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 ~~March 31,~~June 30, 2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission file number 001-35258

DUNKIN’ BRANDS GROUP, INC.

(Exact name of registrant as specified in its charter)



Delaware		20-4145825
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

130 Royall Street

Canton, Massachusetts 02021

(Address of principal executive offices) (zip code)

(781) 737-3000

(Registrants’ telephone number, including area code)

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

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

As of ~~May 4,~~August 3, 2018, ~~82,967,712~~83,776,757 shares of common stock of the registrant were outstanding.

Table of Contents

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS




		Page

Part I. – Financial Information

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2428
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3440
Item 4.	Controls and Procedures	3540

Part II. – Other Information

Item 1.	Legal Proceedings	3642
Item 1A.	Risk Factors	3642
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3642
Item 3.	Defaults Upon Senior Securities	3642
Item 4.	Mine Safety Disclosures	3642
Item 5.	Other Information	3642
Item 6.	Exhibits	3743
	Signatures	3844

Part I. Financial Information

Item 1. Financial Statements

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)


	March 31, 2018			December 30, 2017		June 30, 2018			December 30, 2017
Assets
Current assets:
Cash and cash equivalents	$	338,461		1,018,317		$	367,940		1,018,317
Restricted cash	82,605			94,047		84,970			94,047
Accounts receivable, net of allowance for doubtful accounts of $4,306 and $4,390 as of March 31, 2018 and December 30, 2017, respectively	73,927			69,517
Notes and other receivables, net of allowance for doubtful accounts of $721 and $600 as of March 31, 2018 and December 30, 2017, respectively	32,409			52,332
Accounts receivable, net of allowance for doubtful accounts of $3,855 and $4,390 as of June 30, 2018 and December 30, 2017, respectively						88,790			69,517
Notes and other receivables, net of allowance for doubtful accounts of $1,043 and $600 as of June 30, 2018 and December 30, 2017, respectively						40,117			52,332
Prepaid income taxes	28,907			21,927		17,754			21,927
Prepaid expenses and other current assets	59,533			48,193		56,906			48,193
Total current assets	615,842			1,304,333		656,477			1,304,333
Property, equipment, and software, net of accumulated depreciation of $146,346 and $143,319 as of March 31, 2018 and December 30, 2017, respectively	180,959			181,542
Property, equipment, and software, net of accumulated depreciation of $151,483 and $143,319 as of June 30, 2018 and December 30, 2017, respectively						204,011			181,542
Equity method investments	140,944			140,615		137,910			140,615
Goodwill	888,293			888,308		888,284			888,308
Other intangible assets, net of accumulated amortization of $254,367 and $250,142 as of March 31, 2018 and December 30, 2017, respectively	1,351,272			1,357,157
Other intangible assets, net of accumulated amortization of $257,930 and $250,142 as of June 30, 2018 and December 30, 2017, respectively						1,345,309			1,357,157
Other assets	66,798			65,478		66,737			65,478
Total assets	$	3,244,108		3,937,433		$	3,298,728		3,937,433
Liabilities and Stockholders’ Deficit
Current liabilities:
Current portion of long-term debt	$	31,500		31,500		$	31,650		31,500
Capital lease obligations	613			596		631			596
Accounts payable	60,851			53,417		68,783			53,417
Deferred revenue	43,935			44,876		44,175			44,876
Other current liabilities	272,391			355,110		284,768			355,110
Total current liabilities	409,290			485,499		430,007			485,499
Long-term debt, net	3,029,232			3,035,857		3,023,955			3,035,857
Capital lease obligations	7,016			7,180		6,851			7,180
Unfavorable operating leases acquired	9,402			9,780		9,033			9,780
Deferred revenue	362,125			361,458		366,246			361,458
Deferred income taxes, net	210,090			214,345		205,859			214,345
Other long-term liabilities	77,234			77,853		74,582			77,853
Total long-term liabilities	3,695,099			3,706,473		3,686,526			3,706,473
Commitments and contingencies (note 9)
Stockholders’ deficit:
Preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued and outstanding	—			—		—			—
Common stock, $0.001 par value; 475,000,000 shares authorized; 82,747,841 shares issued and 82,721,064 shares outstanding as of March 31, 2018; 90,404,022 shares issued and 90,377,245 shares outstanding as of December 30, 2017	83			90
Common stock, $0.001 par value; 475,000,000 shares authorized; 83,069,682 shares issued and 83,042,905 shares outstanding as of June 30, 2018; 90,404,022 shares issued and 90,377,245 shares outstanding as of December 30, 2017						83			90
Additional paid-in capital	522,052			724,114		511,379			724,114
Treasury stock, at cost; 26,777 shares as of March 31, 2018 and December 30, 2017	(1,060		)	(1,060	)
Treasury stock, at cost; 26,777 shares as of June 30, 2018 and December 30, 2017						(1,060		)	(1,060	)
Accumulated deficit	(1,373,996		)	(968,148	)	(1,313,498		)	(968,148	)
Accumulated other comprehensive loss	(7,360		)	(9,535	)	(14,709		)	(9,535	)
Total stockholders’ deficit	(860,281		)	(254,539	)	(817,805		)	(254,539	)
Total liabilities and stockholders’ deficit	$	3,244,108		3,937,433		$	3,298,728		3,937,433

