Summary of DUNKIN' BRANDS GROUP, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
Certain statements contained herein are not based on historical fact and are "forward-looking statements" within the meaning of the applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "plan," "potential," "project," "should," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These risk and uncertainties include, but are not limited to: the ongoing level of profitability of franchisees and licensees; our franchisees' and licensees' ability to sustain same store sales growth; changes in working relationships with our franchisees and licensees and the actions of our franchisees and licensees; our master franchisees' relationships with sub-franchisees; the strength of our brand in the markets in which we compete; changes in competition within the quick service restaurant segment of the food industry; changes in consumer behavior resulting from changes in technologies or alternative methods of delivery; economic and political conditions in the countries where we operate; our substantial indebtedness; our ability to protect our intellectual property rights; consumer preferences, spending patterns and demographic trends; the success of our growth strategy and international development; changes in commodity and food prices, particularly coffee, dairy products and sugar, and the other operating costs; shortages of coffee; failure of our network and information technology systems; interruptions or shortages in the supply of products to our franchisees and licensees; the impact of food borne-illness or food safety issues or adverse public or media opinions regarding the health effects of consuming our products; our ability to collect royalty payments from our franchisees and licensees; uncertainties relating to litigation; the ability of our franchisees and licensees to open new restaurants and keep existing restaurants in operation; our ability to retain key personnel; any inability to protect consumer credit card data and catastrophic events.
Forward-looking statements reflect management's analysis as of the date of this quarterly report. Important factors that could cause actual results to differ materially from our expectations are more fully described in our other filings with the Securities and Exchange Commission, including under the section headed "Risk Factors" in our most recent annual report on Form 10-K and in our quarterly report on Form 10-Q for the quarter ended June 30, 2012. Except as required by applicable law, we do not undertake to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.
Introduction and Overview
We are one of the world's leading franchisors of quick service restaurants ("QSRs") serving hot and cold coffee and baked goods, as well as hard serve ice cream. We franchise restaurants under our Dunkin' Donuts and Baskin-Robbins brands. With over 17,200 points of distribution in 55 countries, we believe that our portfolio has strong brand awareness in our key markets. QSR is a restaurant format characterized by counter or drive-thru ordering and limited or no table service. As of September 29, 2012, Dunkin' Donuts had 10,283 global points of distribution with restaurants in 38 U.S. states and the District of Columbia and in 31 foreign countries. Baskin-Robbins had 6,920 global points of distribution as of the same date, with restaurants in 44 U.S. states and the District of Columbia and in 45 foreign countries.
We are organized into four reporting segments: Dunkin' Donuts U.S., Dunkin' Donuts International, Baskin-Robbins U.S., and Baskin-Robbins International. We generate revenue from five primary sources: (i) royalty income and franchise fees associated with franchised restaurants, (ii) rental income from restaurant properties that we lease or sublease to franchisees, (iii) sales of ice cream products to franchisees in certain international markets, (iv) retail store revenue at our company-owned restaurants, and (v) other income including fees for the licensing of our brands for products sold in non-franchised outlets, the licensing of the right to manufacture Baskin-Robbins ice cream sold to U.S. franchisees, refranchising gains, transfer fees from franchisees, and online training fees.
Franchisees fund the vast majority of the cost of new restaurant development. As a result, we are able to grow our system with lower capital requirements than many of our competitors. With only 37 company-owned points of distribution as of September 29, 2012, we are less affected by store-level costs and profitability and fluctuations in commodity costs than other QSR operators.
Our franchisees fund substantially all of the advertising that supports both brands. Those advertising funds also fund the cost of our marketing personnel. Royalty payments and advertising fund contributions typically are made on a weekly basis for restaurants in the U.S., which limits our working capital needs. For the nine months ended September 29, 2012, franchisee contributions to the U.S. advertising funds were $229.2 million.

