Table of Contents

     
FORM 10-Q 
   
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
   

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended SeptemberJune 30, 20172018
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from              to             
Commission file number 001-35258 
   
DUNKIN’ BRANDS GROUP, INC.
(Exact name of registrant as specified in its charter) 
   
Delaware 20-4145825
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
130 Royall Street
Canton, Massachusetts 02021
(Address of principal executive offices) (zip code)
(781) 737-3000
(Registrants’ telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
   
 
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x  Accelerated filer ¨
    
Non-accelerated filer ¨  Smaller reporting company ¨
    
    Emerging growth company ¨
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     YES  ¨    NO  x
As of NovemberAugust 3, 2017, 90,322,9032018, 83,776,757 shares of common stock of the registrant were outstanding.


Table of Contents

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS
 
   
  Page    
 
Part I. – Financial Information
   
Item 1.
Item 2.
Item 3.
Item 4.
 
Part II. – Other Information
   
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 


Part I.        Financial Information
Item 1.       Financial Statements
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
September 30,
2017
 December 31,
2016
June 30,
2018
 December 30,
2017
Assets      
Current assets:      
Cash and cash equivalents$266,981
 361,425
$367,940
 1,018,317
Restricted cash76,141
 69,746
84,970
 94,047
Accounts receivable, net of allowance for doubtful accounts of $4,616 and $4,778 as of September 30, 2017 and December 31, 2016, respectively47,136
 44,512
Notes and other receivables, net of allowance for doubtful accounts of $500 and $339 as of September 30, 2017 and December 31, 2016, respectively30,274
 40,672
Restricted assets of advertising funds57,873
 40,338
Accounts receivable, net of allowance for doubtful accounts of $3,855 and $4,390 as of June 30, 2018 and December 30, 2017, respectively88,790
 69,517
Notes and other receivables, net of allowance for doubtful accounts of $1,043 and $600 as of June 30, 2018 and December 30, 2017, respectively40,117
 52,332
Prepaid income taxes9,843
 20,926
17,754
 21,927
Prepaid expenses and other current assets33,605
 28,739
56,906
 48,193
Total current assets521,853
 606,358
656,477
 1,304,333
Property and equipment, net of accumulated depreciation of $135,284 and $124,675 as of September 30, 2017 and December 31, 2016, respectively170,269
 176,662
Property, equipment, and software, net of accumulated depreciation of $151,483 and $143,319 as of June 30, 2018 and December 30, 2017, respectively204,011
 181,542
Equity method investments128,633
 114,738
137,910
 140,615
Goodwill888,311
 888,272
888,284
 888,308
Other intangible assets, net of accumulated amortization of $245,569 and $230,364 as of September 30, 2017 and December 31, 2016, respectively1,362,586
 1,378,720
Other intangible assets, net of accumulated amortization of $257,930 and $250,142 as of June 30, 2018 and December 30, 2017, respectively1,345,309
 1,357,157
Other assets67,674
 62,632
66,737
 65,478
Total assets$3,139,326
 3,227,382
$3,298,728
 3,937,433
Liabilities and Stockholders’ Deficit  
Current liabilities:      
Current portion of long-term debt$25,000
 25,000
$31,650
 31,500
Capital lease obligations584
 589
631
 596
Accounts payable12,416
 12,682
68,783
 53,417
Liabilities of advertising funds57,935
 52,271
Deferred income37,595
 35,393
Deferred revenue44,175
 44,876
Other current liabilities230,487
 298,266
284,768
 355,110
Total current liabilities364,017
 424,201
430,007
 485,499
Long-term debt, net2,388,091
 2,401,998
3,023,955
 3,035,857
Capital lease obligations7,209
 7,550
6,851
 7,180
Unfavorable operating leases acquired10,164
 11,378
9,033
 9,780
Deferred income10,729
 12,154
Deferred revenue366,246
 361,458
Deferred income taxes, net459,524
 461,810
205,859
 214,345
Other long-term liabilities73,680
 71,549
74,582
 77,853
Total long-term liabilities2,949,397
 2,966,439
3,686,526
 3,706,473
Commitments and contingencies (note 9)
 

 
Stockholders’ equity (deficit):   
Stockholders’ deficit:   
Preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued and outstanding
 

 
Common stock, $0.001 par value; 475,000,000 shares authorized; 90,290,628 shares issued and 90,263,851 shares outstanding as of September 30, 2017; 91,464,229 shares issued and 91,437,452 shares outstanding as of December 31, 201690
 91
Common stock, $0.001 par value; 475,000,000 shares authorized; 83,069,682 shares issued and 83,042,905 shares outstanding as of June 30, 2018; 90,404,022 shares issued and 90,377,245 shares outstanding as of December 30, 201783
 90
Additional paid-in capital746,052
 807,492
511,379
 724,114
Treasury stock, at cost; 26,777 shares as of September 30, 2017 and December 31, 2016(1,060) (1,060)
Treasury stock, at cost; 26,777 shares as of June 30, 2018 and December 30, 2017(1,060) (1,060)
Accumulated deficit(900,217) (945,797)(1,313,498) (968,148)
Accumulated other comprehensive loss(18,953) (23,984)(14,709) (9,535)
Total stockholders’ deficit(174,088) (163,258)(817,805) (254,539)
Total liabilities and stockholders’ deficit$3,139,326
 3,227,382
$3,298,728
 3,937,433

See accompanying notes to unaudited consolidated financial statements.

3

Table of Contents
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
Revenues:              
Franchise fees and royalty income$151,809
 138,639
 426,944
 399,617
$151,242
 143,894
 283,749
 271,609
Advertising fees and related income131,539
 122,361
 242,546
 232,564
Rental income27,713
 26,880
 79,543
 75,874
27,400
 27,408
 51,878
 51,830
Sales of ice cream and other products27,551
 26,568
 85,710
 86,425
28,140
 28,679
 49,917
 51,185
Sales at company-operated restaurants
 1,611
 
 11,924
Other revenues17,095
 13,401
 41,165
 39,344
12,319
 11,834
 23,892
 23,346
Total revenues224,168
 207,099
 633,362
 613,184
350,640
 334,176
 651,982
 630,534
Operating costs and expenses:              
Occupancy expenses—franchised restaurants15,333
 15,881
 43,758
 42,691
14,314
 14,287
 28,294
 28,425
Cost of ice cream and other products19,457
 18,384
 58,578
 58,445
22,781
 22,199
 39,645
 39,121
Company-operated restaurant expenses
 1,682
 
 13,472
Advertising expenses132,579
 123,676
 244,551
 234,748
General and administrative expenses, net61,996
 59,374
 185,613
 184,028
59,301
 61,074
 119,125
 121,443
Depreciation4,941
 5,050
 15,096
 15,361
5,125
 5,071
 10,158
 10,155
Amortization of other intangible assets5,341
 5,397
 16,001
 16,726
5,307
 5,333
 10,682
 10,660
Long-lived asset impairment charges536
 7
 643
 104
653
 60
 1,154
 107
Total operating costs and expenses107,604
 105,775
 319,689
 330,827
240,060
 231,700
 453,609
 444,659
Net income of equity method investments5,466
 5,467
 12,612
 12,148
3,845
 4,327
 5,878
 7,146
Other operating income, net3
 2,569
 591
 6,329
Other operating income (loss), net(575) 33
 (570) 588
Operating income122,033
 109,360
 326,876
 300,834
113,850
 106,836
 203,681
 193,609
Other income (expense), net:              
Interest income624
 161
 1,370
 434
1,516
 425
 3,158
 746
Interest expense(24,436) (24,603) (74,192) (74,456)(32,538) (24,885) (65,015) (49,756)
Other income (losses), net155
 (124) 370
 (596)(272) 28
 (599) 215
Total other expense, net(23,657) (24,566) (72,452) (74,618)(31,294) (24,432) (62,456) (48,795)
Income before income taxes98,376
 84,794
 254,424
 226,216
82,556
 82,404
 141,225
 144,814
Provision for income taxes46,130
 32,082
 99,007
 86,760
22,058
 31,312
 30,575
 49,429
Net income$52,246
 52,712
 155,417
 139,456
$60,498
 51,092
 110,650
 95,385
Earnings per share:              
Common—basic$0.58
 0.58
 1.71
 1.52
$0.73
 0.56
 1.31
 1.04
Common—diluted0.57
 0.57
 1.68
 1.51
0.72
 0.55
 1.29
 1.03
Cash dividends declared per common share0.32
 0.30
 0.97
 0.90
0.35
 0.32
 0.70
 0.65
See accompanying notes to unaudited consolidated financial statements.

4

Table of Contents
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)

Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
Net income$52,246
 52,712
 155,417
 139,456
$60,498
 51,092
 110,650
 95,385
Other comprehensive income (loss), net:              
Effect of foreign currency translation, net of deferred tax expense (benefit) of $6 and $(59) for the three months ended September 30, 2017 and September 24, 2016, respectively, and $579 and $(488) for the nine months ended September 30, 2017 and September 24, 2016, respectively(662) 6,161
 5,309
 8,730
Effect of interest rate swaps, net of deferred tax benefit of $216 for each of the three months ended September 30, 2017 and September 24, 2016 and $650 for each of the nine months ended September 30, 2017 and September 24, 2016(319) (319) (955) (955)
Effect of foreign currency translation, net of deferred tax expense (benefit) of $(66) and $36 for the three months ended June 30, 2018 and July 1, 2017, respectively, and $(46) and $573 for the six months ended June 30, 2018 and July 1, 2017, respectively(7,291) (2,749) (5,744) 5,991
Effect of interest rate swaps, net of deferred tax benefit of $217 and $434 for the three and six months ended July 1, 2017
 (318) 
 (636)
Other, net24
 (27) 677
 (230)(58) (1) 570
 653
Total other comprehensive income (loss), net(957) 5,815
 5,031
 7,545
(7,349) (3,068) (5,174) 6,008
Comprehensive income$51,289
 58,527
 160,448
 147,001
$53,149
 48,024
 105,476
 101,393
See accompanying notes to unaudited consolidated financial statements.

5

Table of Contents
DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Nine months endedSix months ended
September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
Cash flows from operating activities:      
Net income$155,417
 139,456
$110,650
 95,385
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization31,097
 32,087
20,840
 20,815
Amortization of debt issuance costs4,843
 4,700
2,511
 3,234
Deferred income taxes(1,516) (5,595)(8,425) (11,781)
Provision for bad debt599
 681
333
 100
Share-based compensation expense10,896
 12,548
6,949
 7,247
Net income of equity method investments(12,612) (12,148)(5,878) (7,146)
Dividends received from equity method investments4,711
 5,247
3,947
 3,950
Gain on sale of real estate and company-operated restaurants(29) (6,322)
Other, net(2,299) (1,554)3,150
 (55)
Change in operating assets and liabilities:      
Accounts, notes, and other receivables, net7,712
 43,482
(7,459) (6,592)
Prepaid income taxes, net10,884
 6,569
4,208
 7,621
Prepaid expenses and other current assets(4,600) (3,552)(8,866) (18,305)
Accounts payable(1,501) (1,635)15,940
 24,660
Other current liabilities(68,274) (91,651)(71,323) (65,832)
Liabilities of advertising funds, net(11,232) 896
Deferred income722
 3,800
Deferred revenue3,902
 13,531
Other, net(3,289) 4,250
(2,740) 228
Net cash provided by operating activities121,529
 131,259
67,739
 67,060
Cash flows from investing activities:      
Additions to property and equipment(8,998) (10,358)
Proceeds from sale of real estate and company-operated restaurants
 15,479
Additions to property, equipment, and software(32,902) (6,730)
Other, net(101) (1,014)
 (99)
Net cash provided by (used in) investing activities(9,099) 4,107
Net cash used in investing activities(32,902) (6,829)
Cash flows from financing activities:      
Repayment of long-term debt(18,750) (18,750)(15,750) (12,500)
Payment of debt issuance and other debt-related costs(312) 
Dividends paid on common stock(87,911) (82,326)(57,439) (58,847)
Repurchases of common stock, including accelerated share repurchases(127,186)
(30,000)
Accelerated share repurchases of common stock(650,368)
(100,000)
Exercise of stock options33,267
 4,937
30,433
 19,928
Other, net(214) (690)(901) (799)
Net cash used in financing activities(201,106) (126,829)(694,025) (152,218)
Effect of exchange rates on cash, cash equivalents, and restricted cash576
 20
(228) 398
Increase (decrease) in cash, cash equivalents, and restricted cash(88,100) 8,557
Decrease in cash, cash equivalents, and restricted cash(659,416) (91,589)
Cash, cash equivalents, and restricted cash, beginning of period431,832
 333,115
1,114,099
 431,832
Cash, cash equivalents, and restricted cash, end of period$343,732
 341,672
$454,683
 340,243
Supplemental cash flow information:      
Cash paid for income taxes$89,882
 86,460
$35,044
 53,736
Cash paid for interest70,038
 70,749
65,633
 46,751
Noncash investing activities:      
Property and equipment included in accounts payable and other current liabilities1,919
 1,121
Purchase of leaseholds in exchange for capital lease obligations330
 389
Property, equipment, and software included in accounts payable and other current liabilities3,219
 1,942
Purchase of property, equipment, and software in exchange for note payable1,486
 
See accompanying notes to unaudited consolidated financial statements.

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Description of business and organization
Dunkin’ Brands Group, Inc. (“DBGI”), together with its consolidated subsidiaries, is one of the world’s leading franchisors of restaurants serving coffee and baked goods, as well as ice cream, within the quick service restaurant segment of the restaurant industry. We franchise and license a system of both traditional and nontraditional quick service restaurants and, in limited circumstances, have owned and operated locations. Through our Dunkin’ Donuts brand, we franchise restaurants featuring coffee, donuts, bagels, breakfast sandwiches, and related products. Additionally, we license Dunkin’ Donuts brand products sold in certain retail outlets such as retail packaged coffee, Dunkin’ K-Cup® pods, and ready-to-drink bottled iced coffee. Through our Baskin-Robbins brand, we franchise restaurants featuring ice cream, frozen beverages, and related products. Additionally, we distribute Baskin-Robbins ice cream products to Baskin-Robbins franchisees and licensees in certain international markets.
Throughout these unaudited consolidated financial statements, “Dunkin’ Brands,” “the Company,” “we,” “us,” “our,” and “management” refer to DBGI and its consolidated subsidiaries taken as a whole.
(2) Summary of significant accounting policies
(a) Unaudited consolidated financial statements
The consolidated balance sheet as of SeptemberJune 30, 2017,2018, the consolidated statements of operations and comprehensive income for the three and ninesix months ended SeptemberJune 30, 20172018 and September 24, 2016,July 1, 2017, and the consolidated statements of cash flows for the ninesix months ended SeptemberJune 30, 20172018 and September 24, 2016July 1, 2017 are unaudited.
The accompanying unaudited consolidated financial statements include the accounts of DBGI and its consolidated subsidiaries and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. All significant transactions and balances between subsidiaries and affiliates have been eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements in accordance with U.S. GAAP have been recorded. Such adjustments consisted only of normal recurring items. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2016,30, 2017, included in the Company’s Annual Report on Form 10-K.
(b) Fiscal year
The Company operates and reports financial information on a 52- or 53-week year on a 13-week quarter 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 when applicable with respect to the fourth fiscal quarter). The data periods contained within the three- and nine-monthsix-month periods ended SeptemberJune 30, 20172018 and September 24, 2016July 1, 2017 reflect the results of operations for the 13-week and 39-week26-week periods ended on those dates, respectively. Operating results for the three- and nine-monthsix-month periods ended SeptemberJune 30, 20172018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 30, 2017.29, 2018.
(c) Cash, cash equivalents, and restricted cash
In accordance with the Company’s securitized financing facility, certain cash accounts have been established in the name of Citibank, N.A. (the “Trustee”) for the benefit of the Trustee and the noteholders, and are restricted in their use. The Company holds restricted cash which primarily represents (i) cash collections held by the Trustee, (ii) interest, principal, and commitment fee reserves held by the Trustee related to the Company’s Notesnotes (see note 4), and (iii) real estate reserves used to pay real estate obligations.

Pursuant to new accounting guidance for fiscal year 2017, restricted cash is combined with cash and cash equivalents when reconciling the beginning and end of period balances in the consolidated statements of cash flows (see note 2(f)). Cash, cash equivalents, and restricted cash within the consolidated balance sheets that are included in the consolidated statements of cash flows as of SeptemberJune 30, 20172018 and December 31, 201630, 2017 were as follows (in thousands):
September 30,
2017
 December 31,
2016
June 30,
2018
 December 30,
2017
Cash and cash equivalents$266,981
 361,425
$367,940
 1,018,317
Restricted cash76,141
 69,746
84,970
 94,047
Restricted cash, included in Other assets610
 661
1,773
 1,735
Total cash, cash equivalents, and restricted cash$343,732
 431,832
$454,683
 1,114,099
(d) Fair value of financial instruments
Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
Financial assets and liabilities measured at fair value on a recurring basis as of SeptemberJune 30, 20172018 and December 31, 201630, 2017 are summarized as follows (in thousands):
September 30, 2017 December 31, 2016June 30, 2018 December 30, 2017
Significant other observable inputs (Level 2) Total Significant other observable inputs (Level 2) TotalSignificant other observable inputs (Level 2) Total Significant other observable inputs (Level 2) Total
Assets:              
Company-owned life insurance$10,389
 10,389
 9,271
 9,271
$11,033
 11,033
 10,836
 10,836
Total assets$10,389
 10,389
 9,271
 9,271
$11,033
 11,033
 10,836
 10,836
Liabilities:              
Deferred compensation liabilities$12,851
 12,851
 11,126
 11,126
$11,448
 11,448
 13,543
 13,543
Total liabilities$12,851
 12,851
 11,126
 11,126
$11,448
 11,448
 13,543
 13,543
The deferred compensation liabilities relate to the Dunkin’ Brands, Inc. non-qualified deferred compensation plans (“NQDC Plans”), which allow for pre-tax deferral of compensation for certain qualifying employees and directors. Changes in the fair value of the deferred compensation liabilities are derived using quoted prices in active markets of the asset selections made by the participants. The deferred compensation liabilities are classified within Level 2, as defined under U.S. GAAP, because their inputs are derived principally from observable market data by correlation to hypothetical investments. The Company holds company-owned life insurance policies to partially offset the Company’s liabilities under the NQDC Plans. The changes in the fair value of any company-owned life insurance policies are derived using determinable cash surrender value. As such, the company-owned life insurance policies are classified within Level 2, as defined under U.S. GAAP.
The carrying value and estimated fair value of long-term debt as of SeptemberJune 30, 20172018 and December 31, 201630, 2017 were as follows (in thousands):
September 30, 2017 December 31, 2016June 30, 2018 December 30, 2017
Carrying value Estimated fair value Carrying value Estimated fair valueCarrying value Estimated fair value Carrying value Estimated fair value
Financial liabilities              
Long-term debt$2,413,091
 2,474,291
 2,426,998
 2,460,544
$3,055,605
 3,068,647
 3,067,357
 3,156,099
The estimated fair value of our long-term debt is estimated primarily based on current market rates for debt with similar terms and remaining maturities or current bid prices for our long-term debt. Judgment is required to develop these estimates. As such, the fair value of our long-term debt is classified within Level 2, as defined under U.S. GAAP.

