FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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

For the quarterly period ended ~~September 30, 2017~~March 28, 2020



¨☐	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, Massachusetts02021

(Address of principal executive offices) (zip code)

~~(781)~~ (781) 737-3000

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	DNKN	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) 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 ¨Yes ☒ 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 ¨Yes ☒ 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~~indicate 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 xYes ☐ No ☒

As of ~~November 3, 2017, 90,322,903~~May 1, 2020, 82,111,425 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.	Financial Statements and Supplementary Data	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1921
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3233
Item 4.	Controls and Procedures	3233

Part II. – Other Information

Item 1.	Legal Proceedings	3334
Item 1A.	Risk Factors	3334
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3335
Item 3.	Defaults Upon Senior Securities	3335
Item 4.	Mine Safety Disclosures	3335
Item 5.	Other Information	3335
Item 6.	Exhibits	3536
	Signatures	3637

Part I. Financial Information

Item 1. Financial Statements and Supplementary Data

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)


	September 30, 2017			December 31, 2016		March 28, 2020			December 28, 2019
Assets
Current assets:
Cash and cash equivalents	$	266,981		361,425		$	601,226		621,152
Restricted cash	76,141			69,746		72,793			85,644
Accounts receivable, net of allowance for doubtful accounts of $4,616 and $4,778 as of September 30, 2017 and December 31, 2016, respectively	47,136			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, respectively	30,274			40,672
Restricted assets of advertising funds	57,873			40,338
Accounts receivable, net of allowances of $10,052 and $6,533 as of March 28, 2020 and December 28, 2019, respectively						87,676			76,019
Notes and other receivables, net of allowances of $825 and $778 as of March 28, 2020 and December 28, 2019, respectively						32,162			57,174
Prepaid income taxes	9,843			20,926		25,063			16,701
Prepaid expenses and other current assets	33,605			28,739		63,275			50,611
Total current assets	521,853			606,358		882,195			907,301
Property and equipment, net of accumulated depreciation of $135,284 and $124,675 as of September 30, 2017 and December 31, 2016, respectively	170,269			176,662
Property, equipment, and software, net of accumulated depreciation of $177,917 and $172,001 as of March 28, 2020 and December 28, 2019, respectively						222,973			223,120
Operating lease assets						366,447			371,264
Equity method investments	128,633			114,738		151,718			154,812
Goodwill	888,311			888,272		888,253			888,286
Other intangible assets, net of accumulated amortization of $245,569 and $230,364 as of September 30, 2017 and December 31, 2016, respectively	1,362,586			1,378,720
Other intangible assets, net of accumulated amortization of $257,973 and $253,641 as of March 28, 2020 and December 28, 2019, respectively						1,298,112			1,302,721
Other assets	67,674			62,632		67,571			72,520
Total assets	$	3,139,326		3,227,382		$	3,877,269		3,920,024
Liabilities and Stockholders’ Deficit
Current liabilities:
Current portion of long-term debt	$	25,000		25,000
Capital lease obligations	584			589
Current portion of debt						$	139,400		31,150
Operating lease liabilities						34,839			35,863
Accounts payable	12,416			12,682		92,949			89,413
Liabilities of advertising funds	57,935			52,271
Deferred income	37,595			35,393
Deferred revenue						37,510			39,950
Other current liabilities	230,487			298,266		290,318			386,050
Total current liabilities	364,017			424,201		595,016			582,426
Long-term debt, net	2,388,091			2,401,998		3,005,415			3,004,216
Capital lease obligations	7,209			7,550
Unfavorable operating leases acquired	10,164			11,378
Deferred income	10,729			12,154
Operating lease liabilities						375,112			380,647
Deferred revenue						315,782			324,854
Deferred income taxes, net	459,524			461,810		202,175			197,673
Other long-term liabilities	73,680			71,549		20,056			18,218
Total long-term liabilities	2,949,397			2,966,439		3,918,540			3,925,608
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, 2016	90			91
Common stock, $0.001 par value; 475,000,000 shares authorized; 82,088,373 shares issued and 82,087,373 shares outstanding as of March 28, 2020; 82,835,830 shares issued and 82,834,830 shares outstanding as of December 28, 2019						82			83
Additional paid-in capital	746,052			807,492		529,179			561,345
Treasury stock, at cost; 26,777 shares as of September 30, 2017 and December 31, 2016	(1,060		)	(1,060	)
Treasury stock, at cost; 1,000 shares as of March 28, 2020 and December 28, 2019						(64		)	(64	)
Accumulated deficit	(900,217		)	(945,797	)	(1,138,697		)	(1,129,565	)
Accumulated other comprehensive loss	(18,953		)	(23,984	)	(26,787		)	(19,809	)
Total stockholders’ deficit	(174,088		)	(163,258	)	(636,287		)	(588,010	)
Total liabilities and stockholders’ deficit	$	3,139,326		3,227,382		$	3,877,269		3,920,024

See accompanying notes to unaudited consolidated financial statements.

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 ended				Three months ended
	September 30, 2017			September 24, 2016		September 30, 2017		September 24, 2016		March 28, 2020			March 30, 2019
Revenues:
Franchise fees and royalty income	$	151,809		138,639		426,944		399,617		$	139,476		139,328
Advertising fees and related income										116,970			117,198
Rental income	27,713			26,880		79,543		75,874		28,932			29,028
Sales of ice cream and other products	27,551			26,568		85,710		86,425		23,947			20,733
Sales at company-operated restaurants	—			1,611		—		11,924
Other revenues	17,095			13,401		41,165		39,344		13,819			12,804
Total revenues	224,168			207,099		633,362		613,184		323,144			319,091
Operating costs and expenses:
Occupancy expenses—franchised restaurants	15,333			15,881		43,758		42,691		19,499			19,475
Cost of ice cream and other products	19,457			18,384		58,578		58,445		18,148			16,640
Company-operated restaurant expenses	—			1,682		—		13,472
General and administrative expenses, net	61,996			59,374		185,613		184,028
Advertising expenses										118,269			118,091
General and administrative expenses										60,535			56,203
Depreciation	4,941			5,050		15,096		15,361		5,049			4,621
Amortization of other intangible assets	5,341			5,397		16,001		16,726		4,592			4,633
Long-lived asset impairment charges	536			7		643		104		74			323
Total operating costs and expenses	107,604			105,775		319,689		330,827		226,166			219,986
Net income of equity method investments	5,466			5,467		12,612		12,148		3,666			2,230
Other operating income, net	3			2,569		591		6,329		668			37
Operating income	122,033			109,360		326,876		300,834		101,312			101,372
Other income (expense), net:
Interest income	624			161		1,370		434		2,055			1,831
Interest expense	(24,436		)	(24,603	)	(74,192	)	(74,456	)	(32,037		)	(32,129	)
Other income (losses), net	155			(124	)	370		(596	)
Other loss, net										(670		)	(4	)
Total other expense, net	(23,657		)	(24,566	)	(72,452	)	(74,618	)	(30,652		)	(30,302	)
Income before income taxes	98,376			84,794		254,424		226,216		70,660			71,070
Provision for income taxes	46,130			32,082		99,007		86,760		18,547			18,747
Net income	$	52,246		52,712		155,417		139,456		$	52,113		52,323
Earnings per share:
Common—basic	$	0.58		0.58		1.71		1.52		$	0.63		0.63
Common—diluted	0.57			0.57		1.68		1.51		0.63			0.63
Cash dividends declared per common share	0.32			0.30		0.97		0.90

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Net income $ 52,246
52,712
155,417
139,456
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 )
Other, net 24
(27 ) 677
(230 )
Total other comprehensive income (loss), net (957 ) 5,815
5,031
7,545
Comprehensive income $ 51,289
58,527
160,448
147,001



	Three months ended
	March 28, 2020			March 30, 2019
Net income	$	52,113		52,323
Other comprehensive loss, net:
Effect of foreign currency translation, net of deferred tax (benefit) expense of $(62) and $26 for the three months ended March 28, 2020 and March 30, 2019, respectively	(6,387		)	(2,353	)
Other, net	(591		)	(173	)
Total other comprehensive loss, net	(6,978		)	(2,526	)
Comprehensive income	$	45,135		49,797

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Deficit

For the Three Months Ended March 28, 2020 and March 30, 2019

(In thousands)

(Unaudited)



	Stockholders' Deficit
	Common stock					Additional paid-in capital		Treasury stock, at cost		Accumulated deficit		Accumulated other comprehensive loss		Total
	Shares		Amount			Additional paid-in capital		Treasury stock, at cost		Accumulated deficit		Accumulated other comprehensive loss		Total
Balance at December 28, 2019	82,836		$	83		561,345		(64	)	(1,129,565	)	(19,809	)	(588,010	)
Net income	—		—			—		—		52,113		—		52,113
Other comprehensive loss, net	—		—			—		—		—		(6,978	)	(6,978	)
Exercise of stock options	66		—			3,251		—		—		—		3,251
Dividends paid on common stock ($0.4025 per share)	—		—			(33,057	)	—		—		—		(33,057	)
Share-based compensation expense	67		—			3,365		—		—		—		3,365
Repurchases of common stock	—		—			—		(64,292	)	—		—		(64,292	)
Retirement of treasury stock	(881	)	(1		)	(5,615	)	64,292		(58,676	)	—		—
Other	—		—			(110	)	—		(2,569	)	—		(2,679	)
Balance at March 28, 2020	82,088		$	82		529,179		(64	)	(1,138,697	)	(26,787	)	(636,287	)

Balance at December 29, 2018	82,437		$	82		642,017		(1,060	)	(1,338,709	)	(15,127	)	(712,797	)
Net income	—		—			—		—		52,323		—		52,323
Other comprehensive loss, net	—		—			—		—		—		(2,526	)	(2,526	)
Exercise of stock options	84		—			3,830		—		—		—		3,830
Dividends paid on common stock ($0.3750 per share)	—		—			(30,975	)	—		—		—		(30,975	)
Share-based compensation expense	143		1			3,606		—		—		—		3,607
Repurchases of common stock	—		—			—		(129	)	—		—		(129	)
Retirement of treasury stock	(2	)	—			(14	)	129		(115	)	—		—
Other	1		—			(138	)	(2,231	)	(2,257	)	—		(4,626	)
Balance at March 30, 2019	82,663		$	83		618,326		(3,291	)	(1,288,758	)	(17,653	)	(691,293	)

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine months ended					Three months ended
	September 30, 2017			September 24, 2016		March 28, 2020			March 30, 2019
Cash flows from operating activities:
Net income	$	155,417		139,456		$	52,113		52,323
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	31,097			32,087		11,501			10,425
Amortization of debt issuance costs	4,843			4,700		1,237			1,281
Deferred income taxes	(1,516		)	(5,595	)	4,549			(5,447	)
Provision for bad debt	599			681
Provision for uncollectible accounts and notes receivable						3,693			689
Share-based compensation expense	10,896			12,548		3,365			3,607
Net income of equity method investments	(12,612		)	(12,148	)	(3,666		)	(2,230	)
Dividends received from equity method investments	4,711			5,247		589			3,777
Gain on sale of real estate and company-operated restaurants	(29		)	(6,322	)
Other, net	(2,299		)	(1,554	)	555			194
Change in operating assets and liabilities:
Accounts, notes, and other receivables, net	7,712			43,482		9,564			25,222
Prepaid income taxes, net	10,884			6,569		(8,357		)	10,766
Prepaid expenses and other current assets	(4,600		)	(3,552	)	(12,917		)	(6,967	)
Accounts payable	(1,501		)	(1,635	)	4,970			(27,902	)
Other current liabilities	(68,274		)	(91,651	)	(95,827		)	(67,865	)
Liabilities of advertising funds, net	(11,232		)	896
Deferred income	722			3,800
Deferred revenue						(11,473		)	(9,511	)
Other, net	(3,289		)	4,250		2,849			(4,354	)
Net cash provided by operating activities	121,529			131,259
Net cash used in operating activities						(37,255		)	(15,992	)
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						(6,145		)	(1,946	)
Other, net	(101		)	(1,014	)	(128		)	(304	)
Net cash provided by (used in) investing activities	(9,099		)	4,107
Net cash used in investing activities						(6,273		)	(2,250	)
Cash flows from financing activities:
Borrowings under variable funding notes						116,000			—
Repayment of long-term debt	(18,750		)	(18,750	)	(7,787		)	(7,912	)
Payment of debt issuance and other debt-related costs	(312		)	—
Dividends paid on common stock	(87,911		)	(82,326	)	(33,057		)	(30,975	)
Repurchases of common stock, including accelerated share repurchases	(127,186		)	(30,000	)
Repurchases of common stock						(64,292		)	(129	)
Exercise of stock options	33,267			4,937		3,251			3,830
Other, net	(214		)	(690	)	(2,880		)	(5,065	)
Net cash used in financing activities	(201,106		)	(126,829	)
Net cash provided by (used in) financing activities						11,235			(40,251	)
Effect of exchange rates on cash, cash equivalents, and restricted cash	576			20		(641		)	89
Increase (decrease) in cash, cash equivalents, and restricted cash	(88,100		)	8,557
Decrease in cash, cash equivalents, and restricted cash						(32,934		)	(58,404	)
Cash, cash equivalents, and restricted cash, beginning of period	431,832			333,115		707,977			598,321
Cash, cash equivalents, and restricted cash, end of period	$	343,732		341,672		$	675,043		539,917
Supplemental cash flow information:
Cash paid for income taxes	$	89,882		86,460		$	22,406		13,571
Cash paid for interest	70,038			70,749		30,812			30,763
Noncash investing activities:
Property and equipment included in accounts payable and other current liabilities	1,919			1,121
Purchase of leaseholds in exchange for capital lease obligations	330			389
Noncash activities:
Leased assets obtained in exchange for operating lease liabilities, net						5,069			856
Property, equipment, and software included in accounts payable and other current liabilities						3,177			1,405

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.~~restaurants. Through our Dunkin’ ~~Donuts~~ brand, we franchise restaurants featuring coffee, espresso, 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.~~markets for sale in Baskin-Robbins restaurants and certain retail outlets.

