Notes to Consolidated Financial Statements
(Unaudited)
(1) Description of Business and Organization
Dunkin’ Brands Group, Inc. (“DBGI”), together with its consolidated subsidiaries, is one of the world’s leading 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 unaudited 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) Unaudited Consolidated Financial Statements
The consolidated balance sheet as of
June 28, 2014
, the consolidated statements of operations and comprehensive income for the
three and six months ended
June 28, 2014
and
June 29, 2013
, and the consolidated statements of cash flows for the
six months ended
June 28, 2014
and
June 29, 2013
, are unaudited.
The accompanying unaudited consolidated financial statements include the accounts of DBGI and its consolidated subsidiaries and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. All significant transactions and balances between subsidiaries and affiliates have been eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements in accordance with U.S. GAAP have been recorded. Such adjustments consisted only of normal recurring items. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended
December 28, 2013
, included in the Company’s Annual Report on Form 10-K.
(b) 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 our three- and six-month periods ended
June 28, 2014
and
June 29, 2013
reflect the results of operations for the 13-week and 26-week periods ended on those dates. Operating results for the three- and six-month periods ended
June 28, 2014
are not necessarily indicative of the results that may be expected for the fiscal year ending
December 27, 2014
.
(c) Fair Value of Financial Instruments
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.
Financial assets and liabilities measured at fair value on a recurring basis as of
June 28, 2014
and
December 28, 2013
are summarized as follows (in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2014
|
|
December 28, 2013
|
|
Quoted prices
in active
markets for
identical assets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Total
|
|
Quoted prices
in active
markets for
identical assets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
1,012
|
|
|
—
|
|
|
1,012
|
|
Interest rate swaps
|
—
|
|
|
5,083
|
|
|
5,083
|
|
|
—
|
|
|
10,221
|
|
|
10,221
|
|
Total assets
|
$
|
—
|
|
|
5,083
|
|
|
5,083
|
|
|
1,012
|
|
|
10,221
|
|
|
11,233
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation liabilities
|
$
|
—
|
|
|
7,996
|
|
|
7,996
|
|
|
—
|
|
|
7,181
|
|
|
7,181
|
|
Total liabilities
|
$
|
—
|
|
|
7,996
|
|
|
7,996
|
|
|
—
|
|
|
7,181
|
|
|
7,181
|
|
The deferred compensation liabilities primarily relate to the Dunkin’ Brands, Inc. Non-Qualified Deferred Compensation Plan (“NQDC Plan”), which allows for pre-tax salary deferrals for certain qualifying individuals. 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 assets, which may include mutual funds, to partially offset the Company’s liabilities under certain benefit plans. The changes in the fair value of any mutual funds held 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
June 28, 2014
, 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 as of
June 28, 2014
and
December 28, 2013
were as follows (in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2014
|
|
December 28, 2013
|
|
Carrying Value
|
|
Estimated fair value
|
|
Carrying Value
|
|
Estimated fair value
|
Financial liabilities
|
|
|
|
|
|
|
|
Term loans
|
$
|
1,808,679
|
|
|
1,807,405
|
|
|
1,823,609
|
|
|
1,836,212
|
|
The estimated fair value of our term loans is estimated 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.
(d) 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 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. Cash flows associated with the Company's interest rate swap agreements are classified as cash flows from operating activities in the consolidated statements of cash flows which is consistent with the classification of cash flows of the underlying hedged item. See note 5 for a discussion of the Company's use of derivative instruments, management of credit risk inherent in derivative instruments, and fair value information.
(e) 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
June 28, 2014
and
December 28, 2013
,
one
master licensee, including its majority-owned subsidiaries, accounted for approximately
26%
and
17%
, respectively, of total accounts and notes receivable, which was primarily due to the timing of orders and shipments of ice cream to the master licensee. For the
three and six months ended
June 28, 2014
,
one
master licensee, including its majority-owned subsidiaries, accounted for approximately
10%
and
11%
of total revenues, respectively.
No
individual franchisee or master licensee accounted for more than 10% of total revenues for the three or six months ended
June 29, 2013
.