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					Three months ended					Six months ended
	March 31, 2018			April 1, 2017		June 30, 2018			July 1, 2017		June 30, 2018		July 1, 2017
Revenues:
Franchise fees and royalty income	$	132,507		127,715		$	151,242		143,894		283,749		271,609
Advertising fees and related income	111,007			110,203		131,539			122,361		242,546		232,564
Rental income	24,478			24,422		27,400			27,408		51,878		51,830
Sales of ice cream and other products	21,777			22,506		28,140			28,679		49,917		51,185
Other revenues	11,573			11,512		12,319			11,834		23,892		23,346
Total revenues	301,342			296,358		350,640			334,176		651,982		630,534
Operating costs and expenses:
Occupancy expenses—franchised restaurants	13,980			14,138		14,314			14,287		28,294		28,425
Cost of ice cream and other products	16,864			16,922		22,781			22,199		39,645		39,121
Advertising expenses	111,972			111,072		132,579			123,676		244,551		234,748
General and administrative expenses, net	59,824			60,369		59,301			61,074		119,125		121,443
Depreciation	5,033			5,084		5,125			5,071		10,158		10,155
Amortization of other intangible assets	5,375			5,327		5,307			5,333		10,682		10,660
Long-lived asset impairment charges	501			47		653			60		1,154		107
Total operating costs and expenses	213,549			212,959		240,060			231,700		453,609		444,659
Net income of equity method investments	2,033			2,819		3,845			4,327		5,878		7,146
Other operating income, net	5			555
Other operating income (loss), net						(575		)	33		(570	)	588
Operating income	89,831			86,773		113,850			106,836		203,681		193,609
Other income (expense), net:
Interest income	1,642			321		1,516			425		3,158		746
Interest expense	(32,477		)	(24,871	)	(32,538		)	(24,885	)	(65,015	)	(49,756	)
Other income (losses), net	(327		)	187		(272		)	28		(599	)	215
Total other expense, net	(31,162		)	(24,363	)	(31,294		)	(24,432	)	(62,456	)	(48,795	)
Income before income taxes	58,669			62,410		82,556			82,404		141,225		144,814
Provision for income taxes	8,517			18,117		22,058			31,312		30,575		49,429
Net income	$	50,152		44,293		$	60,498		51,092		110,650		95,385
Earnings per share:
Common—basic	$	0.58		0.48		$	0.73		0.56		1.31		1.04
Common—diluted	0.57			0.48		0.72			0.55		1.29		1.03
Cash dividends declared per common share	0.35			0.32		0.35			0.32		0.70		0.65

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Three months ended				Three months ended					Six months ended
	March 31, 2018		April 1, 2017		June 30, 2018			July 1, 2017		June 30, 2018		July 1, 2017
Net income	$	50,152	44,293		$	60,498		51,092		110,650		95,385
Other comprehensive income (loss), net:
Effect of foreign currency translation, net of deferred tax expense of $20 and $537 for the three months ended March 31, 2018 and April 1, 2017, respectively	1,547		8,740
Effect of interest rate swaps, net of deferred tax benefit of $217 for the three months ended April 1, 2017	—		(318	)
Effect of foreign currency translation, net of deferred tax expense (benefit) of $(66) and $36 for the three months ended June 30, 2018 and July 1, 2017, respectively, and $(46) and $573 for the six months ended June 30, 2018 and July 1, 2017, respectively					(7,291		)	(2,749	)	(5,744	)	5,991
Effect of interest rate swaps, net of deferred tax benefit of $217 and $434 for the three and six months ended July 1, 2017					—			(318	)	—		(636	)
Other, net	628		654		(58		)	(1	)	570		653
Total other comprehensive income, net	2,175		9,076
Total other comprehensive income (loss), net					(7,349		)	(3,068	)	(5,174	)	6,008
Comprehensive income	$	52,327	53,369		$	53,149		48,024		105,476		101,393

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)


