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Dunkin' Brands Group (NASDAQ:DNKN)

Q4 2012 Earnings Call

January 31, 2013 8:00 am ET

Executives

Stacey Caravella - Director of Investor Relations

Nigel Travis - Chief Executive Officer, Director and President of Dunkin' Donuts Incorporated

Paul C. Carbone - Chief Financial Officer

John H. Costello - Chief Global Marketing & Innovation Officer

Analysts

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Michael W. Gallo - CL King & Associates, Inc., Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division

David Palmer - UBS Investment Bank, Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

John S. Glass - Morgan Stanley, Research Division

Will Slabaugh - Stephens Inc., Research Division

Jeffrey D. Farmer - Wells Fargo Securities, LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Dunkin' Brands Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder this conference call is being recorded.

I would now like to turn the conference over to your host, Ms. Stacey Caravella, you may begin.

Stacey Caravella

Thank you, operator and good morning, everyone. With me today are Dunkin' Brands Chief Executive Officer and Dunkin' Donuts President, Nigel Travis; and Dunkin' Brands Chief Financial Officer, Paul Carbone. Each of whom will speak on today's call.

Additionally, Dunkin' Brands Chief Global Marketing and Innovation Officer, John Costello is here and he will be available for questions during the Q&A at this -- at the end of the call. Today's call is being webcast live and recorded for replay.

Before I turn the call over to Nigel, I'd like to remind everyone that the language on forward-looking statements, including in our release, also applies to our comments made during the call. Our release can be found in our website, investor.dunkinbrands.com, along with any reconciliation of non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures.

Now I'd like to turn the call over to Nigel Travis.

Nigel Travis

Thank you, Stacy and I'll say upfront, although I have slightly croaky throat, so hopefully I'll see through the call today and apologies for the sound of it. I'd like to thank everyone for joining us today to discuss our fourth quarter and fiscal year 2012 results.

The fourth quarter was strong and we finished 2012 delivering 15% plus adjusted operating income growth and nearly 40% adjusted earnings per share growth year-over-year. What I'm most proud of about our 2012 performance is that it demonstrated that our focus on increasing franchisee profitability drives attractive returns for both franchisees and shareholders. It's a virtuous cycle. It's enabling us to capitalize on our unique combination of strong brand heritage and significant U.S. and global restaurant expansion opportunities. We're one of the few, if not the only, QSR concepts to have both of these attributes. That's why you're going to see more of the same from us in 2013.

This year is all about executing on our commitment to drive franchisee profitability. And we're often asked, how much do we materially improve unit economics? For me, it's simple. It's about viewing initiatives through a lens of -- and the question is, how does it make our franchisees more profitable? We ask that question over and over.

This philosophy has driven a 30% plus increase in EBITDA dollars for our Dunkin' Donuts U.S. franchisees since 2008. And our traditional restaurants across all regions have now surpassed $1 million in annual unit volumes on average. That's a very exciting milestone. I'll repeat it, $1 million on average for our traditional stores.

We also believe that nearly 50% of every incremental dollar is transferred to our franchisees' bottom line, a flow-through percent that we believe there's still opportunity to increase over time.

Our highly compelling unit economics, coupled with our contiguous, strategic development approach, help drive another very strong year for Dunkin' Donuts U.S. restaurant expansion. Our franchisees added 291 net new Dunkin' Donuts restaurants last year, which included opening 149 net unit -- net new units in the fourth quarter. This makes us one of the fastest-growing QSR concepts by unit count.

Similar to previous years, more than 90% of our development was with existing franchisees. Franchisees also continued to invest in the Dunkin' Donuts brand by completing 618 remodels. Over the past 3 years, our franchisees have remodeled more than 1,700 Dunkin' Donuts locations, bringing the average image age of the restaurant base to less than 5 years.

A couple of weeks ago, we made the very exciting announcement that we're expanding to Southern California. The response to this news has been tremendous. "When will you get to California?" is the most frequently asked question we receive on social media. Now, we're happy to finally have an answer, and we expect the first Dunkin' Donuts restaurant will open there in 2015.

As we explained 2 weeks ago, we're targeting opening between 330 and 360 net new Dunkin' Donuts U.S. units this year, for a 4.5% to 5% net unit growth rate.

We've had a very -- we've had a nice steady acceleration in growth since 2010 when we implemented our contiguous, strategic development approach. We've set the right development pace, one that balances capitalizing on our significant opportunity and strong franchisee demand with ensuring that we're going to the right markets at the right time, choosing the right site and maintaining the high hurdle rate that we've set for new store economics.

Almost one year ago, we announced that we signed an agreement with the franchisee on purchasing and distribution cooperative, and this is better known as the NDCP, that will result in flat, national invoice pricing by 2015. At the end of 2012, our franchisees out West experienced approximately 300 basis points of positive impacts to their bottom line as a result of the first 2 price reductions. At the end of this year, 2013, they will see another 300 basis points of positive impact.

Today, our franchisees continue to see the benefits of reduced coffee commodity cost. However, higher wheat cost, which is a legacy of last year's U.S. drought, continues to linger and could extend into 2013 for the full year. This negative impact from rising wheat cost should be offset by the benefit from coffee. Overall, we feel very good about how the NDCP manages its purchasing. And despite a slight rise in the cost of some goods, we expect our franchisee COGS will be flat to slightly down from 2012. And of course, that is led by coffee.

Obviously the move towards flat national pricing is already having a positive effect on franchisee profitability. And now that our initiative underway, we should provide tremendous benefits this year is the implementation of a new back office system. This system which will help franchisees manage their businesses more efficiently is Phase 2 of our Standardized Retail Technology package, which was rolled out first in Dunkin' U.S. in 2011, 2012. We now have the same point-of-sale system in the vast majority of our restaurants, and are in the process of training franchisees on a new back office system that will help them better manage labor, cash, inventory and food cost. We expect that franchisees who utilize the system could realize between 50 and 150 basis points on average, a positive impact to EBITDA margins.

I began today with an emphasis on franchisee profitability and its impacts on restaurant expansion because that is the engine for the Dunkin' Brands growth story today. However, our focus on franchises profitability isn't limited to Dunkin' U.S. We're using what we've learned from Dunkin' U.S. and applying it to our international business and Baskin U.S. We have adopted a similar rigorous unit economics review process for these other businesses. And we're beginning to see the results from this focus, which I will share more about in a moment.