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 ~~September 30, 2017,~~March 28, 2020 and the consolidated statements of operations, ~~and~~ comprehensive income, ~~for the three~~stockholders' deficit, and ~~nine months ended September 30, 2017 and September 24, 2016, and the consolidated statements of~~ cash flows for each of the ~~nine months~~three-month periods ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016~~2019 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,~~28, 2019, included in the ~~Company’s~~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-month~~three-month periods ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016~~2019 reflect the results of operations for the 13-week ~~and 39-week~~ periods ended on those ~~dates, respectively.~~dates. Operating results for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2017~~March 28, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December ~~30, 2017.~~26, 2020.

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 ~~Notes~~notes (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 ~~September 30, 2017~~March 28, 2020 and December ~~31, 2016~~28, 2019 were as follows (in thousands):



	March 28, 2020		December 28, 2019
Cash and cash equivalents	$	601,226	621,152
Restricted cash	72,793		85,644
Restricted cash, included in Other assets	1,024		1,181
Total cash, cash equivalents, and restricted cash	$	675,043	707,977

September 30,
2017 December 31,
2016
Cash and cash equivalents $ 266,981
361,425
Restricted cash 76,141
69,746
Restricted cash, included in Other assets 610
661
Total cash, cash equivalents, and restricted cash $ 343,732
431,832

(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 the 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 ~~September 30, 2017~~March 28, 2020 and December ~~31, 2016~~28, 2019 are summarized as follows (in thousands):



	March 28, 2020			December 28, 2019
	Significant other observable inputs (Level 2)		Total	Significant other observable inputs (Level 2)	Total
Assets:
Company-owned life insurance	$	10,228	10,228	12,367	12,367
Total assets	$	10,228	10,228	12,367	12,367
Liabilities:
Deferred compensation liabilities	$	6,512	6,512	7,216	7,216
Total liabilities	$	6,512	6,512	7,216	7,216

September 30, 2017 December 31, 2016
Significant 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
Total assets $ 10,389
10,389
9,271
9,271
Liabilities:
Deferred compensation liabilities $ 12,851
12,851
11,126
11,126
Total liabilities $ 12,851
12,851
11,126
11,126

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~~total debt as of ~~September 30, 2017~~March 28, 2020 and December ~~31, 2016~~28, 2019 were as follows (in thousands):



	March 28, 2020			December 28, 2019
	Carrying value		Estimated fair value	Carrying value	Estimated fair value

Total debt	$	3,144,815	2,956,030	3,035,366	3,149,505

September 30, 2017 December 31, 2016
Carrying 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

The estimated fair value of ~~our long-term~~variable funding notes, which is included in the fair value of total debt, approximates carrying value due to the variable interest rate and short-term maturity of the variable funding notes. The estimated fair value of other debt is estimated primarily based on current market rates for debt with similar terms and remaining maturities or current ~~bid~~midpoint prices for ~~our long-term~~such debt. Judgment is required to develop these estimates. ~~As such, our long-term~~

The estimated fair value of debt is classified within Level 2, as defined under U.S. GAAP.

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic. The estimated fair value of our debt decreased significantly during the three months ended March 28, 2020 and may continue to fluctuate based on market conditions and other factors as a result of COVID-19.

(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 ~~September 30, 2017~~March 28, 2020 and December ~~31, 2016, one~~28, 2019, 1 master licensee, including its majority-owned subsidiaries, accounted for approximately ~~18%~~17% and 15%, respectively, of total accounts and notes receivable. NoNaN individual franchisee or master licensee accounted for more than 10% of total revenues for ~~each~~either of the ~~three~~three-month periods ended March 28, 2020 and ~~nine months ended September~~March 30, ~~2017 and September 24, 2016.~~2019.

Additionally, the Company engages various third parties to manufacture and/or distribute certain ~~Dunkin’ Donuts~~Dunkin' and Baskin-Robbins products under licensing arrangements. As of ~~September 30, 2017,~~March 28, 2020, one of these third parties accounted for approximately ~~13%~~10% 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.~~28, 2019. No individual third party accounted for more than 10% of total revenues for either of the three-month periods ended March 28, 2020 and March 30, 2019.

(f) Recent accounting pronouncements

~~Recently adopted accounting pronouncements~~

In ~~January 2017,~~June 2016, the Financial Accounting Standards Board (the “FASB”) issued new guidance for ~~goodwill impairment~~financial instruments which requires ~~only~~companies to measure credit losses utilizing a ~~single-step quantitative test to identify~~methodology that reflects expected credit losses and ~~measure impairment and record an impairment charge based on the excess~~requires consideration of a ~~reporting unit’s carrying amount over its fair value. The option~~broader range of reasonable and supportable information to ~~perform a qualitative assessment first for a reporting unit to determine if a quantitative impairment test is necessary does not change under the new guidance.~~inform credit loss estimates. The Company ~~early~~ adopted this new guidance in fiscal year ~~2017.~~2020 using the modified retrospective transition method. 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 share for~~ the ~~three and nine months ended September 30, 2017.~~Company's consolidated financial statements.

~~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. The Company ~~expects to adopt this new guidance in fiscal year 2019~~closely monitors the financial condition of our franchisees, licensees, and ~~is currently evaluating~~other third parties and estimates the ~~impact~~allowance for credit losses based upon the ~~adoption of this new guidance will have~~lifetime expected loss on ~~the Company’s consolidated financial statements~~receivables. These estimates are based on historical collection experience with our franchisees, licensees, 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~~other third parties as ~~operating lease liabilities and right-of-use assets upon adoption, thereby having a material impact to its consolidated balance sheet.~~

~~Revenue from Contracts with Customers~~

~~In May 2014, the FASB issued new guidance for revenue recognition~~well as other factors, including those related to contracts with customers, except for contracts within the scope of other standards, 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 new guidance in fiscal year 2018 using the full retrospective transition method, which will result in restating each prior reporting period presented, fiscal years 2016current market conditions and ~~2017,~~events. Included in the ~~year of adoption. Additionally,~~allowance for credit losses is a cumulative effect adjustment will be recorded to the opening balance of accumulated deficit as of the first day of fiscal year 2016, the earliest period presented. Based on the expected impacts described below, the Company expects such cumulative effect adjustment to be material to the opening balance of accumulated deficit.

~~The Company expects the adoption of the new guidance to change the timing of recognition of initial~~provision for uncollectible royalty, franchise ~~fees, including master license~~fee, advertising fee, ice cream, and territory fees for our international business, and renewal fees. Currently, these fees are generally recognized upfront upon either opening of the respective restaurant or when a renewal agreement becomes effective. The new guidance will generally require 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 initial franchise fees and renewal fees. The Company does not expect this new guidance to materially impact the recognition of royalty income. Additionally, rental income is outside the scope of this new guidance, and therefore will not be impacted.licensing fee receivables (see note 13).

The Company also ~~expects the adoption~~monitors its off-balance sheet exposures under its letters of ~~this new guidance to change the reporting~~credit and supply chain and other guarantees. None of advertising fund contributions from franchisees and the related advertising fund expenditures, which are not currently included in the consolidated statements of operations. The Company expects the new guidance to require these advertising fund contributions and expenditures to be reported on a gross basis in the consolidated statements of operations. For the fiscal year ended December 31, 2016, franchisee contributions to the U.S. advertising funds were $430.3 million, and therefore we expect this changearrangements has or is likely to have a material ~~impact to our total~~effect on the Company’s results of operations, financial condition, 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.~~

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 these and other revenue transactions, in addition to 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 revenue recognition to assist in the application of the new guidance.expenses or liquidity.

(g) Subsequent events

Subsequent events have been evaluated up through the date that these consolidated financial statements were filed.

(3) Revenue recognition

(a) Disaggregation of revenue

Revenues are disaggregated by timing of revenue recognition related to contracts with customers (“ASC 606”) and reconciled to reportable segment revenues as follows (in thousands):



	Three months ended March 28, 2020
	Dunkin' U.S.		Baskin-Robbins U.S.	Dunkin' 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	$	117,855	6,237	5,046	1,698		—	130,836	2,903		133,739
Franchise fees	4,887		355	337	132		—	5,711	26		5,737
Advertising fees and related income	—		—	—	—		108,631	108,631	1,152		109,783
Other revenues	756		2,016	45	(1	)	—	2,816	10,320		13,136
Total revenues recognized over time	123,498		8,608	5,428	1,829		108,631	247,994	14,401		262,395

Revenues recognized at a point in time:
Sales of ice cream and other products	—		1,409	—	25,257		—	26,666	(2,719	)	23,947
Other revenues	369		44	55	(10	)	—	458	225		683
Total revenues recognized at a point in time	369		1,453	55	25,247		—	27,124	(2,494	)	24,630

Total revenues recognized under ASC 606	123,867		10,061	5,483	27,076		108,631	275,118	11,907		287,025

Revenues not subject to ASC 606
Advertising fees and related income	—		—	—	—		—	—	7,187		7,187
Rental income	27,923		783	—	226		—	28,932	—		28,932
Total revenues not subject to ASC 606	27,923		783	—	226		—	28,932	7,187		36,119

Total revenues	$	151,790	10,844	5,483	27,302		108,631	304,050	19,094		323,144

(a)

Revenues reported as “Other” include revenues earned through certain licensing arrangements, 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 March 30, 2019
	Dunkin' U.S.		Baskin-Robbins U.S.	Dunkin' 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	$	117,097	6,103	5,913	1,905	—	131,018	3,149		134,167
Franchise fees	3,626		312	865	358	—	5,161	—		5,161
Advertising fees and related income	—		—	—	—	108,642	108,642	1,176		109,818
Other revenues	710		2,163	4	—	—	2,877	9,058		11,935
Total revenues recognized over time	121,433		8,578	6,782	2,263	108,642	247,698	13,383		261,081

Revenues recognized at a point in time:
Sales of ice cream and other products	—		671	—	23,075	—	23,746	(3,013	)	20,733
Other revenues	464		68	69	21	—	622	247		869
Total revenues recognized at a point in time	464		739	69	23,096	—	24,368	(2,766	)	21,602

Total revenues recognized under ASC 606	121,897		9,317	6,851	25,359	108,642	272,066	10,617		282,683

Revenues not subject to ASC 606
Advertising fees and related income	—		—	—	—	—	—	7,380		7,380
Rental income	27,848		960	—	220	—	29,028	—		29,028
Total revenues not subject to ASC 606	27,848		960	—	220	—	29,028	7,380		36,408

Total revenues	$	149,745	10,277	6,851	25,579	108,642	301,094	17,997		319,091

(a)

(b) Contract balances

Information about receivables, contract assets, and deferred revenue subject to ASC 606 is as follows (in thousands):



	March 28, 2020		December 28, 2019	Balance Sheet Classification
Receivables	$	102,297	86,104	Accounts receivable, net, Notes and other receivables, net, and Other assets
Contract assets	5,132		4,894	Other assets

Deferred revenue:
Current	$	25,439	27,213	Deferred revenue—current
Long-term	311,505		320,457	Deferred revenue—long term
Total	$	336,944	347,670

Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, sales of ice cream and other products, and licensing fees. Contract assets relate primarily to consideration paid to customers, including franchisee incentives, that exceeds the fixed consideration received for certain contracts, net of any revenue recognized. 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 decrease in the deferred revenue balance as of March 28, 2020 was driven primarily by $9.6 million of revenues recognized that were included in the opening deferred revenue balance as of December 28, 2019, as well as franchisee incentives provided during fiscal year 2020, offset by cash payments received or due in advance of satisfying our performance obligations.

Estimated revenue expected to be recognized in the future related to performance obligations that are either unsatisfied or partially satisfied at March 28, 2020 is as follows (in thousands):



Fiscal year:
2020^(a)	$	17,397
2021	19,080
2022	19,121
2023	19,123
2024	19,314
Thereafter	206,580
Total	$	300,615

^(a) Represents the estimate for remainder of fiscal year 2020 which excludes the three months ended March 28, 2020.

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 store development agreement does not exist at March 28, 2020. Additionally, the table above excludes $49.0 million of consideration allocated to restaurants that were not yet open at March 28, 2020. 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.

