Amended Annual Report


 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K/A

(Amendment No. 1)

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the year ended December 31, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from             to

Commission file number 001-35258

 

 

DUNKIN’ BRANDS GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   20-4145825

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

130 Royall Street

Canton, Massachusetts 02021

(Address of principal executive offices) (zip code)

(781) 737-3000

(Registrants’ telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share   The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:

NONE

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ¨     No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

The aggregate market value of the voting and non-voting stock of the registrant held by non-affiliates of Dunkin’ Brands Group, Inc. computed by reference to the closing price of the registrant’s common stock on the NASDAQ Global Select Market as of July 27, 2011, was approximately $751 million .

As of February 17, 2012, 120,153,097 shares of common stock of the registrant were outstanding.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2012 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K, are incorporated by reference in Part III, Items 10-14 of this Form 10-K.

 

 

 


EXPLANATORY NOTE

This Amendment No. 1 to Form 10-K (this “Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, originally filed on February 24, 2012 (the “Original 10-K”), of Dunkin’ Brands Group, Inc., a Delaware corporation (the “Company”, or “we”). We are filing this Amendment to amend Item 15 to include the separate financial statements of each of BR Korea Co., Ltd. (“BR Korea”) and B-R 31 Ice Cream Co., Ltd. (“BR Japan”) for their fiscal years ended December 31, 2011 as required by Regulation S-X Rule 3-09 (the “Rule 3-09 financial statements”), which were not included in the Original 10-K in reliance on Rule 3-09. The Rule 3-09 financial statements were prepared and provided to the Company by BR Korea and BR Japan, respectively.

This Amendment should be read in conjunction with the Original 10-K and the Company’s other filings made with the Securities and Exchange Commission subsequent to the filing of the Original 10-K on February 24, 2012. The Original 10-K has not been amended or updated to reflect events occurring after February 24, 2012, except as specifically set forth in this Amendment.

 

2


Item 15. Exhibits, Financial Statement Schedules

 

  (a) The following documents are filed as part of this report:

 

  1. Financial statements: All financial statements are included in Part II, Item 8 of this report.

 

  2. Financial statement schedules:

For fiscal year 2010, our joint ventures BR Korea Co., Ltd. and B-R 31 Ice Cream Co., Ltd. were deemed significant to us under Rule 3-09 of Regulation S-X, and as such the financial statements of these joint ventures are required to be filed as financial statement schedules herein within six months of their fiscal year end. Accordingly, the financial statements of these joint ventures are filed herein as Exhibit 99.1 and Exhibit 99.2, respectively.

All other financial statement schedules are omitted because they are not required or are not applicable, or the required information is provided in the consolidated financial statements or notes described in Item 15(a)(1) above.

 

  3. Exhibits:

 

Exhibit
Number
   

Exhibit Title

  3.1         Form of Second Restated Certificate of Incorporation of Dunkin’ Brands Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
  3.2         Form of Second Amended and Restated Bylaws of Dunkin’ Brands Group, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
  4.1         Form of Amended and Restated Registration Rights Agreement among Dunkin’ Brands Group, Inc. (f/k/a Dunkin’ Brands Group Holdings, Inc.), Dunkin’ Brands Holdings, Inc., Dunkin’ Brands, Inc. and certain Stockholders of Dunkin’ Brands Group, Inc. (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
  4.2         Specimen Common Stock certificate of Dunkin’ Brands Group Holdings, Inc. (incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
  10.1*      Dunkin’ Brands Group, Inc. (f/k/a Dunkin’ Brands Group Holdings, Inc.) Amended and Restated 2006 Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.2*      Form of Option Award under 2006 Executive Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.3*      Form of Restricted Stock Award under 2006 Executive Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.4*      Dunkin’ Brands Group, Inc. 2011 Omnibus Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
  10.5*      Form of Option Award under 2011 Omnibus Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K, File No. 001—35258, filed with the SEC on February 24, 2012)
  10.6*      Form of Restricted Stock Unit Award under 2011 Omnibus Long-Term Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K, File No. 001—35258, filed with the SEC on February 24, 2012)
  10.7*      Dunkin’ Brands Group, Inc. Annual Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
  10.8*      Amended and Restated Dunkin’ Brands, Inc. Non-Qualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.9*      Dunkin’ Brands, Inc. Short Term Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.10*      Amended and Restated Executive Employment Agreement among Dunkin’ Brands, Inc., Dunkin’ Brands Group, Inc. (f/k/a Dunkin’ Brands Group Holdings, Inc.), and Jon Luther, dated as of December 31, 2008 (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)

 

3


Exhibit
Number
   

Exhibit Title

  10.11*      Transition Agreement of Jon Luther, dated as of June 30, 2010 (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.12*      First Amended and Restated Executive Employment Agreement between Dunkin’ Brands, Inc., Dunkin’ Brands Group, Inc. and Nigel Travis (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.13*      Offer Letter to Neil Moses dated September 27, 2010 (incorporated by reference to Exhibit 10.13to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.14*      Offer Letter to Richard Emmett dated November 23, 2009 (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.15*      Offer Letter to John Costello dated September 30, 2009 (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.16*      Offer Letter to Paul Twohig dated September 10, 2009 (incorporated by reference to Exhibit 10.16 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.17*      Form of amendment to Offer Letters (incorporated by reference to Exhibit 10.16(a) to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
  10.18*      Offer Letter to Neal Yanofsky dated May 1, 2011 (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K, File No. 001—35258, filed with the SEC on February 24, 2012)
  10.19      Form of Non-Competition/Non-Solicitation/Confidentiality Agreement (incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.20      Form of Amended and Restated Investor Agreement among Dunkin’ Brands Group, Inc. (f/k/a Dunkin’ Brands Group Holdings, Inc.), Dunkin’ Brands Holdings, Inc., Dunkin’ Brands, Inc. and the Investors named therein (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
  10.21      Form of Amended and Restated Stockholders Agreement among Dunkin’ Brands Group, Inc. (f/k/a Dunkin’ Brands Group Holdings, Inc.), Dunkin’ Brands Holdings, Inc., Dunkin’ Brands, Inc. and the Stockholders named therein (incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on July 11, 2011)
  10.22      Credit Agreement among Dunkin’ Finance Corp, Dunkin’ Brands Holdings, Inc., Dunkin’ Brands, Inc., Barclays Bank PLC and the other lenders party thereto, dated as of November 23, 2010 (incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on June 7, 2011)
  10.23      Joinder to Credit Agreement dated as of December 3, 2010 (incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.24      Amendment 1, dated as of February 18, 2011, to the Credit Agreement among Dunkin’ Brands, Inc., Dunkin’ Brands Holdings, Inc., Barclays Bank PLC and the other lenders party thereto (incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.25      Amendment 2, dated as of May 25, 2011, to the Credit Agreement among Dunkin’ Brands, Inc., Dunkin’ Brands Holdings, Inc., Barclays Bank PLC and the other lenders party thereto (incorporated by reference to Exhibit 10.29 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on June 7, 2011)
  10.26      Security Agreement among the Grantors identified therein and Barclays Bank PLC, dated as of December 3, 2010 (incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.27      Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on June 7, 2011)
  10.28      Lease between LSF3 Royall Street, LLC and Dunkin’ Donuts Incorporated, dated as of October 29, 2003 (incorporated by reference to Exhibit 10.25 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)

 

4


Exhibit
Number
    

Exhibit Title

  10.29       Assignment of Lease between Dunkin’ Donuts Incorporated and Dunkin’ Brands, Inc., dated as of July 22, 2005 (incorporated by reference to Exhibit 10.26 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.30       Guaranty delivered with LSF3 Royall Street, LLC Lease dated as of October 29, 2003 (incorporated by reference to Exhibit 10.27 to the Company’s Registration Statement on Form S-1, File No. 333-173898, filed with the SEC on May 4, 2011)
  10.31       Form of Baskin-Robbins Franchise Agreement (incorporated by reference to Exhibit 10.30 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on June 23, 2011)
  10.32       Form of Dunkin’ Donuts Franchise Agreement (incorporated by reference to Exhibit 10.31 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on June 23, 2011)
  10.33       Form of Combined Baskin-Robbins and Dunkin’ Donuts Franchise Agreement (incorporated by reference to Exhibit 10.32 to the Company’s Registration Statement on Form S-1, File No. 333-173898, as amended on June 23, 2011)
  10.34       Form of Dunkin’ Donuts Store Development Agreement (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K, File No. 001—35258, filed with the SEC on February 24, 2012)
  10.35       Form of Baskin-Robbins Store Development Agreement (incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K, File No. 001—35258, filed with the SEC on February 24, 2012)
  10.36    Offer Letter to William Mitchell dated August 2, 2010
  10.37    Separation Agreement with Neal Yanofsky, dated September 22, 2011
  21.1       Subsidiaries of Dunkin’ Brands Group, Inc.
  23.1       Consent of KPMG LLP (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K, File No. 001—35258, filed with the SEC on February 24, 2012)
  23.2       Consent of Deloitte Anjin LLC
  23.3       Consent of PricewaterhouseCoopers Aarata
  31.1       Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 by Chief Executive Officer
  31.2       Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 by Chief Financial Officer
  32.1       Certification of periodic financial report pursuant to Section 906 of Sarbanes Oxley Act of 2002
  32.2       Certification of periodic financial report pursuant to Section 906 of Sarbanes Oxley Act of 2002
  99.1       Audited financial statements of BR Korea Co., Ltd. for the fiscal years ended December 31, 2011, December 31, 2010 and December 31, 2009
  99.2       Audited financial statements of B-R 31 Ice Cream Co., Ltd. for the fiscal years ended December 31, 2011, December 31, 2010 and December 31, 2009
  101       The following financial information from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, formatted in Extensible Business Reporting Language, (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity (Deficit), (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements (incorporated by reference to Exhibit 101 to the Company’s Annual Report on Form 10-K, File No. 001—35258, filed with the SEC on February 24, 2012)

 

* Management contract or compensatory plan or arrangement

 

5


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 16, 2012

 

DUNKIN’ BRANDS GROUP, INC.

By:

  /s/ Nigel Travis

Name:

  Nigel Travis

Title:

  Chief Executive Officer

 

6

Exhibit 10.36

 

LOGO

Offer of Employment

August 2, 2010

Mr. Bill Mitchell

9203 Dayflower Street

Prospect, KY 40059

Dear Bill,

On behalf of Dunkin’ Brands, Inc. (the “Company”), I am pleased to offer you employment on the terms set forth below.

This offer of employment is contingent upon the satisfactory completion of:

 

   

a background screening,

 

   

reference checks regarding your past employment,

 

   

satisfactory completion of all legal documents including non-competition and intellectual property protection documents, and

 

   

documented release from all binding non-competition agreements (Dunkin’ Brands, Inc. reserves the right to verify, status of agreements and releases).

Position

You will serve in a full-time capacity as Vice President, Baskin Robbins, US, reporting directly to myself.

Start Date

Your anticipated start date is on or about August 2, 2010.

Cash Compensation

Base Salary

You will be paid a bi-weekly salary of $11,538.47 which is equivalent to $300,000.00 on an annual basis, payable in accordance with Dunkin’ Brands’ standard payroll practices for salaried employees.

Your base salary will be reviewed annually, based on market competitiveness and performance, and may be adjusted at that time.

Short-Term Incentive

In addition to your base salary, you will be eligible to participate in the Dunkin’ Brands’ Executive Short-Term Incentive (STI) Plan with a target of 40% of your annual salary. The actual percentage of your Short-Term Incentive will be paid on a prorated basis based upon days employed during the 2010 Plan year, as well as Dunkin’ Brands’ overall performance, your individual job performance, your ability to meet established goals and objectives, and the terms of the plan as they exist at any given time. A participation letter as well as a plan document, which explains the program in detail, will be provided to you at a later date.

 

LOGO


Long-Term Incentive

You will be eligible to participate in the Dunkin’ Brands’ 2006 Executive Incentive Plan. You will be recommended for a grant of 300,000 Stock Options on Shares at the current value as of the date of the grant. This grant is subject to approval of the Board of Directors at the first grant meeting following your first day of employment. A Stock Option Grant containing the terms and conditions of this grant and a plan document that governs the Plan will be provided to you at a later date.

Other Compensation

Flexible Perquisites Allowance

You will be entitled to a flexible perquisites allowance of $13,858 per annum paid bi-weekly ($533.00).

Signing Bonus

You will receive a signing bonus in the amount of $25,000 (less required payroll taxes). This bonus will be provided upon the start of your employment with the Company.

