Dunkin' Donuts 2013 Annual Report Download - page 46

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Fiscal year Increase (Decrease)
2013 2012 $ %
(In thousands, except percentages)
Occupancy expenses – franchised restaurants $ 52,097 52,072 25 — %
Cost of ice cream products 79,278 69,019 10,259 14.9 %
Company-owned restaurant expenses 24,480 23,133 1,347 5.8 %
General and administrative expenses, net 228,010 239,574 (11,564) (4.8)%
Depreciation and amortization 49,366 56,027 (6,661) (11.9)%
Long-lived asset impairment charges 563 1,278 (715) (55.9)%
Total operating costs and expenses $ 433,794 441,103 (7,309) (1.7)%
Net income of equity method investments 18,370 22,351 (3,981) (17.8)%
Other operating income, net 6,320 — 6,320 n/m
Operating income $ 304,736 239,429 65,307 27.3 %
Occupancy expenses for franchised restaurants for fiscal year 2013 remained flat with the prior year as increases in base rent
and sales-based rental expense was offset by fewer reserves recorded for leased locations.
Cost of ice cream products increased $10.3 million, or 14.9%, from the prior year, as a result of the 18.6% increase in sales of
ice cream products driven primarily by the increases in sales of ice cream products in the Middle East and the prior year being
unfavorably impacted by the one-time delay in revenue recognition as a result of the change in shipping terms. The increases
were offset by a reduced cost of ice cream products primarily resulting from the shift in manufacturing to Dean Foods.
Company-owned restaurant expenses increased $1.3 million, or 5.8%, from the prior year primarily as a result of higher sales
volumes, offset by operating efficiencies realized.
General and administrative expenses for fiscal year 2012 included an incremental legal reserve of $20.7 million recorded upon
the Canadian court’s ruling in June 2012 in the Bertico litigation, as well as $5.0 million of costs associated with the closure of
our ice cream manufacturing plant in Canada, consisting primarily of severance, payroll, and other transition-related costs.
General and administrative expenses for fiscal year 2012 also included $4.8 million of transaction costs and incremental share-
based compensation related to the secondary offerings and share repurchases that were completed in April and August 2012.
General and administrative expenses for fiscal year 2013 were impacted by a $7.5 million charge related to a third-party
product volume guarantee, as well as $0.7 million of costs associated with the closure of our ice cream manufacturing plant in
Canada.
Excluding the items noted above, general and administrative expenses increased $10.8 million, or 5.1%, in fiscal year 2013.
This increase was driven primarily by a $6.5 million increase in personnel costs related to continued investments in our
Dunkin’ Donuts U.S. contiguous growth strategy and our international brands, as well as additional stock compensation
expense, offset by a reduction in incentive compensation payouts. Also contributing to the increase in general and
administrative expenses was $2.8 million of reserves on accounts and notes receivable from our Dunkin' Donuts Spain joint
venture Offsetting these increases was additional breakage income recorded in fiscal year 2013 of $2.3 million on unredeemed
gift card and gift certificate balances. The remaining increase in other general and administrative costs of $3.8 million resulted
primarily from additional investments in advertising and other brand-building activities.
Depreciation and amortization decreased $6.7 million in fiscal year 2013 resulting primarily from accelerated depreciation
recorded in the prior year as a result of the closure of the ice cream manufacturing plant in Canada.
As a result of the closure of our ice cream manufacturing plant, the Company expects to incur additional costs of approximately
$3 million to $4 million primarily related to the settlement of our Canadian pension plan upon final government approval,
which will likely be obtained in 2014.
The decrease in impairment charges in fiscal year 2013 of $0.7 million resulted primarily from the timing of lease terminations
in the ordinary course, which results in the write-off of favorable lease intangible assets and leasehold improvements.
Net income of equity method investments decreased $4.0 million in fiscal year 2013 driven by a decline of $1.6 million in the
reduction of depreciation and amortization expense for South Korea resulting from the impairment charge recorded by the
Company in fiscal year 2011 related to the underlying long-lived assets of the South Korea joint venture. Also contributing to
the decrease in net income of equity method investments was a decline in income from our Japan joint venture, losses realized
from our Dunkin’ Donuts joint venture in Spain, as well as a $0.9 million impairment of our investment in the Dunkin’ Donuts
Spain joint venture. Partially offsetting these declines was an increase in income from our South Korea joint venture. Net