(4) Debt

~~(3) Franchise fees~~Debt at March 28, 2020 and ~~royalty income~~

~~Franchise fees and royalty income~~December 28, 2019 consisted of the following (in thousands):



	March 28, 2020			December 28, 2019
2017 Class A-2-I Notes	$	586,500		588,000
2017 Class A-2-II Notes	782,000			784,000
2019 Class A-2-I Notes	595,500			597,000
2019 Class A-2-II Notes	397,000			398,000
2019 Class A-2-III Notes	694,750			696,500
2019 Variable Funding Notes	116,000			—
Other	1,212			1,250
Debt issuance costs, net of amortization	(28,147		)	(29,384	)
Total debt, net	3,144,815			3,035,366
Less: current portion of debt	139,400			31,150
Long-term debt, net	$	3,005,415		3,004,216

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 income 18,069
10,653
39,310
31,427
Total franchise fees and royalty income $ 151,809
138,639
426,944
399,617

The ~~changes in franchised and company-operated points~~Company's outstanding debt as 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 period 20,242
19,640
20,080
19,308
Franchised points of distribution—opened 326
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 period 20,379
19,778
20,379
19,778
Company-operated points of distribution—end of period —
6
—
6
Total systemwide points of distribution—end of period 20,379
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~~March 28, 2020 included 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”), Series 2019-1 3.787% Fixed Rate Senior Secured Notes, Class A-2-I (the “2019 Class A-2-I Notes”), Series 2019-1 4.021% Fixed Rate Senior Secured Notes, Class A-2-II (the “2019 Class A-2-II Notes”), and Series 2019-1 4.352% Fixed Rate Senior Secured Notes, Class A-2-III (the “2019 Class A-2-III Notes” and, together with ~~an initial principal amount~~the 2019 Class A-2-I Notes and 2019 Class A-2-II Notes, the “2019 Class A-2 Notes”) issued 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~~2019-1 Variable Funding Senior Secured Notes, Class A-1 (the ~~“2017~~“2019 Variable Funding Notes” and, together with the ~~2017~~2019 Class A-2 Notes, the ~~“2017~~“2019 Notes”), which ~~allows~~allow for the issuance of up to $150.0 million of ~~2017~~2019 Variable Funding Notes and certain other credit instruments, including letters of credit. AAs of March 28, 2020, the Company had drawn $116.0 million under the 2019 Variable Funding Notes.

No principal payments are required on the Company's outstanding debt 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 base indenture and related supplemental indentures, collectively, the “Indenture”), is less than or equal to 5.0 to 1.0. As of March 28, 2020, the Company's leverage ratio was less than 5.0 to 1.0. As such, the Company does not intend to make the next scheduled principal payment of $7.8 million in May 2020. The Company has classified payments that are expected to be made within the next twelve month period as current portion of debt in the ~~proceeds of~~consolidated balance sheet.

On March 16, 2020, the ~~2017 Notes was used to repay~~Company borrowed $116.0 million against 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 be used for general corporate purposes, which may include a return of capital to the Company’s shareholders. In connection with the issuance of the 20172019 Variable Funding Notes as a precautionary measure given the ~~Master Issuer terminated~~market uncertainty arising from COVID-19 and to further strengthen financial flexibility. Borrowings under the ~~commitments with respect to its existing 2015~~2019 Variable Funding ~~Notes.~~Notes bear interest at a rate equal to a LIBOR rate plus 1.50%.

As of each of March 28, 2020 and December 28, 2019, $33.1 million of letters of credit were also outstanding against the 2019 Variable Funding Notes, which related primarily to interest reserves required under the Indenture. There were 0 amounts drawn down on these letters of credit as of March 28, 2020 or December 28, 2019.

The ~~2015~~2017 Class A-2 Notes and ~~2017~~2019 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~~2017 Class A-2 Notes and ~~2017~~2019 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-22019 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):



	March 28, 2020		December 28, 2019
Gift card/certificate liability	$	179,844	248,082
Accrued payroll and benefits	15,079		27,208
Accrued interest	13,057		13,086
Other current liabilities—advertising funds	42,130		48,089
Franchisee profit-sharing liability	6,079		14,184
Other	34,129		35,401
Total other current liabilities	$	290,318	386,050

September 30,
2017 December 31,
2016
Gift card/certificate liability $ 142,020
207,628
Gift card breakage liability 2,668
13,301
Accrued payroll and benefits 29,120
25,071
Accrued legal liabilities (see note 9(c))
6,342
5,555
Accrued interest 10,621
10,702
Accrued professional costs 3,012
2,170
Franchisee profit-sharing liability 8,497
11,083
Other 28,207
22,756
Total other current liabilities $ 230,487
298,266

~~The decrease in the gift card/certificate liability was driven by the seasonality of our gift card program.~~ 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. As such, the Company has determined that it has ~~four operating segments, which are its~~5 reportable segments: Dunkin’ ~~Donuts~~U.S., Baskin-Robbins U.S., Dunkin’ ~~Donuts~~ International, Baskin-Robbins ~~U.S.,~~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 and franchise fees. U.S. Advertising Funds primarily derive revenues through continuing advertising fees from Dunkin’ and ~~license fees.~~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~~certain non-recurring, 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 ~~revenues~~related 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):



	Revenues
	Three months ended
	March 28, 2020		March 30, 2019
Dunkin’ U.S.	$	151,790	149,745
Baskin-Robbins U.S.	10,844		10,277
Dunkin’ International	5,483		6,851
Baskin-Robbins International	27,302		25,579
U.S. Advertising Funds	108,631		108,642
Total reportable segment revenues	304,050		301,094
Other	19,094		17,997
Total revenues	$	323,144	319,091

Revenues
Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Dunkin’ Donuts U.S. $ 165,106
152,425
464,148
444,898
Dunkin’ Donuts International 5,157
4,449
14,947
16,917
Baskin-Robbins U.S. 13,751
13,781
38,645
38,080
Baskin-Robbins International 28,810
27,904
88,876
89,578
Total reportable segment revenues 212,824
198,559
606,616
589,473
Other 11,344
8,540
26,746
23,711
Total revenues $ 224,168
207,099
633,362
613,184

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 profit
	Three months ended
	March 28, 2020			March 30, 2019
Dunkin’ U.S.	$	109,306		111,034
Baskin-Robbins U.S.	6,609			6,323
Dunkin’ International	3,491			4,831
Baskin-Robbins International	9,448			7,802
U.S. Advertising Funds	—			—
Total reportable segments	128,854			129,990
Corporate and other	(22,876		)	(23,662	)
Interest expense, net	(29,982		)	(30,298	)
Amortization of other intangible assets	(4,592		)	(4,633	)
Long-lived asset impairment charges	(74		)	(323	)
Other loss, net	(670		)	(4	)
Income before income taxes	$	70,660		71,070

Segment profit
Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Dunkin’ Donuts U.S. $ 129,719
119,434
360,241
335,963
Dunkin’ Donuts International 1,439
705
4,782
6,438
Baskin-Robbins U.S. 10,466
11,085
28,773
29,123
Baskin-Robbins International 11,420
11,154
31,900
30,617
Total reportable segments 153,044
142,378
425,696
402,141
Corporate (25,134 ) (27,614 ) (82,176 ) (84,477 )
Interest expense, net (23,812 ) (24,442 ) (72,822 ) (74,022 )
Amortization of other intangible assets (5,341 ) (5,397 ) (16,001 ) (16,726 )
Long-lived asset impairment charges (536 ) (7 ) (643 ) (104 )
Other income (losses), net 155
(124 ) 370
(596 )
Income before income taxes $ 98,376
84,794
254,424
226,216

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 investments
	Three months ended
	March 28, 2020			March 30, 2019
Dunkin’ International	$	(125	)	(140	)
Baskin-Robbins International	3,407			1,717
Total reportable segments	3,282			1,577
Other	384			653
Total net income of equity method investments	$	3,666		2,230

Net income (loss) of equity method investments
Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Dunkin’ Donuts International $ 9
351
(68 ) 829
Baskin-Robbins International 4,492
4,266
9,468
8,644
Total reportable segments 4,501
4,617
9,400
9,473
Other 965
850
3,212
2,675
Total net income of equity method investments $ 5,466
5,467
12,612
12,148

(7) Stockholders’ deficit

~~The changes in total stockholders’ deficit were as follows (in thousands):~~

Total stockholders’ deficit
Balance as of December 31, 2016 $ (163,258 )
Net income 155,417
Other comprehensive income 5,031
Dividends paid on common stock (87,911 )
Exercise of stock options 33,267
Repurchases of common stock (127,186 )
Share-based compensation expense 10,896
Other, net (344 )
Balance as of September 30, 2017 $ (174,088 )

(a) Treasury stock

During the ~~nine~~three months ended September 30, 2017, the Company entered into and completed an accelerated share repurchase agreement (the “May 2017 ASR Agreement”) with a third-party financial institution. Pursuant to the terms of the May 2017 ASR Agreement, the Company paid the financial institution $100.0 million in cash and received 1,757,568 shares of the Company’s common stock during the nine months ended September 30, 2017 based on a weighted average cost per share of $56.90 over the term of the May 2017 ASR Agreement.

~~Additionally, during the nine months ended September 30, 2017,~~March 28, 2020, the Company repurchased a total of ~~513,880~~880,933 shares of common stock in the open market ~~at a weighted average cost per share~~for total consideration of ~~$52.90 from existing stockholders.~~$64.3 million.

The Company accounts for treasury stock under the cost method based on the cost of the shares on the dates of repurchase ~~and~~plus any direct costs incurred. During the ~~nine~~three months ended ~~September 30, 2017,~~March 28, 2020, the Company retired ~~2,271,448~~880,933 shares of treasury stock repurchased ~~under the May 2017 ASR Agreement and~~ in the open market. The repurchase and retirement of these shares of treasury stock resulted in a decrease in additional paid-in capital of ~~$18.9~~$5.6 million and an increase in accumulated deficit of ~~$108.3~~$58.7 million.

(b) Equity incentive plans

During the ~~nine~~three months ended ~~September 30, 2017,~~March 28, 2020, the Company granted stock options to purchase ~~1,181,777~~681,862 shares of common stock and ~~90,342~~42,628 restricted stock units (“RSUs”) to certain ~~employees and members of our board of directors.~~employees. 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 average~~weighted-average exercise price of ~~$55.04~~$75.80 per share and ~~have~~had a ~~weighted average~~weighted-average grant-date fair value of ~~$9.87~~$11.55 per share. The RSUs granted to employees ~~and members of our board of directors~~generally vest in equal annual amounts over a three-year period ~~and a one-year period, respectively,~~ subsequent to the grant date and ~~have~~had a ~~weighted average~~weighted-average grant-date fair value of ~~$52.41~~$72.74 per ~~share.~~unit.

In addition, the Company granted ~~84,705~~45,964 performance stock units (“PSUs”) to certain employees during the ~~nine~~three months ended ~~September 30, 2017.~~March 28, 2020. These PSUs are generally eligible to cliff-vest approximately three years from the grant date. Of the total PSUs granted, ~~37,027~~21,225 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~~stockholders during the performance period measured against the companies in the S&P 500 Composite Index (“TSR PSUs”). The remaining ~~47,678~~24,739 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~~weighted-average grant-date fair value of ~~$67.52~~$81.64 per ~~share.~~unit. 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~~had a ~~weighted average~~weighted-average grant-date fair value of ~~$52.44~~$72.95 per ~~share.~~unit. 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~~$3.4 million and ~~$4.2~~$3.6 million for the three months ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016,~~2019, respectively, and ~~$10.9 million and $12.5 million for the nine months ended September 30, 2017 and September 24, 2016, respectively, and is~~was included in general and administrative expenses ~~net~~ in the consolidated statements of operations.

The changes in the components of accumulated other comprehensive loss were as follows (in thousands):



	Effect of foreign currency translation			Other		Accumulated other comprehensive loss
Balance as of December 28, 2019	$	(18,841	)	(968	)	(19,809	)
Other comprehensive loss, net	(6,387		)	(591	)	(6,978	)
Balance as of March 28, 2020	$	(25,228	)	(1,559	)	(26,787	)

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), net 5,309
(955 ) 677
5,031
Balance as of September 30, 2017 $ (17,710 ) 189
(1,432 ) (18,953 )

(d) Dividends

The Company paid a quarterly dividend of ~~$0.3225~~$0.4025 per share of common stock on March ~~22, 2017, June 14, 2017, and September 6, 2017~~18, 2020, totaling approximately ~~$29.6 million, $29.2 million, and $29.1 million respectively.~~$33.1 million. On ~~October 26, 2017,~~April 30, 2020, the Company announced that its board of directors ~~approved~~had suspended the ~~next quarterly~~Company's regular dividend program in response to the uncertainty arising from the COVID-19 pandemic. The board of ~~$0.3225 per share of common stock payable December 6, 2017~~directors remains committed to ~~shareholders of record as of~~paying dividends over the ~~close of business on November 27, 2017.~~long term and expects to reinstitute the program when it is appropriate to do so.