Should you leave Dunkin’ Brands voluntarily, or be terminated for cause within the first 12 months of your employment, you will be required to reimburse Dunkin’ Brands for the full bonus amount. After 12 months of active employment, the sign on bonus will be considered earned.

Benefits

Dunkin’ Brands offers an attractive benefits program. Upon election, medical and dental coverage is effective the first of the month following your start date. Most company-paid benefits are effective upon hire. Employee elected benefit contributions are handled via payroll deduction.

Insurance

You will be eligible for medical, dental and disability coverage and various life insurance programs. Details are attached.

Retirement

Dunkin’ Brands will provide you with the opportunity to participate in the Company’s 401(k) plan for retirement savings.

Deferred Compensation

You will be eligible to participate in the 2010 Non-Qualified Deferred Compensation Plan. The plan provides an opportunity for pre-tax savings to assist you in accumulating assets for planned events during your working life and retirement. Details are attached.


Vacation

You will begin eligible to accrue vacation at a rate of 3 weeks per year as of your first day of employment with the company.

Proof of Right to Work

For purposes of federal immigration law, you will be required to provide to Dunkin’ Brands documentary evidence of your identity and eligibility for employment in the United States within (3) business days of your date of hire.

Period of Employment

Your employment with Dunkin’ Brands will be “at will”, meaning that this offer of employment does not constitute a contract of employment. If employed, you may elect to resign at any time and Dunkin’ Brands may elect to terminate your employment at any time for any reason.

Severance

In the event of your termination by Dunkin’ Brands for something other than “cause”, you will be eligible for severance equal to 6 months of your then-current base compensation, conditioned on the return of a full release of claims by you. “Cause” means fraud; material neglect (other than as a result of illness or disability) of your duties to Dunkin’ Brands; conduct that is not in the best interest of, or injurious to, Dunkin Brands; acts of dishonesty in connection with the performance of your duties; or conviction of a felony or crime involving falsehood or moral turpitude.

Without our receipt of the full release of claims, you will not be entitled to the aforementioned severance, which is in lieu of and replaces the Dunkin’ Brands’ Severance Program generally applicable to eligible Dunkin’ Brands employees.

Code of Conduct/Non-Compete

Before you make your decision regarding this position, you should carefully review the attached Code of Conduct that you will be required to adhere to once employed by Dunkin’ Brands. As set forth in the conflict of interest section, you will be expected to devote your full-time and attention to Dunkin’ Brands and not be actively involved in any other business.

While you are employed by Dunkin’ Brands, the Company (Dunkin’ Brands, Inc.) will not utilize the services of any business in which you have held an ownership interest. Further, you will have to recuse yourself from any hiring decision involving an employee or former employee of a business in which you have held an ownership interest.

Consistent with other senior executives, you will be asked to sign a Non-Compete Agreement with the Company. That document will be provided to you under separate cover.

Entire Agreement

This offer of employment contains all of the terms of your employment with Dunkin’ Brands, Inc. and supersedes any prior understandings or agreements, whether oral or written, between you and Dunkin’ Brands.


Term

This offer will expire at 5:00PM on August 4, 2010.

We hope that you find the foregoing terms acceptable. You may indicate your agreement with these terms and accept this offer by signing and dating the enclosed letter and returning it to me. We look forward to your decision to join Dunkin’ Brands.

Sincerely,

 

/s/ Nigel Travis

Nigel Travis
Chief Executive Officer
Dunkin’ Brands, Inc.
I ACCEPT THE ABOVE OFFER OF EMPLOYMENT:

/s/ Bill Mitchell

     4-2-10    
Bill Mitchell      Date    

 

cc: Christine Deputy
     Personnel File
LOGO    Exhibit 10.37

September 22, 2011

Neal Yanofsky

55 Hartwell Rd

Carlisle, MA 01741

Dear Neal:

Per your conversation with Nigel Travis, your employment with Dunkin’ Brands, Inc. (the “Company”) Company will terminate as of September 22, 2011 (the “Termination Date”).

At the time your employment terminates, and regardless of whether you elect to sign this Agreement, you will receive the following, less all authorized and all legally required deductions:

 

  1. Payment for all work you performed for the Company during the last payroll period through the Termination Date; and

 

  2. A lump sum payment for all hours of vacation time that you accrued but had not used as of the Termination Date as reflected on the Company’s books.

Your current participation and that of your eligible dependents in the Company’s group health and dental plans will continue through last day of the month in which your employment terminates. Thereafter, you may be eligible to continue, at your own cost, your participation and that of your eligible dependents in the Company’s group health and dental plans under the federal law known as “COBRA.” You will be provided with information regarding COBRA under separate cover.

You may also be eligible to convert your Company-provided life insurance to an individual plan, at your own cost, in accordance with the terms and conditions of that plan.

If you are a current participant, your salary deferral and the Company match to the 401(k) Savings Plan will cease coincident with the paycheck representing pay through the Termination Date. You will be provided with information under separate cover on your future participation and certain elections you may make with regard to the 401(k) plan. Except as expressly noted above, your participation in all Company employee benefit plans will end as of the Termination Date.

You will receive the compensation and benefits described above, whether or not you accept the severance offer described below.

The Company is prepared to provide you with certain severance benefits on the following terms and conditions:

 

LOGO        
   130 Royal Street Canton, MA 02021      p 781-737-3000 t 781-737-4000


LOGO

 

SEVERANCE AGREEMENT

 

1. Severance Payment . The Company shall provide you with twelve (12) months salary, paid at your current rate of pay, less appropriate taxes or withholdings. Payment shall be made on the Company’s usual payroll schedule, beginning with the first payroll date after the Effective Date of this Agreement.

 

2. COBRA . If you are eligible and elect to continue your participation and that of your eligible dependents in the Company’s group health and dental plans under COBRA, for four weeks from the last day of the month in which your employment terminates (or the date you cease to be eligible for coverage, if sooner), the Company will continue to pay that share of the premium cost that it pays for active employees generally.

 

3. Outplacement . The Company will pay for twelve (12) month of outplacement services for you through a firm selected by the Company.

 

4. Release of Claims . (a) For and in consideration of the payment set forth in paragraph 1 of this Agreement, to which you acknowledge you are not otherwise entitled, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, you, on your own behalf and on behalf of your heirs, executors, administrators, beneficiaries, representatives and assigns, hereby release and forever discharge the Company, its parent, subsidiaries and affiliates, and all of their respective past and present officers, directors, shareholders, officers, employees, employee benefit plans, insurers, agents, representatives, successors and assigns (collectively hereafter the “Releasees”), both individually and in their official capacities, from any and all liability, claims, demands, actions and causes of action of any type which you have had in the past, now have, or might now have, from the beginning of the world up to the date that you execute this Agreement, in any way resulting from, arising out of or connected with your employment or its termination, or pursuant to any federal, state or local statute, common law, employment law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, the Family and Medical Leave Act, the Pregnancy Discrimination Act, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Worker’s Adjustment and Retraining Notification Act, the Fair Credit Reporting Act, the Americans with Disabilities Act, the Rehabilitation Act of 1973, the Occupational Safety and Health Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, Sections 1981 through 1988 of Title 42 of the United States Code, the Immigration Reform and Control Act, the Massachusetts Fair Employment Practices Act, G.L. c. 151B, all state fair employment practices acts, each as amended, and any and all claims for wrongful discharge, discrimination, harassment, retaliation, common law claims, actions in tort, defamation, breach of contract, and claims of interest in unvested stock options, for wages or for attorneys’ fees), as well as claims under the Company Severance Program. (b) Notwithstanding the foregoing, this Release shall not apply to any claim to enforce the terms of this Agreement, any rights or claims that are vested under any retirement or stock option plan, or that may arise after your execution of this Release of Claims. (c) Nothing in this Release is intended to, or shall be interpreted to, discourage or interfere with rights under the Older Workers Benefit Protection Act to test the knowing and voluntary nature of this release of claims under the Age Discrimination in Employment Act, or to prevent the exercise of such rights. Nothing in this Release prevents you from participating in or cooperating in any governmental, administrative, or regulatory investigation or proceeding regarding the Company, but you acknowledge that this Release does prevent you from obtaining any benefit, damages or remedy from such investigation or proceeding.

 

LOGO        
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5. Covenant Not to Sue. You agree and covenant never to file a lawsuit against the Releasees asserting any claims covered by the Release of Claims in paragraph 4 . If you file such a lawsuit, you must “tender back”, that is give back before filing a lawsuit, any consideration you received in exchange for this Agreement. You agree that a court cannot even consider such a lawsuit until you tender back such consideration. In the event that the court considers such a lawsuit even though you have not tendered back the consideration, you agree that the Company may set-off any claim made against it or otherwise recover the amount you have received as consideration hereunder.

 

6. Confidentiality. You agree to keep the terms and conditions of this Agreement and the facts and circumstances leading up to it confidential and shall not disclose them to anyone except immediate family members, attorneys and financial advisers, and only if they agree to keep this information confidential and not disclose it to others, or pursuant to court order, subpoena or as otherwise required by law.

 

7. Non-Disparagement. You agree that you will not disparage, or in any way cause disparagement, to the Company, its affiliates, subsidiaries or any of its directors, officers or employees. The Company agrees that all calls from prospective employers will be directed to its Human Resources department, which shall provide only your starting and ending dates of employment and last position held.

 

8. Company Property. (a) You represent and warrant that as of the date you sign this Agreement, you have returned all Company assets, such as computer(s), PDA(s), telephone(s), vehicle, and credit cards, all documents, materials, records, files and information, in any media, related to the business of the Company, including all copies, and all keys or other property of the Company in your possession or control. (b) You expressly acknowledge that you may not use, for the benefit of yourself or any other person or entity, any confidential information, proprietary information or trade secrets of the Company.

 

9. Breach. Your breach of any of the terms set forth in this Agreement shall constitute a material breach of this Agreement and shall relieve the Company of any further obligations hereunder. In addition to any other legal or equitable remedy available to the Company, it shall be entitled to recover any monies paid pursuant to you pursuant to this Agreement.

 

10. Acknowledgement/Acceptance. (a) You acknowledge that you are signing this Agreement knowingly, voluntarily, with full understanding of its terms and effects and without duress, coercion, fraud or undue influence; (b)You are advised, prior to signing this Agreement, to seek the advice of an attorney of your choosing and all other advice you may require regarding the purpose and effect of this Agreement, its Release of Claims and all matters contained herein, including without limitation those under the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act; (c) You have twenty-one (21) days from the date you receive this Agreement to consider its terms and the consequences of the Release of Claims contained herein and to accept the terms of this Agreement by signing below and returning it to Dunkin’ Brands, Inc. c/o Christine Deputy, Chief Human Resources Officer, Dunkin’ Brands, Inc., 130 Royall Street, Canton, MA 02021 (although you may choose to voluntarily execute this Agreement prior to the expiration of the twenty-one (21) day period); (d) If you thereafter desire to revoke acceptance of this Agreement, you must do so by notice in writing to Ms. Deputy within seven (7) days following the execution of this Agreement; and (e) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by you and you have not revoked it (the “Effective Date”). The parties agree that any changes to the offer in this Agreement, whether material or not, do not restart the running of the 21 day period.

 

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11. No Liability or Wrongdoing. The parties hereto agree and acknowledge that this Agreement is intended only to settle all matters between the parties and nothing contained in this Agreement, nor an of its terms and provisions, nor an of the negotiations or proceedings connected with it, constitutes, will be construed to constitute, will be offered in evidence as or deemed to be evidence of an admission of liability or wrong doing by any of the Releases, and any such liability or wrong doing is hereby expressly denied by each of the Releases.

 

12. Miscellaneous. (a) This Agreement shall be binding upon the parties and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by a duly authorized representative of the parties hereto. This Agreement is binding upon and shall inure to the benefit of the parties and their respective agents, heirs, executors, administrators, successors and assigns. (b) This Agreement contains the entire agreement between you and the Company and replaces all prior and contemporaneous agreements, communications and understandings, whether written or oral, with respect to your employment and its termination and all related matters. You represent that you have carefully read this Agreement, that you are not relying on any promise or representation, whether oral or written, that is not expressly contained herein, that you have been afforded the opportunity to be advised of its meaning and consequences by your own attorney, and have signed the same of your own free will. (c) The provisions of this Agreement are severable, and if any provision of this Agreement is found to be unenforceable, the other provisions shall remain fully valid and enforceable. (d) This Agreement shall be interpreted and construed pursuant to the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. (e) This Agreement may be executed in counterparts, each of which shall be deemed an original, all of which together shall constitute one and the same instrument.

