March 28, 2012
VIA EDGAR
Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington, D.C. 20549 | ||||
Attention: | David R. Humphrey | |||
Beverly A. Singleton | ||||
Re: | Dunkin’ Brands Group, Inc. | |||
Form 10-K for the Fiscal Year Ended December 31, 2011 | ||||
Filed February 24, 2012 | ||||
File No. 1-35258 |
Ladies and Gentlemen:
Dunkin’ Brands Group, Inc. (the “Company”) respectfully submits this letter in response to comments contained in your letter dated March 27, 2012 relating to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2012. We have, for your convenience, reproduced the Staff’s comments, followed by the Company’s responses, below.
Form 10-K for the Fiscal Year Ended December 31, 2011
Item 6. Selected Financial Data, page 38
1. Selected financial data presented in tabular form should read consistently from left to right in the same chronological order as your financial statements. Similarly, numerical data included in narrative sections should be consistently ordered. See SAB Topic 11.E.
Response to Comment 1:
The Company acknowledges the Staff’s comment and will revise its future filings, including its Registration Statement No. 333-180190 on Form S-1, to present its selected financial data in tabular form consistently from left to right in the same chronological order as the Company’s financial statements. In addition, the Company confirms that numerical data included in narrative sections of future filings will be consistently ordered.
130 Royall Street Canton, MA 02021 | p 781-737-3000 f 781-737-4000 |
Securities and Exchange Commission | - 2 - | March 28, 2012 |
Item 8. Financial Statements and Supplementary Data, page 66
Note (6) Investments in joint ventures, page 82
2. We note your disclosure that during the fourth quarter of 2011 you engaged an independent third-party valuation specialist to determine the fair value of your investment in BR Korea, and that based on the fair value determined by the independent third-party valuation specialist, the carrying value of the investment in BR Korea exceeded its fair value. As it appears you have relied on the results of the third-party valuation, the third party should be identified in the filing and their consent is required to be filed under Exhibit 23 when your Form 10-K is incorporated by reference into a registration statement. See Rule 436 of Regulation C and Item 610(b) of Regulation S-K. Alternatively, you may delete all references to the third party or you can instead accept responsibility for such valuation while indicating that you considered the report of a third-party valuation firm. For additional guidance, please refer to Question 141.02 of the Compliance and Disclosure Interpretations (“C&DIs”) on Securities Act Sections, which can be found at http://www.sec.gov/divisions/corpfin/guidance/sasinterp.htm, which appears applicable since your Form 10-K was incorporated by reference into your Registration Statement No. 333-176246 on Form S-8. Please revise to clarify the nature and extent of the third party’s involvement and management’s reliance on the work of the third-party valuation firm. Please amend your December 31, 2011 Annual Report on Form 10-K or advise as to why you believe your disclosure complies with the requirements. In addition, we note your recently-filed Registration Statement No. 333- 180190 on Form S-1 contains the same financial statements as included in your Form 10- K, and this Form S-1 filing should be amended accordingly to comply with Question 141.02 of the C&DIs.
Response to Comment 2:
The Company supplementally advises the Staff that, while the Company engaged a third party valuation specialist to assist it in determining the fair value of its investment in BR-Korea Co., Ltd. (“BR Korea”), the determination of fair value was made by the Company based in part upon the report of the third party valuation specialist and, as a result, the Company does not believe that the third party valuation specialist is required to be identified in, or that the consent of the third party valuation specialist is required to be filed under Exhibit 23 to, the Company’s Annual Report on Form 10-K. The Company will, in its future filings, including its Registration Statement No. 333-180190 on Form S-1, clarify its disclosure regarding the use of the third party valuation specialist in determining the fair value of its investment in BR Korea by revising the identified language included in Note (6) to its consolidated financial statements for the fiscal years ended December 31, 2011, December 25, 2010 and December 26, 2009 to read as follows:
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 in 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 $1.0 million, in fiscal year 2011, which is recorded within equity in net income (loss) of joint ventures in the consolidated statements of operations.
Securities and Exchange Commission | - 3 - | March 28, 2012 |
Form 10-K for the Fiscal Year Ended December 31, 2011, As Amended
3. Refer to Exhibit 99.2 of your amended Form 10-K filed on March 16, 2012. Please explain to us why you have not provided audited financial statements of BR Japan for the fiscal year ended December 31, 2011. In this regard, we note that your Exhibit Index indicates on page 5 that your filing includes the audited financial statements of BR Japan for the fiscal years ended December 31, 2011, December 31, 2010 and December 31, 2009. Your response should address the significance requirements of Rule 3-09(b) of Regulation S-X, and also provide us with your underlying computations.