(e) Concentration of credit risk
The Company is subject to credit risk through its accounts receivable consisting primarily of amounts due from franchisees and licensees for franchise fees, royalty income, advertising fees, and sales of ice cream and other products. In addition, we have

note and lease receivables from certain of our franchisees and licensees. The financial condition of these franchisees and licensees is largely dependent upon the underlying business trends of our brands and market conditions within the quick service restaurant industry. This concentration of credit risk is mitigated, in part, by the large number of franchisees and licensees of each brand and the short-term nature of the franchise and license fee and lease receivables. As of SeptemberJune 30, 20172018 and December 31, 2016,30, 2017, one master licensee, including its majority-owned subsidiaries, accounted for approximately 18%20% and 15%11%, respectively, of total accounts and notes receivable. No individual franchisee or master licensee accounted for more than 10% of total revenues for eachany of the three and nine monthssix month periods ended SeptemberJune 30, 2018 and July 1, 2017.
(f) Advertising expenses
Advertising expenses in the consolidated statements of operations includes advertising expenses incurred by the Company, including those expenses incurred by the advertising funds and for the administration of the gift card program. The Company expenses production costs of commercial advertising upon first airing and expenses the costs of communicating the advertising in the period in which the advertising occurs. Costs of print advertising and certain promotion-related items are deferred and expensed the first time the advertising is displayed. Prepaid expenses and other current assets in the consolidated balance sheets include $17.3 million and $15.5 million at June 30, 2018 and December 30, 2017, and September 24, 2016.respectively, that was related to advertising. Advertising expenses are allocated to interim periods in relation to the related revenues. When revenues of the advertising fund exceed the related advertising expenses, advertising costs are accrued up to the amount of revenues.
Additionally, the Company engages various third parties to manufacture and/or distribute certain Dunkin’ Donuts and Baskin-Robbins products under licensing arrangements. As of September 30, 2017, one of these third parties accounted for approximately 13% of total accounts and notes receivable. No individual third party accounted for more than 10% of total accounts and notes receivable as of December 31, 2016.
(f)(g) Recent accounting pronouncements
Recently adopted accounting pronouncements
In January 2017,February 2018, the Financial Accounting Standards Board (the “FASB”) issued new guidance for goodwill impairment which requires only a single-step quantitative test to identify and measure impairment and record an impairment charge based onallowing companies the excess of a reporting unit’s carrying amount over its fair value. The option to perform a qualitative assessment first for a reporting unitreclassify from accumulated other comprehensive loss to determine if a quantitative impairment test is necessary does not change underaccumulated deficit the new guidance.stranded income tax effects resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017. The Company early adopted this guidance instandard during the first quarter of fiscal year 2017.2018 and has elected to present the change in the period of adoption. The adoption of this guidance had no impact on the Company’s consolidated financial statements, and did not impact our annual goodwill impairment test performed as of the first day of the third quarter of fiscal year 2017.
In November 2016, the FASB issued new guidance addressing diversity in practice that exists in the classification and presentation of changes in restricted cash in the statements of cash flows. The Company early adopted this guidance retrospectively in fiscal year 2017. Accordingly, changes in restricted cash that have historically been included within operating and financing activities have been eliminated, and restricted cash is combined with cash and cash equivalents when reconciling the beginning and end of period balances for all periods presented. The adoption of this guidance primarily resulted in a decrease of $1.1 million in net cash provided by operating activities for the nine months ended September 24, 2016 and had no impact on the consolidated statements of operations and balance sheets.
In March 2016, the FASB issued new guidance for employee share-based compensation which simplifies several aspects of accounting for share-based payment transactions, including excess tax benefits, forfeiture estimates, statutory tax withholding requirements, and classification in the statements of cash flows. The Company adopted this guidance in fiscal year 2017, which had the following impact on the consolidated financial statements:
On a prospective basis, as required, the Company recorded excess tax benefits of $524 thousand and $7.3 million to the provision for income taxes in the consolidated statements of operations for the three and nine months ended September 30, 2017, respectively, instead of additional paid-in capital in the consolidated balance sheets. As a result, net income increased $524 thousand and $7.3 million, for the three and nine months ended September 30, 2017, respectively, and basic and diluted earnings per share increased $0.01 and $0.08 for the three and nine months ended September 30, 2017, respectively.
Excess tax benefits are presented as operating cash inflows instead of financing cash inflows in the consolidated statements of cash flows, which the Company elected to apply on a retrospective basis. As a result, the Company classified $7.3 million and $2.0 million for the nine months ended September 30, 2017 and September 24, 2016, respectively, of excess tax benefits as operating cash inflows included within the change in prepaid income taxes, net in the consolidated statements of cash flows. The retrospective reclassification resulted in increases in cash provided by operating activities and cash used in financing activities of $2.0 million for the nine months ended September 24, 2016.
The Company prospectively excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share under the treasury stock method, which did not have a material impact on diluted earnings per sharethe Company's consolidated financial statements.
In May 2014, the FASB issued new guidance for revenue recognition related to contracts with customers (“ASC 606”), except for contracts within the three and nine months ended September 30, 2017.

scope of other standards, which supersedes nearly all existing revenue recognition guidance. We adopted this new guidance in fiscal year 2018. See 
note 3 for further disclosure of the impact of the new guidance.
Recent accounting pronouncements not yet adopted
Leases
In February 2016, the FASB issued new guidance for lease accounting, which replaces existing lease accounting guidance. The new guidance aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. This guidance is effective for the Company in fiscal year 2019 with early adoption permitted, and modified retrospective application is required.required with an option to not restate comparative periods in the period of adoption. The Company expects to adopt this new guidance in fiscal year 2019 without restating comparative periods, and is currently evaluating the impact the adoption of this new guidance will have on the Company’s consolidated financial statements and related disclosures. The Company expects that substantially all of its operating lease commitments will be subject to the new guidance and will be recognized as operating lease liabilities and right-of-use assets upon adoption, thereby having a material impact to its consolidated balance sheet.
Though the majority of the assessment phase is complete, the Company continues to evaluate the impact the adoption of this new guidance will have on the Company's consolidated financial statements, as well as the impact on accounting policies and related disclosures. Additionally, the Company is in the process of implementing new accounting systems, business processes, and internal controls related to lease accounting to assist in the application of the new guidance.
(h) Subsequent events
Subsequent events have been evaluated through the date these consolidated financial statements were filed.

(3) Revenue recognition
(a) Updated revenue recognition policies
Franchise fees and royalty income
Domestically, the Company sells individual franchises as well as territory agreements in the form of store development agreements (“SDAs”) that grant the right to develop restaurants in designated areas. The franchise agreements and SDAs typically require the franchisee to pay initial nonrefundable franchise fees prior to opening the respective restaurants and continuing fees, or royalty income, on a weekly basis based upon a percentage of franchisee gross sales. The initial term of domestic franchise agreements is typically 20 years. Prior to the end of the franchise term or as otherwise provided by the Company, a franchisee may elect to renew the term of a franchise agreement, and, if approved, will typically pay a renewal fee upon execution of the renewal term. If approved, a franchisee may transfer a franchise agreement or SDA to a new or existing franchisee, at which point a transfer fee is paid. Occasionally, the Company offers incentive programs to franchisees in conjunction with a franchise/license agreement, territory agreement, or renewal agreement.
Internationally, the Company sells master franchise agreements that grant the master franchisee the right to develop and operate, and in some instances sub-franchise, a certain number of restaurants within a particular geographic area. The master franchisee is typically required to pay an upfront market entry fee upon entering into the master franchise agreement and an upfront initial franchise fee for each developed restaurant prior to each respective opening. For the Dunkin’ Donuts brand and in certain Baskin-Robbins international markets, the master franchisee will also pay continuing fees, or royalty income, generally on a monthly basis based upon a percentage of sales. Generally, the master franchise agreement serves as the franchise agreement for the underlying restaurants, and the initial franchise term provided for each restaurant typically ranges between 10 and 20 years.
Generally, the franchise license granted for each individual restaurant within an arrangement represents a single performance obligation. Therefore, initial franchise fees and market entry fees for each arrangement are allocated to each individual restaurant and recognized over the term of the respective franchise agreement from the date of the restaurant opening. Royalty income is also recognized over the term of the respective franchise agreement based on the royalties earned each period as the underlying sales occur. Renewal fees are generally recognized over the renewal term for the respective restaurant from the start of the renewal period. Transfer fees are recognized over the remaining term of the franchise agreement beginning at the time of transfer. Additionally, for Baskin-Robbins international markets that do not pay a royalty, a portion of the consideration from sales of ice cream and other products is allocated to royalty income as consideration for the use of the franchise license, which is recognized when the related sales occur and is estimated based on royalty rates in effect for markets where the franchise license is sold on a standalone basis. Fees received or receivable that are expected to be recognized as revenue within one year are classified as current deferred revenue in the consolidated balance sheets.
Advertising fees and related income
Domestically and in limited international markets, franchise agreements typically require the franchisee to pay continuing advertising fees on a weekly basis based on a percentage of franchisee gross sales, which are recognized over the term of the respective franchise agreement based on the fees earned each period as the underlying sales occur.
The Company and its franchisees sell gift cards that are redeemable for products in our Dunkin’ Donuts and Baskin-Robbins restaurants. The Company manages the gift card program, and therefore collects all funds from the activation of gift cards and reimburses franchisees for the redemption of gift cards in their restaurants. A liability for unredeemed gift cards, as well as historical gift certificates sold, is included in other current liabilities in the consolidated balance sheets.
There are no expiration dates or service fees charged on the gift cards. While the franchisees continue to honor all gift cards presented for payment, the likelihood of redemption may be determined to be remote for certain cards due to long periods of inactivity. In these circumstances, the Company may recognize revenue from unredeemed gift cards (“breakage revenue”) if they are not subject to unclaimed property laws. For Dunkin’ Donuts gift cards enrolled in the DD Perks® Rewards loyalty program and other cards with expected similar redemption behavior, breakage is estimated and recognized at the point in time when the likelihood of redemption of any remaining card balance becomes remote, generally after a period of sufficient inactivity. Breakage on all other Dunkin’ Donuts gift cards and all Baskin-Robbins gift cards is estimated and recognized over time in proportion to actual gift card redemptions, based on historical redemption rates.
The Company also collects gift card program service fees from franchisees to offset the costs to administer the gift card program. The gift card program service fees are based on the volume of gift card transactions processed and are recognized as the underlying transactions occur.

Rental income
Rental income for base rentals is recorded on a straight-line basis over the lease term, including the amortization of any tenant improvement dollars paid. The differences between the straight-line rent amounts and amounts receivable under the leases are recorded as deferred rent assets in current or long-term assets, as appropriate. Contingent rental income is recognized as earned, and any amounts received from lessees in advance of achieving stipulated thresholds are deferred until such thresholds are actually achieved. Deferred contingent rentals are recorded as deferred revenue in current liabilities in the consolidated balance sheets.
Sales of ice cream and other products
We distribute Baskin-Robbins ice cream products and, in limited cases, Dunkin’ Donuts products to franchisees in certain international locations. Revenue from Contractsthe sale of ice cream and other products is recognized when title and risk of loss transfers to the buyer, which is generally upon delivery. Payment for ice cream and other products is generally due within a relatively short period of time subsequent to delivery.
Other revenues
Other revenues include fees generated by licensing our brand names and other intellectual property, as well as gains, net of losses and transactions costs, from the sales of restaurants that were not company-operated to new or existing franchisees. Licensing fees are recognized over the term of the expected license agreement, with Customerssales-based license fees being recognized based on the amount earned each period as the underlying sales occur. Gains on the refranchise or sale of a restaurant are recognized over the term of the related agreement.

(b) Disaggregation of revenue
Revenues are disaggregated by timing of revenue recognition and reconciled to reportable segment revenues as follows (in thousands):
 Three months ended June 30, 2018
 Dunkin' Donuts U.S. Baskin-Robbins U.S. Dunkin' Donuts International Baskin-Robbins International U.S. Advertising Funds Total reportable segment revenues 
Other(a)
 Total revenues
Revenues recognized under ASC 606               
Revenues recognized over time:               
Royalty income$125,221
 9,005
 4,732
 2,154
 
 141,112
 4,276
 145,388
Franchise fees4,765
 303
 535
 251
 
 5,854
 
 5,854
Advertising fees and related income
 
 
 
 119,174
 119,174
 8,491
 127,665
Other revenues588
 3,129
 
 1
 
 3,718
 7,969
 11,687
Total revenues recognized over time130,574
 12,437
 5,267
 2,406
 119,174
 269,858
 20,736
 290,594
                
Revenues recognized at a point in time:               
Sales of ice cream and other products
 842
 
 31,409
 
 32,251
 (4,111) 28,140
Other revenues310
 57
 (9) 72
 
 430
 202
 632
Total revenues recognized at a point in time310
 899
 (9) 31,481
 
 32,681
 (3,909) 28,772
                
Total revenues recognized under ASC 606130,884
 13,336
 5,258
 33,887
 119,174
 302,539
 16,827
 319,366
                
Revenues not subject to ASC 606               
Advertising fees and related income
 
 
 
 
 
 3,874
 3,874
Rental income26,506
 763
 
 131
 
 27,400
 
 27,400
Total revenues not subject to ASC 60626,506
 763
 
 131
 
 27,400
 3,874
 31,274
                
Total revenues$157,390
 14,099
 5,258
 34,018
 119,174
 329,939
 20,701
 350,640
(a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other."

 Three months ended July 1, 2017
 Dunkin' Donuts U.S. Baskin-Robbins U.S. Dunkin' Donuts International Baskin-Robbins International U.S. Advertising Funds Total reportable segment revenues 
Other(a)
 Total revenues
Revenues recognized under ASC 606               
Revenues recognized over time:               
Royalty income$119,096
 9,080
 4,157
 1,858
 
 134,191
 4,183
 138,374
Franchise fees4,564
 193
 475
 288
 
 5,520
 
 5,520
Advertising fees and related income
 
 
 
 113,824
 113,824
 668
 114,492
Other revenues577
 3,187
 
 1
 
 3,765
 7,506
 11,271
Total revenues recognized over time124,237
 12,460
 4,632
 2,147
 113,824
 257,300
 12,357
 269,657
                
Revenues recognized at a point in time:               
Sales of ice cream and other products
 883
 
 31,685
 
 32,568
 (3,889) 28,679
Other revenues221
 150
 (20) 63
 
 414
 149
 563
Total revenues recognized at a point in time221
 1,033
 (20) 31,748
 
 32,982
 (3,740) 29,242
                
Total revenues recognized under ASC 606124,458
 13,493
 4,612
 33,895
 113,824
 290,282
 8,617
 298,899
                
Revenues not subject to ASC 606               
Advertising fees and related income
 
 
 
 
 
 7,869
 7,869
Rental income26,533
 763
 
 112
 
 27,408
 
 27,408
Total revenues not subject to ASC 60626,533
 763
 
 112
 
 27,408
 7,869
 35,277
                
Total revenues$150,991
 14,256
 4,612
 34,007
 113,824
 317,690
 16,486
 334,176
(a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other."

 Six months ended June 30, 2018
 Dunkin' Donuts U.S. Baskin-Robbins U.S. Dunkin' Donuts International Baskin-Robbins International U.S. Advertising Funds Total reportable segment revenues 
Other(a)
 Total revenues
Revenues recognized under ASC 606               
Revenues recognized over time:               
Royalty income$236,054
 15,414
 9,670
 3,697
 
 264,835
 7,410
 272,245
Franchise fees9,472
 592
 983
 457
 
 11,504
 
 11,504
Advertising fees and related income
 
 
 
 223,341
 223,341
 8,750
 232,091
Other revenues1,123
 5,406
 2
 1
 
 6,532
 16,123
 22,655
Total revenues recognized over time246,649
 21,412
 10,655
 4,155
 223,341
 506,212
 32,283
 538,495
                
Revenues recognized at a point in time:               
Sales of ice cream and other products
 1,520
 
 55,381
 
 56,901
 (6,984) 49,917
Other revenues555
 150
 (32) 119
 
 792
 445
 1,237
Total revenues recognized at a point in time555
 1,670
 (32) 55,500
 
 57,693
 (6,539) 51,154
                
Total revenues recognized under ASC 606247,204
 23,082
 10,623
 59,655
 223,341
 563,905
 25,744
 589,649
                
Revenues not subject to ASC 606               
Advertising fees and related income
 
 
 
 
 
 10,455
 10,455
Rental income50,097
 1,530
 
 251
 
 51,878
 
 51,878
Total revenues not subject to ASC 60650,097
 1,530
 
 251
 
 51,878
 10,455
 62,333
                
Total revenues$297,301
 24,612
 10,623
 59,906
 223,341
 615,783
 36,199
 651,982
(a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other."


 Six months ended July 1, 2017
 Dunkin' Donuts U.S. Baskin-Robbins U.S. Dunkin' Donuts International Baskin-Robbins International U.S. Advertising Funds Total reportable segment revenues 
Other(a)
 Total revenues
Revenues recognized under ASC 606               
Revenues recognized over time:               
Royalty income$226,271
 15,764
 8,569
 3,289
 
 253,893
 6,974
 260,867
Franchise fees8,862
 399
 908
 573
 
 10,742
 
 10,742
Advertising fees and related income
 
 
 
 216,145
 216,145
 723
 216,868
Other revenues1,117
 5,500
 4
 1
 
 6,622
 15,415
 22,037
Total revenues recognized over time236,250
 21,663
 9,481
 3,863
 216,145
 487,402
 23,112
 510,514
                
Revenues recognized at a point in time:               
Sales of ice cream and other products
 1,409
 
 56,089
 
 57,498
 (6,313) 51,185
Other revenues724
 214
 (36) 109
 
 1,011
 298
 1,309
Total revenues recognized at a point in time724
 1,623
 (36) 56,198
 
 58,509
 (6,015) 52,494
                
Total revenues recognized under ASC 606236,974
 23,286
 9,445
 60,061
 216,145
 545,911
 17,097
 563,008
                
Revenues not subject to ASC 606               
Advertising fees and related income
 
 
 
 
 
 15,696
 15,696
Rental income50,057
 1,547
 
 226
 
 51,830
 
 51,830
Total revenues not subject to ASC 60650,057
 1,547
 
 226
 
 51,830
 15,696
 67,526
                
Total revenues$287,031
 24,833
 9,445
 60,287
 216,145
 597,741
 32,793
 630,534
(a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other."

