDING THE
PURPOSE AND EFFECT OF THIS AGREEMENT, ITS RELEASE OF ALL CLAIMS AND ALL MATTERS
CONTAINED HEREIN, INCLUDING WITHOUT LIMITATION THOSE UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT AND THE OLDER WORKERS BENEFIT PROTECTION ACT;
(c) You have twenty-one (21) days from the date you receive this Agreement to consider its terms and the
consequences of the Release of Claims contained herein and to accept the terms of this Agreement by signing
below and returning it to Dunkin’ Brands, Inc., c/o Ginger Gregory, Chief Human Resources Officer, 130 Royall
Street, Canton, MA 02021 (although you may choose to voluntarily execute this Agreement prior to the expiration
of the twenty-one (21) day period);
(d) If you thereafter desire to revoke acceptance of this Agreement, you must do so by notice in writing to the
Chief Human Resources Officer within seven (7) days following the execution of this Agreement; and
(e) This Agreement shall not be effective until the date upon which the revocation period has expired, which
shall be the eighth day after this Agreement is executed by you, and you have not revoked it (the “Effective
Date”). The parties agree that any changes to the offer in this Agreement, whether material or not, will not restart
the running of the 21 day period.
24. Miscellaneous. (a) This Agreement shall be binding upon the parties and may not be modified in any manner, except
by an instrument in writing of concurrent or subsequent date signed by a duly authorized representative of the parties
hereto. This Agreement is binding upon and shall inure to the benefit of the parties and their respective agents, heirs,
executors, administrators, successors and assigns.
(b) This Agreement, including Exhibit A, contains the entire agreement between you and the Company and
replaces all prior and contemporaneous agreements, communications and understandings, whether written or oral,
with respect to your employment and its termination and all related matters , EXCEPT that notwithstanding
anything to the contrary in this Agreement or Exhibit A, any of your rights to indemnification from and by the
Company for acts occurring during your employment as an officer of the Company (i.e., prior to October 30,
2013), including, but not limited to, the Director and Officer Indemnification Agreement between you and the
Company dated on or about February, 2012, and any other applicable rights of indemnification, if any, through
the Separation Date, shall survive this Agreement and shall remain in full force and effect . You represent that you
have carefully read this Agreement, that you are not relying on any promise or representation, whether oral or
written, that is not expressly contained herein, that you have been afforded the opportunity to be advised of its
meaning and consequences by your own attorney, and have signed the same of your own free will.
(c) The provisions of this Agreement are severable, and if any provision of this Agreement is found to be
unenforceable, the other provisions shall remain fully valid and enforceable.
(d) This Agreement shall be interpreted and construed pursuant to the laws of the Commonwealth of
Massachusetts, without regard to conflict of laws provisions.
(e) This Agreement may be executed in counterparts, each of which shall be deemed an original, all of which
together shall constitute one and the same instrument.
(f) The section headings in this Agreement are for reference purposes only and shall not be deemed to be a part
of this Agreement or to affect the meaning or interpretation of this Agreement.
(g) The waiver by the Company of any action, right or condition in this Agreement, or of any breach of a
provision of this Agreement, shall not constitute a waiver of any other provisions of this Agreement or any other
occurrences of the same event.
If you fail to timely return this signed Agreement to the Company within 21 days, this severance offer shall expire and
will no longer be available to you.
If you should have any questions, please feel free to contact me.
Regards,
/s/ Ginger Gregory
Ginger Gregory
Chief Human Resources Officer
Dunkin’ Brands, Inc.
ACCEPTED AND AGREED TO:
/s/ Giorgio Minardi
Giorgio Minardi
Dated: 11/15/2013
LEASE
between
130 ROYALL, LLC
Landlord,
and
DUNKIN’ BRANDS, INC.,
a Delaware corporation
Tenant
TABLE OF CONTENTS
Article Page
1.
DEFINITIONS; USE AND RESTRICTIONS ON USE.
2.
TERM.
2
3.
RENT.
3
4.
ADDITIONAL RENT.
5.
OPTION TO EXPAND.
6.
COMPLETION OF THE PREMISES.
7.
REPAIR.
8.
LIENS
9.
ASSIGNMENT AND SUBLETTING.
10.
INDEMNIFICATION
11.
INSURANCE.
12.
WAIVER OF SUBROGATION
13.
ELECTRICITY
14.
HOLDING OVER
15.
SUBORDINATION; NONDISTURBANCE;
ATTORNMENT. 11
16.
LANDLORD SERVICES
17.
REENTRY BY LANDLORD.
18.
DEFAULT BY TENANT AND LANDLORD
REMEDIES. 12
19.
DEFAULT BY LANDLORD AND TENANT
4
5
5
7
7
8
9
9
10
10
10
12
12
1
REMEDIES.
16
20.
TENANT’S BANKRUPTCY OR INSOLVENCY.
21.
QUIET ENJOYMENT
22.
CASUALTY.
23.
EMINENT DOMAIN
24.
SALE BY LANDLORD
25.
ESTOPPEL CERTIFICATES
26.
SURRENDER OF PREMISES.
27.
NOTICES
28.
DEFINED TERMS AND HEADINGS
29.
TENANT’S AUTHORITY
30.
COMMISSIONS
31.
TIME AND APPLICABLE LAW
32.
SUCCESSORS AND ASSIGNS
33.
ENTIRE AGREEMENT
34.
EXAMINATION NOT OPTION
35.
RECORDATION
36.
LIMITATION OF LANDLORD’S LIABILITY
37.
ACCESS
38.
COMMUNICATIONS
EQUIPMENT 22
39.
COMPLIANCE WITH LAWS.
40.
CONTEST OF LEGAL REQUIREMENTS
41.
SIGNAGE
42.
WORK ON THE BUILDING OR LAND.
43.
ARBITRATION.
44.
FINANCIALS
45.
RIGHT OF FIRST REFUSAL 26
46.
17
18
18
19
19
20
20
20
21
21
21
21
21
22
22
22
22
22
23
23
23
23
25
26
SECURITY DEPOSIT………………………………………………………………… 35
EXHIBIT A: DESCRIPTION OF PREMISES
EXHIBIT A-1: DESCRIPTION OF LAND
EXHIBIT B: INTENTIONALLY DELETED
EXHIBIT C: INTENTIONALLY DELETED
EXHIBIT D: FORM OF SNDA -- MORTGAGE
EXHIBIT E: FORM OF GROUND LEASE ESTOPPEL CERTIFICATE
EXHIBIT F: FORM OF LEASEHOLD MORTGAGE
REFERENCE PAGES
BUILDING:
130 Royall Street, Canton, Massachusetts
LANDLORD:
130 ROYALL, LLC
LANDLORD’S ADDRESS:
130 ROYALL, LLC
c/o HN Gorin
101 Huntington Avenue
5 th Floor
Boston, Massachusetts 02199
Attention: Kristian Gibson
LEASE REFERENCE DATE:
December___, 2013
TENANT:
Dunkin’ Brands, Inc.
TENANT’S ADDRESS:
Dunkin’ Brands, Inc.
130 Royall Street
Canton, MA 02021
Attention: Jason Maceda, Vice President, US Financial
Planning & Field Treasury
With a copy to:
Dunkin’ Brands, Inc.
130 Royall Street
Canton, MA 02021
Attention: Christopher J. Egan, Director & Legal Counsel
PREMISES:
The land and building (the " Building ") commonly
known and numbered as 130 Royall Street, Canton,
Massachusetts, including all improvements located
thereon and all sidewalks and driveways and parking
areas, as shown on the Plan attached hereto as Exhibit
“A” . The land (the " Land ") upon which the Building is
located is described on Exhibit “A-1 ” attached hereto.
The definition of the Premises may be modified pursuant
to Article 5 of this Lease.
PERMITTED USE:
Office, kitchen and laboratory purposes and all activities
normally incidental thereto or related to the conduct of
Tenant’s business, including vending machines and food
service for employees and guests and for all other lawful
purposes normally associated with a first class office
and/or research and development building.
COMMENCEMENT DATE:
January 1, 2014
RENT COMMENCEMENT DATE
January 1, 2014
TERM OF LEASE:
Commencement Date through December 31, 2029
EXPIRATION DATE:
December 31, 2029
OPTIONS TO EXTEND
Two (2) options to extend the Term for five (5) years
each, as set forth in Section 2.2
ANNUAL RENT (Article 3):
Annual Rent
Calendar Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
$2,625,000.00 $218,750.00
$2,712,500.00 $226,041.67
$2,800,000.00 $233,333.33
$2,887,500.00 $240,625.00
$2,975,000.00 $247,916.67
$3,062,500.00 $255,208.33
$3,150,000.00 $262,500.00
$3,150,000.00 $262,500.00
$3,150,000.00 $262,500.00
$3,150,000.00 $262,500.00
$3,150,000.00 $262,500.00
$3,675,000.00 $306,250.00
$3,675,000.00 $306,250.00
$3,675,000.00 $306,250.00
$3,675,000.00 $306,250.00
$3,675,000.00 $306,250.00
BUILDING RENTABLE AREA:
175,000 rentable square feet
TENANT ALLOWANCES:
$2,000,000 which will be offset in equal monthly
installments against monthly payments of Annual Rent
over the first seven (7) years of the Term, as set forth in
greater detail in Article 4 of this Lease.
Monthly Installments
$3,000,000 payable in a lump sum between January 1,
2020 and December 31, 2021, as set forth in greater
detail in Article 4 of this Lease.
$12,000 per year which will be offset in equal monthly
installments against monthly payments of Annual Rent
over the first seven (7) years of the Term, as set forth in
greater detail in Article 4 of this Lease.
$670,000 which will be offset in monthly installments
against monthly payments of Annual Rent over the
second (2 nd ) and third (3 rd ) years of the Term, as set
forth in greater detail in Article 4 of this Lease.
REAL ESTATE BROKER DUE COMMISSION:
Newmark Real Estate of Massachusetts, LLC c/o
Newmark & Company Real Estate, Inc.
125 Park Avenue
New York, NY 10017
Attention: Neal Golden
With a copy to:
Newmark Southern Region, LLC
3424 Peachtree Road, NE, Suite 800
Atlanta, GA 30326
Attention: Bert Sanders
Security Deposit
$10,000.00
The Reference Page information is incorporated into and made a part of the Lease. In the event of any conflict between
any Reference Page information and the Lease, the Lease shall control. This Lease includes Exhibits “A” through “F” ,
all of which are made a part of this Lease.
LANDLORD:
TENANT:
130 ROYALL, LLC
DUNKIN’ BRANDS, INC.
By:________________________________
By:
Title:_______________________________
Title:
Dated: December ____, 2013
Dated: December ____, 2013
LEASE
By this Lease Landlord leases to Tenant and Tenant leases from Landlord the Premises described on the Reference Page,
together with all of Landlord’s interest in and to the appurtenances to the Land and in all streets, alleys and other public ways
adjacent thereto. In addition to the foregoing, Landlord assigns to Tenant during the Term of this Lease (i) all development rights
with respect to the Land and any such rights held by Landlord with respect to any property adjacent to the Land and (ii) all
warranties and all assignable service and maintenance contracts, relating to the improvements on the Land for which Tenant shall
have maintenance and/or repair obligations hereunder. The Reference Page, including all terms defined thereon, is incorporated as
part of this Lease.
1.
DEFINITIONS; USE AND RESTRICTIONS ON USE.
1.1
Definitions . The following capitalized terms are defined as follows:
1.1.1
“ Commencement Date ” shall mean January 1, 2014.
1.1.2
“ Default Rate ” shall mean the lesser of (i) the Prime Rate plus three percent (3%) per annum or (ii) the
greatest per annum rate of interest permitted from time to time under applicable law.
1.1.3
“ Ground Lease ” shall mean that certain Ground Lease dated September 28, 2000 by and between
Boston Mutual Life Insurance Company (" Ground Lessor ") and Royall Street LLC, as assigned to Landlord by that certain
Assignment of Tenant’s Interest in Ground Lease dated December 8, 2000 by and between Royall Street LLC, as assignor, and
LSF3 Royall Street, LLC, as assignee, recorded on January 10, 2001 as Instrument N. 2763.
1.1.4
“ Prime Rate ” shall mean the per annum interest rate publicly announced by State Street Bank or any
successor thereof from time to time (whether or not charged in each instance) as its prime or base rate in Boston, Massachusetts.
1.1.5
1.1.6
Determination Date.
“ Rent Commencement Date ” shall mean January 1, 2014.
“ Treasuries ” shall mean the ten-year U.S. Treasury note most recently issued prior to the
1.2
Use . The Premises are to be used solely for the Permitted Use stated on the Reference Page. Tenant shall not do or
permit anything to be done in or about the Premises in violation of any law. Tenant shall not do or permit anything to be done on
or about the Premises or bring into or keep anything in the Premises which will in any way increase the rate of, invalidate or
prevent the procuring of any insurance protecting against loss or damage to the Building or any of its contents by fire or other
casualty or against liability for damage to property or injury to persons in or about the Building or any part thereof.
1.3
Restrictions on Use . Tenant shall not, and shall not direct, suffer or permit any of its agents, contractors,
employees, licensees or invitees to at any time handle, use, manufacture, store or dispose of in or about the Premises or the
Building any (collectively “ Hazardous Materials ”) flammables, explosives, radioactive materials, hazardous wastes or materials,
toxic wastes or materials, or other similar substances, petroleum products or derivatives or any substance subject to regulation by
or under any federal, state and local laws and ordinances relating to the protection of the environment or the keeping, use or
disposition of environmentally hazardous materials, substances, or wastes, presently in effect or hereafter adopted, all amendments
to any of them, and all rules and regulations issued pursuant to any of such laws or ordinances (collectively “ Environmental
Laws ”), nor shall Tenant suffer or permit any Hazardous Materials to be used in any manner not fully in compliance with all
Environmental Laws, in the Premises or the Building and appurtenant land or allow the environment to become contaminated with
any Hazardous Materials in violation of Environmental Laws. Notwithstanding the foregoing, Tenant may handle, store, use or
dispose of products containing small quantities of Hazardous Materials (such as aerosol cans containing insecticides, toner for
copiers, paints, paint remover and the like) to the extent customary and necessary for the use of the Premises for general office
purposes and may use Hazardous Materials in connection with the Permitted Use; provided that Tenant shall always handle, store,
use, and dispose of any such Hazardous Materials in a safe and lawful manner and never allow such Hazardous Materials to
contaminate the Premises, Building and appurtenant land or the environment in violation of Environmental Laws. Tenant shall
protect, defend, indemnify and hold each and all of the Landlord Entities (as defined in Article 28 harmless from and against any
and all loss, claims, liability or costs (including court costs and reasonable attorney’s fees actually incurred) incurred by reason of
any failure of Tenant to keep, observe, or perform any provision of this Section 1.3.