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We operate and report financial information on a 52- or 53-week year on a 13-week quarter (or 14-week fourth quarter, when applicable) basis with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday of the fourth quarter, when applicable). The data periods contained within the three- and nine-month periods ended September 29, 2012 and September 24, 2011 reflect the results of operations for the 13-week and 39-week periods ended on those dates. Operating results for the three- and nine-month periods ended September 29, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2012.
Selected Operating and Financial Highlights

                                                 Three months ended                  Nine months ended
                                           September 29,     September 24,    September 29,    September 24,
                                                2012              2011             2012             2011
Franchisee-reported sales (in millions):
Dunkin' Donuts U.S.                       $      1,583.3          1,501.5          4,604.4         4,263.7
Dunkin' Donuts International                       163.4            161.5            488.8           477.1
Baskin-Robbins U.S.                                145.9            149.3            418.6           402.7
Baskin-Robbins International                       409.8            389.5          1,047.3           977.5
Total franchisee-reported sales           $      2,302.4          2,201.8          6,559.1         6,121.0
Systemwide sales growth                              4.7 %            8.9 %            7.3 %           7.1  %
Comparable store sales growth:
Dunkin' Donuts U.S.                                  2.8 %            6.0 %            4.5 %           4.3  %
Dunkin' Donuts International (a)                     2.1 %            n/a              2.8 %           n/a
Baskin-Robbins U.S.                                  1.1 %            1.7 %            4.4 %          (0.7 )%
Baskin-Robbins International (a)                     3.0 %            n/a              3.6 %           n/a
Financial data (in thousands):
Total revenues                            $      171,719          163,508          496,478         459,693
Operating income                                  70,345           54,112          171,678         160,742
Adjusted operating income                         85,428           75,947          227,348         197,739
Net income attributable to Dunkin' Brands         29,526            7,412           73,973          22,851
Adjusted net income                               42,118           31,343          113,066          65,582

(a) Comparable store sales growth data was not available for our international segments until fiscal year 2012.

Our financial results are largely driven by changes in systemwide sales, which include sales by all points of distribution, whether owned by Dunkin' Brands or by its franchisees and licensees. While we do not record sales by franchisees or licensees as revenue, we believe that this information is important in obtaining an understanding of our financial performance. We believe systemwide sales growth and franchisee-reported sales information aids in understanding how we derive royalty revenue, assists readers in evaluating our performance relative to competitors, and indicates the strength of our franchised brands. Comparable store sales growth represents the growth in average weekly sales for restaurants that have been open at least 54 weeks that have reported sales in the current and comparable prior year week.

Overall growth in systemwide sales of 4.7% and 7.3% for the three and nine months ended September 29, 2012, respectively, over the same period in the prior year resulted from the following:

• Dunkin' Donuts U.S. systemwide sales growth of 5.6% and 8.2% for the three and nine months ended September 29, 2012, respectively, as a result of 262 net new restaurants opened since September 24, 2011 and comparable store sales growth of 2.8% and 4.5%, respectively, driven by both increases in average ticket and transactions. Increases in average ticket and transactions resulted from our continued focus on product and marketing innovation with strong beverage sales growth, especially in cold beverages, strong breakfast sandwich sales across both core offerings and differentiated breakfast sandwiches, continued growth in bakery sandwiches, and sales of Dunkin' Donuts K-Cup® portion packs.

• Dunkin' Donuts International systemwide sales growth of 1.2% and 2.4% for the three and nine months ended September 29, 2012, respectively, driven primarily by increased sales in the Middle East and South America.

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• Baskin-Robbins U.S. systemwide sales decline of 2.2% for the three months ended September 29, 2012 resulting primarily from a decline in points of distribution, partially offset by comparable store sales growth of 1.1%. Baskin-Robbins U.S. systemwide sales increase of 4.0% for the nine months ended September 29, 2012 resulting primarily from comparable store sales growth of 4.4%, partially offset by a decline in points of distribution. Baskin-Robbins U.S. comparable store sales growth for both the three and nine month periods was driven by product news, custom cake sales, and new beverages.

