Dunkin' Brands Results

Dunkin' Brands Reports Fourth Quarter and Fiscal Year 2018 Results

Fiscal year 2018 highlights include: Dunkin' U.S. comparable store sales growth of 0.6% - Baskin-Robbins U.S. comparable store sales decline of 0.6%

Dunkin' Brands

Fiscal year 2018 highlights include:

  • Dunkin' U.S. comparable store sales growth of 0.6%
  • Baskin-Robbins U.S. comparable store sales decline of 0.6%
  • Added 392 net new restaurants worldwide, including 278 net new Dunkin' locations in the U.S.
  • Revenues increased 3.6%
  • Diluted EPS of $2.71, a decrease of 7.8% driven by the impact of tax reform in the prior year
  • Diluted adjusted EPS increased 40.1% to $2.90

Fourth quarter highlights include:

  • Flat Dunkin' U.S. comparable store sales
  • Baskin-Robbins U.S. comparable store sales decline of 3.7%
  • Added 148 net new Dunkin' and Baskin-Robbins locations globally, including 106 net new Dunkin' locations in the U.S.
  • Revenues increased 1.5%
  • Diluted EPS of $0.64, a decrease of 56.5% driven by the impact of tax reform in the prior year
  • Diluted adjusted EPS increased by 41.7% to $0.68

Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' and Baskin-Robbins (BR), today reported results for the fourth quarter and fiscal year ended December 29, 2018.

"In 2018 we made substantial progress with our Blueprint for Growth designed to evolve Dunkin' U.S. into a beverage-led, on-the-go brand. Along with making an unprecedented investment into the business, we implemented a deliberate sequencing of strategic initiatives including simplifying our menu nationwide, making our first foray into national value, debuting our NextGen new store design, unveiling our new Dunkin' brand identity, and successfully relaunching our espresso beverages served at the speed of Dunkin'," said David Hoffmann, Dunkin' Brands Chief Executive Officer and President of Dunkin' U.S.  "While we did not drive consistent traffic momentum for the full year, we laid the foundation for future growth and, most importantly, along with our franchisees, are unified and well-positioned to capitalize in 2019 on our brand promise of 'great coffee, fast.'"

"We are pleased to have delivered our revenue, operating income, and earnings per share targets for 2018," said Kate Jaspon, Dunkin' Brands Chief Financial Officer. "We also achieved our Dunkin' U.S. net development goal for the year, including delivering more than double the expected number of NextGen restaurants and exceeding our first-year sales goals for new restaurants. Additionally, we announced this morning that the Board of Directors increased our quarterly dividend by nearly 8 percent over the prior quarter."

FISCAL YEAR 2018 KEY FINANCIAL HIGHLIGHTS

(Unaudited, $ in millions, except per share data)

Fiscal year ended

Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

December 29,

 2018

December 30,

2017(1)

$ / #

%

Financial data:

     Revenues

$

1,321.6

1,275.6

46.1

3.6

%

     Operating income

411.8

391.0

20.8

5.3

%

     Operating income margin

31.2

%

30.7

%

     Adjusted operating income(2)

$

434.6

411.1

23.5

5.7

%

     Adjusted operating income margin(2)

32.9

%

32.2

%

     Net income

$

229.9

271.2

(41.3)

(15.2)

%

     Adjusted net income(2)

246.3

190.6

55.7

29.2

%

     Earnings per share:

          Common–basic

2.75

2.99

(0.24)

(8.0)

%

          Common–diluted

2.71

2.94

(0.23)

(7.8)

%

          Diluted adjusted earnings per share(2)

2.90

2.07

0.83

40.1

%

          Weighted average number of common shares – diluted (in millions)

85.0

92.2

(7.3)

(7.9)

%

Systemwide sales(3)

$

11,634.0

11,146.6

487.4

4.4

%

Comparable store sales growth (decline):

     Dunkin' U.S.

0.6

%

0.6

%

     BR U.S.

