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~~26, 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, Massachusetts 02021

(Address of principal executive offices) (zip code)

(781) 737-3000

(Registrants’ telephone number, including area code)

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

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~~October 30, 2020, 82,417,076 shares of common stock of the registrant were outstanding.

Table of Contents

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS



		Page
			~~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	1926
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3241
Item 4.	Controls and Procedures	3241

Part II. – Other Information

Item 1.	Legal Proceedings	3342
Item 1A.	Risk Factors	3342
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3343
Item 3.	Defaults Upon Senior Securities	3343
Item 4.	Mine Safety Disclosures	3343
Item 5.	Other Information	3343
Item 6.	Exhibits	3544
	Signatures	3645

Table of Contents

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 26, 2020		December 28, 2019
Assets
Current assets:
Cash and cash equivalents	$	613,641	621,152
Restricted cash	89,626		85,644
Accounts receivable, net of allowances of $12,155 and $6,533 as of September 26, 2020 and December 28, 2019, respectively	87,227		76,019
Notes and other receivables, net of allowances of $870 and $778 as of September 26, 2020 and December 28, 2019, respectively	55,617		57,174
Prepaid income taxes	8,799		16,701
Prepaid expenses and other current assets	57,622		50,611
Total current assets	912,532		907,301
Property, equipment, and software, net of accumulated depreciation of $186,599 and $172,001 as of September 26, 2020 and December 28, 2019, respectively	217,419		223,120
Operating lease assets	348,045		371,264
Equity method investments	163,443		154,812
Goodwill	888,274		888,286
Other intangible assets, net of accumulated amortization of $266,590 and $253,641 as of September 26, 2020 and December 28, 2019, respectively	1,288,952		1,302,721
Other assets	70,339		72,520
Total assets	$	3,889,004	3,920,024
Liabilities and Stockholders’ Deficit
Current liabilities:
Current portion of long-term debt	$	31,150	31,150
Operating lease liabilities	39,563		35,863
Accounts payable	76,017		89,413
Deferred revenue	38,144		39,950
Other current liabilities	379,504		386,050
Total current liabilities	564,378		582,426
Long-term debt, net	2,992,330		3,004,216
Operating lease liabilities	357,229		380,647
Deferred revenue	287,973		324,854
Deferred income taxes, net	197,669		197,673
Other long-term liabilities	22,770		18,218
Total long-term liabilities	3,857,971		3,925,608
Commitments and contingencies (note 9)
Stockholders’ deficit:
Preferred stock, $0.001 par value; 25,000,000 shares authorized; 0 shares issued and outstanding	0		0
Common stock, $0.001 par value; 475,000,000 shares authorized; 82,407,709 shares issued and 82,406,709 shares outstanding as of September 26, 2020; 82,835,830 shares issued and 82,834,830 shares outstanding as of December 28, 2019	82		83
Additional paid-in capital	516,590		561,345
Treasury stock, at cost; 1,000 shares as of September 26, 2020 and December 28, 2019	(64)		(64)
Accumulated deficit	(1,028,546)		(1,129,565)
Accumulated other comprehensive loss	(21,407)		(19,809)
Total stockholders’ deficit	(533,345)		(588,010)
Total liabilities and stockholders’ deficit	$	3,889,004	3,920,024

September 30,
2017 December 31,
2016
Assets
Current assets:
Cash and cash equivalents $ 266,981
361,425
Restricted cash 76,141
69,746
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
Prepaid income taxes 9,843
20,926
Prepaid expenses and other current assets 33,605
28,739
Total current assets 521,853
606,358
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
Equity method investments 128,633
114,738
Goodwill 888,311
888,272
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 assets 67,674
62,632
Total assets $ 3,139,326
3,227,382
Liabilities and Stockholders’ Deficit
Current liabilities:
Current portion of long-term debt $ 25,000
25,000
Capital lease obligations 584
589
Accounts payable 12,416
12,682
Liabilities of advertising funds 57,935
52,271
Deferred income 37,595
35,393
Other current liabilities 230,487
298,266
Total current liabilities 364,017
424,201
Long-term debt, net 2,388,091
2,401,998
Capital lease obligations 7,209
7,550
Unfavorable operating leases acquired 10,164
11,378
Deferred income 10,729
12,154
Deferred income taxes, net 459,524
461,810
Other long-term liabilities 73,680
71,549
Total long-term liabilities 2,949,397
2,966,439
Commitments and contingencies (note 9)

Stockholders’ equity (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
Additional paid-in capital 746,052
807,492
Treasury stock, at cost; 26,777 shares as of September 30, 2017 and December 31, 2016 (1,060 ) (1,060 )
Accumulated deficit (900,217 ) (945,797 )
Accumulated other comprehensive loss (18,953 ) (23,984 )
Total stockholders’ deficit (174,088 ) (163,258 )
Total liabilities and stockholders’ deficit $ 3,139,326
3,227,382

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			Nine months ended
	September 30, 2017			September 24, 2016		September 30, 2017		September 24, 2016			September 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
Revenues:										Revenues:
Franchise fees and royalty income	$	151,809		138,639		426,944		399,617		Franchise fees and royalty income	$	160,065	157,224	415,506	454,810
Advertising fees and related income										Advertising fees and related income	132,280		128,675	358,881	375,132
Rental income	27,713			26,880		79,543		75,874		Rental income	30,639		31,984	85,588	92,691
Sales of ice cream and other products	27,551			26,568		85,710		86,425		Sales of ice cream and other products	24,514		24,409	71,164	72,400
Sales at company-operated restaurants	—			1,611		—		11,924
Other revenues	17,095			13,401		41,165		39,344		Other revenues	14,045		13,590	40,924	39,277
Total revenues	224,168			207,099		633,362		613,184		Total revenues	361,543		355,882	972,063	1,034,310
Operating costs and expenses:										Operating costs and expenses:
Occupancy expenses—franchised restaurants	15,333			15,881		43,758		42,691		Occupancy expenses—franchised restaurants	18,908		19,823	56,540	58,995
Cost of ice cream and other products	19,457			18,384		58,578		58,445		Cost of ice cream and other products	19,276		21,066	55,410	59,724
Company-operated restaurant expenses	—			1,682		—		13,472
General and administrative expenses, net	61,996			59,374		185,613		184,028
Advertising expenses										Advertising expenses	133,352		130,846	362,702	379,898
General and administrative expenses										General and administrative expenses	58,705		60,333	171,399	176,458
Depreciation	4,941			5,050		15,096		15,361		Depreciation	5,663		4,584	16,483	13,916
Amortization of other intangible assets	5,341			5,397		16,001		16,726		Amortization of other intangible assets	4,582		4,599	13,762	13,858
Long-lived asset impairment charges	536			7		643		104		Long-lived asset impairment charges	0		36	560	361
Total operating costs and expenses	107,604			105,775		319,689		330,827		Total operating costs and expenses	240,486		241,287	676,856	703,210
Net income of equity method investments	5,466			5,467		12,612		12,148		Net income of equity method investments	7,159		6,667	15,108	13,324
Other operating income, net	3			2,569		591		6,329		Other operating income, net	699		81	1,528	943
Operating income	122,033			109,360		326,876		300,834		Operating income	128,915		121,343	311,843	345,367
Other income (expense), net:										Other income (expense), net:
Interest income	624			161		1,370		434		Interest income	124		2,996	2,491	7,906
Interest expense	(24,436		)	(24,603	)	(74,192	)	(74,456	)	Interest expense	(31,854)		(31,787)	(96,541)	(96,758)
Other income (losses), net	155			(124	)	370		(596	)
Loss on debt extinguishment										Loss on debt extinguishment	0		0	0	(13,076)
Other income (loss), net										Other income (loss), net	154		(258)	(302)	(308)
Total other expense, net	(23,657		)	(24,566	)	(72,452	)	(74,618	)	Total other expense, net	(31,576)		(29,049)	(94,352)	(102,236)
Income before income taxes	98,376			84,794		254,424		226,216		Income before income taxes	97,339		92,294	217,491	243,131
Provision for income taxes	46,130			32,082		99,007		86,760		Provision for income taxes	23,371		19,929	54,960	58,821
Net income	$	52,246		52,712		155,417		139,456		Net income	$	73,968	72,365	162,531	184,310
Earnings per share:										Earnings per share:
Common—basic	$	0.58		0.58		1.71		1.52		Common—basic	$	0.90	0.87	1.97	2.23
Common—diluted	0.57			0.57		1.68		1.51		Common—diluted	0.89		0.86	1.96	2.20
Cash dividends declared per common share	0.32			0.30		0.97		0.90

See accompanying notes to unaudited consolidated financial statements.

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DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Three months ended					Nine months ended					Three months ended			Nine months ended
	September 30, 2017			September 24, 2016		September 30, 2017		September 24, 2016			September 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
Net income	$	52,246		52,712		155,417		139,456		Net income	$	73,968	72,365	162,531	184,310
Other comprehensive income (loss), net:										Other comprehensive income (loss), net:
Effect of foreign currency translation, net of deferred tax expense (benefit) of $6 and $(59) for the three months ended September 30, 2017 and September 24, 2016, respectively, and $579 and $(488) for the nine months ended September 30, 2017 and September 24, 2016, respectively	(662		)	6,161		5,309		8,730
Effect of interest rate swaps, net of deferred tax benefit of $216 for each of the three months ended September 30, 2017 and September 24, 2016 and $650 for each of the nine months ended September 30, 2017 and September 24, 2016	(319		)	(319	)	(955	)	(955	)
Effect of foreign currency translation, net of deferred tax expense (benefit) of $12 and $(47) for the three months ended September 26, 2020 and September 28, 2019, respectively, and $(53) and $(39) for the nine months ended September 26, 2020 and September 28, 2019, respectively.										Effect of foreign currency translation, net of deferred tax expense (benefit) of $12 and $(47) for the three months ended September 26, 2020 and September 28, 2019, respectively, and $(53) and $(39) for the nine months ended September 26, 2020 and September 28, 2019, respectively.	3,925		(5,457)	(986)	(9,470)
Other, net	24			(27	)	677		(230	)	Other, net	(19)		(34)	(612)	(165)
Total other comprehensive income (loss), net	(957		)	5,815		5,031		7,545		Total other comprehensive income (loss), net	3,906		(5,491)	(1,598)	(9,635)
Comprehensive income	$	51,289		58,527		160,448		147,001		Comprehensive income	$	77,874	66,874	160,933	174,675

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 September 26, 2020 and September 28, 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
Balance at June 27, 2020	82,259	$	82	539,847	(64)	(1,102,284)	(25,313)	(587,732)
Net income	—	—		—	—	73,968	—	73,968
Other comprehensive income, net	—	—		—	—	—	3,906	3,906
Exercise of stock options	143	—		6,959	—	—	—	6,959
Dividends paid on common stock ($0.4025 per share)	—	—		(33,169)	—	—	—	(33,169)
Share-based compensation expense	6	—		2,939	—	—	—	2,939


Other	0	—		14	—	(230)	—	(216)
Balance at September 26, 2020	82,408	$	82	516,590	(64)	(1,028,546)	(21,407)	(533,345)

Balance at June 29, 2019	82,817	$	83	603,868	(3,291)	(1,238,190)	(19,271)	(656,801)
Net income	—	—		—	—	72,365	—	72,365
Other comprehensive loss, net	—	—		—	—	—	(5,491)	(5,491)
Exercise of stock options	239	0		11,158	—	—	—	11,158
Dividends paid on common stock ($0.3750 per share)	—	—		(31,042)	—	—	—	(31,042)
Share-based compensation expense	7	—		3,777	—	—	—	3,777
Repurchases of common stock	—	—		0	(14,673)	—	—	(14,673)
Retirement of treasury stock	(180)	0		(1,246)	14,673	(13,427)	—	0
Other	0	—		98	0	(250)	—	(152)
Balance at September 28, 2019	82,883	$	83	586,613	(3,291)	(1,179,502)	(24,762)	(620,859)

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Deficit

For the Nine Months Ended September 26, 2020 and September 28, 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
Balance at December 28, 2019	82,836	$	83	561,345	(64)	(1,129,565)	(19,809)	(588,010)
Net income	—	—		—	—	162,531	—	162,531
Other comprehensive loss, net	—	—		—	—	—	(1,598)	(1,598)
Exercise of stock options	360	—		17,202	—	—	—	17,202
Dividends paid on common stock ($0.8050 per share)	—	—		(66,226)	—	—	—	(66,226)
Share-based compensation expense	77	—		9,134	—	—	—	9,134
Repurchases of common stock	—	—		—	(64,292)	—	—	(64,292)
Retirement of treasury stock	(881)	(1)		(5,615)	64,292	(58,676)	—	—
Other	16	—		750	—	(2,836)	—	(2,086)
Balance at September 26, 2020	82,408	$	82	516,590	(64)	(1,028,546)	(21,407)	(533,345)

Balance at December 29, 2018	82,437	$	82	642,017	(1,060)	(1,338,709)	(15,127)	(712,797)
Net income	—	—		—	—	184,310	—	184,310
Other comprehensive loss, net	—	—		—	—	—	(9,635)	(9,635)
Exercise of stock options	596	1		27,902	—	—	—	27,903
Dividends paid on common stock ($1.1250 per share)	—	—		(93,027)	—	—	—	(93,027)
Share-based compensation expense	154	—		11,073	—	—	—	11,073
Repurchases of common stock	—	—		—	(24,802)	—	—	(24,802)
Retirement of treasury stock	(315)	—		(2,205)	24,802	(22,597)	—	—
Other	11	—		853	(2,231)	(2,506)	—	(3,884)
Balance at September 28, 2019	82,883	$	83	586,613	(3,291)	(1,179,502)	(24,762)	(620,859)