	Three months ended					Six months ended
	March 31, 2018			April 1, 2017		June 30, 2018			July 1, 2017
Cash flows from operating activities:
Net income	$	50,152		44,293		$	110,650		95,385
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,408			10,411		20,840			20,815
Amortization of debt issuance costs	1,249			1,610		2,511			3,234
Deferred income taxes	(4,251		)	(5,930	)	(8,425		)	(11,781	)
Provision for bad debt	358			200		333			100
Share-based compensation expense	3,204			3,494		6,949			7,247
Net income of equity method investments	(2,033		)	(2,819	)	(5,878		)	(7,146	)
Dividends received from equity method investments	3,947			3,950		3,947			3,950
Other, net	1,230			(30	)	3,150			(55	)
Change in operating assets and liabilities:
Accounts, notes, and other receivables, net	15,531			13,309		(7,459		)	(6,592	)
Prepaid income taxes, net	(6,962		)	1,332		4,208			7,621
Prepaid expenses and other current assets	(11,352		)	(22,139	)	(8,866		)	(18,305	)
Accounts payable	7,891			9,474		15,940			24,660
Other current liabilities	(82,685		)	(70,903	)	(71,323		)	(65,832	)
Deferred revenue	(477		)	4,619		3,902			13,531
Other, net	(2,413		)	629		(2,740		)	228
Net cash used in operating activities	(16,203		)	(8,500	)
Net cash provided by operating activities						67,739			67,060
Cash flows from investing activities:
Additions to property, equipment, and software	(5,803		)	(3,581	)	(32,902		)	(6,730	)
Other, net	—			(98	)	—			(99	)
Net cash used in investing activities	(5,803		)	(3,679	)	(32,902		)	(6,829	)
Cash flows from financing activities:
Repayment of long-term debt	(7,875		)	(6,250	)	(15,750		)	(12,500	)
Dividends paid on common stock	(28,639		)	(29,621	)	(57,439		)	(58,847	)
Accelerated share repurchases of common stock	(650,368		)	—		(650,368		)	(100,000	)
Exercise of stock options	18,175			14,807		30,433			19,928
Other, net	(731		)	(645	)	(901		)	(799	)
Net cash used in financing activities	(669,438		)	(21,709	)	(694,025		)	(152,218	)
Effect of exchange rates on cash, cash equivalents, and restricted cash	64			219		(228		)	398
Decrease in cash, cash equivalents, and restricted cash	(691,380		)	(33,669	)	(659,416		)	(91,589	)
Cash, cash equivalents, and restricted cash, beginning of period	1,114,099			431,832		1,114,099			431,832
Cash, cash equivalents, and restricted cash, end of period	$	422,719		398,163		$	454,683		340,243
Supplemental cash flow information:
Cash paid for income taxes	$	19,929		22,934		$	35,044		53,736
Cash paid for interest	34,917			23,405		65,633			46,751
Noncash investing activities:
Property, equipment, and software included in accounts payable and other current liabilities	2,133			1,131		3,219			1,942
Purchase of property, equipment, and software in exchange for note payable						1,486			—

See accompanying notes to unaudited consolidated financial statements.

DUNKIN’ BRANDS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1) Description of business and organization

Dunkin’ Brands Group, Inc. (“DBGI”), together with its consolidated subsidiaries, is one of the world’s leading franchisors of restaurants serving coffee and baked goods, as well as ice cream, within the quick service restaurant segment of the restaurant industry. We franchise and license a system of both traditional and nontraditional quick service restaurants and, in limited circumstances, have owned and operated locations. Through our Dunkin’ Donuts brand, we franchise restaurants featuring coffee, donuts, bagels, breakfast sandwiches, and related products. Additionally, we license Dunkin’ Donuts brand products sold in certain retail outlets such as retail packaged coffee, Dunkin’ K-Cup® pods, and ready-to-drink bottled iced coffee. Through our Baskin-Robbins brand, we franchise restaurants featuring ice cream, frozen beverages, and related products. Additionally, we distribute Baskin-Robbins ice cream products to Baskin-Robbins franchisees and licensees in certain international markets.

Throughout these unaudited consolidated financial statements, “Dunkin’ Brands,” “the Company,” “we,” “us,” “our,” and “management” refer to DBGI and its consolidated subsidiaries taken as a whole.

(2) Summary of significant accounting policies

(a) Unaudited consolidated financial statements

The consolidated balance sheet as of ~~March 31,~~June 30, 2018, the consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2018 and July 1, 2017, and the consolidated statements of ~~operations, comprehensive income, and~~ cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017 are unaudited.

The accompanying unaudited consolidated financial statements include the accounts of DBGI and its consolidated subsidiaries and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. All significant transactions and balances between subsidiaries and affiliates have been eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements in accordance with U.S. GAAP have been recorded. Such adjustments consisted only of normal recurring items. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 30, 2017, included in the Company’s Annual Report on Form 10-K.