(f) Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued new guidance for revenue recognition related to contracts with customers, except for contracts within the scope of other standards, which supersedes nearly all existing revenue recognition guidance. The new guidance provides a single framework in which revenue is required to be recognized to depict the transfer of goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. This guidance is effective for the Company in fiscal year 2017 and early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the impact the adoption of this new standard will have on the Company’s accounting policies, consolidated financial statements, and related disclosures.
In July 2013, the 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 was adopted by the Company in fiscal year 2014. The adoption of this guidance did not have any impact on the Company
’
s consolidated financial statements.
(g) Reclassifications
The Company has revised the presentation of certain income generating transactions that historically were recorded within general and administrative expenses, net in the consolidated statements of operations. Income from these transactions totaling
$785 thousand
and
$2.0 million
have been reclassified into other operating income, net, for the
three and six months ended
June 29, 2013
, respectively, in the consolidated statements of operations to conform to the current year presentation. There was no impact to total revenues, operating income, income before income taxes, or net income as a result of these reclassifications.
The Company has also revised the presentation of certain asset captions within the consolidated balance sheets to conform to the current period presentation, including combining 'assets held for sale' with 'prepaid expense and other current assets' and combining 'restricted cash' with 'other assets'. The revisions had no impact on total current assets or total assets.
Additionally, the Company has revised the presentation of certain captions for the six months ended
June 29, 2013
within the consolidated statements of cash flows to conform to the current period presentation. The revisions had no impact on net cash provided by operating, provided by or used in investing, or used in financing activities.
(h) Subsequent Events
Subsequent events have been evaluated through the date these consolidated financial statements were filed.
(3) Franchise Fees and Royalty Income
Franchise fees and royalty income consisted of the following (in thousands):
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Three months ended
|
|
Six months ended
|
|
June 28,
2014
|
|
June 29,
2013
|
|
June 28,
2014
|
|
June 29,
2013
|
Royalty income
|
$
|
112,732
|
|
|
106,254
|
|
|
211,331
|
|
|
199,476
|
|
Initial franchise fees and renewal income
|
9,535
|
|
|
6,540
|
|
|
17,648
|
|
|
17,083
|
|
Total franchise fees and royalty income
|
$
|
122,267
|
|
|
112,794
|
|
|
228,979
|
|
|
216,559
|
|
The changes in franchised and company-owned points of distribution were as follows:
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Three months ended
|
|
Six months ended
|
|
June 28,
2014
|
|
June 29,
2013
|
|
June 28,
2014
|
|
June 29,
2013
|
Systemwide Points of Distribution:
|
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|
|
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|
|
Franchised points of distribution in operation—beginning of period
|
18,218
|
|
|
17,446
|
|
|
18,122
|
|
|
17,333
|
|
Franchised points of distribution—opened
|
315
|
|
|
300
|
|
|
581
|
|
|
544
|
|
Franchised points of distribution—closed
|
(167
|
)
|
|
(149
|
)
|
|
(337
|
)
|
|
(280
|
)
|
Net transfers from company-owned points of distribution
|
10
|
|
|
—
|
|
|
10
|
|
|
—
|
|
Franchised points of distribution in operation—end of period
|
18,376
|
|
|
17,597
|
|
|
18,376
|
|
|
17,597
|
|
Company-owned points of distribution—end of period
|
29
|
|
|
30
|
|
|
29
|
|
|
30
|
|
Total systemwide points of distribution—end of period
|
18,405
|
|
|
17,627
|
|
|
18,405
|
|
|
17,627
|
|
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 the
three and six months ended
June 29, 2013
has 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 period and franchised points of distribution in operation—end of period were reduced by
91
for the
three and six months ended
June 29, 2013
.
(4) Debt
In February 2014, Dunkin’ Brands, Inc. (“DBI”), a subsidiary of DBGI, amended its senior credit facility, resulting in a reduction of interest rates. 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 that matures in
February 2019
.
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) LIBOR plus
1.0%
, and (d)
1.75%
or (2) LIBOR 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 LIBOR.
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) LIBOR plus
1.0%
, or (2) LIBOR. 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 LIBOR.
The effective interest rate for the term loans, including the amortization of original issue discount and deferred financing costs, was
3.5%
and
2.8%
for the 2021 Term Loans and 2017 Term Loans, respectively, at
June 28, 2014
.