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						Nine months ended
	September 30, 2017			September 24, 2016			September 26, 2020		September 28, 2019
Cash flows from operating activities:						Cash flows from operating activities:
Net income	$	155,417		139,456		Net income	$	162,531	184,310
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	31,097			32,087		Depreciation and amortization	35,638		31,698
Amortization of debt issuance costs	4,843			4,700		Amortization of debt issuance costs	3,726		3,759
Loss on debt extinguishment						Loss on debt extinguishment	0		13,076
Deferred income taxes	(1,516		)	(5,595	)	Deferred income taxes	105		(8,419)
Provision for bad debt	599			681

Provision for uncollectible accounts and notes receivable						Provision for uncollectible accounts and notes receivable	6,497		1,452
Share-based compensation expense	10,896			12,548		Share-based compensation expense	9,134		11,073
Net income of equity method investments	(12,612		)	(12,148	)	Net income of equity method investments	(15,108)		(13,324)
Dividends received from equity method investments	4,711			5,247		Dividends received from equity method investments	5,090		4,367
Gain on sale of real estate and company-operated restaurants	(29		)	(6,322	)

Other, net	(2,299		)	(1,554	)	Other, net	1,224		(702)
Change in operating assets and liabilities:						Change in operating assets and liabilities:

Accounts, notes, and other receivables, net	7,712			43,482		Accounts, notes, and other receivables, net	(16,004)		20,104
Prepaid income taxes, net	10,884			6,569		Prepaid income taxes, net	7,915		9,332
Prepaid expenses and other current assets	(4,600		)	(3,552	)	Prepaid expenses and other current assets	(7,074)		(532)
Accounts payable	(1,501		)	(1,635	)	Accounts payable	(11,757)		(10,151)
Other current liabilities	(68,274		)	(91,651	)	Other current liabilities	(7,202)		(75,858)
Liabilities of advertising funds, net	(11,232		)	896
Deferred income	722			3,800
Deferred revenue						Deferred revenue	(41,014)		(7,984)
Other, net	(3,289		)	4,250		Other, net	9,022		(4,422)
Net cash provided by operating activities	121,529			131,259		Net cash provided by operating activities	142,723		157,779
Cash flows from investing activities:						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						Additions to property, equipment, and software	(15,797)		(26,515)

Other, net	(101		)	(1,014	)	Other, net	345		1,118
Net cash provided by (used in) investing activities	(9,099		)	4,107
Net cash used in investing activities						Net cash used in investing activities	(15,452)		(25,397)
Cash flows from financing activities:						Cash flows from financing activities:

Proceeds from issuance of long-term debt						Proceeds from issuance of long-term debt	0		1,700,000
Repayment of long-term debt	(18,750		)	(18,750	)	Repayment of long-term debt	(15,612)		(1,699,237)
Payment of debt issuance and other debt-related costs	(312		)	—		Payment of debt issuance and other debt-related costs	0		(17,937)
Dividends paid on common stock	(87,911		)	(82,326	)	Dividends paid on common stock	(66,226)		(93,027)
Repurchases of common stock, including accelerated share repurchases	(127,186		)	(30,000	)
Repurchases of common stock						Repurchases of common stock	(64,292)		(24,802)
Exercise of stock options	33,267			4,937		Exercise of stock options	17,202		27,903

Other, net	(214		)	(690	)	Other, net	(2,566)		(4,779)
Net cash used in financing activities	(201,106		)	(126,829	)	Net cash used in financing activities	(131,494)		(111,879)
Effect of exchange rates on cash, cash equivalents, and restricted cash	576			20		Effect of exchange rates on cash, cash equivalents, and restricted cash	(62)		(208)
Increase (decrease) in cash, cash equivalents, and restricted cash	(88,100		)	8,557		Increase (decrease) in cash, cash equivalents, and restricted cash	(4,285)		20,295
Cash, cash equivalents, and restricted cash, beginning of period	431,832			333,115		Cash, cash equivalents, and restricted cash, beginning of period	707,977		598,321
Cash, cash equivalents, and restricted cash, end of period	$	343,732		341,672		Cash, cash equivalents, and restricted cash, end of period	$	703,692	618,616
Supplemental cash flow information:						Supplemental cash flow information:
Cash paid for income taxes	$	89,882		86,460		Cash paid for income taxes	$	47,470	58,179
Cash paid for interest	70,038			70,749		Cash paid for interest	93,184		93,384
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:						Noncash activities:
Leased assets obtained in exchange for operating lease liabilities, net						Leased assets obtained in exchange for operating lease liabilities, net	7,245		10,438
Property, equipment, and software included in accounts payable and other current liabilities						Property, equipment, and software included in accounts payable and other current liabilities	3,212		3,588
Leased assets obtained in exchange for finance lease liabilities, net						Leased assets obtained in exchange for finance lease liabilities, net	1,073		0

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,~~26, 2020, the consolidated statements of operations, ~~and~~ comprehensive income, and stockholders' deficit for each of the ~~three~~three- and ~~nine months~~nine-month periods ended September ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 2019, and the consolidated statements of cash flows for each of the ~~nine months~~nine-month periods ended September ~~30, 2017~~26, 2020 and September ~~24, 2016~~28, 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 periods ended September ~~30, 2017~~26, 2020 and September ~~24, 2016~~28, 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 ended September ~~30, 2017~~26, 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.

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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~~26, 2020 and December ~~31, 2016~~28, 2019 were as follows (in thousands):


	September 30, 2017		December 31, 2016		September 26, 2020		December 28, 2019
Cash and cash equivalents	$	266,981	361,425	Cash and cash equivalents	$	613,641	621,152
Restricted cash	76,141		69,746	Restricted cash	89,626		85,644
Restricted cash, included in Other assets	610		661	Restricted cash, included in Other assets	425		1,181
Total cash, cash equivalents, and restricted cash	$	343,732	431,832	Total cash, cash equivalents, and restricted cash	$	703,692	707,977

(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~~26, 2020 and December ~~31, 2016~~28, 2019 are summarized as follows (in thousands):


	September 30, 2017			December 31, 2016			September 26, 2020			December 28, 2019
	Significant other observable inputs (Level 2)		Total	Significant other observable inputs (Level 2)	Total		Significant other observable inputs (Level 2)		Total	Significant other observable inputs (Level 2)	Total
Assets:						Assets:
Company-owned life insurance	$	10,389	10,389	9,271	9,271	Company-owned life insurance	$	11,537	11,537	12,367	12,367
Total assets	$	10,389	10,389	9,271	9,271	Total assets	$	11,537	11,537	12,367	12,367
Liabilities:						Liabilities:
Deferred compensation liabilities	$	12,851	12,851	11,126	11,126	Deferred compensation liabilities	$	7,865	7,865	7,216	7,216
Total liabilities	$	12,851	12,851	11,126	11,126	Total liabilities	$	7,865	7,865	7,216	7,216

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 total long-term debt as of September ~~30, 2017~~26, 2020 and December ~~31, 2016~~28, 2019 were as follows (in thousands):

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


	September 26, 2020			December 28, 2019
	Carrying value		Estimated fair value	Carrying value	Estimated fair value

Total long-term debt	$	3,023,480	3,227,605	3,035,366	3,149,505

The estimated fair value of our long-term debt is estimated primarily based on current market rates for debt with similar terms and remaining maturities or current ~~bid~~midpoint prices for our long-term debt. Judgment is required to develop these estimates. As such, ~~our~~the estimated fair value of long-term debt is classified within Level 2, as defined under U.S. GAAP.

(e) Concentration of credit risk

The Company is subject to credit risk through its accounts receivable consisting primarily of amounts due from franchisees and licensees for franchise fees, royalty income, advertising fees, and sales of ice cream and other products. In addition, we have note and lease receivables from certain of our franchisees and licensees. The financial condition of these franchisees and

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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~~26, 2020 and December ~~31, 2016, one~~28, 2019, 1 master licensee, including its majority-owned subsidiaries, accounted for approximately ~~18%~~11% 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~~any of the ~~three~~three- and ~~nine months~~nine-month periods ended September ~~30, 2017~~26, 2020 and September ~~24, 2016.~~28, 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,~~26, 2020, one of these third parties accounted for approximately ~~13%~~18% 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 any of the three- and nine-month periods ended September 26, 2020 and September 28, 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.

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(3) ~~Franchise~~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 September 26, 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	$	130,866	9,016	4,744	2,278	0	146,904	5,733	152,637
Franchise fees	6,485		380	335	229	0	7,429	(1)	7,428
Advertising fees and related income	0		0	0	0	123,025	123,025	1,223	124,248
Other revenues	627		2,985	104	8	0	3,724	9,775	13,499
Total revenues recognized over time	137,978		12,381	5,183	2,515	123,025	281,082	16,730	297,812

Revenues recognized at a point in time:
Sales of ice cream and other products	0		1,524	0	27,495	0	29,019	(4,505)	24,514
Other revenues	153		132	5	(23)	0	267	279	546
Total revenues recognized at a point in time	153		1,656	5	27,472	0	29,286	(4,226)	25,060

Total revenues recognized under ASC 606	138,131		14,037	5,188	29,987	123,025	310,368	12,504	322,872

Revenues not subject to ASC 606
Advertising fees and related income	0		0	0	0	0	0	8,032	8,032
Rental income	29,822		740	0	77	0	30,639	0	30,639
Total revenues not subject to ASC 606	29,822		740	0	77	0	30,639	8,032	38,671

Total revenues	$	167,953	14,777	5,188	30,064	123,025	341,007	20,536	361,543

(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, certain franchisee incentives, and certain corporate financial relief provided to franchisees are reported as “Other.”

~~Franchise~~

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	Three months ended September 28, 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	$	130,993	8,973	5,769	2,197	0	147,932	5,288	153,220
Franchise fees	3,675		374	792	165	0	5,006	(1,002)	4,004
Advertising fees and related income	0		0	0	0	122,819	122,819	1,412	124,231
Other revenues	624		2,962	120	9	0	3,715	9,196	12,911
Total revenues recognized over time	135,292		12,309	6,681	2,371	122,819	279,472	14,894	294,366

Revenues recognized at a point in time:
Sales of ice cream and other products	0		1,021	0	28,459	0	29,480	(5,071)	24,409
Other revenues	288		52	68	(37)	0	371	308	679
Total revenues recognized at a point in time	288		1,073	68	28,422	0	29,851	(4,763)	25,088

Total revenues recognized under ASC 606	135,580		13,382	6,749	30,793	122,819	309,323	10,131	319,454

Revenues not subject to ASC 606
Advertising fees and related income	0		0	0	0	0	0	4,444	4,444
Rental income	30,824		942	0	218	0	31,984	0	31,984
Total revenues not subject to ASC 606	30,824		942	0	218	0	31,984	4,444	36,428

Total revenues	$	166,404	14,324	6,749	31,011	122,819	341,307	14,575	355,882

(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 and certain franchisee incentives are reported as “Other.”

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	Nine months ended September 26, 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	$	351,740	23,423	12,086	5,662	0	392,911	3,584	396,495
Franchise fees	16,503		980	1,095	534	0	19,112	(101)	19,011
Advertising fees and related income	0		0	0	0	331,139	331,139	3,309	334,448
Other revenues	2,002		7,481	192	8	0	9,683	29,593	39,276
Total revenues recognized over time	370,245		31,884	13,373	6,204	331,139	752,845	36,385	789,230

Revenues recognized at a point in time:
Sales of ice cream and other products	0		3,803	0	77,281	0	81,084	(9,920)	71,164
Other revenues	684		195	91	(42)	0	928	720	1,648
Total revenues recognized at a point in time	684		3,998	91	77,239	0	82,012	(9,200)	72,812

Total revenues recognized under ASC 606	370,929		35,882	13,464	83,443	331,139	834,857	27,185	862,042

Revenues not subject to ASC 606
Advertising fees and related income	0		0	0	0	0	0	24,433	24,433
Rental income	82,962		2,146	0	480	0	85,588	0	85,588
Total revenues not subject to ASC 606	82,962		2,146	0	480	0	85,588	24,433	110,021

Total revenues	$	453,891	38,028	13,464	83,923	331,139	920,445	51,618	972,063

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	Nine months ended September 28, 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	$	379,772	23,904	17,078	6,055	0	426,809	12,524	439,333
Franchise fees	10,719		1,030	3,687	1,043	0	16,479	(1,002)	15,477
Advertising fees and related income	0		0	0	0	355,049	355,049	3,984	359,033
Other revenues	1,918		8,125	124	9	0	10,176	26,813	36,989
Total revenues recognized over time	392,409		33,059	20,889	7,107	355,049	808,513	42,319	850,832

Revenues recognized at a point in time:
Sales of ice cream and other products	0		2,772	0	81,531	0	84,303	(11,903)	72,400
Other revenues	1,154		183	181	(24)	0	1,494	794	2,288
Total revenues recognized at a point in time	1,154		2,955	181	81,507	0	85,797	(11,109)	74,688

Total revenues recognized under ASC 606	393,563		36,014	21,070	88,614	355,049	894,310	31,210	925,520

Revenues not subject to ASC 606
Advertising fees and related income	0		0	0	0	0	0	16,099	16,099
Rental income	89,163		2,875	0	653	0	92,691	0	92,691
Total revenues not subject to ASC 606	89,163		2,875	0	653	0	92,691	16,099	108,790

Total revenues	$	482,726	38,889	21,070	89,267	355,049	987,001	47,309	1,034,310

(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 and certain franchisee incentives are reported as “Other.”

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(b) Contract balances

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


	September 26, 2020		December 28, 2019	Balance Sheet Classification
Receivables	$	113,401	86,104	Accounts receivable, net, Notes and other receivables, net, and Other assets
Contract assets	7,235		4,894	Other assets

Deferred revenue:
Current	$	26,138	27,213	Deferred revenue—current
Long-term	284,023		320,457	Deferred revenue—long term
Total	$	310,161	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 September 26, 2020 was driven primarily by $27.1 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 September 26, 2020 is as follows (in thousands):


Fiscal year:
2020(a)	$	7,169
2021	20,499
2022	16,662
2023	16,870
2024	17,231
Thereafter	195,981
Total	$	274,412

(a) Represents the estimate for remainder of fiscal year 2020 which excludes the nine months ended September 26, 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 September 26, 2020. Additionally, the table above excludes $46.1 million of consideration allocated to restaurants that were not yet open at September 26, 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.