(c) Contract balances
Information about receivables and deferred revenue subject to ASC 606 is as follows (in thousands):
 June 30,
2018
 December 30,
2017
 Balance Sheet Classification
Receivables$99,950
 76,455
 Accounts receivable, net and Notes and other receivables, net
      
Deferred revenue:     
Current$30,550
 27,724
 Deferred revenue—current
Long-term366,246
 361,458
 Deferred revenue—long term
Total$396,796
 389,182
  
Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, sales of ice cream and other products, and licensing fees. Deferred revenue primarily represents the Company’s remaining performance obligations under its franchise and license agreements for which consideration has been received or is receivable, and is generally recognized on a straight-line basis over the remaining term of the related agreement.
The increase in the deferred revenue balance for the six months ended June 30, 2018 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $16.7 million of revenues recognized that were included in the deferred revenue balance as of December 30, 2017.
As of June 30, 2018 and December 30, 2017, there were no contract assets from contracts with customers.
(d) Transaction price allocated to remaining performance obligations
Estimated revenue expected to be recognized in the future related to performance obligations that are either unsatisfied or partially satisfied at June 30, 2018 is as follows (in thousands):
Fiscal year: 
2018(a)
$16,541
201925,091
202023,851
202123,614
202223,341
Thereafter247,568
Total$360,006
  
(a) Represents the estimate for remainder of fiscal year 2018 which excludes the six months ended June 30, 2018.
The estimated revenue in the table above does not contemplate future franchise renewals or new franchise agreements for restaurants for which a franchise agreement or SDA does not exist at June 30, 2018. Additionally, the table above excludes $61.9 million of consideration allocated to restaurants that are not yet open as of June 30, 2018. The Company has applied the sales-based royalty exemption which permits exclusion of variable consideration in the form of sales-based royalties from the disclosure of remaining performance obligations in the table above. Additionally, the Company has applied the transition practical expedient that allows the Company to omit the above disclosures for the fiscal year ended December 30, 2017.
(e) Change in accounting principle
In May 2014,fiscal year 2018, the FASB issuedCompany adopted new guidance for revenue recognition related to contracts with customers, except for contracts within the scope of other standards,guidance which supersedes nearly all existing revenue recognition guidance. The new guidance provides a single framework in which revenue is required to be recognized to depict the transfer of goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services.
The new guidance is effective for the Company in fiscal year 2018. The Company intends to adopt this newadopted the guidance in fiscal year 2018 using the full retrospective transition method which will resultresults in restating each prior reporting period presented, fiscal years 2016 and 2017, inpresented. The restated amounts include the yearapplication of adoption. Additionally, a cumulativepractical expedient that permitted the Company to reflect the aggregate effect adjustment will be recordedof all modifications that occurred prior to the opening balance of accumulated deficit as of the first day of fiscal year 2016 when identifying the earliest period presented. Based onsatisfied and unsatisfied performance obligations, determining the expected impacts described below,transaction price, and allocating the Company expects such cumulative effect adjustment to be materialtransaction price to the opening balance of accumulated deficit.satisfied and unsatisfied performance obligations.

The Company expectsimplemented new business processes, internal controls, and modified information technology systems to assist in the ongoing application of the new guidance.
Franchise Fees
The adoption of the new guidance to changechanged the timing of recognition of initial franchise fees, including master license and territory fees for our international business, and renewal and transfer fees. Currently,Previously, these fees arewere generally recognized upfront upon either opening of the respective restaurant, or when a renewal agreement becomes effective.became effective, or upon transfer of a franchise agreement. The new guidance will generally requirerequires these fees to be recognized over the term of the related franchise license for the respective restaurant, which we expect will result in a material impact to revenue recognized for initialrestaurant. Additionally, transfer fees were previously included within other revenues, but are now included within franchise fees and renewal fees.royalty income in the consolidated statements of operations. The Company does not expect this new guidance todid not materially impact the recognition of royalty income. Additionally, rental income is outside
Advertising
The adoption of the scope of this new guidance and therefore will not be impacted.
The Company also expects the adoption of this new guidance to changechanged the reporting of advertising fund contributions from franchisees and the related advertising fund expenditures, which arewere not currentlypreviously included in the consolidated statements of operations. The Company expects the new guidance to requirerequires these advertising fund contributions and expenditures to be reported on a gross basis in the consolidated statements of operations. ForThe assets and liabilities held by the fiscal year ended December 31, 2016, franchisee contributionsadvertising funds, which were previously reported as restricted assets and liabilities of advertising funds, respectively, are now included within the respective balance sheet caption to which the U.S.assets and liabilities relate. Additionally, advertising costs that have been incurred by the Company outside of the advertising funds were $430.3 million,previously included within general and therefore we expect this changeadministrative expenses, net, but are now included within advertising expenses in the consolidated statements of operations.
Previously, breakage from Dunkin’ Donuts and Baskin-Robbins gift cards was recorded as a reduction to have a material impactgeneral and administrative expenses, net, to our total revenues and expenses. However, we expect such contributions and expenditures to be largely offsetting and therefore do not expect a significant impact on our reported net income.
Thoughoffset the majority ofrelated gift card program costs. In accordance with the assessment phase is complete, the Company continues to evaluate the impact the adoption of this new guidance, will havebreakage revenue is now reported on these and other revenue transactions,a gross basis in addition to the impact on accounting policiesconsolidated statements of operations within advertising fees and related disclosures. Additionally,income, and the Company isrelated gift card program costs are included in the process of implementing new accounting systems, business processes, and internal controls related to revenue recognition to assist in the applicationadvertising expenses.
Ice Cream Royalty Allocation
The adoption of the new guidance requires a portion of sales of ice cream products to be allocated to royalty income as consideration for the use of the franchise license. As such, a portion of sales of ice cream and other products has been reclassified to franchise fees and royalty income in the consolidated statements of operations under the new guidance. This allocation has no impact on the timing of recognition of the related sales of ice cream products or royalty income.
(g) Subsequent eventsOther Revenue Transactions
Subsequent events have been evaluated throughThe adoption of the date these consolidatednew guidance requires certain fees generated by licensing of our brand names and other intellectual property to be recognized over the term of the related agreement, including a one-time upfront license fee recognized in connection with the Dunkin’ K-Cup® pod licensing agreement in fiscal year 2015. Additionally, gains associated with the refranchise, sale, or transfer of restaurants that were not company-operated to new or existing franchisees are recognized over the term of the related agreement under the new guidance, instead of upon closing of the sale transaction or transfer.

Impacts to Prior Period Information
The new guidance for revenue recognition impacted the Company's previously reported financial statements were filed.as follows:
Consolidated Balance Sheets
December 30, 2017
(In thousands)
    Adjustments for new revenue recognition guidance  
  Previously reported Franchise fees Advertising Other revenue transactions Restated
           
Assets          
Current assets:          
Cash and cash equivalents $1,018,317
 
 —   
 
 1,018,317
Restricted cash 94,047
 
 —   
 
 94,047
Accounts receivables, net 51,442
 
 18,075
 
 69,517
Notes and other receivables, net 51,082
 
 1,250
 
 52,332
Restricted assets of advertising funds 47,373
 
 (47,373) 
 
Prepaid income taxes 21,879
 
 48
 
 21,927
Prepaid expenses and other current assets 32,695
 
 15,498
 
 48,193
Total current assets 1,316,835
 
 (12,502) 
 1,304,333
Property and equipment, net 169,005
 
 12,537
 
 181,542
Equity method investments 140,615
 
 —   
 
 140,615
Goodwill 888,308
 
 ���   
 
 888,308
Other intangibles assets, net 1,357,157
 
 —   
 
 1,357,157
Other assets 65,464
 
 14
 
 65,478
Total assets $3,937,384
 
 49
 
 3,937,433
Liabilities and Stockholders’ Equity (Deficit)          
Current liabilities:          
Current portion of long-term debt $31,500
 —   
 —   
 —   
 31,500
Capital lease obligations 596
 —   
 —   
 —   
 596
Accounts payable 16,307
 —   
 37,110
 —   
 53,417
Liabilities of advertising funds 58,014
 —   
 (58,014) —   
 
Deferred revenue 39,395
 1,502
 (550) 4,529
 44,876
Other current liabilities 326,078
 —   
 29,032
 —   
 355,110
Total current liabilities 471,890
 1,502
 7,578
 4,529
 485,499
Long-term debt, net 3,035,857
 —   
 —   
 —   
 3,035,857
Capital lease obligations 7,180
 —   
 —   
 —   
 7,180
Unfavorable operating leases acquired 9,780
 —   
 —   
 —   
 9,780
Deferred revenue 11,158
 328,183
 (7,518) 29,635
 361,458
Deferred income taxes, net 315,249
 (91,488) —   
 (9,416) 214,345
Other long-term liabilities 77,823
 —   
 30
 —   
 77,853
Total long-term liabilities 3,457,047
 236,695
 (7,488) 20,219
 3,706,473
Stockholders’ equity (deficit)          
Preferred stock 
 —   
 —   
 —   
 
Common stock 90
 —   
 —   
 —   
 90
Additional paid-in-capital 724,114
 —   
 —   
 —   
 724,114
Treasury stock, at cost (1,060) —   
 —   
 —   
 (1,060)
Accumulated deficit (705,007) (238,197) (196) (24,748) (968,148)
Accumulated other comprehensive loss (9,690) —   
 155
 —   
 (9,535)
Stockholders’ equity (deficit) 8,447
 (238,197) (41) (24,748) (254,539)
Total liabilities and stockholders’ equity (deficit) $3,937,384
 
 49
 
 3,937,433


(3) Franchise fees
Consolidated Statements of Operations
Three months ended July 1, 2017
(In thousands, except per share data)
    Adjustments for new revenue recognition guidance  
  Previously reported Franchise fees Advertising Ice cream royalty allocation Other revenue transactions Restated
             
Revenues:            
Franchise fees and royalty income $145,066
 (5,355) 
 4,183
 
 143,894
Advertising fees and related income 
 
 122,361
 
 
 122,361
Rental income 27,408
 
 
 
 
 27,408
Sales of ice cream and other products 32,862
 
 
 (4,183) 
 28,679
Other revenues 13,186
 (1,033) 
 
 (319) 11,834
Total revenues 218,522
 (6,388) 122,361
 
 (319) 334,176
Operating costs and expenses:            
Occupancy expenses—franchised restaurants 14,287
 
 
 
 
 14,287
Cost of ice cream and other products 22,199
 
 
 
 
 22,199
Advertising expenses 
 
 123,676
 
 
 123,676
General and administrative expenses, net 62,382
 
 (1,308) 
 
 61,074
Depreciation 5,071
 
 
 
 
 5,071
Amortization of other intangible assets 5,333
 
 
 
 
 5,333
Long-lived asset impairment charges 60
 
 
 
 
 60
Total operating costs and expenses 109,332
 
 122,368
 
 
 231,700
Net income of equity method investments 4,327
 
 
 
 
 4,327
Other operating income, net 33
 
 
 
 
 33
Operating income 113,550
 (6,388) (7) 
 (319) 106,836
Other income (expense), net:            
Interest income 425
 
 
 
 
 425
Interest expense (24,885) 
 
 
 
 (24,885)
Other gains, net 28
 
 
 
 
 28
Total other expense, net (24,432) 
 
 
 
 (24,432)
Income before income taxes 89,118
 (6,388) (7) 
 (319) 82,404
Provision (benefit) for income taxes 33,414
 (1,980) 
 
 (122) 31,312
Net income $55,704
 (4,408) (7) 
 (197) 51,092
             
Earnings per share—basic $0.61
         0.56
Earnings per share—diluted 0.60
         0.55

Consolidated Statements of Operations
Six months ended July 1, 2017
(In thousands, except per share data)
    Adjustments for new revenue recognition guidance  
  Previously reported Franchise fees Advertising Ice cream royalty allocation Other revenue transactions Restated
             
Revenues:            
Franchise fees and royalty income $275,135
 (10,500) 
 6,974
 
 271,609
Advertising fees and related income 
 
 232,564
 
 
 232,564
Rental income 51,830
 
 
 
 
 51,830
Sales of ice cream and other products 58,159
 
 
 (6,974) 
 51,185
Other revenues 24,070
 (2,155) 
 
 1,431
 23,346
Total revenues 409,194
 (12,655) 232,564
 
 1,431
 630,534
Operating costs and expenses:            
Occupancy expenses—franchised restaurants 28,425
 
 
 
 
 28,425
Cost of ice cream and other products 39,121
 
 
 
 
 39,121
Advertising expenses 
 
 234,748
 
 
 234,748
General and administrative expenses, net 123,617
 
 (2,174) 
 
 121,443
Depreciation 10,155
 
 
 
 
 10,155
Amortization of other intangible assets 10,660
 
 
 
 
 10,660
Long-lived asset impairment charges 107
 
 
 
 
 107
Total operating costs and expenses 212,085
 
 232,574
 
 
 444,659
Net income of equity method investments 7,146
 
 
 
 
 7,146
Other operating income, net 588
 
 
 
 
 588
Operating income 204,843
 (12,655) (10) 
 1,431
 193,609
Other income (expense), net:            
Interest income 746
 
 
 
 
 746
Interest expense (49,756) 
 
 
 
 (49,756)
Other gains, net 215
 
 
 
 
 215
Total other expense, net (48,795) 
 
 
 
 (48,795)
Income before income taxes 156,048
 (12,655) (10) 
 1,431
 144,814
Provision (benefit) for income taxes 52,877
 (3,834) 
 
 386
 49,429
Net income $103,171
 (8,821) (10) 
 1,045
 95,385
             
Earnings per share—basic $1.13
         1.04
Earnings per share—diluted 1.11
         1.03

The adoption of the new revenue recognition guidance had no impact on the Company’s total cash flows. Adjustments presented in the cash flow information below result from full consolidation of the advertising funds, and royalty incomereflect the investing activities, consisting solely of additions to property, equipment, and software, of such funds.
Franchise fees
Select Cash Flow Information
(In thousands)
   
  Six months ended July 1, 2017
  Previously reported Adjustments for new revenue recognition guidance Restated
       
Net cash provided by operating activities $63,954
 3,106
 67,060
Net cash used in investing activities (3,723) (3,106) (6,829)
Net cash used in financing activities (152,218) 
 (152,218)
Decrease in cash, cash equivalents, and restricted cash (91,589) 
 (91,589)
(4) Debt
Debt at June 30, 2018 and royalty incomeDecember 30, 2017 consisted of the following (in thousands):
 Three months ended Nine months ended
 September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
Royalty income$133,740
 127,986
 387,634
 368,190
Initial franchise fees and renewal income18,069
 10,653
 39,310
 31,427
Total franchise fees and royalty income$151,809
 138,639
 426,944
 399,617
 June 30,
2018
 December 30,
2017
2015 Class A-2-II Notes$1,693,125
 1,701,875
2017 Class A-2-I Notes597,000
 600,000
2017 Class A-2-II Notes796,000
 800,000
Other1,486
 
Debt issuance costs, net of amortization(32,006) (34,518)
Total debt3,055,605
 3,067,357
Less current portion of long-term debt31,650
 31,500
Total long-term debt$3,023,955
 3,035,857
The changes in franchised and company-operated pointsCompany's outstanding debt consists of distribution were as follows:
 Three months ended Nine months ended
 September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
Systemwide points of distribution:       
Franchised points of distribution in operation—beginning of period20,242
 19,640
 20,080
 19,308
Franchised points of distribution—opened326
 310
 928
 988
Franchised points of distribution—closed(189) (195) (629) (563)
Net transfers from company-operated points of distribution
 23
 
 45
Franchised points of distribution in operation—end of period20,379
 19,778
 20,379
 19,778
Company-operated points of distribution—end of period
 6
 
 6
Total systemwide points of distribution—end of period20,379
 19,784
 20,379
 19,784
(4) Debt
Securitized Financing Facility
In January 2015, DB Master Finance LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of DBGI, issued Series 2015-1 3.262% Fixed Rate Senior Secured Notes, Class A-2-I (the “2015 Class A-2-I Notes”) with an initial principal amount of $750.0 million and Series 2015-1 3.980% Fixed Rate Senior Secured Notes, Class A-2-II (the “2015 Class A-2-II Notes” and, together with the 2015 Class A-2-I Notes, the “2015 Class A-2 Notes”) with an initial principal amount of $1.75 billion. In addition, the Master Issuer issued Series 2015-1 Variable Funding Senior Secured Notes, Class A-1 (the “2015 Variable Funding Notes” and, together with the 2015 Class A-2 Notes, the “2015 Notes”), which allowed the Master Issuer to borrow up to $100.0 million on a revolving basis. The 2015 Variable Funding Notes could also be used to issue letters of credit.
In October 2017, the Master Issuer issued Series 2017-1 3.629% Fixed Rate Senior Secured Notes, Class A-2-I (the “2017 Class A-2-I Notes”) with an initial principal amount of $600.0 million, and Series 2017-1 4.030% Fixed Rate Senior Secured Notes, Class A-2-II (the “2017 Class A-2-II Notes” and, together with the 2017 Class A-2-I Notes, the “2017 Class A-2 Notes”) with an initial principal amountissued by DB Master Finance LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of $800.0 million.DBGI. In addition, the Master Issuer issued Series 2017-1 Variable Funding Senior Secured Notes, Class A-1 (the “2017 Variable Funding Notes” and, together with the 2017 Class A-2 Notes, the “2017 Notes”), which allowsallow for the issuance of up to $150.0 million of 2017 Variable Funding Notes and certain other credit instruments, including letters of credit. A portion
As of the proceedsJune 30, 2018 and December 30, 2017, $32.4 million and $32.3 million, respectively, of the 2017 Notes was used to repay the remaining $731.3 millionletters of principalcredit were outstanding on the 2015 Class A-2-I Notes and to pay related transaction fees. The additional net proceeds will be used for general corporate purposes, which may include a return of capital to the Company’s shareholders. In connection with the issuance ofagainst the 2017 Variable Funding Notes which relate primarily to interest reserves required under the Master Issuer terminated the commitments with respect to its existing 2015 Variable Funding Notes.base indenture and related supplemental indentures. There were no amounts drawn down on these letters of credit as of June 30, 2018 or December 30, 2017.
The 2015 Class A-2-II Notes and 2017 Notes were each issued in a securitization transaction pursuant to which most of the Company’s domestic and certain of its foreign revenue-generating assets, consisting principally of franchise-related agreements, real estate assets, and intellectual property and license agreements for the use of intellectual property, are held by the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company that act as guarantors of the 2015 Class A-2-II Notes and 2017 Notes and that have pledged substantially all of their assets to secure the 2015 Notes and 2017 Notes.
The 2015 Notes and 2017 Notes were issued pursuant to a base indenture and related supplemental indentures (collectively, the “Indenture”) under which the Master Issuer may issue multiple series of notes. The legal final maturity date of the 2015 Class A-2-II Notes and 2017 Class A-2 Notes is in February 2045 and November 2047, respectively, but it is anticipated that, unless