If you fail to timely return this signed Agreement to the Company within 21 days, this severance offer shall expire and will no longer be available to you.

If you should have any questions, please feel free to contact me.

Regards,

 

/s/ Christine Deputy

Christine Deputy
Chief Human Resource Officer
Dunkin’ Brands, Inc

ACCEPTED AND AGREED TO:

 

/s/ Neal Yanofsky

Neal Yanofsky

9/29/11

[DATE]

 

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Exhibit 21.1

Dunkin’ Brands Group, Inc. Subsidiaries

 

Entity

  

Jurisdiction of Organization

Dunkin’ Brands Group, Inc.

   Delaware

Dunkin’ Brands Holdings, Inc.

   Delaware

Dunkin’ Brands, Inc.

   Delaware

Dunkin’ Brands Canada, Ltd.

   Ontario, Canada

Dunkin’ Brands Australia Pty. Ltd

   Australia

SVC Service LLC

   Colorado

SVC Service II Inc.

   Colorado

Dunkin Brands (UK) Limited

   United Kingdom

Dunkin’ Donuts LLC

   Delaware

Dunkin Espanola S.A.

   Spain

Dunkin’ Ventures LLC

   Delaware

Massachusetts Refreshment Corp. 1

   Massachusetts

Third Dunkin’ Donuts Realty LLC

   Delaware

Dunkin’ Donuts Realty Investment LLC

   Delaware

Dunkin’ (Shanghai) Enterprise Management Consulting Co., Ltd.

   China

Dunkin’ Donuts USA LLC

   Delaware

Mister Donut of America, LLC

   Delaware

Baskin-Robbins LLC

   Delaware

Baskin-Robbins USA LLC

   California

DBI Stores LLC

   Delaware

DBI Stores Texas LLC

   Delaware

Star Dunkin’, L.P. 2

   Delaware

Baskin-Robbins Flavors LLC

   Delaware

Baskin-Robbins International LLC

   Delaware

B-R Korea Co. Ltd. 3

   Korea

DB Master Finance LLC

   Delaware

DB Canadian Supplier Inc.

   Delaware

DB Canadian Holding Company Inc.

   Delaware

DB Canadian Franchising ULC

   Nova Scotia

BR Japan Holdings LLC

   Delaware

B-R 31 Ice Cream Co. Ltd. 4

   Japan

DB Franchising Holding Company LLC

   Delaware

Dunkin’ Donuts Franchising LLC

   Delaware

Baskin-Robbins Franchising LLC

   Delaware

Baskin-Robbins Australia Pty. Ltd

   Australia

DB Real Estate Assets I LLC

   Delaware

DB Real Estate Assets II LLC

   Delaware

DB Mexican Franchising LLC

   Delaware

DB International Franchising LLC

   Delaware

DD IP Holder LLC

   Delaware

BR IP Holder LLC

   Delaware

Baskin-Robbins Franchised Shops LLC

   Delaware

Dunkin’ Donuts Franchised Restaurants LLC

   Delaware

DB AdFund Administrator LLC

   Delaware

DB UK Franchising LLC

   Delaware

 

1 Represents a joint venture company of which registrant indirectly owns 50% of the voting equity.
2 Represents a joint venture partnership of which registrant indirectly owns 51% of the partnership interest.
3 Represents a joint venture company of which registrant indirectly owns 33.3% of the voting equity.
4 Represents a joint venture company of which registrant indirectly owns 43.27% of the voting equity.

Exhibit 23.2

 

CONSENT OF INDEPENDENT AUDITORS

 

We consent to the incorporation by reference in the Registration Statement No. 333-176246 on Form S-8 of Dunkin’ Brands Group, Inc. of our report dated March 16, 2012 related to the financial statements of BR Korea Co., Ltd. as of December 31, 2011 and 2010, and for each of the three fiscal years ended December 31, 2011 (which report expresses an unqualified opinion on the financial statements and includes an explanatory paragraph referring the application of Accounting Standards for Non-Public Entities in the Republic of Korea (“KAS-NPE”) as of January 1, 2011 and the nature and effect of differences between KAS-NPE and accounting principles generally accepted in the United States of America), appearing in the Amendment No. 1 to the Annual Report on Form 10-K of Dunkin Brands Group, Inc. for the year ended December 31, 2011.

 

/s/ DELOITTE ANJIN LLC

 

March 16, 2012

Exhibit 23.3

 

CONSENT OF INDEPENDENT ACCOUNTANTS

 

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-176246) of Dunkin’ Brands Group, Inc. of our report dated April 29, 2011 relating to the financial statements of B-R 31 Ice Cream Co. Ltd., which appears in this Form 10-K/A. We also consent to the reference to us under the heading “Experts” in this Form 10-K/A.

 

/s/ PricewaterhouseCoopers Aarata

Tokyo, Japan

March 16, 2012

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Nigel Travis, Chief Executive Officer, certify that.

 

1. I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K of Dunkin’ Brands Group, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and the other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

  c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

March 16, 2012       /s/ Nigel Travis         
Date      

Nigel Travis

Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Neil Moses, Chief Financial Officer, certify that.

 

1. I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K of Dunkin’ Brands Group, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and the other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

  c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

March 16, 2012       /s/ Neil Moses         
Date      

Neil Moses

Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Amendment No. 1 to the Annual Report of Dunkin’ Brands Group, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Neil Moses, as the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: March 16, 2012

 

/s/ Nigel Travis
Nigel Travis*
Chief Executive Officer

 

 

* A signed original of this written statement required by Section 906 has been provided to Dunkin’ Brands Group, Inc. and will be retained by Dunkin’ Brands Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Amendment No. 1 to the Annual Report of Dunkin’ Brands Group, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Neil Moses, as the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: March 16, 2012

 

/s/ Neil Moses
Neil Moses*
Chief Financial Officer

 

 

* A signed original of this written statement required by Section 906 has been provided to Dunkin’ Brands Group, Inc. and will be retained by Dunkin’ Brands Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.

Exhibit 99.1

Independent auditors’ report

To the Shareholders and Board of Directors of

BR KOREA CO., LTD.:

We have audited the accompanying statements of financial position of BR KOREA CO., LTD. (the “Company”) as of December 31, 2011 and 2010, and the statements of income, statements of changes in shareholders’ equity, and statements of cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BR KOREA CO., LTD. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with Accounting Standards for Non-Public Entities in the Republic of Korea (“KAS-NPEs”).

As explained in Note 2 to the accompanying financial statements, the Company has prepared the financial statements in accordance with KAS—NPEs for the reporting periods beginning on or after January 1, 2011. In accordance with the KAS—NPEs ‘Effective date and Transitional Provisions’ paragraph 4 on January 1, 2011, the prior periods’ financial position, results of operations, and cash flows under previous generally accepted accounting principles in the Republic of Korea (“previous K-GAAP”) have been carried over and presented as is, with no retrospective adjustments due to the application of KAS—NPEs. Effects due to the application of KAS—NPEs are further discussed in Note 2.

KAS-NPEs vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 26 to the financial statements.

March 16, 2012

/s/ Deloitte Anjin

 

F-53


BR Korea Co., Ltd.

Statements of financial position

As of December 31, 2011 and 2010

 

      2011     2010  

 

 
    (In thousands)  
ASSETS    

CURRENT ASSETS:

   

Cash and cash equivalents (Notes 8 and 13)

  (Won) 10,187,008      (Won) 10,435,234   

Short-term financial instruments

    40,000,000        40,500,000   

Trade accounts receivable, net of allowance for doubtful accounts of (Won) 192,047 thousand for 2011 and (Won) 170,149 thousand for 2010 (Note 14)

    19,012,616        16,844,763   

Inventories (Notes 3 and 8)

    34,568,962        28,308,117   

Securities (Notes 5,8 and 25)

    4,500        5,600   

Other current assets (Note 4)

    7,147,794        6,541,307   
 

 

 

 
    110,920,880        102,635,021   
 

 

 

 

NON CURRENT ASSETS:

   

Securities under the equity method (Note 6)

    677,340        677,340   

Securities (Notes 5 and 8)

    1,354,910        62,985   

Other investments

    138,855        184,085   

Tangible assets, net (Notes 7 and 8)

    65,962,903        62,200,625   

Intangible assets (Note 9)

    8,578,563        9,338,876   

Guarantee deposits paid (Note 10)

    123,590,176        112,647,141   

Membership certificates

    2,307,877        2,277,527   

Deferred income tax assets (Note 18)

    1,283,463        1,310,229   
 

 

 

 
    203,894,087        188,698,808   
 

 

 

 

Total Assets

  (Won) 314,814,967      (Won) 291,333,829   
 

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY    

CURRENT LIABILITIES:

   

Trade accounts payable (Note 14)

  (Won) 16,444,547      (Won) 15,308,691   

Accounts payable-other (Note 14)

    13,588,829        8,843,013   

Income tax payable (Note 18)

    3,532,886        5,912,523   

Advances from customers (Note 13)

    2,728,591        2,068,757   

Guarantee deposits received

    17,685,162        17,373,276   

Deferred income tax liabilities (Note 18)

    136,978        108,745   

Other current liabilities (Notes 11,13, and 14)

    6,864,380        6,964,772   
 

 

 

 
    60,981,373        56,579,777   
 

 

 

 

NON- CURRENT LIABILITIES:

   

Accrued severance indemnities, net of benefit plan assets of (Won) 13,144,957 thousand for 2011 and (Won) 11,572,261 thousand for 2010 (Note 12)

    4,250,472        3,995,292   

Allowance for unused points (Note 23)

    2,651,480        1,428,034   
 

 

 

 
    6,901,952        5,423,326   
 

 

 

 

TOTAL LIABILITIES

    67,883,325        62,003,103   
 

 

 

 

SHAREHOLDERS’ EQUITY:

   

Common stock (Note 15)

    6,000,000        6,000,000   

Accumulated other comprehensive income (Notes 5 and 16)

    300,121          

Appropriated retained earnings (Note 15)

    24,234,977        24,234,977   

Retained earnings before appropriations

    216,396,544        199,095,749   
 

 

 

 

Total Shareholders’ Equity

    246,931,642        229,330,726   
 

 

 

 

Total Liabilities and Shareholders’ Equity

  (Won) 314,814,967      (Won) 291,333,829   

 

 

See accompanying notes to financial statements.

 

F-54


BR Korea Co., Ltd.

Statements of income

For the years ended December 31, 2011, 2010 and 2009

 

       2011     2010     2009  

 

 
     (In thousands, except per share amounts)  

SALES (Notes 14 and 24)

   (Won) 452,359,842      (Won) 426,063,145      (Won) 406,214,174   

COST OF SALES (Note 14)

     223,625,882        205,865,736        206,622,944   
  

 

 

 

GROSS PROFIT

     228,733,960        220,197,409        199,591,230   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

      

(Notes 21 and 22)

     195,163,739        181,504,761        155,286,246   
  

 

 

 

OPERATING INCOME

     33,570,221        38,692,648        44,304,984   
  

 

 

 

NON OPERATING INCOME (EXPENSES):

      

Interest income

     2,150,932        2,112,109        1,353,475   

Foreign currency loss, net (Note 13)

     (2,852     (17,252     (74,007

Gain (Loss) on foreign currency transactions, net

     (35,493     4,310        (5,061

Commission income

     3,208,904        5,199,869        5,685,017   

Gain (Loss) on disposal of tangible assets, net

     (715,563     17,414        (598,839

Gain on disposal of intangible assets

     755,000        309,350        177,975   

Donations (Note 17)

     (2,426,487     (1,983,239     (2,261,554

Miscellaneous, net (Note 17)

     (677,804     (336,130     (1,168,736
  

 

 

 
     2,256,637        5,306,431        3,108,270   
  

 

 

 

INCOME BEFORE INCOME TAX

     35,826,858        43,999,079        47,413,254   

INCOME TAX EXPENSE (Note 18)

     8,494,063        10,586,975        12,050,772   
  

 

 

 

NET INCOME

   (Won) 27,332,795      (Won) 33,412,104      (Won) 35,362,482   
  

 

 

 

NET INCOME PER SHARE (Note 19)

   (Won) 45,555      (Won) 55,687      (Won) 58,937   

 

 

See accompanying notes to financial statements.

 

F-55


BR Korea Co., Ltd.