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(4) Debt

Debt at September 26, 2020 and December 28, 2019 consisted of the following (in thousands):


	September 26, 2020		December 28, 2019
2017 Class A-2-I Notes	$	585,000	588,000
2017 Class A-2-II Notes	780,000		784,000
2019 Class A-2-I Notes	594,000		597,000
2019 Class A-2-II Notes	396,000		398,000
2019 Class A-2-III Notes	693,000		696,500

Other	1,138		1,250
Debt issuance costs, net of amortization	(25,658)		(29,384)
Total long-term debt, net	3,023,480		3,035,366
Less: current portion of long-term debt	31,150		31,150
Long-term debt, net	$	2,992,330	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~~September 26, 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. ~~A portion of the proceeds of the 2017 Notes was used to repay the remaining $731.3 million of~~

No principal ~~outstanding~~payments are required on the ~~2015 Class A-2-I Notes~~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 ~~pay related transaction fees. The additional net proceeds will be used for general corporate purposes, which may include~~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 did not make the scheduled principal payment of $7.8 million in May 2020. Based upon the Company's leverage ratio as of June 27, 2020 and September 26, 2020, the Company made the scheduled principal payment in August 2020 and intends to make the next scheduled principal payment in November 2020.

On March 11, 2020, the World Health Organization declared the outbreak of a ~~return of capital to~~novel coronavirus disease (“COVID-19”) as a pandemic. On March 16, 2020, the ~~Company’s shareholders. In connection with~~Company borrowed $116.0 million against the ~~issuance of the 2017~~2019 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%. The Company repaid all borrowings under the 2019 Variable Funding Notes during the second fiscal quarter of 2020.

As of each of September 26, 2020 and December 28, 2019, $33.1 million of letters of credit were outstanding against the 2019 Variable Funding Notes, which related primarily to interest reserves required under the Indenture. There were no amounts drawn down on these letters of credit as of September 26, 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-2 Notes. Various other events, including failure to maintain a minimum ratio of net cash flows to debt service (“DSCR”), may also cause a rapid amortization event. Borrowings under the 2015 Class A-2-II Notes, 2017 Class A-2-I Notes, and 2017 Class A-2-II Notes bear interest at fixed rates equal to 3.980%, 3.629%, and 4.030%, respectively. If the 2015 Class A-2-II Notes or the 2017 Class A-2 Notes are not repaid or refinanced prior to their respective Anticipated Repayment Dates, incremental interest will accrue. Principal payments are required to be made on the 2015 Class A-2-II Notes, 2017 Class A-2-I Notes, and 2017 Class A-2-II Notes equal to $17.5 million, $6.0 million, and $8.0 million, respectively, per calendar year, payable in quarterly installments. No principal payments are required if a specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as specified in the Indenture), is less than or equal to 5.0 to 1.0. Other events and transactions, such as certain asset sales and receipt of various insurance or indemnification proceeds, may trigger additional mandatory prepayments.

It is anticipated that the principal and interest on the 2017 Variable Funding Notes will be repaid in full on or prior to November 2022, subject to two additional one-year extensions. Borrowings under the 2017 Variable Funding Notes bear interest at a rate equal to a LIBOR rate plus 1.50%, or the lenders’ commercial paper funding rate plus 1.50%. If the 2017 Variable Funding Notes are not repaid prior to November 2022 or prior to the end of an extension period, if applicable, incremental interest will accrue. In addition, the Company is required to pay a 1.50% fee for letters of credit amounts outstanding and a commitment fee on the unused portion of the 2017 Variable Funding Notes which ranges from 0.50% to 1.00% based on utilization.

As of September 30, 2017, approximately $731.3 million and $1.71 billion of principal were outstanding on the 2015 Class A-2-I Notes and 2015 Class A-2-II Notes, respectively. Total debt issuance costs incurred and capitalized in connection with the issuance of the 2015 Notes were $41.3 million. The effective interest rate, including the amortization of debt issuance costs, was 3.5% and 4.3% for the 2015 Class A-2-I Notes and 2015 Class A-2-II Notes, respectively, as of September 30, 2017. As noted above, subsequent to September 30, 2017, a portion of the net proceeds of the 2017 Notes was used to repay the remaining $731.3 million of principal outstanding on the 2015 Class A-2-I2019 Notes.

Table 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.Contents

The 2015 Class A-2-II Notes and 2017 Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the 2015 Class A-2-II Notes and 2017 Notes, (ii) provisions relating to optional and mandatory prepayments, including mandatory prepayments in the event of a change of control as defined in the Indenture and the related payment of specified amounts, including specified make-whole payments in the case of the 2015 Class A-2-II Notes and 2017 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the 2015 Class A-2-II Notes and 2017 Notes are in stated ways defective or ineffective, and (iv) covenants relating to recordkeeping, access to information, and similar matters. As noted above, the 2015 Class A-2-II Notes and 2017 Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated DSCR, failure to maintain an aggregate level of Dunkin’ Donuts U.S. retail sales on certain measurement dates, certain manager termination events, an event of default, and the failure to repay or refinance the 2015 Class A-2-II Notes or the 2017 Notes on the applicable Anticipated Repayment Dates. The 2015 Class A-2-II Notes and 2017 Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the 2015 Class A-2-II Notes and 2017 Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments.

(5) Other current liabilities

Other current liabilities consisted of the following (in thousands):


	September 26, 2020		December 28, 2019
Gift card/certificate liability	$	187,780	248,082

Accrued payroll and benefits	22,285		27,208

Accrued interest	12,687		13,086

Other current liabilities—advertising funds	106,206		48,089
Franchisee profit-sharing liability	8,012		14,184
Other	42,534		35,401
Total other current liabilities	$	379,504	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. Additionally, certain franchisee incentives and certain corporate financial relief provided to franchisees are reported as "Other." Revenues by segment were as follows (in thousands):


	Revenues
	Three months ended			Nine months ended
	September 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
Dunkin’ U.S.	$	167,953	166,404	453,891	482,726
Baskin-Robbins U.S.	14,777		14,324	38,028	38,889
Dunkin’ International	5,188		6,749	13,464	21,070
Baskin-Robbins International	30,064		31,011	83,923	89,267
U.S. Advertising Funds	123,025		122,819	331,139	355,049
Total reportable segment revenues	341,007		341,307	920,445	987,001
Other	20,536		14,575	51,618	47,309
Total revenues	$	361,543	355,882	972,063	1,034,310

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

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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			Nine months ended
	September 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
Dunkin’ U.S.	$	129,081	127,755	334,545	365,888
Baskin-Robbins U.S.	9,373		9,711	25,281	26,110
Dunkin’ International	3,544		4,898	8,880	15,213
Baskin-Robbins International	14,985		13,028	34,363	32,919
U.S. Advertising Funds	0		0	0	0
Total reportable segments	156,983		155,392	403,069	440,130
Corporate and other	(23,486)		(29,414)	(76,904)	(80,544)
Interest expense, net	(31,730)		(28,791)	(94,050)	(88,852)
Amortization of other intangible assets	(4,582)		(4,599)	(13,762)	(13,858)
Long-lived asset impairment charges	0		(36)	(560)	(361)
Loss on debt extinguishment	0		0	0	(13,076)
Other income (loss), net	154		(258)	(302)	(308)
Income before income taxes	$	97,339	92,294	217,491	243,131

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 of equity method investments
	Net income (loss) of equity method investments							Three months ended			Nine months ended
	Three months ended			Nine months ended				September 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
	September 30, 2017		September 24, 2016	September 30, 2017		September 24, 2016
Dunkin’ Donuts International	$	9	351	(68	)	829
Dunkin’ International							Dunkin’ International	$	44	168	4	189
Baskin-Robbins International	4,492		4,266	9,468		8,644	Baskin-Robbins International	6,805		5,841	14,105	11,175
Total reportable segments	4,501		4,617	9,400		9,473	Total reportable segments	6,849		6,009	14,109	11,364
Other	965		850	3,212		2,675	Other	310		658	999	1,960
Total net income of equity method investments	$	5,466	5,467	12,612		12,148	Total net income of equity method investments	$	7,159	6,667	15,108	13,324

(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 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,~~26, 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 months ended September ~~30, 2017,~~26, 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 months ended September ~~30, 2017,~~26, 2020, the Company granted stock options to purchase ~~1,181,777~~681,862 shares of common stock and ~~90,342~~74,509 restricted stock units (“RSUs”) to certain employees and members of our board of directors. The stock options ~~generally~~ vest in equal annual amounts over a four-year period subsequent to the grant date, and have a maximum contractual term of seven years. The stock options were granted with a ~~weighted 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 certain employees and members of our board of

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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~~$69.00 per ~~share.~~unit.

In addition, the Company granted ~~84,705~~45,964 performance stock units (“PSUs”) to certain employees during the nine months ended September ~~30, 2017.~~26, 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~~$2.9 million and ~~$4.2~~$3.8 million for the three months ended September ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 2019, respectively, and ~~$10.9~~$9.1 million and ~~$12.5~~$11.1 million for the nine months ended September ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 2019, respectively, and iswas 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 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 )


	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	(986)		(612)	(1,598)
Balance as of September 26, 2020	$	(19,827)	(1,580)	(21,407)

(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,~~18, 2020 and September ~~6, 2017~~9, 2020 totaling approximately ~~$29.6 million, $29.2~~$33.1 million and ~~$29.1~~$33.2 million, respectively. ~~On October 26, 2017, the Company announced that its~~The Company's board of directors ~~approved~~temporarily suspended the ~~next quarterly~~regular dividend program during the second fiscal quarter in response to the uncertainty arising from the COVID-19 pandemic. The dividend program was reinstated during the third fiscal quarter. On October 30, 2020, the Company, Inspire Brands, Inc. (“Inspire”) and Inspire’s indirect wholly-owned subsidiary, Vale Merger Sub, Inc. (“Merger Sub”), entered into an Agreement and Plan of ~~$0.3225 per share~~Merger (the “Merger Agreement”) under which Inspire has agreed to acquire the Company on the terms, and subject to the conditions, set forth therein. The merger agreement contains limitations on actions that the Company may take between signing and closing without the consent of ~~common stock payable December 6, 2017 to shareholders~~Inspire, including the declaration or payment of ~~record as of~~dividends. See note 15 for more information regarding the ~~close of business on November 27, 2017.~~merger agreement.

(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):

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	Three months ended			Nine months ended			Three months ended			Nine months ended
	September 30, 2017		September 24, 2016	September 30, 2017	September 24, 2016		September 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
Net income—basic and diluted	$	52,246	52,712	155,417	139,456	Net income—basic and diluted	$	73,968	72,365	162,531	184,310
Weighted average number of common shares:
Weighted-average number of shares of common stock:						Weighted-average number of shares of common stock:
Common—basic	90,290,361		91,621,553	91,051,458	91,603,653	Common—basic	82,472,653		82,887,259	82,484,735	82,762,120
Common—diluted	91,433,076		92,565,695	92,386,611	92,545,292	Common—diluted	82,975,900		83,867,413	82,929,043	83,665,397
Earnings per common share:
Earnings per share of common stock:						Earnings per share of common stock:
Common—basic	$	0.58	0.58	1.71	1.52	Common—basic	$	0.90	0.87	1.97	2.23
Common—diluted	0.57		0.57	1.68	1.51	Common—diluted	0.89		0.86	1.96	2.20

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~~503,247 and ~~944,142~~980,154 equity awards for the three months ended September ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 2019, respectively, and includes the dilutive effect of ~~1,335,153~~444,308 and ~~941,639~~903,277 equity awards for the nine months ended September ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 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 ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 2019, there were ~~150,000~~ ~~restricted~~70,598 and 35,804 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~~1,174,229 and ~~4,048,878~~628,783 equity awards for the three months ended September ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 2019, respectively, and ~~1,524,739~~1,516,149 and ~~4,257,237~~652,228 equity awards for the nine months ended September ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 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~~26, 2020 and December ~~31, 2016,~~28, 2019, the Company was contingently liable under such supply chain agreements for approximately ~~$118.0~~$67.3 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~~26, 2020 and December ~~31, 2016.~~28, 2019.

(b) Letters of credit

As of each of September ~~30, 2017~~26, 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 no amounts drawn down on these letters of ~~credit.~~credit as of each of September 26, 2020 and 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 each of September ~~30, 2017~~26, 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):

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	Three months ended			Nine months ended			Three months ended			Nine months ended
	September 30, 2017		September 24, 2016	September 30, 2017	September 24, 2016		September 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
B-R 31 Ice Cream Company., Ltd.	$	588	686	1,464	1,577	B-R 31 Ice Cream Company., Ltd.	$	587	396	1,089	1,259
BR-Korea Co., Ltd.	1,122		1,192	3,174	3,053	BR-Korea Co., Ltd.	1,476		1,296	4,049	3,670
Palm Oasis Ventures Pty. Ltd.						Palm Oasis Ventures Pty. Ltd.	706		1,370	2,292	2,883
	$	1,710	1,878	4,638	4,630		$	2,769	3,062	7,430	7,812

As of ~~each of~~ September ~~30, 2017~~26, 2020 and December ~~31, 2016,~~28, 2019, the Company had ~~$1.1~~$3.3 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~~$1.7 million and ~~$713 thousand~~$1.3 million during the three months ended September ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 2019, respectively, and ~~$2.8~~$4.0 million and ~~$2.3~~$3.1 million ~~during~~for the nine months ended September ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 2019, respectively, primarily for the purchase of ice cream products.