earlier prepaid to the extent permitted under the Indenture, the 2015 Class A-2-II Notes will be repaid by February 2022, the 2017 Class A-2-I Notes will be repaid by November 2024, and the 2017 Class A-2-II Notes will be repaid by November 2027 (the “Anticipated Repayment Dates”). If the 2015 Class A-2-II Notes or the 2017 Class A-2 Notes have not been repaid or refinanced by their respective Anticipated Repayment Dates, a rapid amortization event will occur in which residual net cash flows of the Master Issuer, after making certain required payments, will be applied to the outstanding principal of the 2015 Class A-2-II Notes and the 2017 Class A-2 Notes. Various other events, including failure to maintain a minimum ratio of net cash flows to debt service (“DSCR”), may also cause a rapid amortization event. Borrowings under the 2015 Class A-2-II Notes, 2017 Class A-2-I Notes, and 2017 Class A-2-II Notes bear interest at fixed rates equal to 3.980%, 3.629%, and 4.030%, respectively. If the 2015 Class A-2-II Notes or the 2017 Class A-2 Notes are not repaid or refinanced prior to their respective Anticipated Repayment Dates, incremental interest will accrue. Principal payments are required to be made on the 2015 Class A-2-II Notes, 2017 Class A-2-I Notes, and 2017 Class A-2-II Notes equal to $17.5 million, $6.0 million, and $8.0 million, respectively, per calendar year, payable in quarterly installments. No principal payments are required if a specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as specified in the Indenture), is less than or equal to 5.0 to 1.0. Other events and transactions, such as certain asset sales and receipt of various insurance or indemnification proceeds, may trigger additional mandatory prepayments.
It is anticipated that the principal and interest on the 2017 Variable Funding Notes will be repaid in full on or prior to November 2022, subject to two additional one-year extensions. Borrowings under the 2017 Variable Funding Notes bear interest at a rate equal to a LIBOR rate plus 1.50%, or the lenders’ commercial paper funding rate plus 1.50%. If the 2017 Variable Funding Notes are not repaid prior to November 2022 or prior to the end of an extension period, if applicable, incremental interest will accrue. In addition, the Company is required to pay a 1.50% fee for letters of credit amounts outstanding and a commitment fee on the unused portion of the 2017 Variable Funding Notes which ranges from 0.50% to 1.00% based on utilization.
As of September 30, 2017, approximately $731.3 million and $1.71 billion of principal were outstanding on the 2015 Class A-2-I Notes and 2015 Class A-2-II Notes, respectively. Total debt issuance costs incurred and capitalized in connection with the issuance of the 2015 Notes were $41.3 million. The effective interest rate, including the amortization of debt issuance costs, was 3.5% and 4.3% for the 2015 Class A-2-I Notes and 2015 Class A-2-II Notes, respectively, as of September 30, 2017. As noted above, subsequent to September 30, 2017, a portion of the net proceeds of the 2017 Notes was used to repay the remaining $731.3 million of principal outstanding on the 2015 Class A-2-I Notes.
As of each of September 30, 2017 and December 31, 2016, $25.9 million of letters of credit were outstanding against the 2015 Variable Funding Notes, which relate primarily to interest reserves required under the Indenture. There were no amounts drawn down on these letters of credit as of September 30, 2017 or December 31, 2016.
The 2015 Class A-2-II Notes and 2017 Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the 2015 Class A-2-II Notes and 2017 Notes, (ii) provisions relating to optional and mandatory prepayments, including mandatory prepayments in the event of a change of control as defined in the Indenture and the related payment of specified amounts, including specified make-whole payments in the case of the 2015 Class A-2-II Notes and 2017 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the 2015 Class A-2-II Notes and 2017 Notes are in stated ways defective or ineffective, and (iv) covenants relating to recordkeeping, access to information, and similar matters. As noted above, the 2015 Class A-2-II Notes and 2017 Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated DSCR, failure to maintain an aggregate level of Dunkin’ Donuts U.S. retail sales on certain measurement dates, certain manager termination events, an event of default, and the failure to repay or refinance the 2015 Class A-2-II Notes or the 2017 Notes on the applicable Anticipated Repayment Dates. The 2015 Class A-2-II Notes and 2017 Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the 2015 Class A-2-II Notes and 2017 Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments.


(5) Other current liabilities
Other current liabilities consisted of the following (in thousands):
September 30,
2017
 December 31,
2016
June 30,
2018
 December 30,
2017
Gift card/certificate liability$142,020
 207,628
$169,341
 228,783
Gift card breakage liability2,668
 13,301
Accrued payroll and benefits29,120
 25,071
21,285
 30,768
Accrued legal liabilities (see note 9(c))
6,342
 5,555
Accrued interest10,621
 10,702
14,003
 17,902
Accrued professional costs3,012
 2,170
5,277
 5,527
Accrued advertising expenses31,943
 35,210
Franchisee profit-sharing liability8,497
 11,083
11,179
 13,243
Other28,207
 22,756
31,740
 23,677
Total other current liabilities$230,487
 298,266
$284,768
 355,110
The decrease in the gift card/certificate liability was driven by the seasonality of our gift card program. The decrease in accrued payroll and benefits was primarily due to incentive compensation payments made during the six months ended June 30, 2018 related to fiscal year 2017. The franchisee profit-sharing liability represents amounts owed to franchisees from the net profits primarily on the sale of Dunkin’ Donuts brand products such as Dunkin’ K-Cup® pods, retail packaged coffee, and ready-to-drink bottled iced coffee in certain retail outlets.
(6) Segment information
The Company is strategically aligned into two global brands, Dunkin’ Donuts and Baskin-Robbins, which are further segregated between U.S. operations and international operations. Additionally, the Company administers and directs the development of all advertising and promotional programs in the U.S. advertising funds. As such, the Company has determined that it has four operating segments, which are itsfive reportable segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., Baskin-Robbins International, and Baskin-Robbins International.U.S. Advertising Funds. Dunkin’ Donuts U.S., Baskin-Robbins U.S., and Dunkin’ Donuts International primarily derive their revenues through royalty income and franchise fees. Baskin-Robbins U.S. also derives revenue through license fees from a third-party license agreement and rental income. Dunkin’ Donuts U.S. also derives revenue through rental income. Prior to the sale of all remaining company-operated restaurants in the fourth quarter of fiscal year 2016, Dunkin’ Donuts U.S. also derived revenue through retail sales at company-operated restaurants. Baskin-Robbins International primarily derives its revenues from sales of ice cream products, as well as royalty income, franchise fees, and license fees. U.S. Advertising Funds primarily derive revenues through continuing advertising fees from Dunkin’ Donuts and Baskin-Robbins franchisees. The operating results of each segment are regularly reviewed and evaluated separately by the Company’s senior management, which includes, but is not limited to, the chief executive officer. Senior management primarily evaluates the performance of its segments and allocates resources to them based on operating income adjusted for amortization of intangible assets, long-lived asset impairment charges, impairment of our equity method investments, and other infrequent or unusual charges, which does not reflect the allocation of any corporate charges. This profitability measure is referred to as segment profit. When senior management reviews a balance sheet, it is at a consolidated level. The accounting policies applicable to each segment are generally consistent with those used in the consolidated financial statements.

Revenues for all operating segments include only transactions with unaffiliated customers and include no intersegment revenues. Revenues reported as “Other” include revenues earned through certain licensing arrangements with third parties in which our brand names are used, including the licensing fees earned from the Dunkin’ K-Cup® pod licensing agreement and sales of Dunkin’ Donuts branded ready-to-drink bottled iced coffee and retail packaged coffee, revenues generated from online training programs for franchisees, advertising fees and revenuesrelated income from international advertising funds, and breakage and other revenue related to the sale of Dunkin’ Donuts products in certain international markets,gift card program, all of which are not allocated to a specific segment. Revenues by segment were as follows (in thousands):
RevenuesRevenues
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
Dunkin’ Donuts U.S.$165,106
 152,425
 464,148
 444,898
$157,390
 150,991
 297,301
 287,031
Dunkin’ Donuts International5,157
 4,449
 14,947
 16,917
5,258
 4,612
 10,623
 9,445
Baskin-Robbins U.S.13,751
 13,781
 38,645
 38,080
14,099
 14,256
 24,612
 24,833
Baskin-Robbins International28,810
 27,904
 88,876
 89,578
34,018
 34,007
 59,906
 60,287
U.S. Advertising Funds119,174
 113,824
 223,341
 216,145
Total reportable segment revenues212,824
 198,559
 606,616
 589,473
329,939
 317,690
 615,783
 597,741
Other11,344
 8,540
 26,746
 23,711
20,701
 16,486
 36,199
 32,793
Total revenues$224,168
 207,099
 633,362
 613,184
$350,640
 334,176
 651,982
 630,534
Amounts included in “Corporate”“Corporate and other” in the segment profit table below include corporate overhead costs, such as payroll and related benefit costs and professional services, net of “Other” revenues reported above. Segment profit by segment was as follows (in thousands):
Segment profitSegment profit
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
Dunkin’ Donuts U.S.$129,719
 119,434
 360,241
 335,963
$119,562
 116,113
 224,625
 217,807
Dunkin’ Donuts International1,439
 705
 4,782
 6,438
3,503
 1,571
 6,709
 2,998
Baskin-Robbins U.S.10,466
 11,085
 28,773
 29,123
10,622
 10,865
 17,857
 18,248
Baskin-Robbins International11,420
 11,154
 31,900
 30,617
11,526
 12,530
 18,967
 20,701
U.S. Advertising Funds
 
 
 
Total reportable segments153,044
 142,378
 425,696
 402,141
145,213
 141,079
 268,158
 259,754
Corporate(25,134) (27,614) (82,176) (84,477)
Corporate and other(25,403) (28,850) (52,641) (55,378)
Interest expense, net(23,812) (24,442) (72,822) (74,022)(31,022) (24,460) (61,857) (49,010)
Amortization of other intangible assets(5,341) (5,397) (16,001) (16,726)(5,307) (5,333) (10,682) (10,660)
Long-lived asset impairment charges(536) (7) (643) (104)(653) (60) (1,154) (107)
Other income (losses), net155
 (124) 370
 (596)(272) 28
 (599) 215
Income before income taxes$98,376
 84,794
 254,424
 226,216
$82,556
 82,404
 141,225
 144,814

Net income of equity method investments is included in segment profit for the Dunkin’ Donuts International and Baskin-Robbins International reportable segments. Amounts reported as “Other” in the segment profit table below include the reduction in depreciation and amortization, net of tax, reported by our equity method investees as a result of previously recorded impairment charges. Net income of equity method investments by reportable segment was as follows (in thousands):
Net income (loss) of equity method investmentsNet income (loss) of equity method investments
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
Dunkin’ Donuts International$9
 351
 (68) 829
$60
 13
 (384) (77)
Baskin-Robbins International4,492
 4,266
 9,468
 8,644
2,926
 2,950
 4,653
 4,976
Total reportable segments4,501
 4,617
 9,400
 9,473
2,986
 2,963
 4,269
 4,899
Other965
 850
 3,212
 2,675
859
 1,364
 1,609
 2,247
Total net income of equity method investments$5,466
 5,467
 12,612
 12,148
$3,845
 4,327
 5,878
 7,146
(7) Stockholders’ deficit
The changes in total stockholders’ deficit were as follows (in thousands):
 Total stockholders’ deficit Total stockholders’ deficit
Balance as of December 31, 2016 $(163,258)
Balance as of December 30, 2017 $(254,539)
Net income 155,417
 110,650
Other comprehensive income 5,031
Other comprehensive loss, net (5,174)
Dividends paid on common stock (87,911) (57,439)
Exercise of stock options 33,267
 30,433
Repurchases of common stock (127,186)
Accelerated share repurchases of common stock (650,368)
Share-based compensation expense 10,896
 6,949
Other, net (344) 1,683
Balance as of September 30, 2017 $(174,088)
Balance as of June 30, 2018 $(817,805)
(a) Treasury stock
During the nine months ended September 30, 2017,In February 2018, the Company entered into and completed antwo accelerated share repurchase agreementagreements (the “May 2017“February 2018 ASR Agreement”Agreements”) with atwo third-party financial institution.institutions. Pursuant to the terms of the May 2017February 2018 ASR Agreement,Agreements, the Company paid the financial institution $100.0institutions $650.0 million infrom cash on hand and received 1,757,568an initial delivery of 8,478,722 shares of the Company’sCompany's common stock during the nine months ended September 30, 2017 based on a weighted average cost per sharein February 2018, representing an estimate of $56.90 over the term80% of the May 2017total shares expected to be delivered under the February 2018 ASR Agreement.
Additionally, duringAgreements. At settlement, the nine months ended September 30, 2017, the Company repurchased a total of 513,880financial institutions may be required to deliver additional shares of common stock to the Company or, under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make cash payment to the financial institutions. Final settlement of each of the February 2018 ASR Agreements is expected to be completed in the open market at a weighted average cost per sharethird quarter of $52.90 from existing stockholders.fiscal year 2018.

The Company accounts for treasury stock under the cost method based on the cost of the shares on the dates of repurchase andplus any direct costs incurred. During the ninesix months ended SeptemberJune 30, 2017,2018, the Company retired 2,271,4488,478,722 shares of treasury stock repurchased under the May 2017February 2018 ASR Agreement and in the open market.Agreements. The repurchase and retirement of these shares of treasury stock resulted in a decrease in additional paid-in capital of $18.9$65.2 million and an increase in accumulated deficit of $108.3$455.1 million. Additionally, the Company recorded a decrease in additional paid-in capital of $130.0 million related to the remaining cash paid under the February 2018 ASR Agreements since the final settlement was not completed as of June 30, 2018.
(b) Equity incentive plans
During the ninesix months ended SeptemberJune 30, 2017,2018, the Company granted stock options to purchase 1,181,777909,027 shares of common stock and 90,34264,566 restricted stock units (“RSUs”) to certain employees and members of our board of directors. The stock options generally vest in equal annual amounts over a four-year period subsequent to the grant date, and have a maximum contractual term of seven years. The stock options were granted with a weighted averagean exercise price of $55.04$59.60 per share and have a weighted average grant-date fair value of $9.87$10.44 per share. The RSUs granted to employees and members of our board of directors vest in equal

annual amounts over a three-year period and a one-year period, respectively, subsequent to the grant date and have a weighted average grant-date fair value of $52.41$58.33 per share.
In addition, the Company granted 84,70567,993 performance stock units (“PSUs”) to certain employees during the ninesix months ended SeptemberJune 30, 2017.2018. These PSUs are generally eligible to cliff-vest approximately three years from the grant date. Of the total PSUs granted, 37,02730,974 PSUs are subject to a service condition and a market vesting condition linked to the level of total shareholder return received by the Company’s shareholders during the performance period measured against the companies in the S&P 500 Composite Index (“TSR PSUs”). The remaining 47,67837,019 PSUs granted are subject to a service condition and a performance vesting condition based on the level of adjusted operating income growth achieved over the performance period (“AOI PSUs”). The maximum vesting percentage that could be realized for each of the TSR PSUs and the AOI PSUs is 200% based on the level of performance achieved for the respective awards. All of the PSUs are also subject to a one-year post-vesting holding period. The TSR PSUs were valued based on a Monte Carlo simulation model to reflect the impact of the total shareholder return market condition, resulting in a weighted average grant-date fair value of $67.52$65.52 per share. The probability of satisfying a market condition is considered in the estimation of the grant-date fair value for TSR PSUs and the compensation cost is not reversed if the market condition is not achieved, provided the requisite service has been provided. The AOI PSUs have a weighted average grant-date fair value of $52.44$57.10 per share. Total compensation cost for the AOI PSUs is determined based on the most likely outcome of the performance condition and the number of awards expected to vest based on the outcome.
Total compensation expense related to all share-based awards was $3.6$3.7 million and $4.2$3.8 million for the three months ended SeptemberJune 30, 20172018 and September 24, 2016,July 1, 2017, respectively, and $10.9$6.9 million and $12.5$7.2 million for the ninesix months ended SeptemberJune 30, 20172018 and September 24, 2016,July 1, 2017, respectively, and is included in general and administrative expenses, net in the consolidated statements of operations.
(c) Accumulated other comprehensive loss
The changes in the components of accumulated other comprehensive loss were as follows (in thousands):
 Effect of foreign currency translation Unrealized gains on interest rate swaps Other         Accumulated other comprehensive gain (loss)
Balance as of December 31, 2016$(23,019) 1,144
 (2,109) (23,984)
Other comprehensive income (loss), net5,309
 (955) 677
 5,031
Balance as of September 30, 2017$(17,710) 189
 (1,432) (18,953)

 Effect of foreign currency translation Other         Accumulated other comprehensive loss
Balance as of December 30, 2017$(8,084) (1,451) (9,535)
Other comprehensive income (loss), net(5,744) 570
 (5,174)
Balance as of June 30, 2018$(13,828) (881) (14,709)
(d) Dividends
The Company paid a quarterly dividend of $0.3225$0.3475 per share of common stock on March 22, 2017,21, 2018 and June 14, 2017, and September 6, 20172018 totaling approximately $29.6 million, $29.2$28.6 million and $29.1$28.8 million, respectively. On OctoberJuly 26, 2017,2018, the Company announced that its board of directors approved the next quarterly dividend of $0.3225$0.3475 per share of common stock payable December 6, 2017September 5, 2018 to shareholders of record as of the close of business on NovemberAugust 27, 2017.2018.
(8) Earnings per share
The computation of basic and diluted earnings per common share is as follows (in thousands, except for share and per share data):
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
Net income—basic and diluted$52,246
 52,712
 155,417
 139,456
$60,498
 51,092
 110,650
 95,385
Weighted average number of common shares:              
Common—basic90,290,361
 91,621,553
 91,051,458
 91,603,653
82,869,232
 91,207,455
 84,660,208
 91,432,007
Common—diluted91,433,076
 92,565,695
 92,386,611
 92,545,292
84,113,681
 92,606,525
 85,995,475
 92,863,378
Earnings per common share:              
Common—basic$0.58
 0.58
 1.71
 1.52
$0.73
 0.56
 1.31
 1.04
Common—diluted0.57
 0.57
 1.68
 1.51
0.72
 0.55
 1.29
 1.03
The weighted average number of common shares in the common diluted earnings per share calculation includes the dilutive effect of 1,142,7151,244,449 and 944,1421,399,070 equity awards for the three months ended SeptemberJune 30, 20172018 and September 24, 2016,July 1, 2017, respectively, and

includes the dilutive effect of 1,335,1531,335,267 and 941,6391,431,371 equity awards for the ninesix months ended SeptemberJune 30, 20172018 and September 24, 2016,July 1, 2017, respectively, using the treasury stock method. The weighted average number of common shares in the common diluted earnings per share calculation for all periods excludes all contingently issuable equity awards for which the contingent vesting criteria were not yet met as of the fiscal period end. As of SeptemberJune 30, 20172018 and September 24, 2016,July 1, 2017, there were 150,000256,350 restrictedand 150,000 shares, respectively, related to equity awards that were contingently issuable and for which the contingent vesting criteria were not yet met as of the fiscal period end. Additionally, the weighted average number of common shares in the common diluted earnings per share calculation excludes 1,315,258982,054 and 4,048,8781,123,482 equity awards for the three months ended SeptemberJune 30, 20172018 and September 24, 2016,July 1, 2017, respectively, and 1,524,7391,432,676 and 4,257,2371,629,480 equity awards for the ninesix months ended SeptemberJune 30, 20172018 and September 24, 2016,July 1, 2017, respectively, as they would be antidilutive.
(9) Commitments and contingencies
(a) Supply chain guarantees
The Company has various supply chain agreements that provide for purchase commitments, the majority of which result in the Company being contingently liable upon early termination of the agreement. As of SeptemberJune 30, 20172018 and December 31, 2016,30, 2017, the Company was contingently liable under such supply chain agreements for approximately $118.0$119.9 million and $136.2$116.7 million, respectively. For certain supply chain commitments, as product is purchased by the Company’s franchisees over the term of the agreement, the amount of the guarantee is reduced. The Company assesses the risk of performing under each of these guarantees on a quarterly basis, and, based on various factors including internal forecasts, prior history, and ability to extend contract terms, we accrued an immaterial amount of reserves related to supply chain commitments as of SeptemberJune 30, 20172018 and December 31, 2016.30, 2017.
(b) Letters of credit
As of each of SeptemberJune 30, 20172018 and December 31, 2016,30, 2017, the Company had standby letters of credit outstanding for a total of $25.9 million.$32.4 million and $32.3 million, respectively. There were no amounts drawn down on these letters of credit.
(c) Legal matters
The Company is engaged in several matters of litigation arising in the ordinary course of its business as a franchisor. Such matters include disputes related to compliance with the terms of franchise and development agreements, including claims or threats of claims of breach of contract, negligence, and other alleged violations by the Company. As of SeptemberJune 30, 2018 and December 30, 2017, and December 31, 2016, $6.3$1.7 million and $5.6$3.6 million, respectively, was included in other current liabilities in the consolidated balance sheets to reflect the Company’s estimate of the probable losses incurred in connection with all outstanding litigation.