1.4
Landlord represents and warrants:
1.4.1
That, to the best of Landlord’s knowledge, as of the Reference Date, neither the Land nor the Building
contain asbestos or asbestos containing materials or any other Hazardous Materials in violation of Environmental Laws; and
1.4.2
that the Land is zoned Limited Industrial which use permits the use of the property for general office and
research and development uses; and
1.5 Landlord agrees to indemnify and hold harmless Tenant from and against any claims, liabilities, costs, fines,
damages and expenses (including reasonable attorneys' fees and costs actually incurred) arising from the inaccuracy of the
foregoing representations.
2.
TERM .
2.1
This Lease shall govern the relationship between Landlord and Tenant with respect to the Premises from the
Reference Date through the last day of the Term. The Term of this Lease shall begin on the Commencement Date (January 1,
2014) and shall continue until and including the Expiration Date (December 31, 2029) unless sooner terminated as hereinafter
provided (such term, taking into account any such sooner termination, is herein referred to as the “ Term ”).
2.2
Options to Extend . Tenant shall have two (2) options (each a “ Renewal Option ”) to extend the Term for
successive periods of five (5) years each following the end of the initial Term (each a “ Renewal Period ” and collectively the “
Renewal Periods ”), so long as this Lease is then in effect and no Event of Default by Tenant relating to any monetary obligation
of this Lease exists at the time of the exercise of the applicable Renewal Option. In the event that Tenant desires to exercise its
option to renew the Term for a Renewal Period, Tenant shall so notify Landlord in writing on or before the twelfth (12th) month
prior to the last day of the Term. Upon the giving of such notice, this Lease and the Term hereof shall automatically be extended
for five (5) years without the necessity for the execution of any other instrument in confirmation thereof except for a document
memorializing the Annual Rent established as set forth in Section 3.3 below for the then extended Term. Notwithstanding the
foregoing, Tenant's Renewal Options will not lapse because of Tenant's failure to exercise any Renewal Option unless Landlord
gives Tenant notice that Tenant has failed to exercise such Renewal Option prior to the period provided above, and Tenant shall
have failed to exercise such option within ten (10) days following Tenant's receipt of such notice. Annual Rent payable during the
applicable Renewal Period, which shall be determined in the manner provided in Section 3.3 below, and the fact that there shall be
no further option to extend beyond the second Renewal Period, each extension shall be upon all the same terms, conditions and
provisions as contained in this Lease.
3.
RENT.
3.1
Commencing on the Rent Commencement Date, Tenant agrees to pay to Landlord the Annual Rent in effect from
time to time by paying the monthly installment of Annual Rent then in effect on or before the first day of each full calendar month
during the Term. The monthly installment of Annual Rent in effect at any time shall be one-twelfth of the Annual Rent in effect at
such time. Rent for any period during the Term which is less than a full month shall be a prorated portion of the monthly
installment of Annual Rent based upon a thirty (30) day month. Said monthly installments of Annual Rent shall be paid to
Landlord, without deduction or offset and without notice or demand except as specifically set forth herein, at the Landlord’s
address, as set forth on the Reference Page, or to such other person or at such other place as Landlord may from time to time
designate in writing.
3.2
Tenant recognizes that late payment of any monthly installment of Annual Rent or other sum due under this Lease
will result in administrative expense to Landlord, the extent of which additional expense is extremely difficult and economically
impractical to ascertain. Tenant therefore agrees that if any monthly installment of Annual Rent or any other sum is not paid
within ten (10) days of the date when due and payable pursuant to this Lease, a late charge shall be imposed in an amount equal to
the lesser of (i) four percent (4%) of the unpaid monthly installment of Annual Rent or other payment or (ii) the amount of the late
charge paid by Landlord for such month pursuant to the Ground Lease and the then current Mortgage resulting from Tenant’s late
payment. The amount of the late charge to be paid by Tenant shall be reassessed and added to Tenant’s obligation for each
successive monthly period until paid. The provisions of this Section 3.2 in no way relieve Tenant of the obligation to pay any
monthly installment of Annual Rent or other payments on or before the date on which they are due, nor do the terms of this
Section 3.2 in any way affect Landlord’s remedies pursuant to Article 18 in the event said monthly installment of Annual Rent or
other payment is unpaid after the date due.
3.3
If Tenant shall extend the Term by exercising a Renewal Option pursuant to Section 2.2 above, the Annual Rent
during the applicable Renewal Period shall be Market Rent (as defined below).
" Market Rent " shall be computed for the applicable Renewal Period at the then effective current rentals being charged to
new tenants for buildings of comparable type and quality to that of the Building, taking into account and giving effect to, in
determining comparability, without limitation, such considerations as size, location of premises, lease term, then current market
tenant allowances and real estate tax and operating expenses, but Market Rent shall not take into account any "specialized"
improvements to the Premises paid for by Tenant.
Landlord shall initially, no later than ninety (90) days prior to the commencement of the applicable Renewal Period,
designate the Market Rent (" Landlord's Designation ") for five year option period and shall furnish comparable data in support
of such designation. If Tenant disagrees with Landlord's Designation of the Market Rent, then Tenant shall have the right, by
written notice given within thirty (30) days after Tenant's receipt of Landlord's Designation (“ Tenant’s Arbitration Notice ”), to
submit the determination of Market Rent to arbitration as set forth in Article 43 below. If for any reason the dispute between the
parties as to Market Rent has not been resolved before the commencement of Tenant's obligation to pay Annual Rent based upon
such Market Rent, then Tenant shall pay Annual Rent under the Lease in respect of the Premises based upon the current Annual
Rent until either the agreement of the parties as to the Market Rent or the decision of the appraisers, as the case may be, at which
time Tenant shall pay any underpayment of Annual Rent to Landlord or receive a credit against Annual Rent next becoming due
for any overpayment of Annual Rent.
3.4 For purposes of clarification only, and not limitation, Landlord and Tenant agree that, except as otherwise set forth
in this Lease, Tenant shall be solely responsible for the timely payment of all costs and expenses associated with its use and
occupancy of the Premises including, but not limited to real estate taxes applicable to the Premises.
3.5 For purposes of clarification and for documenting the parties agreement related to all taxes associated with the
Premises accrued prior to the date of this Lease, the parties expressly acknowledge and agree that both have paid their obligations
to the other in full and, as such, neither owes or shall owe the other for any taxes accrued prior to the date of this Lease.
4.
TENANT ALLOWANCES.
4.1
Landlord agrees, as a material inducement to Tenant to execute this Lease, to pay to Tenant or to allow Tenant to
offset against monthly installments of Annual Rent, the following Tenant Allowances:
4.1.3
a Two Million and 00/100 Dollar ($2,000,000.00) Tenant Allowance, which shall be credited in equal
monthly increments against monthly installments of Annual Rent during the first seven (7) years of the Initial Term of this Lease.
4.1.4
a Three Million and 00/100 Dollar ($3,000,000.00) Tenant Allowance, which Landlord agrees to pay to
Tenant in a lump sum payment during the period beginning on January 1, 2020 and ending on December 31, 2021; provided,
however, that if Landlord sells the Premises, such sum shall become immediately due and payable to Tenant.
4.1.5
a Six Hundred Seventy Thousand and 00/100 Dollar ($670,000.00) Tenant Allowance, which shall be
credited in equal monthly increments against monthly installments of Annual Rent during the second (2 nd ) and third (3 rd ) years
of the Initial Term of this Lease as follows: Twenty-Six Thousand Six Hundred Sixty-Six and 66/100 Dollars ($26,666.66) per
month during the second (2 nd ) year of the Initial Term of this Lease, and Twenty-Nine Thousand One Hundred Sixty-Six and
66/100 Dollars ($29,166.66) per month during the third (3 rd ) year of the Initial Term of this Lease.
4.1.4 a Twelve Thousand and 00/100 Dollar ($12,000.00) annual Insurance Allowance, which shall be credited
in equal monthly increments against monthly installments of Annual Rent during the first seven (7) years of the Initial Term of
this Lease (in addition to the credits set forth in Sections 4.1.1 and 4.1.3 above).
5. OPTION TO EXPAND. Expansion of Premises . Tenant shall have the option (the “ Expansion Option ”) to construct an
addition to the Building and/or expand the parking areas serving the Building (the “Expansion Space”), which expansion shall be
constructed pursuant to the terms of this Article. Any Expansion Space added to the Building pursuant to this Article shall be
subject to the terms and provisions of this Lease. In addition, Landlord expressly agrees that there will be no adjustment to the
Annual Rent payable hereunder (during not only the Term, but also during and any and all extension(s) of the Term) should such
Expansion Space be constructed by Tenant, it being agreed that, since Tenant will, if at all, be constructing the Expansion Space at
its sole cost and expense, no Annual Rent will be charged for the Expansion Space. The Expansion Option may be exercised by
Tenant’s notifying Landlord in writing of such exercise (the date of such notice is hereinafter referred to as the “ Expansion
Exercise Date ”), which Expansion Notice shall be accompanied by conceptual and preliminary design plans showing the general
layout and uses for the Expansion Space and general specifications. Tenant shall prepare and furnish to Landlord within sixty (60)
days after the Expansion Exercise Date complete architectural drawings and specifications (hereinafter called the “ Expansion
Plans ”). The Expansion Plans shall be prepared by a licensed architect retained by Tenant, which architect shall be subject to the
reasonable approval of Landlord. Landlord agrees to review the Expansion Plans and in each case to approve same or state what
changes, if any, Landlord requires therein within thirty (30) days after receipt thereof. If Landlord requires any changes, Tenant
shall cause the Expansion Plans to be revised in accordance with any reasonable requirements of Landlord and to resubmit same
to Landlord for Landlord’s review within fifteen (15) days after receipt of Landlord’s changes. In addition, Landlord may review
said Expansion Plans and request changes therein during the course of preparation thereof by said architect and Tenant shall cause
said architect to revise the Expansion Plans accordingly. The revisions and resubmissions shall continue until Landlord shall have
approved the Expansion Plans (said approved Expansion Plans being hereinafter called the “ Approved Plans ”). Landlord’s
approval of the Expansion Plans shall not constitute an opinion or agreement by Landlord that the proposed improvements are
structurally sufficient or that the Approved Plans are in compliance with Legal Requirements (it being agreed that such
compliance is solely Tenant’s responsibility). Tenant shall provide Landlord with two (2) sets of the Approved Plans and Landlord
and Tenant shall execute counterparts thereof. The Approved Plans shall be final and shall not be changed by Tenant without the
prior consent of Landlord. Tenant agrees to use diligent (commercially reasonable) efforts to obtain all necessary permits for
development and construction of the Expansion Space, or so much thereof as the law and local rules and regulations shall allow,
although the parties acknowledge that the laws and development environment at the time of the permitting for the Expansion
Space may be more restrictive than at present. Landlord agrees to reasonably cooperate with Tenant regarding Tenant’s efforts to
obtain permits, licenses and approvals pertaining to the Expansion Space. Tenant shall not be required to remove, alter, or
demolish the Expansion Space at the expiration or earlier termination of this Lease except as to leave the Expansion Space in the
same condition as is required for the Premises itself including, but not limited to, the requirements set forth in Section 6.3 and
Article 26 of this Lease. Notwithstanding anything to the contrary contained in this Article 5, if Tenant expands the Premises as
set forth herein and, as a direct result of the addition of such Expansion Space, Landlord’s rent under the Ground Lease increases,
then Tenant shall be responsible for reimbursing Landlord for such increase (but solely to the extent the increase is directly
attributable to the Expansion Space).
6.
ALTERATIONS TO THE PREMISES .
6.1 Alterations by Tenant . Tenant may, from time to time, at its own cost and expense, make such alterations,
restorations, replacements or installations (hereinafter referred to as “ Alterations ”) in, or to the Premises as Tenant deems
necessary or desirable. Notwithstanding the foregoing, Tenant shall not make any structural Alteration, the cost of which shall be
in excess of Five Hundred Thousand and No/100 Dollars ($500,000.00) without first submitting plans and specifications for such
Alteration to Landlord for Landlord’s approval. Landlord may only withhold its approval if the work described in such plans and
specifications diminishes the structural integrity of the Building or if the value of the improvements in place after such Alteration
by Tenant would be less than the value of the improvements in place prior to such Alteration. If Landlord does not either approve
or state its reasonable objections to said plans and specifications (or any revisions thereof) within ten (10) business days after
receipt thereof, then said plans and specifications (or revisions) shall be deemed approved by Landlord. All such Alterations shall
remain the property of Tenant and in case of damage or destruction thereto by fire or other causes, Tenant shall have the right to
recover the value thereof as its own loss from any insurance company with which it has insured the same, or to claim an award in
the event of condemnation, notwithstanding that any of such things might be considered part of the Premises. Tenant may, at its
option and expense, and at any time and from time to time, remove any such Alterations from the Premises provided that such
removal is accomplished without material damage to the Premises or Tenant promptly repairs any such damage.
6.2 Compliance with Laws . All alterations, additions or improvements proposed by Tenant shall be constructed in
accordance with all government laws, ordinances, rules and regulations and Tenant shall, prior to construction, provide the
additional insurance required under Article 11 in such case, and also all such assurances to Landlord, including but not limited to,
waivers of lien and surety company performance bonds (but only in the event the cost of the work exceeds One Million and
No/100 Dollars ($1,000,000)) as Landlord shall reasonably require to assure payment of the costs thereof and to protect Landlord
and the Building and appurtenant land against any loss from any mechanic’s, materialmen’s or other liens.
6.3 Tenant’s Property . All alterations, additions, and improvements in, on, or to the Premises made or installed by
Tenant, including carpeting, shall be and remain the property of Tenant during the Term but, excepting furniture, equipment,
machinery, furnishings, movable partitions and other trade fixtures and personal property (“ Tenant’s Property ”), shall become a
part of the realty and belong to Landlord without compensation to Tenant upon the expiration or sooner termination of the Term,
at which time title shall pass to Landlord under this Lease as by a bill of sale. Upon election by Landlord with respect to any
Non-Standard Alteration (as hereinafter defined) and provided Landlord informs Tenant of such election at the time Tenant
requests approval of any alterations, Tenant shall, at Tenant’s sole cost and expense, forthwith and with all due diligence remove
any such Non-Standard Alteration which are designated by Landlord to be removed prior to such alterations being made, and
Tenant shall forthwith and with all due diligence, at its sole cost and expense, repair and restore any damage caused to the
Premises by such removal. As used herein, the term “ Non-Standard Alteration ” shall mean and refer to any Alteration which is
not normal and customary for general business or office use, such as raised flooring, fountains, swimming pools, etc. Tenant
agrees that, at the expiration or earlier termination of the Term of this Lease, it shall remove from the Premises any Non-Standard
Alteration(s) made to the Premises by Tenant including, but not limited to, Tenant’s research and development kitchen and the
unique “Dunkin’ Donuts” and “Baskin-Robbins” mock-up restaurants that are located in the Building.