Statements of changes in shareholders’ equity

For the years ended December 31, 2011, 2010 and 2009

 

       Korean Won  
     (In thousands)  
     Common
stock
    

Accumulated
other
comprehensive

income

     Retained
earnings
    Total  

 

 

Balance at January 1, 2009

   (Won) 6,000,000       (Won)       (Won) 175,058,140      (Won) 181,058,140   

Annual dividends

           (9,888,000     (9,888,000
        

 

 

 

Balance after appropriations

           165,170,140        171,170,140   

Net income

           35,362,482        35,362,482   
  

 

 

 

Balance at December 31, 2009

   (Won) 6,000,000       (Won)       (Won) 200,532,622      (Won) 206,532,622   
  

 

 

 

Balance at January 1, 2010

   (Won) 6,000,000       (Won)       (Won) 200,532,622      (Won) 206,532,622   

Annual dividends

           (10,614,000     (10,614,000
        

 

 

 

Balance after appropriations

           189,918,622        195,918,622   

Net income

           33,412,104        33,412,104   
  

 

 

 

Balance at December 31, 2010

   (Won) 6,000,000       (Won)       (Won) 223,330,726      (Won) 229,330,726   
  

 

 

 

Balance at January 1, 2011

   (Won) 6,000,000       (Won)       (Won) 223,330,726      (Won) 229,330,726   

Annual dividends

           (10,032,000     (10,032,000
        

 

 

 

Balance after appropriations

           213,298,726        219,298,726   

Gains on valuation of available-for-sale securities, net of tax

        300,121           300,121   

Net income

           27,332,795        27,332,795   
  

 

 

 

Balance at December 31, 2011

   (Won) 6,000,000       (Won) 300,121       (Won) 240,631,521      (Won) 246,931,642   

 

 

See accompanying notes to financial statements.

 

F-56


BR Korea Co., Ltd

Statements of cash flows

For the years ended December 31, 2011, 2010 and 2009

 

       2011     2010     2009  

 

 
     (In thousands)  

CASH FLOWS FROM OPERATING ACTIVITIES:

      

Net income

   (Won) 27,332,795      (Won) 33,412,104        (Won) 35,362,482   

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation

     20,215,617        18,899,166        19,914,400   

Provision for severance indemnities

     5,115,531        6,695,012        4,015,539   

Amortization of lease premium

     3,720,031        3,604,761        3,229,923   

Provision for doubtful accounts

     1,364,490        31,982        21,800   

Foreign currency translation loss

     3,415                 

Disposal of tangible assets, net

     715,563        (17,414     598,839   

Disposal of intangible assets, net

     (755,000     (309,350     (177,975

Payment of severance indemnities

     (3,333,628     (4,074,977     (2,299,625

Transfer of severance indemnities from related parties

     45,973        174,604        176,542   

Change in trade accounts receivable

     (2,189,751     (463,142     (137,154

Change in accounts receivable-other

     (970,223     537,197        (2,091,922

Change in accrued income

     (188,753     17,600        166,021   

Change in advanced payments

     642,527        (1,030,369     1,152,192   

Change in prepaid expenses

     (132,630     101,573        (69,533

Change in inventories

     (6,260,845     1,442,542        1,944,500   

Change in deferred income tax assets

     26,766        (215,534     (612,949

Change in trade accounts payable

     1,132,441        866,869        487,801   

Change in accounts payable-other

     4,745,816        1,660,450        (7,837,644

Change in withholdings

     (57,023     (752,033     2,638,929   

Change in accrued expenses

     (43,370     (2,982,152     3,563,367   

Change in income tax payable

     (2,379,638     (1,909,418     (140,325

Change in deferred income tax liabilities

     (67,584     1,675        (60,151

Change in advances from customers

     652,134        188,042        (983,082

Change in allowance for unused points

     1,223,446        (735,036     (69,893

Change in gift certificate discounts

     7,700        (12,156     (3,629

Change in the national pension fund

     3,198        7,208          

Change in benefit plan assets

     (1,575,894     (2,623,783     (3,269,803
  

 

 

 

Net cash provided by operating activities

     48,993,104        52,515,421        55,518,650   

 

 

 

  F-57   (Continued)


BR Korea Co., Ltd

Statements of cash flows—(continued)

For the years ended December 31, 2011, 2010 and 2009

 

       2011     2010     2009  

 

 
     (In thousands)  

CASH FLOWS FROM INVESTING ACTIVITIES:

      

Withdrawal of short-term financial instruments

   (Won) 117,500,000      (Won) 157,000,000      (Won) 78,678,865   

Proceeds from disposal of securities

     5,600        4,390        16,945   

Disposal of tangible assets

     375,932        327,457        3,923,898   

Refund of guarantee deposits paid

     9,905,072        4,752,250        7,684,153   

Collection of long-term loans

     45,230        226,922        167,330   

Disposal of lease premium

     1,010,000        352,600        190,454   

Disposal of membership certificates

     70,150               362,810   

Acquisition of short-term financial instruments

     (117,000,000     (162,500,000     (96,678,865

Purchase of securities under the equity method

            (677,340       

Purchase of securities

     (900,486            (2,370

Payment of guarantee deposits paid

     (21,898,107     (19,845,301     (17,863,614

Acquisition of tangible assets

     (25,069,389     (17,149,920     (25,082,537

Purchase of membership certificates

     (100,500     (589,546     (157,081

Payment of lease premium

     (3,464,718     (1,955,074     (2,056,515
  

 

 

 

Net cash used in investing activities

     (39,521,216     (40,053,562     (50,816,527
  

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

      

Refund of guarantee deposits received

     23,496,253        5,074,855        5,978,607   

Dividends paid

     (10,032,000     (10,614,000     (9,888,000

Payment of guarantee deposits received

     (23,184,367     (2,890,568     (4,340,270
  

 

 

 

Net cash used in financing activities

     (9,720,114     (8,429,713     (8,249,663
  

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     (248,226     4,032,146        (3,547,540

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

     10,435,234        6,403,088        9,950,628   
  

 

 

 

CASH AND CASH EQUIVALENTS, END OF YEAR
(Note 25)

   (Won) 10,187,008      (Won) 10,435,234      (Won) 6,403,088   

 

 

See accompanying notes to financial statements.

 

F-58


BR Korea Co., Ltd.

Notes to financial statements

For the years ended December 31, 2011 and 2010

1. General:

BR KOREA CO., LTD. (the “Company”) was incorporated under the laws of the Republic of Korea on June 10, 1985 in accordance with the joint venture agreement dated April 19, 1985 between three Korean shareholders represented by Mr. Young In Hur and Dunkin’ Brands Inc. Under such agreement, the Company engages in the production, distribution and sale of ice cream, ice cream treats, donuts and other related activities. Sales are made through the Company’s distribution network under its direct management and franchise stores under the brand names of Baskin-Robbins and Dunkin’ Donuts.

As of December 31, 2011, the Company’s common stock amounts to (Won) 6,000 million, and the issued and outstanding shares of the Company are owned 66.67% by those Korean shareholders and 33.33% by Dunkin’ Brands Inc.

2. Summary of significant accounting policies:

Basis of financial statement presentation

The Company has prepared the accompanying financial statements in accordance with Accounting Standards for Non-Public Entities in the Republic of Korea (“KAS—NPEs”) for the reporting periods beginning on or after January 1, 2011. In accordance with the KAS—NPEs ‘Effective date and Transitional Provisions’ paragraph 4, on January 1, 2011, the prior periods’ financial position, results of operations, and cash flows under previous generally accepted accounting principles in the Republic of Korea (“previous K-GAAP”) have been carried over and presented as is, with no retrospective adjustments due to the application of KAS—NPEs.

The Company maintains its official accounting records in Korean won and prepares its statutory financial statements in the Korean language (Hangul) in conformity with Accounting Standards for Non-Public Entities in the Republic of Korea. Certain accounting principles applied by the Company that conform with the financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about KAS—NPEs and Korean practices.

The accompanying financial statements to be presented at the annual shareholders’ meeting were approved by the board of directors on March 8, 2012.

The Company’s significant accounting policies used for the preparation of the financial statements are as follow.

Cash and cash equivalents

Cash and cash equivalents includes cash, checks issued by others, checking accounts, ordinary deposits and financial instruments, which can be easily converted into cash and whose value changes due to changes in interest rates are not material, with maturities (or date of redemption) of three months or less from acquisition. Credit card sales are recognized as trade accounts receivable.

Revenue recognition

The Company’s revenue consists of sales of ice cream and donuts to franchisees and to customers (for its retail stores) and other.

 

  F-59   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

The Company sells individual franchise agreements, under which a franchisee pays an initial nonrefundable fee (refer to Commission Income) and subsequently purchases ice cream and donuts from the Company. Once the franchise begins operations, the Company recognizes revenue from the sale of ice cream and donuts to a franchise as Sales during the period. Revenue generated from the sale of ice cream and donuts to franchisees is recognized upon delivery; however, revenue is recognized when the sales terms have been fully met if there are sales terms related with post-delivery. Retail store revenues at company-owned stores are recognized at the point of sale, net of sales tax and other sales-related taxes.

The Company offers customer loyalty programs—bonus points, under which customers can earn from 1.5% ~ 5% of any purchase amount above (Won) 1,000, as points to use in the future. Such points expire within one year from the date the customer earns them. When a customer earns bonus points under the program, the Company recognizes selling, general and administrative expense in the same amount and a corresponding liability under Allowance for unused points. When points are used, the Company reduces Allowance for unused points and recognizes revenue. At the end of the period, 100% of the unused points are recognized as Allowance for unused points (Note 23), in the Company’s statements of financial position.

Commission income

The Company sells individual franchise agreements, under which a franchisee pays an initial nonrefundable fee. The initial franchise fee is recognized as Commission Income, upon substantial completion of the services required of the Company as stated in the franchise agreement, which is generally upon the opening of the respective franchise. The Company does not consider its Commission Income from such initial nonrefundable fees as part of its main business operations. Thus, presents the related income as part of non operating income.

Gift certificates

Gift certificates are stated at face value, net of any discounts given, at the time of issuance and accounted for as Advances from Customers. The gift certificates generally expire within 5 years of issuance. The redemption of gift certificates is reflected as sales at the time the certificates are redeemed at stores by the portion of advances, net of discounts for the relative amount of redemption. Any expired gift certificates are recognized as Non-operating income.

Allowance for doubtful accounts

The Company provides an allowance for doubtful accounts to cover estimated losses on receivables, based on collection experience and analysis of the collectability of individual outstanding receivables.

Inventories

Inventories are stated at cost which is determined by using the moving average method. The Company maintains perpetual inventory, which is adjusted to physical inventory counts performed at year end. When the market value of inventories (net realizable value for finished goods or merchandise and current replacement cost for raw materials) is less than the carrying value, carrying value is stated at the lower of cost or market.

 

  F-60   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

The Company applies the lower of cost or market method by each group of inventories and loss on inventory valuation is presented as a deduction from inventories and charged to cost of sales.

Classification of securities

At acquisition, the Company classifies securities into one of the following categories: trading, available-for-sale, held-to-maturity and securities accounted for under the equity method, depending on marketability, purpose of acquisition and ability to hold. Debt and equity securities that are bought and held for the purpose of selling them in the near term and actively traded are classified as trading securities. Debt securities with fixed and determinable payments and fixed maturity that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities. Investments in equity securities over which the Company exercises significant influence, are accounted for under the equity method. Securities accounted for under the equity method are presented as securities accounted for using the equity method in the statement of financial position. Debt and equity securities not classified as the above are categorized as available-for-sale securities.

Valuation of securities

For available-for-sale securities, the average method is used to determine the cost of debt and equity securities for the calculation of gain (loss) on disposal of those securities.

Debt securities that have fixed or determinable payments with a fixed maturity are classified as held-to-maturity securities only if the Company has both the positive intent and ability to hold those securities to maturity. However, debt securities, whose maturity dates are due within one year from the period end date, are classified as current assets.

After initial recognition, held-to-maturity securities are stated at amortized cost in the statements of financial position. When held-to-maturity securities are measured at amortized costs, the difference between their acquisition cost and face value is amortized using the effective interest rate method and the amortization is included in the cost and interest income.

When the possibility of not being able to collect the principal and interest of held-to-maturity securities according to the terms of the contracts is highly likely, the difference between the recoverable amount (the present value of expected cash flows using the effective interest rate upon acquisition of the securities) and book value is recorded as loss on impairment of held-to-maturity securities included in the non-operating expense and the held-to-maturity securities are stated at the recoverable amount after impairment loss. If the value of impaired securities subsequently recovers and the recovery can be objectively related to an event occurring after the impairment loss was recognized, the reversal of impairment loss is recorded as reversal of impairment loss on held-to-maturity securities included in non-operating income. However, the resulting carrying amount after the reversal of impairment loss shall not exceed the amortized cost that would have been measured, at the date of the reversal, if no impairment loss was recognized.