Now let me talk about the growth of the existing restaurant base. During the fourth quarter, we had a 3.2% comp sales growth for the Dunkin' U.S. segment and ended the year with a 4.2% comp sales growth over 2011. On a two-year basis, our fourth quarter comps grew an impressive 10.6%, which does represent a very nice acceleration over the third quarter.

We achieved this growth despite an intensely competitive marketplace and continued economic uncertainty. We believe this reflects the overall strength of our brand and the great products and good value that we offer to the customers everyday in a fast, friendly environment.

Product innovation is a huge contributor to our success. It's deeply embedded in the heritage of both brands and continues to drive our growth today. In 2012, we launched an impressive more than 30 new products. This included, Breakfast Burritos, the Oreo Coolatta, the Roast Beef Bakery Sandwich, Red Velvet Donuts and Mocha and Pumpkin K-Cups. And we brought back some favorite limited time offers such as, Sausage Pancake Bites and the Smoked Sausage Breakfast Sandwich. We also tested more than 40 new products in 60-plus market tests. Yes, our product pipeline is the longest it has been in our history and our success rate with products is very high. You see more -- you'll see some of the products we tested in 2012 in our restaurants in 2013, including the Turkey Sausage Breakfast Sandwich that launched in the beginning of the year and our Dark Chocolate Mocha beverage lineup that rolled out earlier this week. And coming next month, we're really excited about bringing back the Angus Steak and Egg Breakfast Sandwich which features our new pepper-fried egg. It's actually excellent, for those who are waiting for it. I'm more positive than ever about our product pipeline. Products are keeping with each -- are competing with each other to get into the restaurants, and consumers crave and love our beverages and food, driving both traffic and ticket. And in keeping with the focus franchisee profitability, we have a portfolio of high-margin products from beverages and sandwiches.

Before we even test a new product, it goes through a screen, including a group of franchisees to determine if it meets our profitability standards, and we have a rigorous new product launch process to ensure that products are well received by both franchisees and consumers.

We believe product innovation will contribute to another strong year of comps store sales growth for Dunkin' U.S. And for 2013, we're targeting 3% to 4% comps, part of this innovation will be K-Cups, an area that achieved great growth in Q4. And with the continued growth in brewers, I think 2013 will be another great year of K-Cup growth.

Marketing innovation will also drive comps, in particular, our plans for mobile and loyalty, which I am personally very excited about. My vision for Dunkin' is that in the couple of years, we are a leader in the QSR industry when it comes to using mobile technology. We want to enable an entirely new level of speed and convenience market and engage them on a much deeper level to further distinguish our brand from the competition. I've long been a believer in using game-changing technology to drive business and that's how I view mobile in the QSR landscape. I view it as a game-changer.

Our mobile app got off to a great start in 2012. We finished the year with more than 1 million downloads and our goal is to more than double that number of total app downloads in 2013.

In November, we began weekly mobile offers through the app and did 10 offers over the course of the last couple of months of the year. We're still in the early days of mobile offers, but you can expect to see an increase in offers as well as more geographically targeted offers in 2013. So much more to come for our mobile app. We have exciting plans for it, that we'll be testing and rolling out over the next 12 months.

And the same is true for loyalty. We will roll out an enhanced Dunkin' Donuts loyalty program later this year. While it's too early for me to outline in detail what you'll see from us, I can tell you we will have a robust loyalty program, focused on driving changes in consumer behavior in frequency, ticket, loyalty and how they pay. The real power of mobile and loyalty is the one-to-one marketing that they can enable. I believe they will be significant drivers of our growth in the next few years. As you can tell, this is an area I have a lot of enthusiasm for and I look forward to sharing more of about our one-to-one marketing efforts as the year progresses.

I'd now like to move on to our international business. We have significant long-term opportunities for both our brands outside the US. Baskin-Robbins continued to be a meaningful contributor to our growth today and will be for the long term. And we continue to put the foundation in place for Dunkin' Donuts to become a medium- to long-term growth driver.

The transition from manufacturing ice cream in our Peterborough, Ontario plant to Dean Foods has gone exceedingly well. It positions Baskin for continued strong growth internationally and helps us realize significant ongoing cost savings. And while we're still working on the optimal long-term solution for the supply chains for Dunkin' International, I'm encouraged by the work done to date. I feel confident that by solving for the supply chain we will unlock the growth of Dunkin' outside the United States.

Let me now talk specifically about each brand. Globally, we are intensely focused on driving Baskin-Robbins cake sales which we see as the real brand differentiator. Our franchisees and licensees sell more than 30 million cakes around the world annually and that's at an average price of approximately $25 each. I repeat those numbers, 30 million at $25 each.

And while this is an impressive number, we think there's still plenty of opportunity to grow the category, both internationally and within the USA. As an illustration of the potential, in Korea, we sold nearly 300 cakes per store on Christmas eve alone. From a regional perspective, in terms of our core markets, Baskin-Robbins Korea had a phenomenal year. Baskin in the Middle East is very strong when you exclude the impacts of the border closure in Afghanistan, which Paul will elaborate on in his comments.

Baskin Japan had a tough year driven by a combination of factors, including macro economic issues and poor weather. But we're working closely with our JV partners over there to address the challenges. We focus so much on the Dunkin' U.S. development numbers that I want to highlight the impressive growth of the Baskin brand internationally. We added 299 net new Baskin-Robbins restaurants outside the U.S. for a 47% growth rate. And today, we're announcing that we've signed 5 new franchise agreements to greatly expand the Baskin presence in China. The new franchise agreements include plans to open in 249 additional Baskin-Robbins shops across China over the next 10 years, more than tripling our presence in the country.

Turning to Dunkin' International. In 2012, we continue to put the foundation in place for Dunkin' to become a contributor to our growth in the next 5 to 7 years. With this growth in mind, we are hard at work solidifying Dunkin's international foundation for growth and addressing issues, and one of these issues is Taiwan. We've come to a mutual decision with our Dunkin' Donuts partner in Taiwan to end our franchise agreement for the market. 19 Dunkin' Donuts shops there will be closing in the first quarter. We will still have 13 Baskin-Robbins stores located there, and in fact, are look to expand the number of Baskins in that market. We are open to exploring reopening Dunkin' Donuts in Taiwan in the future with a new franchise partner.