7.
REPAIRS .
7.1
Landlord’s Obligations . Landlord shall promptly repair, replace and maintain the structural portions of the
Premises except to the extent that the repair, replacement or maintenance is the result of Tenant’s negligence or willful
misconduct or is otherwise covered by Tenant’s insurance. Such structural portions of the Premises shall be defined to mean the
roof, load supporting walls, foundation, and utility and sewer lines/systems to the extent located outside of the Building (provided,
however, that if Tenant increased during the term of its prior lease or increases during the Term of this Lease the capacity of the
utilities and/or sewer lines/systems during the Term of this Lease, Tenant shall be solely responsible for all costs and expenses
associated with such alterations and repairs). Notwithstanding the foregoing, Landlord shall not be responsible for repairs
associated with defects in any alterations or improvements performed by Tenant and Landlord shall not be liable for any failure to
make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of
the need of such repairs or maintenance is given to Landlord by Tenant.
7.2 Tenant’s Obligations . Tenant shall, at its sole cost and expense, repair, replace and maintain the exterior portions
of the Premises (excluding the roof, load supporting walls, and foundations) including the parking lot, exterior paint, and exterior
glass, and shall also repair, replace and maintain those interior portions of the Premises, including without limitation, the
floors/carpeting, the Building Systems (i.e., plumbing, electrical, HVAC, utility and sewer lines and sprinkler systems) and,
except for any obligations expressly imposed upon Landlord by the provisions hereof, Tenant, as part of its obligations hereunder
shall keep the Premises in a clean and sanitary condition. Upon termination of this Lease in any way, Tenant will yield up the
Premises to Landlord in good condition and repair, reasonable wear and tear, loss by fire or other casualty (subject to Tenant’s
obligations under Article 11) and repairs that are the responsibility of Landlord excepted.
7.3 No Abatement . Except as provided herein, there shall be no abatement of Annual Rent and no liability of Landlord
by reason of any injury to or interference with Tenant’s business unless arising due to the gross negligence or willful misconduct
of Landlord. Except to the extent, if any, prohibited by law or as otherwise provided herein, Tenant waives the right to make
repairs at Landlord’s expense under any law, statute or ordinance now or hereafter in effect.
8. LIENS. Tenant shall keep the Premises, the Building and Tenant’s leasehold interest in the Premises free from any liens
arising out of any services, work or materials performed, furnished, or contracted for by Tenant, or obligations incurred by Tenant.
In the event that Tenant shall not, within thirty (30) days following the imposition of any such lien, either cause the same to be
released of record or provide Landlord with insurance against the same issued by a major title insurance company or such other
protection against the same as Landlord shall reasonably accept, Landlord shall have the right to cause the same to be released by
such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and
all reasonable expenses incurred by it in connection therewith shall be considered additional rent and shall be payable to it by
Tenant within twenty (20) days of demand.
9.
ASSIGNMENT AND SUBLETTING .
9.1 Tenant shall have the right to assign or pledge this Lease or to sublet the whole or any part of the Premises whether
voluntarily or by operation of law, or permit the use or occupancy of the Premises by anyone other than Tenant. In the event
Tenant desires to sublet, or permit such occupancy of, the Premises, or any portion thereof, or assign this Lease, Tenant shall give
written notice thereof to Landlord at least thirty (30) days prior to the proposed commencement date of such subletting or
assignment, which notice shall set forth the name of the proposed subtenant or assignee and the relevant terms of any sublease or
assignment.
9.2 Notwithstanding any assignment or subletting, permitted or otherwise, Tenant shall at all times remain directly,
primarily and fully responsible and liable for the payment of the rent specified in this Lease and for compliance with all of its
other obligations under the terms, provisions and covenants of this Lease. Upon the occurrence of an Event of Default, if the
Premises or any part of them are then assigned or sublet, Landlord, in addition to any other remedies provided in this Lease or
provided by law, may, at its option, collect directly from such assignee or subtenant all rents due and becoming due to Tenant
under such assignment or sublease and apply such rent against any sums due to Landlord from Tenant under this Lease, and no
such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant’s
obligations under this Lease.
9.3 In the event that Tenant sells, sublets, assigns or transfers this Lease to any Non-Affiliate (as hereinafter defined),
Tenant shall pay to Landlord as additional rent an amount equal to fifty percent (50%) of any Increased Rent (as defined below)
when and as such Increased Rent is received by Tenant. As used in this Section, “Increased Rent” shall mean the excess of (i) all
rent and other consideration which Tenant receives by reason of any sale, sublease, assignment or other transfer of this Lease, over
(ii) the rent otherwise payable by Tenant under this Lease at such time after deducting all of Tenant's reasonable costs directly
related to such sublease or assignment and the marketing thereof including, without limitation, brokerage commissions, reasonable
legal fees, TI Work or allowances, free rent, and other such concessions, costs and expenses. For purposes of the foregoing, any
consideration received by Tenant in form other than cash shall be valued at its fair market value as determined by Landlord in
good faith.
9.4 Notwithstanding the foregoing provisions of this Article 9, Tenant may, without Landlord’s consent, assign this
Lease or sublet any portion or all of the Premises to any corporation, partnership, trust, association or other business organization
directly or indirectly controlling or controlled by Tenant or to any successor by merger, consolidation or acquisition of all or
substantially all of the assets of Tenant (collectively, an “ Affiliate ” and any entity which is not an Affiliate is herein referred to as
a “ Non-Affiliate ”) or any Affiliate of Tenant.
10. INDEMNIFICATION . Landlord hereby waives any and all right of recovery which it might otherwise have against
Tenant, its agents and employees, for loss or damage occurring to the Premises, including the Building, to the extent that the loss
or damage is covered by Landlord’s insurance, notwithstanding that such loss or damage may result from the negligence or fault
of Tenant, its agents or employees. Tenant hereby waives any and all right of recovery which it might otherwise have against
Landlord, its agents and employees, for loss or damage to Tenant’s furniture, furnishings, fixtures and other property removable
by Tenant under the provisions hereof, to the extent that the loss or damage is covered by Tenant’s insurance, notwithstanding that
such loss or damage may result from the negligence or fault of Landlord, its servants, agents or employees. If either party shall
become partially or wholly a self-insurer by inclusion of a deductible provision in its insurance policy or policies or by not
maintaining insurance in an amount sufficient to prevent such party from becoming a co-insurer under the usual co-insurance
clause or by not maintaining insurance in such amounts required under the provisions of this Lease, then it shall be deemed for the
purpose of the foregoing waivers that any loss or damage suffered by such party was covered by said party’s insurance to the
extent that it would have been so covered had said party maintained standard all-risk fire and extended coverage insurance in an
amount sufficient to prevent such party from becoming a co-insurer under the usual co-insurance clause pursuant to a policy or
policies containing no deductible provision.
11.
INSURANCE .
11.1 Tenant’s Insurance . Tenant shall keep in force throughout the Term: (a) causes of loss-special form (formerly “all
risk”) property insurance covering the Premises in amounts at least equal to the full replacement cost thereof; (b) commercial
general liability insurance applicable to the Premises with a limit of not less than $2,000,000.00 per occurrence and not less than
$5,000,000.00 in the annual aggregate, covering bodily injury and property damage liability and $1,000,000 products/completed
operations aggregate; (c) Business Auto Liability covering owned, non-owned and hired vehicles with a limit of not less than
$1,000,000 per accident; (d) insurance protecting against liability under Worker’s Compensation Laws with limits at least as
required by statute; (e) Employer’s Liability with limits of $500,000 each accident, $500,000 disease policy limit, $500,000
disease--each employee; (f) causes of loss-special form (formerly “all risk”) property insurance, protecting Tenant against loss of
or damage to Tenant’s Property and other business personal property situated in or about the Premises to the full replacement
value of the property so insured; (g) boiler and machinery insurance (to the extent currently held by Tenant as of the date of this
Lease); and (h) flood and earthquake insurance (to the extent currently held by Tenant as of the date of this Lease) provided,
however, that Tenant may elect to self-insure with respect to the insurance required with respect to such insurance. Additionally,
coverage for liability in excess of the amounts required above up to a $5,000,000 aggregate shall be provided under a blanket
excess insurance policy provided that a primary policy providing coverage for liability of at least $1,000,000 remains in effect.
11.2 Landlord’s Insurance . Landlord shall keep in force throughout the Term: commercial general liability insurance
with a limit of not less than $1,000,000 per occurrence and not less than $2,000,000 in the annual aggregate or such larger amount
as prudent landlords in the Boston metropolitan area carry in similar circumstances; (b) Employer’s Liability with limits of
$500,000 each accident, $500,000 disease policy limit, $500,000 disease each employee, in an amount of not less than
$5,000,000; and (c) insurance protecting against liability under Worker’s Compensation Laws with limits at least as required by
statute.
11.3 Each of the aforesaid policies shall (a) name the Landlord and Tenant (and Ground Lessor where appropriate) as
their interests may appear; (b) be issued by an insurance company with a minimum Best’s rating of “A-: VII” during the Term;
and (c) provide that said insurance shall not be canceled unless thirty (30) days prior written notice (ten days for non-payment of
premium) shall have been given to the other party; and said policy or policies, duplicate originals or certificates thereof shall be
delivered to the other party upon the Rent Commencement Date and at least thirty (30) days prior to each renewal of said
insurance. Any insurance required hereunder may be provided under such blanket policies as are then customary for comparable
buildings, provided that the coverage allocated to the Premises is not less than the coverage contemplated by this Lease as
separately stated in this Article. Additionally, coverage for liability in excess of the amounts required above up to a $5,000,000
aggregate shall be provided under a blanket excess insurance policy provided that a primary policy providing coverage for liability
of at least $1,000,000 remains in effect.
11.4 Whenever either party shall undertake any alterations, additions or improvements in, to or about the Premises (“
Work ”), the aforesaid insurance protection must extend to and include injuries to persons and damage to property arising in
connection with such Work, without limitation including liability under any applicable structural work act; and the policies of or
certificates evidencing such insurance must be delivered to the other party prior to the commencement of any such Work. The
aforesaid coverage may be maintained by the general contractor performing the work.
12. WAIVER OF SUBROGATION . Tenant and Landlord hereby mutually waive any and all rights of recovery, claim,
action or cause of action against each other, their respective agents, officers and employees, for any loss or damage that may occur
to the Premises and to all property, whether real, personal or mixed, located on the Premises or in the Building, by reason of fire,
the elements or any other cause normally insured against under the terms of standard all-risk fire and extended coverage insurance
policies of the type prescribed from time to time for use in respect of the Building, regardless of the cause or origin, including
negligence of the parties hereto, their respective agents and employees. Each party shall obtain any special endorsements required
by their insurer to evidence compliance with the aforementioned waiver and shall provide the other with reasonable evidence of its
insurance carrier’s consent to such waiver of subrogation.
13. ELECTRICITY . Tenant shall pay for all electric service to the Premises directly to the utility company furnishing such
electric service to the Premises, together with any taxes, penalties, and surcharges or the like pertaining thereto and any
maintenance charges for utilities. Tenant shall furnish all electric light bulbs, tubes and ballasts, battery packs for emergency
lighting and fire extinguishers.
14. HOLDING OVER . Tenant shall pay Landlord for each day Tenant retains possession of the Premises or part of them after
termination of this Lease by lapse of time or otherwise at the rate (“ Holdover Rate ”) which shall be, for the first thirty (30) days
of any such holdover, 125% of the amount of the Annual Rent for the last period prior to the date of such termination plus 100%
of all additional rent under Article 3, and for any period thereafter, 150% of the amount of the Annual Rent for the last period
prior to the date of such termination plus 100% of all additional rent under Article 3, in either case prorated on a daily basis, and a
tenancy at sufferance at the Holdover Rate shall be deemed to have been created. In any event, no provision of this Article 14 shall
be deemed to waive Landlord’s right of reentry or any other right under this Lease or at law.
15.
SUBORDINATION; NONDISTURBANCE; ATTORNMENT .
15.1 Subordination . Landlord may, from time to time, grant deeds of trust, mortgages or other security interests
covering its estate in the Premises (herein, collectively, a “ Mortgage ”). Subject to the provisions of the following Sections,
Tenant agrees that this Lease shall be subject and subordinate at all times to each Mortgage; provided, however, that if the lessor,
mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have Tenant’s interest in this Lease be superior to any
such instrument, then, by notice to Tenant, this Lease shall be deemed superior, whether this Lease was executed before or after
said instrument.
15.2 Ground Lease . Tenant acknowledges that this Lease is subject and subordinate to the Ground Lease, provided,
however, that within thirty (30) days after the execution hereof, Landlord shall deliver to Tenant a Ground Lease Estoppel
Certificate (the “ Ground Lease Estoppel ”) from Ground Lessor substantially in the form of Exhibit “E” attached hereto and
incorporated herein by this reference and simultaneously with the execution hereof Landlord shall deliver to Tenant a Leasehold
Mortgage in the form of Exhibit F attached hereto (the " Qualifying Leasehold Mortgage ") executed by Landlord which shall
entitle Tenant to all of the rights (including, without limitation, notice and cure rights) of the holder of a Qualifying Leasehold
Mortgage under Section 4.02 of the Ground Lease. In the event that Landlord fails to deliver the Ground Lease Estoppel within
thirty (30) days after the Reference Date, Tenant may terminate this Lease upon written notice to Landlord within thirty (30) days
thereafter. Upon execution of such Qualifying Leasehold Mortgage, Landlord shall cause such instrument to be recorded in the
Norfolk County Registry of Deeds. Landlord expressly acknowledges and agrees that Landlord is solely responsible for any and
all rents and other charges due under the Ground Lease and that Tenant has no responsibility for any charges due thereunder
(directly or by way of pass-through) subject, however, to the terms of the final sentence contained in Article 5 (related to
Expansion Space).