Tangible assets

Property, plant and equipment are stated at cost (acquisition cost or manufacturing cost plus expenditures directly related to preparing the assets ready for use). Assets acquired from investment-in-kind, received

 

  F-61   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

through donations or acquired free of charge in other ways are stated at the market value of the item which is considered as the fair value.

Expenditures after acquisition or completion that increase future economic benefit in excess of the most recently assessed capability level of the asset are capitalized and other expenditures are charged to expense as incurred.

In accordance with the Company’s policy, borrowing costs in relation to the manufacture, purchase, construction or development of assets are capitalized as part of the cost of those assets.

When the expected future cash flow from use or disposal of the property, plant and equipment is lower than the carrying amount due to obsolescence, physical damage or other causes, the carrying amount is adjusted to the recoverable amount (the higher of net sales price or value in use) and the difference is recognized as an impairment loss. When the recoverable amount subsequently exceeds the carrying amount of the impaired asset, the excess is recorded as a reversal of impairment loss to the extent that the reversed asset does not exceed the carrying amount before previous impairment as adjusted by depreciation.

Depreciation is computed using the declining-balance method, except for buildings and structures using straight-line method, over the estimated useful lives of the assets as follows:

 

Assets    Useful lives (Years)  

 

 

Buildings

     30   

Structures

     15   

Machinery and equipment

     8   

Vehicles

     4   

Others

     4   

 

 

Intangible assets

Intangible asset amount represents lease premiums paid, which is amortized using the straight-line method over the estimated useful life of 5 years. A lease premium is an amount a lessee pays to the previous lessee related to the property. A long-term lease contract with a contract period of 5 years or more is amortized over the actual contract years. When the leasing right is transferred to a sub-lessee before the end of the lease period, the gain or loss on disposal of the lease premium is recognized in the amount of the difference between the lease premium previously paid and the lease premium received from the sub-lessee.

Accrued severance indemnities

In accordance with the Company’s policy, all employees with more than one year of service are entitled to receive a lump-sum severance payment upon termination of their employment, based on their current salary rate and length of service. The accrual for severance indemnities is computed as if all employees were to terminate at the period end dates and amounted to (Won) 17,395 million and (Won) 15,568 million for the years ended December 31, 2011 and 2010, respectively. In accordance with the National Pension Law of Korea, a portion of its severance indemnities which has been transferred in cash to the National Pension Fund through March 1999 is presented as a deduction from accrued severance indemnities. Additionally, the Company has insured a

 

  F-62   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

portion of its obligations for severance indemnities by contributing to benefit plan assets that will be directly paid to employees with Shinhan Bank Co. and others, and records them as plan assets which are directly deducted from accrued severance indemnities. Actual payments for severance indemnities amounted to (Won) 3,334 million, (Won) 4,075 million and (Won) 2,300 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Income tax expense

The Company recognizes deferred income tax assets or liabilities for the temporary differences between the carrying amount of an asset and liability and tax base. A deferred tax liability is generally recognized for all taxable temporary differences with some exceptions and a deferred tax asset is recognized to the extent when it is probable that taxable income will be available against which the deductible temporary difference can be utilized in the future. Deferred income tax asset (liability) is classified as current or non-current asset (liability) depending on the classification of related asset (liability) in the statements of financial position. Deferred income tax asset (liability), which does not relate to specific asset (liability) account in the statements of financial position such as deferred income tax asset recognized for tax loss carryforwards, is classified as current or non-current asset (liability) depending on the expected reversal period. Deferred income tax assets and liabilities in the same tax jurisdiction and in the same current or non-current classification are presented on a net basis. Current and deferred income tax expense are included in income tax expense in the statements of income and additional income tax or tax refunds for the prior periods are included in income tax expense for the current period when recognized. However, income tax resulting from transactions or events, which was directly recognized in shareholders’ equity in current or prior periods, or business combinations, is directly adjusted to equity account or goodwill (or negative goodwill).

Accounting for foreign currency translation

The Company maintains its accounts in Korean won. Monetary accounts with balances denominated in foreign currencies are recorded and reported in the accompanying financial statements at the exchange rates prevailing at the period end dates. The balances have been translated using the market exchange rate announced by Seoul Money Brokerage Services Ltd., which is (Won) 1,153.30 and (Won) 1,138.90 to US $1.00 at December 31, 2011 and 2010, respectively. The translation gains or losses are reflected in non operating income (expense).

3. Inventories:

Inventories as of December 31, 2011 and 2010 consist of the following:

 

       Korean Won (In thousands)  
     2011      2010  

 

 

Merchandise

   (Won) 6,874,214       (Won) 8,116,884   

Finished goods

     4,412,773         4,941,342   

Semi finished goods

     224,481         219,911   

Raw materials

     16,712,431         10,693,639   

Materials in transit

     6,345,063         4,336,341   
  

 

 

 

Total

   (Won) 34,568,962       (Won) 28,308,117   

 

 

 

  F-63   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

4. Other current assets:

Other current assets as of December 31, 2011 and 2010 consist of the following:

 

       Korean Won (In thousands)  
     2011      2010  

 

 

Accounts receivable—other

   (Won) 4,431,259       (Won) 3,503,628   

Accrued income

     687,597         498,843   

Advanced payments

     1,624,706         2,267,233   

Prepaid expenses

     404,232         271,603   
  

 

 

 

Total

   (Won) 7,147,794       (Won) 6,541,307   

 

 

5. Securities:

(1) Securities as of December 31, 2011 and 2010 consist of following:

 

       Korean Won (In thousands)  
     2011      2010  

 

 

Available-for-sale Securities

     

Dunkin’ Brands Group, Inc

   (Won) 1,296,425       (Won)   

Held-to-maturity securities

     

Government & public bonds

     62,985         68,585   
  

 

 

 

Total

   (Won) 1,359,410       (Won) 68,585   

 

 

Held-to-maturity securities whose maturity are within one year from the period end date in the amount of (Won) 4,500 thousand and (Won) 5,600 thousand as of December 31, 2011 and 2010, respectively, are classified as securities in the current assets.

(2) Details of available-for-sale Securities as of December 31, 2011 and 2010 consist of following:

 

                         Korean Won (In thousands)  
     Number
of shares
     Ownership     

Acquisition

cost

     Fair value      Book value  

 

 

Dunkin’ Brands Group, Inc.

     45,000         0.2%       (Won) 900,486       (Won) 1,296,425       (Won) 1,296,425   

 

 

The fair value of available-for-sale Securities that are quoted in active markets is determined using the quoted prices and the accumulated unrealized gain on valuation of available-for-sale Securities before tax effect is (Won) 395,939 thousand as of December 31, 2011.

In addition, during the years ended December 31, 2011 and 2010, no impairment loss or reversal of any previously recognized impairment loss on securities occurred.

 

  F-64   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

6. Securities under the equity method:

Details of securities accounted for under the equity method as of December 31, 2011 and 2010 are as follow:

 

                         Korean Won (In thousands)  
     Number
of shares
     Ownership     

Acquisition

                cost

     Book value  

 

 

Nexgen Food Research (NFR)

     6,000         100%       (Won) 677,340       (Won) 677,340   

 

 

KAS-NPEs do not require the equity method to be applied when both condition are met; (a) the investee does not require to be audited in accordance with Korean External Audit Laws, and (b) the ownership of investor does not change significantly from previous periods.

As of December 31, 2011 and 2010, the Company does not reflect its proportionate share of operational results or equity adjustments of NFR as both conditions are met for NFR.

In addition, during the year ended December 31, 2011 and 2010, no impairment loss or reversal of any previously recognized impairment loss on securities under the equity method occurred.

7. Tangible assets:

(1) Tangible assets as of December 31, 2011 and 2010 consist of the following:

 

       Korean Won (In thousands)  
     2011      2010  

 

 

Land

   (Won) 11,103,689       (Won) 11,103,689   

Buildings

     21,867,337         21,571,820   

Structures

     996,666         752,500   

Machinery

     8,409,626         8,080,418   

Vehicles

     45,373         113,898   

Other

     23,540,212         20,578,300   
  

 

 

 

Total

   (Won) 65,962,903       (Won) 62,200,625   

 

 

(2) Disclosure of Land Price and Valuation of Land

The Korean government annually announces the public price of domestic land by address and type of purpose pursuant to the laws on Disclosure of Land Price and Valuation of Land. This is determined based on the comprehensive consideration including market price, surrounding road condition, possibility of future development and others. As of December 31, 2011 and 2010, the public price of Company-owned land is (Won) 9,720,605 thousand and (Won) 8,960,541 thousand, respectively.

 

  F-65   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

(3) Changes in book values of tangible assets for the years ended December 31, 2011 and 2010 consist of the following:

 

       Korean Won (In thousands)  
     2011  
    

January 1,

2011

     Acquisition      Disposal      Depreciation     

December 31,

2011

 

 

 

Land

   (Won) 11,103,689       (Won)       (Won)       (Won)       (Won) 11,103,689   

Buildings

     21,571,820         1,576,412         327,480         953,415         21,867,337   

Structures

     752,500         357,064                 112,898         996,666   

Machinery

     8,080,418         3,415,485         1         3,086,276         8,409,626   

Vehicles

     113,898                 8,330         60,195         45,373   

Others

     20,578,300         19,720,428         755,683         16,002,833         23,540,212   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   (Won) 62,200,625       (Won) 25,069,389       (Won) 1,091,494       (Won) 20,215,617       (Won) 65,962,903   

 

 

 

       Korean Won (In thousands)  
     2010  
    

January 1,

2010

     Acquisition      Disposal      Depreciation     

December 31,

2010

 

 

 

Land

   (Won) 11,103,689       (Won)       (Won)       (Won)       (Won) 11,103,689   

Buildings

     22,532,797                         960,977         21,571,820   

Structures

     748,657         101,200                 97,357         752,500   

Machinery

     11,214,919         529,247                 3,663,748         8,080,418   

Vehicles

     46,327         129,632         8         62,053         113,898   

Others

     18,613,526         16,389,840         310,035         14,115,031         20,578,300   
  

 

 

 

Total

   (Won) 64,259,915       (Won) 17,149,919       (Won) 310,043       (Won) 18,899,166       (Won) 62,200,625   

 

 

During the years ended December 31, 2011 and 2010 no impairment loss or reversal of any previously recognized impairment loss on property, plant and equipment occurred.

8. Insured assets:

As of December 31, 2011, the Company’s buildings and structures, machinery, equipment and inventories are insured up to (Won) 112,295,327 thousand for fire and (Won) 1,900,000 thousand for gas casualty insurance, and (Won) 200,000 thousand for the theft of securities and cash. In addition, the Company carries general insurance for vehicles, product liability insurance, business liability insurance and workers’ compensation and casualty insurance for employees.

 

  F-66   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

9. Intangible assets :

Change in intangible asset which consists of lease premiums for the years ended December 31, 2011 and 2010 are as follows:

 

       Korean Won (In thousands)  
     2011     2010  

 

 

Beginning balance

   (Won) 9,338,876      (Won) 11,031,813   

Increase

     3,464,718        1,955,074   

Amortization

     (3,720,031     (3,604,761

Disposal

     (255,000     (43,250

Reclassification

     (250,000       
  

 

 

 

Ending balance

   (Won) 8,578,563      (Won) 9,338,876   

 

 

Lease premium paid to the previous lessee, was reclassified as rental deposit, included in guarantee deposits, as the property owner rejected the right to transfer the lease premium and terminated the lease agreement the during the year ended December 31, 2011.

10. Guarantee deposits :

Guarantee deposits paid as of December 31, 2011 and 2010 are as follows:

 

       Korean Won (In thousands)  
     2011      2010  

 

 

Rental deposits

   (Won) 123,569,697       (Won) 112,622,634   

Other

     20,479         24,507   
  

 

 

 

Total

   (Won) 123,590,176       (Won) 112,647,141   

 

 

The Company obtained lien rights for the amount of (Won) 80,312 million and (Won) 77,975 million related to its guarantee deposits as of December 31, 2011 and 2010, respectively.