In keeping with our international strategy, we are focusing our efforts and resources on developing our brands in the markets that we think have the most potential for the future. And one of those countries that we think is ripe for both of our brands is Vietnam. I'm pleased to announce that we've signed a franchise agreement with Vietnam food and beverage company to develop Dunkin' Donuts in that country. This is a strong partner who really knows the local market very well. You can recall that we announced Baskin-Robbins entry into Vietnam almost exactly a year ago and already have 13 Baskin shops there.

As we have been in the U.S., we will be very strategic in our growth abroad and a similar focus on franchisee profitability. It's not about the number of countries we are in. It is about being in the right countries with the right franchise partners and offering our customers the best global experience.

Yes, some countries do need a fix. And generally, this is through changing our supply chain model. I feel we're making great progress in this area, but it will take more time.

It may also take more investment by Dunkin' Brands to ensure that we are successful in the highest potential countries. Combined with the potential savings opportunity from our refinancing, we may accelerate some of that investments into 2013. The fix may not be overnight, but we believe we have significant long-term potential for our international businesses.

Let me now move on to Baskin U.S. During the course of 2012, we shifted the way that we view the long-term prospect for Baskin-Robbins in the U.S. from being a 0 growth business to believing it will be a slow growth business. The Baskin team continues to do an excellent job revitalizing the brand in the U.S.

There are 3 main areas that the team has been focused on: getting back to the basics on operations, refining and enhancing the marketing and optimizing the store base. While we've made great progress in all 3 areas, as evidenced by the 6 straight quarters of positive comp store sales, I'd like to point out that we're nearing the end of the store optimization initiative and will likely complete it during the course of 2013, which would mark the beginning of the brand slope growth trajectory.

We believe that another catalyst for Baskin in the U.S. is finding ways to grow the ad fund. We continue to explore new ways to drive revenues, which in turn will increase the ad fund. Examples of these revenue drivers, include our recent decision to sell Dunkin' Donuts K-Cups in California BRs and our excesses on cake sales, which as, I think I explained earlier, are a big-ticket item. Each incremental dollar, in the BR ad fund, we see, is very important.

Lastly and highlighting our 2012 achievements, I'd just like to call out the impressive 46% adjusted operating income margin that we realized in 2012. This marks a 300-basis point expansion over our already impressive 43% adjusted operating income margin in 2011. This is a true testament to the beauty of our franchise, asset-light business and model. We're committed to delivering 150 to 200 basis points of continued margin expansion annually over the next 3 to 5 years.

In closing, before I hand it over to Paul, I'd like to say that we are very positive about the business and our plans for 2013. Despite macro economic instability and a tough competitive environment, consumer and franchise demands for Dunkin' Donuts is high. Our franchisee relationships are very strong and we continue to leverage our asset-light business model, and we expect another year of 15% plus earnings per share growth.

And with that, Paul will now walk you through the results in greater detail.

Paul C. Carbone

Thanks, Nigel, and good morning to everyone joining us on the call this morning. I'm going to start with our fourth quarter segment results and then cover Dunkin' Brands financials and our 2013 target. I'll begin with Dunkin' U.S.

Our strong fourth quarter comp sales growth was driven by a healthy combination of both traffic and ticket gains across both morning and afternoon dayparts and in all of our regions. We had strong total coffee sales led by flavored hot and iced espresso beverages. We continue to see strong momentum across the core breakfast sandwich platform and strong sales of November's limited time offer, the Smoked Sausage Breakfast Sandwich. Our Bakery Sandwiches continue to grow at a rapid pace and has been instrumental in driving our overall afternoon growth.

We had a phenomenal quarter for K-Cups, with nearly plus 30% comp sales for the category. We continue to sell Pumpkin K-Cups, which launched in Q3, and we introduced 2 new limited time offers, Peppermint Mocha and Hot Cocoa. We also upgraded the retail in K-Cup merchandiser in the restaurant in time for the key holiday selling season.

About 3/4 of the 3.2% comp growth came from tickets and 1/4 from traffic. Of this ticket growth, slightly less than 100 basis points was from pure pricing. Most of the ticket growth was from a positive mix shift as customers traded up to premium-priced Breakfast Sandwiches and beverages and from units per transaction increasing as guests add-on items such as hash browns.

From a daypart perspective, our afternoon business continues to grow at a faster pace than the morning daypart. And from a regional perspective, our markets outside the core continue to see higher comp store sales growth than our core markets. This is exactly what we want to see across dayparts and regions as we expand into snacking and move West across the country. Our performance in 2012, with 4.2% comp store sales growth for the year, underscores the power of our product innovation and limited time offer strategy as well as demonstrate that we can successfully roll over very strong prior year sales gain and quickly respond to shift in customer sentiment to grow in a challenging market.

Let me provide some further detail in our previously announced development results. We added 149 net new units in the Dunkin' Donuts U.S. segment during Q4. Of the 291 net new units that our franchisees opened in the whole year of 2012, 26% were in our core markets, 42% in our established markets, 23% in emerging markets and 9% in the West markets. As our core market nears its maturity, we're seeing a nice shift in development into our established and emerging markets. We'll see this in 2013 as well, as we expect only 10% of development to come from the core, 33% from established, 38% from emerging and 19% from the West. So while the news about California is very exciting, and this is certainly the pipeline for the future, I think it is important to emphasize that significant opportunity remaining for Dunkin' are our established and emerging markets, in which we believe franchisees can build another 3,000 stores.

In 2012, we opened our 1st stores in Grand Rapids, Michigan; Green Day, Wisconsin; Montgomery, Alabama; and Jackson, Tennessee. Just a few examples of emerging markets in which we're just getting started.

Lastly, I want to address the growth in company-owned store revenue for Dunkin' U.S. in the fourth quarter. While we only have 4 more stores than we did in the fourth quarter of 2011, we had 69% revenue growth. Last year, we acquired several stores at the end of the quarter. So while they were in the company-owned store count, they contributed very little to revenue in Q4 of 2011. This year, we had the benefit of those stores in our company-owned store base for the full quarter, which drove a significant year-over-year company-owned revenue -- store revenue growth. So now let me turn to International.