(b) Fiscal year

The Company operates and reports financial information on a 52- or 53-week year on a 13-week quarter basis with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the fourth fiscal quarter). The data periods contained within the ~~three-month~~three- and six-month periods ended ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017 reflect the results of operations for the 13-week and 26-week periods ended on those ~~dates.~~dates, respectively. Operating results for the ~~three-month period~~three- and six-month periods ended ~~March 31,~~June 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2018.

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 (seenote 4), and (iii) real estate reserves used to pay real estate obligations.

Cash, cash equivalents, and restricted cash within the consolidated balance sheets that are included in the consolidated statements of cash flows as of ~~March 31,~~June 30, 2018 and December 30, 2017 were as follows (in thousands):


	March 31, 2018		December 30, 2017	June 30, 2018		December 30, 2017
Cash and cash equivalents	$	338,461	1,018,317	$	367,940	1,018,317
Restricted cash	82,605		94,047	84,970		94,047
Restricted cash, included in Other assets	1,653		1,735	1,773		1,735
Total cash, cash equivalents, and restricted cash	$	422,719	1,114,099	$	454,683	1,114,099

(d) Fair value of financial instruments

Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Financial assets and liabilities measured at fair value on a recurring basis as of ~~March 31,~~June 30, 2018 and December 30, 2017 are summarized as follows (in thousands):


	March 31, 2018			December 30, 2017		June 30, 2018			December 30, 2017
	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:
Company-owned life insurance	$	10,807	10,807	10,836	10,836	$	11,033	11,033	10,836	10,836
Total assets	$	10,807	10,807	10,836	10,836	$	11,033	11,033	10,836	10,836
Liabilities:
Deferred compensation liabilities	$	13,644	13,644	13,543	13,543	$	11,448	11,448	13,543	13,543
Total liabilities	$	13,644	13,644	13,543	13,543	$	11,448	11,448	13,543	13,543

The deferred compensation liabilities relate to the Dunkin’ Brands, Inc. non-qualified deferred compensation plans (“NQDC Plans”), which allow for pre-tax deferral of compensation for certain qualifying employees and directors. Changes in the fair value of the deferred compensation liabilities are derived using quoted prices in active markets of the asset selections made by the participants. The deferred compensation liabilities are classified within Level 2, as defined under U.S. GAAP, because their inputs are derived principally from observable market data by correlation to hypothetical investments. The Company holds company-owned life insurance policies to partially offset the Company’s liabilities under the NQDC Plans. The changes in the fair value of any company-owned life insurance policies are derived using determinable cash surrender ~~values.~~value. As such, the company-owned life insurance policies are classified within Level 2, as defined under U.S. GAAP.

The carrying value and estimated fair value of long-term debt as of ~~March 31,~~June 30, 2018 and December 30, 2017 were as follows (in thousands):


	March 31, 2018			December 30, 2017		June 30, 2018			December 30, 2017
	Carrying value		Estimated fair value	Carrying value	Estimated fair value	Carrying value		Estimated fair value	Carrying value	Estimated fair value
Financial liabilities
Long-term debt	$	3,060,732	3,104,801	3,067,357	3,156,099	$	3,055,605	3,068,647	3,067,357	3,156,099

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

(e) Concentration of credit risk

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

note and lease receivables from certain of our franchisees and licensees. The financial condition of these franchisees and licensees is largely dependent upon the underlying business trends of our brands and market conditions within the quick service restaurant industry. This concentration of credit risk is mitigated, in part, by the large number of franchisees and licensees of each brand and the short-term nature of the franchise and license fee and lease receivables. As of ~~March 31,~~June 30, 2018 and December 30, 2017, one master licensee, including its majority-owned subsidiaries, accounted for approximately ~~14%~~20% and 11%, respectively, of total accounts and notes receivable. No individual franchisee or master licensee accounted for more than 10% of total revenues for ~~either~~any of the three and six month periods ended ~~March 31,~~June 30, 2018 ~~or April~~and July 1, 2017.

(f) Advertising expenses

Advertising expenses in the consolidated statements of operations includes advertising expenses incurred by the Company, including those expenses incurred by the advertising ~~funds.~~funds and for the administration of the gift card program. The Company expenses production costs of commercial advertising upon first airing and expenses the costs of communicating the advertising in the period in which the advertising occurs. Costs of print advertising and certain promotion-related items are deferred and expensed the first time the advertising is displayed. Prepaid expenses and other current assets in the consolidated balance sheets include ~~$19.9~~$17.3 million and $15.5 million at ~~March 31,~~June 30, 2018 and December 30, 2017, respectively, that was related to advertising. Advertising expenses are allocated to interim periods in relation to the related revenues. When revenues of the advertising fund exceed the related advertising expenses, advertising costs are accrued up to the amount of revenues.