15.3 Nondisturbance . Within thirty (30) days after execution hereof, Landlord shall deliver to Tenant a Subordination,
Nondisturbance and Attornment Agreement in a form reasonably satisfactory to Tenant (the “ SNDA ”) executed by Landlord and
Existing Mortgagee. The subordination of this Lease to any subsequent Mortgage is conditioned upon the holder thereof expressly
agreeing in such SNDA that (i) Tenant will not be named or joined in any proceeding to enforce the Mortgage unless such shall be
required by law in order to perfect the proceeding; (ii) enforcement of any Mortgage shall not terminate or modify this Lease or
any provision of this Lease or disturb Tenant in the possession and use of the Premises (except in the case where Tenant is in
default beyond the period, if any, provided in this Lease to remedy such default), or where mortgagee or its successor will provide
Tenant with a new lease on the same terms and conditions as are contained herein, (iii) provided that Landlord or Tenant does not
terminate this Lease as a result of a casualty or the exercise of eminent domain, proceeds and awards shall first be applied to the
repair, alteration and restoration of the Premises, as provided in this Lease, before being applied to the debt secured by the
Mortgage; and (iv) any party succeeding to the interest of Landlord as a result of the enforcement of any Mortgage shall be bound
to Tenant, under all the terms, covenants and conditions of this Lease for the balance of the Term, including any extended Term,
with the same force and effect as if such party were the original Landlord under this Lease. In the event that Landlord fails to
deliver such SNDA to Tenant within such thirty (30) day period, Tenant shall have the right to terminate this Lease by written
notice to Landlord.
15.4 Attornment . Subject to the provisions of the preceding Section, Tenant agrees to recognize and attorn to any party
succeeding to the interest of Landlord as a result of the enforcement of any Mortgage or any termination of the Ground Lease, and
to be bound to such party under all the terms, covenants and conditions of this Lease, for the balance of the Term, including
extended Terms, with the same force and effect as if such party were the original Landlord under this Lease.
15.5 Confirming Agreement . Upon the request of Landlord and at no expense to Tenant, Tenant agrees to execute and
deliver a subordination, attornment and nondisturbance agreement incorporating the provisions of this Article and otherwise in
form reasonably acceptable to Tenant.
15.6 Existing Mortgage . Landlord represents and warrants to Tenant that there is no Mortgage presently affecting the
Premises which is superior or senior to this Lease which could result in the termination of this Lease if enforced other than that
certain mortgage (the “ Existing Mortgage ”) by and between Landlord and Boston Federal Savings Bank (the “ Existing
Mortgagee ”).
16.
INTENTIONALLY OMITTED ..
17.
REENTRY BY LANDLORD .
17.1 Landlord reserves and shall at all times during normal business hours have the right to re-enter the Premises to
inspect the same, to show said Premises to prospective purchasers, mortgagees or, during the last year of the Term, to tenants
17.2 Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an
emergency to obtain entry to any portion of the Premises, provided, however, Landlord shall always make good faith reasonable
attempts to have a Tenant representative present. As to any portion to which access cannot be had by means of a key or keys,
Landlord is authorized to gain access by such means as Landlord shall elect and the cost of repairing any damage occurring in
doing so shall be borne by Tenant and paid to Landlord as additional rent upon demand.
18.
DEFAULT BY TENANT AND LANDLORD REMEDIES .
18.1 Default by Tenant . Except as otherwise provided in Article 0, the following events shall be deemed to be “ Events
of Default ” under this Lease:
18.1.1 Tenant shall fail to pay when due any sum of money becoming due to be paid to Landlord under this
Lease, whether such sum be any monthly installment of the Annual Rent reserved by this Lease, or any other payment or
reimbursement to Landlord required by this Lease, and such failure shall continue for a period of seven (7) days after written
notice that such payment was not made when due, but if within any twenty-four (24) month period commencing with the date of
the first notice, Landlord shall give two (2) such notices, then thereafter for the remainder of such twenty-four (24) month period,
the failure to pay within seven (7) days after due any additional sum of money becoming due to be paid to Landlord under this
Lease shall be an Event of Default without notice.
18.1.2 Tenant shall fail to comply with any term, provision or covenant of this Lease which is not provided for
in another Section of this Article and shall not cure such failure within thirty (30) days (forthwith, if the failure involves a
hazardous condition) after written notice of such failure to Tenant; provided, however, that if such cure cannot be reasonably
performed within such thirty (30)-day period, Tenant shall have a reasonable period of time to complete such cure so long as
Tenant commences the cure within such 30-day period and thereafter diligently pursues such cure to completion. As used herein,
the term “ hazardous condition ” shall mean and refer to a condition of the Premises which causes immediate threat of serious
bodily injury or substantial property damage.
18.1.3 Tenant shall file a petition in bankruptcy or a petition to take advantage of any insolvency statute, make
an assignment for the benefit of creditors, make a transfer in fraud of creditors, apply for or consent to the appointment of a
receiver of itself or of the whole or any substantial part of its property, or file a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws, as now in effect or hereafter amended, or any other applicable law or statute of the
United States or any state thereof.
18.1.4 A court of competent jurisdiction shall enter an order, judgment or decree adjudicating Tenant bankrupt,
or appointing a receiver of Tenant, or of the whole or any substantial part of its property, without the consent of Tenant, or
approving a petition filed against Tenant seeking reorganization or arrangement of Tenant under the bankruptcy laws of the
United States, as now in effect or hereafter amended, or any state thereof, and such order, judgment or decree shall not be vacated
or set aside or stayed within sixty (60) days from the date of entry thereof.
18.2
Landlord’s Remedies .
18.2.1 Except as otherwise provided in Article 20, upon the occurrence of any of the Events of Default
described or referred to in Article 18.1, Landlord shall have the option to pursue any one or more of the following remedies
without any notice or demand whatsoever, concurrently or consecutively and not alternatively:
18.2.2 Landlord may, at its election, terminate this Lease or terminate Tenant’s right to possession only, without
terminating the Lease.
18.2.3 Upon any termination of this Lease, whether by lapse of time or otherwise, or upon any termination of
Tenant’s right to possession without termination of the Lease, Tenant shall surrender possession and vacate the Premises
immediately, and deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free license to enter into
and upon the Premises in such event and to repossess the Premises as Landlord’s former estate and to expel or remove Tenant and
any others who may be occupying or be within the Premises and to remove Tenant’s signs and other evidence of tenancy and all
other property of Tenant therefrom without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer,
and without incurring any liability for any damage resulting therefrom, Tenant waiving any right to claim damages for such
re-entry and expulsion, and without relinquishing Landlord’s right to Annual Rent or any other right given to Landlord under this
Lease or by operation of law.
18.2.4 Upon any termination of this Lease, whether by lapse of time or otherwise, Landlord shall be entitled to
recover as damages, all Annual Rent, and other sums due and payable by Tenant on the date of termination, plus as liquidated
damages and not as a penalty, an amount equal to the sum of: (a) an amount equal to the then present value of the Annual Rent
reserved in this Lease (discounted at 9.5%) for the residue of the stated Term of this Lease and all other sums provided in this
Lease to be paid by Tenant, minus the fair rental value of the Premises for such residue and minus any remaining Tenant
Allowances that are at that time outstanding; (b) the value of the time and expense necessary to obtain a replacement tenant or
tenants but without any duplication for any other items of recovery under this Article 18, and the estimated expenses described in
Section 18.2.5 relating to recovery of the Premises, preparation for reletting and for reletting itself; and (c) the cost of performing
any other covenants which would have otherwise been performed by Tenant.
18.2.5 Upon any termination of Tenant’s right to possession only without termination of the Lease:
(i)
Neither such termination of Tenant’s right to possession nor Landlord’s taking and holding
possession thereof as provided in Section 18.2.3 shall terminate the Lease or release Tenant, in whole or in part, from any
obligation, including Tenant’s obligation to pay Annual Rent under this Lease for the full Term, and if Landlord so elects Tenant
shall pay damages as set forth in Section 18.2.3 forthwith to Landlord.
(ii)
Landlord shall use good faith efforts to relet the Premises or any part thereof for such rent and upon
such terms as Landlord, in its sole but reasonable discretion, shall determine (including the right to relet the Premises for a greater
or lesser term than that remaining under this Lease, the right to relet the Premises as a part of a larger area, and the right to change
the character or use made of the Premises). In connection with or in preparation for any reletting, Landlord may, but shall not be
required to, make repairs, alterations and additions in or to the Premises to return the same to the condition required as if this
Lease had expired by its natural terms, and Tenant shall, upon demand, pay the cost thereof, together with Landlord’s expenses of
reletting, including, without limitation, any commission incurred by Landlord (provided, however, that with respect to any lease
which extends beyond the originally scheduled expiration date hereof, such costs and expenses shall be prorated and Tenant shall
be responsible only for a reasonable allocation of such costs and expenses to the original Term hereof). Landlord shall not be
required to observe any instruction given by Tenant about any reletting or accept any tenant offered by Tenant unless such offered
tenant has a creditworthiness reasonably acceptable to Landlord and leases the entire Premises upon terms and conditions
including a rate of rent (after giving effect to all expenditures by Landlord for tenant improvements, broker’s commissions and
other leasing costs) all no less favorable to Landlord than as called for in this Lease, nor shall Landlord be required to make or
permit any assignment or sublease for more than the current term or which Landlord would not be required to permit under the
provisions of Article 0.
(iii)
Until such time as Landlord shall elect to terminate the Lease and shall thereupon be entitled to
recover the amounts specified in such case in Section 0, Tenant shall pay to Landlord upon demand the full amount of all Annual
Rent under this Lease and other sums reserved in this Lease for the remaining Term, together with the costs of repairs, alterations,
additions, to return the same to the condition required as if this Lease had expired by its natural terms, and Landlord’s expenses of
reletting and the collection of the rent accruing therefrom (including reasonable attorney’s fees and broker’s commissions), as the
same shall then be due or become due from time to time, less only such consideration as Landlord may have received from any
reletting of the Premises; and Tenant agrees that Landlord may file suits from time to time to recover any sums falling due under
this Article as they become due. Any proceeds of reletting by Landlord in excess of the amount then owed by Tenant to Landlord
from time to time shall be credited against Tenant’s future obligations under this Lease but shall not otherwise be refunded to
Tenant or inure to Tenant’s benefit.
18.3 Landlord may, at Landlord’s option, enter into and upon the Premises during normal business hours if Landlord
determines in its reasonable discretion that Tenant is not acting within a commercially reasonable time to maintain, repair or
replace anything for which Tenant is responsible under this Lease and correct the same, without being deemed in any manner
guilty of trespass, eviction or forcible entry and detainer and without incurring any liability for any damage or interruption of
Tenant’s business resulting therefrom except in the event of Landlord’s negligence or intentional misconduct.
18.4 If, on account of any breach or default by Tenant or Landlord under the terms and conditions of this Lease, it shall
become necessary or appropriate for either party to employ with an attorney to enforce or defend any of its rights or remedies
arising under this Lease, the losing party agrees to pay all of the prevailing party’s reasonable attorney’s fees so incurred. Tenant
and Landlord expressly waive any right to trial by jury.
18.5 Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies provided in this
Lease or any other remedies provided by law (all such remedies being cumulative), nor shall pursuit of any remedy provided in
this Lease constitute a forfeiture or waiver of any Annual Rent due to Landlord under this Lease or of any damages accruing to
Landlord by reason of the violation of any of the terms, provisions and covenants contained in this Lease.
18.6 No act or thing done by Landlord or its agents during the Term shall be deemed a termination of this Lease or an
acceptance of the surrender of the Premises, and no agreement to terminate this Lease or accept a surrender of said Premises shall
be valid, unless in writing signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms, provisions
and covenants contained in this Lease shall be deemed or construed to constitute a waiver of any other violation or breach of any
of the terms, provisions and covenants contained in this Lease. Landlord’s acceptance of the payment of Annual Rent or other
payments after the occurrence of an Event of Default shall not be construed as a waiver of such Default, unless Landlord so
notifies Tenant in writing. Forbearance by Landlord in enforcing one or more of the remedies provided in this Lease upon an
Event of Default shall not be deemed or construed to constitute a waiver of such Default or of Landlord’s right to enforce any such
remedies with respect to such Default or any subsequent Default.
18.7 Any and all property which may be removed from the Premises by Landlord pursuant to the authority of this Lease
or of law, to which Tenant is or may be entitled, may be handled, removed and/or stored, as the case may be, by or at the direction
of Landlord but at the risk, cost and expense of Tenant, and Landlord shall in no event be responsible for the value, preservation
or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage
charges against such property so long as the same shall be in Landlord’s possession or under Landlord’s control. Any such
property of Tenant not retaken by Tenant from storage within thirty (30) days after removal from the Premises and notice to
Tenant shall, at Landlord’s option, be deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale without further
payment or credit by Landlord to Tenant.
18.8 Tenant agrees that, if due to an Event of Default, Landlord terminates this Lease as set forth above such that all of
Tenant’s obligations set forth in this Lease including, but not limited to, Tenant’s obligation to pay Rent and other charges due
hereunder are terminated in full as of the date of such termination, Tenant shall not be entitled to (i) collect any “Tenant
Allowances” (as described in the “Reference Pages” and Article 4 of this Lease) that at that time have not been credited to Tenant,
(ii) any proceeds described in Section 24.2 of this Lease pertaining to Landlord’s subsequent sale of the Premises, (iii) exercise its
Right of First Refusal as set forth in Article 45 of this Lease pertaining to Landlord’s subsequent receipt of an Offer (as defined
below) for the purchase of the Premises; and (iv) Tenant will forthwith issue a discharge as it relates to the Leasehold Mortgage.
19.
DEFAULT BY LANDLORD AND TENANT REMEDIES.
19.1 Default by Landlord. If (i) Landlord shall fail to pay any sum of money to be paid by Landlord hereunder, and
shall not cure such failure within thirty (30) days after Tenant gives Landlord written notice thereof; or (ii) Landlord shall violate
or breach, or shall fail fully and completely to observe, keep, satisfy, perform and comply with, any agreement, term, covenant,
condition, requirement, restriction or provision of this Lease (other than the payment of any sum of money to be paid by Landlord
hereunder), and shall not cure such failure within thirty (30) days after Tenant gives Landlord written notice thereof (but forthwith
if the failure involves a hazardous condition), or if such failure shall be incapable of cure within thirty (30) days, Landlord shall
not commence to cure such failure within such thirty (30) day period, and continuously prosecute the performance of the same to
completion with due diligence, then Landlord shall be in default under this Lease.