Response to Comment 3:
The Company supplementally advises the Staff that for the fiscal years ended December 31, 2011 and December 26, 2009, B-R 31 Ice Cream Co., Ltd. (“BR Japan”) was not deemed a significant subsidiary under Rule 3-09(a) of Regulation S-X. However, BR Japan was deemed significant under Rule 3-09(a) of Regulation S-X for the Company’s fiscal year ended December 25, 2010. See Annex A to this letter for the underlying computations of the significance tests related to BR Japan for each fiscal year presented. As such, in accordance with Rule 3-09(b) of Regulation S-X, the financial statements of BR Japan have been filed with the Annual Report on Form 10-K, with such separate financial statements only being audited for the fiscal year 2010 in which the significance requirement was met. The Company will revise the Exhibit Index in its future filings to reflect the fact that the financial statements of BR Japan have only been audited for the fiscal year ended December 31, 2010.
* * *
Securities and Exchange Commission | - 4 - | March 28, 2012 |
The Company hereby acknowledges that (i) it is responsible for the adequacy and accuracy of the disclosure in its filings; (ii) Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filings; and (iii) it is the Staff’s view that the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
I hope that the foregoing has been responsive to your comments. If you should have any questions about this letter or require any further information, please call me at (781) 737-3360 or Craig E. Marcus of Ropes & Gray LLP at (617) 951-7802.
Sincerely,
/s/ Richard J. Emmett
Richard J. Emmett
cc: | Nigel Travis |
Craig E. Marcus
Annex A
Significant Subsidiary Test - B-R 31 Ice Cream Co., Ltd. (“BR Japan”)
NOTE: All amounts in thousands.
Calculation of significant subsidiary under Regulation S-X 3-09 and 1-02(w)
(Note: Condition 2 of section 210.1-02(w) is not applicable under section 3-09)
Section 210.1-02(w) - Condition 1
Investment balances must exceed 20% of total assets to be deemed significant.
12/31/2011 | 12/25/2010 | 12/26/2009 | ||||||||||
Investment in BR Japan | 103,830 | 94,326 | 82,812 | |||||||||
Total assets of DNKN | 3,224,018 | 3,147,288 | 3,224,717 | |||||||||
Investment in BR Japan as a % of total assets | 3.2 | % | 3.0 | % | 2.6 | % |
Section 210.1-02(w) - Condition 3
Equity in the income from continuing operations before income taxes must exceed 20% of such consolidated income of DNKN for the most recently completed fiscal year to be deemed significant.
FY2011 | FY2010 | FY2009 | ||||||||||
NUMERATOR: | ||||||||||||
BR Japan income from continuing operations before income taxes, extraordinary items, and cumulative effect of change in accounting principle (JPY) - local GAAP | 2,979,984 | 2,941,110 | 2,375,893 | |||||||||
US GAAP adjustments, pre-tax (JPY): | ||||||||||||
Asset retirement obligations | (42,653 | ) | (81,226 | ) | (77,579 | ) | ||||||
Capitalized lease assets | 564 | (118 | ) | 911 | ||||||||
Compensated absences | 400 | (2,400 | ) | (3,600 | ) | |||||||
Lease obligation | (964 | ) | (2,449 | ) | (20,109 | ) | ||||||
Employees’ retirement benefit | (4,966 | ) | (7,146 | ) | (23,175 | ) | ||||||
Hedge accounting | 19,442 | (25,183 | ) | 29,573 | ||||||||
Adjustment to conform to DNKN accounting policies, pre-tax (JPY) | (90,676 | ) | (83,072 | ) | (105,096 | ) | ||||||
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BR Japan income from continuing operations before income taxes, extraordinary items, and cumulative effect of change in accounting principle (JPY) - US GAAP | 2,861,131 | 2,739,516 | 2,176,818 | |||||||||
DNKN ownership percentage | 43.3 | % | 43.3 | % | 43.3 | % | ||||||
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DNKN share of BR Japan income (JPY) | 1,238,011 | 1,185,389 | 941,909 | |||||||||
Amortization of intangible franchise rights acquired in purchase accounting, pre-tax (JPY) | (102,444 | ) | (111,107 | ) | (119,178 | ) | ||||||
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DNKN share of BR Japan income, net of amortization (JPY) | 1,135,567 | 1,074,282 | 822,731 | |||||||||
Average foreign exchange rate (USD to JPY) | 79.74 | 87.83 | 93.62 | |||||||||
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Equity in the income from continuing operations before income taxes, extraordinary items, and cumulative effect of change in accounting principle (USD) - US GAAP | 14,241 | 12,232 | 8,788 | |||||||||
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DENOMINATOR: | ||||||||||||
FY2011 | FY2010 | FY2009 | ||||||||||
DNKN income before income taxes (USD) | 66,813 | 19,446 | 74,276 | |||||||||
BR Japan income tax expense - local GAAP (JPY) | 1,196,689 | 1,295,758 | 1,033,873 | |||||||||