(g) Recent accounting pronouncements

Recently adopted accounting pronouncements

In February 2018, the Financial Accounting Standards Board (the “FASB”) issued new guidance allowing companies the option to reclassify from accumulated other comprehensive loss to accumulated deficit the stranded income tax effects resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017. The Company early adopted this standard during the first quarter of fiscal year 2018 and has elected to present the change in the period of adoption. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB issued new guidance for revenue recognition related to contracts with customers (“ASC 606”), except for contracts within the scope of other standards, which supersedes nearly all existing revenue recognition guidance. We adopted this new guidance in fiscal year 2018. See note 3 for further disclosure of the impact of the new guidance.

Recent accounting pronouncements not yet adopted

In February 2016, the FASB issued new guidance for lease accounting, which replaces existing lease accounting guidance. The new guidance aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. This guidance is effective for the Company in fiscal year 2019 with early adoption permitted, and modified retrospective application is ~~required.~~required with an option to not restate comparative periods in the period of adoption. The Company expects to adopt this new guidance in fiscal year 2019 without restating comparative periods, and ~~is currently evaluating the impact that the adoption of this new guidance will have on the Company’s consolidated financial statements and related disclosures. The Company~~ expects that substantially all of its operating lease commitments will be subject to the new guidance and will be recognized as operating lease liabilities and right-of-use assets upon adoption, thereby having a material impact to its consolidated balance sheet.

Though the majority of the assessment phase is complete, the Company continues to evaluate the impact the adoption of this new guidance will have on the Company's consolidated financial statements, as well as the impact on accounting policies and related disclosures. Additionally, the Company is in the process of implementing new accounting systems, business processes, and internal controls related to lease accounting to assist in the application of the new guidance.

(h) Subsequent events

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

(3) Revenue recognition

(a) Updated revenue recognition policies

Franchise fees and royalty income

Domestically, the Company sells individual franchises as well as territory agreements in the form of store development agreements (“SDAs”) that grant the right to develop restaurants in designated areas. The franchise agreements and SDAs typically require the franchisee to pay initial nonrefundable franchise fees prior to opening the respective restaurants and continuing fees, or royalty income, on a weekly basis based upon a percentage of franchisee gross sales. The initial term of domestic franchise agreements is typically 20 years. Prior to the end of the franchise term or as otherwise provided by the Company, a franchisee may elect to renew the term of a franchise agreement, and, if approved, will typically pay a renewal fee upon execution of the renewal term. If approved, a franchisee may transfer a franchise agreement or SDA to a new or existing franchisee, at which point a transfer fee is paid. Occasionally, the Company offers incentive programs to franchisees in conjunction with a franchise/license agreement, territory agreement, or renewal agreement.

Internationally, the Company sells master franchise agreements that grant the master franchisee the right to develop and operate, and in some instances sub-franchise, a certain number of restaurants within a particular geographic area. The master franchisee is typically required to pay an upfront market entry fee upon entering into the master franchise agreement and an upfront initial franchise fee for each developed restaurant prior to each respective opening. For the Dunkin’ Donuts brand and in certain Baskin-Robbins international markets, the master franchisee will also pay continuing fees, or royalty income, generally on a monthly basis based upon a percentage of sales. Generally, the master franchise agreement serves as the franchise agreement for the underlying restaurants, and the initial franchise term provided for each restaurant typically ranges between 10 and 20 years.

Generally, the franchise license granted for each individual restaurant within an arrangement represents a single performance obligation. Therefore, initial franchise fees and market entry fees for each arrangement are allocated to each individual restaurant and recognized over the term of the respective franchise agreement from the date of the restaurant opening. Royalty income is also recognized over the term of the respective franchise agreement based on the royalties earned each period as the underlying sales occur. Renewal fees are generally recognized over the renewal term for the respective restaurant from the start of the renewal period. Transfer fees are recognized over the remaining term of the franchise agreement beginning at the time of transfer. Additionally, for Baskin-Robbins international markets that do not pay a royalty, a portion of the consideration from sales of ice cream and other products is allocated to royalty income as consideration for the use of the franchise license, which is recognized when the related sales occur and is estimated based on royalty rates in effect for markets where the franchise license is sold on a standalone basis. Fees received or receivable that are expected to be recognized as revenue within one year are classified as current deferred revenue in the consolidated balance sheets.

Advertising fees and related income

Domestically and in limited international markets, franchise agreements typically require the franchisee to pay continuing advertising fees on a weekly basis based on a percentage of franchisee gross sales, which are recognized over the term of the respective franchise agreement based on the fees earned each period as the underlying sales occur.