(10) Related-party transactions
(a) Advertising funds
As of September 30, 2017 and December 31, 2016, the Company had a net payable of $62 thousand and $11.9 million, respectively, to the various advertising funds.
To cover administrative expenses of the advertising funds, the Company charges each advertising fund a management fee for items such as facilities, accounting services, information technology, data processing, product development, legal, administrative support services, and other operating expenses, as well as share-based compensation expense for employees that provide services directly to the advertising funds. Management fees totaled $2.8 million and $2.4 million for the three months ended September 30, 2017 and September 24, 2016, respectively, and $8.5 million and $7.3 million for the nine months ended September 30, 2017 and September 24, 2016, respectively. Such management fees are included in the consolidated statements of operations as a reduction in general and administrative expenses, net.
The Company made discretionary contributions to certain advertising funds for the purpose of supplementing national and regional advertising in certain markets of $33 thousand and $1.1 million during the three months ended September 30, 2017 and September 24, 2016, respectively, and $2.3 million and $1.1 million during the nine months ended September 30, 2017 and September 24, 2016, respectively. Additionally, the Company made contributions to the advertising funds based on retail sales at company-operated restaurants of $80 thousand and $594 thousand during the three and nine months ended September 24, 2016, respectively, which are included in company-operated restaurant expenses in the consolidated statements of operations. No such contributions were made during the three and nine months ended September 30, 2017, as the Company did not have any company-operated restaurants during these periods. The Company also funded advertising fund initiatives of $700 thousand and $762 thousand during the three months ended September 30, 2017 and September 24, 2016, respectively, and $1.9 million and $1.8 million during the nine months ended September 30, 2017 and September 24, 2016, respectively, which were contributed from the gift card breakage liability included within other current liabilities in the consolidated balance sheets (see note 5).
(b) Equity method investments
The Company recognized royalty incomerevenues from its equity method investees, consisting of royalty income and sales of ice cream and other products, as follows (in thousands):
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
B-R 31 Ice Cream Company., Ltd.$588
 686
 1,464
 1,577
$626
 587
 971
 876
BR-Korea Co., Ltd.1,122
 1,192
 3,174
 3,053
1,181
 1,035
 2,127
 2,052
Palm Oasis Ventures Pty. Ltd.768
 958
 1,473
 1,967
$1,710
 1,878
 4,638
 4,630
$2,575
 2,580
 4,571
 4,895
As of each of SeptemberJune 30, 20172018 and December 31, 2016,30, 2017, the Company had $1.1$4.4 million and $5.1 million, respectively, of royalties receivablereceivables from its equity method investees, which were recorded in accounts receivable, net of allowance for doubtful accounts, in the consolidated balance sheets.
The Company made net payments to its equity method investees totaling approximately $958$825 thousand and $713$742 thousand during the three months ended SeptemberJune 30, 20172018 and September 24, 2016,July 1, 2017, respectively, and $2.8$1.9 million and $2.3$1.8 million during the ninesix months ended SeptemberJune 30, 20172018 and September 24, 2016,July 1, 2017, respectively, primarily for the purchase of ice cream products.
The Company recognized $702 thousand
(11) Advertising funds
Assets and $790 thousand duringliabilities of the three months ended September 30, 2017 and September 24, 2016, respectively, and $2.7 million and $2.5 million during the nine months ended September 30, 2017 and September 24, 2016, respectively,advertising funds, which are restricted in their use, included in the consolidated statementsbalance sheets were as follows (in thousands):
 June 30,
2018
 December 30,
2017
Accounts receivable, net$21,359
 18,075
Notes and other receivables, net4,853
 1,250
Prepaid income taxes62
 48
Prepaid expenses and other current assets17,270
 15,498
Total current assets43,544
 34,871
Property, equipment, and software, net14,460
 12,537
Other assets1,466
 14
Total assets$59,470
 47,422
    
Accounts payable$50,005
 37,110
Deferred revenue—current(a)
(743) (550)
Other current liabilities24,574
 29,032
Total current liabilities73,836
 65,592
Deferred revenue—long-term(a)
(7,155) (7,518)
Other long-term liabilities23
 30
Total liabilities$66,704
 58,104
(a) Amounts represent franchisee incentives that have been deferred and are being recognized over the terms of operations from the sale of ice cream and other products to Palm Oasis Ventures Pty. Ltd. (“Australia JV”). As of September 30, 2017 and December 31, 2016, the Company had $2.4 million and $2.6 million, respectively, of net receivables from the Australia JV, consisting of accounts and notes receivable, net of current liabilities.respective franchise agreements.

(11)(12) Income taxes
In conjunction withOn December 22, 2017, the anticipated closingU.S. federal government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly changes U.S. tax law by, among other things, reducing the corporate income tax rate from 35% to 21% effective January 1, 2018, establishing a territorial-style system for taxing foreign-source income of domestic multinational corporations, and imposing a one-time mandatory transition tax on deemed repatriated earnings of certain foreign joint ventures and subsidiaries. As a result of the debt refinancing transaction and related issuance of the 2017 Notes (see note 4), management assessed the realizability of its unused foreign tax credits by considering whether it is more likely than not that some portion or all of the unused foreign tax credits will not be realized. The ultimate realization of these unused foreign tax credits is dependent upon the generation of future taxable income available to apply such foreign tax credits prior to their

expiration in fiscal years 2021 through 2026. In making this assessment, management considered all relevant factors, including projected future taxable income and tax planning strategies. Based upon the level of historical and projected future taxable income over the periods prior to expiration, including the expected incremental interest expense from the 2017 Notes, management does not believe it is more likely than not thatTax Act, the Company will realize therecorded a provisional net tax benefit of $143.4 million during fiscal year 2017.
The provisional amount included a $145.1 million tax benefit for the unusedremeasurement of certain U.S. deferred tax assets and liabilities. In addition, the provisional amount included a $1.7 million tax expense for the income tax on the deemed repatriation of unremitted foreign earnings, net of estimated foreign tax credits. As such, a valuation allowance of $8.9 millionThe provisional net tax benefit was recordedcomputed based on information available to the Company at the time. There have been no material changes to these provisional amounts during the six months ended June 30, 2018, and there is still uncertainty as to the application of the Tax Act, including as it relates to state income taxes, because regulations and interpretations have not been released. In addition, certain estimates were used in computing the provisional amount, which will be finalized upon the filing of the Company’s 2017 U.S. federal tax return. As we complete our analysis of U.S. tax reform in fiscal year 2018, we may make adjustments to the provisional amounts, which may impact our provision for income taxes forin the three and nine months ended September 30, 2017.period in which the adjustments are made.



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,” or “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 risks and uncertainties include, but are not limited to: the ongoing level of profitability of franchisees and licensees; our franchiseesfranchisees’ and licenseeslicensees’ ability to sustain same store sales growth; successful westward expansion; 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 success of our investments in the Dunkin' Donuts U.S. Blueprint for Growth; 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 impact of seasonal changes, including weather effects, on our business; the success of our growth strategy and international development; changes in commodity and food prices, particularly coffee, dairy products and sugar, and 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. 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 more than 20,00020,600 points of distribution in more than 60 countries worldwide, 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 SeptemberJune 30, 2017,2018, Dunkin’ Donuts had 12,43512,676 global points of distribution with restaurants in 4243 U.S. states, the District of Columbia, and 45 foreign countries. Baskin-Robbins had 7,9448,011 global points of distribution as of the same date, with restaurants in 4344 U.S. states, the District of Columbia, Puerto Rico, and 5154 foreign countries.
We are organized into fourfive reporting segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., Baskin-Robbins International, and Baskin-Robbins International.U.S. Advertising Funds. We generate revenue from fourfive primary sources: (i) royalty income and franchise fees associated with franchised restaurants, (ii) continuing advertising fees from Dunkin’ Donuts and Baskin-Robbins franchisees and breakage and other revenue related to the gift card program, (iii) rental income from restaurant properties that we lease or sublease to franchisees, (iii)(iv) sales of ice cream and other products to franchisees in certain international markets, and (iv)(v) other income including fees for the licensing of our brands for products sold in certain retail outlets, the licensing of the rights to manufacture Baskin-Robbins ice cream products sold to U.S. franchisees, refranchising gains, transfer fees from franchisees, and online training fees. Prior to completing the sale of all remaining company-operated restaurants in fiscal year 2016, we also generated revenue from retail store sales at our company-operated restaurants.
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 no company-operated points of distribution during fiscal year 2017,as of June 30, 2018, we are less affected by store-level costs, 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, research and development, and innovation personnel. Royalty payments and advertising fund contributions typically are made on a weekly basis for restaurants in the U.S., which limit our working capital needs. For the nine months ended September 30, 2017, franchisee contributions to the U.S. advertising funds were $330.1 million.

We operate and report financial information on a 52- or 53-week year on a 13-week quarter 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 when applicable with respect to the fourth fiscal quarter). The data periods contained within the three- and ninesix-month periods ended SeptemberJune 30, 20172018 and September 24, 2016July 1, 2017 reflect the results of operations for the 13-week and 39-week26-week periods ended on those dates.

Operating results for the three- and ninesix-month periods ended SeptemberJune 30, 20172018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 30, 201729, 2018.
As a result of the adoption of new guidance related to revenue recognition during fiscal year 2018 (see note 3 of the unaudited consolidated financial statements included herein), all prior period amounts included below have been restated to reflect the new guidance.
Selected operating and financial highlights
Amounts and percentages may not recalculate due to rounding
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
Financial data (in thousands):              
Total revenues$224,168
 207,099
 633,362
 613,184
$350,640
 334,176
 651,982
 630,534
Operating income122,033
 109,360
 326,876
 300,834
113,850
 106,836
 203,681
 193,609
Adjusted operating income127,910
 114,764
 343,520
 317,300
119,810
 112,229
 215,517
 204,376
Net income52,246
 52,712
 155,417
 139,456
60,498
 51,092
 110,650
 95,385
Adjusted net income55,772
 55,955
 165,403
 149,336
64,789
 54,328
 119,172
 101,845
Systemwide sales (in millions):              
Dunkin’ Donuts U.S.$2,166.3
 2,075.3
 6,298.4
 5,997.5
$2,275.6
 2,175.0
 4,291.5
 4,132.1
Dunkin’ Donuts International189.3
 177.5
 533.6
 519.9
183.5
 169.4
 373.7
 344.3
Baskin-Robbins U.S.177.0
 178.2
 493.6
 491.1
187.7
 187.5
 320.4
 316.6
Baskin-Robbins International382.2
 390.0
 1,021.8
 1,006.0
383.3
 370.7
 704.4
 639.5
Total systemwide sales$2,914.8
 2,821.0
 8,347.4
 8,014.5
$3,030.0
 2,902.6
 5,690.0
 5,432.5
Systemwide sales growth3.3 % 6.3 % 4.2 % 4.8 %4.4 % 4.6 % 4.7 % 4.6 %
Comparable store sales growth (decline):              
Dunkin’ Donuts U.S.0.6 % 2.0 % 0.5 % 1.4 %1.4 % 0.8 % 0.5 % 0.4 %
Dunkin’ Donuts International1.3 % (1.4)% (0.1)% (2.2)%4.0 % (2.8)% 2.8 % (1.3)%
Baskin-Robbins U.S.(0.4)% (0.9)% (1.1)% 1.1 %(0.4)% (0.9)% (0.8)% (1.4)%
Baskin-Robbins International(4.3)% (2.9)% (1.0)% (5.5)%(2.5)% 3.3 % 3.0 % 0.9 %

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 our franchisees and licensees, includingor joint ventures. While we do not record sales by franchisees licensees, or joint ventures as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe systemwide sales information aids in understanding how we derive royalty revenue and in evaluating our performance relative to competitors.
Comparable store sales growth (decline) for Dunkin’ Donuts U.S. and Baskin-Robbins U.S. is calculated by including only sales from franchisee- and company-operatedfranchisee-operated restaurants that have been open at least 78 weeks and that have reported sales in the current and comparable prior year week. Comparable store sales growth (decline) for Dunkin’ Donuts International and Baskin-Robbins International generally represents the growth (decline) in local currency average monthly sales for franchisee-operated restaurants, including joint ventures, that have been open at least 13 months and that have reported sales in the current and comparable prior year month.
Overall growth in systemwide sales of 3.3%4.4% and 4.2%4.7% for the three- and nine-monthsix-month periods ended SeptemberJune 30, 20172018 over the same periods in the prior fiscal year resulted from the following:
Dunkin’ Donuts U.S. systemwide sales growth of 4.4%4.6% and 5.0%3.9% for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, was primarily a result of 386313 net new restaurants opened since September 24, 2016July 1, 2017 and comparable store sales growth of 0.6%1.4% and 0.5%, respectively. The increases in comparable store sales were driven by increased average ticket, offset by a decline in traffic. Growth was primarily driven byComparable store sales of breakfast sandwiches. Beverage sales increased slightlygrowth for the three and six months ended SeptemberJune 30, 2017, led2018 was driven primarily by hotbreakfast sandwich sales and beverage sales, including iced coffee and espresso, offset by a decline in frozen beverages, while beverage sales decreased slightly for the nine months ended September 30, 2017 due primarily to a decline in hot coffee, offset by an increase in iced coffee, driven by Cold Brew sales.beverages.
Dunkin’ Donuts International systemwide sales growth of 6.7%8.3% and 2.6%8.6% for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, was primarily due to sales growth in Southeast Asia, the Middle East, South

America, and China, offset by a decline in South Korea. Systemwide sales for the three-month period was also driven by sales growth in Europe. Systemwide sales growth foracross all regions. For each of the nine-month period was also offset by a sales decline in India. For the three monthsthree- and six-month periods ended SeptemberJune 30, 2017,2018, sales in South Korea and Europe were positively impacted by foreign exchange rates, whilerates. Additionally, for the six months ended June 30, 2018, sales in Southeast Asia were negatively impacted by foreign exchange rates. For the nine months ended September 30, 2017, sales in South Korea and SouthLatin America were positively impacted by foreign exchange rates, while sales in Southeast Asia were negatively impacted by foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 7%6% and 2%5% for the three and ninesix months ended September

June 30, 2017,2018, respectively. Dunkin’ Donuts International comparable store sales grew 1.3%4.0% and 2.8% for the three and six months ended SeptemberJune 30, 2017,2018, respectively, due primarily to growth in Southeast Asia South America, and the Middle East, offset by declines in South Korea and Europe. Dunkin’ Donuts International comparable store sales declined 0.1% for the nine months ended September 30, 2017, due primarily to declines in South Korea and Europe, offset by gains in Southeast Asia and South America.East.
Baskin-Robbins U.S. systemwide sales decline of 0.7%grew 0.1% and 1.2% for the three and six months ended SeptemberJune 30, 2017 was2018, respectively, primarily as a result of comparable10 net new restaurants opened since July 1, 2017. Comparable store sales declines ofdeclined 0.4% and 0.8% for the three and six months ended SeptemberJune 30, 2017 driven by decreases2018, respectively, as a decrease in sales of sundaes, desserts, and beverages,traffic was offset by an increase in average ticket. Sales of beverages, including shakes and smoothies, as well as the take-home products. Systemwide sales growth of 0.5% for the nine months ended September 30, 2017 was driven by the addition of 29 net new restaurants opened since September 24, 2016, offset by comparable sales decline of 1.1%. For the nine months ended September 30, 2017, sales of cups and cones, desserts, and beverages decreased, offset by increased sales in take-home products. Forcategory, grew during the three and ninesix months ended SeptemberJune 30, 2017, traffic declined and average ticket increased.2018.
Baskin-Robbins International systemwide sales declinegrowth of 2.0%3.4% and 10.1% for the three and six months ended SeptemberJune 30, 20172018, respectively, was driven by sales declines in South Korea and Japan, offset by growth in the Middle East and Southeast Asia. Systemwide sales growth of 1.6% for the nine months ended September 30, 2017 was driven by growth in South Korea, Southeast Asia, India, and Canada, offset by declinesa decline in Japan, China, Europe, and the Middle East. Sales in Japan declined for the three-month period, while they grew for the six-month period. Sales in South Korea and Japan were negativelypositively impacted by favorable foreign exchange rates for botheach of the three- and nine-monthsix-month periods whileended June 30, 2018. Additionally, sales in South KoreaAsia were positively impacted by favorable foreign exchange rates for the nine-monthsix-month period. On a constant currency basis, systemwide sales increased by approximately 1% and 2%6% for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively. Baskin-Robbins International comparable store sales declines of 4.3% and 1.0%declined 2.5% for the three and nine months ended SeptemberJune 30, 2017 was2018 driven primarily by declines in Japan and the Middle East. Also contributing to the declineEast, offset by growth in comparableSouth Korea. Comparable store sales growth of 3.0% for the threesix months ended SeptemberJune 30, 20172018 was driven primarily by growth in South Korea and Japan, offset by a decline in South Korea.the Middle East.
Changes in systemwide sales are impacted, in part, by changes in the number of points of distribution. Points of distribution and net openings as of and for the three and ninesix months ended SeptemberJune 30, 20172018 and September 24, 2016July 1, 2017 were as follows:
September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
Points of distribution, at period end:      
Dunkin’ Donuts U.S.9,015
 8,629
9,261
 8,948
Dunkin’ Donuts International3,420
 3,379
3,415
 3,402
Baskin-Robbins U.S.2,562
 2,533
2,561
 2,551
Baskin-Robbins International5,382
 5,243
5,450
 5,341
Consolidated global points of distribution20,379
 19,784
20,687
 20,242
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
Net openings (closings) during the period:              
Dunkin’ Donuts U.S.67
 56
 187
 198
64
 64
 120
 120
Dunkin’ Donuts International18
 11
 (10) 60
14
 (1) 18
 (28)
Baskin-Robbins U.S.11
 3
 24
 4
(5) 12
 1
 13
Baskin-Robbins International41
 45
 98
 165
23
 58
 28
 57
Consolidated global net openings137
 115
 299
 427
96
 133
 167
 162
Total revenues for the three and six months ended SeptemberJune 30, 20172018 increased $17.1$16.5 million, or 8.2%4.9%, and $21.4 million, or 3.4%, respectively, due primarily to an increase in franchise fees and royalty income driven by additional renewal income and Dunkin’ Donuts U.S. systemwide sales growth.