(8) Earnings per share

The computation of basic and diluted earnings per share of common ~~share~~stock is as follows (in thousands, except for share and per share data):



	Three months ended
	March 28, 2020		March 30, 2019
Net income—basic and diluted	$	52,113	52,323
Weighted-average number of shares of common stock:
Common—basic	82,675,487		82,620,759
Common—diluted	83,222,485		83,432,042
Earnings per share of common stock:
Common—basic	$	0.63	0.63
Common—diluted	0.63		0.63

Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Net income—basic and diluted $ 52,246
52,712
155,417
139,456
Weighted average number of common shares:
Common—basic 90,290,361
91,621,553
91,051,458
91,603,653
Common—diluted 91,433,076
92,565,695
92,386,611
92,545,292
Earnings per common share:
Common—basic $ 0.58
0.58
1.71
1.52
Common—diluted 0.57
0.57
1.68
1.51

The ~~weighted average~~weighted-average number of shares of common ~~shares~~stock in the common diluted earnings per share calculation includes the dilutive effect of ~~1,142,715~~546,998 and ~~944,142~~811,283 equity awards for the three months ended ~~September~~March 28, 2020 and March 30, ~~2017~~ ~~and September 24, 2016, respectively, and includes the dilutive effect of 1,335,153 and 941,639 equity awards for the nine months ended September 30, 2017 and September 24, 2016,~~2019, respectively, using the treasury stock method. The ~~weighted average~~weighted-average number of shares of common ~~shares~~stock in the common diluted earnings per share calculation for all periods excludes all contingently issuable equity awards outstanding for which the contingent vesting criteria were not yet met as of the fiscal period end. As of ~~September~~March 28, 2020 and March 30, ~~2017~~ ~~and September 24, 2016,~~2019, there were ~~150,000~~ ~~restricted~~24,282 and 42,888 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~~weighted-average number of shares of common ~~shares~~stock in the common diluted earnings per share calculation excludes ~~1,315,258~~1,353,798 and ~~4,048,878~~670,944 equity awards for the three months ended ~~September~~March 28, 2020 and March 30, ~~2017~~ ~~and September 24, 2016, respectively, and 1,524,739 and 4,257,237 equity awards for the nine months ended September 30, 2017 and September 24, 2016,~~2019, respectively, as they would be antidilutive.

(9) Commitments and contingencies

(a) Supply chain guarantees

The Company has entered into various ~~supply chain~~ agreements ~~that provide for purchase commitments,~~with suppliers of franchisee products, the majority of which ~~result in~~contain guarantees by the Company ~~being contingently liable upon early termination~~related to franchisees' purchases of certain volumes of products over specified periods. The Company's guarantees decrease as franchisees purchase products over their respective terms of the ~~agreement.~~agreements. The guarantees have varying terms, many of which are one year or less, and the latest of which expires in 2022. As of ~~September 30, 2017~~March 28, 2020 and December ~~31, 2016,~~28, 2019, the Company was contingently liable under such supply chain agreements for approximately ~~$118.0~~$80.3 million and ~~$136.2~~$100.9 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, wethe Company accrued an ~~immaterial~~inconsequential amount of reserves related to supply chain ~~commitments~~guarantees as of ~~September 30, 2017~~March 28, 2020 and December ~~31, 2016.~~28, 2019.

(b) Letters of credit

As of each of ~~September 30, 2017~~March 28, 2020 and December ~~31, 2016,~~28, 2019, the Company had standby letters of credit outstanding for a total of ~~$25.9~~$33.1 million. There were no0 amounts drawn down on these letters of ~~credit.~~credit as of December 28, 2019.

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 ~~September 30, 2017~~each of March 28, 2020 and December ~~31, 2016, $6.3 million and $5.6 million, respectively,~~28, 2019, an inconsequential amount was ~~included in other current liabilities in the consolidated balance sheets~~accrued related 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 income~~revenues from its equity method investees, consisting of royalty income and sales of ice cream and other products, as follows (in thousands):



	Three months ended
	March 28, 2020		March 30, 2019
B-R 31 Ice Cream Company., Ltd.	$	285	340
BR-Korea Co., Ltd.	1,164		1,183
Palm Oasis Ventures Pty. Ltd.	533		435
	$	1,982	1,958

Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
B-R 31 Ice Cream Company., Ltd. $ 588
686
1,464
1,577
BR-Korea Co., Ltd. 1,122
1,192
3,174
3,053
$ 1,710
1,878
4,638
4,630

As of ~~each of September 30, 2017~~March 28, 2020 and December ~~31, 2016,~~28, 2019, the Company had ~~$1.1~~$3.2 million and $3.7 million, respectively, of ~~royalties receivable~~receivables from its equity method investees, which were recorded in accounts receivable, net of ~~allowance for doubtful accounts,~~allowances, in the consolidated balance sheets.

The Company made net payments to its equity method investees totaling approximately ~~$958 thousand~~$1.3 million and ~~$713 thousand~~$1.1 million during the three months ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016, respectively, and $2.8 million and $2.3 million during the nine months ended September 30, 2017 and September 24, 2016,~~2019, respectively, primarily for the purchase of ice cream products.

(11) Advertising funds

Assets and liabilities of the advertising funds, which are restricted in their use, included in the consolidated balance sheets were as follows (in thousands):



	March 28, 2020			December 28, 2019
Accounts receivable, net of allowances	$	24,956		20,194
Notes and other receivables, net of allowances	203			1,133
Prepaid income taxes	168			79
Prepaid expenses and other current assets	14,985			10,255
Total current assets	40,312			31,661
Property, equipment, and software, net	16,681			17,125
Operating lease assets	4,127			4,262
Other assets	805			1,126
Total assets	$	61,925		54,174

Operating lease liabilities—current	$	523		1,932
Accounts payable	64,887			69,232
Deferred revenue—current^(a)	(722		)	(722	)
Other current liabilities	42,130			48,089
Total current liabilities	106,818			118,531
Operating lease liabilities—long-term	2,095			2,241
Deferred revenue—long-term^(a)	(5,872		)	(6,053	)
Other long-term liabilities	1,954			—
Total liabilities	$	104,995		114,719


(a)	Amounts represent franchisee incentives that have been deferred and are being recognized over the terms of the respective franchise agreements.

(12) Leases

The Company ~~recognized $702 thousand~~is party as a lessor and/or lessee to various leases for restaurants and ~~$790 thousand during~~other properties, including land and buildings, as well as leases for office equipment and automobiles. In addition, the Company has leased and subleased land and buildings to others, primarily franchisees. Rental income consisted of the following (in thousands):



	Three months ended
	March 28, 2020		March 30, 2019
Rental income—operating leases	$	18,523	18,760
Variable rental income	10,409		10,268
Rental income	$	28,932	29,028

(13) Allowances for accounts and notes receivable

The changes in the allowances for accounts and notes receivable were as follows (in thousands):



	Allowance for expected credit losses, excluding lease receivables^(a)		Allowance for lease receivables		Total^(b)
Balance at December 28, 2019	$	7,742	1,108		8,850
Provision for uncollectible accounts and notes receivable, net	1,958		1,735		3,693
Write-offs and other	51		(11	)	40
Balance at March 28, 2020	$	9,751	2,832		12,583


(a)	Balance primarily consists of allowances recorded on receivables arising from contracts with customers under ASC 606.


(b)	Balance is included in accounts receivable, net; notes and other receivables, net; and other assets in the consolidated balance sheets.

(14) COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic. The pandemic had an unfavorable impact on the Company’s business, financial condition, and results of operations for the three months ended ~~September 30, 2017~~March 28, 2020, including temporary closures of restaurants and ~~September 24, 2016, respectively,~~decreased traffic. In response to the ongoing COVID-19 pandemic, the Company has taken a series of actions to preserve financial flexibility and ~~$2.7 million~~support franchisees during this time of uncertainty, including temporarily extending payment terms for royalties and ~~$2.5 million during the nine months ended September 30, 2017 and September 24, 2016, respectively,~~advertising fees for franchisees in the ~~consolidated statements of operations~~U.S. and Canada from ~~the sale of ice cream~~12 to 45 days through mid-May to provide them with more financial flexibility to better support their employees and ~~other products to Palm Oasis Ventures Pty. Ltd. (“Australia JV”). As of September 30, 2017 and December 31, 2016,~~guests. In addition, the Company ~~had $2.4 million~~waived up to one month of rental payments and ~~$2.6 million, respectively,~~allowed franchisees to defer two months of ~~net receivables from~~rent on the ~~Australia JV, consisting of accounts~~approximately 900 properties leased by the Company to franchisees. While it is not possible at this time to estimate the nature and ~~notes receivable, net of current liabilities.~~

~~(11) Income taxes~~

~~In conjunction with the anticipated closing~~timing of the ~~debt refinancing transaction~~impact that the pandemic could have on our business due to numerous uncertainties, the continued spread of COVID-19 and ~~related issuance~~the measures taken by local and national governments are expected to continue to disrupt our operations and may also impact supply chain, resulting in an adverse impact on our business, financial condition, and results 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 theiroperations.

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 that the Company will realize the benefit of the unused foreign tax credits. As such, a valuation allowance of $8.9 million was recorded to the provision for income taxes for the three and nine months ended September 30, 2017.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements contained ~~herein~~in this Quarterly Report on Form 10-Q, including statements about our expected financial results, the impact of the COVID-19 pandemic, our ability to meet cash needs, our expected compliance with the covenants under the securitization documentation, and our share repurchase and dividend programs 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 continuing and uncertain impact of the current COVID-19 global pandemic on our business; the ongoing level of profitability of franchisees and licensees; our ~~franchisees~~’franchisees’ and ~~licensees~~’licensees’ 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' 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~~failure to protect consumer ~~credit~~payment card data or other personally identifiable information; 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.~~10-K and within Item 1A of Part II of this Form 10-Q. 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 ~~20,000~~21,000 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 ~~September 30, 2017,~~March 28, 2020, Dunkin’ ~~Donuts~~ had ~~12,435~~13,167 global points of distribution with restaurants in 4243 U.S. states, the District of Columbia, and 4540 foreign countries. Baskin-Robbins had ~~7,944~~8,168 global points of distribution as of the same date, with restaurants in 4344 U.S. states, the District of Columbia, Puerto Rico, and 51 foreign countries.

We are organized into ~~four~~five reporting segments: Dunkin’ ~~Donuts~~U.S., Baskin-Robbins U.S., Dunkin’ ~~Donuts~~ International, Baskin-Robbins ~~U.S.,~~International, and ~~Baskin-Robbins International.~~U.S. Advertising Funds. We generate revenue from ~~four~~five primary sources: (i) royalty income and franchise fees associated with franchised restaurants, (ii) continuing advertising fees from Dunkin’ 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 March 28, 2020, 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~~ ~~nine~~three-month periods ended ~~September~~March 28, 2020 and March 30, ~~2017~~ ~~and September 24, 2016~~2019 reflect the results of operations for the 13-week ~~and 39-week~~ periods ended on those dates. Operating results for the ~~three- and~~ ~~nine~~three-month ~~periods~~period ended ~~September 30, 2017~~March 28, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December ~~30, 2017~~26, 2020.

On March 11, 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. While it is not possible at this time to estimate the nature and timing of impact that the pandemic could have on our business, the continued spread of COVID-19 and the measures taken by local and national governments have disrupted and are expected to continue to disrupt our operations and may also impact supply chain, resulting in an adverse impact on our business, financial condition, and results of operations.

Selected operating and financial highlights



Amounts and percentages may not recalculate due to rounding	Three months ended
	March 28, 2020			March 30, 2019
Financial data (in thousands):
Total revenues	$	323,144		319,091
Operating income	101,312			101,372
Adjusted operating income	105,978			106,328
Net income	52,113			52,323
Adjusted net income	55,473			55,891
Systemwide sales (in millions):
Dunkin’ U.S.	$	2,124.5		2,126.3
Baskin-Robbins U.S.	130.2			128.5
Dunkin’ International	178.0			198.9
Baskin-Robbins International	329.6			314.6
Total systemwide sales	$	2,762.2		2,768.2
Systemwide sales growth (decline)	(0.2		)%	4.1	%
Comparable store sales growth (decline):
Dunkin’ U.S.	(2.0		)%	2.4	%
Baskin-Robbins U.S.	1.8		%	(2.8	)%
Dunkin’ International	(7.1		)%	2.9	%
Baskin-Robbins International	2.5		%	(2.0	)%

Amounts and percentages may not recalculate due to rounding
Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Financial data (in thousands):
Total revenues $ 224,168
207,099
633,362
613,184
Operating income 122,033
109,360
326,876
300,834
Adjusted operating income 127,910
114,764
343,520
317,300
Net income 52,246
52,712
155,417
139,456
Adjusted net income 55,772
55,955
165,403
149,336
Systemwide sales (in millions):
Dunkin’ Donuts U.S. $ 2,166.3
2,075.3
6,298.4
5,997.5
Dunkin’ Donuts International 189.3
177.5
533.6
519.9
Baskin-Robbins U.S. 177.0
178.2
493.6
491.1
Baskin-Robbins International 382.2
390.0
1,021.8
1,006.0
Total systemwide sales $ 2,914.8
2,821.0
8,347.4
8,014.5
Systemwide sales growth 3.3 % 6.3 % 4.2 % 4.8 %
Comparable store sales growth (decline):
Dunkin’ Donuts U.S. 0.6 % 2.0 % 0.5 % 1.4 %
Dunkin’ Donuts International 1.3 % (1.4 )% (0.1 )% (2.2 )%
Baskin-Robbins U.S. (0.4 )% (0.9 )% (1.1 )% 1.1 %
Baskin-Robbins International (4.3 )% (2.9 )% (1.0 )% (5.5 )%

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, including~~or 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-operated~~franchisee-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.