Subsequent to the amendment, 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) LIBOR plus
1.0%
, or (2) LIBOR. 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 LIBOR. 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%
.
In connection with the amendment, certain lenders, holding
$684.7 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 2014, the Company recorded a loss on debt extinguishment and refinancing transactions of
$13.7 million
, including
$10.5 million
related to the write-off of original issuance discount and deferred financing costs and
$3.2 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. Total debt issuance costs incurred and capitalized in connection with this amendment were
$1.2 million
.
In February 2013, the Company amended its senior credit facility, resulting in a reduction of interest rates and an extension of the maturity dates for both the term loans and the revolving credit facility. As a result of the amendment, the Company recorded a loss on debt extinguishment and refinancing transactions of
$5.0 million
during the first quarter of 2013, 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.
Principal payments 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. Principal payments 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 senior credit facility), is no greater than
4.75
x, 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. Considering the voluntary prepayments made, no additional principal payments are required in the next twelve months as of
June 28, 2014
, though the Company may elect to make voluntary prepayments. Other events and transactions, such as certain asset sales and incurrence of debt, may trigger additional mandatory prepayments.
(5) 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
June 28, 2014
. 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.
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 the designated benchmark interest rate being hedged, through November 2017. 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 other comprehensive income (loss), or current earnings if there is ineffectiveness of the derivative instruments during the period.
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 floor of
0.75%
, resulting in a total interest rate of approximately
3.72%
on the hedged amount when considering the applicable margin in effect at
June 28, 2014
. There was no change to the term and the notional amount of the term loan borrowings being hedged of
$900.0 million
.
As a result of the amendment to the interest rate swaps, the Company does not expect the hedging relationship to have a material amount of ineffectiveness. During the
three and six months ended
June 28, 2014
and
June 29, 2013
, there was
no
ineffectiveness of the interest rate swaps, and therefore, ineffectiveness had no impact on the consolidated statements of operations. As of the date of the amendment, a cumulative unrealized gain of
$5.8 million
was recorded in accumulated other comprehensive income, which will be amortized on a straight-line basis to interest expense in the consolidated statements of operations through the maturity date.
The fair values of derivatives instruments consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 28,
2014
|
|
December 28,
2013
|
|
Consolidated Balance Sheet Classification
|
Interest rate swaps
|
$
|
5,083
|
|
|
10,221
|
|
|
Other assets
|
Total fair values of derivative instruments
|
$
|
5,083
|
|
|
10,221
|
|
|
|
The tables below summarize the effects of derivative instruments on the consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 28, 2014, and June 29, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 28, 2014
|
Derivatives designated as cash flow hedging instruments
|
|
Amount of gain (loss) recognized in other comprehensive income (loss)
|
|
Amount of net gain (loss) reclassified into earnings
(1)
|
|
Consolidated statement of operations classification
|
|
Total effect on other comprehensive income (loss)
|
Interest rate swaps
|
|
$
|
(5,138
|
)
|
|
(1,171
|
)
|
|
Interest expense
|
|
$
|
(3,967
|
)
|
Income tax effect
|
|
2,090
|
|
|
480
|
|
|
Provision for income taxes
|
|
1,610
|
|
Net of income taxes
|
|
$
|
(3,048
|
)
|
|
(691
|
)
|
|
|
|
$
|
(2,357
|
)
|
|
|
|
|
|
|
|
|
|
Three months ended June 29, 2013
|
Derivatives designated as cash flow hedging instruments
|
|
Amount of gain (loss) recognized in other comprehensive income (loss)
|
|
Amount of net gain (loss) reclassified into earnings
|
|
Consolidated statement of operations classification
|
|
Total effect on other comprehensive income (loss)
|
Interest rate swaps
|
|
$
|
13,328
|
|
|
(846
|
)
|
|
Interest expense
|
|
$
|
14,174
|
|
Income tax effect
|
|
(5,395
|
)
|
|
342
|
|
|
Provision for income taxes
|
|