(0.6)

%

0.0

%

     Dunkin' International

2.2

%

0.3

%

     BR International

3.8

%

(0.1)

%

Development data:

     Consolidated global net POD development

392

440

(48)

(10.9)

%

     Dunkin' global PODs at period end

12,871

12,538

333

2.7

%

     BR global PODs at period end

8,041

7,982

59

0.7

%

     Consolidated global PODs at period end

20,912

20,520

392

1.9

%

(1)

Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

(2)

Adjusted operating income, adjusted operating income margin, and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for amortization of intangible assets, long-lived asset impairments, and certain other items, net of the tax impact of such adjustments in the case of adjusted net income. Diluted adjusted earnings per share is a non-GAAP measure calculated using adjusted net income. See "Non-GAAP Measures and Statistical Data" and "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations" for further detail.

(3)

Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. While we do not record sales by franchisees, licensees, or joint ventures as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe systemwide sales information aids in understanding how we derive royalty revenue and in evaluating our performance relative to competitors.

FOURTH QUARTER 2018 KEY FINANCIAL HIGHLIGHTS

(Unaudited, $ in millions, except per share data)

Three months ended

Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

December 29,

 2018

December 30,

 2017(1)

$ / #

%

Financial data:

Revenues

$

319.6

314.9

4.7

1.5

%

Operating income

96.6

92.2

4.4

4.8

%

Operating income margin

30.2

%

29.3

%

Adjusted operating income(2)

$

102.2

95.6

6.6

6.9

%

Adjusted operating income margin(2)

32.0

%

30.3

%

Net income

$

53.2

134.7

(81.5)

(60.5)

%

Adjusted net income(2)

57.3

44.1

13.2

29.8

%

Earnings per share:

Common–basic

0.64

1.49

(0.85)

(57.0)

%

Common–diluted

0.64

1.47

(0.83)

(56.5)

%

Diluted adjusted earnings per share(2)

0.68

0.48

0.20

41.7

%

Weighted average number of common shares – diluted (in millions)

83.7

91.8

(8.0)

(8.7)

%

Systemwide sales(3)

$

2,876.2

2,799.2

77.0

2.8

%

Comparable store sales growth (decline):

Dunkin' U.S.

0.0

%

0.8

%

BR U.S.

(3.7)

%

5.1

%

Dunkin' International

1.1

%

1.6

%

BR International

1.5

%

3.0

%

Development data:

Consolidated global net POD development

148

141

7

5.0

%

Dunkin' global PODs at period end

12,871

12,538

333

2.7

%

BR global PODs at period end

8,041

7,982

59

0.7

%

Consolidated global PODs at period end

20,912

20,520

392

1.9

%

(1)

Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

(2)

Adjusted operating income, adjusted operating income margin, and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for amortization of intangible assets, long-lived asset impairments, and certain other items, net of the tax impact of such adjustments in the case of adjusted net income. Diluted adjusted earnings per share is a non-GAAP measure calculated using adjusted net income. See "Non-GAAP Measures and Statistical Data" and "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations" for further detail.

(3)

Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. While we do not record sales by franchisees, licensees, or joint ventures as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe systemwide sales information aids in understanding how we derive royalty revenue and in evaluating our performance relative to competitors.

Global systemwide sales growth of 2.8% in the fourth quarter was primarily attributable to global store development.

Dunkin' U.S. comparable store sales were flat in the fourth quarter as an increase in average ticket was offset by a decrease in traffic. The increase in average ticket was driven by strategic pricing increases coupled with beneficial mix shift to premium priced Cold Beverages, Espresso, and Breakfast Sandwiches.

Baskin-Robbins U.S. comparable store sales declined 3.7% in the fourth quarter as a decrease in traffic was partially offset by an increase in average ticket. Unfavorable weather impact of more than 400 basis points significantly affected all product categories in the fourth quarter. The increase in average ticket was driven by strategic pricing increases coupled with beneficial mix shift to Beverages, Cakes, and Take Home Quarts.

In the fourth quarter, Dunkin' Brands franchisees and licensees opened 148 net new restaurants globally. This included 106 net new Dunkin' U.S. locations, 25 net new Baskin-Robbins International locations, and 25 net new Dunkin' International locations, offset by net closures of 8 Baskin-Robbins U.S. locations. Additionally, Dunkin' U.S. franchisees remodeled 45 restaurants and Baskin-Robbins U.S. franchisees remodeled 33 restaurants during the quarter.