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(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):


	September 26, 2020		December 28, 2019
Accounts receivable, net of allowances	$	26,587	20,194
Notes and other receivables, net of allowances	1,481		1,133
Prepaid income taxes	168		79
Prepaid expenses and other current assets	11,342		10,255
Total current assets	39,578		31,661
Property, equipment, and software, net	19,440		17,125
Operating lease assets	2,632		4,262
Other assets	655		1,126
Total assets	$	62,305	54,174

Operating lease liabilities—current	$	402	1,932
Accounts payable	51,809		69,232
Deferred revenue—current(a)	(722)		(722)
Other current liabilities	106,206		48,089
Total current liabilities	157,695		118,531
Operating lease liabilities—long-term	1,967		2,241
Deferred revenue—long-term(a)	(5,511)		(6,053)

Total liabilities	$	154,151	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 is party as a lessor and/or lessee to various leases for restaurants and 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			Nine months ended
	September 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
Rental income—operating leases	$	18,485	18,807	55,552	56,248
Variable rental income	12,154		13,177	30,036	36,443
Rental income	$	30,639	31,984	85,588	92,691

As a result of the COVID-19 pandemic, the Company is waiving up to one month of rental payments and allowed franchisees to defer two months of rental payments on the approximately 900 properties leased by the Company to franchisees. Additionally, on properties the Company leases from third-party lessors, certain lessors provided waivers of rental payments, which the Company passed through to its franchisees, or permitted the short-term deferral of rental payments.

The FASB staff issued interpretive guidance on the application of lease accounting guidance related to lease concessions as a result of the COVID-19 pandemic. Under existing lease accounting guidance, certain rent waivers and deferrals provided to franchisees or received from lessors would be accounted for as lease modifications. The interpretive guidance provides companies the option to account for eligible lease concessions either as if the rent concessions were part of the enforceable rights and obligations under the original lease contracts, or as lease modifications under the existing guidance. The Company has elected to account for eligible lease concessions as if they were part of the enforceable rights and obligations under the original lease contracts. Accordingly, the Company has not remeasured the related lease assets or lease liabilities for eligible leases, and has recognized ~~$702 thousand~~waivers of rental payments as reductions of variable rental income and ~~$790 thousand during~~variable occupancy expenses

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for leases where the Company is the lessor and lessee, respectively. The deferral of rental payments had no impact on the Company’s recognition of rental income or occupancy expenses for the three or nine months ended September ~~30, 2017 and September 24, 2016, respectively, and $2.7~~26, 2020.

Variable rental income presented in the table above has been reduced by approximately $3 million ~~and $2.5 million during~~of rent waivers being provided to the Company's franchisees for the nine months ended September ~~30, 2017 and September 24, 2016, respectively,~~26, 2020. Occupancy expenses—franchised restaurants in the consolidated statements of operations has been reduced by approximately $1 million of rent waivers received from lessors for the ~~sale of ice cream and other products to Palm Oasis Ventures Pty. Ltd. (“Australia JV”). As of~~nine months ended September ~~30, 2017 and December 31, 2016, the Company had $2.4 million and $2.6 million, respectively, of net receivables from the Australia JV, consisting of~~26, 2020.

(13) Allowances for accounts and notes receivable ~~net~~

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 June 27, 2020	$	10,869	3,252	14,121
Provision for (recovery of) uncollectible accounts and notes receivable, net	(369)		894	525
Write-offs and other	88		0	88
Balance at September 26, 2020	$	10,588	4,146	14,734


	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	3,448		3,049	6,497
Write-offs and other	(602)		(11)	(613)
Balance at September 26, 2020	$	10,588	4,146	14,734

(a)Balance primarily consists of ~~current liabilities.~~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.

~~(11) Income taxes~~

~~In conjunction with~~(14) COVID-19 pandemic

On March 11, 2020, the ~~anticipated closing~~World Health Organization declared the outbreak of COVID-19 as a pandemic. The pandemic had an unfavorable impact on the ~~debt refinancing transaction~~Company’s business, financial condition, and ~~related issuance~~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 their

expiration in fiscal years 2021 through 2026. In making this assessment, management considered all relevant factors, including projected future taxable income and tax planning strategies. Based upon the level of historical and projected future taxable income over the periods prior to expiration, including the expected incremental interest expense from the 2017 Notes, management does not believe it is more likely than not 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 taxesoperations for the three and nine months ended September 26, 2020, including temporary closures of restaurants and decreased traffic.

In response to the ongoing COVID-19 pandemic, the Company took a series of actions to preserve financial flexibility and support franchisees during this time of uncertainty. These actions included 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, as well as providing payment plan options for these deferred fees, to provide franchisees with more financial flexibility to better support their employees and guests. Additionally, the Company provided extended payment terms and payment plan options to franchisees and licensees in certain international markets. The Company also provided approximately $7 million of corporate financial relief to franchisees in the U.S. that were most significantly impacted by the pandemic. In addition, the Company is waiving up to one month of rental payments and allowed franchisees to defer two months of rental payments on the approximately 900 properties leased by the Company to franchisees (see note 12).

While it is not possible at this time to estimate the full impact that the pandemic could have on our business due to numerous uncertainties, 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 the supply chain, resulting in an adverse impact on our business, financial condition, and results of operations.

(15) Subsequent event

On October 30, ~~2017.~~2020, the Company entered into the Merger Agreement with Inspire and Merger Sub.

Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Merger Sub will commence a tender offer (the “Offer”) to purchase all of the issued and outstanding shares (the “Shares”) of the Company’s common stock at a price of $106.50 per Share, net to the holder of such share, in cash, without interest, but subject to any applicable withholding

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of taxes (the “Offer Price”). If certain conditions are satisfied and the Offer closes, Inspire has agreed to acquire any remaining shares that are not tendered in the Offer by a merger of Merger Sub with and into the Company (the “Merger”).

The Merger Agreement contemplates that the Merger will be effected as soon as practicable following consummation of the Offer pursuant to Section 251(h) of the General Corporation Law of the State of Delaware (the “DGCL”), which permits completion of the Merger without a shareholder vote. The obligation of Inspire and Merger Sub to consummate the Offer is subject to various conditions, including that there be validly tendered and not validly withdrawn that number of Shares representing, together with the number of Shares otherwise owned by Inspire and its affiliates, at least a majority of the Shares outstanding as of the scheduled expiration of the Offer (the “Minimum Tender Condition”). The Minimum Tender Condition may not be waived by Merger Sub without the prior written consent of the Company. Merger Sub will not be obligated to consummate the Offer on or prior to December 18, 2020. The obligation of Merger Sub to consummate the Offer is also subject to the expiration of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary conditions. Consummation of the Offer is not subject to a financing condition.

Following the consummation of the Offer and subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into the Company pursuant to the provisions of Section 251(h) of the DGCL as provided in the Merger Agreement, with the Company being the surviving corporation.

The Merger Agreement includes customary representations, warranties and covenants of the Company, Inspire and Merger Sub. Subject to the terms of the Merger Agreement, the Company has agreed to operate its business in the ordinary course until the effective time of the Merger. The Company has also agreed, subject to certain conditions, not to solicit or engage in discussions with third parties regarding other acquisition proposals. Inspire and Merger Sub have agreed to use reasonable best efforts to take actions that may be required in order to obtain antitrust approval of the proposed transaction, subject to certain limitations.

The Merger Agreement also includes customary termination rights for both the Company and Inspire, subject, in certain circumstances, to the payment by the Company or Inspire of a termination fee of $268 million or $469 million, respectively.

The Offer will initially remain open for twenty business days, subject to possible extension on the terms set forth in the Merger Agreement. The parties currently expect the Offer and the Merger to be completed in the fourth quarter of 2020.

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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 liquidity 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 our Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2020. 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 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,~~26, 2020, Dunkin’ ~~Donuts~~ had ~~12,435~~12,658 global points of distribution with restaurants in 4243 U.S. states, the District of Columbia, and 4539 foreign countries. Baskin-Robbins had ~~7,944~~7,895 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 September 26, 2020, we are less affected by store-level costs, profitability, and fluctuations in commodity costs than other QSR operators.

~~Our franchisees fund substantially all~~

Table 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.~~Contents

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-month~~nine-month periods ended September ~~30, 2017~~26, 2020 and September ~~24, 2016~~28, 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-month~~nine-month periods ended September ~~30, 2017~~26, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 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 full impact that the pandemic could have on our business due to numerous uncertainties, 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 the supply chain, resulting in an adverse impact on our business, financial condition, and results of operations.

Pending Merger with Inspire Brands

On October 30, ~~2017~~2020, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Inspire Brands, Inc. (“Inspire”) and Inspire’s indirect wholly-owned subsidiary, Vale Merger Sub, Inc. (“Merger Sub”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Merger Sub will commence a tender offer (the “Offer”) to purchase all of the issued and outstanding shares (the “Shares”) of the Company’s common stock at a price of $106.50 per Share, net to the holder of such share, in cash, without interest, but subject to any applicable withholding of taxes (the “Offer Price”). If certain conditions are satisfied and the Offer closes, Inspire has agreed to acquire any remaining shares that are not tendered in the Offer by a merger of Merger Sub with and into the Company (the “Merger”). The parties currently expect the Offer and the Merger to be completed in the fourth quarter of 2020.

For additional information related to the Merger Agreement, please refer to our Current Report on Form 8-K filed with the SEC on November 2, 2020 and note 15 to the accompanying unaudited consolidated financial statements.

Selected operating and financial highlights


Amounts and percentages may not recalculate due to rounding	Three months ended					Nine months ended
	September 26, 2020			September 28, 2019		September 26, 2020		September 28, 2019
Financial data (in thousands):
Total revenues	$	361,543		355,882		972,063		1,034,310
Operating income	128,915			121,343		311,843		345,367
Adjusted operating income	133,497			125,978		326,165		359,586
Net income	73,968			72,365		162,531		184,310
Adjusted net income	77,267			75,702		172,843		203,962
Systemwide sales (in millions):
Dunkin’ U.S.	$	2,373.8		2,365.9		6,387.0		6,874.8
Baskin-Robbins U.S.	187.4			186.3		488.8		499.6
Dunkin’ International	179.4			210.9		470.3		609.4
Baskin-Robbins International	430.8			449.7		1,079.4		1,141.9
Total systemwide sales	$	3,171.5		3,212.9		8,425.4		9,125.7
Systemwide sales growth (decline)	(1.3)		%	4.7	%	(7.7)	%	4.2	%
Comparable store sales growth (decline):
Dunkin’ U.S.	0.9		%	1.5	%	(6.8)	%	1.9	%
Baskin-Robbins U.S.	6.5		%	3.6	%	0.7	%	0.0	%
Dunkin’ International	(15.9)		%	7.3	%	(19.0)	%	5.2	%
Baskin-Robbins International	(0.5)		%	3.0	%	(1.0)	%	1.6	%

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.

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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.

~~Overall growth~~The COVID-19 pandemic had an unfavorable impact on systemwide sales for each of our segments for the three and nine months ended September 26, 2020. Global declines in systemwide sales of ~~3.3%~~1.3% and ~~4.2%~~7.7% for the ~~three-~~three and ~~nine-month periods~~nine months ended September ~~30, 2017~~26, 2020, respectively, over the same periods in the prior fiscal year resulted from the following:

•Dunkin’ ~~Donuts~~ U.S. systemwide sales growth of ~~4.4% and 5.0%~~0.3% for the three months ended September 26, 2020 was primarily a result of comparable store sales growth of 0.9%, offset by 423 net restaurant closures since September 28, 2019. The comparable store sales growth was driven by an increase in average ticket, offset by a decline in traffic due to the COVID-19 pandemic. Dunkin’ U.S. systemwide sales decline of 7.1% for the nine months ended September 26, 2020 was primarily a result of a comparable store sales decline of 6.8%, as well as the 423 net restaurant closures since September 28, 2019. Comparable store sales declined for the nine months ended September 26, 2020 as a decline in traffic driven by the COVID-19 pandemic was offset by an increase in average ticket. The increase in average ticket for the three and nine months ended September ~~30, 2017, respectively,~~26, 2020 was driven primarily ~~a result~~by favorable mix shift to family-size bulk orders and snacking attachment, as well as premium priced cold beverages, espresso, and other specialty beverages, and partially offset by increased discounting driven by both national and local value platforms. Comparable store sales improved sequentially in each month of ~~386 net new restaurants opened since September 24, 2016 and comparable store~~the third quarter.

•Baskin-Robbins U.S. systemwide sales growth of 0.6% and 0.5%, respectively. The increases in comparable store sales were driven by increased average ticket, offset by a decline in traffic. Growth was primarily driven by sales of breakfast sandwiches. Beverage sales increased slightly for the three months ended September ~~30, 2017, led by hot coffee and espresso,~~26, 2020 was primarily a result of comparable store sales growth of 6.5%, offset by a42 net restaurant closures since September 28, 2019. Baskin-Robbins U.S. systemwide sales decline ~~in frozen beverages, while beverage sales decreased slightly~~of 2.2% for the nine months ended September ~~30, 2017 due~~26, 2020 was primarily to a ~~decline in hot coffee,~~result of the 42 net restaurant closures since September 28, 2019, offset by ~~an increase in iced coffee, driven by Cold Brew sales.~~

~~Dunkin’ Donuts International systemwide~~comparable store sales growth of ~~6.7% and 2.6%~~0.7%. The comparable store sales growth for the three and nine months ended September ~~30, 2017, respectively,~~26, 2020 was ~~primarily due to sales growth~~driven by an increase in ~~Southeast Asia, the Middle East, South~~

~~America, and China,~~average ticket, offset by a decline in ~~South Korea. Systemwide sales for the three-month period was also~~traffic driven by the COVID-19 pandemic. The increase in average ticket was driven by ice cream cakes and take home products, specifically quarts. Comparable store sales ~~growth~~improved sequentially in ~~Europe. Systemwide sales growth for~~each month of the ~~nine-month period was also offset by a~~third quarter.