Also contributing to the increase in revenues was an increase in other revenues driven by license fees related to Dunkin’ Donuts K-Cup® pods and ready-to-drink bottled iced coffee, as well as increased transfer fee income.
Total revenues for the nine months ended September 30, 2017 increased $20.2 million, or 3.3%, due primarily to an increaseincreases in franchise fees and royalty income driven by Dunkin’ Donuts U.S. systemwide sales growth, and additional renewal income, as well as advertising fees and related income. The increases in advertising fees and related income were due primarily to additional gift card program service fees and an increase in rental income due to an increaseadvertising fees, offset by a decline in the number of leases for franchised locations.breakage income. Also contributing to the increaseincreases in revenues was an increasewere increases in other revenues driven primarily by license fees related to Dunkin’ Donuts K-Cup® pods, offset by timing of refranchising gains.pods. These increases in revenues were offset by a decreasedecreases in sales at company-operated restaurants as there were no company-operated points of distribution during 2017.ice cream and other products.
Operating income and adjusted operating income for the three months ended SeptemberJune 30, 20172018 increased $12.7$7.0 million, or 11.6%6.6%, and $13.1$7.6 million, or 11.5%6.8%, respectively, from the prior year period primarily as a result of the increase in revenues. The increase in revenues was offset by an increase in general and administrative expenses, as well as gains recognized in connection with the sale of company-operated restaurants in the prior year period.
Operating income and adjusted operating income for the ninesix months ended SeptemberJune 30, 20172018 increased $26.0$10.1 million, or 8.7%5.2%, and $26.2$11.1 million, or 8.3%5.5%, respectively, from the prior year period. The increases were primarily a result of the increasesincrease in franchise fees and royalty income rentaland a reduction of general and administrative expenses, offset by a decrease in net margin and other revenues.on ice cream due primarily to an increase in commodity costs. Additionally, the prior year periods were unfavorably impacted by the operating results of company-operated restaurants. The increases in operating income and adjustedadjusting operating income for the six-month period were negatively impactedoffset by gains recognizeda decrease in connection with the sale of company-operated restaurants in the prior year period, as well an increase in general and administrative expenses.net income from our South Korea joint venture.
Net income and adjusted net income for the three months ended SeptemberJune 30, 2017 decreased $0.52018 increased $9.4 million, or 0.9%18.4%, and $0.2$10.5 million, or 0.3%19.3%, respectively, primarily a result of an increase in income tax expense.respectively. Net income and adjusted net income for the ninesix months ended SeptemberJune 30, 20172018 increased $16.0 $15.3

million, or 11.4%16.0%, and $16.1$17.3 million, or 10.8%17.0%, respectively,respectively. These increases were primarily as a result of the increases in operating income and adjusted operating income, offset by an increase in tax expense. Income tax expense for the three and nine months ended September 30, 2017 included a valuation allowance recorded on foreign tax credit carryforwards of $8.9 million primarily resulting from expected incremental interest expense from the debt refinancing transaction that closed in October 2017, negatively impacting the realizability of such carryforwards (see note 11 to the unaudited consolidated financial statements included herein). This increasedecrease in income tax expense was offset byand the increases in operating income and adjusted operating income. Additionally,The decrease in income tax expense forwas driven by a lower tax rate due to the nine months ended September 30,enactment of the Tax Cuts and Jobs Act in the fourth quarter of fiscal year 2017 included $7.3 million ofand an increase in excess tax benefits from share-based compensation, which are now includedcompensation. The increases in net income and adjusted net income were offset by an increase in net interest expense driven by additional borrowings incurred in conjunction with the provision for income taxes as a result ofrefinancing transaction completed during the required adoption of a new accounting standard in the firstfourth quarter of 2017 (see note 2(f) to the unaudited consolidated financial statements included herein).fiscal year 2017.
Adjusted operating income and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for amortization of intangible assets, long-lived asset impairments, impairment of our equity method investments, and certain other non-recurring, infrequent, or unusual charges, net of the tax impact of such adjustments in the case of adjusted net income. We use 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, respectively, determined under GAAP as follows:
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
(In thousands)(In thousands)
Operating income$122,033
 109,360
 326,876
 300,834
$113,850
 106,836
 203,681
 193,609
Adjustments:              
Amortization of other intangible assets5,341
 5,397
 16,001
 16,726
5,307
 5,333
 10,682
 10,660
Long-lived asset impairment charges536
 7
 643
 104
653
 60
 1,154
 107
Transaction-related costs(a)

 
 
 64
Bertico and related litigation
 
 
 (428)
Adjusted operating income$127,910
 114,764
 343,520

317,300
$119,810
 112,229
 215,517

204,376
       
Net income$52,246
 52,712
 155,417
 139,456
$60,498
 51,092
 110,650
 95,385
Adjustments:              
Amortization of other intangible assets5,341
 5,397
 16,001
 16,726
5,307
 5,333
 10,682
 10,660
Long-lived asset impairment charges536
 7
 643
 104
653
 60
 1,154
 107
Transaction-related costs(a)

 
 
 64
Bertico and related litigation
 
 
 (428)
Tax impact of adjustments(b)
(2,351) (2,161) (6,658) (6,586)
Tax impact of adjustments(a)
(1,669) (2,157) (3,314) (4,307)
Adjusted net income$55,772
 55,955
 165,403
 149,336
$64,789
 54,328
 119,172
 101,845
(a)Represents non-capitalizable costs incurred as a result of the securitized financing facility.
(b)Tax impact of adjustments calculated at a 40% effective tax rate.rates of 28% for the three and six months ended June 30, 2018 and 40% for the three and six months ended July 1, 2017.

Earnings per share
Earnings per share and diluted adjusted earnings per share were as follows:
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
Earnings per share:              
Common—basic$0.58
 0.58
 1.71
 1.52
$0.73
 0.56
 1.31
 1.04
Common—diluted0.57
 0.57
 1.68
 1.51
0.72
 0.55
 1.29
 1.03
Diluted adjusted earnings per share0.61
 0.60
 1.79
 1.61
0.77
 0.59
 1.39
 1.10
Diluted adjusted earnings per share is calculated using adjusted net income, as defined above, and diluted weighted average shares outstanding. Diluted adjusted earnings per share is not a presentation made in accordance with GAAP, and our use of the term diluted adjusted earnings per 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 share should not be considered as an alternative to earnings per share derived in accordance with GAAP. Diluted adjusted earnings per 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 share is appropriate to provide investors with useful information regarding our historical operating results.

The following table sets forth the computation of diluted adjusted earnings per share:
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
(In thousands, except share and per share data)(In thousands, except share and per share data)
Adjusted net income$55,772
 55,955
 165,403
 149,336
$64,789
 54,328
 119,172
 101,845
Weighted average number of common shares—diluted91,433,076
 92,565,695
 92,386,611
 92,545,292
84,113,681
 92,606,525
 85,995,475
 92,863,378
Diluted adjusted earnings per share$0.61
 0.60
 1.79
 1.61
$0.77
 0.59
 1.39
 1.10


Results of operations
Consolidated results of operations
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 Increase (Decrease) September 30,
2017
 September 24,
2016
 Increase (Decrease)June 30,
2018
 July 1,
2017
 Increase (Decrease) June 30,
2018
 July 1,
2017
 Increase (Decrease)
$ % $ %$ % $ %
(In thousands, except percentages)(In thousands, except percentages)
Franchise fees and royalty income$151,809
 138,639
 13,170
 9.5 % $426,944
 399,617
 27,327
 6.8 %$151,242
 143,894
 7,348
 5.1 % $283,749
 271,609
 12,140
 4.5 %
Advertising fees and related income131,539
 122,361
 9,178
 7.5 % 242,546
 232,564
 9,982
 4.3 %
Rental income27,713
 26,880
 833
 3.1 % 79,543
 75,874
 3,669
 4.8 %27,400
 27,408
 (8) (0.0)% 51,878
 51,830
 48
 0.1 %
Sales of ice cream and other products27,551
 26,568
 983
 3.7 % 85,710
 86,425
 (715) (0.8)%28,140
 28,679
 (539) (1.9)% 49,917
 51,185
 (1,268) (2.5)%
Sales at company-operated restaurants
 1,611
 (1,611) (100.0)% 
 11,924
 (11,924) (100.0)%
Other revenues17,095
 13,401
 3,694
 27.6 % 41,165
 39,344
 1,821
 4.6 %12,319
 11,834
 485
 4.1 % 23,892
 23,346
 546
 2.3 %
Total revenues$224,168
 207,099
 17,069
 8.2 % $633,362
 613,184
 20,178
 3.3 %$350,640
 334,176
 16,464
 4.9 % $651,982
 630,534
 21,448
 3.4 %
Total revenues for the three and six months ended SeptemberJune 30, 20172018 increased $17.1$16.5 million, or 8.2%4.9%, and $21.4 million, or 3.4%, respectively, due primarily to an increase in franchise fees and royalty income driven by additional renewal income and Dunkin’ Donuts U.S. systemwide sales growth. Also contributing to the increase in revenues was an increase in other revenues driven by license fees related to Dunkin’ Donuts K-Cup® pods and ready-to-drink bottled iced coffee, as well as increased transfer fee income.
Total revenues for the nine months ended September 30, 2017 increased $20.2 million, or 3.3%, due primarily to an increaseincreases in franchise fees and royalty income driven by Dunkin’ Donuts U.S. systemwide sales growth, and additional renewal income, as well as an increaseadvertising fees and related income. The increases in rentaladvertising fees and related income were due primarily to an increaseadditional gift card program service fees and increases in the number of leases for franchised locations.advertising fees, offset by declines in breakage income. Also contributing to the increaseincreases in revenues was an increasewere increases in other revenues driven primarily by license fees related to Dunkin’ Donuts K-Cup® pods, offset by timing of refranchising gains.pods. These increases in revenues were offset by a decreasedecreases in sales at company-operated restaurants as there were no company-operated points of distribution during 2017.ice cream and other products.

Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 Increase (Decrease) September 30,
2017
 September 24,
2016
 Increase (Decrease)June 30,
2018
 July 1,
2017
 Increase (Decrease) June 30,
2018
 July 1,
2017
 Increase (Decrease)
$ % $ %$ % $ %
(In thousands, except percentages)(In thousands, except percentages)
Occupancy expenses—franchised restaurants$15,333
 15,881
 (548) (3.5)% $43,758
 42,691
 1,067
 2.5 %$14,314
 14,287
 27
 0.2 % $28,294
 28,425
 (131) (0.5)%
Cost of ice cream and other products19,457
 18,384
 1,073
 5.8 % 58,578
 58,445
 133
 0.2 %22,781
 22,199
 582
 2.6 % 39,645
 39,121
 524
 1.3 %
Company-operated restaurant expenses
 1,682
 (1,682) (100.0)% 
 13,472
 (13,472) (100.0)%
Advertising expenses132,579
 123,676
 8,903
 7.2 % 244,551
 234,748
 9,803
 4.2 %
General and administrative expenses, net61,996
 59,374
 2,622
 4.4 % 185,613
 184,028
 1,585
 0.9 %59,301
 61,074
 (1,773) (2.9)% 119,125
 121,443
 (2,318) (1.9)%
Depreciation and amortization10,282
 10,447
 (165) (1.6)% 31,097
 32,087
 (990) (3.1)%10,432
 10,404
 28
 0.3 % 20,840
 20,815
 25
 0.1 %
Long-lived asset impairment charges536
 7
 529
 7,557.1 % 643
 104
 539
 518.3 %653
 60
 593
 988.3 % 1,154
 107
 1,047
 978.5 %
Total operating costs and expenses$107,604
 105,775
 1,829
 1.7 % $319,689
 330,827
 (11,138) (3.4)%$240,060
 231,700
 8,360
 3.6 % $453,609
 444,659
 8,950
 2.0 %
Net income of equity method investments5,466
 5,467
 (1) (0.0 )% 12,612
 12,148
 464
 3.8 %3,845
 4,327
 (482) (11.1)% 5,878
 7,146
 (1,268) (17.7)%
Other operating income, net3
 2,569
 (2,566) (99.9)% 591
 6,329
 (5,738) (90.7)%
Other operating income (loss), net(575) 33
 (608) (1,842.4)% (570) 588
 (1,158) (196.9)%
Operating income$122,033
 109,360
 12,673
 11.6 % $326,876
 300,834
 26,042
 8.7 %$113,850
 106,836
 7,014
 6.6 % $203,681
 193,609
 10,072
 5.2 %
Occupancy expenses for franchised restaurants for the three months ended SeptemberJune 30, 2017 decreased $0.5 million due primarily to expenses incurred in2018 remained consistent with the prior year period to record lease-related liabilities as a result of lease terminations.period. Occupancy expenses for franchised restaurants for the ninesix months ended SeptemberJune 30, 2017 increased $1.12018 decreased $0.1 million due primarily to to an increase in the numbertiming of leases for franchised locations, offset by the expenses incurred in the prior year period to record lease-related liabilities as a result of lease terminations.liabilities.
Net margin on ice cream and other products for the three and ninesix months ended SeptemberJune 30, 20172018 decreased $0.1$1.1 million, or 1.1%17.3%, and $0.8$1.8 million, or 3.0%14.9%, respectively, due primarily to an increase in commodity costs. Additionally, the decrease in net margin on ice cream
Advertising expenses increased $8.9 million and other products for the three-month period was offset by an increase in sales volume.
Company-operated restaurant expenses$9.8 million for the three and ninesix months ended SeptemberJune 30, 2017 decreased $1.7 million and $13.5 million,2018, respectively, as all remaining company-operated points of distribution were solddriven by the end of fiscal 2016.increases in advertising fees and related income.
General and administrative expenses for the three and six months ended SeptemberJune 30, 2017 increased $2.62018 decreased $1.8 million driven by increased incentive compensation expense. General and administrative expenses for the nine months ended September 30, 2017 increased $1.6$2.3 million, respectively, due primarily to increased incentive compensation expense and other personnel costs, as well as costs incurred to support brand-building activities offset byin the prior year periods, as well as decreases in professional feespersonnel costs and othertravel expenses. Offsetting these decreases in general expenses.and administrative expenses were expenses incurred in the second quarter of fiscal year 2018 to support initiatives for the Dunkin’ Donuts U.S. “Blueprint for Growth,” our multi-year strategic growth plan.
Depreciation and amortization for each of the three and ninesix months ended SeptemberJune 30, 2017 decreased $0.2 million and $1.0 million, respectively, due primarily to certain intangible assets becoming fully amortized and favorable lease intangible assets being written-off upon termination of2018 remained consistent with the related leases.respective prior year periods.
Long-lived asset impairment charges for each of the three and ninesix months ended SeptemberJune 30, 20172018 increased $0.5$0.6 million and $1.0 million, respectively, from the prior year periods. Such charges generally fluctuate based on the timing of lease terminations and the related write-off of favorable lease intangible assets and leasehold improvements.

Net income of equity method investments for the three and six months ended SeptemberJune 30, 2017 remained consistent with the prior year period. Net income of equity method investments for the nine months ended September 30, 2017 increased2018 decreased $0.5 million and $1.3 million, respectively, primarily as a result of an increasedecreases in net income from our South Korea and Japan joint venture.ventures.
Other operating income (loss), net, which includes net gains and losses recognized in connection with the sale or disposal of real estate,property, equipment, and software, fluctuates based on the timing of such transactions. Other operating income, net, for the three and nine months ended September 24, 2016 includes gains of $2.5 million and $4.6 million, respectively, recognized in connection with the sale of company-operated restaurants.

Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 Increase (Decrease) September 30,
2017
 September 24,
2016
 Increase (Decrease)June 30,
2018
 July 1,
2017
 Increase (Decrease) June 30,
2018
 July 1,
2017
 Increase (Decrease)
$ % $ %$ % $ %
(In thousands, except percentages)(In thousands, except percentages)
Interest expense, net$23,812
 24,442
 (630) (2.6)% $72,822
 74,022
 (1,200) (1.6)%$31,022
 24,460
 6,562
 26.8% $61,857
 49,010
 12,847
 26.2%
Other losses (income), net(155) 124
 (279) (225.0)% (370) 596
 (966) (162.1)%272
 (28) 300
 n/m
 599
 (215) 814
 n/m
Total other expense$23,657
 24,566
 (909) (3.7)% $72,452
 74,618
 (2,166) (2.9)%$31,294
 24,432
 6,862
 28.1% $62,456
 48,795
 13,661
 28.0%
Net interest expense decreased $0.6increased $6.6 million and $1.2$12.8 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, driven primarily by the securitization refinancing transaction that occurred in October 2017, which resulted in additional borrowings and an increase in the weighted average interest rate, offset by an increase in interest income earned on our cash balances, as well as a decrease in interest expense due to a lower principal balance as a result of principal payments made on our long-term debt since the prior year periods.balances.
The fluctuation in other losses (income), net, for the three and ninesix months ended SeptemberJune 30, 20172018 resulted primarily from net foreign exchange gains and losses driven primarily by fluctuations in the U.S. dollar against foreign currencies.
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
 June 30,
2018
 July 1,
2017
(In thousands, except percentages)(In thousands, except percentages)
Income before income taxes$98,376
 84,794
 254,424
 226,216
$82,556
 82,404
 141,225
 144,814
Provision for income taxes46,130
 32,082
 99,007
 86,760
22,058
 31,312
 30,575
 49,429
Effective tax rate46.9% 37.8% 38.9% 38.4%26.7% 38.0% 21.6% 34.1%
The increasedecrease in the effective tax rate for the three and ninesix months ended SeptemberJune 30, 20172018 was primarily driven by a valuation allowance recorded on foreign tax credit carryforwardsthe enactment of $8.9 million primarily resulting from expected incremental interest expense from the debt refinancing transaction that closed in October 2017, negatively impacting the realizability of such carryforwards (see note 11 to the unaudited consolidated financial statements included herein). This increaseTax Cuts and Jobs Act in the effectivefourth quarter of fiscal year 2017 which reduced the enacted corporate tax rate was offset byrate. Additionally, excess tax benefits from share-based compensation of $0.5reduced the provision for income taxes by $1.4 million and $7.3$9.0 million for the three and ninesix months ended SeptemberJune 30, 2018, respectively, compared to $0.7 million and $6.8 million for the three and six months ended July 1, 2017, respectively, which are now included in the provision for income taxes as a result of the required adoption of a new accounting standard (see note 2(f) to the unaudited consolidated financial statements included herein).respectively.
Operating segments
We operate fourfive reportable operating segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., Baskin-Robbins International, and Baskin-Robbins International.U.S. Advertising Funds. We evaluate the performance of our segments and allocate resources to them based on operating income adjusted for amortization of intangible assets, long-lived asset impairment charges, and other infrequent or unusual charges, which does not reflect the allocation of any corporate charges. This profitability measure is referred to as segment profit. Segment profit for the Dunkin’ Donuts International and Baskin-Robbins International segments includes net income of equity method investments, except for the other-than-temporary impairment charges and the related reduction in depreciation, and amortization, net of tax, on the underlying long-lived assets.
For reconciliations to total revenues and income before income taxes, see note 6 to the unaudited consolidated financial statements included herein. Revenues for all segments include only transactions with unaffiliated customers and include no intersegment revenues. Revenues not included in segment revenues include revenue earned through certain licensing arrangements with third parties in which our brand names are used, revenue generated from online training programs for franchisees, and revenues frombreakage and other revenue related to the sale of Dunkin’ Donuts products in certain international markets,gift card program, all of which are not allocated to a specific segment.

Dunkin’ Donuts U.S.
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 Increase (Decrease) September 30,
2017
 September 24,
2016
 Increase (Decrease)June 30,
2018
 July 1,
2017
 Increase (Decrease) June 30,
2018
 July 1,
2017
 Increase (Decrease)
$ % $ %$ % $ %
(In thousands, except percentages)(In thousands, except percentages)
Royalty income$118,831
 113,281
 5,550
 4.9 % $345,103
 326,835
 18,268
 5.6 %$125,221
 119,096
 6,125
 5.1 % $236,054
 226,271
 9,783
 4.3 %
Franchise fees16,635
 9,852
 6,783
 68.8 % 35,943
 26,257
 9,686
 36.9 %4,765
 4,564
 201
 4.4 % 9,472
 8,862
 610
 6.9 %
Rental income26,786
 25,972
 814
 3.1 % 76,842
 73,285
 3,557
 4.9 %26,506
 26,533
 (27) (0.1)% 50,097
 50,057
 40
 0.1 %
Sales at company-operated restaurants
 1,611
 (1,611) (100.0)% 
 11,924
 (11,924) (100.0)%
Other revenues2,854
 1,709
 1,145
 67.0 % 6,260
 6,597
 (337) (5.1)%898
 798
 100
 12.5 % 1,678
 1,841
 (163) (8.9)%
Total revenues$165,106
 152,425
 12,681
 8.3 % $464,148
 444,898
 19,250
 4.3 %$157,390
 150,991
 6,399
 4.2 % $297,301
 287,031
 10,270
 3.6 %
Segment profit$129,719
 119,434
 10,285
 8.6 % $360,241
 335,963
 24,278
 7.2 %$119,562
 116,113
 3,449
 3.0 % $224,625
 217,807
 6,818
 3.1 %
Dunkin’ Donuts U.S. revenues increased $12.7$6.4 million and $19.3$10.3 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, due primarily to increased franchise fees driven by additional renewal income and increasedincreases in royalty income driven by systemwide sales growth. Also contributing to the increase in revenues for the three months ended September 30, 2017 was an increase in other revenues driven by transfer fee income. Additionally, the increase in revenues for the nine months ended September 30, 2017 was due to an increase in rental income driven by an increase in the number of leases for franchised locations. Thesegrowth, as well as increases in revenues were offset by a decline in sales at company-operated restaurants as there were no company-operated points of distribution during 2017.franchise fees.
Dunkin’ Donuts U.S. segment profit increased $10.3$3.4 million and $6.8 million for the three and six months ended SeptemberJune 30, 20172018, respectively, which was driven primarily by the increases in franchise fees, royalty income and other revenues, as well as lease-related liabilities recorded in the prior year period as a result of lease terminations. Thefranchise fees, offset by increases in segment profit were negatively impacted by an increase in general and administrative expenses, as well as gainsdue primarily to expenses incurred in the second quarter of fiscal year 2018 to support the Dunkin’ Donuts U.S. Blueprint for Growth initiatives. Additionally, the increase to segment profit for the six-month period was offset by a gain recognized in connection with the sale of company-operated restaurantsreal estate in the prior year period.
Dunkin’ Donuts U.S. segment profit increased $24.3 million for the nine months ended September 30, 2017 driven primarily by the increases in royalty income, franchise fees, and rental margin. Additionally, the prior year period was unfavorably impacted by the operating results of company-operated restaurants. The increases in segment profit were negatively impacted by gains recognized in connection with the sale of company-operated restaurants in the prior year period, as well as an increase in general and administrative expenses.
Dunkin’ Donuts International
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 Increase (Decrease) September 30,
2017
 September 24,
2016
 Increase (Decrease)June 30,
2018
 July 1,
2017
 Increase (Decrease) June 30,
2018
 July 1,
2017
 Increase (Decrease)
$ % $ %$ % $ %
(In thousands, except percentages)(In thousands, except percentages)
Royalty income$4,442
 4,125
 317
 7.7% $13,011
 12,583
 428
 3.4 %$4,732
 4,157
 575
 13.8% $9,670
 8,569
 1,101
 12.8%
Franchise fees704
 323
 381
 118.0% 1,958
 3,856
 (1,898) (49.2)%535
 475
 60
 12.6% 983
 908
 75
 8.3%
Other revenues11
 1
 10
 1,000.0% (22) 478
 (500) (104.6)%(9) (20) 11
 n/m
 (30) (32) 2
 n/m
Total revenues$5,157
 4,449
 708
 15.9% $14,947
 16,917
 (1,970) (11.6)%$5,258
 4,612
 646
 14.0% $10,623
 9,445
 1,178
 12.5%
Segment profit$1,439
 705
 734
 104.1% $4,782
 6,438
 (1,656) (25.7)%$3,503
 1,571
 1,932
 123.0% $6,709
 2,998
 3,711
 123.8%
Dunkin’ Donuts International revenues for the three and six months ended SeptemberJune 30, 20172018 increased by $0.7$0.6 million due primarily to increased franchise fees and royalty income.
Dunkin’ Donuts International revenues for the nine months ended September 30, 2017 decreased by $2.0$1.2 million, respectively, primarily as a result of a decline in franchise fees, as well as a decrease in other revenues due to a decrease in transfer fees, offset by an increaseincreases in royalty income. The decline in franchise fees for the nine-month period was due primarily to a significant market development fee recognized upon entry into a new market in the prior year period.

income driven by systemwide sales growth.
Segment profit for Dunkin’ Donuts International for the three and six months ended SeptemberJune 30, 20172018 increased $0.7$1.9 million and $3.7 million, respectively, primarily as a result of the increase in revenues, and a decreaseas well as decreases in both general and administrative expenses and advertising expenses. These increases in segment profit for the six-month period were offset by a decreasean increase in net incomeloss from our South Korea joint venture.
Segment profit for Dunkin’ Donuts International for the nine months ended September 30, 2017 decreased $1.7 million primarily as a result of the decrease in revenues and a decrease in net income from our South Korea joint venture, offset by a decrease in general and administrative expenses.
Baskin-Robbins U.S.
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 Increase (Decrease) September 30,
2017
 September 24,
2016
 Increase (Decrease)June 30,
2018
 July 1,
2017
 Increase (Decrease) June 30,
2018
 July 1,
2017
 Increase (Decrease)
$ % $ %$ % $ %
(In thousands, except percentages)(In thousands, except percentages)
Royalty income$8,501
 8,499
 2
 0.0 % $24,265
 23,546
 719
 3.1 %$9,005
 9,080
 (75) (0.8)% $15,414
 15,764
 (350) (2.2)%
Franchise fees557
 273
 284
 104.0 % 885
 790
 95
 12.0 %303
 193
 110
 57.0 % 592
 399
 193
 48.4 %
Rental income798
 787
 11
 1.4 % 2,346
 2,221
 125
 5.6 %763
 763
 
  % 1,530
 1,547
 (17) (1.1)%
Sales of ice cream and other products771
 805
 (34) (4.2)% 2,179
 2,037
 142
 7.0 %842
 883
 (41) (4.6)% 1,520
 1,409
 111
 7.9 %
Other revenues3,124
 3,417
 (293) (8.6)% 8,970
 9,486
 (516) (5.4)%3,186
 3,337
 (151) (4.5)% 5,556
 5,714
 (158) (2.8)%
Total revenues$13,751
 13,781
 (30) (0.2)% $38,645
 38,080
 565
 1.5 %$14,099
 14,256
 (157) (1.1)% $24,612
 24,833
 (221) (0.9)%
Segment profit$10,466
 11,085
 (619) (5.6)% $28,773
 29,123
 (350) (1.2)%$10,622
 10,865
 (243) (2.2)% $17,857
 18,248
 (391) (2.1)%
Baskin-Robbins U.S. revenues for each of the three and six months ended SeptemberJune 30, 20172018 decreased slightly$0.2 million due primarily to adecreases in royalty income and other revenues, offset by increases in franchise fees. Additionally, the decrease in other revenues driven by a decrease in licensing income,for the six-month period was offset by an increase in franchise fees driven by additional renewal income.
Baskin-Robbins U.S. revenues for the nine months ended September 30, 2017 increased $0.6 million due primarily to an increase in royalty income, sales of ice cream and other products, and rental income, offset by a decrease in other revenues driven by a decrease in licensing income.products.
Baskin-Robbins U.S. segment profit for the three and six months ended SeptemberJune 30, 20172018 decreased $0.6$0.2 million dueand $0.4 million, respectively, primarily to an increaseas a result of the decreases in total revenues, as well as increases in general and administrative expenses.
Baskin-Robbins U.S. segment profit for the nine months ended September 30, 2017 decreased $0.4 million due primarily to increases in general and administrative expenses and a decrease in other revenues driven by a decrease in licensing income, offset by the increase in royalty income.
Baskin-Robbins International
Three months ended Nine months endedThree months ended Six months ended
September 30,
2017
 September 24,
2016
 Increase (Decrease) September 30,
2017
 September 24,
2016
 Increase (Decrease)June 30,
2018
 July 1,
2017
 Increase (Decrease) June 30,
2018
 July 1,
2017
 Increase (Decrease)
$ % $ %$ % $ %
(In thousands, except percentages)(In thousands, except percentages)
Royalty income$1,966
 2,081
 (115) (5.5)% $5,255
 5,226
 29
 0.6 %$2,154
 1,858
 296
 15.9 % $3,697
 3,289
 408
 12.4 %
Franchise fees173
 205
 (32) (15.6)% 524
 524
 
  %251
 288
 (37) (12.8)% 457
 573
 (116) (20.2)%
Rental income129
 121
 8
 6.6 % 355
 340
 15
 4.4 %131
 112
 19
 17.0 % 251
 226
 25
 11.1 %
Sales of ice cream and other products26,512
 25,340
 1,172
 4.6 % 82,602
 83,119
 (517) (0.6)%31,409
 31,685
 (276) (0.9)% 55,381
 56,089
 (708) (1.3)%
Other revenues30
 157
 (127) (80.9)% 140
 369
 (229) (62.1)%73
 64
 9
 14.1 % 120
 110
 10
 9.1 %
Total revenues$28,810
 27,904
 906
 3.2 % $88,876
 89,578
 (702) (0.8)%$34,018
 34,007
 11
 0.0 % $59,906
 60,287
 (381) (0.6)%
Segment profit$11,420
 11,154
 266
 2.4 % $31,900
 30,617
 1,283
 4.2 %$11,526
 12,530
 (1,004) (8.0)% $18,967
 20,701
 (1,734) (8.4)%
Baskin-Robbins International revenues for the three months ended SeptemberJune 30, 2017 increased $0.9 million due primarily to2018 were consistent with the prior year period as an increase in sales of ice cream products to our licensees in the Middle East,royalty income was offset by decreases in royalty income and other revenues.

Baskin-Robbins International revenues for the nine months ended September 30, 2017 decreased $0.7 million due primarily to a decrease in sales of ice cream and other products.
Baskin-Robbins International revenues for the six months ended June 30, 2018 decreased $0.4 million due primarily to decreases in sales of ice cream products to our licenseesand franchise fees, offset by an increase in the Middle East, as well as a decrease in other revenues.royalty income.
Baskin-Robbins International segment profit for the three months ended SeptemberJune 30, 2017 increased $0.32018 decreased $1.0 million as a result of an increase in net income from our Japan joint venture, as well as an increasea decrease in net margin on ice cream driven primarily by an increase in sales volume,commodity costs, offset by the decreasesincrease in royalty income and other revenues.income.
Baskin-Robbins International segment profit for the ninesix months ended SeptemberJune 30, 2017 increased $1.32018 decreased $1.7 million as a result of a decrease in net margin on ice cream driven primarily by an increase in commodity costs, as well as an increase in net incomeloss from our Japan joint venture, as well asoffset by the increase in royalty income and a decrease in general and administrative expenses primarily dueexpenses.

U.S. Advertising Funds
 Three months ended Six months ended
 June 30,
2018
 July 1,
2017
 Increase (Decrease) June 30,
2018
 July 1,
2017
 Increase (Decrease)
 $ %   $ %
 (In thousands, except percentages)
Advertising fees and related income$119,174
 113,824
 5,350
 4.7% $223,341
 216,145
 7,196
 3.3%
Total revenues$119,174
 113,824
 5,350
 4.7% $223,341
 216,145
 7,196
 3.3%
Segment profit$
 
 
 % $
 
 
 %
U.S. Advertising Funds revenues for the three and six months ended June 30, 2018 increased $5.4 million, or 4.7%, and $7.2 million, or 3.3%, respectively, compared to expenses incurred in the prior year periods due primarily to Dunkin’ Donuts U.S. systemwide sales growth. Expenses for the U.S. Advertising Funds were equivalent to revenues in each period, related to brand-building activities, offset by the decreaseresulting in other revenues.no segment profit.
Liquidity and capital resources
As of SeptemberJune 30, 20172018, we held $267.0367.9 million of cash and cash equivalents and $76.1$85.0 million of short-term restricted cash that was restricted under our securitized financing facility. Included in cash and cash equivalents is $106.8138.4 million of cash held for advertising funds and reserved for gift card/certificate programs. Cash reserved for gift card/certificate programs also includes cash that will be used to fund initiatives from the gift card breakage liabilities (see note 5 to the unaudited consolidated financial statements included herein). In addition, as of SeptemberJune 30, 20172018, we had a borrowing capacity of $74.1117.6 million under our $100.0$150.0 million 20152017 Variable Funding Notes (as defined below).
As a result of the adoption of new accounting standardsguidance related to revenue recognition during fiscal year 2017 that impacted the consolidated statements of cash flows2018 (see note 23(f) to of the unaudited consolidated financial statements included herein), the “Operating, investing, and financing cash flows” and “Adjusted operating and investing cash flow” sectionsall prior period amounts included below have been revisedrestated to reflect these changes for all periods presented.the new guidance.
Operating, investing, and financing cash flows
Net cash provided by operating activities was $121.5$67.7 million for the ninesix months ended SeptemberJune 30, 2017,2018, as compared to $131.3$67.1 million in the prior year period. The $9.7$0.7 million decreaseincrease in operating cash flows was driven primarily by unfavorablea decrease in cash paid for income taxes, as well as favorable cash flows related to our gift card program due primarily to the timing of holidays and our prior year fiscal year end, the timing of receipts and payments related to the sale of Dunkin’ K-Cup® pods and the related franchisee profit-sharing program, and a decreaseend. Offsetting these increases in operating cash inflows were increases in cash paid for income taxes. Additionally,interest and other changes in working capital contributed to the decrease in operating cash flows. Offsetting these decreases were an increase in pre-tax net income related to operating activities, excluding non-cash items, and payments made in connection with the settlement of the Bertico litigation in the prior year period.capital.
Net cash used in investing activities was $9.1$32.9 million for the ninesix months ended SeptemberJune 30, 2017,2018, as compared to net cash provided by investing activities of $4.1$6.8 million in the prior year period. The $13.2$26.1 million decreaseincrease in investing cash flowsoutflows was driven primarily by a decrease in proceeds received from the sale of real estate and company-operated restaurants of $15.5 million, offset primarily by a reductionan increase in capital expenditures of $1.4 million.$26.2 million primarily due to investments in technology infrastructure to support the Dunkin' Donuts U.S. Blueprint for Growth strategy.
Net cash used in financing activities was $201.1$694.0 million for the ninesix months ended SeptemberJune 30, 2017,2018, as compared to $126.8$152.2 million in the prior year period. The $74.3$541.8 million increase in financing cash outflows was driven primarily by incremental cash used in the current year period for accelerated share repurchases of common stock of $97.2$550.4 million, as well as additionalan increase in the repayment of long-term debt of $3.3 million as a result of the refinancing completed in October 2017. Offsetting these increases in financing cash used to pay the increased quarterly dividend of $5.6 million, offset byoutflows was incremental cash generated from the exercise of stock options in the current year period of $28.3$10.5 million, as well as a decrease in cash used to pay quarterly dividends of $1.4 million.
Adjusted operating and investing cash flow
Net cash flows from operating and investing activities for the ninesix months ended SeptemberJune 30, 20172018 and September 24, 2016July 1, 2017 include decreases of $69.2$37.3 million and $37.5$54.2 million, respectively, in cash held for advertising funds and reserved for gift card/certificate programs, which were primarily driven by the seasonalitytiming of holidays relative to our gift card program.fiscal year end. Excluding cash held for advertising funds and reserved for gift card/certificate programs, we generated $181.772.2 million and $172.9114.4 million of adjusted operating and investing cash flow during the ninesix months ended SeptemberJune 30, 2018 and July 1, 2017, and September 24, 2016, respectively.
The increasedecrease in adjusted operating and investing cash flow was duedriven primarily toby an increase in pre-tax net income related to operating activities, excluding non-cash items, payments madecapital expenditures, an increase in connection with the settlement of the Bertico litigation in the prior year period,cash paid for interest and a reduction in capital expenditures. Offsetting these increases were a decrease in proceeds from the sale of real estate and company-operated restaurants, the timing of receipts and payments related to the sale of Dunkin’ K-Cup® pods and the related franchisee profit-sharing program, other changes in working capital,capital. These decreases in adjusted operating and investing cash flow were offset by a decrease in cash paid for income taxes.