The COVID-19 pandemic had an unfavorable impact on systemwide sales for each of our segments for the three months ended March 28, 2020. Overall ~~growth~~decline in systemwide sales of ~~3.3% and 4.2%~~0.2% for the ~~three- and nine-month periods~~three months ended ~~September 30, 2017~~March 28, 2020 over the same ~~periods~~period in the prior fiscal year resulted from the following:

Dunkin’ ~~Donuts~~U.S. systemwide sales decline of 0.1% for the three months ended March 28, 2020 was primarily a result of comparable store sales decline of 2.0%, offset by 184 net new restaurants opened since March 30, 2019. Comparable store sales declined for the three months ended March 28, 2020 as a decline in traffic, primarily due to the impact of COVID-19 and concentrated in the last three weeks of the quarter, was offset by an increase in average ticket. The increase in average ticket was driven primarily by favorable mix shift to premium-priced espresso and cold brew beverages, offset by discounting driven by national value platforms. Comparable store sales growth was 3.5% in the

first 10 weeks of the quarter, including positive ticket and traffic, and was offset by a comparable store sales decline of 19.4% in the last three weeks of the quarter due to the impact of the COVID-19 pandemic.

Baskin-Robbins U.S. systemwide sales growth of ~~4.4% and 5.0%~~1.3% for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 28, 2020 was primarily a result of ~~386 net new restaurants opened since September 24, 2016 and~~ comparable store sales growth of ~~0.6% and 0.5%~~1.8%, ~~respectively.~~offset by 29 net restaurant closures since March 30, 2019. The ~~increases in~~ comparable store sales ~~were~~growth was driven by ~~increased~~an increase in average ticket, offset by a decline in ~~traffic. Growth~~traffic primarily due to the impact of the COVID-19 pandemic and concentrated in the last three weeks of the the fiscal period. The increase in average ticket was ~~primarily~~ driven by the sales of ~~breakfast sandwiches. Beverage~~cup and cones, beverages, and sundaes. Comparable store sales ~~increased slightly~~growth was 11.0% in the first 10 weeks of the quarter, including positive ticket and traffic, and was offset by comparable store sales decline of 23.3% in the last three weeks of the quarter due to the impact of the COVID-19 pandemic.

Dunkin’ International systemwide sales decline of 10.5% for the three months ended ~~September 30, 2017, led~~March 28, 2020 was driven by ~~hot coffee~~sales declines across all regions. Sales in South Korea and ~~espresso, offset~~Latin America were negatively impacted by unfavorable foreign exchange rates. On a ~~decline in frozen beverages, while beverage~~constant currency basis, systemwide sales decreased ~~slightly~~by approximately 8%. Dunkin’ International comparable store sales decline of 7.1% for the ~~nine~~three months ended ~~September 30, 2017~~March 28, 2020 was due primarily to ~~a decline~~declines in ~~hot coffee,~~South Korea, Europe, Asia, and Latin America, offset by ~~an increase~~sales growth in ~~iced coffee, driven by Cold Brew sales.~~the Middle East.

~~Dunkin’ Donuts~~Baskin-Robbins International systemwide sales growth of ~~6.7% and 2.6%~~4.8% for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 28, 2020 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 for the nine-month period was also~~South Korea and Japan, offset by a sales ~~decline~~declines in ~~India. For~~other Asian markets, the ~~three months ended September 30, 2017, sales~~Middle East and Australia. Sales in ~~Europe~~South Korea were ~~positively~~negatively impacted by unfavorable foreign exchange rates, while sales in ~~Southeast Asia were negatively impacted by foreign exchange rates. For the nine months ended September 30, 2017, sales in South Korea and South America~~Japan were positively impacted by ~~foreign exchange rates, while sales in Southeast Asia were negatively impacted by~~favorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately ~~7% and 2% for the three and nine months ended September 30, 2017, respectively. Dunkin’ Donuts~~8%. Baskin-Robbins International comparable store sales ~~grew 1.3%~~growth of 2.5% for the three months ended September 30, 2017, 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.

Baskin-Robbins U.S. systemwide sales decline of 0.7% for the three months ended September 30, 2017 was primarily a result of comparable store sales declines of 0.4% for the three months ended September 30, 2017 driven by decreases in sales of sundaes, desserts, and beverages, offset by an increase in take-home products. Systemwide sales growth of 0.5% for the nine months ended September 30, 2017March 28, 2020 was driven primarily 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. For the three and nine months ended September 30, 2017, traffic declined and average ticket increased.

~~Baskin-Robbins International systemwide sales decline of 2.0% for the three months ended September 30, 2017 was driven by sales declines~~growth 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 declines in ~~Japan, China, Europe,~~Asia and the Middle East. Sales in Japan were negatively impacted by foreign exchange rates for both the three- and nine-month periods, while sales in South Korea were positively impacted by foreign exchange rates for the nine-month period. On a constant currency basis, systemwide sales increased by approximately 1% and 2% for the three and nine months ended September 30, 2017, respectively. Baskin-Robbins International comparable store sales declines of 4.3% and 1.0% for the three and nine months ended September 30, 2017 was driven primarily by declines in the Middle East. Also contributing to the decline in comparable store sales for the three months ended September 30, 2017 was a decline in South Korea.

Changes in systemwide sales are impacted, in part, by changes in the number of points of distribution. Points of distribution and net openings (closings) as of and for the three ~~and nine~~ months ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016~~2019 were as follows:


	September 30, 2017	September 24, 2016	March 28, 2020	March 30, 2019
Points of distribution, at period end:
Dunkin’ Donuts U.S.	9,015	8,629
Dunkin’ Donuts International	3,420	3,379
Points of distribution, at period end^(a):
Dunkin’ U.S.			9,637	9,453
Baskin-Robbins U.S.	2,562	2,533	2,518	2,547
Dunkin’ International			3,530	3,447
Baskin-Robbins International	5,382	5,243	5,650	5,473
Consolidated global points of distribution	20,379	19,784	21,335	20,920


	Three months ended		Nine months ended			Three months ended
	September 30, 2017	September 24, 2016	September 30, 2017		September 24, 2016	March 28, 2020		March 30, 2019
Net openings (closings) during the period:
Dunkin’ Donuts U.S.	67	56	187		198
Dunkin’ Donuts International	18	11	(10	)	60
Dunkin’ U.S.						7		34
Baskin-Robbins U.S.	11	3	24		4	(6	)	(3	)
Dunkin’ International						23		(5	)
Baskin-Robbins International	41	45	98		165	14		(18	)
Consolidated global net openings	137	115	299		427	38		8


(a)	Temporary restaurant closures due to COVID-19 are not treated as restaurant closures and affected restaurants are included in points of distribution.

Amid the COVID-19 pandemic, Dunkin' U.S. average weekly systemwide sales leveled off through the first four weeks of the second quarter of fiscal year 2020, with small increases week-over-week during that time period. However, there can be no assurance that systemwide sales will not experience further declines in the remainder of the second quarter or beyond as a result of the continuing impact of the COVID-19 pandemic or otherwise. At the end of March and into early April 2020, Dunkin' U.S. comparable store sales declined approximately 35%. For the week ending April 25, 2020, comparable stores sales for open Dunkin' U.S. restaurants declined approximately 25% compared to the prior year period. Baskin-Robbins' U.S. average weekly systemwide sales have increased week-over-week through the first four weeks of the second quarter of fiscal year 2020. At the end of March and into early April, Baskin-Robbins U.S. comparable store sales declined approximately 30% to 35%. For the week ending April 25, 2020, comparable stores sales for open Baskin-Robbins U.S. restaurants declined approximately 10% compared to the prior year period. Based on these results for the beginning of the second fiscal quarter and

the expected continuing negative impact of the COVID-19 pandemic on our financial results, we expect to experience more significant impacts to our financial results beginning in the second fiscal quarter as compared to the first fiscal quarter.

As of April 25, 2020, approximately 90% of Dunkin' U.S. restaurants and more than 90% of Baskin-Robbins U.S. locations remained open, while approximately 50% of international restaurants remained open, split about equally between brands. We have worked with our franchisees to permit them to temporarily close restaurants where market conditions warrant. The temporary closures due to the pandemic have been primarily on college campuses, at transportation hubs, and in dense urban areas. Our restaurants have been deemed an essential business in many jurisdictions allowing them to remain open in some capacity. Dunkin' U.S. has a flexible operating model where it can often continue to offer drive-thru, delivery, and curbside service where in-restaurant dining is not permitted. The Company is unable to predict the reopening schedule for restaurants that are temporarily closed due to the pandemic, or whether and when additional closures may occur.

Summary of operating results

~~Also contributing to the increase in revenues was~~other products, as well as an increase in other revenues driven primarily by license fees related to Dunkin’ ~~Donuts~~ K-Cup® pods and ~~ready-to-drink bottled iced coffee,~~retail packaged coffee. The unfavorable impact on systemwide sales as ~~well as increased transfer fee income.~~

~~Total revenues~~a result of the COVID-19 pandemic had a corresponding unfavorable impact on royalty income, primarily for the ~~nine months ended September 30, 2017 increased $20.2 million, or 3.3%, due primarily to an increase in franchise fees and royalty income driven by Dunkin’ Donuts~~Dunkin' U.S. systemwide sales growth and additional renewal income, as well as an increase in rental income due to an increase in the number of leases for franchised locations. Also contributing to the increase in revenues was an increase in other revenues driven by license fees related to Dunkin’ Donuts K-Cup® pods, offset by timing of refranchising gains. These increases in revenues were offset by a decrease in sales at company-operated restaurants as there were no company-operated points of distribution during 2017.segment.

Operating income and adjusted operating income for the three months ended ~~September 30, 2017 increased $12.7~~March 28, 2020 of $101.3 million ~~or 11.6%,~~ and ~~$13.1~~$106.0 million, ~~or 11.5%,~~ respectively, ~~from~~were relatively flat compared to 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 was offset by increases in net margin on ice cream and other products and net income from our South Korea and Japan joint ventures, as well as ~~gains recognized~~the increase in ~~connection with the sale of company-operated restaurants in the prior year period.~~

Operating income and adjusted operating income for the nine months ended September 30, 2017 increased $26.0 million, or 8.7%, and $26.2 million, or 8.3%, respectively, from the prior year period. The increases were primarily a result of the increases in franchise fees and royalty income, rental margin, and other revenues. ~~Additionally, the prior year periods were unfavorably impacted by the operating results of company-operated restaurants.~~ The increases in operating income and adjusted operating income were negatively impacted by gains recognized in connection with the sale of company-operated restaurants in the prior year period, as well an increase in general and administrative ~~expenses.~~expenses was primarily due to an increase in reserves for uncollectible receivables and training expense associated with the roll-out of new high volume brewers.

Net income and adjusted net income for the three months ended ~~September 30, 2017 decreased $0.5~~March 28, 2020 of $52.1 million ~~or 0.9%,~~ and ~~$0.2~~$55.5 million, ~~or 0.3%,~~ respectively, ~~primarily a result~~were relatively flat compared to the prior year period. The drivers of ~~an increase in income tax expense. Net~~net income and adjusted net income for the ~~nine months ended September 30, 2017 increased $16.0 million, or 11.4%, and $16.1 million, or 10.8%, respectively, primarily as a result of~~first quarter compared to the ~~increases in~~prior year period were consistent with those for 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 increase in income tax expense was offset by the increases in operating income and adjusted operating income. Additionally, income tax expense for the nine months ended September 30, 2017 included $7.3 million of excess tax benefits from share-based compensation, which are now included in the provision for income taxes as a result of the required adoption of a new accounting standard in the first quarter of 2017 (see ~~note 2(f) to the unaudited consolidated financial statements included herein).~~respectively.

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 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 ended				Three months ended
	September 30, 2017			September 24, 2016		September 30, 2017		September 24, 2016		March 28, 2020			March 30, 2019
	(In thousands)									(In thousands)
Operating income	$	122,033		109,360		326,876		300,834		$	101,312		101,372
Adjustments:
Amortization of other intangible assets	5,341			5,397		16,001		16,726		4,592			4,633
Long-lived asset impairment charges	536			7		643		104		74			323
Transaction-related costs^(a)	—			—		—		64
Bertico and related litigation	—			—		—		(428	)
Adjusted operating income	$	127,910		114,764		343,520		317,300		$	105,978		106,328

Net income	$	52,246		52,712		155,417		139,456		$	52,113		52,323
Adjustments:
Amortization of other intangible assets	5,341			5,397		16,001		16,726		4,592			4,633
Long-lived asset impairment charges	536			7		643		104		74			323
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)										(1,306		)	(1,388	)
Adjusted net income	$	55,772		55,955		165,403		149,336		$	55,473		55,891


(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.~~rate of 28%.