There were a few issues that masked the underlying strong performance in the Baskin International business in the fourth quarter. In terms of comp store sales performance in the fourth quarter, Baskin-Robbins International was flat to last year. Although excluding Japan, which was challenged by poor weather and macro economic factors, comp store sales were plus 7%, driven by strong performance in both Korea and the Middle East.

The decline in sales of ice cream products during the quarter was driven by 3 factors. First, with the delay in recognizing nearly $6 million in sales due to the change in shipping terms as we shifted to Dean Foods. Second, a decrease of about $2.6 million in sales from the residual impact from the Afghan border being closed earlier in the year, which means we shipped less ice cream to the country. And third, we rolled over the extra week in Q4 of 2011.

Related to the closure of our Peterborough ice cream plant, we expected between $16 million and $18 million of one-time charges from the plant closure. We took $14 million in charges in 2012, $4.2 million of which was noncash. We expect to take another $3 million to $4 million of charges in 2013.

And now on to Dunkin' Donuts International. Dunkin' International had flat comp store sales growth for the fourth quarter. Unlike Baskin International, there isn't 1 country driving the comp results for Dunkin' International. We continue to put the foundational elements in place, such as investments in marketing and supply chain, to drive the growth of the brand internationally in the long term. These investments continue to negatively impact the profitability of the segment today, but we believe are the right thing to do for the future growth of Dunkin' Donuts International.

With the closing of our Taiwan stores that Nigel discussed earlier, we expect Dunkin' International to have negative net development in Q1 of this year.

So turning to Baskin-Robbins U.S. which had 1.5% comp store sales growth, driven by sales of Flavors of the Month, such as pumpkin pie, peppermint and winter white chocolate; limited time offer sundaes, such as the warm Belgian waffle sundae in take-home pints and quarts.

We continue to see declining revenues for the segment, which in the fourth quarter was driven by net 29 restaurant closures as well as the extra week last year. But as Nigel commented earlier, we believe we are at the beginning of our journey to slow growth for Baskin in the U.S.

And now to turn to Dunkin' Brands results. Revenues for the fourth quarter declined 4% compared to the prior year, driven primarily from the extra week in the fourth quarter of 2011 and to the impact from the change in ice cream shipping terms that I mentioned earlier. Without the effect of these 2 items, revenues would've increased by $7 million or 4.4% versus last year. Operating income for the fourth quarter increased $23.2 million or 52%, primarily as a result of the noncash impairment charge we took last year related to our South Korean joint venture, as well as the increase in royalty income, offset by the impact of the extra week last year.

Adjusted operating income increased $6.8 million, or 9.3%, primarily as a result of the increase in royalty income and an increase in income from our joint ventures, offset by the impact of the extra week again from last year.

Net income for the fourth quarter increased by $22.7 million or 196%, as a result of the increase in operating income. Offsetting this was our additional interest expense from the $400 million increase in our term loan that we executed in the third quarter of this year. Adjusted net income increased by $0.5 million or 1.3% compared to the fourth quarter of 2011, as a result of the increase in adjusted operating income offset by increases in interest and income tax expense.

Diluted adjusted earnings per pro forma common shares were $0.34 compared to $0.30 for the same quarter last year. The 13% increase in adjusted EPS year-over-year was driven by the increase in adjusted net income, coupled with the decline in shares outstanding due to the repurchase of the 15 million shares in August of 2012. These 2 positive factors were slightly offset by rolling over the additional week in Q4 of 2011. Our diluted weighted average shares for the quarter were $108 million.

At the end of the fourth quarter, we had a debt to adjusted EBITDA ratio of 5.2:1. Our effective tax rate for the quarter was 27%. After the impact of certain one-time tax adjustments we had in the quarter, our effective tax rate for Q4 was 38%. And during the quarter, we generated approximately for $42 million in free cash flow and ended the quarter with $253 million of cash on our balance sheet. Of this $253 million, $125 million represents cash associated with our gift card programs and marketing fund balances. We used $16 million in cash during the quarter to pay our Q4 cash dividend to shareholders.

So now, let me review our 2013 targets. We expect Dunkin' Donuts U.S. comp sales -- store sales growth of 3% to 4% and Baskin-Robbins U.S. comp store sales growth of 1% to 3%. We expect that Dunkin' Donuts U.S. will add between 330 and 360 net new restaurants, which represents a 4.5% to 5% net unit growth. And we expect Baskin-Robbins U.S. will have between 0 and 30 net closures. We expect Dunkin' Donuts U.S. franchisees to remodel between 450 and 500 restaurants during 2013.

Internationally, we're targeting to open 400 to 500 net new units across the 2 brands. And globally, this results in opening between 700 and 860 net new units. We expect revenue growth of between 6% and 8% and adjusted operating income growth of between 10% and 12%. And we continue to target 150 to 200 basis points of adjusted operating income margin expansion in 2013. We expect approximately $85.5 million in interest expense in fiscal year 2013. And we expect our effective tax rate will be approximately 37% on a full year basis. We are targeting 2013 adjusted earnings per share of $1.48 to $1.51. And we expect to generate between $125 million and $135 million of free cash flow this year, which is inclusive of roughly $25 million to $35 million in capital expenditures.

Our Board of Directors declared a first quarter cash dividend of $0.19 per share, which represents a 27% increase over the company's fourth quarter 2012 dividend.

We also announced this morning that we intend to seek a refinancing of our senior secured credit facilities based on the favorable credit market conditions. We're also looking to extend the maturity of that credit facility. We are not seeking to increase our leverage or increase the size of our borrowings. The earnings per share guidance that I provided earlier does not reflect any positive impact that we may get from this refinancing. We will update our guidance based on any realized savings upon the completion of the transaction.

In closing, I want to reiterate that our nearly 100% asset-light franchise business model enables us to accelerate our strong restaurant growth rate by simultaneously returning cash to shareholders. This is underscored by the Board's decision to increase the dividend in just our second year as a public company. We are committed to delivering shareholder value and believe that is evident in our performance in 2012.

And now, I'd like to turn the call over to queue up for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from John Ivankoe of JPMorgan.

John W. Ivankoe - JP Morgan Chase & Co, Research Division

The question is on International. And obviously, I mean, the capital-light model allows you to do a lot with the capital structure, but your International is not performing, probably in general, what you would have wanted 2 years ago. So I mean, can you talk about how direct investment or co-investment might look in the international markets, specifically, where you could potentially put some company dollars? In what markets you think might make sense for medium and long-term ownership? And put that especially in the context of the U.S. business, which is a very high return and is fairly low risk, and some may argue might even be a better place for those company dollars.