11. Other current liabilities :

Other current liabilities as of December 31, 2011 and 2010 consist of the following:

 

       Korean Won (In thousands)  
     2011      2010  

 

 

Withholdings

   (Won) 3,222,248       (Won) 3,279,270   

Accrued expenses

     3,642,132         3,685,502   
  

 

 

 
   (Won) 6,864,380       (Won) 6,964,772   

 

 

12. Accrued severance indemnities :

(1) Employees with more than one year of service are entitled to receive severance indemnities, based on their length of service and salary rate upon termination of their employment. The severance indemnities that would

 

  F-67   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

be payable assuming all eligible employees were to resign amount to (Won) 17,395,428 thousand and (Won) 15,567,553 thousand as of December 31, 2011 and 2010, respectively. The changes in accrued severance indemnities for the years ended December 31, 2011 and 2010 are as follows:

 

       Korean Won (In thousands)  
     2011     2010  

 

 

Beginning accrued severance indemnities

   (Won) 15,567,553      (Won) 12,772,914   

Provision for severance indemnities for the period

     5,115,531        6,695,012   

Transferred-in from affiliates

     45,973        174,604   

Actual payment

     (3,333,629     (4,074,977
  

 

 

 

Ending accrued severance indemnities

   (Won) 17,395,428      (Won) 15,567,553   
  

 

 

 

Deposits in National Pension Fund

   (Won) (23,612   (Won) (26,810

Deposits in financial institutions

     (13,121,345     (11,545,451
  

 

 

 

Total benefit plan assets

   (Won) (13,144,957   (Won) (11,572,261
  

 

 

 

Accrued severance indemnities, net of benefit plan assets

   (Won) 4,250,472      (Won) 3,995,292   

 

 

(2) The Company has insured a portion of its obligations for severance indemnities, in order to obtain the related tax benefits by joining retirement pension plan with Shinhan Bank Co. and others. Withdrawal of these retirement pension plan assets, in the amount of (Won) 13,121,345 thousand and (Won) 11,545,451 thousand as of December 31, 2011 and 2010, respectively, is restricted to the payment of severance indemnities. In addition, a part of severance liabilities has been transferred to the national pension fund under the relevant regulation, which is no longer effective. The amounts of the national pension fund benefit transferred are (Won) 23,612 thousand and (Won) 26,810 thousand as of December 31, 2011 and 2010, respectively. The benefit plan assets and the national pension fund benefit transferred and outstanding are presented as a deduction from accrued severance indemnities.

13. Assets and liabilities in foreign currency:

Assets and liabilities denominated in foreign currency as of December 31, 2011, 2010 and 2009 are as follows:

 

       Korean Won (In thousands) and US Dollars  
     2011      2010      2009  
  

 

 

 
     Foreign
currency
    

Korean
Won

equivalent

     Foreign
currency
    

Korean
Won

equivalent

     Foreign
currency
     Korean
Won
equivalent
 

 

 

Assets:

                 

Cash and cash equivalents

     USD 40,543       (Won) 46,758         USD 715,149       (Won) 814,483         USD 314,460       (Won) 367,163   
  

 

 

 

Liabilities:

                 

Accrued expense

     USD 60,274       (Won) 69,514                                   
  

 

 

 

Advance from customers

     USD 12,656       (Won) 14,597                                   

 

 

 

  F-68   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

The Company recorded (Won) (2,852) thousand, (Won) (17,252) thousand and (Won) (74,007) thousand of Loss on foreign currency translation in Non-operating incomes (expenses) for the years ended December 31, 2011, 2010, and 2009, respectively.

14. Transactions with related parties:

Dunkin’ Brands, Inc is a significant shareholder of the Company. NEXGEN FOOD RESEARCH is a wholly-owned subsidiary of the Company (Note 6). The entities listed below have investment relationships with the Korean shareholders of Company or the entities which the Korean shareholders invest in.

(1) Transactions with affiliated companies and other related parties in 2011, 2010 and 2009 are as follows:

 

      Korean Won (In thousands)  
    2011     2010     2009  
 

 

 

 
    Revenues    

Purchases

and others

    Revenues    

Purchases

and others

    Revenues    

Purchases

and others

 

 

 

Shany Co., Ltd.

  (Won) 29,156      (Won) 1,320,572      (Won) 1,083,848      (Won) 11,853,327      (Won) 1,150,848      (Won) 8,382,872   

Honam Shany Co., Ltd.

           116,580               79,844               75,770   

Paris Croissant Co., Ltd.

    343,449        8,398,987        322,424        6,969,578        175,654        4,586,953   

Samlip General Food Co., Ltd.

    2,548,977        6,938,463        1,250,728        3,493,164        980,148        4,071,503   

SPC Co., Ltd.

    2,083,113        5,739,561        2,050,502        4,409,849               2,674,935   

SPC Networks Co., Ltd.

    1,570,524        3,243,939        2,110,253        948,483        15,426        29,568   

Mildawon Co., Ltd.

           53,480               309,236               66,620   

NEXGEN FOOD RESEARCH

           412,457                               

Dunkin’ Brands, Inc.

    2,639,430        3,755,019        1,191,083        3,448,705        352,442        3,193,370   

Paris Baguette Bon Doux, Inc.

           37,525,091               23,482,273               33,281,213   

SPC Euro

           7,000,897               3,048,417               4,156,874   

SPC Japan

           629,860               5,172,213               5,018,539   
 

 

 

 
  (Won) 9,214,649      (Won) 75,134,906      (Won) 8,008,838      (Won) 63,215,089      (Won) 2,674,518      (Won) 65,538,217   

 

 

 

  F-69   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

(2) Related balances of receivables and payables with related parties as of December 31, 2011 and 2010 are summarized below.

 

       Korean Won (In thousands)  
     2011      2010  

 

 

Receivables

     

Shany Co., Ltd.

   (Won) 20,350       (Won) 786   

Paris Croissant Co., Ltd.

     38,847         27,215   

Samlip General Food Co., Ltd.

     208,959         209,348   

SPC Co., Ltd.

     147,500         154,120   

SPC Networks Co., Ltd.

     365,230           

Dunkin’ Brands, Inc.

     458,905           
  

 

 

 
   (Won) 1,239,791       (Won) 391,469   

Allowance for doubtful accounts

     12,398         3,914   

Payables(*1)

     

Shany Co., Ltd.

   (Won)       (Won) 167,480   

Honam Shany Co., Ltd.

     12,181         14,529   

Paris Croissant Co., Ltd.

     472,507         478,588   

Samlip General Food Co., Ltd.

     917,851         271,371   

SPC Co., Ltd.

     476,318         497,234   

SPC Networks Co., Ltd.

     731,846         85,644   

Mildawon Co., Ltd.

             50,832   

Dunkin’ Brands Inc.

     1,222,819         1,126,000   
  

 

 

 
   (Won) 3,833,522       (Won) 2,690,678   

 

 

 

(*1)   Payables consists of trade accounts payable, accrued expenses and accounts payable—other.

15. Shareholders’ equity:

Capital Stock

As of December 31, 2011, the Company has 3,000,000 authorized shares of common stock with a (Won) 10,000 par value, of which 600,000 shares were issued and outstanding as of December 30, 2011.

 

  F-70   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

Appropriated Retained Earnings

Appropriated retained earnings as of December 31, 2011 and 2010, which are maintained by the Company in accordance with tax and other relevant regulations, consist of the following:

 

       Korean Won (In thousands)  
     2011      2010  

 

 

Legal reserve(*1)

   (Won) 3,000,000       (Won) 3,000,000   

Reserve for business rationalization(*2)

     3,493,977         3,493,977   

Reserve for business development(*3)

     17,741,000         17,741,000   
  

 

 

 
   (Won) 24,234,977       (Won) 24,234,977   

 

 

 

(*1)   The Korean Business Law requires the Company to appropriate at least 10 percent of the cash dividends paid as legal reserve until such reserve equals 50 percent of its common stock. This reserve is not available for cash dividends and can only be transferred to capital or can be used to reduce deficit.

 

(*2)   In accordance with the Tax Exemption and Reduction Control Law, the amount of tax benefit associated with certain tax credits are appropriated as a reserve for business rationalization.

 

(*3)   In order to obtain a tax credit on excess retained earnings’ tax, the Company previously accrued for a reserve for business development. However, as the relevant tax regulation concerning excess retained earnings’ tax was repealed in early 2002, the Company has not accrued for any additional reserve for business development since 2002. The remaining reserve can be used to offset deficit or transferred to paid-in capital. However, if this reserve is used for other purposes, the amount used is subject to additional corporate tax.

Statements of Appropriated Retained Earnings

 

       2011     2010      2009  
  

 

 

 
     (In thousands)  

 

 

RETAINED EARNINGS BEFORE APPROPRIATIONS:

       

Unappropriated retained earnings brought forward from prior year

   (Won) 189,063,749      (Won) 165,683,645       (Won) 140,935,163   

Net income

     27,332,795        33,412,104         35,362,482   
  

 

 

 
     216,396,544        199,095,749         176,297,645   
  

 

 

 

APPROPRIATIONS:

       

Dividends calculated (Note 20)

     8,202,000 (*1)      10,032,000         10,614,000   
  

 

 

 

UNAPPROPRIATED RETAINED EARNINGS TO BE CARRIED FORWARD TO SUBSEQUENT YEAR

   (Won) 208,194,544      (Won) 189,063,749       (Won) 165,683,645   

 

 

 

(*1)   Dividends calculated by the Company are pending approval.

 

  F-71   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

16. Statements of comprehensive income:

Statements of comprehensive income for the years ended December 31, 2011, 2010 and 2009 consist of the following:

 

       2011     2010      2009  
  

 

 

 
     (In thousands)  

 

 

Net income

   (Won) 27,332,795      (Won) 33,412,104       (Won) 35,362,482   

Other comprehensive income:

       
  

 

 

 

Gain on valuation of AFS financial assets

     359,939                  

Tax effects

     (95,818               
  

 

 

 
     300,121                  
  

 

 

 

Comprehensive income

   (Won) 27,632,916      (Won) 33,412,104       (Won) 35,362,482   

 

 

17. Donations and miscelleneous expense:

The Company donates donuts to the Food Bank on a daily basis as part of its Corporate social responsibility.

The Company recognized miscellaneous income and expense related to various types of other income offset by mainly inventory scrap expenses. Gross presentation of miscellaneous income and expense is as follows:

 

       Korean Won (In thousands)  
     2011     2010     2009  

 

 

Miscellaneous income

   (Won) 1,034,374      (Won) 864,534      (Won) 848,083   

Miscellaneous (expense)

     (1,712,178     (1,200,664     (2,016,819
  

 

 

 

Miscellaneous, net

   (Won) (677,804   (Won) (336,130   (Won) (1,168,736

 

 

18. Income tax expense and deferred taxes:

(1) Income tax expense for the years ended December 31, 2011, 2010 and 2009 is as follows:

 

       Korean Won (In thousands)  
     2011     2010     2009  

 

 

Income tax currently payable

   (Won) 8,534,882      (Won) 10,800,834      (Won) 12,723,873   

Changes in deferred income tax assets due to temporary differences:

      

End of year

     1,146,485        1,201,484        987,625   

Beginning of year

     1,201,484        987,625        314,526   
  

 

 

 
     54,999        (213,859     (673,101
  

 

 

 

Tax effect

     8,589,881        10,586,975        12,050,772   
  

 

 

 

Changes in deferred income tax liabilities reflected directly in shareholders’ equity:

      

End of year

                     

Beginning of year

     (95,818              
  

 

 

 
     (95,818              
  

 

 

 

Income tax expense

   (Won) 8,494,063      (Won) 10,586,975      (Won) 12,050,772   

 

 

 

  F-72   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

If the amount in the actual tax return differs from the amount used for the calculation of tax expenses for financial reporting purposes above, the Company reflects such difference in the following fiscal period.

Income tax currently payable as of December 31, 2009 includes additional payment arising from a tax assessment for prior years’ corporate income taxes amounting to (Won) 2,133,542 thousand.