•Dunkin’ International systemwide sales decline ~~in India. For~~of 14.9% for the three months ended September ~~30, 2017,~~26, 2020 was driven by sales declines in Latin America, Asia, and South Korea, offset by sales growth in the Middle East. Foreign exchange rates did not have a significant impact on systemwide sales as the negative impact of unfavorable foreign exchange rates on sales in Latin America was offset by the favorable impact of foreign exchange rates on sales in all other regions. Dunkin’ International comparable store sales decline of 15.9% for the three months ended September 26, 2020 was due primarily to declines in Asia, Latin America, South Korea, and Europe, offset by an increase in the Middle East.

Dunkin’ International systemwide sales decline of 22.8% for the nine months ended September 26, 2020 was driven by sales declines in Asia, Latin America, South Korea, Europe, and the Middle East. Sales in Asia were positively impacted by favorable foreign exchange rates, while sales ~~in Southeast Asia~~across all other regions were negatively impacted by unfavorable foreign exchange ~~rates. For~~rates for the nine months ended September ~~30, 2017, sales in South Korea and South America were positively impacted by foreign exchange rates, while sales in Southeast Asia were negatively impacted by foreign exchange rates.~~26, 2020. On a constant currency basis, systemwide sales ~~increased~~decreased by approximately ~~7% and 2%~~21% for the ~~three and~~ nine months ended September ~~30, 2017, respectively.~~26, 2020. Dunkin’ ~~Donuts~~ International comparable store sales ~~grew 1.3%~~decline of 19.0% for the nine months ended September 26, 2020 was due primarily to declines in Asia, Latin America, Europe, the Middle East, and South Korea.

•Baskin-Robbins International systemwide sales decline of 4.2% for the three months ended September ~~30, 2017, due primarily to growth~~26, 2020 was driven by sales declines in ~~Southeast Asia, South America, and~~Japan, the Middle East, Asia, Europe, and Australia, offset by ~~declines~~sales growth in South Korea. Foreign exchange rates did not have a significant impact on systemwide sales as the positive impact of favorable foreign exchange rates on sales in Japan, Australia, and South Korea ~~and Europe. Dunkin’ Donuts~~was offset by the unfavorable impact of foreign exchange rates on sales in all other regions. Baskin-Robbins International comparable store sales ~~declined 0.1% for the nine months ended September 30, 2017,~~decline of 0.5% was due primarily to declines in Japan, Asia, Europe, and Latin America, offset by increases 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, 2017 was driven by the addition of 29 net new restaurants opened since September 24, 2016, offset by comparable sales decline of 1.1%. For the nine months ended September 30, 2017, sales of cups and cones, desserts, and beverages decreased, offset by increased sales in take-home products. For the three and nine months ended September 30, 2017, traffic declined and average ticket increased.Middle East.

Baskin-Robbins International systemwide sales decline of ~~2.0%~~5.5% for the ~~three~~nine months ended September ~~30, 2017~~26, 2020 was driven by sales declines in ~~South Korea and Japan, offset by growth in~~ the Middle East, Japan, Asia, Europe, Australia, and ~~Southeast Asia. Systemwide~~Latin America, offset by sales growth ~~of 1.6%~~in South Korea. Sales in Japan were positively impacted by favorable foreign exchange rates, while sales across all other regions were negatively impacted by unfavorable foreign exchange rates 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, 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.26, 2020. On a constant currency basis, systemwide sales ~~increased~~decreased by approximately ~~1% and 2%~~4% for the ~~three and~~ nine months ended September ~~30, 2017, respectively.~~26, 2020. Baskin-Robbins International comparable store sales ~~declines~~decline of ~~4.3% and~~ 1.0% for the ~~three and~~ nine months ended

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September ~~30, 2017~~26, 2020 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~~East, Japan, Asia, Europe, and Latin America, offset by growth in South ~~Korea.~~Korea and Australia.

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 ~~30, 2017~~26, 2020 and September ~~24, 2016~~28, 2019 were as follows:


	September 26, 2020	September 28, 2019
Points of distribution, at period end(a):
Dunkin’ U.S.	9,131	9,554
Baskin-Robbins U.S.	2,500	2,542
Dunkin’ International	3,527	3,481
Baskin-Robbins International	5,395	5,574
Consolidated global points of distribution	20,553	21,151

September 30,
2017 September 24,
2016
Points of distribution, at period end:
Dunkin’ Donuts U.S. 9,015
8,629
Dunkin’ Donuts International 3,420
3,379
Baskin-Robbins U.S. 2,562
2,533
Baskin-Robbins International 5,382
5,243
Consolidated global points of distribution 20,379
19,784


	Three months ended		Nine months ended
	September 26, 2020	September 28, 2019	September 26, 2020	September 28, 2019
Net openings (closings) during the period:
Dunkin’ U.S.	(466)	55	(499)	135
Baskin-Robbins U.S.	(11)	(14)	(24)	(8)
Dunkin’ International	(1)	23	20	29
Baskin-Robbins International	(75)	58	(241)	83
Consolidated global net openings (closings)	(553)	122	(744)	239

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

Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Net openings (closings) during the period:
Dunkin’ Donuts U.S. 67
56
187
198
Dunkin’ Donuts International 18
11
(10 ) 60
Baskin-Robbins U.S. 11
3
24
4
Baskin-Robbins International 41
45
98
165
Consolidated global net openings 137
115
299
427
As of the week ended October 24, 2020, quarter-to-date comparable store sales growth for Dunkin’ U.S. and Baskin-Robbins U.S. was in the low-single digits and high-single digits, respectively, for open stores. However, there can be no assurance that further declines in systemwide sales or comparable store sales will not occur for the remainder of the fourth quarter or beyond as a result of the continuing impact of the COVID-19 pandemic or otherwise.

As of October 24, 2020, approximately 98% of Dunkin’ U.S. locations were open. The majority of the Dunkin’ U.S. locations that remain temporarily closed are in transportation hubs, on college campuses, in sports venues, and other alternative points of distribution. As of October 24, 2020, approximately 99% of Baskin-Robbins U.S. locations were open. As of October 24, 2020, approximately 93% of each of Dunkin’ and Baskin-Robbins International locations were open. We have worked with our franchisees to permit them to temporarily close restaurants where market conditions warrant. Our restaurants have been deemed an essential business in many jurisdictions allowing them to remain open in some capacity throughout the course of the pandemic. 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

Total revenues for the three months ended September ~~30, 2017~~26, 2020 increased ~~$17.1~~$5.7 million, or ~~8.2%~~1.6%, compared to the prior year period due primarily to an increase in franchise fees ~~and royalty income driven by~~as a result of additional ~~renewal income~~deferred revenue recognized in connection with the closure of restaurants, including Speedway locations, and ~~Dunkin’ Donuts U.S. systemwide sales growth.~~

~~Also contributing to the increase in revenues was~~ an increase in ~~other revenues driven~~advertising fees and related income. These increases were offset by ~~license fees related~~a decrease in rental income due to ~~Dunkin’ Donuts K-Cup® pods and ready-to-drink bottled iced coffee,~~a reduction in variable rental income as ~~well as increased transfer fee income.~~a result of a decline in sales at leased locations.

Total revenues for the nine months ended September ~~30, 2017 increased $20.2~~26, 2020 decreased $62.2 million, or ~~3.3%~~6.0%, compared to the prior year period due primarily to ~~an increase~~decreases in ~~franchise fees and~~ royalty income and advertising fees driven by ~~Dunkin’ Donuts U.S.~~a decline in systemwide sales, ~~growth~~primarily for the Dunkin' U.S. and ~~additional renewal~~Dunkin' International segments. Royalty income ~~as well as an increase~~also reflects a reduction of revenue of approximately $7 million related to corporate financial relief provided to franchisees most significantly impacted by the COVID-19 pandemic. Also contributing to the decrease in revenues was a decrease in rental income due to ~~an increase~~a reduction in ~~the number~~variable rental income as a result 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~~decline in sales at ~~company-operated restaurants as there were no company-operated points~~leased locations and rent waivers being provided to our franchisees of ~~distribution during 2017.~~approximately $3 million.

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Operating income and adjusted operating income for the three months ended September ~~30, 2017~~26, 2020 increased ~~$12.7~~$7.6 million ~~or 11.6%,~~ and ~~$13.1~~$7.5 million, ~~or 11.5%,~~ respectively, ~~from~~compared to the prior year ~~period~~period. These increases were primarily as a result of the increase in ~~revenues. The~~franchise fees, as well as an increase in ~~revenues was offset~~ice cream margin driven by ~~an increase~~a decrease in commodity costs and favorable product mix, and a decrease in general and administrative expenses ~~as well as gains recognized in connection with the sale of company-operated restaurants~~due primarily to reduced non-essential spending in the ~~prior~~current year ~~period.~~period to preserve financial flexibility as a result of the COVID-19 pandemic and a decrease in benefits and personnel costs.

Operating income and adjusted operating income for the nine months ended September ~~30, 2017 increased $26.0~~26, 2020 decreased $33.5 million ~~or 8.7%,~~ and ~~$26.2~~$33.4 million, ~~or 8.3%,~~ respectively, ~~from~~compared to the prior year period. ~~The increases~~These decreases were primarily a result of ~~the increases~~decreases in ~~franchise fees and~~ royalty income and rental margin, ~~and other revenues. Additionally, the prior year periods were unfavorably impacted by the operating results~~which includes approximately $2 million of ~~company-operated restaurants. The increases~~unfavorable impact from rent waivers being provided to our franchisees, net of waivers received from landlords. These decreases in operating income and adjusted operating income were ~~negatively impacted~~offset by ~~gains recognized in connection with the sale of company-operated restaurants in the prior year period, as well an increase~~a decrease in general and administrative ~~expenses.~~expenses primarily as a result of decreases in personnel and benefits costs and reduced non-essential spending in the current year period to preserve financial flexibility as a result of the COVID-19 pandemic, offset by increases in reserves for uncollectible receivables and costs incurred to support brand-building activities.

Net income and adjusted net income each increased $1.6 million for the three months ended September ~~30, 2017 decreased $0.5 million, or 0.9%, and $0.2 million, or 0.3%, respectively, primarily a result of an increase in income tax expense. Net income and adjusted net income for~~26, 2020 compared to the ~~nine months ended September 30, 2017 increased $16.0 million, or 11.4%, and $16.1 million, or 10.8%, respectively,~~prior year period primarily as a result of the increases in operating income and adjusted operating income, respectively, offset by an increase in ~~tax expense. Income~~income tax expense ~~for the three~~ and ~~nine months ended September 30, 2017 included~~ a ~~valuation allowance recorded~~decrease in interest income earned on ~~foreign tax credit carryforwards~~our cash balances as a result of ~~$8.9 million primarily resulting from expected incremental~~lower 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~~rates. The increase in income tax expense was ~~offset~~driven primarily by the ~~increases~~increase in income in the current year period, as well as a decrease in excess tax benefits from share-based compensation.

Net income and adjusted net income for the nine months ended September 26, 2020 decreased $21.8 million and $31.1 million, respectively, compared to the prior year period. These decreases were primarily a result of the decreases in operating income and adjusted operating ~~income. Additionally,~~income, respectively, as well as a decrease in interest income earned on our cash balances as a result of lower interest rates, offset by a decrease in income tax expense. The decrease in income tax expense ~~for~~was driven primarily by the ~~nine months ended September 30, 2017 included $7.3 million of~~decrease in income in the current year period, offset by a decrease in excess tax benefits from share-based ~~compensation, which are now included~~compensation. Also offsetting the decrease in operating income was a $13.1 million loss on debt extinguishment recorded during the ~~provision for income taxes as a result of the required adoption of a new accounting standard in the first~~second quarter of ~~2017 (see~~ ~~note 2(f)~~fiscal year 2019 due to the ~~unaudited consolidated financial statements included herein).~~write-off of debt issuance costs in conjunction with a refinancing transaction completed during the second quarter of fiscal year 2019.

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.

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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
	September 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
	(In thousands)
Operating income	$	128,915	121,343	311,843	345,367
Adjustments:
Amortization of other intangible assets	4,582		4,599	13,762	13,858
Long-lived asset impairment charges	—		36	560	361
Adjusted operating income	$	133,497	125,978	326,165	359,586

Net income	$	73,968	72,365	162,531	184,310
Adjustments:
Amortization of other intangible assets	4,582		4,599	13,762	13,858
Long-lived asset impairment charges	—		36	560	361

Loss on debt extinguishment	—		—	—	13,076
Tax impact of adjustments(a)	(1,283)		(1,298)	(4,010)	(7,643)
Adjusted net income	$	77,267	75,702	172,843	203,962

Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
(In thousands)
Operating income $ 122,033
109,360
326,876
300,834
Adjustments:
Amortization of other intangible assets 5,341
5,397
16,001
16,726
Long-lived asset impairment charges 536
7
643
104
Transaction-related costs^(a)
—
—
—
64
Bertico and related litigation —
—
—
(428 )
Adjusted operating income $ 127,910
114,764
343,520

317,300
Net income $ 52,246
52,712
155,417
139,456
Adjustments:
Amortization of other intangible assets 5,341
5,397
16,001
16,726
Long-lived asset impairment charges 536
7
643
104
Transaction-related costs^(a)
—
—
—
64
Bertico and related litigation —
—
—
(428 )
Tax impact of adjustments^(b)
(2,351 ) (2,161 ) (6,658 ) (6,586 )
Adjusted net income $ 55,772
55,955
165,403
149,336
(a)Tax impact of adjustments calculated at effective tax rate of 28%.