(5,737
|
)
|
Net of income taxes
|
|
$
|
7,933
|
|
|
(504
|
)
|
|
|
|
$
|
8,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 28, 2014
|
Derivatives designated as cash flow hedging instruments
|
|
Amount of gain (loss) recognized in other comprehensive income (loss)
|
|
Amount of net gain (loss) reclassified into earnings
(1)
|
|
Consolidated statement of operations classification
|
|
Total effect on other comprehensive income (loss)
|
Interest rate swaps
|
|
$
|
(7,173
|
)
|
|
(2,048
|
)
|
|
Interest expense
|
|
$
|
(5,125
|
)
|
Income tax effect
|
|
2,893
|
|
|
826
|
|
|
Provision for income taxes
|
|
2,067
|
|
Net of income taxes
|
|
$
|
(4,280
|
)
|
|
(1,222
|
)
|
|
|
|
$
|
(3,058
|
)
|
|
|
|
|
|
|
|
|
|
Six months ended June 29, 2013
|
Derivatives designated as cash flow hedging instruments
|
|
Amount of gain (loss) recognized in other comprehensive income (loss)
|
|
Amount of net gain (loss) reclassified into earnings
|
|
Consolidated statement of operations classification
|
|
Total effect on other comprehensive income (loss)
|
Interest rate swaps
|
|
$
|
13,823
|
|
|
(1,692
|
)
|
|
Interest expense
|
|
$
|
15,515
|
|
Income tax effect
|
|
(5,602
|
)
|
|
697
|
|
|
Provision for income taxes
|
|
(6,299
|
)
|
Net of income taxes
|
|
$
|
8,221
|
|
|
(995
|
)
|
|
|
|
$
|
9,216
|
|
|
|
(1)
|
The total net gain (loss) reclassified from accumulated other comprehensive income into interest expense in the consolidated statements of operations includes the straight-line amortization of the unrealized gain that remained in accumulated other comprehensive income as of the date of the amendment.
|
As of
June 28, 2014
and
December 28, 2013
,
$1.1 million
and
$836 thousand
, respectively, of interest expense related to interest rate swaps is accrued in other current liabilities in the consolidated balance sheets. During the next twelve months, the Company estimates that
$4.2 million
will be reclassified from accumulated other comprehensive income as an increase to interest expense 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
June 28, 2014
, 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.
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
June 28, 2014
, 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
June 28, 2014
, the termination value of derivatives is a net asset position of $
4.0 million
, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements.
(6) Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
June 28,
2014
|
|
December 28,
2013
|
Gift card/certificate liability
|
$
|
99,386
|
|
|
139,721
|
|
Gift card breakage liability
|
11,551
|
|
|
14,093
|
|
Accrued salary and benefits
|
17,490
|
|
|
26,713
|
|
Accrued legal liabilities (see note 10(c))
|
26,085
|
|
|
26,633
|
|
Accrued interest
|
10,015
|
|
|
9,999
|
|
Accrued professional costs
|
2,942
|
|
|
2,938
|
|
Other
|
19,461
|
|
|
28,821
|
|
Total other current liabilities
|
$
|
186,930
|
|
|
248,918
|
|
The decrease in the gift card/certificate liability is driven primarily by the seasonality of our gift card program. The decrease in accrued salary and benefits is primarily due to bonus payments made during the first quarter of 2014 related to fiscal year 2013.
(7) 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. Dunkin’ Donuts U.S. also derives revenue through retail sales at company-owned restaurants. Baskin-Robbins U.S. also derives revenue through license fees from a third-party license agreement. Baskin-Robbins International primarily derives its revenues from the 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 operating income adjusted for amortization of intangible assets, long-lived asset impairment charges, and other infrequent or unusual charges, and does not reflect the allocation of any corporate charges. This profitability measure is 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.
Prior to fiscal year 2014, the segment profit measure used by the Company to assess the performance of and allocate resources to each reportable segment was based on earnings before interest, taxes, depreciation, amortization, impairment charges, loss on debt extinguishment and refinancing transactions, and other gains and losses, and did not reflect the allocation of any corporate charges. Accordingly, the primary change from the historical segment profit measure is the inclusion of depreciation expense. Beginning in fiscal year 2014, the segment profit measure was revised to the adjusted operating income measure described above to better align the segments with our consolidated performance measures and incentive targets. The segment profit amounts presented below for the three and six months ended June 29, 2013 have been adjusted to reflect this change to the measurement of segment profit to ensure comparability.