19.2 Tenant’s Remedies . If Landlord is in default under this Lease, Tenant may pursue any one or more of the
following remedies, separately or concurrently or in any combination, without any notice (except as specifically provided herein)
or demand whatsoever and without prejudice to any other remedy which it may have, (i) bring an action (either through judicial
action or through Arbitration as set forth in Article 43) against Landlord to recover from Landlord all damages suffered, incurred
or sustained by Tenant (including, without limitation, court costs and reasonable attorneys’ fees actually incurred) as a result of,
by reason of or in connection with such default, and/or to obtain specific performance of Landlord’s obligations under this Lease,
(ii) after reasonable notice take whatever action Landlord is obligated to do under the terms of this Lease in which event Landlord
shall reimburse Tenant on demand for any expenses, including without limitation, reasonable attorneys’ fees actually incurred,
which Tenant may incur in taking such action. In the event that Tenant obtains the entry of a judgment against Landlord either
following Arbitration pursuant to Article 43 or judicial action, and in such event Landlord fails to pay such judgment within thirty
(30) days following the date of entry of such judgment together with interest thereon from the date of the judgment at the Default
Rate: (i) Tenant may within a period of thirty (30) days thereafter terminate this Lease by giving Landlord written notice of such
termination, in which event this Lease shall be terminated at the time designated by Tenant in its notice of termination to
Landlord; or (ii) Tenant may set off against and deduct from the Annual Rent or other amounts due under this Lease the amount of
any damages suffered, incurred or sustained by Tenant as a result of, by reason of or in connection with such default. Tenant
agrees that if it shall commence any action against Landlord described in this Section 19.2, it shall simultaneously provide a copy
of its complaint in such action to any mortgagee holding a mortgage on the Premises of whom Tenant shall have received notice
of such mortgage.
19.3 Landlord's Default (as tenant) Under Ground Lease . Landlord covenants with Tenant that it will pay all rent due
and perform all of its obligations under the Ground Lease. In addition to its rights set forth in this Article 19 above, in the event of
any default by Landlord in the payment of rent or otherwise under the Ground Lease for which Tenant shall receive notice as
required under the Ground Lease, either as the holder of a Qualifying Mortgage or otherwise, Tenant shall have the right to make
payment of Rent or other amounts due under the Ground Lease to the Ground Lessor or take such other action as shall be required
to cure such default, and Tenant shall then have the right, immediately after notice of such payment or action to Landlord and
without the need for any judicial action or arbitration, to offset any such payments or the cost of any such other action necessary to
cure such default against the payment of Annual Rent (or other charges due hereunder).
20.
TENANT’S BANKRUPTCY OR INSOLVENCY .
20.1 If at any time and for so long as Tenant shall be subjected to the provisions of the United States Bankruptcy Code
or other law of the United States or any state thereof for the protection of debtors as in effect at such time (each a “ Debtor’s Law
”):
20.1.1 Tenant, Tenant as debtor-in-possession, and any trustee or receiver of Tenant’s assets (each a “ Tenant’s
Representative ”) shall have no greater right to assume or assign this Lease or any interest in this Lease, or to sublease any of the
Premises than accorded to Tenant in Article 9, except to the extent Landlord shall be required to permit such assumption,
assignment or sublease by the provisions of such Debtor’s Law. Without limitation of the generality of the foregoing, any right of
any Tenant’s Representative to assume or assign this Lease or to sublease any of the Premises shall be subject to the conditions
that:
(i) Such Debtor’s Law shall provide to Tenant’s Representative a right of assumption of this Lease
which Tenant’s Representative shall have timely exercised and Tenant’s Representative shall have fully cured any default of
Tenant under this Lease.
(ii) Tenant’s Representative or the proposed assignee, as the case shall be, shall have deposited with
Landlord as security for the timely payment of Annual Rent an amount equal to three (3) months’ Annual Rent and other
monetary charges accruing under this Lease; and shall have provided Landlord with adequate other assurance of the future
performance of the obligations of the Tenant under this Lease. Without limitation, such assurances shall include, at least, in the
case of assumption of this Lease, demonstration to the satisfaction of the Landlord that Tenant’s Representative has and will
continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure
Landlord that Tenant’s Representative will have sufficient funds to fulfill the obligations of Tenant under this Lease; and, in the
case of assignment, submission of current financial statements of the proposed assignee, audited by an independent certified
public accountant reasonably acceptable to Landlord and showing a net worth and working capital in amounts determined by
Landlord to be sufficient to assure the future performance by such assignee of all of the Tenant’s obligations under this Lease.
(iii) The assumption or any contemplated assignment of this Lease or subleasing any part of the
Premises, as shall be the case, will not breach any provision in any other lease, mortgage, financing agreement or other agreement
by which Landlord is bound.
(iv) Landlord shall have, or would have had absent the Debtor’s Law, no right under Article 9 to refuse
consent to the proposed assignment or sublease by reason of the identity or nature of the proposed assignee or sublessee or the
proposed use of the Premises concerned.
21. QUIET ENJOYMENT . Landlord represents and warrants that it has full right and authority to enter into this Lease and
that Tenant, while paying the Annual Rent and performing its other covenants and agreements contained in this Lease, shall
peaceably and quietly have, hold and enjoy the Premises for the Term without hindrance or molestation subject to the terms and
provisions of this Lease.
22.
CASUALTY .
22.1 In the event the Building or the Premises are damaged by fire or other cause, to the extent Tenant receives
insurance proceeds related thereto, Tenant shall forthwith repair the same to the condition existing prior to such casualty and this
Lease shall remain in full force and effect, except that Tenant shall be entitled to a proportionate abatement in monthly
installments of Annual Rent from the date of such damage. Such abatement of monthly installments of Annual Rent shall be made
pro rata in accordance with the extent to which the damage and the making of such repairs shall interfere with the use and
occupancy by Tenant of the Building and/or Premises from time to time.
22.2 If such repairs cannot, in Tenant’s reasonable estimation, be made within one hundred eighty (180) days, Tenant
shall have the option of giving Landlord, at any time within sixty (60) days after such damage, notice terminating this Lease as of
the date of such damage. In the event of the giving of such notice, this Lease shall expire and all interest of the Tenant in the
Premises, all rights of the Tenant under this Lease (including Tenant’s right to collect future not yet accrued Tenant Allowances
under Article 4 and Tenant’s right to exercise its Right of First Refusal under Article 45), and all obligations of the Tenant under
this Lease (including, without limitation, the obligation to pay Rent and all other charges due hereunder) shall terminate as of the
date of such damage as if such date had been originally fixed in this Lease for the expiration of the Term and Tenant shall turn
over to (or assign to) Landlord the insurance proceeds which Tenant receives as a result of such damage. In the event that Tenant
does not exercise its option to terminate this Lease, then Tenant shall promptly repair or restore such damage to the Building
and/or Premises, this Lease continuing in full force and effect, and the Annual Rent hereunder shall be proportionately abated as
provided in Section 22.1.
22.3 Except with respect to items insured by or required to be insured by Landlord pursuant to Article 11 of this Lease,
Landlord shall not be required to repair or replace any damage or loss by or from fire or other cause to any of the Building and/or
Premises and/or Tenant’s Property. Any insurance which may be carried by Landlord or Tenant against loss or damage to the
Building and/or Premises shall be for the sole benefit of the party carrying such insurance and under its sole control.
22.4 Notwithstanding anything to the contrary contained in this Article, if material damage to the Building and/or
Premises shall occur during the last twenty-four (24) months of the Term, Tenant may terminate this Lease by written notice to
Landlord given within thirty (30) days after the date of such damage, whereupon this Lease shall end on the date of such damage
as if the date of such damage were the date originally fixed in this Lease for the expiration of the Term. As used in this Section
22.4, the term “ material damage ” shall mean and refer to damage to twenty percent (20%) or more of the Premises such that
Tenant cannot reasonably conduct business in such portion of the Premises. If Tenant shall so elect to terminate this Lease, Tenant
shall turn over to (or assign to) Landlord the insurance proceeds which Tenant receives as a result of such damage.
22.5 In the event of any damage or destruction to the Building or Premises by any peril covered by the provisions of this
Article 22, it shall be Tenant’s responsibility to properly secure the Premises.
23. EMINENT DOMAIN . If all or any substantial part of the Premises, or any means of access, shall be taken or appropriated
by any public or quasi-public authority under the power of eminent domain, or conveyance in lieu of such appropriation, Tenant
shall have the right, at its option, of giving Landlord, at any time within thirty (30) days after such taking, notice terminating this
Lease effective as of the date of such taking. In the event of the giving of such notice, this Lease shall expire and all interest of the
Tenant in the Premises, all rights of the Tenant under this Lease (including Tenant’s right to collect future not yet accrued Tenant
Allowances under Article 4 and Tenant’s right to exercise its Right of First Refusal under Article 45), and all obligations of the
Tenant under this Lease (including, without limitation, the obligation to pay Rent and all other charges due hereunder). If Tenant
shall not so elect to terminate this Lease, the Annual Rent thereafter to be paid shall be adjusted on a fair and equitable basis under
the circumstances. Tenant, at its election and if permitted by the condemning authority, may make a separate claim with the
condemning authority for (i) any moving expenses incurred by Tenant as a result of such condemnation; (ii) the unamortized costs
incurred and paid by Tenant in connection with any Alteration or improvement made by Tenant to the Premises (other than those
paid for with the Tenant Improvement Allowance or Additional Costs); and (iii) the value of Tenant’s property taken. If Tenant
shall not be permitted to make a separate claim in such proceeding, Landlord shall prosecute all claims in such proceeding on
behalf of both Landlord and Tenant in which event Tenant may, if it so elects and at its expense, join with Landlord in such
proceeding, retain counsel, attend hearings, present arguments and generally participate in the conduct of the proceedings and all
compensation awarded for any taking, whether for the whole or any portion of the Premises shall be apportioned between
Landlord and Tenant as set out in this Article.
24.
SALE BY LANDLORD .
24.1 Subject to Tenant’s Right of First Refusal as described in Article 45 of this Lease, in event of a sale or conveyance
by Landlord of the Premises, provided that the Landlord is not in breach of any of its obligations on the date of such sale or
conveyance, the same shall operate to release Landlord from any future liability upon any of the covenants or conditions,
expressed or implied, contained in this Lease in favor of Tenant, and in such event Tenant agrees to look solely to the
responsibility of the successor in interest of Landlord in and to this Lease with respect to such future liability. Except as set forth
in this Article 24, this Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee
provided such purchaser or assignee recognizes Tenant’s rights under this Lease. If any security has been given by Tenant to
secure the faithful performance of any of the covenants of this Lease, Landlord may transfer or deliver said security, as such, to
Landlord’s successor in interest and thereupon Landlord shall be discharged from any further liability with regard to said security.
24.2 In addition to the foregoing, in the event of a sale or conveyance by Landlord of the Premises at any point during
the Term (including, but not limited to as sale or conveyance to Tenant or an affiliate of Tenant), Landlord agrees that Tenant
shall receive fifteen percent (15%) of the gross sales price to the extent the gross sales price (i.e., no costs or expenses whatsoever
to be deducted from such gross sales price) exceeds Thirty-Two Million Five Hundred Thousand and 00/100 Dollars
($32,500,000.00).
25. ESTOPPEL CERTIFICATES . Within ten (10) days following any written request which Landlord may make from time
to time, Tenant shall execute and deliver to Landlord or mortgagee or prospective mortgagee a sworn statement certifying: (a) the
date of commencement of this Lease; (b) the fact that this Lease is unmodified and in full force and effect (or, if there have been
modifications to this Lease, that this Lease is in full force and effect, as modified, and stating the date and nature of such
modifications); (c) the date to which the Annual Rent and other sums payable under this Lease have been paid; (d) Tenant has no
knowledge of any current defaults under this Lease by either Landlord or Tenant except as specified in Tenant’s statement; and (e)
such other matters as may be reasonably requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant
to this Article 0 may be relied upon by any mortgagee, beneficiary or purchaser. Landlord agrees to provide a similar statement to
Tenant within ten (10) days following any written request by Tenant.
26.
SURRENDER OF PREMISES.
26.1 At the end of the Term or other sooner termination of this Lease, Tenant will peaceably deliver up to Landlord
possession of the Premises in good condition and repair, reasonable wear and tear, loss by fire or other casualty and repairs that
are the responsibility of Landlord excepted. Tenant shall remove all of Tenant’s Property from the Premises at the expiration or
termination of the Term and shall repair any damage to the Premises caused by the removal of such.
26.2 All obligations of Tenant under this Lease not fully performed as of the expiration or earlier termination of the
Term shall survive the expiration or earlier termination of the Term. Any otherwise unused Security Deposit shall be credited
against the amount payable by Tenant under this Lease.
27. NOTICES . Any notice or document required or permitted to be delivered under this Lease shall be addressed to the
intended recipient, shall be transmitted personally, by fully prepaid registered or certified United States Mail return receipt
requested, or by reputable independent contract delivery service furnishing a written record of attempted or actual delivery, and
shall be deemed to be delivered when tendered for delivery to the addressee at its address set forth on the Reference Page, or at
such other address as it has then last specified by written notice delivered in accordance with this Article 0, or if to Tenant at either
its aforesaid address or its last known registered office or home of a general partner or individual owner, whether or not actually
accepted or received by the addressee.
28. DEFINED TERMS AND HEADINGS . The Article headings shown in this Lease are for convenience of reference and
shall in no way define, increase, limit or describe the scope or intent of any provision of this Lease. Any indemnification or
insurance of Landlord shall apply to and inure to the benefit of all the following “Landlord Entities”, being Landlord and its
managers, officers and employees. Any option granted to Landlord shall also include or be exercisable by Landlord’s trustee,
beneficiary, agents and employees, as the case may be. In any case where this Lease is signed by more than one person, the
obligations under this Lease shall be joint and several. The terms “Tenant” and “Landlord” or any pronoun used in place thereof
shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and each of
their respective successors, executors, administrators and permitted assigns, according to the context hereof.
29. LANDLORD’S AND TENANT’S AUTHORITY. If Tenant or Landlord signs as a corporation each of the persons
executing this Lease on behalf of such party represents and warrants that such party has been and is qualified to do business in the
state in which the Building is located, that the corporation has full right and authority to enter into this Lease, and that all persons
signing on behalf of the corporation were authorized to do so by appropriate corporate actions. If Tenant or Landlord signs as a
partnership, limited liability company, trust or other legal entity, each of the persons executing this Lease on behalf of Tenant
represents and warrants that such party has complied with all applicable laws, rules and governmental regulations relative to its
right to do business in the state and that such entity on behalf of such party was authorized to do so by any and all appropriate
partnership, company, trust or other actions. Tenant and Landlord agree to furnish to the other promptly upon request a corporate
resolution, proof of due authorization by partners, or other appropriate documentation evidencing its due authorization to enter
into this Lease.