• Baskin-Robbins International systemwide sales growth of 5.2% and 7.1% for the three and nine months ended September 29, 2012, respectively, primarily as a result of increased sales in South Korea, Japan, and the Middle East.

The increase in total revenues of approximately $8.2 million, or 5.0%, for the three months ended September 29, 2012 as compared to the comparable period of 2011 primarily resulted from increased franchise fees and royalty income of $3.3 million, a $2.8 million increase in sales at company-owned restaurants due to additional locations acquired since the prior year, and a $1.5 million increase in sales of ice cream products. The increase in total revenues of approximately $36.8 million, or 8.0%, for the nine months ended September 29, 2012 as compared to the comparable period of 2011 primarily resulted from increased franchise fees and royalty income of $21.2 million, an $8.3 million increase in sales at company-owned restaurants due to additional locations acquired, and increased sales of ice cream products of $4.8 million.
Operating income for the three months ended September 29, 2012 increased $16.2 million, or 30.0%, from the comparable period of the prior year. This increase resulted primarily from a $14.7 million expense incurred in the prior year related to the termination of the Sponsor management agreement in connection with the Company's initial public offering, as well as the $3.3 million increase in franchise fees and royalty income, offset by $2.9 million of incremental depreciation primarily resulting from the announced closure of our ice cream manufacturing plant in Peterborough, Ontario, Canada. Operating income for the nine months ended September 29, 2012 increased $10.9 million, or 6.8%, from the comparable period of the prior year primarily from the $21.2 million increase in franchise fees and royalty income, the $14.7 million expense incurred in the prior year related to the termination of the Sponsor management agreement, and a $5.1 million increase in income from our joint ventures, offset by a $20.7 million increase in the legal reserve related to the Bertico litigation and $8.9 million of costs associated with the announced closure of our ice cream manufacturing plant in Peterborough, Ontario, Canada.
Adjusted operating income increased $9.5 million, or 12.5%, for the three months ended September 29, 2012 primarily as a result of the increase in revenues and continued general and administrative expense leverage. Adjusted operating income increased $29.6 million, or 15.0%, for the nine months ended September 29, 2012 driven by the $21.2 million increase in franchise fees and royalty income and a $5.1 million increase in equity in net income from joint ventures.
Net income increased $22.1 million for the three months ended September 29, 2012 resulting from the $16.2 million increase in operating income, a $14.1 million decrease in loss on debt extinguishment and refinancing transactions due to costs recorded in the prior year resulting from the upsizing and repricing of long-term debt, and a $5.1 million decrease in interest expense, offset by a $13.7 million increase in tax expense. Net income increased $51.1 million for the nine months ended September 29, 2012 resulting from a $34.6 million decrease in interest expense, a $30.3 million decrease in loss on debt extinguishment and refinancing transactions, and the $10.9 million increase in operating income, offset by a $24.7 million increase in tax expense.
Adjusted net income increased $10.8 million for the three months ended September 29, 2012 primarily as a result of a $9.5 million increase in adjusted operating income and a $5.1 million decrease in interest expense, offset by a $4.2 million increase in income tax expense resulting from the higher profit. Adjusted net income increased $47.5 million for the nine months ended September 29, 2012 primarily as a result of a $34.6 million decrease in interest expense and a $29.6 million increase in adjusted operating income, offset by a $16.8 million increase in income tax expense resulting from the higher profit. Adjusted operating income and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for amortization of intangible assets, impairment charges, and other non-recurring, infrequent, or unusual charges, net of the tax impact of such adjustments in the case of adjusted net income. The Company uses adjusted operating income and adjusted net income as key performance measures for the purpose of evaluating performance internally. We also believe adjusted operating income and adjusted net income provide our investors with useful information regarding our historical operating results. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms adjusted operating income and adjusted net income may differ from similar measures reported by other companies. Adjusted operating income and adjusted net income are reconciled from operating income and net income determined under GAAP as follows:

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                                               Three months ended                  Nine months ended
                                         September 29,     September 24,    September 29,    September 24,
                                              2012              2011             2012             2011
                                                                  (In thousands)
Operating income                        $       70,345           54,112          171,678          160,742
Adjustments:
Amortization of other intangible assets          6,669            7,001           20,317           21,106
Impairment charges                                 564              163              950            1,220
Sponsor termination fee                              -           14,671                -           14,671
Secondary offering costs                         2,579                -            4,774                -
Peterborough plant closure costs(a)              5,271                -            8,949                -
Bertico litigation(b)                                -                -           20,680                -
Adjusted operating income               $       85,428           75,947          227,348          197,739
Net income attributable to Dunkin'
Brands                                  $       29,526            7,412           73,973           22,851
Adjustments:
Amortization of other intangible assets          6,669            7,001           20,317           21,106
Impairment charges                                 564              163              950            1,220
Sponsor termination fee                              -           14,671                -           14,671
Secondary offering costs                         2,579                -            4,774                -
Peterborough plant closure costs(a)              5,271                -            8,949                -
Bertico litigation(b)                                -                -           20,680                -
Loss on debt extinguishment and
refinancing transactions                         3,963           18,050            3,963           34,222
Tax impact of adjustments, excluding
Bertico litigation(c)                           (7,618 )        (15,954 )        (15,581 )        (28,488 )
Tax impact of Bertico adjustment(d)              1,164                -           (4,959 )              -
Adjusted net income                     $       42,118           31,343          113,066           65,582

(a) Represents costs incurred related to the announced closure of the Baskin-Robbins ice cream manufacturing plant in Peterborough, Canada, including $1.0 million and $2.9 million of severance-related charges for the three and nine months ended September 29, 2012, respectively, $2.6 million and $3.7 million of accelerated depreciation for the three and nine months ended September 29, 2012, respectively, $1.1 million of incremental costs of ice cream products for the three and nine months ended September 29, 2012, and other transition-related costs.

(b) Represents the incremental legal reserve recorded in the second quarter of 2012 related to the Quebec Superior Court's ruling in the Bertico litigation, in which the Court found for the Plaintiffs and issued a judgment against Dunkin' Brands in the amount of approximately $C16.4 million (approximately $15.9 million), plus costs and interest.

(c) Tax impact of adjustments, excluding the Bertico litigation, calculated at a 40% effective tax rate for each period presented.

(d) Tax impact of Bertico litigation adjustment calculated as if the incremental reserve had not been recorded. The tax impact recorded in the second quarter of 2012 was a $3.9 million tax benefit representing the actual direct tax benefit expected to be realized, as well as a $2.2 million tax benefit recorded that will fully reverse in the third and fourth quarters of 2012 based on interim tax provision requirements. The tax impact for the three months ended September 29, 2012 represents $1.2 million of the tax benefit that was expected to reverse.

Earnings per share
Earnings per share and diluted adjusted earnings per pro forma common share were as follows:

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                                             Three months ended                      Nine months ended
                                       September 29,      September 24,       September 29,        September 24,
                                           2012               2011                 2012                2011
Earnings (loss) per share:
Class L-basic and diluted                $ n/a                  4.46                 n/a                 6.14
Common-basic                              0.26                 (1.01 )              0.63                (2.00 )
Common-diluted                            0.26                 (1.01 )              0.62                (2.00 )
Diluted adjusted earnings per pro
forma common share                        0.37                  0.28                0.94                 0.64