Earnings per share

Earnings per share of common stock and diluted adjusted earnings per share of common stock were as follows:


	Three months ended			Nine months ended		Three months ended
	September 30, 2017		September 24, 2016	September 30, 2017	September 24, 2016	March 28, 2020		March 30, 2019
Earnings per share:
Earnings per share of common stock:
Common—basic	$	0.58	0.58	1.71	1.52	$	0.63	0.63
Common—diluted	0.57		0.57	1.68	1.51	0.63		0.63
Diluted adjusted earnings per share	0.61		0.60	1.79	1.61
Diluted adjusted earnings per share of common stock						0.67		0.67

Diluted adjusted earnings per share of common stock is calculated using adjusted net income, as defined above, and diluted ~~weighted average~~weighted-average shares outstanding. Diluted adjusted earnings per share of common stock is not a presentation made in accordance with GAAP, and our use of the term diluted adjusted earnings per share of common stock 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 of common stock should not be considered as an alternative to earnings per share of common stock derived in accordance with GAAP. Diluted adjusted earnings per share of common stock 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 of common stock 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:~~share of common stock:

Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
(In thousands, except share and per share data)
Adjusted net income $ 55,772
55,955
165,403
149,336
Weighted average number of common shares—diluted 91,433,076
92,565,695
92,386,611
92,545,292
Diluted adjusted earnings per share $ 0.61
0.60
1.79
1.61



	Three months ended
	March 28, 2020		March 30, 2019
	(In thousands, except share and per share data)
Adjusted net income	$	55,473	55,891
Weighted-average number of common shares—diluted	83,222,485		83,432,042
Diluted adjusted earnings per share of common stock	$	0.67	0.67

Results of operations

Consolidated results of operations


	Three months ended							Nine months ended							Three months ended
	September 30, 2017		September 24, 2016	Increase (Decrease)				September 30, 2017		September 24, 2016	Increase (Decrease)				March 28, 2020		March 30, 2019	Increase (Decrease)
	September 30, 2017		September 24, 2016	$		%		September 30, 2017		September 24, 2016	$		%		March 28, 2020		March 30, 2019	$		%
	(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	%	$	139,476	139,328	148		0.1	%
Advertising fees and related income															116,970		117,198	(228	)	(0.2	)%
Rental income	27,713		26,880	833		3.1	%	79,543		75,874	3,669		4.8	%	28,932		29,028	(96	)	(0.3	)%
Sales of ice cream and other products	27,551		26,568	983		3.7	%	85,710		86,425	(715	)	(0.8	)%	23,947		20,733	3,214		15.5	%
Sales at company-operated restaurants	—		1,611	(1,611	)	(100.0	)%	—		11,924	(11,924	)	(100.0	)%
Other revenues	17,095		13,401	3,694		27.6	%	41,165		39,344	1,821		4.6	%	13,819		12,804	1,015		7.9	%
Total revenues	$	224,168	207,099	17,069		8.2	%	$	633,362	613,184	20,178		3.3	%	$	323,144	319,091	4,053		1.3	%

Total revenues for the three months ended ~~September 30, 2017~~March 28, 2020 increased ~~$17.1~~$4.1 million, or ~~8.2%~~1.3%, due primarily to an increase in ~~franchise fees~~sales of ice cream and ~~royalty income driven by additional renewal income and Dunkin’ Donuts U.S. systemwide sales growth. Also contributing to the increase in revenues was~~other products, as well as an increase in other revenues driven primarily by license fees related to Dunkin’ ~~Donuts~~ K-Cup® pods and ~~ready-to-drink bottled iced coffee,~~retail packaged coffee. The unfavorable impact on systemwide sales as ~~well as increased transfer fee income.~~

segment.


	Three months ended							Nine months ended							Three months ended
	September 30, 2017		September 24, 2016	Increase (Decrease)				September 30, 2017		September 24, 2016	Increase (Decrease)				March 28, 2020		March 30, 2019	Increase (Decrease)
	September 30, 2017		September 24, 2016	$		%		September 30, 2017		September 24, 2016	$		%		March 28, 2020		March 30, 2019	$		%
	(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	%	$	19,499	19,475	24		0.1	%
Cost of ice cream and other products	19,457		18,384	1,073		5.8	%	58,578		58,445	133		0.2	%	18,148		16,640	1,508		9.1	%
Company-operated restaurant expenses	—		1,682	(1,682	)	(100.0	)%	—		13,472	(13,472	)	(100.0	)%
General and administrative expenses, net	61,996		59,374	2,622		4.4	%	185,613		184,028	1,585		0.9	%
Advertising expenses															118,269		118,091	178		0.2	%
General and administrative expenses															60,535		56,203	4,332		7.7	%
Depreciation and amortization	10,282		10,447	(165	)	(1.6	)%	31,097		32,087	(990	)	(3.1	)%	9,641		9,254	387		4.2	%
Long-lived asset impairment charges	536		7	529		7,557.1	%	643		104	539		518.3	%	74		323	(249	)	(77.1	)%
Total operating costs and expenses	$	107,604	105,775	1,829		1.7	%	$	319,689	330,827	(11,138	)	(3.4	)%	$	226,166	219,986	6,180		2.8	%
Net income of equity method investments	5,466		5,467	(1	)	(0.0	)%	12,612		12,148	464		3.8	%	3,666		2,230	1,436		64.4	%
Other operating income, net	3		2,569	(2,566	)	(99.9	)%	591		6,329	(5,738	)	(90.7	)%	668		37	631		1,705.4	%
Operating income	$	122,033	109,360	12,673		11.6	%	$	326,876	300,834	26,042		8.7	%	$	101,312	101,372	(60	)	(0.1	)%

Occupancy expenses for franchised restaurants for the three months ended ~~September 30, 2017 decreased $0.5 million due primarily to expenses incurred in~~March 28, 2020 remained relatively consistent with the prior year period to record lease-related liabilities as a result of lease terminations. Occupancy expenses for franchised restaurants for the nine months ended September 30, 2017 increased $1.1 million due primarily to to an increase in the number 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.period.

Net margin on ice cream and other products for the three ~~and nine~~ months ended ~~September 30, 2017 decreased $0.1~~March 28, 2020 increased $1.7 million, or ~~1.1%~~41.7%, ~~and $0.8 million, or 3.0%, respectively,~~ due primarily to an increase in ~~commodity costs. Additionally, the decrease in net margin on ice cream and other products for the three-month period was offset by an increase in~~ sales volume.

~~Company-operated restaurant~~Advertising expenses for the three ~~and nine~~ months ended ~~September 30, 2017 decreased $1.7~~March 28, 2020 increased $0.2 million ~~and $13.5 million, respectively, as all remaining company-operated points~~due primarily to an increase in interest income earned on cash balances related to the gift card program, resulting in additional accruals of ~~distribution were sold~~advertising costs, offset by the ~~end of fiscal 2016.~~decrease in advertising fees and related income.

General and administrative expenses for the three months ended ~~September 30, 2017~~March 28, 2020 increased ~~$2.6 million driven by increased incentive compensation expense. General and administrative expenses for the nine months ended September 30, 2017 increased $1.6~~$4.3 million due primarily to ~~increased incentive compensation~~an increase in reserves for uncollectible receivables and training expense ~~and other personnel costs, as well as costs incurred to support brand-building activities, offset by decreases in professional fees and other general expenses.~~associated with the roll-out of new high volume brewers.

Depreciation and amortization for the three ~~and nine~~ months ended ~~September 30, 2017 decreased $0.2~~March 28, 2020 increased $0.4 million ~~and $1.0 million, respectively,~~ due primarily to ~~certain intangible~~an increase in depreciable assets, ~~becoming fully amortized~~primarily comprised of technology infrastructure to support the Dunkin' mobile ordering and ~~favorable lease intangible assets being written-off upon termination of the related leases.~~payment platform.

Long-lived asset impairment charges for ~~each of~~ the three ~~and nine~~ months ended ~~September 30, 2017 increased $0.5 million from the prior year periods. Such~~March 28, 2020 decreased $0.2 million. Long-lived asset impairment 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 months ended ~~September 30, 2017 remained consistent with the prior year period. Net income of equity method investments for the nine months ended September 30, 2017~~March 28, 2020 increased ~~$0.5~~$1.4 million primarily as a result of ~~an increase~~increases in net income from our South Korea and Japan joint ~~venture.~~ventures.

Other operating income, net, which includes net gains and losses recognized in connection with the sale or disposal of ~~real estate, fluctuates based on the timing~~property, equipment, and software as well as other miscellaneous income, increased $0.6 million due primarily to income from administrative services performed that are not part 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.our core operations.


	Three months ended								Nine months ended								Three months ended
	September 30, 2017			September 24, 2016	Increase (Decrease)				September 30, 2017			September 24, 2016	Increase (Decrease)				March 28, 2020		March 30, 2019	Increase (Decrease)
	September 30, 2017			September 24, 2016	$		%		September 30, 2017			September 24, 2016	$		%		March 28, 2020		March 30, 2019	$		%
	(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	)%	$	29,982	30,298	(316	)	(1.0	)%
Other losses (income), net	(155		)	124	(279	)	(225.0	)%	(370		)	596	(966	)	(162.1	)%
Other loss, net																	670		4	666		n/m
Total other expense	$	23,657		24,566	(909	)	(3.7	)%	$	72,452		74,618	(2,166	)	(2.9	)%	$	30,652	30,302	350		1.2	%

Net interest expense ~~decreased $0.6 million and $1.2 million~~ for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 28, 2020 decreased $0.3 million driven primarily by an increase in interest income earned on our cash balances, as well as an increase in interest capitalized during the acquisition period of certain capital assets, offset by the impact of a ~~decrease~~securitization refinancing transaction completed during the second quarter of fiscal year 2019, resulting in increased interest expense due to ~~a lower principal balance as a result of principal payments made on our long-term debt since~~an increase in the ~~prior year periods.~~weighted-average interest rate.

The fluctuation in other ~~losses (income),~~loss, net, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 28, 2020 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 ended				Three months ended
	September 30, 2017			September 24, 2016		September 30, 2017		September 24, 2016		March 28, 2020			March 30, 2019
	(In thousands, except percentages)									(In thousands, except percentages)
Income before income taxes	$	98,376		84,794		254,424		226,216		$	70,660		71,070
Provision for income taxes	46,130			32,082		99,007		86,760		18,547			18,747
Effective tax rate	46.9		%	37.8	%	38.9	%	38.4	%	26.2		%	26.4	%

The ~~increase in the~~ effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2017~~March 28, 2020 was ~~primarily driven by a valuation allowance recorded on foreign tax credit carryforwards of $8.9 million primarily resulting from expected incremental interest expense from~~relatively consistent with 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 increase in the effective tax rate was offset by excess tax benefits from share-based compensation of $0.5 million and $7.3 million for the three and nine months ended September 30, 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).~~prior year period.

Operating segments

We operate ~~four~~five reportable operating segments: Dunkin’ ~~Donuts~~U.S., Baskin-Robbins U.S., Dunkin’ ~~Donuts~~ International, Baskin-Robbins ~~U.S.,~~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~~certain non-recurring, 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.~~statements. 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, advertising fees and ~~revenues~~related 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. Additionally, allocation of the consideration from sales of ice cream and other products to royalty income as consideration for the use of the franchise license and certain franchisee incentives are not reflected within segment revenues, but have no impact to total revenues for any segment.

Dunkin’ ~~Donuts~~ U.S.


	Three months ended							Nine months ended							Three months ended
	September 30, 2017		September 24, 2016	Increase (Decrease)				September 30, 2017		September 24, 2016	Increase (Decrease)				March 28, 2020		March 30, 2019	Increase (Decrease)
	September 30, 2017		September 24, 2016	$		%		September 30, 2017		September 24, 2016	$		%		March 28, 2020		March 30, 2019	$		%
	(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	%	$	117,855	117,097	758		0.6	%
Franchise fees	16,635		9,852	6,783		68.8	%	35,943		26,257	9,686		36.9	%	4,887		3,626	1,261		34.8	%
Rental income	26,786		25,972	814		3.1	%	76,842		73,285	3,557		4.9	%	27,923		27,848	75		0.3	%
Sales at company-operated restaurants	—		1,611	(1,611	)	(100.0	)%	—		11,924	(11,924	)	(100.0	)%
Other revenues	2,854		1,709	1,145		67.0	%	6,260		6,597	(337	)	(5.1	)%	1,125		1,174	(49	)	(4.2	)%
Total revenues	$	165,106	152,425	12,681		8.3	%	$	464,148	444,898	19,250		4.3	%	$	151,790	149,745	2,045		1.4	%
Segment profit	$	129,719	119,434	10,285		8.6	%	$	360,241	335,963	24,278		7.2	%	$	109,306	111,034	(1,728	)	(1.6	)%

Dunkin’ ~~Donuts~~ U.S. ~~revenues increased $12.7 million and $19.3 million for the three and nine months ended September 30, 2017, respectively, due primarily to~~ i~~ncreased franchise fees driven by additional renewal income and increased 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~~March 28, 2020 increased $2.0 million due primarily to an increase in ~~rental income driven by~~franchise fees as a result of additional deferred revenue recognized in connection with the planned closure of Speedway locations, as well as an increase in the number of leases for franchised locations. These 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.royalty income.

Dunkin’ ~~Donuts~~ U.S. segment profit ~~increased $10.3 million~~ for the three months ended ~~September 30, 2017 driven~~March 28, 2020 decreased $1.7 million due primarily to an increase in reserves for uncollectible receivables and training expense associated with the roll-out of new high volume brewers, offset 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. The increases in segment profit were negatively impacted 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.

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 ended
September 30,
2017 September 24,
2016 Increase (Decrease) September 30,
2017 September 24,
2016 Increase (Decrease)
$ % $ %
(In thousands, except percentages)
Royalty income $ 4,442
4,125
317
7.7 % $ 13,011
12,583
428
3.4 %
Franchise fees 704
323
381
118.0 % 1,958
3,856
(1,898 ) (49.2 )%
Other revenues 11
1
10
1,000.0 % (22 ) 478
(500 ) (104.6 )%
Total revenues $ 5,157
4,449
708
15.9 % $ 14,947
16,917
(1,970 ) (11.6 )%
Segment profit $ 1,439
705
734
104.1 % $ 4,782
6,438
(1,656 ) (25.7 )%

~~Dunkin’ Donuts International revenues for the three months ended September 30, 2017 increased by $0.7 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 million 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 increase 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.