The Company and its franchisees sell gift cards that are redeemable for products in our Dunkin’ Donuts and Baskin-Robbins restaurants. The Company manages the gift card program, and therefore collects all funds from the activation of gift cards and reimburses franchisees for the redemption of gift cards in their restaurants. A liability for unredeemed gift cards, as well as historical gift certificates sold, is included in other current liabilities in the consolidated balance sheets.

There are no expiration dates or service fees charged on the gift cards. While the franchisees continue to honor all gift cards presented for payment, the likelihood of redemption may be determined to be remote for certain cards due to long periods of inactivity. In these circumstances, the Company may recognize revenue from unredeemed gift cards (“breakage revenue”) if they are not subject to unclaimed property laws. For Dunkin’ Donuts gift cards enrolled in the DD Perks® Rewards loyalty program and other cards with expected similar redemption behavior, breakage is estimated and recognized at the point in time when the likelihood of redemption of any remaining card balance becomes remote, generally after a period of sufficient inactivity. Breakage on all other Dunkin’ Donuts gift cards and all Baskin-Robbins gift cards is estimated and recognized over time in proportion to actual gift card redemptions, based on historical redemption rates.

The Company also collects gift card program service fees from franchisees to offset the costs to administer the gift card program. The gift card program service fees are based on the volume of gift card transactions processed and are recognized as the underlying transactions occur.

Rental income

Rental income for base rentals is recorded on a straight-line basis over the lease term, including the amortization of any tenant improvement dollars paid. The differences between the straight-line rent amounts and amounts receivable under the leases are recorded as deferred rent assets in current or long-term assets, as appropriate. Contingent rental income is recognized as earned, and any amounts received from lessees in advance of achieving stipulated thresholds are deferred until such thresholds are actually achieved. Deferred contingent rentals are recorded as deferred revenue in current liabilities in the consolidated balance sheets.

Sales of ice cream and other products

We distribute Baskin-Robbins ice cream products and, in limited cases, Dunkin’ Donuts products to franchisees in certain international locations. Revenue from the sale of ice cream and other products is recognized when title and risk of loss transfers to the buyer, which is generally upon delivery. Payment for ice cream and other products is generally due within a relatively short period of time subsequent to delivery.

Other revenues

Other revenues include fees generated by licensing our brand names and other intellectual property, as well as gains, net of losses and transactions costs, from the sales of restaurants that were not company-operated to new or existing franchisees.

Licensing fees are recognized over the term of the expected license agreement, with sales-based license fees being recognized based on the amount earned each period as the underlying sales occur. Gains on the refranchise or sale of a restaurant are recognized over the term of the related agreement.

(b) Disaggregation of revenue

Revenues are disaggregated by timing of revenue recognition and reconciled to reportable segment revenues as follows (in thousands):


	Three months ended March 31, 2018											Three months ended June 30, 2018
	Dunkin' Donuts U.S.		Baskin-Robbins U.S.	Dunkin' Donuts International		Baskin-Robbins International	U.S. Advertising Funds	Total reportable segment revenues	Other^(a)		Total revenues	Dunkin' Donuts U.S.		Baskin-Robbins U.S.	Dunkin' Donuts International		Baskin-Robbins International	U.S. Advertising Funds	Total reportable segment revenues	Other^(a)		Total revenues
Revenues recognized under ASC 606
Revenues recognized over time:
Royalty income	$	110,833	6,409	4,938		1,543	—	123,723	3,134		126,857	$	125,221	9,005	4,732		2,154	—	141,112	4,276		145,388
Franchise fees	4,707		289	448		206	—	5,650	—		5,650	4,765		303	535		251	—	5,854	—		5,854
Advertising fees and related income	—		—	—		—	104,167	104,167	259		104,426	—		—	—		—	119,174	119,174	8,491		127,665
Other revenues	535		2,277	2		—	—	2,814	8,154		10,968	588		3,129	—		1	—	3,718	7,969		11,687
Total revenues recognized over time	116,075		8,975	5,388		1,749	104,167	236,354	11,547		247,901	130,574		12,437	5,267		2,406	119,174	269,858	20,736		290,594

Revenues recognized at a point in time:
Sales of ice cream and other products	—		678	—		23,972	—	24,650	(2,873	)	21,777	—		842	—		31,409	—	32,251	(4,111	)	28,140
Other revenues	245		93	(23	)	47	—	362	243		605	310		57	(9	)	72	—	430	202		632
Total revenues recognized at a point in time	245		771	(23	)	24,019	—	25,012	(2,630	)	22,382	310		899	(9	)	31,481	—	32,681	(3,909	)	28,772

Total revenues recognized under ASC 606	116,320		9,746	5,365		25,768	104,167	261,366	8,917		270,283	130,884		13,336	5,258		33,887	119,174	302,539	16,827		319,366

Revenues not subject to ASC 606
Advertising fees and related income	—		—	—		—	—	—	6,581		6,581	—		—	—		—	—	—	3,874		3,874
Rental income	23,591		767	—		120	—	24,478	—		24,478	26,506		763	—		131	—	27,400	—		27,400
Total revenues not subject to ASC 606	23,591		767	—		120	—	24,478	6,581		31,059	26,506		763	—		131	—	27,400	3,874		31,274

Total revenues	$	139,911	10,513	5,365		25,888	104,167	285,844	15,498		301,342	$	157,390	14,099	5,258		34,018	119,174	329,939	20,701		350,640

^(a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card ~~breakage revenue,~~program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other."