On August 1, 2011, the Company completed its initial public offering. Immediately prior to the offering, each share of the Company's Class L common stock converted into approximately 2.4338 shares of common stock. The number of common shares used in the calculation of diluted adjusted earnings per pro forma common share for the three and nine months ended September 24, 2011 gives effect to the conversion of all outstanding shares of Class L common stock at the conversion factor of 2.4338 common shares for each Class L share, as if the conversion was completed at the beginning of that fiscal period. The calculation of diluted adjusted earnings per pro forma common share also includes the dilutive effect of common restricted shares and stock options, using the treasury stock method. No pro forma adjustments have been made to the number of common shares used in the calculation of diluted adjusted earnings per pro forma common share for the three or nine months ended September 29, 2012, as all Class L common stock had converted to common shares prior to the beginning of that fiscal period. Diluted adjusted earnings per pro forma common share is calculated using adjusted net income, as defined above.
Diluted adjusted earnings per pro forma common share is not a presentation made in accordance with GAAP, and our use of the term diluted adjusted earnings per pro forma common share may vary from similar measures reported by others in our industry due to the potential differences in the method of calculation. Diluted adjusted earnings per pro forma common share should not be considered as an alternative to earnings (loss) per share derived in accordance with GAAP. Diluted adjusted earnings per pro forma common share has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, we rely primarily on our GAAP results. However, we believe that presenting diluted adjusted earnings per pro forma common share is appropriate to provide additional information to investors to compare our performance prior to and after the completion of our initial public offering and related conversion of Class L shares into common, as well as to provide investors with useful information regarding our historical operating results. The following table sets forth the computation of diluted adjusted earnings per pro forma common share:

                                               Three months ended                 Nine months ended
                                         September 29,    September 24,    September 29,    September 24,
                                             2012              2011             2012             2011
                                                 (In thousands, except share and per share data)
Adjusted net income available to common
shareholders:
Adjusted net income                     $      42,118           31,343          113,066           65,582
Less: Adjusted net income allocated to
participating securities                          (36 )            (26 )           (178 )           (354 )
Adjusted net income available to common
shareholders                            $      42,082           31,317          112,888           65,228
Pro forma weighted average number of
common shares-diluted:
Weighted average number of Class L
shares over period in which Class L
shares were outstanding (a)                         -       22,866,379                -       22,845,378
Adjustment to weight Class L shares
over respective fiscal period (a)                   -      (15,328,012 )              -       (5,104,722 )
Weighted average number of Class L
shares                                              -        7,538,367                -       17,740,656
Class L conversion factor                           -           2.4338                -           2.4338
Weighted average number of converted
Class L shares                                      -       18,347,071                -       43,177,665
Weighted average number of common
shares                                    112,720,961       93,529,128      117,499,678       58,807,271
Pro forma weighted average number of
common shares-basic                       112,720,961      111,876,199      117,499,678      101,984,936
Incremental dilutive common shares (b)      2,354,039        1,401,643        1,959,476          735,242
Pro forma weighted average number of
common shares-diluted                     115,075,000      113,277,842      119,459,154      102,720,178
Diluted adjusted earnings per pro forma
common share                            $        0.37             0.28             0.94             0.64

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(a) The weighted average number of Class L shares in the actual Class L earnings per share calculation for the three and nine months ended September 24, 2011 represents the weighted average from the beginning of the period up through the date of conversion of the Class L shares into common shares. As such, the pro forma weighted average number of common shares includes an adjustment to the weighted average number of Class L shares outstanding to reflect the length of time the Class L shares were outstanding prior to conversion relative to the respective three and nine month periods. The converted Class L shares are already included in the weighted average number of common shares outstanding for the period after their conversion.

(b) Represents the dilutive effect of restricted shares and stock options, using the treasury stock method.

Results of operations
Consolidated results of operations

                                        Three months ended                                             Nine months ended
                                                                Increase                                                      Increase
                      September 29,      September 24,         (Decrease)           September 29,      September 24,         (Decrease)
                          2012               2011            $           %              2012               2011             $           %
                                                               (In thousands, except percentages)
. . .