Nigel Travis

Okay, John, thank you. Good question. So let me start with your opening statement. I think when you look at international, one of the things that we've talked about, and we've talked about it at investor meetings, is that with Giorgio Minardi's entering into the company last year, we need to relook at much of international. And when we stand back from it, obviously, Baskin remains the jewel in the crown. So what Giorgio has done is increasing the disciplines, the compliant standards in all functional areas, especially operations and marketing. And as a result of that, we're seeing improvement in franchise profitability, and we're exporting all the tough development disciplines that have been so successful in domestic. Now we've obviously got some big rocks like Korea, Japan and the Middle East, which in turn is about 75% of our current international profit. And we also see huge opportunities in the BRIC countries, so that's obviously comprised of India, Russia, China, and Brazil. And just to be clear, we got nothing in Brazil as of yet. Now as we tackle some of the issues, we -- and Spain is a good example. We're using some of the same formulas we used in the U.S. We invested a very small amount of capital into Spain. And obviously, the Spain economy is fairly difficult at the moment. But as a European, as I've said to you many times before, remain confident about the future of Europe, so that was a small amount. It helped our franchisee out. He's rebuilding the business in Spain, so that's a good example. I think that some other countries where we've had feedback from investors that we've listened to, and it was good feedback, that could we invest in some of these countries and gain on the upside. Again, these will be small investments. In terms of some of the bigger markets, we continually review whether we should invest in, let's say, those BRIC countries. China may be one opportunity, and we're looking into that opportunity right now, but nothing more to add to that. In terms of your very good question about whether we should put it in the U.S., we're absolutely delighted with the progress we're making in the U.S. And I think investors have heard me say many times that I thought I'm not going to get this job because I had a very passionate plea at my interviews over 4 years ago that we needed company stocks [ph]. And that policy worked really well. It also helped us save some critical markets. I mean, I look back now on the decisions I made in 2009, 2010 of investing in places like Las Vegas, Buffalo and Dallas, that we would not have the kind of progress we've had in the West if we hadn't made those investments. So I feel really good about that. The net result of all that is we don't see further investments we need to make. And I don't think you'll see us invest anything more than a little more in the U.S., but we will make the kind of strategic investments in international that I've covered.

John W. Ivankoe - JP Morgan Chase & Co, Research Division

And if I can ask, I mean, are those investments contemplated in your current CapEx, or would it come outside of that?

Nigel Travis

That's certainly contemplated in the kind of guidance we've given you in terms of profit, Paul, $25 million to $35 million...

Paul C. Carbone

Correct.

Nigel Travis

For this year. We don't see, for instance, going out and buying another big brand or buying a big company in any of these countries, we see in being relatively small investments, and I think Spain, as a model, is a good example of what you might expect from us.

Operator

Our next question comes from Michael Gallo of CL King.

Michael W. Gallo - CL King & Associates, Inc., Research Division

My question is just on the remodels that you have about 1,700 or so of them done the last few years. I was just wondering what kind of sales lift at this point you're getting on them, as well as on the 24-hour operations, that's, again, a couple thousand stores or so at the end of the year. I was wondering how many more you expect to go 24 this year.

Nigel Travis

Michael, good questions. Firstly, in terms of remodels, I know many retail companies look at it in terms of sales lift. We don't. We look at it as part of our contractual requirements to keep our image up-to-date. As Paul talked in his -- or yes, it was me who talked about it, we've got an image now that is below 5 years. I look at it like an airline fleet. If you take one airline out there at the moment, they're running old planes. They're talking about the new planes in the future. We've got the new fleet now. It's got less than 5 years, and there is growth, but we don't tend to look at it that way. It's keeping the image up-to-date and making sure that our comps life at -- our comps continue through the life of the 10 years that comes after each remodel. So we look at it slightly differently from other people. 24-hour stores, you're quite right, we've got in our investment materials nearly 2,000 of those. I think many people are surprised by that. We continue to push to see if we can get more. We think the other companies think that the change in nature of work in this country probably means that more people need serving 24 hours. I wouldn't say it's our biggest initiative by a long shot, but it's one that we will continue to focus on. But I've got no specific numbers I can share with you. And to be perfectly honest, we got no specific numbers ourselves. It's just something that we will continue to pressure.

Michael W. Gallo - CL King & Associates, Inc., Research Division

And then just a follow-up for Paul. Paul, what do you expect the tax rate we should use this year?

Paul C. Carbone

Approximately 38%.

Operator

Our next question comes from Michael Kelter of Goldman Sachs.

Michael Kelter - Goldman Sachs Group Inc., Research Division

Yes, I wanted to ask about your expectation on drivers for the 3% to 4% Dunkin' U.S. comp. Anything in pricing, or is it really all driven by traffic ticket from new product launches? And if so, are there any particularly big ideas coming in 2013 from a new product perspective?

John H. Costello

Yes. This is John. We think it will be a combination of traffic and ticket driven primarily by product innovation, marketing innovation and the operational improvements you're seeing that are generating the increased guest satisfaction that Nigel talked about. We expect pricing to be likely less than 100 basis points. As Nigel touched on our product pipeline as the longest in history, what you'll see is a combination of LTOs and new product launches that'll both bring back old flavors and old favorites, as well as new products that will be across food and beverages and K-Cups targeted at both the a.m. and p.m. You'll continue to see increased advertising. And then also, as Nigel touched on, you'll continue to see expansion of our mobile app, which continues to grow at a very nice rate. As we touched on earlier, we topped over one million downloads by the end of 2012. So broad-based growth, we're also expecting broad-based growth by region and daypart.

Michael Kelter - Goldman Sachs Group Inc., Research Division

And then, Paul, maybe you can help a little bit on the refinancing. Are you guys looking at fixed or variable, is there a penalty you need to pay, and what kind of a range of reproduction might you be thinking about?