~~(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.~~

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			Nine months ended			September 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
	September 30, 2017		September 24, 2016	September 30, 2017	September 24, 2016
Earnings per share:
Earnings per share of common stock:						Earnings per share of common stock:
Common—basic	$	0.58	0.58	1.71	1.52	Common—basic	$	0.90	0.87	1.97	2.23
Common—diluted	0.57		0.57	1.68	1.51	Common—diluted	0.89		0.86	1.96	2.20
Diluted adjusted earnings per share	0.61		0.60	1.79	1.61
Diluted adjusted earnings per share of common stock						Diluted adjusted earnings per share of common stock	0.93		0.90	2.08	2.44

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 26, 2020		September 28, 2019	September 26, 2020	September 28, 2019
	(In thousands, except share and per share data)
Adjusted net income	$	77,267	75,702	172,843	203,962
Weighted-average number of shares of common stock—diluted	82,975,900		83,867,413	82,929,043	83,665,397
Diluted adjusted earnings per share of common stock	$	0.93	0.90	2.08	2.44

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

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Results of operations

Consolidated results of operations


	Three months ended							Nine months ended								Three months ended						Nine months ended
	September 30, 2017		September 24, 2016	Increase (Decrease)				September 30, 2017		September 24, 2016	Increase (Decrease)					September 26, 2020		September 28, 2019	Increase (Decrease)			September 26, 2020		September 28, 2019	Increase (Decrease)
				$		%					$		%						$	%					$	%
	(In thousands, except percentages)															(In thousands, except percentages)
Franchise fees and royalty income	$	151,809	138,639	13,170		9.5	%	$	426,944	399,617	27,327		6.8	%	Franchise fees and royalty income	$	160,065	157,224	2,841	1.8	%	$	415,506	454,810	(39,304)	(8.6)	%
Advertising fees and related income															Advertising fees and related income	132,280		128,675	3,605	2.8	%	358,881		375,132	(16,251)	(4.3)	%
Rental income	27,713		26,880	833		3.1	%	79,543		75,874	3,669		4.8	%	Rental income	30,639		31,984	(1,345)	(4.2)	%	85,588		92,691	(7,103)	(7.7)	%
Sales of ice cream and other products	27,551		26,568	983		3.7	%	85,710		86,425	(715	)	(0.8	)%	Sales of ice cream and other products	24,514		24,409	105	0.4	%	71,164		72,400	(1,236)	(1.7)	%
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	%	Other revenues	14,045		13,590	455	3.3	%	40,924		39,277	1,647	4.2	%
Total revenues	$	224,168	207,099	17,069		8.2	%	$	633,362	613,184	20,178		3.3	%	Total revenues	$	361,543	355,882	5,661	1.6	%	$	972,063	1,034,310	(62,247)	(6.0)	%

Total revenues for the three months ended September ~~30, 2017~~26, 2020 increased ~~$17.1~~$5.7 million, or ~~8.2%~~1.6%, due primarily to an increase in franchise fees ~~and royalty income driven by~~as a result of additional ~~renewal income and Dunkin’ Donuts U.S. systemwide sales growth. Also contributing to~~deferred revenue recognized in connection with the closure of restaurants, including Speedway locations, an increase in ~~revenues was~~advertising fees and related income due to an increase in gift card breakage, and an increase in other revenues driven primarily by license fees related to Dunkin’ ~~Donuts~~ K-Cup® ~~pods and ready-to-drink bottled iced coffee,~~pods. These increases were offset by a decrease in rental income due to a reduction in variable rental income as a result of a decline in sales at leased locations, as well as ~~increased transfer fee income.~~a decrease in royalty income driven by a decline in systemwide sales, primarily for the Dunkin' International segment.

Total revenues for the nine months ended September ~~30, 2017 increased $20.2~~26, 2020 decreased $62.2 million, or ~~3.3%~~6.0%, due primarily to a decrease in royalty income driven by a decline in systemwide sales, primarily for the Dunkin' U.S. and Dunkin' International segments, and a decrease in advertising fees and related income due primarily to the decline in Dunkin' U.S. systemwide sales offset by an increase in gift card breakage. Royalty income also reflects a reduction of revenue of approximately $7 million related to corporate financial relief provided to franchisees most significantly impacted by the COVID-19 pandemic. Also contributing to the decrease in revenues was a decrease in rental income due to a reduction in variable rental income as a result of a decline in sales at leased locations and rent waivers being provided to our franchisees of approximately $3 million, as well as a decrease in sales of ice cream and other products. Offsetting these decreases in revenues was an increase in franchise fees ~~and royalty income driven by Dunkin’ Donuts U.S. systemwide sales growth and~~as a result of additional ~~renewal income,~~deferred revenue recognized in connection with the closure of restaurants, including Speedway locations, 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 primarily 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.

pods.

Table of Contents


	Three months ended							Nine months ended								Three months ended						Nine months ended
	September 30, 2017		September 24, 2016	Increase (Decrease)				September 30, 2017		September 24, 2016	Increase (Decrease)					September 26, 2020		September 28, 2019	Increase (Decrease)			September 26, 2020		September 28, 2019	Increase (Decrease)
				$		%					$		%						$	%					$	%
	(In thousands, except percentages)															(In thousands, except percentages)
Occupancy expenses—franchised restaurants	$	15,333	15,881	(548	)	(3.5	)%	$	43,758	42,691	1,067		2.5	%	Occupancy expenses—franchised restaurants	$	18,908	19,823	(915)	(4.6)	%	$	56,540	58,995	(2,455)	(4.2)	%
Cost of ice cream and other products	19,457		18,384	1,073		5.8	%	58,578		58,445	133		0.2	%	Cost of ice cream and other products	19,276		21,066	(1,790)	(8.5)	%	55,410		59,724	(4,314)	(7.2)	%
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															Advertising expenses	133,352		130,846	2,506	1.9	%	362,702		379,898	(17,196)	(4.5)	%
General and administrative expenses															General and administrative expenses	58,705		60,333	(1,628)	(2.7)	%	171,399		176,458	(5,059)	(2.9)	%
Depreciation and amortization	10,282		10,447	(165	)	(1.6	)%	31,097		32,087	(990	)	(3.1	)%	Depreciation and amortization	10,245		9,183	1,062	11.6	%	30,245		27,774	2,471	8.9	%
Long-lived asset impairment charges	536		7	529		7,557.1	%	643		104	539		518.3	%	Long-lived asset impairment charges	—		36	(36)	(100.0)	%	560		361	199	55.1	%
Total operating costs and expenses	$	107,604	105,775	1,829		1.7	%	$	319,689	330,827	(11,138	)	(3.4	)%	Total operating costs and expenses	$	240,486	241,287	(801)	(0.3)	%	676,856		703,210	(26,354)	(3.7)	%
Net income of equity method investments	5,466		5,467	(1	)	(0.0	)%	12,612		12,148	464		3.8	%	Net income of equity method investments	7,159		6,667	492	7.4	%	15,108		13,324	1,784	13.4	%
Other operating income, net	3		2,569	(2,566	)	(99.9	)%	591		6,329	(5,738	)	(90.7	)%	Other operating income, net	699		81	618	763.0	%	1,528		943	585	62.0	%
Operating income	$	122,033	109,360	12,673		11.6	%	$	326,876	300,834	26,042		8.7	%	Operating income	$	128,915	121,343	7,572	6.2	%	$	311,843	345,367	(33,524)	(9.7)	%

Occupancy expenses for franchised restaurants for the three and nine months ended September ~~30, 2017~~26, 2020 decreased ~~$0.5~~$0.9 million and $2.5 million, respectively, due primarily to ~~expenses incurred~~declines in ~~the prior year period to record lease-related liabilities~~variable rental expense 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~~declines in ~~the number of leases for franchised~~sales at leased locations ~~offset by the expenses incurred in the prior year period to record lease-related liabilities as a result of lease terminations.~~and rent waivers received from our landlords.

Net margin on ice cream and other products for the three and nine months ended September ~~30, 2017 decreased $0.1~~26, 2020 increased $1.9 million, or ~~1.1%~~56.7%, and ~~$0.8~~$3.1 million, or ~~3.0%~~24.3%, respectively, due primarily to ~~an increase~~decreases in commodity ~~costs. Additionally, the decrease in net margin on ice cream~~costs and ~~other products for the three-month period was offset by an increase in sales volume.~~favorable product mix.

~~Company-operated restaurant~~Advertising expenses for the three and nine months ended September ~~30, 2017 decreased $1.7~~26, 2020 increased $2.5 million and ~~$13.5~~decreased $17.2 million, ~~respectively, as all remaining company-operated points of distribution~~respectively. The fluctuations in advertising expenses were ~~sold~~driven primarily by ~~the end of fiscal 2016.~~fluctuations in advertising fees and related income.

General and administrative expenses for the three ~~months ended September 30, 2017 increased $2.6 million driven by increased incentive compensation expense. General~~ and ~~administrative expenses for the~~ nine months ended September ~~30, 2017 increased~~26, 2020 decreased $1.6 million and $5.1 million, respectively, due primarily to ~~increased incentive compensation expense~~decreases in personnel and ~~other personnel~~benefit costs and reduced non-essential spending in the current year period to preserve financial flexibility as ~~well as~~a result of the COVID-19 pandemic, offset by increases in costs incurred to support brand-building activities ~~offset by~~in the current year period and a recovery of legal fees in the prior year period. Also offsetting the decreases in ~~professional fees~~general and ~~other general expenses.~~administrative expenses for the nine-month period were increases in reserves for uncollectible receivables and expenses incurred to support health and safety measures at our restaurants as a result of the COVID-19 pandemic.

Depreciation and amortization for the three and nine months ended September ~~30, 2017 decreased $0.2~~26, 2020 increased $1.1 million and ~~$1.0~~$2.5 million, respectively, due primarily to ~~certain intangible~~increases 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 increased $0.2 million for ~~each of~~ the ~~three and~~ nine months ended September ~~30, 2017 increased $0.5 million from the prior year periods. Such~~26, 2020. 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.

Table of Contents

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~~and nine months ended September ~~30, 2017~~26, 2020 increased $0.5 million and $1.8 million, respectively, primarily as a result of increases in net income from our South Korea joint venture. Also contributing to the increase for the three-month period was an increase in net income from our Japan joint venture.

Other operating income, net, which includes net gains and losses recognized in connection with the sale or disposal of ~~real estate, fluctuates based on~~property, equipment, and software as well as other miscellaneous income, increased $0.6 million for each of the ~~timing~~three and nine months ended September 26, 2020 due primarily to income from administrative services performed that are not part of ~~such transactions. Other operating income, net,~~our core operations.


	Three months ended						Nine months ended
	September 26, 2020		September 28, 2019	Increase (Decrease)			September 26, 2020		September 28, 2019	Increase (Decrease)
				$	%					$	%
	(In thousands, except percentages)
Interest expense, net	$	31,730	28,791	2,939	10.2	%	$	94,050	88,852	5,198	5.9	%
Loss on debt extinguishment	—		—	—	n/m		—		13,076	(13,076)	(100.0)	%
Other loss (income), net	(154)		258	(412)	(159.7)	%	302		308	(6)	(1.9)	%
Total other expense	$	31,576	29,049	2,527	8.7	%	$	94,352	102,236	(7,884)	(7.7)	%

Net interest expense for the three and nine months ended September ~~24, 2016 includes gains of $2.5~~26, 2020 increased $2.9 million and ~~$4.6~~$5.2 million, ~~respectively, recognized in connection with the sale of company-operated restaurants.~~

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)
Interest expense, net $ 23,812
24,442
(630 ) (2.6 )% $ 72,822
74,022
(1,200 ) (1.6 )%
Other losses (income), net (155 ) 124
(279 ) (225.0 )% (370 ) 596
(966 ) (162.1 )%
Total other expense $ 23,657
24,566
(909 ) (3.7 )% $ 72,452
74,618
(2,166 ) (2.9 )%

~~Net interest expense decreased $0.6 million and $1.2 million for the three and nine months ended September 30, 2017,~~ respectively, driven primarily by ~~an increase~~decreases in interest income earned on our cash balances as ~~well as a decrease in interest expense due to a lower principal balance as~~ a result of ~~principal payments made~~lower interest rates.

The loss on ~~our long-term~~ debt ~~since~~extinguishment of $13.1 million for the ~~prior~~nine months ended September 28, 2019 was due to the write-off of debt issuance costs in conjunction with the securitization refinancing transaction completed during the second quarter of fiscal year ~~periods.~~2019.

The fluctuation in other ~~losses~~loss (income), net, for the three and nine months ended September ~~30, 2017~~26, 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
	September 26, 2020			September 28, 2019		September 26, 2020		September 28, 2019
	(In thousands, except percentages)
Income before income taxes	$	97,339		92,294		217,491		243,131
Provision for income taxes	23,371			19,929		54,960		58,821
Effective tax rate	24.0		%	21.6	%	25.3	%	24.2	%

Three months ended Nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
(In thousands, except percentages)
Income before income taxes $ 98,376
84,794
254,424
226,216
Provision for income taxes 46,130
32,082
99,007
86,760
Effective tax rate 46.9 % 37.8 % 38.9 % 38.4 %

The ~~increase~~increases in the effective tax ~~rate~~rates for the three and nine months ended September 30, 2017 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 the debt refinancing transaction that closed in October 2017, negatively impacting the realizability of such carryforwards (see ~~note 11~~26, 2020 compared to the ~~unaudited consolidated financial statements included herein). This increase in the effective tax rate was offset~~prior year periods were driven primarily by excess tax benefits from share-based compensation of $0.5 million and ~~$7.3~~$1.8 million for the three months ended September 26, 2020 and September 28, 2019, respectively, and $1.6 million and $4.4 million for the nine months ended September ~~30, 2017, respectively, which are now included~~26, 2020 and September 28, 2019, respectively.

Also contributing to the increase in the ~~provision~~effective tax rate for ~~income taxes as a result of~~ the ~~required adoption~~three- and nine-month periods was the release of a ~~new accounting standard (see~~ ~~note 2(f)~~valuation allowance recorded on foreign tax credit carryforwards of $2.0 million in the prior year period, offset by a benefit of $1.3 million in the current year period related to ~~the unaudited consolidated financial statements included herein).~~foreign income and foreign tax credits upon finalizing and filing our 2019 tax return.

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.