Revenues for the fourth quarter increased $4.7 million, or 1.5%, compared to the prior year period due primarily to increased royalty income as a result of systemwide sales growth, as well as an increase in advertising fees and related income, offset by decreases in sales of ice cream and other products and franchise fees.

Operating income for the fourth quarter increased $4.4 million, or 4.8%, from the prior year period primarily as a result of increases in royalty income and rental margin. These increases were offset by an increase in general and administrative expenses due primarily to a reduction of legal reserves in the prior year period, as well as the decrease in franchise fees.

Adjusted operating income for the fourth quarter increased $6.6 million, or 6.9%, from the prior year period primarily as a result of increases in royalty income and rental margin, as well as a decrease in general and administrative expenses. These increases in adjusted operating income were offset by the decrease in franchise fees.

Net income for the fourth quarter decreased by $81.5 million, or 60.5%, driven primarily by income tax expense of $13.3 million in the current period compared to a net benefit from income taxes of $77.8 million in the prior year period. This decrease in net income was offset by a $7.0 million loss on debt extinguishment and refinancing transactions recognized in conjunction with the refinancing transaction completed in the prior year period, and the increase in operating income. The net benefit from income taxes in the prior year period included a $96.8 million net tax benefit due to the enactment of the Tax Cuts and Jobs Act ("the Tax Act"), consisting primarily of the re-measurement of our deferred tax liabilities using the lower enacted corporate tax rate. Income tax expense for the current period was favorably impacted by a lower corporate tax rate effective in fiscal year 2018 due to the enactment of the Tax Act, as well as excess tax benefits from share-based compensation of $3.2 million in the current year period compared to $0.5 million in the prior year period.

Adjusted net income for the fourth quarter increased $13.2 million, or 29.8%, compared to the prior year period primarily as a result of the increase in adjusted operating income, as well as a decrease in income tax expense. The decrease in income tax expense was driven by a lower corporate tax rate effective in fiscal year 2018 due to the enactment of the Tax Act, as well as excess tax benefits from share-based compensation of $3.2 million in the current year period compared to $0.5 million in the prior year period.

Diluted earnings per share for the fourth quarter decreased by 56.5% to $0.64 compared to the prior year period as a result of the decrease in net income, offset by a decrease in shares outstanding. Diluted adjusted earnings per share for the fourth quarter increased 41.7% to $0.68 compared to the prior year period as a result of the increase in adjusted net income as well as the decrease in shares outstanding. The decrease in shares outstanding from the prior year period was due primarily to the repurchase of shares since the beginning of the fourth quarter of fiscal year 2017, offset by the exercise of stock options. Excluding the impact of recognized excess tax benefits, both diluted earnings per share and diluted adjusted earnings per share would have been lower by approximately $0.04 and $0.01 for the fourth quarter of fiscal years 2018 and 2017, respectively.

FOURTH QUARTER 2018 SEGMENT RESULTS

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Dunkin' U.S.

December 29,

 2018

December 30,

 2017(1)

$ / #

%

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

Royalty income

$

123,024

118,771

4,253

3.6

%

Franchise fees

3,717

4,955

(1,238)

(25.0)

%

Rental income

24,179

24,231

(52)

(0.2)

%

Other revenues

1,305

857

448

52.3

%

Total revenues

$

152,225

148,814

3,411

2.3

%

Segment profit

$

119,802

111,913

7,889

7.0

%

Comparable store sales growth

0.0

%

0.8

%

Systemwide sales (in millions)(2)

$

2,228.3

2,160.3

68.0

3.1

%

Points of distribution

9,419

9,141

278

3.0

%

Gross openings

142

172

(30)

(17.4)

%

Net openings

106

126

(20)

(15.9)

%

(1)

Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

(2)

Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees, or joint ventures as revenue and such sales are not included in our consolidated financial statements. See "Non-GAAP Measures and Statistical Data" for further detail.

Dunkin' U.S. fourth quarter revenues of $152.2 million represented an increase of 2.3% compared to the prior year period. The increase was primarily a result of an increase in royalty income driven by systemwide sales growth, offset by a decrease in franchise fees due primarily to franchisee incentives provided in fiscal year 2018 as part of the investments in the Dunkin' U.S. Blueprint for Growth that are being recognized over the remaining term of each respective franchise agreement.