Paul C. Carbone

Yes, so we're looking at a couple of things. The first is, as you know, our current Term Loan B is all floating. Now we fixed part of it separately. So we're looking to extend that agreement. We originally had that agreement in November of 2010 that ran 7 years to November of 2017. We're looking to extend the maturity date of that agreement to roughly February of 2020, so a new 7-year piece of it. I've -- it's probably early to talk about what we could get in the rate reduction. As you know, the credit markets are very strong. We're launching the deal this afternoon, and I would say let's see how we end up, and I'll come back to you next week when we finalize it and let you know where we got to on rates. But there are certainly savings there to be had. And then, operator, before we go to the next question, I just want to clarify on the previous question. The effective tax rate, I said approximately 38%. Actually, it's approximately 37% for 2013, so just wanted to clarify that.

Operator

Our next question is from David Tarantino of Robert W. Baird.

David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division

Nigel, this is a big picture question about the development of Dunkin' U.S. You're already approaching a rate of close to 5% annually. And just given some of the increase in returns that you're seeing and the franchisees in the emerging and less geographies, do you think that's a number that can continue to creep up as you look at the next several years, or do you think you'll level off on that 5% range?

Nigel Travis

Of course, that's like the $54,000 question, David, and it's one we ask ourselves. And I think I'd be bold enough to say that I will see -- I think we'll see some increase from that over time. I mean, all the things that you said are 100% accurate. I mean, the returns are spectacular and going to get better. The marketing, even though John is sitting beside me, is outstanding. The -- I think we've got opportunities with our franchisees to find new revenue streams, which I'm kind of excited about. And we're working with them. We have this great relationship with the franchisees, and we're kind of doing a strategic plan with them, which I think is the first time we've ever done anything like it. Very excited about that. We're excited about it. So who knows what that's going to throw up. It's the early stages of that. Clearly, all the DCP flat-pricing initiatives are going to take the margins higher. We're confident about the West. So I'd be as bold as to say that the 5% will be exceeded in the future, but I'm not clever enough to say by how much. Paul, do you want to say anything on that?

Paul C. Carbone

No, I'd say that we got to the 5% sooner than we thought. Right? So when we went public in July of 2011 and we put this as a long-term goal, it is something that -- let's go through 2013, and when we end the year, if we have to update our long-term goals, we will.

Operator

Our next question comes from David Palmer of UBS.

David Palmer - UBS Investment Bank, Research Division

On technology and mobile payment, aside from getting in place the actual hardware, what have you been focused on, on getting right to maximize the upside in this area as you move ahead into '13?

Nigel Travis

Okay, so very good. I'll pass that one over to John. What I would say is we really think, I just want to reiterate again, we're very excited about this. We really think it's a huge opportunity for us. Our franchisees, through their investment in the technology at the store level, are very excited as well. We're all in the same place on this. The excitement level is immense. And it's just that John, the gentleman on my right deserves to deliver it.

John H. Costello

Yes. We have a very customer-focused approach to mobile and have a cross-functional team of marketing, technology, operations, finance, internally, as well as using some best-of-breed partners from the outside. But it's really focused on the features that customers want in a best-of-breed user interface. So we're putting the features that they want in there, which include things like ease of payment, store locators, the ability to send e-gifting, the ability to store multiple payment sources within your card, as well as a very fast in-store experience that was driven by our rollout last year of the Radiant POS technology, along with the in-store scanners. We also work very closely with external partners to continually upgrade our user interface to reflect kind of best-of-breed. So we're obviously working with both the Apple iOS and Android providers. So combination of customer-focused right applications, right user interface and state-of-the-art technology. We'll continue. We're testing offers right now, and those will be driven by what generates the most interest from consumers and the best return for both us and our franchisees. And it will continue to be a significant part of our plans going forward.

Nigel Travis

And I'd also add, David, that because John has the sole responsibility for marketing globally, he is using the U.S. as the base to then pass on the great experiences into Baskin U.S. and international.

Operator

Our next question comes from Jerry Bernstein of Barclays.

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Two questions, if I may. The first, just on the -- just specific to the '13 guidance. If you look back to '12, it seemed like you have met the initial guidance when it came to the comp and units. You have delivered significant upside to the operating income. And then the margin was up, I guess, like close to 300 basis points. And the EPS growth had upside. I'm just wondering maybe if you look back, what you thought was the biggest driver of that upside surprise and maybe looking at '13, is it reasonable to assume there are similar drivers there, or perhaps you're talking more about ramping up international investment and G&A around that, or maybe the low-hanging fruit is gone. Just trying to get a sense for how '12 upside came about and your thoughts as it relates to '13. And then I have a follow-up.

Paul C. Carbone

Yes, so, Jeffrey, thanks for the question. So in '12, I would say the upside came through a couple of places. Certainly, we continue to leverage the G&A and pushed through the flow-through. As you know, it's the backbone of this business model, being able to leverage G&A. And then also while the comp guidance, as you said, was right in line with where we started, some of the other pieces in the Dunkin' Donuts U.S. business delivered very well. So we saw a nice flow-through inside that segment as well. If you look at 2013, so now you're trying to get me to give updated guidance on the guidance I just provided about 15 minutes ago. Here's what I'd tell you, you have a management team here that is focused on delivering shareholder value. We believe in managing the business very aggressively. We also believe in investing in the business. So perfect example, when the opportunity came along to refinance the debt or reprice the debt,not only are we seizing it, but Nigel and I had a lot of conversation of how much of that do we reinvest into the business because it's extra money that we weren't expecting 6 weeks ago, which again, we'll share once we close the deal. So it's going to be a balance of both flow-through to the business, managing G&A very aggressively, but know that we will invest as we see those opportunities. And it's going to be in particular in international this year.

Nigel Travis

Yes, I'll just add one thing. You talked about the upside. One of the things I think is very important in any company is to give investors predictability. And we have a very strong what I would call profit assurance process that every week we look at these numbers. We're right on top of it. And the first thing we have to deliver before we think of upside is delivering our guidance. And as you know, our model is beautiful. But it doesn't mean that from time to time, we go slightly off-track. We find a way very quickly to get back on track.

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

And if I could just follow up maybe, Paul, in terms of the cash used, that obviously, you raised the dividend pretty quickly. And the share repurchase authorization is out there. I know in the past you've talked about potential for, I guess, the ASR or special dividend with private equity no longer here, but I'm just wondering whether that's realistic or perhaps no time soon with what seems like leverage now of, I guess, like 5.2x. I think it's the upper end of the range you were talking about.