BR Japan income tax expense - US GAAP adjustment (JPY) | (8,491 | ) | (37,989 | ) | (50,286 | ) | ||||||
BR Japan tax impact of conforming to DNKN accounting policies (JPY) | (39,462 | ) | (39,012 | ) | (37,909 | ) | ||||||
BR Japan extraordinary loss (income), net (JPY) | 250,265 | (6,498 | ) | 34,720 | ||||||||
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BR Japan income taxes and extraordinary items (JPY) | 1,399,001 | 1,212,259 | 980,398 | |||||||||
DNKN ownership percentage | 43.3 | % | 43.3 | % | 43.3 | % | ||||||
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DNKN share of BR Japan income taxes and extraordinary items (JPY) | 605,348 | 524,544 | 424,218 | |||||||||
BR Japan tax impact of amortization of intangible franchise rights (JPY) | (42,002 | ) | (45,554 | ) | (48,863 | ) | ||||||
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DNKN share of BR Japan income taxes, extraordinary items, and tax impact of amortization (JPY) | 563,346 | 478,990 | 375,355 | |||||||||
Average foreign exchange rate (USD to JPY) | 79.74 | 87.83 | 93.62 | |||||||||
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DNKN share of BR Japan income taxes and extraordinary items (USD) | 7,065 | 5,454 | 4,009 | |||||||||
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BR Korea income tax expense - local GAAP (KRW) | 8,494,063 | 10,586,975 | 12,050,772 | |||||||||
BR Korea income tax expense - US GAAP adjustment (KRW) | 277,279 | 632,580 | 232,610 | |||||||||
BR Korea tax impact of conforming to DNKN accounting policies (KRW) | 37,080 | 206,013 | 832,680 | |||||||||
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BR Korea income tax expense (KRW) | 8,808,422 | 11,425,568 | 13,116,062 | |||||||||
DNKN ownership percentage | 33.3 | % | 33.3 | % | 33.3 | % | ||||||
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DNKN share of BR Korea income taxes (KRW) | 2,935,847 | 3,808,142 | 4,371,583 | |||||||||
BR Korea tax impact of amortization of intangible franchise rights (KRW) | (59,640 | ) | (64,684 | ) | (69,382 | ) | ||||||
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DNKN share of BR Korea income taxes and tax impact of amortization (KRW) | 2,876,207 | 3,743,458 | 4,302,201 | |||||||||
Average foreign exchange rate (USD to KRW) | 1,109 | 1,160 | 1,279 | |||||||||
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DNKN share of BR Korea income taxes and extraordinary items (USD) | 2,593 | 3,227 | 3,364 | |||||||||
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Investor level impairment charge - BR Korea (USD) | 19,752 | — | — | |||||||||
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Total adjustments for equity method joint ventures | 29,410 | 8,681 | 7,373 | |||||||||
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DNKN income from continuing operations before income taxes, adjusted (USD) | 96,223 | 28,127 | 81,649 | |||||||||
DNKN income for significance test(a) (USD) | 96,223 | 36,386 | 81,649 | |||||||||
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BR Japan income as % of DNKN income | 14.8 | % | 33.6 | % | 10.8 | % |
(a) | For fiscal year 2010, DNKN’s income from continuing operations before income taxes, adjusted to include the equity in the income from continuing operations before income taxes of joint ventures, was 10% lower than the average of such income for the five preceding fiscal years. As such, the five-year average income was used as the denominator for the fiscal year 2010 significance calculation. Such income for fiscal years 2011 and 2009 for DNKN was not 10% lower than the average income of the respective five preceding fiscal years. The five-year average income used for fiscal year 2010 was calculated as follows: |
FY2010 | FY2009 | FY2008 | FY2007 | 12-Months Ended 12/30/06(1) | ||||||||||||||||
Income before income taxes | 19,446 | 74,276 | (260,766 | ) | 66,284 | (9,459 | ) | |||||||||||||
Add-back income tax expense and extraordinary items of joint ventures | 8,681 | 7,373 | 6,871 | 5,868 | 6,631 | |||||||||||||||
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DNKN income from continuing operations before income taxes and extraordinary items, adjusted | 28,127 | 81,649 | (253,895 | ) | 72,152 | (2,828 | ) | |||||||||||||
Income for 5-year average calculation (excludes loss years) | 28,127 | 81,649 | — | 72,152 | — | |||||||||||||||
5-year average = 36,386 |
(1) | Represents results for the 2-months ended February 25, 2006 of the predecessor company and the 10-months ended December 30, 2006 of the successor company. The results for the 10-months ended December 30, 2006 also result in a loss for purposes of the significance calculation, and would therefore be excluded if utilized in place of the 12-month combined period. |