Dunkin' U.S. segment profit in the fourth quarter increased to $119.8 million, an increase of $7.9 million over the prior year period, driven primarily by the increase in royalty income, a decrease in general and administrative expenses, and an increase in rental margin due to expenses incurred in the prior year period to record lease-related liabilities. These increases were offset by the decrease in franchise fees.

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Dunkin' International

December 29,

 2018

December 30,

 2017(1)

$ / #

%

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

Royalty income

$

5,249

4,954

295

6.0

%

Franchise fees

159

485

(326)

(67.2)

%

Other revenues

54

(26)

80

n/m

Total revenues

$

5,462

5,413

49

0.9

%

Segment profit

$

3,140

1,974

1,166

59.1

%

Comparable store sales growth

1.1

%

1.6

%

Systemwide sales (in millions)(2)

$

206.9

200.0

6.9

3.5

%

Points of distribution

3,452

3,397

55

1.6

%

Gross openings

99

92

7

7.6

%

Net openings (closings)

25

(23)

48

n/m

(1)

Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

(2)

Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees, or joint ventures as revenue and such sales are not included in our consolidated financial statements. See "Non-GAAP Measures and Statistical Data" for further detail.

Dunkin' International fourth quarter systemwide sales increased 3.5% from the prior year period driven by sales growth in the Middle East, Europe, and Latin America, offset by sales declines in South Korea and Asia. Sales across all regions were negatively impacted by unfavorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 6%.

Dunkin' International fourth quarter revenues of $5.5 million represented an increase of 0.9% from the prior year period. The increase in revenues was primarily a result of an increase in royalty income driven by systemwide sales growth, as well as an increase in other revenues, offset by a decrease in franchise fees primarily due to additional deferred revenue recognized in the prior year period upon closure of restaurants and the recognition of franchisee incentives in the current year period.

Segment profit for Dunkin' International increased $1.2 million to $3.1 million in the fourth quarter primarily as a result of a decrease in general and administrative expenses and net income in the current period compared to net loss in the prior year period from our South Korea joint venture.

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Baskin-Robbins U.S.

December 29,

 2018

December 30,

 2017(1)

$ / #

%

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

Royalty income

$

5,335

5,459

(124)

(2.3)

%

Franchise fees

365

389

(24)

(6.2)

%

Rental income

668

743

(75)

(10.1)

%

Sales of ice cream and other products

835

1,269

(434)

(34.2)

%

Other revenues

1,922

2,193

(271)

(12.4)

%

Total revenues

$

9,125

10,053

(928)

(9.2)

%

Segment profit

$

3,918

4,933

(1,015)

(20.6)

%

Comparable store sales growth (decline)

(3.7)

%

5.1

%

Systemwide sales (in millions)(2)

$

110.9

112.4

(1.6)

(1.4)

%

Points of distribution

2,550

2,560

(10)

(0.4)

%

Gross openings

24

32

(8)

(25.0)

%

Net closings

(8)

(2)

(6)

n/m

(1)

Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

(2)

Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees, or joint ventures as revenue and such sales are not included in our consolidated financial statements. See "Non-GAAP Measures and Statistical Data" for further detail.

Baskin-Robbins U.S. fourth quarter revenues decreased 9.2% from the prior year period to $9.1 million due primarily to decreases in sales of ice cream and other products, other revenues, and royalty income.

Segment profit for Baskin-Robbins U.S. decreased $1.0 million to $3.9 million in the fourth quarter, primarily as a result of an increase in general and administrative expenses, the decreases in other revenues and royalty income, as well as a decrease in net margin on ice cream driven primarily by a decrease in sales volume.

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Baskin-Robbins International

December 29,

 2018

December 30,

 2017(1)

$ / #

%

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

Royalty income

$

1,695

1,754

(59)

(3.4)

%

Franchise fees

184

178

6

3.4

%

Rental income

141

126

15

11.9

%

Sales of ice cream and other products

22,278

23,434

(1,156)

(4.9)

%

Other revenues

6

106

(100)

(94.3)

%

Total revenues

$

24,304

25,598

(1,294)

(5.1)

%

Segment profit

$

5,213

7,231

(2,018)

(27.9)

%

Comparable store sales growth

1.5

%

3.0

%

Systemwide sales (in millions)(2)

$

330.0

326.4

3.6

1.1

%

Points of distribution

5,491

5,422

69

1.3

%

Gross openings

81

115

(34)

(29.6)

%

Net openings

25

40

(15)

(37.5)

%

(1)

Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

(2)

Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees, or joint ventures as revenue and such sales are not included in our consolidated financial statements. See "Non-GAAP Measures and Statistical Data" for further detail.