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
|
|
Three months ended
|
|
Six months ended
|
|
June 28,
2014
|
|
June 29,
2013
|
|
June 28,
2014
|
|
June 29,
2013
|
Dunkin’ Donuts U.S.
|
$
|
136,450
|
|
|
128,672
|
|
|
261,669
|
|
|
$
|
248,306
|
|
Dunkin’ Donuts International
|
4,521
|
|
|
3,931
|
|
|
8,806
|
|
|
8,554
|
|
Baskin-Robbins U.S.
|
12,952
|
|
|
12,489
|
|
|
22,073
|
|
|
22,101
|
|
Baskin-Robbins International
|
33,631
|
|
|
34,917
|
|
|
63,642
|
|
|
60,345
|
|
Total reportable segment revenues
|
187,554
|
|
|
180,009
|
|
|
356,190
|
|
|
339,306
|
|
Other
|
3,354
|
|
|
2,479
|
|
|
6,666
|
|
|
5,040
|
|
Total revenues
|
$
|
190,908
|
|
|
182,488
|
|
|
362,856
|
|
|
344,346
|
|
Expenses included in “Corporate” in the segment profit table below include corporate overhead costs, such as payroll and related benefit costs and professional services. The “Operating income adjustments excluded from reportable segments” amounts for the three and six months ended June 29, 2013 below include the
$7.5 million
charge related to the third-party product volume guarantee (see note 10(a)). Segment profit by segment was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
Three months ended
|
|
Six months ended
|
|
June 28,
2014
|
|
June 29,
2013
|
|
June 28,
2014
|
|
June 29,
2013
|
Dunkin’ Donuts U.S.
|
$
|
100,981
|
|
|
91,302
|
|
|
190,813
|
|
|
174,857
|
|
Dunkin’ Donuts International
|
3,015
|
|
|
1,581
|
|
|
5,872
|
|
|
4,133
|
|
Baskin-Robbins U.S.
|
9,315
|
|
|
7,856
|
|
|
14,183
|
|
|
13,449
|
|
Baskin-Robbins International
|
11,724
|
|
|
19,411
|
|
|
21,223
|
|
|
28,709
|
|
Total reportable segments
|
125,035
|
|
|
120,150
|
|
|
232,091
|
|
|
221,148
|
|
Corporate
|
(30,871
|
)
|
|
(28,982
|
)
|
|
(62,302
|
)
|
|
(59,294
|
)
|
Interest expense, net
|
(16,754
|
)
|
|
(19,795
|
)
|
|
(34,626
|
)
|
|
(40,513
|
)
|
Amortization of other intangible assets
|
(6,384
|
)
|
|
(6,565
|
)
|
|
(12,789
|
)
|
|
(13,147
|
)
|
Long-lived asset impairment charges
|
(523
|
)
|
|
(107
|
)
|
|
(646
|
)
|
|
(355
|
)
|
Loss on debt extinguishment and refinancing transactions
|
—
|
|
|
—
|
|
|
(13,735
|
)
|
|
(5,018
|
)
|
Other losses, net
|
(113
|
)
|
|
(813
|
)
|
|
(86
|
)
|
|
(1,203
|
)
|
Operating income adjustments excluded from reportable segments
|
300
|
|
|
(7,691
|
)
|
|
300
|
|
|
(8,088
|
)
|
Income before income taxes
|
$
|
70,690
|
|
|
56,197
|
|
|
108,207
|
|
|
93,530
|
|
Net income of equity method investments is included in segment profit for the Dunkin’ Donuts International and Baskin-Robbins International reportable segments. Income included in “Other” in the table below represents the reduction of depreciation and amortization expense reported by BR Korea Co., Ltd. (“BR Korea”) as the Company recorded an impairment charge in fiscal year 2011 related to the underlying long-lived assets of BR Korea. Net income of equity method investments by reportable segment was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income of equity method investments
|
|
Three months ended
|
|
Six months ended
|
|
June 28,
2014
|
|
June 29,
2013
|
|
June 28,
2014
|
|
June 29,
2013
|
Dunkin’ Donuts International
|
$
|
672
|
|
|
368
|
|
|
976
|
|
|
254
|
|
Baskin-Robbins International
|
3,019
|
|
|
4,126
|
|
|
5,477
|
|
|
6,664
|
|
Total reportable segments
|
3,691
|
|
|
4,494
|
|
|
6,453
|
|
|
6,918
|
|
Other
|
357
|
|
|
288
|
|
|
695
|
|
|
951
|
|
Total net income of equity method investments
|
$
|
4,048
|
|
|
4,782
|
|
|
$
|
7,148
|
|
|
7,869
|
|
(8) Stockholders’ Equity and Redeemable Noncontrolling Interests
The changes in total stockholders' equity and redeemable noncontrolling interests were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
