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| 8-K - 8-K - DUNKIN' BRANDS GROUP, INC. | a8krevrec.htm |
Revenue Recognition:
New Accounting Standard
November 16, 2017
Forward-Looking Statements
► Certain information contained in this presentation, particularly information regarding future
economic performance, finances, and expectations and objectives of management
constitutes forward-looking statements. Forward-looking statements can be identified by
the fact that they do not relate strictly to historical or current facts and generally contain
words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,”
“intends,” “plans,” “estimates” or “anticipates” or similar expressions. Our forward-looking
statements are subject to risks and uncertainties, which may cause actual results to differ
materially from those projected or implied by the forward-looking statement.
► Forward-looking statements are based on current expectations and assumptions and
currently available data and are neither predictions nor guarantees of future events or
performance. You should not place undue reliance on forward-looking statements, which
speak only as of the date hereof. We do not undertake to update or revise any forward-
looking statements after they are made, whether as a result of new information, future
events, or otherwise, except as required by applicable law. For discussion of some of the
important factors that could cause these variations, please consult the “Risk Factors”
section of the Company’s most recent Annual Report on Form 10-K.
► The examples provided in this presentation are meant to be illustrative only and should not
be relied on as representative of any actual result in making any investment decisions.
► The information contained in this presentation is based on accounting guidance published
to date and any related interpretations, which could be subject to change prior to the
applicable effective date of such guidance.
2
Agenda
►Overview of new revenue recognition standard
►Key impacts to Dunkin’ Brands
►Transition timeline
3
►Global, principles-based model
►Eliminates industry-specific (i.e. franchisor) guidance
►Effective in FY2018 for December year-end companies
New revenue accounting standard (ASC 606)
4
Key impacts to Dunkin’ Brands
What is impacted?
►Franchise fees, including
initial and renewal fees (all
segments)
►Advertising fund
presentation
►Certain other revenue
streams (impacts generally
expected to be immaterial)
What is not impacted?
►Royalty income
►Rental income
►License fees, including CPG
►Expense recognition
►Cash flows of the business
5
No impact to our cash flows or
how we operate our business
Franchise Fees
Franchise fees: Recognize over the franchise term
7
Current standard – recognize upfront
New standard (ASC 606) – recognize over time
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
$40,000 initial fee
recognized at
store opening
$20,000 renewal
fee recognized
at execution
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
$40,000 initial fee
recognized over
20-year initial term
@ $2,000 per year
$20,000 renewal fee
recognized over
10-year renewal term
@ $2,000 per year
Renewal recognition begins
later under new standard
Illustrative example: Single store with $40K
initial fee (20-year initial term) and a $20K,
10-year renewal term executed in year 10
Franchise fees: Quantifying the impact
New standard (ASC 606)
►Generally, each open store will
generate annual franchise fee
revenue (i.e. 1/20th of initial fee)
8
Current standard
► In-year franchise fee revenue is
generated from store openings
and renewals
$41M
2016
Initial
franchise fees
on gross
openings
+
Renewal of
existing
agreements
Dunkin’ Donuts US Dunkin’ Donuts US
approximately
9,000
PODs
$43M
2015
YTD Sep
2017
# of open stores
Average
annual
franchise fee
revenue
Total annual
franchise fee
revenue
$13M* $18M*
$1,500*
revenue per store
Estimated
Low Range
$2,000*
revenue per store
Estimated
High Range
* Unaudited estimates of expected future revenue; subject to change
to
to
$36M
Franchise fees: Driving future revenue growth
►Franchise fee revenue growth will be driven by:
►Net development
► Potential changes to market rates over time (i.e. renewals at
higher market rates)
►Consistent, recurring revenue stream into the future
9
Base Base Base Base Base Base
Base Year 1 Year 2 Year 3 Year 4 Year 5
Original store base
continues to provide
steady revenue stream
Net new stores added
to revenue *$13M
- $18M
(under the new standard)
Dunkin’
Donuts US
* Unaudited estimates of expected future revenue; subject to change
Advertising Funds
Advertising funds: Consolidate results with DNKN
11
Current standard
►Revenue and expenses of
advertising funds excluded
from Dunkin’ Brands results
Revenues:
Franchise fees and royalty income
Advertising fees
Rental income
Sales of ice cream and other products
Sales at company-operated restaurants
Other revenues
Total revenues
Operating costs and expenses:
Occupancy expenses-franchised restaurants
Cost of ice cream and other products
Company-operated restaurant expenses
Advertising expenses
General and administrative expenses, net
Depreciation
Amortization of other intangible assets
Long-lived asset impairment charges
Total operating costs and expenses
New standard (ASC 606)
►Consolidate advertising funds
with Dunkin’ Brands results
► Gross up of revenues and
expenses
►Generally, no net impact to
operating income
New revenue
caption
New expense
caption
Consolidation of advertising funds under new standard (ASC 606)
Advertising funds: Quantifying the impact
►FY16 franchisee contributions to U.S. advertising funds
►Advertising fund revenues and expenses will offset, except for:
► Fund in a cumulative deficit – expenses will exceed revenues
► Fund returns to a surplus – revenues will exceed expenses
12
$430M*
* Includes $403M and $27M to the Dunkin’ Donuts US
and Baskin-Robbins US advertising funds, respectively
Advertising fees $400M
Advertising expenses $401M
DNKN operating income impact ($1M)
Year 1
Cumulative Deficit
Year 2
Return to Cumulative Surplus
Example Consolidation of Advertising Funds
(for illustrative purposes only)
Advertising fees $420M
Advertising expenses $419M
DNKN operating income impact $1M
Transition Timeline
New standard (ASC 606) – Transition
14
Feb 2018 Mar 2018 Apr 2018 May 2018
Q4 2017 Earnings
Presented on a
current standard
basis
Q4 2017 Earnings
Disclosure of 2016
and 2017
financial
information
restated for the
new standard as
an appendix item
2018 Guidance
Provided on a
new standard
basis
2017 Form 10-K
Footnote disclosure
of 2016 and 2017
financial
information
restated for the
new standard
2017 Form 10-K
Presented on a
current standard
basis
Q1 2018 Earnings
Presented on a
new standard
basis
Q1 2018 Form 10-Q
Presented on a
new standard basis
Q4 2017 Reporting Q1 2018 Reporting
No financial information presented
under the current standard Cu
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Q&A
Revenue Recognition:
New Accounting Standard
November 16, 2017