Paul C. Carbone

Yes.

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Is there any change in that range, or is it not something we should assume in the near term?

Paul C. Carbone

Yes, so no change in the range. What we've said is we're comfortable in the 4.5x to 5.5x range of the management team, so no change in that. If you look at the free cash flow generation, our guidance that I provided this morning, if you look at that amount, you think of 2013. So what are we going to do with that money? The dividend is roughly $80 million, $20 million in required payment, there's another $25 million of debt payment because of overall leverage of 5 0 [ph]. So right there, we met about $125 million of free cash flow that I'll use between the dividend and debt repayment. So share repurchases, we have the $50 million authorization left out. That kind of dimensionalizes share repurchases for free cash flow. As far as accelerated share repurchase or, in theory, if we were to discuss a special dividend, that would come from a relevering event. And as we delever this company 0.5 turn to 0.75 turn through growth of EBITDA, we're probably 12 months away from having that conversation, until we get back down to the 4.5-ish range of leverage.

Nigel Travis

Yes, and I think this year, we see as a year where financial transactions, the refinancing part, will be few and far between. This is all about execution, execution of the plan.

Operator

Our next question comes from Joe Buckley of Bank of America.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Paul, first, just a bookkeeping question. Yes, the reported tax rate was a lot lower than expected, but it looks like in the adjustments, you're netting that out. Is that correct?

Paul C. Carbone

Yes. So a lot of those are onetime reversals, FIN 48 reversals, so on one side, Joe, it's real. The tax rate is low, so that's good. On the flip side, as we do with other things that aren't in the day-to-day running of the business, we have taken those out. So the adjusted rate is in the 37%, 38% range for the quarter, but those savings are real on the GAAP P&L.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Okay. And then, again, just on the bookkeeping side, does the ice cream benefit flip into the first quarter, is it deferred revenue?

Paul C. Carbone

No, it really doesn't because if you think about it, as we change shipping terms from FOB to CIF, which is at location, now I will have 12 months of ice cream revenue throughout 2013. So I don't get a onetime gain. I mean, I guess in theory, at the end of whenever it ends, there will be 6 months of revenue at the end that I would get. But 2013 would be a straight 12 months of ice cream revenue.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Okay. And then away from the bookkeeping. It sounds like the benefits from the flat national pricing program are coming faster and maybe more substantial than you originally thought. So could you address that? Is that the case? And is there more upside than I think initially you were talking about 300 basis points, and it sounds like you're there already?

Paul C. Carbone

Yes, so Joe, for the first year, and we're talking about Western stores. Last May, when we shared this all with you, we said in the West and emerging markets, it'd be about 900 basis points of total. The first year was about 300. So I appreciate you saying we're going faster than we said. We're actually on target. We're about 10 basis points faster than we expected. So we are on to deliver the 900 gross, 700 net, because again, we subsidize about 200 basis points in the few stores today we have out in the Western markets. But we are on target to what we expected, about 10 basis points better, but this is working absolutely fantastic and is key to franchisee profitability and the belief of delivering those cash-on-cash returns in the Western markets.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

And then maybe just one more on guidance. Yes, I think you're going to -- just based on what you did last year, have about 8% fewer shares, so are there substantial reinvestments that we should be thinking about that will keep the EPS growth in your guidance range given that 8% headstart you're getting on share count?

Paul C. Carbone

Yes, so if you look at -- if you think about it, our EPS growth is growing faster than our net income growth because of that. So the guidance assumes the roughly 108 million shares outstanding. So all investments that we're currently thinking of are baked in to the current guidance of $1.48 to $1.51 sans this refinancing. And if we do really well, will we take some of that to invest? But that's all included in the guidance.

Operator

Our next question comes from John Glass of Morgan Stanley.

John S. Glass - Morgan Stanley, Research Division

If I went back to the third quarter call, there was concern in the U.S. about the decelerating comp into the fourth quarter. Obviously, you didn't see that. You saw the opposite. And you gave some detail about the drivers, sort of the functional drivers of the comp. But how did that lay out sequentially? What really -- was there an immediate inflection point? And can you talk specifically about the holiday season, your gift card sales, K-Cup sales? Was there real benefit to those items late in the quarter?

Nigel Travis

Okay, so John, you were right. We felt challenges. And I think at an investor meeting, we talked about that late in the third quarter. And I think if you look at the whole industry, there was a major challenge around that time, everyone got very aggressive. I think everyone stayed very aggressive. I think when I look at the quarter, we performed very well during the whole quarter. Certainly, compared with some of the guidance numbers that were out there. We performed better on a very steady rate. I think I'm going to ask John to talk about holidays, which I think was an excellent holiday season. Like every holiday, we're going to do even better next year in our mind. So John, you want to cover that?

John H. Costello

Sure. John, it was actually very broad-based. So for example, our core product trends were very good. Our food and beverage trends with our holiday LTOs were very strong. Our K-Cup LTOs were very strong and cannibalized each other and core K-Cups less. So they generated stronger incremental growth. And also, our digital metrics were also strong. So for example, Dunkin' Card activations were up and hit a new high. Dunkin' Card reloads were up and hit a new high. Dunkin' Card redemptions were up and hit a new high. Mobile downloads, as I mentioned, topped 1 million by the end of the year. And both Facebook and Twitter numbers hit new highs. So what you saw was broad-based growth on food and beverage products' LTOs and our digital metrics. We also saw very, very strong growth by region. As Paul touched on earlier, we saw even stronger growth outside of the core, which was encouraging. And this was in the face of a very heavy competitive activity from our key competitors, as well as some of the consumer uncertainty around the cliff. So we're very encouraged by the breadth of growth across virtually every aspect of our business.

John S. Glass - Morgan Stanley, Research Division

Great. Can we talk just about franchise agreements for a second? Earlier on, as you entered Western markets and newer markets, you offered some concessions on royalties and may extended over time. But that was before you had this agreement in place on the distribution side. Now that you're entering California, do you anticipate going in with full -- immediate full royalty rates? Or is there -- will it be something different about those agreements than in prior new market agreements?

Nigel Travis

I think one of the things we've learned is that giving people a cut early in the life of their agreement works well. I mean, it encourages them to invest in the right things like new store openings, like their marketing, like the quality of their opening staff, all that kind of stuff. So I would expect those kinds of incentives to continue in the newer markets, and we are very pleased with the results of that progress.

