According to DBI’s disclosure in their 2007 Dunkin’ Donuts Franchising, LLC FDD they reveal their total shareholder’s equity to be slightly more than $1 billion.  This is approximately the same difference between the purchase price paid by the private equity sponsors (US$2.425 billion) and the amount financed through the 2006 DBMF 144a whole business securitization (US$1.5 billion + US$100 million revolver).  The reason why the “securitization” is termed a “whole business” is because the mechanics involve the transfer of the “entire”whole business to a Master Issuer Special Purpose Entity (SPE) - DB Master Finance, LLC (CUSIP 233046AA9) - which was privately traded until this past November 2010 when the securitization was recapitalized. 

The whole business of the Dunkin’ Donuts enterprise – including all tangible assets (hard real estate, capital leases, furniture, fixtures, and equipment, etc.), all intangible assets (franchise rights, enforcement rights, trademarks, etc.), and Franchisor’s equity contribution – was valued and transferred as a “true sale” for a total value of US$1.6 billion, in 2006, to the Master Issuer SPE – DB Master Finance, LLC.

A review of the recorded sale transaction accounting disclosed in the financial reports of both Allied Domecq PLC and Pernod Ricard SA confirm the reasonableness of the US$1.6 billion whole business valuation.  There is no reference to either - 1) the US$6.4 billion referred to in Jon Luther’s testimony to House of Representatives Financial Services Committee, or 2) the US$3.6 billion referenced in the 2007 Dunkin’ Donuts Franchising, LLC FDD. 

Under private equity ownership, the executive management team at Dunkin’ Brands, Inc successfully manipulated their financial accounting records by taking advantage of purchase price accounting and “prior” years pooling-of-interest accounting methodologies to inflate the value of their total stockholder’s equity and paid-in-capital accounts by nearly US$1 billion.  To understand the goodwill/stockholder’s equity/paid-in-capital accounting manipulation one must analyze the financial disclosure notes stated in the publically filed financial disclosures for the following companies:

1. 1998 – 2006 Allied Domecq PLC – United Kingdom
2. 2002 – 2005 Allied Domecq North America Corporation – United States - a) American Depository Receipt (ADR) – Ticker AED (Inactive) - b) Over The Counter (OTC) – Ticker ALDCY (Inactive)
3. 2003 – 2008 Alimentation Couche-Tard – Canada
4. 2005 – 2010 Pernod Ricard SA – France
5. 2008 – Present - Pernod Ricard: American Depository Receipt (ADR) – Ticker PDRDY (Active)

To better answer Congresswomen Carolyn Maloney’s questions, and in the sole opinion of this particular blogger, Jon Luther should have said:

Since 1998, Mr. Rosenberg was planning the break-up and sale of Allied Domecq PLC which included his beloved Dunkin’ Donuts brand – the Brand that built the Spirits & Wine powerhouse.  Through numerous organizational restructurings - from 2002 to 2006 - we strategically took advantage of various creative international accounting loopholes which allowed us to inflate the value of our goodwill.  It was the new inflated paper values that we had contributed and claimed as our own paid-in-capital and shareholder’s equity in the 2006 management led leveraged buyout.  Being that the fluffed up numbers were significantly high – US$1 billion - we granted stock options through the ESOP to the top 15% of executives and employees at Dunkin’ Brands, Inc. – and, not the franchisee community. However, we do tell the franchisees to borrow capital so our middle managers can send their kids to college. We also plan to periodically dividend the franchisee’s built-up equity to our shareholders without their knowledge. Thank you for your time Congresswomen Maloney. 

But no such words were uttered.

Unless Jon L. Luther, along with any other member from the 2005-2009 Dunkin’ Brands, Inc executive management team, can produce their cancelled checks documenting their personal “equity” investments – and, not via stock option grants - this franchise blogger holds to the analysis and statements documented in this article.  Of course, I would also welcome either Robert M. Rosenberg, or the DBI Board of Directors, or any other managing director from Bain Capital Partners, Carlyle Group, and Thomas H. Lee Partners to “show me the money” and your "skin-in-the-game".

This is Part 3 of a 3-part series

• Part One: Securitization Strips Dunkin' of Franchising Skin-in-the-Game
• Part Two: Dunkin' Reassures Congress about Private Equity