Redeemable noncontrolling interests
|
Balance at December 28, 2013
|
|
$
|
407,358
|
|
|
4,930
|
|
Net income
|
|
69,147
|
|
|
(348
|
)
|
Other comprehensive income
|
|
985
|
|
|
—
|
|
Dividends paid on common stock
|
|
(48,759
|
)
|
|
—
|
|
Exercise of stock options
|
|
4,293
|
|
|
—
|
|
Repurchases of common stock
|
|
(81,046
|
)
|
|
—
|
|
Share-based compensation expense
|
|
4,926
|
|
|
—
|
|
Excess tax benefits from share-based compensation
|
|
7,821
|
|
|
—
|
|
Contributions from noncontrolling interests
|
|
—
|
|
|
1,462
|
|
Other, net
|
|
(544
|
)
|
|
—
|
|
Balance at June 28, 2014
|
|
$
|
364,181
|
|
|
6,044
|
|
(a) Redeemable Noncontrolling Interests
As of
June 28, 2014
, the consolidated balance sheets included
$2.7 million
of cash and cash equivalents and
$9.1 million
of property and equipment, net, for the partnership entity with the noncontrolling owners, which may be used only to settle obligations of the partnership.
(b) Treasury Stock
During the
six
months ended
June 28, 2014
, the Company repurchased a total of
1,772,205
shares of common stock at a weighted average price per share of
$45.72
from existing stockholders. The Company accounts for treasury stock under the cost method, and as such recorded an increase in common treasury stock of
$81.0 million
during the
six months ended
June 28, 2014
, based on the fair market value of the shares on the date of repurchase and direct costs incurred. In May 2014, the Company retired
1,002,905
shares of treasury stock, resulting in decreases in treasury stock and additional paid-in capital of
$47.2 million
and
$10.8 million
, respectively, and an increase in accumulated deficit of
$36.4 million
.
(c) Equity Incentive Plans
During the
six
months ended
June 28, 2014
, the Company granted options to purchase
1,406,308
shares of common stock and
27,096
restricted stock awards (“RSAs”) to certain employees, and
74,299
restricted stock units (“RSUs”) to certain employees and members of our board of directors. The stock options generally vest in equal annual amounts over an approximately
four
-year period subsequent to the grant date, and have a maximum contractual term of
seven
years. The stock options were granted with an exercise price of
$51.67
per share and have a weighted average grant-date fair value of
$10.65
per share. The RSUs granted to employees and members of our board of directors vest over a
three
-year period and a one-year period, respectively, subsequent to the grant date. The RSUs have a weighted average grant-date fair value of
$47.72
per share. The RSAs vest in full on July 31, 2016, and have a grant-date fair value of
$51.67
per share.
In addition, the Company granted
150,000
performance-based RSAs during the first quarter of fiscal year 2014. These performance-based RSAs are eligible to vest on December 31, 2018, subject to a market vesting condition linked to the level of total shareholder return received by the Company's shareholders during the performance period measured against the median total shareholder return of the companies in the S&P 500 Composite Index. The performance-based RSAs were valued based on a Monte Carlo simulation model to reflect the impact of the total shareholder return market condition, resulting in a grant-date fair value of
$37.94
per share.
Total compensation expense related to all share-based awards was
$3.1 million
and
$2.0 million
for the three months ended
June 28, 2014
and
June 29, 2013
, respectively, and
$4.9 million
and
$3.7 million
for the
six months ended
June 28, 2014
and
June 29, 2013
, respectively, and is included in general and administrative expenses, net in the consolidated statements of operations.