30. COMMISSIONS . Each of the parties represents and warrants to the other that it has not dealt with any broker or finder in
connection with this Lease, except as described on the Reference Page, and each party agrees to indemnify and hold harmless the
other party against any claims, loss, damages or expenses or liability for any commission or fees which may be claimed by any
broker, finder or other similar party by reason of any actions of the indemnifying party. Notwithstanding anything to the contrary
contained herein, Landlord is solely responsible for any and all commission(s) due to the Real Estate Broker set forth on the
Reference Page. Landlord agrees herby to pay the Real Estate Broker Two Million One Hundred Sixty Thousand and 00/100
Dollars ($2,160,000.00) in lawful money of the United States (“Commission”). The Commission shall be earned upon the full
execution of this Lease and the satisfaction of the SNDA requirement set forth in Section 15.3 of this Lease; and paid to Real
Estate Broker as follows: One Million Eighty Thousand and 00/100 Dollars ($1,080,000.00) payable on January 1, 2014, and One
Million Eighty Thousand and 00/100 Dollars ($1,080,000.00) payable on January 1, 2015.
31. TIME AND APPLICABLE LAW . Time is of the essence of this Lease and all of its provisions. This Lease shall in all
respects be governed by the laws of the state in which the Building is located.
32. SUCCESSORS AND ASSIGNS . Subject to the provisions of Article 9, the terms, covenants and conditions contained in
this Lease shall be binding upon and inure to the benefit of the heirs, successors, executors, administrators and assigns of the
parties to this Lease.
33. ENTIRE AGREEMENT . This Lease, together with its exhibits, contains all agreements of the parties to this Lease and
supersedes any previous negotiations. There have been no representations made by the Landlord or understandings made between
the parties other than those set forth in this Lease and its exhibits. This Lease may not be modified except by a written instrument
duly executed by the parties to this Lease.
34. EXAMINATION NOT OPTION . Submission of this Lease shall not be deemed to be a reservation of the Premises.
Landlord shall not be bound by this Lease until it has received a copy of this Lease duly executed by Tenant and has delivered to
Tenant a copy of this Lease duly executed by Landlord.
35. RECORDATION . Tenant shall not record or register this Lease, but Landlord agrees to enter into a notice of lease
suitable for recording which Tenant may register or record and shall pay all charges incident to such recording or registration.
36. LIMITATION OF LANDLORD’S LIABILITY . Redress for any claim against Landlord under this Lease shall be
limited to and enforceable only against and to the extent of Landlord’s interest in the Premises, including any rents, insurance
proceeds, sale or transfer proceeds, condemnation awards or other similar interests. The obligations of Landlord under this Lease
are not intended to and shall not be personally binding on, nor shall any resort be had to the private properties of, any of its
trustees or board of directors and officers, as the case may be, its investment manager, the general partners thereof, or any
beneficiaries, stockholders, employees, managers, members, or agents of Landlord or the investment manager.
37. ACCESS . Access to the Premises shall be available to Tenant twenty-four (24) hours per day, seven (7) days per week,
three hundred sixty-five (365) days per year.
38. COMMUNICATIONS EQUIPMENT . Tenant shall have the right, at the Tenant's sole cost and expense (but without
charge by Landlord), to install, maintain and remove on the roof of the Building in a location or locations approved by Landlord
(which approval shall not be unreasonably withheld, delayed or conditioned) satellite dishes or other similar devices, such as
antenna, for the purpose of receiving and sending radio, television, computer, telephone or other communication signals (and
including the installation of all necessary cables, wires and transformers). Any such satellite dishes or other similar devices and
the cables, wires and transformers related thereto are referred to " Communications Equipment ." In such event, the Tenant shall
advise the Landlord at least ten (10) business days in advance of the planned installation of such Communications Equipment and
shall comply with all applicable laws, rules and regulations and any reasonable request of Landlord with respect to the installation
thereof. Tenant shall be responsible for any damage to the Building or Land caused by installing or maintaining the
Communications Equipment. At the expiration or earlier termination of the Lease, Tenant, at its expense, shall remove the
Communications Equipment. The reasonable cost of any work required to restore the roof or any other part of the Building or
Land from any damage occasioned by the installation, maintenance or removal of the Communications Equipment shall be borne
by Tenant. The installation, maintenance and removal of the Communications Equipment shall be subject to the obligations
imposed upon the Tenant in the Lease with respect to the Tenant's use and occupancy of the Premises; provided, however, that
there shall be no additional consideration due from Tenant with respect to the rights granted to Tenant pursuant to this Article 38.
39.
COMPLIANCE WITH LAWS .
39.1 Tenant’s Compliance with Laws . Tenant, at its expense, shall comply with any valid and applicable laws, rules,
orders, ordinances, regulations and other requirements, present or future, including without limitation all present and future fire
and safety laws, environmental laws, regulations, and codes (collectively, “ Legal Requirements ”), affecting Tenant’s particular
use of the Premises, that are promulgated by any governmental authority or agency having jurisdiction, to the extent Tenant shall
be legally required to do so. Nothing herein contained, however, shall be deemed to impose any obligation upon Tenant to make
any structural changes or repairs to the Premises (or any changes or repairs of any nature to the Building) unless necessitated by
reason of a particular use by Tenant of the Premises. Tenant agrees to indemnify and hold harmless Landlord from and against any
claims, liabilities, costs, fines, damages and expenses (including reasonable attorneys' fees and costs actually incurred at all
tribunal levels) arising from Tenant’s failure to comply with the foregoing requirements and representations.
39.2 Landlord’s Compliance with Laws . Landlord shall be responsible for complying with all Legal Requirements
affecting the Premises (to the extent that Tenant is not required to comply therewith as above provided) or relating to the Land or
relating to the performance by Landlord of any duties or obligations to be performed by it hereunder. If Landlord receives a notice
of violation (other than as a result of the acts or omissions of Tenant or its agents, employees, or contractors) of any Legal
Requirement with respect to the Premises or any part thereof (except with respect to compliance with the Americans with
Disabilities Act and the Massachusetts Architectural Access Board regulations), then the work required to bring the applicable
item into compliance will be performed by Landlord, at its expense (and shall not be passed‑through as additional rent). Landlord
agrees to indemnify and hold harmless Tenant from and against any claims, liabilities, costs, fines, damages and expenses
(including reasonable attorneys' fees and costs actually incurred at all tribunal levels) arising from Landlord's failure to comply
with the foregoing requirements and representations.
40. CONTEST OF LEGAL REQUIREMENTS . Either party, at its expense and by appropriate proceedings diligently
prosecuted, may contest the validity or applicability to such party of any Legal Requirement, and may postpone its compliance
therewith until such contest shall be decided, provided that such postponement does not subject the other party or the Premises to
loss or damage or require that the Premises be vacated.
41. SIGNAGE. Tenant shall have the exclusive right to install such signs on the Land and attach such signs to the Building as
Tenant may deem appropriate to identify the Building as Tenant’s headquarters, provided the same are in compliance with law,
are purchased and installed at the sole cost and expense of Tenant and are removed from the Premises at the expiration or earlier
termination of the Term, the location, size, material and design of such signs to be determined by Tenant in its sole discretion.
Tenant shall maintain and keep such signage in good repair during the Term of this Lease.
42.
WORK ON THE BUILDING OR LAND .
42.1 Standards for Performance . Whenever in this Lease Landlord or Tenant is permitted or required to maintain and
repair, or make additions, alterations, substitutions or replacements, or reconstruct or restore the Premises, such party shall cause
such work (the “ Work ”) to be done and completed in a good, substantial and workmanlike manner, free from faults and defects,
and in compliance with all Legal Requirements, and shall utilize only new first-class materials and supplies. The party performing
such work shall be solely responsible for construction means, methods, techniques, sequences and procedures, and for
coordinating all activities related to the Work, and the other party shall have no duty or obligation to inspect the Work, but shall
have the right to do so.
42.2 Completion of Work . Whenever Landlord or Tenant is required to perform any Work upon the Premises, such
party shall promptly commence the Work and, once the Work is commenced, diligently and continually pursue the completion of
the Work within a reasonable time. The party performing such Work shall supervise and direct the Work utilizing its best efforts
and reasonable care, and shall assign such qualified personnel to the Work as may be necessary to cause the Work to be completed
in an expeditious fashion.
42.3 Payment of Costs and Expenses . The party performing such Work shall (i) provide and pay for all labor,
materials, goods, supplies, equipment, appliances, tools, construction equipment and machinery and other facilities and services
necessary for the proper execution and completion of the Work; (ii) promptly pay when due all costs and expenses incurred in
connection with the Work; (iii) pay all sales, consumer, use and similar taxes required by law in connection with the Work; (iv)
secure and pay for all permits, fees and licenses necessary for the performance of the Work; and (v) at all times maintain the
Premises free and clear from any and all liens, claims, security interests and encumbrances arising from or in connection with the
Work, including, without limitation, liens for materials delivered, supplied or furnished, or for services or labor performed or
rendered. All materials, supplies, goods, appliances and equipment incorporated in the Work shall be free from any liens, security
interests or title retention agreements, other than the lien or security interest (if any) of the holder of any mortgage, deed of trust or
other security instrument laced upon the Premises by Landlord. However, nothing contained in this Section 42.3 is intended to
restrict or affect any right the party performing such Work may otherwise have under this Lease for reimbursement of any costs or
expenses incurred in connection with such Work.
42.4 Indemnification . The party performing such Work shall (i) be responsible for the acts and omissions of all of its
employees and all other persons performing any of the Work; (ii) be responsible for initiating, maintaining and supervising all
necessary safety precautions and programs in connection with the Work; (iii) take all reasonable precautions for the safety of, and
provide all reasonable protection to prevent damage, injury or loss to, the Work, all persons performing the Work, all other
persons who may be involved or affected by the Work, all materials and equipment to be incorporated in the Work and all other
property in the Building or on the Land; (iv) purchase and maintain in full force and effect, or cause its contractors and
subcontractors to purchase and maintain in full force and effect, such insurance (if any) in addition to that otherwise required of
such party under this Lease as may be necessary to protect such party from claims under worker’s compensation acts and other
employee benefit acts, from claims for damages because of bodily injury, including death, and from claims for damage to property
which arise out of performance of the Work. Such additional insurance policies, if any, shall meet the requirements set forth
elsewhere herein with respect to the insurance policies otherwise required to be obtained and maintained by such party under this
Lease. The party performing such Work shall pay and shall indemnify and save the other party and its officers, employees and
agents harmless from all liabilities, damages, losses, costs, expenses, causes of action, suits, claims, demands and judgments of
any nature arising out of, by reason of or in connection with the Work.
43. ARBITRATION. All disputes, actions or proceedings brought by either Landlord or Tenant in connection with (i) a
contractual claim under the terms of this Lease (including without limitation claims concerning alleged defaults or breaches and
remedies with respect thereto and interpretation of the provisions hereof) and (ii) a specific dispute designated as an arbitrable
matter in this Lease shall be determined by Arbitration. All other disputes, actions or proceedings, including without limitation (1)
any request for emergency injunctive or equitable relief (including temporary restraining orders) or (2) claims concerning fraud or
tort, or (3) any dispute regarding the Landlord's or Tenant's right to terminate the Lease, shall be brought in the appropriate
judicial forum, unless otherwise agreed to by the parties hereto in their sole discretion. To the extent the provisions of this Article
43 vary from or are inconsistent with the rules of the American Arbitration Association or any other arbitration tribunal, the
provisions of this Article 43 shall govern. All arbitrations shall occur at a location in Boston, Massachusetts, chosen by the
arbitrators and except to the extent that a different procedure is set forth in this Article 43, shall be conducted pursuant to the rules
of the American Arbitration Association (or the successor organization, or if no such organization exists, then from an
organization composed of persons of similar professional qualifications). The party desiring such arbitration shall give notice to
that effect to the other party and simultaneously therewith also shall give notice to the director of the Boston, Massachusetts
regional office of the American Arbitration Association (or the successor organization, or if no such organization exists, then from
an organization composed of persons of similar professional qualifications), requesting that such organization to select, as soon as
possible but in any event within the next thirty (30) days, three arbitrators with, if reasonably possible, recognized expertise in the
subject matter of the arbitration. The arbitrators shall be selected in accordance with the applicable rules of the American
Arbitration Association. At the request of either party, the arbitrators shall authorize the service of subpoenas for the production of
documents or attendance of witnesses. Within thirty (30) days after their appointment, the arbitrators so chosen shall hold a
hearing at which each party may submit evidence, be heard, and cross-examine witnesses, with each party having at least ten (10)
days advance notice of the hearing. The hearing shall be conducted such that each of Landlord and Tenant shall have reasonably
adequate time to present oral evidence or argument, but either party may present whatever written evidence it deems appropriate
prior to the hearing (with copies of any such written evidence being sent to the other party). In the event of the failure, refusal or
inability of any arbitrator to act, a new arbitrator shall be made available in the same manner as hereinbefore provided. The
decision of the arbitrators so chosen shall be given within a period of thirty (30) days after said hearing and shall include the
arbitrator's conclusions of law and findings of fact. The decision in which any two arbitrators so appointed and acting hereunder
concur shall in all cases be binding and conclusive upon the parties and shall be the basis for a judgment entered in any court of
competent jurisdiction. The fees and expenses of arbitration under this Article shall be borne equally by Landlord and Tenant.
Landlord and Tenant may at any time by mutual agreement discontinue arbitration proceedings and themselves agree upon any
such matter submitted to arbitration.
Notwithstanding the foregoing, if the purpose of the arbitration is to determine the Market Rent, then the following
provisions shall apply:
(i) Each arbitrator shall be a member of the American Institute of Real Estate Appraisers (or the successor organization,
or if no such organization exists, then from an organization composed of persons of similar professional qualifications), with the
designation of M.A.I. and with not less than ten (10) years’ experience appraising commercial properties in downtown Boston,
Massachusetts.
(ii) Within thirty (30) days after the conclusion of the hearing, the arbitrators shall again meet and simultaneously
disclose in writing their respective determinations of the Market Rent. If the determinations of at least two of the arbitrators shall
be identical in amount, said amount shall be the Market Rent. If the determinations of at least two of the arbitrators shall not be
identical in amount, then the Market Rent shall be the average of the two closest determinations of the Market Rent. Any such
determination of the Market Rent shall be binding and conclusive upon Landlord and Tenant.