Baskin-Robbins International systemwide sales increased 1.1% in the fourth quarter compared to the prior year period driven by sales growth in South Korea and Japan, offset by a sales decline in the Middle East. Sales across all regions were negatively impacted by unfavorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 3%.

Baskin-Robbins International fourth quarter revenues of $24.3 million represented a decrease of 5.1% from the prior year period due primarily to a decrease in sales of ice cream and other products. Systemwide sales and sales of ice cream and other products are not directly correlated within a given period due to certain licensees sourcing their own ice cream products, the lag between shipment of products to licensees and retail sales at franchised restaurants, and the overall timing of deliveries between fiscal quarters.

Fourth quarter segment profit decreased $2.0 million from the prior year period to $5.2 million primarily as a result of an increase in general and administrative expenses due primarily to consulting fees, as well as a decrease in net margin on ice cream driven primarily by an increase in commodity costs. Offsetting these decreases in segment profit was an increase in net income from our South Korea and Japan joint ventures.

Three months ended

Increase (Decrease)

U.S. Advertising Funds

December 29,

 2018

December 30,

 2017(1)

$ / #

%

(Unaudited, $ in thousands)

Revenues:

Advertising fees and related income

$

113,059

110,434

2,625

2.4

%

Total revenues

$

113,059

110,434

2,625

2.4

%

Segment profit

$

%

(1)

Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

U.S. Advertising Funds fourth quarter revenues of $113.1 million represented an increase of 2.4% compared to the prior year period driven primarily by Dunkin' U.S. systemwide sales growth. Expenses for the U.S. Advertising Funds were equivalent to revenues in each period, resulting in no segment profit.

COMPANY UPDATES

  • The Company today announced that the Board of Directors declared a cash dividend of $0.3750 per share, payable on March 20, 2019, to shareholders of record as of the close of business on March 11, 2019. This represents an 8 percent increase over the prior quarter's dividend.
  • During the fourth quarter, the Company repurchased 458,465 shares of common stock in the open market at a weighted average cost per share of $65.44. The Company's shares outstanding as of December 29, 2018 were 82,560,596.

LONG-TERM TARGETS*

The Company introduces the following 3-year targets:

  • The Company expects low single digit percent comparable store sales growth for Dunkin' U.S.
  • The Company expects Dunkin' U.S. franchisees to open between 200 and 250 net new units annually.
  • The Company expects low-to-mid single digit percent revenue growth.
  • The Company expects low single digit percent general and administrative expense growth (2020 and beyond).
  • The Company expects mid-to-high single digit percent operating and adjusted operating income growth.

*These targets replace all prior long-term targets. The Company is no longer providing long-term targets for Baskin-Robbins U.S. comparable store sales and net unit development.

FISCAL YEAR 2019 TARGETS

The Company introduces the following fiscal year 2019 performance targets:

  • The Company expects low-single digit comparable store sales growth for Dunkin' U.S. and Baskin-Robbins U.S.
  • The Company expects to be at the low end of the range of 200 and 250 net new Dunkin' U.S. units. It expects new Dunkin' U.S. restaurants opened in 2019 will contribute greater than $130 million in systemwide sales in 2019.
  • The Company expects Baskin-Robbins U.S. franchisees to close approximately ten net units.
  • The Company expects low-to-mid single digit percent revenue growth.
  • The Company expects low-to-mid single digit percent other revenue growth driven by consumer packaged goods.
  • The Company expects ice cream margin dollars to be flat compared to 2018 from a profit dollar standpoint.
  • The Company expects net income of equity method investments (JV net income) to be flat compared to 2018.
  • The Company expects a mid-single digit percent reduction to general and administrative expenses.
  • The Company expects mid-to-high single digit percent operating and adjusted operating income growth.
  • The Company expects its full-year effective tax rate to be approximately 28% and net interest expense to be $122 million. The tax guidance excludes any potential future impact from material excess tax benefits in 2019.
  • The Company expects full-year weighted-average shares outstanding of approximately 84 million.
  • The Company expects GAAP diluted earnings per share of $2.74 to $2.83 and adjusted earnings per share of $2.94 to $2.99.
  • The Company expects capital expenditures to be approximately $40 million.