Paul C. Carbone

And just to dimensionalize that, John, a franchisee signs a 20-year agreement. And currently, we discount the royalties for the first 3 years. So it's a very short period but gets them off to a fast start.

Nigel Travis

So I know it's about 5 past the hour, and I want to be respectful of people on the call that have other things to do, so let's take 2 more questions, and then we'll wrap up.

Operator

Our next question comes from Will Slabaugh of Stephens.

Will Slabaugh - Stephens Inc., Research Division

On mobile, I wonder if you can talk just a little bit more about the success of that launch and really, any metrics you maybe want to share around that, such as maybe ticket or frequency differential for those mobile customers versus traditional?

John H. Costello

Yes, this is John. As you noted, we launched it in late August, as I mentioned, we achieved a little over 1 point -- we achieved right around 1.1 million downloads. And what we're seeing is that the mobile users do, in fact, spend more per transaction than non-mobile users. I think it was a combination of the quality of the app. I think that the team spent a lot of time building a world-class app. I think second was operations and training did a great job of getting our stores ready to process the app at both the counter and the drive-thru when it went through. So it was really a quick seamless experience for consumers. And finally, we did have a digital marketing driving the results throughout. So broad-based between what we think is a world-class app, strong in-store operations and crew focus and strong digital marketing, beyond the number of apps. We're not releasing specific metrics other than to say, as I touched on earlier, all of the key metrics were, in fact, up significantly, and the app continues to grow in acceptance.

Will Slabaugh - Stephens Inc., Research Division

Okay. And then just a quick follow-up to your previous question. With nearly 150 net new units you put out on the Dunkin' system in 4Q, I wonder if you can talk just about how that went with a broader dealing with that many franchisees on the opening or preopening process at once and maybe what that can tell you about the future potential there.

Nigel Travis

It's always interesting, and we actually feel that in 2013, we may not have as much pressure on the fourth quarter. But as someone said in the meeting yesterday, good luck with trying to change the natural flow of the business. But I genuinely believe that will happen. We attacked it in the middle of the year. I think one of the things we're really good at is attacking issues. We saw that coming, we put more people on the ground, we moved even some people from the Northeast into some of the developing areas. We got such a robust tracking process. It's a bit -- as I said in the meeting yesterday, it's a bit like landing someone on the moon. We can predict these things down to the finite location and what needs support and what doesn't. I think it went very well. In fact, I can't recall of hearing any real problems. Our franchisees have great relationships locally. We have great team who worked on a very collaborative cross-functional basis between construction, development, franchising, operations and marketing in particular. The DCP always plays a very good role. There was a couple of issues that we tackled in the middle of the year. Things like getting the technology in place to open up a new store, we saw that was going to be a problem. We worked with the DCP. We solved the problem. So I think it's your whole mind state about this, and as I say, I think it went very well indeed.

Operator

Our last question comes from Jeff Farmer of Wells Fargo.

Jeffrey D. Farmer - Wells Fargo Securities, LLC, Research Division

A lot of discussion this morning about the quality of Dunkin's product pipeline. Can you just remind us of how you test new menu items and what this could mean for the pace of new product intros in '13? Specifically, do you think you guys are going to start narrowing your LTO windows just to get more product out there?

John H. Costello

Yes, this is John again. We actually have pretty extensive testing, and I'll run through it quickly. We're constantly looking for new product ideas. They're coming from consumer research. There, our culinary team looking at food trends and our franchisees giving us feedback on trends they're seeing in their stores. We then put it through extensive concept testing, as well as sensory testing. We've also built an in-house proprietary new product model. Once it makes it through that, we then -- we review it and involve franchisees in the process or involving both franchisees and our own operations folks. Once we get to that, we go into alpha and beta tests, which are primarily designed to fine-tune the operational aspects of it. And then finally, into a market test to quantify the sales potential, and then we expand it after that. And we've got broadly -- we've also, in the last 3 years, significantly reduced the time to market from when an idea first surfaces to when it hits the market. So when -- so all the process is thorough, it's very quick. Against that background, we actually have an extensive pipeline across virtually every category from beverages to a.m. food, to p.m. food, to our bakery items. And within that extensive pipeline, the products compete with the best products going. So for example, the turkey sausage product that we just launched in the January time frame, which is the DDSMART item, has already made it into one of our top 4 selling limited time offerings sandwiches ever. So again, the sales tend to generate out of it. The length of time tends to -- we run 12 marketing windows a year, and the length of time of the LTOs depends on the level of sales. We have the ability working very closely with supply chain and our franchisee co-op, the NDCP. If a product is selling very well, like turkey sausage, we generally have the ability to increase our supply and extend the time that it's available. So highly disciplined process, but the process does not slow us down. And in fact, because, as Nigel touched on, we did over 40 product tests last year. We have considerably more than that in the pipeline. In any given month, we actually have more products than we need, so we're really choosing the best of the best to launch, and we're doing that on both a national and regional basis. So what we have national products, we also do regional products that are targeted to regional variations. An example would be Sweet Iced Tea in the Southeast. So long answer, but disciplined process, very strong pipeline and no shortage of product innovation over 2013 and beyond.

Jeffrey D. Farmer - Wells Fargo Securities, LLC, Research Division

Helpful. And just a real quick last one on the K-Cup LTOs, so obviously, a pretty successful strategy in '12. As we get into '13 here, do you feel that you need to have more K-Cup LTOs to keep that K-Cup same-store sales momentum going, or can you sort of do what you did last year, I think it was probably 4, 5, 6 or 7 LTOs? What's the thinking in '13 on the K-Cup LTOs?

Nigel Travis

I'll answer that. K-Cup LTOs were very successful. We're delighted with our relationship with Green Mountain. The same strategy will continue this year. And as I said in my prepared remarks, we're very optimistic about K-Cups.

Okay, so I'd like to thank everyone for joining us today. I think our franchisees and our employees worked fabulously together in 2012, making it a terrific year for Dunkin' Brands. I'd like to thank them for all their hard work and their efforts. We value the relationship with our franchisees deeply. And the simple message for you all is we intend to continue to execute the very disciplined formula that we had in 2012, in 2013 as we try and grow all 4 segments of our business. Thank you for your time.

Operator

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect, and have a wonderful day.

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