(iii) If the decision of the arbitrators under this Article shall be held by a court of competent jurisdiction to be
unenforceable for any reason (Landlord and Tenant hereby affirmatively stating it is their intent and agreement that the decision of
the arbitrators will be legally enforceable as to them), then the matters submitted to arbitration shall be subject to litigation
exclusively in the courts of the Commonwealth of Massachusetts, Landlord and Tenant each hereby expressly waiving its right to
a trial by jury in any such court proceeding. To the extent that a court proceeding calls for a determination of the Market Rental
Rate for the Premises, Landlord and Tenant hereby expressly agree that such determination shall be based on the factors set forth
in Section 3.3 of this Lease.
44. FINANCIALS . Upon Landlord’s request (but not more than once per calendar year), Tenant shall provide Landlord with
copies of its most recent audited year-end financial statements, prepared by its independent accounting firm and, upon request by
Landlord (but not more than once per calendar year), shall provide Landlord with its most recent interim unaudited financial
statements, if any, certified as true and accurate, subject to normal year end adjustments, by Tenant's chief financial officer.
Landlord covenants to keep such statements confidential except that such statements may be distributed to Landlord’s partners and
lenders to the extent that such parties agree to keep such statements confidential.
45. RIGHT OF FIRST REFUSAL TO PURCHASE THE PREMISES. Landlord, on behalf of itself, its successors, assigns,
and any subsequent owner or holder of any interest in the Premises, hereby grants to Tenant the exclusive and irrevocable right
and option (the “Right of First Refusal”) to purchase the Premises at the same price and upon the same terms, provisions and
conditions as shall be contained in any written bona fide offer for the purchase thereof which Landlord shall at any time during the
Term of this Lease, or any extension thereof, be ready and willing to accept (“Offer”), the parties agreeing that the term “Offer”
includes, but is not limited to, the sale of a controlling interest in any entity that owns all or any part of or any interest in the
Premises and/or any rights and interests appurtenant thereto. Landlord shall give Tenant written notice (to Tenant at Tenant’s
address set forth in this Lease and by the method required by the terms of this Lease) and a complete copy of such bona fide offer,
which includes all of the documentation, terms, provisions and conditions therein contained. Landlord agrees to notify Tenant in
writing immediately upon placing the Premises on the market (with or without a broker) (“Notice of Intention to Sell”) and,
provided Landlord has done so in a timely manner, Tenant shall have ten (10) business days from and after the receipt of notice
from Landlord of the Offer, in which to exercise such right, which Tenant shall do, if at all, by giving written notice to Landlord
(to Landlord at Landlord’s address set forth in this Lease and by the method required by the terms of this Lease). If Landlord fails
to provide Tenant with the Notice of Intention to Sell as set forth above, Tenant shall have thirty (30) days from and after the
receipt of the Offer in which to exercise its Right of First Refusal, which Tenant shall do, if at all, by giving written notice to
Landlord (to Landlord at Landlord’s address set forth in this Lease and by the method required by the terms of this Lease). One or
more waiver(s) of Tenant’s right to purchase the Premises under the terms of any such Offer shall not constitute a waiver of
Tenant’s right to receive notice and an opportunity to purchase the Premises under this paragraph if the terms of such Offer should
thereafter be altered in any manner whatsoever and/or with respect to any subsequent bona fide offer to Landlord, its successors
and assigns, during the remaining Term of this Lease. In the event Tenant fails (or elects not) to exercise its Right of First Refusal,
Landlord shall be free to consummate the proposed sale of the Premises to the original purchaser on terms no more favorable to
such purchaser than those described in the Offer, and Landlord agrees to furnish to Tenant copies of all closing and other pertinent
documents relating to the sale. The parties hereto expressly agree that any attempted sale of the Premises that is not in conformity
with the provisions of this Article 45 shall be null and void as against Tenant, and Tenant also shall have all other remedies
available to Tenant at law or in equity, including, without limitation, injunctive relief against such sale.
46. SECURITY DEPOSIT . Landlord currently holds the Security Deposit. The Security Deposit shall be held by Landlord as
security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be kept and performed
by Tenant and not as an advance rental deposit or as a measure of Landlord’s damage in case of Tenant’s default. If an Event of
Default by Tenant occurs with respect to any provision of this Lease, Landlord may utilize the Security Deposit for the payment of
any Annual Rent or any other sum in default, or for the payment of any reasonable amount which Landlord may spend or become
obligated to spend by reason of Tenant’s default, or to compensate Landlord for any other reasonable loss or damage which
Landlord may suffer by reason of Tenant’s default, except to such extent, if any, as shall be required by law. Landlord shall not be
required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or
any balance thereof shall be returned to Tenant at such time after termination of this Lease when Landlord shall have determined
that all of Tenant’s obligations under this Lease have been fulfilled but no later than ninety (90) days after the Termination Date.
WITNESS the execution hereof under seal effective as of the 20th day of December, 2013.
LANDLORD:
130 ROYALL, LLC
TENANT:
DUNKIN’ BRANDS, INC.
/s/ Rosalind E. Gorin ____________
/s/ Jason Maceda _________________________
By: Rosalind Gorin, President, H.N Gorin, Inc.
Its duly authorized: Managing Member
Name: Jason Maceda
Title: Vice President
EXHIBIT “A”
attached to and made a part of Lease bearing the
Lease Reference Date of December __, 2013 between
130 ROYALL, LLC, as Landlord and
DUNKIN’ BRANDS, INC., as Tenant
PREMISES
Plan entitled “Plan of Land, Royall Street, Canton, Massachusetts” dated August 25, 1999, by R.E. Cameron &
Associates, Inc., Land Surveyors, Civil Engineers.
EXHIBIT “A-1”
attached to and made a part of Lease bearing the
Lease Reference Date of December __, 2013 between
130 ROYALL, LLC, as Landlord and
DUNKIN’ BRANDS, INC., as Tenant
LAND
That certain land in Canton, Norfolk County, Massachusetts shown as “Parcel B Area = 486,576 S.F. + 11.2 Acres” on a plan
entitled “Plan of Land Royall Street Canton, Massachusetts” dated August 25, 1999, drawn by R.E. Cameron & Associates, Inc.
and recorded with the Norfolk County Registry of Deeds on March 31, 2000, as Plan 150 of 2000 in Plan Book 473.
EXHIBIT “B”
[INTENTIONALLY DELETED]
EXHIBIT “C”
[INTENTIONALLY DELETED]
EXHIBIT “D”
attached to and made a part of Lease bearing the
Lease Reference Date of December __, 2013 between
130 ROYALL, LLC, as Landlord and
DUNKIN’ BRANDS, INC., as Tenant
FORM OF NONDISTURBANCE AGREEMENT – MORTGAGE
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ("Agreement") is made as of this ____ day
________________ 20__, by and between _______________________________________________, having an address of
___________________________________
("Lender"),
________________________________,
having
an
address
of
______________________________________________ (“Landlord”), and _________________________________________ having an
address of
__________________________________ ("Tenant").
RECITALS
A. Tenant is the holder of a leasehold estate in that premises located at _______________________________________ as is more
particularly described on Schedule A, attached hereto and incorporated herein for all purposes (the "Premises") under and pursuant to the
provisions of a certain lease dated
____________ , between Landlord and Tenant (as the same may have been amended, collectively the
"Lease"); and
B. The Premises is or is to be encumbered by one or more mortgages, deeds of trust, deeds to secure debt or similar security agreements
(collectively, the "Security Instrument") from Landlord, or its successor in interest, in favor of Lender; and
C. Tenant has agreed to subordinate the Lease to the Security Instrument and to the lien thereof and Lender has agreed to grant
non‑disturbance to Tenant under the Lease on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, the parties hereto mutually agree as follows:
1. Subordination . The Lease shall be subject and subordinate in all respects to the lien and terms of the Security Instrument, to any and all
advances to be made thereunder and to all renewals, modifications, consolidations, replacements and extensions thereof.
2. Nondisturbance . So long as Tenant pays all rents and other charges as specified in the Lease and is not otherwise in default beyond
applicable notice and cure periods, Lender agrees for itself and its successors in interest and for any other person acquiring title to the Premises
through a foreclosure or otherwise (an “Acquiring Party"), that neither Tenant’s rights under the Lease nor Tenant's possession of the Premises
will be disturbed during the term of the Lease, as said term may be extended pursuant to the terms of the Lease or as the Premises may be
expanded as specified in the Lease, by reason of a foreclosure or otherwise. For purposes of this Agreement, a "foreclosure" shall include (but
not be limited to) a sheriff's or trustee's sale under the power of sale contained in the Security Instrument, the termination of any superior lease
of the Premises and any other transfer of the Landlord's interest in the Premises under peril of foreclosure, including, without limitation to the
generality of the foregoing, an assignment or sale in lieu of foreclosure.
3. Attornment . Tenant agrees to attorn to, accept and recognize any Acquiring Party as the landlord under the Lease pursuant to the
provisions expressly set forth therein for the then remaining balance of the term of the Lease, and any extensions thereof as made pursuant to
the Lease. The foregoing provision shall be self-operative and shall not require the execution of any further instrument or agreement by Tenant
as a condition to its effectiveness. Tenant agrees, however, to execute and deliver, at any time and from time to time, upon thirty (30) days prior
written request by Lender or any Acquiring Party, any commercially reasonable instrument which may be necessary or appropriate to evidence
such attornment and which instrument is reasonably acceptable to Lender, Landlord and Tenant.
4. No Liability . Notwithstanding anything to the contrary contained herein or in the Lease, it is specifically understood and agreed that
neither Lender, any receiver nor any Acquiring Party shall be:
(a)
(b)
(c)
liable for any act, omission, negligence or default of any prior landlord, including Landlord (except with regard to defaults of a
continuing nature); provided, however, that Lender and any Acquiring Party shall be liable and responsible for the performance of all
covenants and obligations of any prior landlord, including Landlord, under the Lease occurring from and after the date that it takes
title to the Premises; or
subject to any offsets, credits, claims or defenses which Tenant might have against any prior landlord, including Landlord (except
with regard to defaults of a continuing nature); or
bound by any rent or additional rent which is payable on a monthly basis and which Tenant might have paid for more than one (1)
month in advance to any prior landlord, including Landlord.
Notwithstanding the foregoing, Tenant reserves its rights to any and all claims or causes of action against such prior landlord, including
Landlord, for prior losses or damages and against the successor landlord, including Lender and any Acquiring Party, for all losses or damages
arising from and after the date that such successor landlord takes title to the Premises.
5. Rent . Tenant has notice that the Lease and the rents and all other sums due thereunder have been assigned to Lender as security for the
loan secured by the Security Instrument. In the event Lender notifies Tenant of the occurrence of a default under the Security Instrument and
demands that Tenant pay its rents and all other sums due or to become due under the Lease directly to Lender, Tenant shall honor such demand
and pay its rent and all other sums due under the Lease directly to Lender or as otherwise authorized in writing by Lender. Landlord hereby
irrevocably authorizes Tenant to make the foregoing payments to Lender upon such notice and demand and, therefore, holds Tenant harmless
therefrom.
6. Notices . All notices or other written communications hereunder shall be delivered by a nationally recognized and reputable overnight
delivery service (e.g., FedEx) and shall be deemed to have been delivered on the date the same are received by the recipient (or, if delivery is
refused, on the date of such refusal), addressed to the receiving party at its address first set forth above. Any party hereto may change its notice
address by written notice to the other parties.
7. Successors . The obligations and rights of the parties pursuant to this Agreement shall bind and inure to the benefit of the successors,
assigns, heirs and legal representatives of the respective parties.
8. Duplicate Originals; Counterparts . This Agreement may be executed in any number of duplicate originals and each duplicate original
shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an
original instrument and all of which together shall constitute a single Agreement.
IN WITNESS WHEREOF, Lender, Landlord and Tenant have duly executed this Agreement as of the date first above written.
Lender:
_______________________________
By: _________________________
Its: _________________________
Landlord:
_______________________________
By: _________________________
Its: _________________________
Tenant:
_______________________________
By: _________________________
Its: _________________________
ACKNOWLEDGMENTS
STATE OF
)
)
COUNTY OF
SS:
)
On ____________________, before me, the undersigned, a Notary Public in and for said State, personally appeared _____________________,
personally known to me or proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature:
______________________________
Name (Typed or Printed)
STATE OF
)
)
COUNTY OF
SS:
)
On ____________________, before me, the undersigned, a Notary Public in and for said State, personally appeared _____________________,
personally known to me or proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature:
______________________________
Name (Typed or Printed)
STATE OF
)
)
COUNTY OF
SS:
)
On ____________________, before me, the undersigned, a Notary Public in and for said State, personally appeared _____________________,
personally known to me or proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature:
______________________________
Name (Typed or Printed)
EXHIBIT “E”
attached to and made a part of Lease bearing the
Lease Reference Date of December __, 2013 between
130 ROYALL, LLC, as Landlord and
DUNKIN’ BRANDS, INC., as Tenant
FORM OF– GROUND LEASE ESTOPPEL CERTIFICATE
GROUND LEASE ESTOPPEL CERTIFICATE
THIS GROUND LEASE ESTOPPEL CERTIFICATE (this “ Certificate ”) is executed as of the ____ day of November,
2013 by BOSTON MUTUAL LIFE INSURANCE COMPANY, a Massachusetts insurance corporation (“ Ground Lessor ”),;
W I T N E S S E T H: That;
WHEREAS, Ground Lessor is the owner of certain real property lying and being in Canton, Norfolk County,
Massachusetts, such real property being more particularly described on Exhibit “A” attached hereto and incorporated herein by
this reference (the “ Land ”);
WHEREAS, Ground Lessor has leased the Land to Royall Street LLC pursuant to that certain Ground Lease (the “
Ground Lease ”) dated September 28, 2000, notice of which has been recorded with Norfolk County Registry of Deeds in Book
14435, Page 285, as assigned by Royall Street LLC to LSF3 Royall Street, LLC (“ Ground Lessee ”) pursuant to that certain
Assignment of Tenant's Interest in Ground Lease effective December 8, 2000, and recorded with Norfolk County Registry of
Deeds in Book 14647, Page 226;
WHEREAS, Ground Lessee has constructed certain buildings and other improvements on the Land (all buildings and
other improvements now or hereafter constructed on the Land, herein called the “ Improvements ”);
WHEREAS, Ground Lessee desires to lease the Land and all Improvements situated thereon to Dunkin’ Donuts
Incorporated pursuant to a certain Lease to be executed between Ground Lessee and Tenant, and Dunkin’ Donuts Incorporated has
requested this Certificate;
NOW, THEREFORE, in consideration of the above, Ground Lessor hereby certifies to Tenant and agrees as follows:
1. The Ground Lease sets forth the entire agreement and understanding between Ground Lessor and Ground Lessee
regarding the Land and any Improvements, is in full force and effect, and has not in any way been amended, modified or
supplemented except as described in the above recitals.