Adjusted operating and investing cash flow is a non-GAAP measure reflecting net cash provided by operating and investing activities, excluding the cash flows related to advertising funds and gift card/certificate programs. We use adjusted operating and investing cash flow as a key liquidity measure for the purpose of evaluating our ability to generate cash. We also believe adjusted operating and investing cash flow provides our investors with useful information regarding our historical cash flow results. This non-GAAP measurement is not intended to replace the presentation of our financial results in accordance with

GAAP, and adjusted operating and investing cash flow does not represent residual cash flows available for discretionary expenditures. Use of the term adjusted operating and investing cash flow may differ from similar measures reported by other companies.
Adjusted operating and investing cash flow is reconciled from net cash provided by operating activities determined under GAAP as follows (in thousands):
Nine months endedSix months ended
September 30,
2017
 September 24,
2016
June 30,
2018
 July 1,
2017
Net cash provided by operating activities$121,529
 131,259
$67,739
 67,060
Plus: Decrease in cash held for advertising funds and gift card/certificate programs69,224
 37,511
37,324
 54,186
Plus (less): Net cash provided by (used in) investing activities(9,099) 4,107
Plus: Net cash used in investing activities(32,902) (6,829)
Adjusted operating and investing cash flow$181,654
 172,877
$72,161
 114,417
Borrowing capacity
OurAs of June 30, 2018, our securitized financing facility included original aggregate borrowings of approximately $2.60$1.75 billion, consisting of $2.50$1.40 billion, and $150.0 million related to the 2015 Class A-2-II Notes (as defined below), the 2017 Class A-2 Notes (as defined below), and $100.0 million of 2015the 2017 Variable Funding Notes (as defined below) which were undrawn at closing., respectively. As of SeptemberJune 30, 2017,2018, there was approximately $2.44$3.09 billion of total principal outstanding on the 2015 Class A-2-II Notes and 2017 Class A-2 Notes, while there was $74.1$117.6 million in available commitments under the 20152017 Variable Funding Notes as $25.9$32.4 million of letters of credit were outstanding.
In January 2015, DB Master Finance LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of Dunkin’ Brands Group, Inc. (“DBGI”), issued Series 2015-1 3.262% Fixed Rate Senior Secured Notes, Class A-2-I (the “2015 Class A-2-I Notes”) with an initial principal amount of $750.0 million and Series 2015-1 3.980% Fixed Rate Senior Secured Notes, Class A-2-II (the “2015 Class A-2-II Notes” and, together with the 2015 Class A-2-I Notes, the “2015 Class A-2 Notes”) with an initial principal amount of $1.75 billion. In addition, the Master Issuer also issued Series 2015-1 Variable Funding Senior Secured Notes, Class A-1 (the “2015 Variable Funding Notes” and, together with the 2015 Class A-2 Notes, the “2015 Notes”), which allowed the Master Issuer to borrow up to $100.0 million on a revolving basis. The 2015 Variable Funding Notes could also be used to issue letters of credit.
In October 2017, the Master Issuer issued Series 2017-1 3.629% Fixed Rate Senior Secured Notes, Class A-2-I (the “2017 Class A-2-I Notes”) with an initial principal amount of $600.0 million and Series 2017-1 4.030% Fixed Rate Senior Secured Notes, Class A-2-II (the “2017 Class A-2-II Notes” and, together with the 2017 Class A-2-I Notes, the “2017 Class A-2 Notes”) with an initial principal amount of $800.0 million. In addition, the Master Issuer issued Series 2017-1 Variable Funding Senior Secured Notes, Class A-1 (the “2017 Variable Funding Notes” and, together with the 2017 Class A-2 Notes, the “2017 Notes”), which allows for the issuance of up to $150.0 million of 2017 Variable Funding Notes and certain other credit instruments, including letters of credit.
A portion of the proceeds of the 2017 Notes was used to repay the remaining $731.3 million of principal outstanding on the 2015 Class A-2-I Notes and to pay related transaction fees. The additional net proceeds will bewere used for general corporate purposes, which may includeincluded a return of capital to the Company’s shareholders.shareholders in 2018, as discussed below. In connection with the issuance of the 2017 Variable Funding Notes, the Master Issuer terminated the commitments with respect to its existing 2015 Variable Funding Notes.
The 2015 Notes and 2017 Notes were each issued in a securitization transaction pursuant to which most of the Company’s domestic and certain of its foreign revenue-generating assets, consisting principally of franchise-related agreements, real estate assets, and intellectual property and license agreements for the use of intellectual property, are held by the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company that act as guarantors of the 2015 Class Notes and 2017 Notes and that have pledged substantially all of their assets to secure the 2015 Notes and 2017 Notes.
The 2015 Notes and 2017 Notes were issued pursuant to a base indenture and related supplemental indentures (collectively, the “Indenture”) under which the Master Issuer may issue multiple series of notes. The legal final maturity date of the 2015 Class

A-2-II Notes and 2017 Class A-2 Notes is in February 2045 and November 2047, respectively, but it is anticipated that, unless earlier prepaid to the extent permitted under the Indenture, the 2015 Class A-2-II Notes will be repaid by February 2022, the 2017 Class A-2-1A-2-I Notes will be repaid by November 2024, and the 2017 Class A-2-II Notes will be repaid by November 2027 (the “Anticipated Repayment Dates”). Principal amortization payments, payable quarterly, are required to be made on the 2015 Class A-2-II Notes, 2017 Class A-2-I Notes, and 2017 Class A-2-II Notes equal to $17.5 million, $6.0 million, and $8.0 million, respectively, per calendar year through the respective Anticipated Repayment Dates. No principal payments are required if a specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as specified in the Indenture), is less than or equal to 5.0 to 1.0. If the 2015 Class A-2-II Notes or the 2017 Class A-2 Notes have not been repaid or refinanced by their respective Anticipated Repayment Dates, a rapid amortization event will occur in which residual net cash flows of the Master Issuer, after making certain required payments, will be applied to the outstanding principal of the 2015 Class A-2-II Notes and the 2017 Class A-2 Notes. Various

other events, including failure to maintain a minimum ratio of net cash flows to debt service, may also cause a rapid amortization event.
It is anticipated that the principal and interest on the 2017 Variable Funding Notes will be repaid in full on or prior to November 2022, subject to two additional one-year extensions.
In February 2018, we entered into two accelerated share repurchase agreements (the "February 2018 ASR Agreements") with two third-party financial institutions. Pursuant to the terms of the February 2018 ASR Agreements, we paid the financial institutions $650.0 million from cash on hand and received an initial delivery of 8,478,722 shares of our common stock on February 16, 2018, representing an estimate of 80% of the total shares expected to be delivered under the February 2018 ASR Agreements. At settlement, the financial institutions may be required to deliver additional shares of common stock to us or, under certain circumstances, we may be required to deliver shares of its common stock or may elect to make cash payment to the financial institutions. Final settlement of each of the February 2018 ASR Agreements is expected to be completed in the third quarter of fiscal year 2018.
In order to assess our current debt levels, including servicing our long-term debt, and our ability to take on additional borrowings, we monitor a leverage ratio of our long-term debt, net of cash (“Net Debt”), to adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”). This leverage ratio, and the related Net Debt and Adjusted EBITDA measures used to compute it, are non-GAAP measures, and our use of the terms Net Debt and Adjusted EBITDA may vary from other companies, including those in our industry, due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. Net Debt reflects the gross principal amount outstanding under our securitized financing facility, notes payable, and capital lease obligations, less short-term cash, cash equivalents, and restricted cash, excluding cash reserved for gift card/certificate programs. Adjusted EBITDA is defined in our securitized financing facility as net income before interest, taxes, depreciation and amortization, and impairment charges, as adjusted for certain items that are summarized in the table below. Net Debt should not be considered as an alternative to debt, total liabilities, or any other obligations derived in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income, operating income, or any other performance measures derived in accordance with GAAP, as a measure of operating performance, or as an alternative to cash flows as a measure of liquidity. Net Debt, Adjusted EBITDA, and the related leverage ratio have important limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. However, we believe that presenting Net Debt, Adjusted EBITDA, and the related leverage ratio are appropriate to provide additional information to investors to demonstrate our current debt levels and ability to take on additional borrowings.
As of SeptemberJune 30, 2017,2018, we had a Net Debt to Adjusted EBITDA ratio of 4.45.3 to 1.0. The following is a reconciliation of our Net Debt and Adjusted EBITDA to the corresponding GAAP measures as of and for the twelve months ended SeptemberJune 30, 2017,2018, respectively (in thousands):
September 30, 2017June 30, 2018
Principal outstanding under Class A-2 Notes$2,437,500
Principal outstanding under 2017 Class A-2 Notes$1,393,000
Principal outstanding under 2015 Class A-2 Notes1,693,125
Other notes payable1,486
Total capital lease obligations7,793
7,482
Less: cash and cash equivalents(266,981)(367,940)
Less: restricted cash, current(76,141)(84,970)
Plus: cash held for gift card/certificate programs106,768
137,045
Net Debt$2,208,939
$2,779,228

Twelve months endedTwelve months ended
September 30, 2017June 30, 2018
Net income$211,537
$286,474
Interest expense100,588
119,682
Income tax expense129,920
Income tax benefit(6,736)
Depreciation and amortization41,547
41,444
Impairment charges688
2,664
EBITDA484,280
443,528
Adjustments:  
Share-based compensation expense15,529
14,628
Loss on debt extinguishment and refinancing transactions6,996
Increase in deferred revenue related to franchise and licensing agreements50,779
Other(a)
2,266
8,222
Total adjustments17,795
80,625
Adjusted EBITDA$502,075
$524,153
(a)Represents costs and fees associated with various franchisee-related investments, including investments in the Dunkin' Donuts U.S. Blueprint for Growth, bank fees, legal reserves, the allocation of share-based compensation expense to the advertising funds, and other non-cash gains and losses.
Based upon our current level of operations and anticipated growth, we believe that the cash generated from our operations and amounts available under our 2017 Variable Funding Notes will be adequate to meet our anticipated debt service requirements, capital expenditures, and working capital needs for at least the next twelve months. We believe that we will be able to meet these obligations even if we experience no growth in sales or profits. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our 2017 Variable Funding Notes or otherwise to enable us to service our indebtedness, including our securitized financing facility, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend, or refinance the securitized financing facility will be subject to future economic conditions and to financial, business, and other factors, many of which are beyond our control.
Recently Issued Accounting Standards
See note 2(f)(g) and note 3 to the unaudited consolidated financial statements included in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements.
Item 3.       Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the foreign exchange or interest rate risks discussed in Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 201630, 2017.
Item 4.       Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 20172018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of SeptemberJune 30, 20172018, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

During the quarterlysix month period ended SeptemberJune 30, 20172018, there were no changeswe adopted new revenue recognition guidance. We implemented internal controls to ensure we adequately evaluated our contracts with customers and properly assessed the impact of the new guidance to facilitate the adoption. Additionally, we implemented new business processes, internal controls, and modified information technology systems to assist in the Company’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affectongoing application of the Company’s internal control over financial reporting.new guidance.

Part II.        Other Information
Item 1.       Legal Proceedings
We are engaged in several matters of litigation arising in the ordinary course of our business as a franchisor. Such matters include disputes related to compliance with the terms of franchise and development agreements, including claims or threats of claims of breach of contract, negligence, and other alleged violations by us. As of SeptemberJune 30, 2017, $6.32018, $1.7 million is recorded within other current liabilities in the consolidated balance sheet in connection with all outstanding litigation.
Item 1A.       Risk Factors.
There have been no material changes from the risk factors disclosed in Part I, Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 201630, 2017.
Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains information regarding purchases of our common stock made during the quarter ended SeptemberJune 30, 20172018 by or on behalf of Dunkin’ Brands Group, Inc. or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Securities Exchange Act of 1934:
  Issuer Purchases of Equity Securities
Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(1)
07/02/17 - 07/29/17 260,444
 $52.87
 260,444
 $136,231,545
07/30/17 - 09/02/17 253,436
 52.93
 253,436
 122,817,161
09/03/17 - 09/30/17 
 
 
 122,817,161
Total 513,880
 $52.90
 513,880
  
Issuer Purchases of Equity Securities
PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(1)
04/01/18 - 04/28/18
$

$
04/29/18 - 06/02/18


250,000,000
06/03/18 - 06/30/18


250,000,000
Total
$


(1)On October 25, 2017, our board of directors approved aIn February 2018, the Company entered into two accelerated share repurchase programagreements (the “February 2018 ASR Agreements”) with two third-party financial institutions. Pursuant to the terms of up tothe February 2018 ASR Agreements, the Company paid the financial institutions $650.0 million from cash on hand and received an initial delivery of outstanding8,478,722 shares of ourthe Company's common stock. Understock in February 2018, representing an estimate of 80% of the program, purchasestotal shares expected to be delivered under the February 2018 ASR Agreements. At settlement, the financial institutions may be maderequired to deliver additional shares of common stock to the Company or, under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make cash payment to the financial institutions. Final settlement of each of the February 2018 ASR Agreements is expected to be completed in the open market or in privately negotiated transactions from time to time subject to market conditions. The authorization is valid for a periodthird quarter of two years and replaces our $250.0 million share repurchase program that was approved by our board of directors on May 10, 2017 and which was set to expire two years after such approval.fiscal year 2018.
On May 22, 2018, our board of directors authorized a new share repurchase program for up to an aggregate of $250.0 million of our outstanding common stock. This repurchase authorization is valid for a period of two years. Under the program, purchases may be made in the open market or in privately negotiated transactions from time to time subject to market conditions.
Item 3.       Defaults Upon Senior Securities
None.
Item 4.       Mine Safety Disclosures
Not Applicable.
Item 5.       Other Information
On November 8, 2017, the Board of Directors (the “Board”) of Dunkin’ Brands Group, Inc. (the “Company”) approved the Dunkin’ Brands Group, Inc. Executive Change in Control Severance Plan (the “Plan”), which applies to the senior executives, officers and directors of the Company, including the Company’s Chief Executive Officer (the “CEO”), Chief Financial Officer (the “CFO”) and the other named executive officers (“NEOs”) listed in the Company’s proxy statement filed with the Securities and Exchange Commission on March 27, 2017. The Plan was presented to the Compensation Committee of the Board at its meeting in May 2017 and approved by the Compensation Committee and recommended to the full Board in August 2017. The Plan became effective upon the Board’s approval.
Under the terms of the Plan, if the individual participating in the Plan is terminated by the Company or an affiliate for any reason other than, death, Disability or Cause or resigns for Good Reason (each as defined in the Plan) during the 18-month period following a change in control (the “Change in Control Protection Period”), such individual is entitled to receive (i) a

lump sum payment equal to the greater of (a) an amount equal to two weeks of base salary per year of service (capped at one year) or (b) a multiple of the individual’s annual base salary (200% for the CEO and the President of Dunkin’ Donuts U.S. and Canada, and 150% for Senior Vice Presidents, including the CFO and other NEOs), (ii) a lump sum payment equal to 100% of the individual’s target annual cash bonus in the most recent calendar year (or, if greater, the year in which the change in control occurs), and (iii) Company-subsidized continuation of medical and dental benefits for the period specified in the Plan (24 months for the CEO and the President of Dunkin’ Donuts U.S. and Canada, and 18 months for the CFO and other NEOs). The severance benefits provided under the Plan in connection with a qualifying termination are in lieu of any other severance plans, policies or practices of the Company, including employment or severance-benefit agreements.
Change in control is defined in the Plan and includes the acquisition of shares of the Company representing more than 40% of the Company’s capital stock; a merger, consolidation or reorganization where pre-transaction shareholders do not continue to hold at least 60% of the Company’s voting power; a change in the majority of the Board within a two-year period; and a complete liquidation of the Company or a sale or disposition by the Company or all or substantially all of its assets.
The Plan also provides for that, if any payments to be made to an individual under the Plan or otherwise would be subject to the “golden parachute” excise tax rules of the Internal Revenue Code, then the individual will receive either (i) the full amount of the payments or (ii) an amount that is reduced by the minimum necessary to allow the individual to avoid golden parachute excise taxes, whichever results in a greater after-tax amount to the individual. All severance payments under the Plan are conditioned on the individual’s execution and non-revocation of a release of claims in favor of the Company and on the individual agreeing to certain non-competition, non-solicitation and confidentiality obligations in favor of the Company.
No other material changes were made to the severance arrangements of the CEO, CFO and other NEOs, including with respect to equity incentive awards (i.e., the treatment of stock options, restricted stock units and performance restricted stock units in connection with a change in control or the payment of severance under circumstances other than those covered by the Plan).
This summary of the Plan does not purport to be complete and is subject to and qualified in its entirety by reference to the text of the  Plan, which has been filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.None.


Item 6.       Exhibits
(a) Exhibits:
  
   
  
  
  
  
  
 
Ex. 101.INS*101.INS XBRL Instance Document
 
Ex. 101.SCH*101.SCH XBRL Taxonomy Extension Schema Document
 
Ex. 101.CAL*101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
 
Ex. 101.LAB*101.LAB XBRL Taxonomy Extension Label Linkbase Document
 
Ex. 101.PRE*101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
 
Ex. 101.DEF*101.DEF XBRL Taxonomy Extension Definition Linkbase Document
 


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DUNKIN’ BRANDS GROUP, INC.
 
      
Date:NovemberAugust 8, 20172018 By: /s/ Nigel TravisDavid Hoffmann
     
Nigel Travis,David Hoffmann
Chairman and Chief Executive Officer

3644