Segment profit for Dunkin’ Donuts International for the three months ended September 30, 2017 increased $0.7 million primarily as a result of the increase in revenues and a decrease in general and administrative expenses, offset by a decrease in net income 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 ended											Three months ended
	September 30, 2017		September 24, 2016	Increase (Decrease)				September 30, 2017			September 24, 2016			Increase (Decrease)					March 28, 2020			March 30, 2019		Increase (Decrease)
	September 30, 2017		September 24, 2016	$		%					September 24, 2016		$			%		$				March 30, 2019			%
	(In thousands, except percentages)																		March 28, 2020	(In thousands, except percentages)
Royalty income	$	8,501	8,499	2		0.0	%	September 30, 2017	$	24,265		23,546			719			3.1	%	$	6,237		6,103		134		2.2	%
Franchise fees	557		273	284		104.0	%	885			790			95			12.0	%	355			312		43		13.8	%
Rental income	798		787	11		1.4	%	2,346			2,221			125			5.6	%	783			960		(177	)	(18.4	)%
Sales of ice cream and other products	771		805	(34	)	(4.2	)%	2,179			2,037			142			7.0	%	1,409			671		738		110.0	%
Other revenues	3,124		3,417	(293	)	(8.6	)%	8,970			9,486			(516	)		(5.4	)%	2,060			2,231		(171	)	(7.7	)%
Total revenues	$	13,751	13,781	(30	)	(0.2	)%	$	38,645		38,080			565			1.5	%	$	10,844		10,277		567		5.5	%
Segment profit	$	10,466	11,085	(619	)	(5.6	)%	$	28,773		29,123			(350	)		(1.2	)%	$	6,609		6,323		286		4.5	%

Baskin-Robbins U.S. revenues for the three months ended September 30, 2017 decreased slightly due primarily to a decrease in other revenues driven by a decrease in licensing income, 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~~March 28, 2020 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.~~

~~Baskin-Robbins U.S. segment profit for the three months ended September 30, 2017 decreased $0.6 million due primarily to an increase 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 ended
September 30,
2017 September 24,
2016 Increase (Decrease) September 30,
2017 September 24,
2016 Increase (Decrease)
$ % $ %
(In thousands, except percentages)
Royalty income $ 1,966
2,081
(115 ) (5.5 )% $ 5,255
5,226
29
0.6 %
Franchise fees 173
205
(32 ) (15.6 )% 524
524
—
— %
Rental income 129
121
8
6.6 % 355
340
15
4.4 %
Sales of ice cream and other products 26,512
25,340
1,172
4.6 % 82,602
83,119
(517 ) (0.6 )%
Other revenues 30
157
(127 ) (80.9 )% 140
369
(229 ) (62.1 )%
Total revenues $ 28,810
27,904
906
3.2 % $ 88,876
89,578
(702 ) (0.8 )%
Segment profit $ 11,420
11,154
266
2.4 % $ 31,900
30,617
1,283
4.2 %

~~Baskin-Robbins International revenues for the three months ended September 30, 2017 increased $0.9~~ million due primarily to an increase in sales of ice cream and other products, ~~to our licensees in the Middle East,~~ offset by decreases in ~~royalty~~rental income and other revenues.

Baskin-Robbins U.S. segment profit for the three months ended March 28, 2020 increased $0.3 million primarily as a result of an increase in net margin on ice cream.

Dunkin’ International



	Three months ended
	March 28, 2020		March 30, 2019	Increase (Decrease)
	March 28, 2020		March 30, 2019	$		%
	(In thousands, except percentages)
Royalty income	$	5,046	5,913	(867	)	(14.7	)%
Franchise fees	337		865	(528	)	(61.0	)%
Other revenues	100		73	27		37.0	%
Total revenues	$	5,483	6,851	(1,368	)	(20.0	)%
Segment profit	$	3,491	4,831	(1,340	)	(27.7	)%

Dunkin’ International revenues for the three months ended March 28, 2020 decreased $1.4 million primarily as a result of a decrease in royalty income driven by a decline in systemwide sales and a recovery of prior period royalties recorded in the first

quarter of 2019, as well as a decrease in franchise fees due primarily to additional deferred revenue recognized in the prior year period upon closure of certain international markets.

Segment profit for Dunkin’ International for the three months ended March 28, 2020 decreased $1.3 million primarily as a result of the decrease in revenues.

Baskin-Robbins International



	Three months ended
	March 28, 2020			March 30, 2019	Increase (Decrease)
	March 28, 2020			March 30, 2019	$		%
	(In thousands, except percentages)
Royalty income	$	1,698		1,905	(207	)	(10.9	)%
Franchise fees	132			358	(226	)	(63.1	)%
Rental income	226			220	6		2.7	%
Sales of ice cream and other products	25,257			23,075	2,182		9.5	%
Other revenues	(11		)	21	(32	)	(152.4	)%
Total revenues	$	27,302		25,579	1,723		6.7	%
Segment profit	$	9,448		7,802	1,646		21.1	%

Baskin-Robbins International revenues for the ~~nine~~three months ended ~~September 30, 2017 decreased $0.7~~March 28, 2020 increased $1.7 million due primarily to ~~a decrease~~an increase in sales of ice cream and other products, ~~to our licensees~~offset by decreases in ~~the Middle East, as well as a decrease in other revenues.~~franchise fees and royalty income.

Baskin-Robbins International segment profit for the three months ended ~~September 30, 2017~~March 28, 2020 increased ~~$0.3~~$1.6 million primarily as a result of ~~an increase in net income~~favorable results from our Japan and South Korea joint ~~venture, as well as~~ventures compared to the prior year period and an increase in net margin on ice cream ~~driven~~due primarily byto an increase in sales ~~volume, offset by~~volume. Offsetting these factors was an increase in general administrative expenses due primarily to an increase in reserves for uncollectible receivables and the decreases in franchise fees and royalty ~~income and other revenues.~~income.

~~Baskin-Robbins International segment profit~~U.S. Advertising Funds



	Three months ended
	March 28, 2020		March 30, 2019	Increase (Decrease)
	March 28, 2020		March 30, 2019	$		%
	(In thousands, except percentages)
Advertising fees and related income	$	108,631	108,642	(11	)	0.0	%
Total revenues	$	108,631	108,642	(11	)	0.0	%
Segment profit	$	—	—	—		—	%

U.S. Advertising Funds revenues for the ~~nine~~three months ended ~~September 30, 2017 increased $1.3 million as a result of an increase in net income from our Japan joint venture, as well as a decrease in general and administrative expenses primarily due~~March 28, 2020 remained flat compared to ~~expenses incurred in~~ the prior year period. Expenses for the U.S. Advertising Funds were equivalent to revenues in each period, ~~related to brand-building activities, offset by the decrease~~resulting in ~~other revenues.~~no segment profit.

Liquidity and capital resources

As of ~~September 30, 2017~~March 28, 2020, we held $~~267.0~~601.2 million of cash and cash equivalents and ~~$76.1~~$72.8 million of short-term restricted cash that was restricted under our securitized financing facility. Included in cash and cash equivalents is $~~106.8~~195.2 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~~ ~~September 30, 2017, we had a borrowing capacity of~~ ~~$74.1 million~~ ~~under our $100.0 million 2015 Variable Funding Notes (as defined below).~~

~~As a result of the adoption of new accounting standards during fiscal year 2017 that impacted the consolidated statements of cash flows (see~~ ~~note 2~~(f) to the unaudited consolidated financial statements included herein), the “Operating, investing, and financing cash flows” and “Adjusted operating and investing cash flow” sections below have been revised to reflect these changes for all periods presented.

Operating, investing, and financing cash flows

Net cash ~~provided by~~used in operating activities was ~~$121.5~~$37.3 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 28, 2020, as compared to ~~$131.3~~$16.0 million in the prior year period. The ~~$9.7~~$21.3 million ~~decrease~~increase in operating cash ~~flows~~outflows was driven primarily by unfavorable 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 decreaseincreases in cash paid for income ~~taxes. Additionally, other~~taxes and incentive compensation payments, timing of dividends received from equity method investments, as well as various changes in working capital, ~~contributed to the decrease in operating cash flows. Offsetting these decreases were~~offset by 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.~~items.

Net cash used in investing activities was ~~$9.1~~$6.3 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 28, 2020, as compared to ~~net cash provided by investing activities of $4.1~~$2.3 million in the prior year period. The ~~$13.2~~$4.0 million ~~decrease~~increase in investing cash ~~flows~~outflows 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 reduction~~an increase in capital expenditures of ~~$1.4~~$4.2 million.

Net cash provided by financing activities was $11.2 million for the three months ended March 28, 2020, as compared to net cash used in financing activities ~~was $201.1 million for the~~ ~~nine~~ ~~months ended September 30, 2017, as compared to $126.8~~of $40.3 million in the prior year period. The ~~$74.3~~$51.5 million ~~increase~~change in financing cash ~~outflows~~flows was driven primarily by the favorable impact of debt-related activities of $116.1 million compared to the prior year period, resulting primarily from proceeds from borrowing $116.0 million under the 2019 Variable Funding Notes (defined below). Offsetting these increases in financing cash flows was incremental cash used in the current year period for repurchases of common stock of $97.2 million, as well as additional cash used to pay the increased quarterly dividend of $5.6 million, offset by incremental cash generated from the exercise of stock options in the current year period of $28.3$64.2 million.

Adjusted operating and investing cash flow

Net cash flows from operating and investing activities for the ~~nine~~three months ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016 include decreases~~2019 included net cash outflows of ~~$69.2~~$47.0 million and ~~$37.5~~$49.6 million, respectively, ~~in cash held for~~related to advertising funds and ~~reserved for~~ gift card/certificate ~~programs, which were primarily driven by the seasonality of our gift card program.~~programs. Excluding cash held for advertising funds and reserved for gift card/certificate programs, we generated $~~181.7~~3.5 million and $~~172.9~~31.4 million of adjusted operating and investing cash flow during the ~~nine~~three months ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016,~~2019, respectively.

The ~~increase~~decrease in adjusted operating and investing cash flow was ~~due~~driven primarily ~~to an~~by the increases in cash paid for income taxes and incentive compensation payments, timing of dividends received from equity method investments, the increase in capital expenditures as well as various changes in working capital, offset by the increase in pre-tax net income related to operating activities, excluding non-cash items, payments made in connection with the settlement of the Bertico litigation in the prior year period, 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, and a decrease in cash paid for income taxes.

items.

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 ended				Three months ended
	September 30, 2017			September 24, 2016	March 28, 2020			March 30, 2019
Net cash provided by operating activities	$	121,529		131,259
Net cash used in operating activities					$	(37,255	)	(15,992	)
Plus: Decrease in cash held for advertising funds and gift card/certificate programs	69,224			37,511	46,983			49,605
Plus (less): Net cash provided by (used in) investing activities	(9,099		)	4,107
Less: Net cash used in investing activities					(6,273		)	(2,250	)
Adjusted operating and investing cash flow	$	181,654		172,877	$	3,455		31,363

Borrowing capacity

~~Our securitized financing facility included original aggregate borrowings~~As of March 28, 2020, there was approximately ~~$2.60~~$3.06 billion ~~consisting~~ of ~~$2.50 billion 2015~~total principal outstanding on the 2017 Class A-2 Notes (as defined below) and ~~$100.0~~2019 Class A-2 Notes (as defined below). On March 16, 2020, the Company borrowed $116.0 million ~~of 2015~~under our $150.0 million 2019 Variable Funding Notes (as defined below) ~~which were undrawn at closing.~~as a precautionary measure given the market uncertainty arising from COVID-19 and to further strengthen financial flexibility. As of ~~September 30, 2017,~~March 28, 2020, there was ~~approximately $2.44 billion of total principal outstanding on the 2015 Class A-2 Notes, while there was $74.1~~$0.9 million in available commitments under the ~~2015~~2019 Variable Funding Notes as ~~$25.9~~$33.1 million of letters of credit were outstanding.

In ~~January 2015,~~April 2019, DB Master Finance LLC (the ~~“Master Issuer”~~"Master Issuer"), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of Dunkin’ Brands Group, Inc. ~~(“DBGI”)~~, issued Series ~~2015-1 3.262%~~2019-1 3.787% 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~~“2019 Class A-2-I Notes”) with an initial principal amount of $600.0 million, ~~and~~ Series ~~2017-1 4.030%~~2019-1 4.021% Fixed Rate Senior Secured Notes, Class A-2-II (the ~~“2017~~“2019 Class A-2-II Notes”) with an initial principal amount of $400.0 million, and Series 2019-1 4.352% Fixed Rate Senior Secured Notes, Class A-2-III (the “2019 Class A-2-III Notes”, and together with the ~~2017~~2019 Class A-2-I Notes and 2019 Class A-2-II Notes, the ~~“2017~~“2019 Class A-2 Notes”) with an initial principal amount of ~~$800.0~~$700.0 million. In addition, the Master Issuer issued Series ~~2017-1~~2019-1 Variable Funding Senior Secured Notes, Class A-1 (the ~~“2017~~“2019 Variable Funding Notes” and, together with the ~~2017~~2019 Class A-2 Notes, the ~~“2017~~“2019 Notes”), which ~~allows~~allow for the issuance of up to $150.0 million of ~~2017~~2019 Variable Funding Notes and certain other credit instruments, including letters of credit.