(d) Accumulated Other Comprehensive Income
The changes in the components of accumulated other comprehensive income were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign
currency
translation
|
|
Unrealized gains (losses) on interest rate swaps
|
|
Unrealized gain (loss) on pension plan
|
|
Other
|
|
Accumulated
other
comprehensive
income
|
Balance at December 28, 2013
|
$
|
5
|
|
|
6,085
|
|
|
(3,098
|
)
|
|
(1,653
|
)
|
|
1,339
|
|
Other comprehensive income (loss)
|
3,522
|
|
|
(3,058
|
)
|
|
35
|
|
|
486
|
|
|
985
|
|
Balance at June 28, 2014
|
$
|
3,527
|
|
|
3,027
|
|
|
(3,063
|
)
|
|
(1,167
|
)
|
|
2,324
|
|
(e) Dividends
The Company paid quarterly dividends of
$0.23
per share of common stock on
March 19, 2014
and June 4, 2014, totaling approximately
$24.5 million
and
$24.2 million
, respectively. On
July 24, 2014
, we announced that our board of directors approved the next quarterly dividend of
$0.23
per share of common stock payable
September 3, 2014
to shareholders of record as of the close of business on
August 25, 2014
.
(9) Earnings per Share
The computation of basic and diluted earnings per common share is as follows (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
June 28,
2014
|
|
June 29,
2013
|
|
June 28,
2014
|
|
June 29,
2013
|
Net income attributable to Dunkin’ Brands—basic and diluted
|
$
|
46,191
|
|
|
40,812
|
|
|
69,147
|
|
|
64,610
|
|
Weighted average number of common shares:
|
|
|
|
|
|
|
|
Common—basic
|
105,914,402
|
|
|
106,485,078
|
|
|
106,208,129
|
|
|
106,365,758
|
|
Common—diluted
|
107,186,360
|
|
|
108,211,994
|
|
|
107,583,260
|
|
|
108,185,485
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
Common—basic
|
$
|
0.44
|
|
|
0.38
|
|
|
0.65
|
|
|
0.61
|
|
Common—diluted
|
0.43
|
|
|
0.38
|
|
|
0.64
|
|
|
0.60
|
|
The weighted average number of common shares in the common diluted earnings per share calculation includes the dilutive effect of
1,271,958
and
1,726,916
equity awards for the three months ended
June 28, 2014
and
June 29, 2013
, respectively, and includes the dilutive effect of
1,375,131
and
1,819,727
equity awards for the
six months ended
June 28, 2014
and
June 29, 2013
, respectively, 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 equity awards outstanding for which the performance criteria were not yet met as of the fiscal period end. As of
June 28, 2014
, there were
150,000
restricted shares that were performance-based and for which the performance criteria were not yet met. As of
June 29, 2013
, there were
no
equity awards 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
1,445,128
and
1,376,193
equity awards for the three months ended
June 28, 2014
and
June 29, 2013
, respectively, and
1,470,672
and
1,571,791
equity awards for the
six months ended
June 28, 2014
and
June 29, 2013
, respectively, as they would be antidilutive.
(10) Commitments and Contingencies
(a) 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
$2.9 million
and
$3.0 million
at
June 28, 2014
and
December 28, 2013
, respectively. At
June 28, 2014
and
December 28, 2013
, there were no amounts under such guarantees that were due.
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 as of
December 28, 2013
. The Company made the full required guarantee payment during the first quarter of 2014. No additional guarantee payments will be required under the agreement.
The Company entered into a third-party guarantee with a distribution facility that guarantees 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
June 28, 2014
and
December 28, 2013
, the Company was contingently liable for
$5.0 million
and
$5.7 million
, respectively, under this guarantee. Additionally, the Company has various supply chain contracts that generally 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
June 28, 2014
and
December 28, 2013
, the Company was contingently liable under such supply chain agreements for approximately
$46.7 million
and
$52.6 million
, respectively. The Company assesses 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 as of
June 28, 2014
.
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
June 28, 2014
and
December 28, 2013
, the potential amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessee was
$6.5 million
and
$6.4 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.
(b) Letters of Credit
At
June 28, 2014
and
December 28, 2013
, the Company had standby letters of credit outstanding for a total of
$2.5 million
and
$3.0 million
, respectively. There were
no
amounts drawn down on these letters of credit.