(2) The reconciliations between income before income tax and income tax expense for the years ended December 31, 2011, 2010 and 2009 are as follows:

 

       Korean Won (In thousands)  
     2011     2010     2009  

 

 

Income before income tax

   (Won) 35,826,858      (Won) 43,999,079      (Won) 47,413,254   

Income tax payable by statutory income tax rate

     8,643,700        10,623,577        11,449,808   

Tax reconciliations:

      

Non-deductible expense

     75,203        55,479        193,957   

Special tax

     20,936        9,294        170,405   

Tax credit(a)

     (132,626     (152,850     (1,015,551

Additional payment from the tax assessment(b)

                   2,133,542   

Adjustment in beginning balance of deferred tax assets from the tax assessment (b)

                   (902,429

Other(c)

     (113,150     51,475        21,040   
  

 

 

 

Income tax expense

   (Won) 8,494,063      (Won) 10,586,975      (Won) 12,050,772   

 

 

Effective tax rate

     23.71%        24.06%        25.42%   

 

 

 

(a)   Tax credit consists of research and human resource development tax credit, temporarily investment tax credit, and other tax credits applicable under the special tax control laws of Korea.
(b)   Adjustment to the temporary differences arising from the prior period tax returns and the final tax assessment and the amount reported in the financial statements are included within the increase or decrease columns.
(c)   Other represents the effect from change in the applied corporate tax rate.

 

  F-73   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

(3) Details of changes in accumulated temporary differences for the years ended December 31, 2011 and 2010 are as follows:

 

       Korean Won (In thousands)  
     2011  
Descriptions   

Beginning

balance

    Decrease     Increase    

Ending

balance

 

 

 

Temporary differences to be deducted:

        

Accrued severance indemnities

   (Won) 13,686,988      (Won) 1,407,091      (Won) 3,345,137      (Won) 15,625,034   

Foreign currency translation

     17,252        17,252        2,852        2,852   

Amortization of lease premium

     425,559        170,455        128,661        383,765   

Advertising

     180,491        180,491                 

Allowance for doubtful accounts

     32,232        32,232        118,721        118,721   

Accumulated depreciation—Structures

     3,984,050        962,961        530,840        3,551,929   

Accumulated depreciation

     69,026        4,120               64,906   
  

 

 

 

Total

     18,395,598        2,774,602        4,126,211        19,747,207   
  

 

 

 

Tax rate (*1)

     22.0%,24.2%            24.2%   
  

 

 

       

 

 

 

Deferred income tax assets

     4,048,120            4,778,823   
  

 

 

       

 

 

 

Temporary differences to be added:

        

Severance insurance deposits

     (11,545,452     (612,059     (2,187,953     (13,121,346

Accrued income

     (498,843     (498,843     (687,596     (687,596

Lease premium

     (425,559     (170,455     (128,661     (383,765

Special accumulated depreciation

     (419,517     (49,028     (50,529     (421,018
  

 

 

 

Total

     (12,889,371     (1,330,385     (3,450,678     (15,009,664
  

 

 

 

Tax rate (*1)

     22.0%,24.2%            24.2%   
  

 

 

       

 

 

 

Deferred income tax liabilities

     (2,846,636         (3,632,338
  

 

 

       

 

 

 

Deferred income tax assets, net

   (Won) 1,201,484          (Won) 1,146,485   

 

 

 

  F-74   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

       Korean Won (In thousands)  
     2010  
Descriptions   

Beginning

balance

    Decrease     Increase    

Ending

balance

 

 

 

Temporary differences to be deducted:

        

Accrued severance indemnities

   (Won) 9,611,773      (Won) 1,177,583      (Won) 5,252,798      (Won) 13,686,988   

Foreign currency translation

     74,007        74,007        17,252        17,252   

Amortization of lease premium

     304,709        11,364        132,214        425,559   

Advertising

     614,883        434,392               180,491   

Allowance for doubtful accounts

                   32,232        32,232   

Accumulated depreciation—Structures

     3,985,468        511,419        510,001        3,984,050   

Accumulated depreciation

     81,032        12,006               69,026   
  

 

 

 

Total

     14,671,872        2,220,771        5,944,497        18,395,598   
  

 

 

 

Tax rate (*1)

     22.0%,24.2%            22.0%,24.2%   
  

 

 

       

 

 

 

Deferred income tax assets

     3,229,440            4,048,120   
  

 

 

       

 

 

 

Temporary differences to be added:

        

Severance insurance deposits

     (8,921,668     (1,177,583     (3,801,367     (11,545,452

Accrued income

     (516,444     (516,444     (498,843     (498,843

Lease premium

     (304,709     (11,364     (132,214     (425,559

Special accumulated depreciation

     (395,604     (26,435     (50,348     (419,517
  

 

 

 

Total

     (10,138,425     (1,731,826     (4,482,772     (12,889,371
  

 

 

 

Tax rate

     22.0%,24.2%            22.0%,24.2%   
  

 

 

       

 

 

 

Deferred income tax liabilities

     (2,241,815         (2,846,636
  

 

 

       

 

 

 

Deferred income tax assets, net

   (Won) 987,625          (Won) 1,201,484   

 

 
(*1)   Based on tax rates announced in 2010, the tax rates expected to be applicable to the Company’s deferred tax assets and liabilities are 24.2 % in 2011 and 22% after 2012 and thereafter.

(4) Balances of income tax payable and prepaid income tax before offsetting as of December 31, 2011 and 2010 are as follows:

 

       Korean Won (In thousands)  
Description    2011      2010  

 

 

Before offsetting

     

Prepaid income tax

   (Won) 5,001,996       (Won) 4,888,309   

Income tax payable

     8,534,882         10,800,834   
  

 

 

 

Income tax payable after offsetting

   (Won) 3,532,886       (Won) 5,912,523   

 

 

 

  F-75   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

19. Net income per share:

Net income per share for the years ended December 31, 2011, 2010 and 2009 are computed as follows (In thousands except per share amounts and number of shares):

 

       2011      2010      2009  

 

 

Net income

   (Won) 27,332,795       (Won) 33,412,104       (Won) 35,362,482   

Weighted average number of outstanding shares(*)

     600,000         600,000         600,000   
  

 

 

 

Net income per share

   (Won) 45,555       (Won) 55,687       (Won) 58,937   

 

 
(*)   The number of outstanding shares did not change for the years ended December 31, 2011, 2010 and 2009.

20. Dividends:

(1) Dividends for the years December 31, 2011, 2010 and 2009 are as follows:

 

       Korean Won  
     2011      2010      2009  

 

 

Dividend per share

   (Won) 13,670       (Won) 16,720       (Won) 17,690   

Number of shares

     600,000         600,000         600,000   
  

 

 

 

Dividends

   (Won) 8,202,000,000       (Won) 10,032,000,000       (Won) 10,614,000,000   

 

 

(2) The calculation of dividend to net income ratio for the years ended December 31, 2011, 2010 and 2009 is as follows:

 

       Korean Won  
     2011      2010      2009  

 

 

Dividend

   (Won) 8,202,000,000       (Won) 10,032,000,000       (Won) 10,614,000,000   

Net income

     27,332,795,164         33,412,104,480         35,362,481,645   
  

 

 

 

Dividend ratio

     30.01%         30.03%         30.01%   

 

 

21. Summary of information for computation of value added:

The accounts and amounts needed for calculation of value added for the years ended December 31, 2011, 2010 and 2009 are as follows:

 

       Korean won (In thousands)  
     2011  
    

SG & A

expenses

    

Manufacturing

cost

    

Total

expenses

 

 

 

Salaries

   (Won) 39,681,839       (Won) 4,009,394       (Won) 43,691,233   

Provision for severance indemnities

     4,507,179         608,352         5,115,531   

Employee benefits

     6,245,433         847,576         7,093,009   

Rent

     26,370,435         1,662,524         28,032,959   

Depreciation

     13,095,509         7,120,108         20,215,617   

Amortization of lease premium

     3,720,031                 3,720,031   

Taxes and dues

     1,909,169         204,744         2,113,913   
  

 

 

 

Total

   (Won) 95,529,595       (Won) 14,452,698       (Won) 109,982,293   

 

 

 

  F-76   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

       Korean won (In thousands)  
     2010  
    

SG & A

expenses

    

Manufacturing

cost expenses

    

Total

expenses

 

 

 

Salaries

   (Won) 34,303,927       (Won) 3,543,584       (Won) 37,847,511   

Provision for severance indemnities

     6,209,530         485,482         6,695,012   

Employee benefits

     5,850,725         795,384         6,646,109   

Rent

     22,564,643         964,233         23,528,876   

Depreciation

     11,659,293         7,239,873         18,899,166   

Amortization of lease premium

     3,604,761                 3,604,761   

Taxes and dues

     1,736,351         194,801         1,931,152   
  

 

 

 

Total

   (Won) 85,929,230       (Won) 13,223,357       (Won) 99,152,587   

 

 

 

       Korean won (In thousands)  
     2009  
    

SG & A

expenses

    

Manufacturing

cost

    

Total.

expenses

 

 

 

Salaries

   (Won) 30,876,952       (Won) 3,380,604       (Won) 34,257,556   

Provision for severance indemnities

     3,514,136         501,403         4,015,539   

Employee benefits

     5,403,641         748,302         6,151,943   

Rent

     18,163,520         1,042,299         19,205,819   

Depreciation

     12,128,425         7,786,368         19,914,793   

Amortization of lease premium

     3,229,923                 3,229,923   

Taxes and dues

     1,542,840         180,437         1,723,277   
  

 

 

 

Total

   (Won) 74,859,437       (Won) 13,639,413       (Won) 88,498,850   

 

 

 

  F-77   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

22. Selling, general and administrative expenses:

Selling, general and administrative expenses for the years ended December 31, 2011, 2010 and 2009 consist of the following:

 

       Korean Won (In thousands)  
     2011      2010      2009  

 

 

Salaries (*1)

   (Won) 39,681,839       (Won) 34,303,927       (Won) 30,876,952   

Provision for severance indemnities (*1)

     4,507,179         6,209,531         3,514,136   

Other salaries

     3,921,219         3,847,903         3,867,808   

Employee benefits (*1)

     6,245,433         5,850,725         5,403,641   

Rent (*1)

     26,370,435         22,564,643         18,163,520   

Depreciation (*1)

     13,095,509         11,659,293         12,128,425   

Amortization of lease premium (*1)

     3,720,031         3,604,760         3,229,923   

Taxes and dues (*1)

     1,909,169         1,736,351         1,542,840   

Advertising

     27,250,600         30,235,596         26,201,518   

Research

     603,372         550,848         402,720   

Provision for doubtful accounts

     1,364,490         31,982         21,800   

Commission

     36,506,938         32,672,470         25,861,672   

Others

     29,987,525         28,236,732         24,071,291   
  

 

 

 
   (Won) 195,163,739       (Won) 181,504,761       (Won) 155,286,246   

 

 
(*1)   Other amounts of expenses under the same categorization are considered as manufacturing costs and recognized as Cost of Sales in the statements of income. See Note 21 for the breakout between selling, general and administrative expenses and manufacturing costs for the above categories of expenses.

23. Commitments and litigations:

(1) Commitments

The Company established an import documentary letter of credit up to US $3 million with two commercial banks of Korea as of December 31, 2011. In addition, as of December 31, 2011, the Company is provided with a line of credit of (Won) 10 billion under a factoring agreement with Shinhan Bank.

(2) Litigations

As of December 31, 2011, the Company is a defendant in five litigations with total claims of (Won) 1,772 million. However, the Company does not expect that the cost to resolve these matters will have a material effect on the financial statements. The Company does not believe a risk of loss resulting from litigation is probable or reasonably possible.

Seoul Metro filed two lawsuits against the Company in relation to sublease taken from Seoul Express Bus & Central City, amount of claims of (Won) 362 million. Seoul Metro is a building owner and leased a property with a rent free period to Seoul Express Bus & Central City, which subsequently has been subleased to the Company. The lawsuit is about an eviction suit filed against all lessee and sub-lessee of Seoul Express Bus & Central, since

 

  F-78   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

Seoul Metro intends to directly operate the property. The Company’s lease payments made to Seoul Express Bus & Central City to the present have been deposited with the courts. The litigations are currently pending the final round decision at the Supreme Courts. Thus, the Company believes that the likelihood of loss or need for additional payment to the courts is remote.

The lawsuit against the Company is filed by the owners of the building and buildings in the neighbor for a fire accident in Myungdong store. The case with the claims of (Won) 41 million is currently pending the first round decision in the court. In addition, there is a lawsuit with Media and Convergence due to the change of the business partner for monitors for promotions (“Happy TV”). The case with the claim of (Won) 1,368 million is currently pending in the first round.

(3) Allowance for unused points

Customer loyalty programs are operated by the Company to provide customers with incentives to buy their goods and services. Under the programs, customers can earn from 1.5% ~ 5% of any purchase amount above (Won) 1,000, as points to use in the future. Such points expire within one year from the date the customer earns them. As the Company’s obligation to provide such awards are in the future, any unused program points as of the period end date, are recognized as Allowance for unused points and amounts to (Won) 2,651,480 thousand and (Won) 1,428,034 thousand as of December 31, 2011 and 2010 respectively.