~~A portion of the proceeds of the~~The 2017 ~~Notes was used to repay the remaining $731.3 million of principal outstanding on the 2015~~ Class ~~A-2-I~~A-2 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 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~~2019 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~~2017 Class A-2 Notes and ~~2017~~2019 Notes and that have pledged substantially all of their assets to secure the ~~2015~~2017 Class A-2 Notes and ~~2017~~2019 Notes.

The ~~2015~~2017 Class A-2 Notes and ~~2017~~2019 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~~2017 Class

~~A-2-II~~ A-2 Notes and ~~2017~~2019 Class A-2 Notes is in ~~February 2045~~November 2047 and ~~November 2047,~~May 2049, respectively, but it is anticipated that, unless earlier prepaid to the extent permitted under the Indenture, the ~~2015~~Series 2017-1 3.629% Fixed Rate Senior Secured Notes, Class A-2-I (the “2017 Class A-2-I Notes”) will be repaid by November 2024, the 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”) will be repaid by November 2027, the 2019 Class A-2-I Notes will be repaid by February 2024, the 2019 Class A-2-II Notes will be repaid by ~~February 2022,~~May 2026, and the ~~2017~~2019 Class ~~A-2-1~~A-2-III Notes will be repaid by ~~November 2024, and the 2017 Class A-2-II Notes will be repaid by November 2027~~May 2029 (the “Anticipated Repayment Dates”). Principal amortization payments equal to $31 million per calendar year, payable quarterly, are collectively required to be made on the ~~2015 Class A-2-II,~~ 2017 Class ~~A-2-I Notes,~~A-2 and ~~2017~~2019 Class ~~A-2-II Notes equal to $17.5 million, $6.0 million, and $8.0 million, respectively, per calendar year~~A-2 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. As this specified leverage ratio was less than 5.0 to 1.0 as of March 28, 2020, no principal payments are required in the second quarter of fiscal year 2020 and the Company does not intend to make a principal payment. If the ~~2015~~2017 Class ~~A-2-II~~A-2 Notes or the ~~2017~~2019 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~~2017 Class ~~A-2-II~~A-2 Notes and the ~~2017~~2019 Class A-2 Notes. Various other events, including failure to maintain a minimum ratio of net cash flows to debt service ("DSCR") of 1.20 to 1.0, measured for the four immediately preceding fiscal quarters, may also cause a rapid amortization event. Failure to maintain a minimum DSCR of 1.75 to 1.0 would also cause certain excess cash flows to be segregated in a separate restricted cash account. As of March 28, 2020, we had a DSCR of 3.27 to 1.0.

It is anticipated that the principal and interest on the ~~2017~~2019 Variable Funding Notes will be repaid in full on or prior to ~~November 2022,~~August 2024, subject to two additional one-year extensions. Borrowings under the 2019 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 2019 Variable Funding Notes are not repaid prior to August 2024 or prior to the end of the 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 2019 Variable Funding Notes which ranges from 0.50% to 1.00% based on utilization. Other events and transactions, such as certain asset sales and receipt of various insurance or indemnification proceeds, may trigger additional mandatory prepayments.

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 differs from the leverage ratios specified in the Indenture. 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~~finance 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 ~~September 30, 2017,~~March 28, 2020, we had a Net Debt to Adjusted EBITDA ratio of ~~4.4~~5.0 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 ~~September 30, 2017,~~March 28, 2020, respectively (in thousands):


	September 30, 2017			March 28, 2020
Principal outstanding under Class A-2 Notes	$	2,437,500
Total capital lease obligations	7,793
Principal outstanding under 2017 Class A-2 Notes				$	1,368,500
Principal outstanding under 2019 Class A-2 Notes				1,687,250
Principal outstanding under 2019 Variable Funding Notes				116,000
Other notes payable				1,212
Total finance lease obligations				7,612
Less: cash and cash equivalents	(266,981		)	(601,226		)
Less: restricted cash, current	(76,141		)	(72,793		)
Plus: cash held for gift card/certificate programs	106,768			150,368
Net Debt	$	2,208,939		$	2,656,923


	Twelve months ended		Twelve months ended
	September 30, 2017		March 28, 2020
Net income	$	211,537	$	241,814
Interest expense	100,588		128,319
Income tax expense	129,920		77,038
Depreciation and amortization(a)	41,547		37,269
Impairment charges	688		302
EBITDA	484,280		484,742
Adjustments:
Share-based compensation expense(a)	15,529		12,800
Other^(a)	2,266
Loss on debt extinguishment and refinancing transactions			13,076
Increase in deferred revenue related to franchise and licensing agreements^(b)			(7,760		)
Other^(c)			24,786
Total adjustments	17,795		42,902
Adjusted EBITDA	$	502,075	$	527,644


(a)	Amounts exclude depreciation and share-based compensation of $6.2 million and $1.0 million, respectively, related to U.S. Advertising Funds.


(b)	Amount excludes incentives paid to franchisees, primarily related to the Dunkin' U.S. Blueprint for Growth.


(c)	Represents costs and fees associated with various franchisee-related investments, including investments in the Dunkin' 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.

In response to the ongoing COVID-19 pandemic, we have taken a series of actions to preserve financial flexibility and support our franchisees during this time of uncertainty, including temporarily extending payment terms for royalties and advertising fees for franchisees in the U.S. and Canada from 12 to 45 days through mid-May to provide them with more financial flexibility to better support their employees and guests. In addition, the Company waived up to one month of rental payments and allowed franchisees to defer two months of rent on the approximately 900 properties leased by the Company to franchisees. While we do not expect these actions to adversely affect our ability to meet our cash needs, we have also implemented plans to preserve our strong balance sheet by reducing operating expenses and preserving cash, including suspension of the quarterly dividend and share repurchase programs. We expect to remain in compliance with all of our debt covenants under the securitization facility.

Based upon our current level of operations and anticipated growth, we believe that our cash on hand and 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.~~profits from current levels. 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) and note 13 to the unaudited consolidated financial statements included in Item 1 of Part I of this Form 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, 2016~~28, 2019.

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 ~~September 30, 2017~~March 28, 2020. 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.

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 28, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation of our disclosure controls and procedures as of ~~September 30, 2017~~,March 28, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

~~During the quarterly period ended~~ ~~September 30, 2017~~, there were no changes in the Company’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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 September 30, 2017, $6.3 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 following additional risk factor relating to COVID-19 should be read in conjunction with the risk factors previously disclosed in Part I, Item 1A, “Risk ~~Factors” included in~~Factors,” of our Annual Report on Form 10-K for the ~~fiscal~~ year ended December ~~31, 2016~~.28, 2019 and the information contained in this Quarterly Report on Form 10-Q and our other reports filed with the SEC. Except as described herein, there have been no material changes with respect to the risk factors disclosed in our 2019 Form 10-K.

The novel coronavirus (COVID-19) pandemic has disrupted and is expected to continue to disrupt our business, which has and is expected to continue to materially affect our business, financial condition, results of operations and cash flows for an extended period of time.

The global pandemic resulting from the outbreak of COVID-19 has disrupted global health, economic and market conditions, consumer behavior and restaurant operations. Local and national governmental mandates or recommendations and public perceptions of the risks associated with the COVID-19 pandemic have caused, and are expected to continue to cause, changes in consumer behavior and adverse economic conditions, which would continue to adversely affect our and our franchisees’ business.

National, state and local authorities have recommended social distancing and imposed or are considering quarantine, shelter-in-place, curfew and similar isolation measures, including government orders and other restrictions on the conduct of business operations. Such measures have had adverse impacts on the U.S. and foreign economies of uncertain severity and duration.

Operations in our franchised restaurants have been and, at least in the short term, are expected to continue to be disrupted to varying degrees, from limited operations including only drive-thru, delivery and carryout, sometimes with limited hours, menus and/or capacity, to full restaurant closures in some markets. While we cannot predict the duration or scope of the COVID-19 pandemic, or when and under what circumstances any temporarily closed stores may reopen (and some stores may close permanently), these operational changes have negatively impacted our franchisees’ business and our royalty revenue and such impact is expected to continue to be material to our financial results, condition and outlook.

The restaurant industry is affected by consumer preferences and perceptions. Many consumer behaviors have changed during the COVID-19 pandemic as a result of mandates or orders from federal, state and local authorities, and concerns about the transmission of COVID-19, including less time spent commuting or outside the home, leading to fewer restaurant visits and more food and beverage prepared and consumed at home, or by delivery. These changes in behavior may continue following the lifting of such mandates or orders, possibly beyond the end of the pandemic. These changes could negatively impact our franchisees’ sales and customer traffic, which would reduce their royalty payments to us, and could materially and adversely impact our business and results of operations.

In addition, we believe that our franchisees’ sales, customer traffic, and profitability are strongly correlated to consumer discretionary spending, which is influenced by general economic conditions, unemployment levels, and the availability of discretionary income. Our franchisees’ sales are dependent upon discretionary spending by consumers, and reductions in sales at franchised restaurants will result in lower royalty payments from franchisees to us, which will adversely impact our profitability. A continued economic downturn as a result of the COVID-19 pandemic, particularly in the United States, would materially and adversely impact our business and results of operations.

In addition, in the face of continued economic uncertainty, the ability of our franchisees to access capital for the purposes of remodeling and opening new stores may be limited. If our franchisees (or prospective franchisees) are not able to obtain financing at commercially reasonable rates, our future growth could be adversely affected, which would reduce our collection of franchise fees and limit the expansion of the restaurant base from which we derive royalty income.

We cannot reasonably estimate the length or severity of the COVID-19 pandemic or the related response, including the length of time it may take for normal economic and operating conditions to resume or the extent to which the disruption may materially impact our business, financial position, results of operations or cash flows. Further, the economic recovery period could continue, even after the health risks of the pandemic subside. We expect that certain operational changes made during the pandemic, particularly with respect to enhanced health and safety measures in franchised restaurants, will remain in place for an extended period (and some of these changes may be permanent changes) and could increase our franchisees’ costs. The COVID-19 pandemic may also have the effect of heightening other risks disclosed in the Risk Factors section included in our

Form 10-K filed on February 24, 2020, such as, but not limited to, those related to our ability to service our debt obligations, supply chain interruptions and/or commodity price increases, and the financial condition of our franchisees.

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 ~~September 30, 2017~~March 28, 2020 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
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⁾
12/29/19 - 01/25/20	—	$	—	—	$	190,283,000
01/26/20 - 02/29/20	811,281	73.52		811,281	190,354,600
03/01/20 - 03/28/20	69,652	66.69		69,652	185,709,500
Total	880,933	$	72.98	880,933



(1)	On ~~October 25, 2017,~~February 5, 2020, our board of directors ~~approved~~authorized a new share repurchase program offor up to ~~$650.0~~an aggregate of $250.0 million of our outstanding ~~shares of our~~ 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. The ~~authorization is valid for a period of two years and replaces our $250.0 million~~new share repurchase program ~~that was approved by our board of directors~~replaced the existing program adopted in May 2018. The Company suspended share repurchase activity in March 2020 due to the uncertainty related to COVID-19 and its impact on ~~May 10, 2017~~financial and ~~which was set to expire two years after such approval.~~operational results.

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) aNone.

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.

Item 6. Exhibits

(a) Exhibits:



~~10.1~~		~~Dunkin’ Brands Group, Inc. Executive Change in Control Severance Plan~~

~~10.2~~3.1		Purchase Agreement dated September 14, 2017 among DB Master Finance LLC as Master Issuer, DB Master Finance Parent LLC, DB Franchising Holding Company LLC, DB Mexican Franchising LLC, DD IP Holder LLC, BR IP Holder, BR UK Franchising LLC, Dunkin’ Donuts Franchising LLC, Baskin-Robbins Franchising LLC, DB Real Estate Assets I LLCThird Amended and ~~DB Real Estate Assets II LLC, each as Guarantor,~~Restated Bylaws of Dunkin’ Brands Group, Inc., as manager, the Company and Dunkin’ Brands Holdings, Inc., as parent companies, and Guggenheim Securities, LLC and Barclays Capital Inc., as representatives of the initial purchasers (incorporated by reference to (incorporated by reference to Exhibit ~~10.1~~3.1 to the Company’s Current Report on Form 8-K, File No. 001-35258, filed with the SEC on ~~September 15, 2017).~~February 14, 2020)

31.1		Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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:	~~November 8, 2017~~May 6, 2020	By:	/s/ ~~Nigel Travis~~Katherine Jaspon
			~~Nigel Travis,~~Katherine Jaspon ~~Chairman~~Chief Financial Officer Principal Financial and ~~Chief Executive~~Accounting Officer

3637



	September 30, 2017			December 31, 2016
	Significant 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
Total assets	$	10,389	10,389	9,271	9,271
Liabilities:
Deferred compensation liabilities	$	12,851	12,851	11,126	11,126
Total liabilities	$	12,851	12,851	11,126	11,126



	Total stockholders’ deficit
Balance as of December 31, 2016	$	(163,258	)
Net income	155,417
Other comprehensive income	5,031
Dividends paid on common stock	(87,911		)
Exercise of stock options	33,267
Repurchases of common stock	(127,186		)
Share-based compensation expense	10,896
Other, net	(344		)
Balance as of September 30, 2017	$	(174,088	)



	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), net	5,309			(955	)	677		5,031
Balance as of September 30, 2017	$	(17,710	)	189		(1,432	)	(18,953	)