Table of Contents

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, certain franchisee incentives, and certain corporate financial relief provided to franchisees 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
	September 26, 2020		September 28, 2019	Increase (Decrease)			September 26, 2020		September 28, 2019	Increase (Decrease)
				$	%					$	%
	(In thousands, except percentages)
Royalty income	$	130,866	130,993	(127)	(0.1)	%	$	351,740	379,772	(28,032)	(7.4)	%
Franchise fees	6,485		3,675	2,810	76.5	%	16,503		10,719	5,784	54.0	%
Rental income	29,822		30,824	(1,002)	(3.3)	%	82,962		89,163	(6,201)	(7.0)	%
Other revenues	780		912	(132)	(14.5)	%	2,686		3,072	(386)	(12.6)	%
Total revenues	$	167,953	166,404	1,549	0.9	%	$	453,891	482,726	(28,835)	(6.0)	%
Segment profit	$	129,081	127,755	1,326	1.0	%	$	334,545	365,888	(31,343)	(8.6)	%

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 $ 118,831
113,281
5,550
4.9 % $ 345,103
326,835
18,268
5.6 %
Franchise fees 16,635
9,852
6,783
68.8 % 35,943
26,257
9,686
36.9 %
Rental income 26,786
25,972
814
3.1 % 76,842
73,285
3,557
4.9 %
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 )%
Total revenues $ 165,106
152,425
12,681
8.3 % $ 464,148
444,898
19,250
4.3 %
Segment profit $ 129,719
119,434
10,285
8.6 % $ 360,241
335,963
24,278
7.2 %

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~~26, 2020 increased $1.5 million due primarily to an increase in ~~other revenues driven~~franchise fees as a result of additional deferred revenue recognized in connection with the closure of restaurants, including Speedway locations, offset by ~~transfer fee income. Additionally, the increase~~a decrease in rental income due to a reduction in variable rental income as a result of a decline in sales at leased locations.

Dunkin’ U.S. revenues for the nine months ended September ~~30, 2017 was~~26, 2020 decreased $28.8 million due primarily to ~~an increase~~a decrease in royalty income driven by a decline in systemwide sales, as well as a decrease in rental income ~~driven by an increase~~due to a reduction in ~~the number~~variable rental income as a result of ~~leases for franchised locations. These increases in revenues were offset by~~ a decline in sales at ~~company-operated~~leased locations and rent waivers being provided to our franchisees. Offsetting these decreases in revenues was an increase in franchise fees as a result of additional deferred revenue recognized in connection with the closure of restaurants, ~~as there were no company-operated points of distribution during 2017.~~including Speedway locations.

Dunkin’ ~~Donuts~~ U.S. segment profit ~~increased $10.3 million~~ for the three months ended September ~~30, 2017~~26, 2020 increased $1.3 million driven primarily by the ~~increases~~increase in franchise fees. Offsetting the increase 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 bywas an increase in general and administrative expenses due primarily to an increase in costs incurred to support brand-building activities offset by reduced non-essential spending, as well as ~~gains recognized~~a decrease in ~~connection with the sale of company-operated restaurants in the prior year period.~~rental margin.

Dunkin’ ~~Donuts~~ U.S. segment profit ~~increased $24.3 million~~ for the nine months ended September ~~30, 2017 driven~~26, 2020 decreased $31.3 million due primarily ~~by the increases~~to decreases 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,margin, 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~~expenses driven 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~~reserves for uncollectible receivables and an increase in ~~franchise fees for the nine-month period was due primarily~~costs incurred to ~~a significant market development fee recognized upon entry into a new market~~support brand-building activities offset by decreases in ~~the prior year period.~~

~~Segment~~personnel and benefit costs and reduced non-essential spending. These decreases in segment profit ~~for Dunkin’ Donuts International for the three months ended September 30, 2017 increased $0.7 million primarily as a result of~~were offset by 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.franchise fees.

Baskin-Robbins U.S.


	Three months ended						Nine months ended
	September 26, 2020		September 28, 2019	Increase (Decrease)			September 26, 2020		September 28, 2019	Increase (Decrease)
				$	%					$	%
	(In thousands, except percentages)
Royalty income	$	9,016	8,973	43	0.5	%	$	23,423	23,904	(481)	(2.0)	%
Franchise fees	380		374	6	1.6	%	980		1,030	(50)	(4.9)	%
Rental income	740		942	(202)	(21.4)	%	2,146		2,875	(729)	(25.4)	%
Sales of ice cream and other products	1,524		1,021	503	49.3	%	3,803		2,772	1,031	37.2	%
Other revenues	3,117		3,014	103	3.4	%	7,676		8,308	(632)	(7.6)	%
Total revenues	$	14,777	14,324	453	3.2	%	$	38,028	38,889	(861)	(2.2)	%
Segment profit	$	9,373	9,711	(338)	(3.5)	%	$	25,281	26,110	(829)	(3.2)	%

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 $ 8,501
8,499
2
0.0 % $ 24,265
23,546
719
3.1 %
Franchise fees 557
273
284
104.0 % 885
790
95
12.0 %
Rental income 798
787
11
1.4 % 2,346
2,221
125
5.6 %
Sales of ice cream and other products 771
805
(34 ) (4.2 )% 2,179
2,037
142
7.0 %
Other revenues 3,124
3,417
(293 ) (8.6 )% 8,970
9,486
(516 ) (5.4 )%
Total revenues $ 13,751
13,781
(30 ) (0.2 )% $ 38,645
38,080
565
1.5 %
Segment profit $ 10,466
11,085
(619 ) (5.6 )% $ 28,773
29,123
(350 ) (1.2 )%

Table of Contents

Baskin-Robbins U.S. revenues for the three months ended September ~~30, 2017 decreased slightly~~26, 2020 increased $0.5 million due primarily to increases in sales of ice cream and other products and other revenues, offset by a decrease in rental income 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.~~the number of leased locations.

Baskin-Robbins U.S. revenues for the nine months ended September ~~30, 2017 increased $0.6~~26, 2020 decreased $0.9 million due primarily to ~~an increase~~decreases in ~~royalty income, sales of ice cream and other products, and~~ rental income ~~offset by~~as a result of rent waivers being provided to our franchisees and a decrease in the number of leased locations, other revenues driven by a decrease in licensing ~~income.~~income, and royalty income due to a decline in systemwide sales. These decreases in revenues were offset by an increase in sales of ice cream and other products.

Baskin-Robbins U.S. segment profit for the three months ended September ~~30, 2017~~26, 2020 decreased ~~$0.6~~$0.3 million ~~due~~ primarily toas a result of an increase in general and administrative ~~expenses.~~expenses driven by an increase in costs incurred to support brand-building activities offset by reduced non-essential spending. Offsetting these factors was an increase in ice cream margin.

Baskin-Robbins U.S. segment profit for the nine months ended September ~~30, 2017~~26, 2020 decreased ~~$0.4~~$0.8 million due primarily to ~~increases~~the decreases in other revenues and royalty income, offset by an increase in ice cream margin.

Dunkin’ International


	Three months ended						Nine months ended
	September 26, 2020		September 28, 2019	Increase (Decrease)			September 26, 2020		September 28, 2019	Increase (Decrease)
				$	%					$	%
	(In thousands, except percentages)
Royalty income	$	4,744	5,769	(1,025)	(17.8)	%	$	12,086	17,078	(4,992)	(29.2)	%
Franchise fees	335		792	(457)	(57.7)	%	1,095		3,687	(2,592)	(70.3)	%

Other revenues	109		188	(79)	(42.0)	%	283		305	(22)	(7.2)	%
Total revenues	$	5,188	6,749	(1,561)	(23.1)	%	$	13,464	21,070	(7,606)	(36.1)	%
Segment profit	$	3,544	4,898	(1,354)	(27.6)	%	$	8,880	15,213	(6,333)	(41.6)	%

Dunkin’ International revenues for the three and nine months ended September 26, 2020 decreased $1.6 million and $7.6 million, respectively, primarily as a result of decreases in royalty income driven by declines in systemwide sales and franchise fees due primarily to additional deferred revenue recognized in the prior year periods upon closure of certain international markets.

Segment profit for Dunkin’ International for the three and nine months ended September 26, 2020 decreased $1.4 million and $6.3 million, respectively, primarily as a result of the decreases in revenues, offset by decreases 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.~~due to reduced non-essential spending.

Baskin-Robbins International


	Three months ended							Nine months ended													Three months ended												Nine months ended
	September 30, 2017		September 24, 2016	Increase (Decrease)				September 30, 2017			September 24, 2016			Increase (Decrease)							September 26, 2020			September 28, 2019		Increase (Decrease)							September 26, 2020			September 28, 2019			Increase (Decrease)
				$		%							$			%				$								%										$			%
	(In thousands, except percentages)																						(In thousands, except percentages)
Royalty income	$	1,966	2,081	(115	)	(5.5	)%		$	5,255		5,226			29			0.6	%	Royalty income		$	2,278		2,197		81			3.7		%		$	5,662		6,055			(393)			(6.5)		%
Franchise fees	173		205	(32	)	(15.6	)%	524			524			—			—	%	Franchise fees		229			165		64			38.8		%		534			1,043			(509)			(48.8)		%
Rental income	129		121	8		6.6	%	355			340			15			4.4	%	Rental income		77			218		(141)			(64.7)		%		480			653			(173)			(26.5)		%
Sales of ice cream and other products	26,512		25,340	1,172		4.6	%	82,602			83,119			(517	)		(0.6	)%	Sales of ice cream and other products		27,495			28,459		(964)			(3.4)		%		77,281			81,531			(4,250)			(5.2)		%
Other revenues	30		157	(127	)	(80.9	)%	140			369			(229	)		(62.1	)%	Other revenues		(15)			(28)		13			(46.4)		%		(34)			(15)			(19)			126.7		%
Total revenues	$	28,810	27,904	906		3.2	%	$	88,876		89,578			(702	)		(0.8	)%	Total revenues		$	30,064		31,011		(947)			(3.1)		%		$	83,923		89,267			(5,344)			(6.0)		%
Segment profit	$	11,420	11,154	266		2.4	%	$	31,900		30,617			1,283			4.2	%	Segment profit		$	14,985		13,028		1,957			15.0		%		$	34,363		32,919			1,444			4.4		%

Baskin-Robbins International revenues for the three months ended September ~~30, 2017 increased~~26, 2020 decreased $0.9 million due primarily to ~~an increase~~decreases in sales of ice cream and other products and rental income due to rent waivers received from landlords and passed through to our ~~licensees in the Middle East,~~franchisees, offset by ~~decreases~~an increase in royalty ~~income and other revenues.~~

income.

Baskin-Robbins International revenues for the nine months ended September ~~30, 2017~~26, 2020 decreased ~~$0.7~~$5.3 million due primarily to ~~a decrease~~decreases in sales of ice cream and other products, franchise fees, and royalty income. The decrease in franchise fees was due primarily to ~~our licensees~~additional deferred revenue recognized in the ~~Middle East, as well as a decrease in other revenues.~~prior year period upon closure of certain international markets.

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Baskin-Robbins International segment profit for the three and nine months ended September ~~30, 2017~~26, 2020 increased ~~$0.3~~$2.0 million and $1.4 million, respectively, primarily as a result of ~~an increase~~increases in net income from our South Korea and Japan joint ~~venture, as well as an increase~~ventures and decreases in ~~net margin on~~general and administrative expenses due to reduced non-essential spending offset by increases in reserves for uncollectible receivables. Offsetting these factors for the nine-month period was a decrease in ice cream ~~driven~~margin due primarily ~~by an increase~~to a decrease in sales volume offset by favorable product mix, as well as the decreases in franchise fees and royalty ~~income and other revenues.~~income.

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


	Three months ended						Nine months ended
	September 26, 2020		September 28, 2019	Increase (Decrease)			September 26, 2020		September 28, 2019	Increase (Decrease)
				$	%					$	%
	(In thousands, except percentages)
Advertising fees and related income	$	123,025	122,819	206	0.2	%	$	331,139	355,049	(23,910)	(6.7)	%
Total revenues	$	123,025	122,819	206	0.2	%	$	331,139	355,049	(23,910)	(6.7)	%
Segment profit	$	—	—	—	—	%	$	—	—	—	—	%

U.S. Advertising Funds revenues for the three months ended September 26, 2020 increased $0.2 million, or 0.2%, driven primarily by the increase in Dunkin' U.S. systemwide sales.

U.S. Advertising Funds revenues for the nine months ended September ~~30, 2017 increased $1.3~~26, 2020 decreased $23.9 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~~or 6.7%, driven primarily ~~due to expenses incurred in the prior year period related to brand-building activities, offset~~ by the decrease in ~~other revenues.~~Dunkin' U.S. systemwide sales.

Expenses for the U.S. Advertising Funds were equivalent to revenues in each period, resulting in no segment profit.

Liquidity and capital resources

As of September ~~30, 2017~~,26, 2020, we held ~~$267.0~~$613.6 million of cash and cash equivalents and ~~$76.1~~$89.6 million of short-term restricted cash that was restricted under our securitized financing facility. Included in cash and cash equivalents is ~~$106.8~~$239.3 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 operating activities was ~~$121.5~~$142.7 million for the nine months ended September ~~30, 2017,~~26, 2020, as compared to ~~$131.3~~$157.8 million in the prior year period. The ~~$9.7~~$15.1 million decrease in operating cash ~~flows~~inflows was driven primarily by ~~unfavorable~~a decrease in pre-tax net income related to operating activities, excluding non-cash items, timing of receipts related to the sale of Dunkin’ K-Cup® pods, and an increase in incentive compensation payments, offset by favorable cash flows related to our gift card program due primarily to the timing of ~~holidays and our prior year fiscal year end, the timing of~~ receipts and payments, ~~related to the sale of Dunkin’ K-Cup® pods and the related franchisee profit-sharing program, and~~ a decrease in cash paid for income ~~taxes. Additionally,~~taxes, and favorable cash flows due to working capital fluctuations of our advertising funds, as well as various other changes in working capital contributed to the decrease in operating cash flows. Offsetting these decreases were an increase in pre-tax net income related to operating activities, excluding non-cash items, and payments made in connection with the settlement of the Bertico litigation in the prior year period.capital.