24. Segment information:

The Company has two operating divisions, ice cream and donut, in which sales are made through the Company’s distribution network consisting of stores under the Company’s direct management and under the franchise agreement.

The divisions’ sales for the years ended December 31, 2011, 2010 and 2009 are as follows:

 

       Korean Won (In millions)  
     2011      2010      2009  

 

 

Ice Cream

   (Won) 235,227       (Won) 209,367       (Won) 197,608   

Donut

     217,133         216,696         208,606   
  

 

 

 
   (Won) 452,360       (Won) 426,063       (Won) 406,214   

 

 

25. Cash flow statements:

Significant transactions not involving cash flows for the years ended December 31, 2011, 2010 and 2009 are as follows:

 

       Korean Won (In thousands)  
     2011      2010      2009  

 

 

Transfer to current assets from held-to-maturity securities

   (Won) 4,500       (Won) 5,600       (Won) 4,390   

Transfer from construction in progress to buildings

     250,000                 11,211,800   

 

 

 

  F-79   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

26. Reconciliation to united states generally accepted accounting principles:

The financial statements have been prepared in accordance with Accounting Standards for Non-Public Entities in the Republic of Korea (“KAS-NPEs”), which differ in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). The classification of the cash flow items on the statements on the cash flow is same for the KAS-NPEs and U.S. GAAP. The significant differences are described in the reconciliation tables below. Other differences do not have a significant effect on either net income or shareholders’ equity. The effects of the significant adjustments to net income for the years ended December 31, 2011 and 2010 which would be required if U.S. GAAP were to be applied instead of KAS-NPEs are summarized as follows :

 

                Korean Won  
            (In thousands except earnings per share)  
     Note
reference
     2011     2010     2009  

 

 

Net income based on Korean GAAP

      (Won) 27,332,795      (Won) 33,412,104      (Won) 35,362,482   

Adjustments:

         

Retirement and severance benefits

     26.a         127,471        3,003,808        1,063,693   

Compensated absences

     26.b         603,219        (116,766     (5,797

FIN 48 effect

     26.c         (10,457     (8,766     (10,099

Tax effect of the reconciling items

     26.e         (277,279     (632,580     (232,610
     

 

 

 

Net income based on U.S. GAAP

      (Won) 27,775,749      (Won) 35,657,800      (Won) 36,177,669   
     

 

 

 

Weighted average number of common shares outstanding

        600,000        600,000        600,000   

Basic and Diluted Earnings per share based on US GAAP

      (Won) 46,293      (Won) 59,430      (Won) 60,296   

 

 

The effects of the significant adjustments to shareholders’ equity for the years ended December 31, 2011 and 2010 which would be required if U.S. GAAP were to be applied instead of KAS-NPEs are summarized as follows :

 

                Korean Won (In thousands)  
    

Note

reference

     2011     2010  

 

 

Shareholders’ equity based on Korean GAAP

      (Won) 246,931,642      (Won) 229,330,726   

Adjustments:

       

Retirement and severance benefits

     26.a         (2,747,769     (1,710,408

Compensated absences

     26.b         (40,126     (643,345

FIN 48 effect

     26.c         (29,322     (18,865

Tax effect of the reconciling items

     26.e         674,671        531,979   
     

 

 

 

Shareholder’s equity based on U.S. GAAP

      (Won) 244,789,096      (Won) 227,490,087   

 

 

 

  F-80   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

a. Retirement and severance benefits

Under the Korean labor law, employees with more than one year of service are entitled to receive a lump sum payment upon voluntary or involuntary termination of their employment. The amount of the benefit is based on the terminated employee’s length of employment and rate of pay prior to termination. KAS-NPEs requires that a company record the vested benefit obligation at the end of reporting period assuming all employees were to terminate their employment as of that date. The change in the vested benefit obligation during the year is recorded as the current year’s severance expense.

U.S. GAAP generally requires the use of actuarial methods for measuring annual employee benefit costs including the use of assumptions as to the rate of salary progression and discount rate, the amortization of prior service costs over the remaining service period of active employees and the immediate recognition of a liability when the accumulated benefit obligation exceeds the fair value of plan assets. The Company recognizes the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee’s expected date of separation or retirement.

Under U.S. GAAP, actuarial gains or losses, which result from a change in the value of either the projected benefit obligation or the plan assets resulting from experience different from that assumed or from a change in an actuarial assumption, that are not recognized as a component of net income or loss are recognized as increases or decreases to other comprehensive income, net of tax, in the period they arise. At a minimum, amortization of a net actuarial gain or loss included in accumulated other comprehensive income is included as a component of net pension cost for a year if, as of the beginning of the year, that net actuarial gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets. If amortization is required, the minimum amortization shall be that excess divided by the average remaining service period of active employees expected to receive benefits under the plan.

The effects of retirement and severance benefits to shareholders’ equity as of December 31, 2011 and 2010 consist of (Won) 4,693,495 thousand recognized as retained earnings and (-) (Won) 7,441,264 recognized as other comprehensive income, and (Won) 4,566,024 thousand recognized as retained earnings and (-) (Won) 6,276,432 thousand recognized as other comprehensive income, respectively. Under US GAAP due to the use of the actuarial method, the Company recognized accrued severance indemnities, net of benefit plan assets of (Won) 6,998,240 thousand, and (Won) 5,705,700 thousand as of December 31, 2011 and 2010, respectively.

b. Compensated absences

Under U.S. GAAP, a liability for amounts to be paid as a result of employee’s rights to compensated absences shall be accrued in the year in which earned. Under KAS-NPEs, while there is no specific provision for the accounting treatment of accruing the compensated absences, the Company accrues such liability in the following year pursuant to industry practice.

c. Income taxes

Under U.S. GAAP, effective January 1, 2009, the Company adopted accounting guidance which clarifies the accounting guidance for uncertainties in income taxes. The guidance requires that the tax effect(s) of a position be recognized only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the

 

  F-81   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the tax position are to be recognized. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. With the adoption of the accounting guidance, companies are required to adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained. Any necessary adjustment would be recorded directly to retained earnings and reported as a change in accounting principle.

Under Korean corporation tax law, the tax deductibility of executive bonuses which are paid without an actual executive bonuses payment policy undergoes a qualitative assessment by the tax authorities. The Company paid such executive bonuses, for the years ended December 31, 2011, 2010 and 2009 in the amount of (Won) 33,248 thousand, (Won) 30,084 thousand, and (Won) 37,939 thousand, respectively. As a result, under US GAAP, the Company recorded additional tax provision related to the uncertain tax position for the years ended December 31, 2011, 2010 and 2009, in the amount of (Won) 10,457 thousand, (Won) 8,766 thousand, and (Won) 10,099 thousand, respectively .

d. Scope of consolidation

Under KAS-NPEs, majority-owned subsidiaries with total assets below (Won) 10 billion at prior year end are not consolidated. Under U.S. GAAP, a company is required to consolidate all majority-owned subsidiaries regardless of total asset size if it has control of the subsidiary. However, the reconciliation to US GAAP does not include the consolidation of a majority-owned subsidiary with total assets below (Won) 10 billion as the Company believes such amounts are immaterial.

e. Tax effect of the reconciling items

The applicable statutory tax rate used to calculate the tax effect of the reconciling items on the net income reconciliation between KAS-NPEs and U.S. GAAP for the years ended December 31, 2011 and 2010 was 24.2%. Such tax rates are inclusive of resident surtax of 2.2%. The following is a reconciliation of the tax effect of the reconciling items on net income:

 

       Korean Won (In thousands)  
     2011      2010      2009  

 

 

Net income based on U.S.GAAP

   (Won) 27,775,749       (Won) 35,657,800       (Won) 36,177,669   

Net income based on Korean GAAP

     27,332,795         33,412,104         35,362,482   
  

 

 

 

Total GAAP adjustments on net income

     442,954         2,245,696         815,187   

Adjustments related to tax items:

        

FIN 48 effect

     10,457         8,766         10,099   

Tax effect of the reconciling items

     277,279         632,580         232,610   
  

 

 

 

Taxable GAAP adjustment

     730,689         2,887,042         1,057,896   

Applicable tax rate(*)

     24.2%         24.2%,22.0%         24.2%,22.0%   
  

 

 

 

Tax effect of the reconciling items

   (Won) 277,279       (Won) 632,580       (Won) 232,610   

 

 

 

  F-82   (Continued)


BR Korea Co., Ltd.

Notes to financial statements—(continued)

For the years ended December 31, 2011 and 2010

 

(*)   The Company applied tax rates that are expected to apply in the period in which the liability is expected to be settled, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Hence, since the adjustment in compensated absences for the year ended December 31, 2010 amounting to (Won) (116,766) thousand is expected to be settled in 2011, the Company applied 24.2% which is an enacted tax rate for fiscal year 2011. In addition, since the adjustment in retirement and severance benefits for the year ended December 31, 2010 amounting to (Won) 3,003,808 thousand is expected to be settled in 2012 and thereafter, the Company applied 22.0% which is an enacted tax rate for fiscal year 2012 and thereafter.

The following is a reconciliation of the tax effect of the reconciling items on shareholders’ equity:

 

       Korean Won (In thousands)  
     2011     2010  

 

 

Shareholders’ equity based on U.S.GAAP

   (Won) 244,789,096      (Won) 227,490,087   

Shareholders’ equity based on Korean GAAP

     246,931,642        229,330,726   
  

 

 

 

Total GAAP adjustments on net income

     (2,142,546     (1,840,639

Adjustments related to tax items:

    

FIN 48 effect

     29,322        18,865   

Tax effect of the reconciling items

     (674,671     (531,979
  

 

 

 

Taxable GAAP adjustment

     (2,787,895     (2,353,753

Applicable tax rate (*)

     24.2%        24.2%, 22.0%   
  

 

 

 

Tax effect of the reconciling items

   (Won) (674,671   (Won) (531,979

 

 
(*)   The Company applied tax rates that are expected to apply in the period in which the liability is expected to be settled, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Hence, since the adjustment in compensated absences as of December 31, 2010 amounting to (Won) (643,345) thousand is expected to be settled in 2011, the Company applied 24.2% which is an enacted tax rate for fiscal year 2011. In addition, since the adjustment in retirement and severance benefits as of December 31, 2010 amounting to (Won) (1,710,408) thousand is expected to be settled in 2012 and thereafter, the Company applied 22.0% which is an enacted tax rate for fiscal year 2012 and thereafter.

f. Subsequent event

ASC 855 (formerly, SFAS Statement No. 165), Subsequent Events, was issued in May 2009 and is effective for interim or annual financial periods ending after June 15, 2009. ASC 855 establishes principles and requirements for subsequent events by setting forth the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. The Company has adopted ASC 855 and management has performed its evaluation of subsequent events through March 16, 2012, the date these financial statements are issued or available to be issued, and has determined that there are no subsequent events requiring adjustment or disclosure in the financial statements.

 

  F-83  

Exhibit 99.2

Report of Independent Auditors

To the board of Directors and Shareholders of

B-R 31 ICE CREAM CO., LTD.:

In our opinion, the accompanying balance sheet and the related statement of income, changes in net assets and cash flows present fairly, in all material respects, the financial position of B-R 31 ICE CREAM CO., LTD. at December 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in Japan. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

Accounting principles generally accepted in Japan vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 18 to the financial statements.

/s/ PricewaterhouseCoopers Aarata

Tokyo, Japan

April 29, 2011

 

F-84


B-R 31 Ice Cream Co., Ltd.

Balance sheets

(In thousands)

 

       (Not covered by
auditors’ report)
         
     December 31,
2011
    December 31,
2010
 

 

 
Assets     

Current assets:

    

Cash and cash equivalents

   ¥ 3,239,687      ¥ 3,912,939   

Accounts receivable-trade

     3,045,929        2,797,245   

Finished products

     640,354        528,830   

Raw materials

     335,519        254,757   

Supplies

     218,569        200,306   

Advance payments

     11,872        56,987   

Prepaid expenses

     134,708        82,720   

Deferred tax assets

     93,748        131,590   

Accounts receivable-other

     28,063        20,038   

Other current assets

     30,458        19,689   

Allowance for doubtful accounts

     (10,304     (23,873
  

 

 

 

Total current assets

     7,768,603        7,981,228   
  

 

 

 

Non-current assets:

    

Tangible fixed assets

    

Buildings

     1,522,471        1,495,756   

Accumulated depreciation

     (1,092,515     (1,057,432