(c) 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 (the “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. As of
June 28, 2014
and
December 28, 2013
, the Company has recorded an estimated liability of
$25.1 million
which includes interest that continues to accrue on the judgment amount and
the impact of foreign exchange. 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
June 28, 2014
and
December 28, 2013
, contingent liabilities, excluding the Bertico litigation, totaling
$1.0 million
and
$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 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.
(11) Related-Party Transactions
(a) Advertising Funds
At
June 28, 2014
and
December 28, 2013
, the Company had a net payable of
$6.2 million
and
$17.6 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 facilities, accounting services, information technology, data processing, product development, legal, administrative support services, and other operating expenses, as well as share-based compensation expense for employees that provide services directly to the advertising funds. Management fees totaled
$1.9 million
and
$1.4 million
for the three months ended
June 28, 2014
and
June 29, 2013
, respectively, and
$3.7 million
and
$2.9 million
for the
six months ended
June 28, 2014
and
June 29, 2013
, respectively, and are reflected 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
$192 thousand
during the
three and six months ended
June 28, 2014
and
$56 thousand
and
$1.1 million
during the three and six months ended
June 29, 2013
, 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
$186 thousand
and
$257 thousand
during the three months ended
June 28, 2014
and
June 29, 2013
, respectively, and
$450 thousand
and
$493 thousand
during the
six months ended
June 28, 2014
and
June 29, 2013
, respectively, which are included in company-owned restaurant expenses in the consolidated statements of operations. The Company also funded initiatives that benefit the gift card program of
$1.2 million
and
$2.9 million
during the three and
six
months ended
June 28, 2014
, respectively, and
$3.2 million
during the three and
six
months ended
June 29, 2013
, which were recorded as reductions to the gift card breakage liability included within other current liabilities in the consolidated balance sheets.
(b) Equity Method Investments
The Company recognized royalty income from its equity method investees as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
June 28,
2014
|
|
June 29,
2013
|
|
June 28,
2014
|
|
June 29,
2013
|
B-R 31 Ice Cream Co., Ltd.
|
$
|
533
|
|
|
602
|
|
|
844
|
|
|
1,004
|
|
BR Korea Co., Ltd.
|
1,178
|
|
|
1,019
|
|
|
2,225
|
|
|
2,029
|
|
Coffee Alliance, S.L. (“Coffee Alliance”)
|
17
|
|
|
32
|
|
|
17
|
|
|
130
|
|
|
$
|
1,728
|
|
|
1,653
|
|
|
3,086
|
|
|
3,163
|
|
At
June 28, 2014
and
December 28, 2013
, the Company had
$1.4 million
of royalties receivable from its equity method investees, which were recorded in accounts receivable, net of allowance for doubtful accounts, in the consolidated balance sheets.
The Company made net payments to its joint ventures totaling approximately
$778 thousand
and
$1.1 million
during the three months ended
June 28, 2014
and
June 29, 2013
, respectively, and
$1.3 million
and
$2.1 million
during the
six months ended
June 28, 2014
and
June 29, 2013
, respectively, primarily for the purchase of ice cream products and incentive payments.
During the three and
six months ended
June 29, 2013
, the Company made additional loans of
$899 thousand
and
$1.6 million
, respectively, to our Spain joint venture, Coffee Alliance. As of
June 28, 2014
and
December 28, 2013
, the Company had
$2.7 million
of notes receivable from Coffee Alliance, of which
$2.5 million
and
$2.7 million
was reserved as of
June 28, 2014
and
December 28, 2013
, respectively.
The Company recognized sales of ice cream products of
$1.9 million
and
$2.6 million
during the three months ended
June 28, 2014
and
June 29, 2013
, respectively, and
$3.0 million
and
$2.6 million
during the six months ended
June 28, 2014
and
June 29, 2013
, respectively, in the consolidated statements of operations from the sale of ice cream products to Palm Oasis Ventures Pty. Ltd. (“Australia JV”), of which the Company owns a
20 percent
equity interest. As of
June 28, 2014
and
December 28, 2013
, the Company had
$2.3 million
and
$733 thousand
, respectively, of net receivables from the Australia JV,
consisting of accounts receivable and notes and other receivables, net of other current liabilities.