Net cash used in investing activities was ~~$9.1~~$15.5 million for the nine months ended September ~~30, 2017,~~26, 2020, as compared to ~~net cash provided by investing activities of $4.1~~$25.4 million in the prior year period. The ~~$13.2~~$9.9 million decrease 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 in~~ capital expenditures of ~~$1.4~~$10.7 million.

Net cash used in financing activities was ~~$201.1~~$131.5 million for the nine months ended September ~~30, 2017,~~26, 2020, as compared to ~~$126.8~~$111.9 million in the prior year period. The ~~$74.3~~$19.6 million increase in financing cash outflows was driven primarily by incremental cash used in the current year period for repurchases of common stock of ~~$97.2~~$39.5 million ~~as well as additional cash used to pay the increased quarterly dividend of $5.6 million, offset by incremental~~and a decrease in cash generated from the exercise of stock options in the current year period of ~~$28.3~~$10.7 million, offset by a decrease in quarterly dividends paid on common stock of $26.8 million.

On October 30, 2020, we entered into the Merger Agreement with Inspire and Merger Sub. The Merger Agreement contains limitations on actions that the Company may take between signing and closing without the consent of Inspire, including the declaration or payment of dividends and the repurchase of shares in the open market. See note 15 to the unaudited consolidated financial statements for more information regarding the merger agreement.

Adjusted operating and investing cash flow

Net cash flows from operating and investing activities for the nine months ended September ~~30, 2017~~26, 2020 and September ~~24, 2016 include decreases~~28, 2019 included net cash outflows of ~~$69.2~~$2.8 million and ~~$37.5~~$28.0 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~~$130.1 million and ~~$172.9~~$160.4 million of adjusted operating and investing cash flow during the nine months ended September ~~30, 2017~~26, 2020 and September ~~24, 2016,~~28, 2019, respectively.

The ~~increase~~decrease in adjusted operating and investing cash flow was ~~due~~driven primarily ~~to an increase~~ the decrease

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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~~increase in ~~working capital, and a decrease~~incentive compensation payments, offset by the decreases in cash paid for income ~~taxes.~~

taxes and capital expenditures, as well as various other changes in working capital.

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					Nine months ended
	September 30, 2017			September 24, 2016		September 26, 2020		September 28, 2019
Net cash provided by operating activities	$	121,529		131,259	Net cash provided by operating activities	$	142,723	157,779
Plus: Decrease in cash held for advertising funds and gift card/certificate programs	69,224			37,511	Plus: Decrease in cash held for advertising funds and gift card/certificate programs	2,828		27,985
Plus (less): Net cash provided by (used in) investing activities	(9,099		)	4,107
Less: Net cash used in investing activities					Less: Net cash used in investing activities	(15,452)		(25,397)
Adjusted operating and investing cash flow	$	181,654		172,877	Adjusted operating and investing cash flow	$	130,099	160,367

Borrowing capacity

~~Our securitized financing facility included original aggregate borrowings~~As of September 26, 2020, there was approximately ~~$2.60~~$3.05 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). In March 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. The Company repaid all borrowings under the 2019 Variable Funding Notes during the second fiscal quarter of 2020. As of September ~~30, 2017,~~26, 2020, there was ~~approximately $2.44 billion of total principal outstanding on the 2015 Class A-2 Notes, while there was $74.1~~$116.9 million in available commitments under the ~~2015~~2019 Variable Funding Notes as ~~$25.9~~$33.1 million of letters of credit were outstanding. The Merger Agreement contains restrictions, however, limiting the Company’s ability to borrow additional amounts under the 2019 Variable Funding Notes in excess of $3.0 million.

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

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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. 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 September 26, 2020, we had a DSCR of 3.61 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,~~26, 2020, we had a Net Debt to Adjusted EBITDA ratio of ~~4.4~~5.1 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,~~26, 2020, respectively (in thousands):


	September 26, 2020
Principal outstanding under 2017 Class A-2 Notes	$	1,365,000
Principal outstanding under 2019 Class A-2 Notes	1,683,000
Other notes payable	1,138
Total finance lease obligations	8,412
Less: cash and cash equivalents	(613,641)
Less: restricted cash, current	(89,626)
Plus: cash held for gift card/certificate programs	154,780
Net Debt	$	2,509,063

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September 30, 2017
Principal outstanding under Class A-2 Notes $ 2,437,500
Total capital lease obligations 7,793
Less: cash and cash equivalents (266,981 )
Less: restricted cash, current (76,141 )
Plus: cash held for gift card/certificate programs 106,768
Net Debt $ 2,208,939

Twelve months ended
September 30, 2017
Net income $ 211,537
Interest expense 100,588
Income tax expense 129,920
Depreciation and amortization 41,547
Impairment charges 688
EBITDA 484,280
Adjustments:
Share-based compensation expense 15,529
Other^(a)
2,266
Total adjustments 17,795
Adjusted EBITDA $ 502,075

Twelve months ended

September 26, 2020

Net income

220,245

Interest expense

128,194

Income tax expense

73,377

Depreciation and amortization(a)

39,354
Impairment charges	750

~~(a)~~EBITDA	~~Represents costs and fees associated with various franchisee-related investments, bank fees, legal reserves, the allocation of share-based~~461,920
Adjustments:
Share-based compensation expense(a)	11,314

Decrease in deferred revenue related to ~~the advertising funds,~~franchise and ~~other non-cash gains and losses.~~licensing agreements(b)	(19,911)
COVID-19 related adjustments(c)	11,090
Other(d)	31,173
Total adjustments	33,666
Adjusted EBITDA	$	495,586

(a)Amounts exclude depreciation and share-based compensation of $7.0 million and $0.8 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)Amount includes approximately $7 million of corporate financial relief and $2 million of rent waivers being provided to the Company's franchisees, net of waivers received from landlords, as well as additional general and administrative expenses incurred as a result of the COVID-19 pandemic.

(d)Represents costs and fees associated with various franchisee-related investments, including investments in the Dunkin' U.S. Blueprint for Growth, bank fees, legal reserves, and other non-cash gains and losses.

In response to the ongoing COVID-19 pandemic, the Company has taken a series of actions to preserve financial flexibility and support franchisees during this time of uncertainty. These actions include 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, as well as providing payment plan options for these deferred fees, to provide franchisees with more financial flexibility to better support their employees and guests. Additionally, the Company provided extended payment terms and payment plan options to franchisees and licensees in certain international markets. The Company also provided approximately $7 million of corporate financial relief primarily to franchisees in the U.S. that were most significantly impacted by the pandemic. In addition, the Company is waiving up to one month of rental payments and allowed franchisees to defer two months of rental payments 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 our share repurchase program. 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.

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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~~.26, 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 September 26, 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~~,26, 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.

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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 risk factors disclosed in Part I, Item 1A ~~“Risk Factors”~~"Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016~~.28, 2019 other than those disclosed in Part II, Item 1A "Risk Factors" included in our Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2020 and the following:

The announcement and pendency of the transactions contemplated by the Merger Agreement may adversely affect our business, financial condition and results of operations.

Uncertainty about the effect of the transactions contemplated by the Merger Agreement on our employees, franchisees, customers, and other parties may have an adverse effect on our business, financial condition and results of operation regardless of whether the proposed transaction is completed. These risks to our business include the following, all of which could be exacerbated by a delay in the completion of the proposed transaction:

•the impairment of our ability to attract, retain, and motivate our employees, including key personnel;

•the diversion of significant management time and resources towards the completion of the proposed transaction;

•difficulties maintaining relationships with customers, franchisees, suppliers, and other business partners;

•delays or deferments of certain business decisions by our customers, franchisees, suppliers, and other business partners;

•the inability to pursue alternative business opportunities or make appropriate changes to our business because the transaction agreement requires us to conduct our business in the ordinary course of business consistent with past practice and not engage in certain kinds of transactions prior to the completion of the proposed transaction;

•litigation relating to the proposed transaction and the costs related thereto; and

•the incurrence of significant costs, expenses, and fees for professional services and other transaction costs in connection with the proposed transaction.

Failure to consummate the proposed transaction within the expected timeframe or at all could have a material adverse impact on our business, financial condition and results of operations.

There can be no assurance that the proposed Merger will be consummated. The consummation of the proposed Merger is subject to the satisfaction or waiver of specified closing conditions, including the prior consummation of the Offer, which is conditioned upon (i) there be validly tendered and not validly withdrawn that number of shares representing, together with the number of shares otherwise owned by Inspire or its affiliates, at least a majority of the shares outstanding as of the scheduled expiration of the tender offer, (ii) any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) having expired or been terminated, and (iii) other customary closing conditions. There can be no assurance that these and other conditions to closing will be satisfied in a timely manner or at all.

The Merger Agreement also provides that the Merger Agreement may be terminated by us or Inspire under certain circumstances, and in certain specified circumstances upon termination of the Merger Agreement we will be required to pay Inspire a termination fee of $268 million. If we are required to make this payment, doing so would materially adversely affect our business, financial condition and results of operations.

A failed transaction may result in negative publicity and a negative impression of us among our customers, franchisees or in the investment community or business community generally. Further, any disruptions to our business resulting from the announcement and pendency of the proposed Merger, including any adverse changes in our relationships with our customers, partners, suppliers and employees, could continue or accelerate in the event of a failed transaction. In addition, if the proposed Merger is not completed, and there are no other parties willing and able to acquire the Company at a price of $106.50 per share or higher, on terms acceptable to us, the share price of our common stock will likely decline to the extent that the current market price of our common stock reflects an assumption that the proposed Merger will be completed. Also, we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Merger, for which we will have received little or no benefit if the proposed Merger is not completed. Many of these fees and costs will be payable by us even if the proposed Merger is not completed and may relate to activities that we would not have undertaken other than to complete the proposed Merger.

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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 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:None.

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

~~(1)~~

On October 25, 2017, our board of directors approved a share repurchase program of up to $650.0 million of outstanding shares of our common stock. 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 share repurchase program that was approved by our board of directors on May 10, 2017 and which was set to expire two years after such approval.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

~~On November 8, 2017, the Board~~None.

Table 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.Contents

Under the terms of the Plan, if the individual participating in the Plan is terminated by the Company or an affiliate for any reason other than, death, Disability or Cause or resigns for Good Reason (each as defined in the Plan) during the 18-month period following a change in control (the “Change in Control Protection Period”), such individual is entitled to receive (i) a

lump sum payment equal to the greater of (a) an amount equal to two weeks of base salary per year of service (capped at one year) or (b) a multiple of the individual’s annual base salary (200% for the CEO and the President of Dunkin’ Donuts U.S. and Canada, and 150% for Senior Vice Presidents, including the CFO and other NEOs), (ii) a lump sum payment equal to 100% of the individual’s target annual cash bonus in the most recent calendar year (or, if greater, the year in which the change in control occurs), and (iii) Company-subsidized continuation of medical and dental benefits for the period specified in the Plan (24 months for the CEO and the President of Dunkin’ Donuts U.S. and Canada, and 18 months for the CFO and other NEOs). The severance benefits provided under the Plan in connection with a qualifying termination are in lieu of any other severance plans, policies or practices of the Company, including employment or severance-benefit agreements.

Change in control is defined in the Plan and includes the acquisition of shares of the Company representing more than 40% of the Company’s capital stock; a merger, consolidation or reorganization where pre-transaction shareholders do not continue to hold at least 60% of the Company’s voting power; a change in the majority of the Board within a two-year period; and a complete liquidation of the Company or a sale or disposition by the Company or all or substantially all of its assets.

The Plan also provides for that, if any payments to be made to an individual under the Plan or otherwise would be subject to the “golden parachute” excise tax rules of the Internal Revenue Code, then the individual will receive either (i) the full amount of the payments or (ii) an amount that is reduced by the minimum necessary to allow the individual to avoid golden parachute excise taxes, whichever results in a greater after-tax amount to the individual. All severance payments under the Plan are conditioned on the individual’s execution and non-revocation of a release of claims in favor of the Company and on the individual agreeing to certain non-competition, non-solicitation and confidentiality obligations in favor of the Company.

No other material changes were made to the severance arrangements of the CEO, CFO and other NEOs, including with respect to equity incentive awards (i.e., the treatment of stock options, restricted stock units and performance restricted stock units in connection with a change in control or the payment of severance under circumstances other than those covered by the Plan).

This summary of the Plan does not purport to be complete and is subject to and qualified in its entirety by reference to the text of the Plan, which has been filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.

Item 6. Exhibits

(a) Exhibits:



~~10.1~~31.1		~~Dunkin’ Brands Group, Inc. Executive Change in Control Severance Plan~~

~~10.2~~	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 LLC and DB Real Estate Assets II LLC, each as Guarantor, Dunkin’ Brands, 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 to the Company’s Current Report on Form 8-K, File No. 001-35258, filed with the SEC on September 15, 2017).

~~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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Ex. 104.Cover Page Interactive Data File (embedded within the Inline XBRL document)

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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 4, 2020

By:

/s/ Katherine Jaspon

~~Date:~~

~~November 8, 2017~~

~~By:~~

~~/s/ Nigel Travis~~

~~Nigel Travis,~~

~~Chairman~~Katherine Jaspon
Chief Financial Officer
Principal Financial and ~~Chief Executive~~Accounting Officer

3645



	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	)



	September 30, 2017	September 24, 2016
Points of distribution, at period end:
Dunkin’ Donuts U.S.	9,015	8,629
Dunkin’ Donuts International	3,420	3,379
Baskin-Robbins U.S.	2,562	2,533
Baskin-Robbins International	5,382	5,243
Consolidated global points of distribution	20,379	19,784



	September 30, 2017
Principal outstanding under Class A-2 Notes	$	2,437,500
Total capital lease obligations	7,793
Less: cash and cash equivalents	(266,981		)
Less: restricted cash, current	(76,141		)
Plus: cash held for gift card/certificate programs	106,768
Net Debt	$	2,208,939