The foregoing non-GAAP forward-looking financial measures are reconciled from the respective measures determined under GAAP in the attached tables "Dunkin' Brands Group, Inc. and Subsidiaries Non-GAAP Reconciliations."

About Dunkin' Brands Group, Inc.

With more than 20,900 points of distribution in more than 60 countries worldwide, Dunkin' Brands Group, Inc. (Nasdaq: DNKN) is one of the world's leading franchisors of quick service restaurants (QSR) serving hot and cold coffee and baked goods, as well as hard-serve ice cream. At the end of the fourth quarter 2018, Dunkin' Brands' 100 percent franchised business model included more than 12,800 Dunkin' restaurants and more than 8,000 Baskin-Robbins restaurants. Dunkin' Brands Group, Inc. is headquartered in Canton, Mass.

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Three months ended

Fiscal year ended

December 29,

2018

December 30,

 2017(1)

December 29,

2018

December 30,

 2017(1)

Revenues:

Franchise fees and royalty income(2)

$

142,602

139,863

578,342

555,206

Advertising fees and related income

118,573

115,760

493,590

470,984

Rental income

24,988

25,100

104,413

104,643

Sales of ice cream and other products(2)

20,413

22,030

95,197

96,388

Other revenues

13,048

12,193

50,075

48,330

Total revenues

319,624

314,946

1,321,617

1,275,551

Operating costs and expenses:

Occupancy expenses—franchised restaurants

15,043

16,543

58,102

60,301

Cost of ice cream and other products

16,456

18,434

77,412

77,012

Advertising expenses

119,736

117,329

498,019

476,157

General and administrative expenses, net

63,670

61,805

246,792

243,828

Depreciation

4,837

4,988

19,932

20,084

Amortization of other intangible assets

5,201

5,334

21,113

21,335

Long-lived asset impairment charges

439

974

1,648

1,617

Total operating costs and expenses

225,382

225,407

923,018

900,334

Net income of equity method investments

3,238

2,586

14,903

15,198

Other operating income (loss), net

(921)

36

(1,670)

627

Operating income

96,559

92,161

411,832

391,042

Other income (expense), net:

Interest income

2,112

1,943

7,200

3,313

Interest expense

(31,801)

(30,231)

(128,748)

(104,423)

Loss on debt extinguishment and refinancing transactions

(6,996)

(6,996)

Other income (loss), net

(383)

21

(1,083)

391

Total other expense, net

(30,072)

(35,263)

(122,631)

(107,715)

Income before income taxes

66,487

56,898

289,201

283,327

Provision (benefit) for income taxes

13,298

(77,756)

59,295

12,118

Net income

$

53,189

134,654

229,906

271,209

Earnings per share—basic

$

0.64

1.49

2.75

2.99

Earnings per share—diluted

0.64

1.47

2.71

2.94

(1)

Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

(2)

For each of the three months ended December 29, 2018 and December 30, 2017, $2.9 million, and for the fiscal years ended December 29, 2018 and December 30, 2017, $15.1 million and $14.3 million, respectively, of sales of ice cream and other products have been allocated to franchise fees and royalty income as consideration for the use of the franchise license.

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

December 29,

 2018

December 30,

 2017(1)

Assets

Current assets:

Cash and cash equivalents

$

517,594

1,018,317

Restricted cash

79,008

94,047

Accounts, notes, and other receivables, net

140,375

121,849

Other current assets

76,496

70,120

Total current assets

813,473

1,304,333

Property and equipment, net

209,202

181,542

Equity method investments

146,395

140,615

Goodwill and other intangible assets, net

2,223,032

2,245,465

Other assets

64,479

65,478

Total assets

$

3,456,581

3,937,433

Liabilities and Stockholders' Deficit

Current liabilities:

Current portion of long-term debt

$

31,650

31,500

Accounts payable

80,037

53,417

Deferred revenue

38,082

44,876

Other current liabilities

389,812

355,706

Total current liabilities

539,581

485,499

Long-term debt, net

3,010,626

3,035,857

Deferred revenue

327,333

361,458

Deferred income taxes, net

204,027

214,345

Other long-term liabilities

87,811

94,813

Total long-term liabilities

3,629,797

3,706,473

Total stockholders' deficit

(712,797)

(254,539)

Total liabilities and stockholders' deficit

$

3,456,581

3,937,433

(1)

Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Fiscal year ended

December 29,

 2018

December 30,

 2017(1)

Net cash provided by operating activities

$

268,955

283,357

Cash flows from investing activities:

Additions to property and equipment

(51,855)

(21,055)

Proceeds from sale of assets

854

Other, net

20

(102)

Net cash used in investing activities

(51,835)

(20,303)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

1,400,000

Repayment of long-term debt

(31,600)

(754,375)

Payment of debt issuance and other debt-related costs

(18,441)

Dividends paid on common stock

(114,828)

(117,003)

Repurchases of common stock, including accelerated share repurchases

(680,368)

(127,186)

Exercise of stock options

95,331

36,344

Other, net

(895)

(698)

Net cash provided by (used in) financing activities

(732,360)

418,641

Effect of exchange rates on cash, cash equivalents, and restricted cash

(538)

572

Increase (decrease) in cash, cash equivalents, and restricted cash

(515,778)

682,267

Cash, cash equivalents, and restricted cash, beginning of period

1,114,099

431,832

Cash, cash equivalents, and restricted cash, end of period

$

598,321

1,114,099

(1)

Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Non-GAAP Reconciliations

(In thousands, except share and per share data)

(Unaudited)

Three months ended

Fiscal year ended

December 29,

2018

December 30,

 2017(1)

December 29,

2018

December 30,

 2017(1)

Operating income

$

96,559

92,161

411,832

391,042

Operating income margin

30.2

%

29.3

%

31.2

%

30.7

%

Adjustments:

Amortization of other intangible assets

$

5,201

5,334

21,113

21,335

Long-lived asset impairment charges

439

974

1,648

1,617

Bertico-related litigation(2)

(2,898)

(2,898)

Adjusted operating income

$

102,199

95,571

434,593

411,096

Adjusted operating income margin

32.0

%

30.3

%

32.9

%

32.2

%

Net income

$

53,189

134,654

229,906

271,209

Adjustments:

Amortization of other intangible assets

5,201

5,334

21,113

21,335

Long-lived asset impairment charges

439

974

1,648

1,617

Bertico-related litigation(2)

(2,898)

(2,898)

Loss on debt extinguishment and refinancing transactions

6,996

6,996

Tax impact of adjustments(3)

(1,579)

(4,162)

(6,373)

(10,820)

Impact of tax reform(4)

(96,803)

(96,803)

Adjusted net income

$

57,250

44,095

246,294

190,636

Adjusted net income

$

57,250

44,095

246,294

190,636

Weighted average number of common shares – diluted

83,744,361

91,765,911

84,960,791

92,231,436

Diluted adjusted earnings per share

$

0.68

0.48

2.90

2.07

(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

(2) Adjustments for the three months and fiscal year ended December 30, 2017 represent a reduction to legal reserves for Bertico-related litigation based upon final settlement of such matters.

(3) Tax impact of adjustments calculated at effective tax rates of 28% for the three months and fiscal year ended December 29, 2018 and 40% for the three months and fiscal year ended December 30, 2017.

(4) Net tax benefit due to the enactment of the Tax Act during the fiscal year ended December 30, 2017, consisting primarily of the re-measurement of deferred tax liabilities using the lower enacted corporate tax rate.

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Non-GAAP Reconciliations (continued)

(Unaudited)

Fiscal year ended

December 28, 2019

Low

High

(projected)

(projected)

Diluted earnings per share

$

2.74

2.83

Adjustments:

Amortization of other intangible assets

0.23

0.22

Long-lived asset impairment charges

0.04

Tax impact of adjustments(1)

(0.07)

(0.06)

Diluted adjusted earnings per share

$

2.94

2.99

(1) Tax impact of adjustments calculated at a 28% effective tax rate.

SOURCE Dunkin' Brands Group, Inc.



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