	Three months ended April 1, 2017											Three months ended July 1, 2017
	Dunkin' Donuts U.S.		Baskin-Robbins U.S.	Dunkin' Donuts International		Baskin-Robbins International	U.S. Advertising Funds	Total reportable segment revenues	Other^(a)		Total revenues	Dunkin' Donuts U.S.		Baskin-Robbins U.S.	Dunkin' Donuts International		Baskin-Robbins International	U.S. Advertising Funds	Total reportable segment revenues	Other^(a)		Total revenues
Revenues recognized under ASC 606
Revenues recognized over time:
Royalty income	$	107,175	6,684	4,412		1,431	—	119,702	2,791		122,493	$	119,096	9,080	4,157		1,858	—	134,191	4,183		138,374
Franchise fees	4,298		206	433		285	—	5,222	—		5,222	4,564		193	475		288	—	5,520	—		5,520
Advertising fees and related income	—		—	—		—	102,321	102,321	55		102,376	—		—	—		—	113,824	113,824	668		114,492
Other revenues	540		2,313	4		—	—	2,857	7,909		10,766	577		3,187	—		1	—	3,765	7,506		11,271
Total revenues recognized over time	112,013		9,203	4,849		1,716	102,321	230,102	10,755		240,857	124,237		12,460	4,632		2,147	113,824	257,300	12,357		269,657

Revenues recognized at a point in time:
Sales of ice cream and other products	—		526	—		24,404	—	24,930	(2,424	)	22,506	—		883	—		31,685	—	32,568	(3,889	)	28,679
Other revenues	503		64	(16	)	46	—	597	149		746	221		150	(20	)	63	—	414	149		563
Total revenues recognized at a point in time	503		590	(16	)	24,450	—	25,527	(2,275	)	23,252	221		1,033	(20	)	31,748	—	32,982	(3,740	)	29,242

Total revenues recognized under ASC 606	112,516		9,793	4,833		26,166	102,321	255,629	8,480		264,109	124,458		13,493	4,612		33,895	113,824	290,282	8,617		298,899

Revenues not subject to ASC 606
Advertising fees and related income	—		—	—		—	—	—	7,827		7,827	—		—	—		—	—	—	7,869		7,869
Rental income	23,524		784	—		114	—	24,422	—		24,422	26,533		763	—		112	—	27,408	—		27,408
Total revenues not subject to ASC 606	23,524		784	—		114	—	24,422	7,827		32,249	26,533		763	—		112	—	27,408	7,869		35,277

Total revenues	$	136,040	10,577	4,833		26,280	102,321	280,051	16,307		296,358	$	150,991	14,256	4,612		34,007	113,824	317,690	16,486		334,176

^(a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other."



	Six months ended June 30, 2018
	Dunkin' Donuts U.S.		Baskin-Robbins U.S.	Dunkin' Donuts International		Baskin-Robbins International	U.S. Advertising Funds	Total reportable segment revenues	Other^(a)		Total revenues
Revenues recognized under ASC 606
Revenues recognized over time:
Royalty income	$	236,054	15,414	9,670		3,697	—	264,835	7,410		272,245
Franchise fees	9,472		592	983		457	—	11,504	—		11,504
Advertising fees and related income	—		—	—		—	223,341	223,341	8,750		232,091
Other revenues	1,123		5,406	2		1	—	6,532	16,123		22,655
Total revenues recognized over time	246,649		21,412	10,655		4,155	223,341	506,212	32,283		538,495

Revenues recognized at a point in time:
Sales of ice cream and other products	—		1,520	—		55,381	—	56,901	(6,984	)	49,917
Other revenues	555		150	(32	)	119	—	792	445		1,237
Total revenues recognized at a point in time	555		1,670	(32	)	55,500	—	57,693	(6,539	)	51,154

Total revenues recognized under ASC 606	247,204		23,082	10,623		59,655	223,341	563,905	25,744		589,649

Revenues not subject to ASC 606
Advertising fees and related income	—		—	—		—	—	—	10,455		10,455
Rental income	50,097		1,530	—		251	—	51,878	—		51,878
Total revenues not subject to ASC 606	50,097		1,530	—		251	—	51,878	10,455		62,333

Total revenues	$	297,301	24,612	10,623		59,906	223,341	615,783	36,199		651,982

^(a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other."