2. Neither Ground Lessor nor, to Ground Lessor’s knowledge, Ground Lessee is in default of any term, covenant or
condition of the Ground Lease, and there exist no other grounds for cancellation or termination of the Ground Lease, nor any state
of facts which, with the giving of notice or the passage of time, or both, would constitute a default under the Ground Lease or any
such other grounds for cancellation or termination of the Ground Lease.
3. All rents and other sums due and payable pursuant to the Ground Lease have been paid through
_____________________, 2013.
IN WITNESS WHEREOF, this Certificate has been executed under seal of the Ground Lessor as of the date first above
written.
BOSTON MUTUAL LIFE INSURANCE COMPANY,
By:
______________________________________
Title: ______________________________________
Date: December ____, 2013
EXHIBIT “F”
attached to and made a part of Lease bearing the
Lease Reference Date of December __, 2013 between
130 ROYALL, LLC, as Landlord and
DUNKIN’ BRANDS, INC., as Tenant
FORM OF QUALIFYING LEASEHOLD MORTGAGE
LEASEHOLD MORTGAGE
130 ROYALL, LLC , a Delaware limited liability company having a principal place of business at c/o HN Gorin, 101
Huntington Avenue, 5 th Floor, Boston, Massachusetts 02199; Attention: Kristian Gibson (hereinafter referred to as the “
Mortgagor ”), for valuable consideration received, as an inducement to DUNKIN' BRANDS, INC., a Delaware corporation
having a current address of 130 Royall Street, Canton, Massachusetts 02021 (hereinafter referred to as the “ Mortgagee ”), to enter
into a certain Lease Agreement of even date between Mortgagor and Mortgagee (the “Lease ” ), and to secure the obligation of
Mortgagor to Mortgagee to repay the security deposit referred to in Article 46 of the Lease (the “Security Deposit” ) (the
“Obligation”) , hereby grants to Mortgagee, with MORTGAGE COVENANTS, the following:
The leasehold estate described in a certain Ground Lease between Boston Mutual Life Insurance Company ( “Ground Lessor”)
and Royall Street LLC, dated September 28, 2000, notice of which is recorded with Norfolk County Registry of Deeds in Book
14435, Page 285, as assigned to Mortgagor by Assignment of Tenant’s Interest in Ground Lease, effective December 8, 2000,
recorded with said Deeds in Book 14647, Page 226 (the “ Ground Lease ”), including without limitation all buildings, structures,
improvements and appurtenances and all of the estate and rights of Mortgagor of, in and to the Premises described in Exhibit A
which are the subject of the Ground Lease, and all and each of the tenements, hereditaments and appurtenances of the Mortgagor
belonging or in any way appertaining to the Premises and the rents, issues and profits thereof.
Section 1.
Representations and Warranties. The Mortgagor hereby represents, covenants and warrants:
1.1 Validity; Etc., No Defaults. The Ground Lease is a valid and subsisting lease of the property therein described
and purported to be demised thereby for the term therein set forth and is in full force and effect in accordance with the terms
thereof and has not been modified except for the described assignment, and there are no existing defaults (or existing matters
which, with the giving of notice or the passage of time or both, would result in a default) by the Lessor or by the Mortgagor, as
Lessee thereunder; and the Mortgagor is the owner and holder of the Lease and of the leasehold estate created thereby.
1.2 No Subleases. That there are no subleases of the Premises or of space in any building presently erected or to
be erected upon the Premises which are demised under the Lease.
Section 2. Covenants of Mortgagor. The Mortgagor further covenants with the Mortgagee as follows:
2.1 Payment and Performance of Obligation. The Mortgagor will pay and perform the Obligation in accordance
with the terms of the Lease, and if default shall be made in the payment of the Obligation upon termination of the Lease, if and to
the extent that any such payment shall then be due Mortgagee, as Lessee, the Mortgagee, after thirty (30) days’ notice to
Mortgagor, within which Mortgagor shall have the right to cure any such default, shall have the power to sell the Mortgagor’s
leasehold interest in the Premises according to law.
2.2
Additional Covenants. Mortgagor:
(a) will diligently perform and observe all of the terms, covenants and conditions of the Ground Lease required
to be performed and observed by the Mortgagor as such Lessee, unless such performance observance shall have been
waived or not required by the Ground Lessor, to the end that all things shall be done which are necessary to keep
unimpaired the Mortgagor's rights as Lessee under the Ground Lease;
(b) will promptly notify the Mortgagee in writing of any default by the Ground Lessor in the performance or
observance of any of the terms, covenants or conditions on the part of Ground Lessor to be performed or observed, or of
the occurrence of any event, regardless of lapse of time, of the character specified in subsection (a) of this Section;
(c) will promptly (i) advise the Mortgagee in writing of the giving of any notice by the Ground Lessor to the
Mortgagor, as Lessee, of any default by the Mortgagor, as such Lessee, in the performance or observance of any of the
terms, covenants or conditions of the Ground Lease on the part of the Mortgagor, as Lessee thereunder, to be performed or
observed, and (ii) deliver to the Mortgagee a true copy of each such notice;
(d) will, promptly after the execution and delivery of this Mortgage or of any instrument or agreement
supplemental thereto, notify the Lessor in writing of the execution and delivery thereof and deliver to the Ground Lessor a
copy of each such instrument or agreement;
(e) will promptly notify the Mortgagee in writing in the event of the initiation of any litigation or arbitration
proceeding under and pursuant to the provisions of the Ground Lease; and
(f) will, within thirty (30) days after written demand by the Mortgagee, seek to obtain from the Lessor and furnish
to the Mortgagee an estoppel certificate of the Ground Lessor in the form provided for in the Ground Lease.
Section 3. Mortgagee's Statutory Rights . This Mortgage is upon the condition that the Mortgagor shall pay the
Obligation, and if the Mortgagor shall fail to pay the Obligation, the holder hereof shall have the STATUTORY POWER OF
SALE.
Section 4. Notices. All notices, demands and requests given or required to be given by either party hereto to the other
party shall be in writing. Each such notice , demand or request shall be addressed as follows:
(a) if to the Mortgagor, at _________________ ; or
(b) if to the Mortgagee, (i) at 130 Royall Street, Canton, Massachusetts 02021, Attention: Jason Maceda and (ii) at
130 Royall Street, Canton, Massachusetts 02021, Attention: Christopher J. Egan, Director & Legal Counsel; or
(c) to such other address as the Mortgagor or the Mortgagee shall designate in a written notice to the other.
Any such notice, demand or request shall be deemed to have been duly given or made and to have become effective (i) if
to the Mortgagee, when received by the Mortgagee, and (ii) if to the Mortgagor (A) if delivered by hand to Mortgagor in person,
at the time of receipt thereof, (B) if sent by registered or certified mail, postage prepaid, return receipt requested, on the earlier of
the third Business Day after the mailing thereof or the day of receipt, if a Business Day, or if not a Business Day, the next
succeeding Business Day, and (C) if sent a nationally recognized overnight courier service, one day after delivery to the courier
service.
Section 5. Subordination. Without the necessity of any additional document being executed by Mortgagee for the
purpose of effecting a subordination, this Mortgage shall be, and hereby is, subject and subordinate at all times to the Ground
Lease and to the lien (s) of any mortgage(s) now or hereafter placed on, against or affecting the Ground Lease or the Premises or
Mortgagor’s interest therein. Notwithstanding the foregoing, Mortgagee covenants and agrees to execute and deliver upon demand
such further instruments evidencing such subordination as may be required by Mortgagor or any mortgagee, in such form as
Mortgagor or any such mortgagee may reasonably require.
Section 6. Captions. The marginal notes or captions herein are inserted only as a matter of convenience and for reference
and are not and shall not be deemed to be any part of this Mortgage.
Section 7. Severability and Savings Clauses . If any provision of this Mortgage is held to be invalid or unenforceable by a
court of competent jurisdiction the other provisions of this Mortgage shall remain in full force and effect and shall be liberally
construed in favor or the Mortgagee in order to effect the provisions of this Mortgage.
Section 8. Discharge. In the event of a termination of the Lease in accordance with Section 18.8 of the Lease, Tenant will
forthwith issue a discharge as it relates to this Leasehold Mortgage.
Executed as a sealed instrument this __ day of December, 2013.
MORTGAGOR:
By: _____________________________________
Its duly authorized Manager
COMMONWEALTH OF MASSACHUSETTS
Norfolk, ss
December __, 2013
Then personally appeared before me ________________ known to me to be the Manager of
_____________________________________, and acknowledged the foregoing to be his free act and deed and the free
act and deed of said company.
________________________________________
Notary Public
My commission expires: __________
Exhibit A
________________________________, as Mortgagor
And
DUNKIN’ BRANDS, INC., as Mortgagee
LAND
That certain land in Canton, Norfolk County, Massachusetts shown as “Parcel B Area = 486,576 S.F. + 11.2 Acres” on a plan
entitled “Plan of Land Royall Street Canton, Massachusetts” dated August 25, 1999, drawn by R.E. Cameron & Associates, Inc.
and recorded with the Norfolk County Registry of Deeds on March 31, 2000, as Plan 150 of 2000 in Plan Book 473.
Exhibit 21.1
Dunkin’ Brands Group, Inc. Subsidiaries
Entity
Dunkin’ Brands Group, Inc.
Dunkin’ Brands Holdings, Inc.
Dunkin’ Brands, Inc.
Dunkin’ Brands Canada, Ltd.
SVC Service LLC
SVC Service II Inc.
Dunkin Brands International Holdings Ltd.
Dunkin Brands International DMCC
Dunkin’ Brands (UK) Limited
Baskin-Robbins Australia Pty. Ltd.
Dunkin’ Brands Australia Pty. Ltd.
DBI Australia Holdings Pty. Ltd.
Palm Oasis Ventures Pty. Ltd. 5
B-R 31 Ice Cream Co. Ltd. 4
Dunkin’ (Shanghai) Enterprise Management Consulting Co., Ltd.
DBCI Corp.
Dunkin’ Donuts LLC
Dunkin Espanola S.A.
Coffee Alliance, S.L. 3
Dunkin’ Ventures LLC
Massachusetts Refreshment Corp. 1
Third Dunkin’ Donuts Realty LLC
Dunkin’ Donuts Realty Investment LLC
Dunkin’ Donuts USA LLC
Mister Donut of America, LLC
Baskin-Robbins LLC
Baskin-Robbins USA LLC
DBI Stores LLC
Star Dunkin’, LP 2
Star Dunkin’ Real Estate, LP 2
DBI Stores Texas LLC
Baskin-Robbins Flavors LLC
Baskin-Robbins International LLC
B-R Korea Co. Ltd. 3
DB Master Finance LLC
DB Canadian Supplier Inc.
DB Canadian Holding Company Inc.
DB Canadian Franchising ULC
BR Japan Holdings LLC
DB Franchising Holding Company LLC
Dunkin’ Donuts Franchising LLC
Baskin-Robbins Franchising LLC
DB Real Estate Assets I LLC
DB Real Estate Assets II LLC
DB Mexican Franchising LLC
DB International Franchising LLC
Jurisdiction of Organization
Delaware
Delaware
Delaware
Ontario, Canada
Colorado
Colorado
United Kingdom
Dubai
United Kingdom
Australia
Australia
Australia
Australia
Japan
China
Florida
Delaware
Spain
Spain
Delaware
Massachusetts
Delaware
Delaware
Delaware
Delaware
Delaware
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Korea
Delaware
Delaware
Delaware
Nova Scotia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
DD IP Holder LLC
BR IP Holder LLC
Baskin-Robbins Franchised Shops LLC
Dunkin’ Donuts Franchised Restaurants LLC
DB AdFund Administrator LLC
DB UK Franchising LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
______________
1 Represents a joint venture company of which registrant indirectly owns 50% of the voting equity.
2 Represents a joint venture partnership of which registrant indirectly owns 51% of the partnership interest.
3 Represents a joint venture company of which registrant indirectly owns 33.3% of the voting equity.
4 Represents a joint venture company of which registrant indirectly owns 43.3% of the voting equity.
5 Represents a joint venture company of which registrant indirectly owns 20% of the voting equity.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Dunkin’ Brands Group, Inc.:
We consent to the incorporation by reference in the registration statement No. 333-183190 on Form S-3 and No. 333-176246 on
Form S-8 of Dunkin’ Brands Group, Inc. of our reports dated February 20, 2014, with respect to the consolidated balance sheets of
Dunkin’ Brands Group, Inc. as of December 28, 2013 and December 29, 2012, and the related consolidated statements of
operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 28, 2013, and the effectiveness of internal control over financial reporting as of December 28, 2013, which reports
appear in the December 28, 2013 annual report on Form 10-K of Dunkin’ Brands Group, Inc.
/s/ KPMG LLP
Boston, Massachusetts
February 20, 2014
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Nigel Travis, Chairman and Chief Executive Officer, certify that.
1.
I have reviewed this annual report on Form 10-K of Dunkin’ Brands Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and the other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on
such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent function):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
February 20, 2014
Date
/s/ Nigel Travis
Nigel Travis
Chairman and Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul Carbone, Chief Financial Officer, certify that.
1.
I have reviewed this annual report on Form 10-K of Dunkin’ Brands Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and the other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on
such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent function):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
February 20, 2014
Date
/s/ Paul Carbone
Paul Carbone
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Dunkin’ Brands Group, Inc. (the “Company”) on Form 10-K for the period ending December 28,
2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nigel Travis, as the Chairman and Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
Date: February 20, 2014
/s/ Nigel Travis
Nigel Travis*
Chairman and Chief Executive Officer
*
A signed original of this written statement required by Section 906 has been provided to Dunkin’ Brands Group, Inc. and will be retained
by Dunkin’ Brands Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Dunkin’ Brands Group, Inc. (the “Company”) on Form 10-K for the period ending December 28,
2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul Carbone, as the Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
my knowledge:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
Date: February 20, 2014
/s/ Paul Carbone
Paul Carbone*
Chief Financial Officer
*
A signed original of this written statement required by Section 906 has been provided to Dunkin’ Brands Group, Inc. and will be retained
by Dunkin’ Brands Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.