	Six months ended July 1, 2017
	Dunkin' Donuts U.S.		Baskin-Robbins U.S.	Dunkin' Donuts International		Baskin-Robbins International	U.S. Advertising Funds	Total reportable segment revenues	Other^(a)		Total revenues
Revenues recognized under ASC 606
Revenues recognized over time:
Royalty income	$	226,271	15,764	8,569		3,289	—	253,893	6,974		260,867
Franchise fees	8,862		399	908		573	—	10,742	—		10,742
Advertising fees and related income	—		—	—		—	216,145	216,145	723		216,868
Other revenues	1,117		5,500	4		1	—	6,622	15,415		22,037
Total revenues recognized over time	236,250		21,663	9,481		3,863	216,145	487,402	23,112		510,514

Revenues recognized at a point in time:
Sales of ice cream and other products	—		1,409	—		56,089	—	57,498	(6,313	)	51,185
Other revenues	724		214	(36	)	109	—	1,011	298		1,309
Total revenues recognized at a point in time	724		1,623	(36	)	56,198	—	58,509	(6,015	)	52,494

Total revenues recognized under ASC 606	236,974		23,286	9,445		60,061	216,145	545,911	17,097		563,008

Revenues not subject to ASC 606
Advertising fees and related income	—		—	—		—	—	—	15,696		15,696
Rental income	50,057		1,547	—		226	—	51,830	—		51,830
Total revenues not subject to ASC 606	50,057		1,547	—		226	—	51,830	15,696		67,526

Total revenues	$	287,031	24,833	9,445		60,287	216,145	597,741	32,793		630,534

^(a) Revenues reported as “Other” include revenues earned through certain licensing revenues, revenues generated from online training programs for franchisees, advertising fees and related income from international advertising funds, and breakage and other revenue related to the gift card program, all of which are not allocated to a specific segment. Additionally, the allocation of royalty income from sales of ice cream and other products is reported as "Other."

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


	March 31, 2018		December 30, 2017	Balance Sheet Classification	June 30, 2018		December 30, 2017	Balance Sheet Classification
Receivables	$	80,681	76,455	Accounts receivable, net and Notes and other receivables, net	$	99,950	76,455	Accounts receivable, net and Notes and other receivables, net

Deferred revenue:
Current	$	29,404	27,724	Deferred revenue—current	$	30,550	27,724	Deferred revenue—current
Long-term	362,125		361,458	Deferred revenue—long term	366,246		361,458	Deferred revenue—long term
Total	$	391,529	389,182		$	396,796	389,182

Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, sales of ice cream and other products, and licensing fees. Deferred revenue primarily represents the Company’s remaining performance obligations under its franchise and license agreements for which consideration has been received or is receivable, and is generally recognized on a straight-line basis over the remaining term of the related agreement.

The increase in the deferred revenue balance for the ~~three~~six months ended ~~March 31,~~June 30, 2018 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by ~~$8.3~~$16.7 million of revenues recognized that were included in the deferred revenue balance as of December 30, 2017.

As of ~~March 31,~~June 30, 2018 and December 30, 2017, there were no contract assets from contracts with customers.

(d) Transaction price allocated to remaining performance obligations

Estimated revenue expected to be recognized in the future related to performance obligations that are either unsatisfied or partially satisfied at ~~March 31,~~June 30, 2018 is as follows (in thousands):


Fiscal year:
2018^(a)	$	22,541	$	16,541
2019	23,727		25,091
2020	23,521		23,851
2021	23,295		23,614
2022	23,028		23,341
Thereafter	238,689		247,568
Total	$	354,801	$	360,006

^(a) Represents the estimate for remainder of fiscal year 2018 which excludes the three months ended March 31, 2018.
^(a) Represents the estimate for remainder of fiscal year 2018 which excludes the six months ended June 30, 2018.			^(a) Represents the estimate for remainder of fiscal year 2018 which excludes the six months ended June 30, 2018.

The estimated revenue in the table above does not contemplate future franchise renewals or new franchise agreements for restaurants for which a franchise agreement or SDA does not exist at ~~March 31,~~June 30, 2018. Additionally, the table above excludes ~~$64.9~~$61.9 million of consideration allocated to restaurants that are not yet open as of ~~March 31,~~June 30, 2018. The Company has applied the sales-based royalty exemption which permits exclusion of variable consideration in the form of sales-based royalties from the disclosure of remaining performance obligations in the table above. Additionally, the Company has applied the transition practical expedient that allows the Company to omit the above disclosures for the fiscal year ended December 30, 2017.

(e) Change in accounting principle

In fiscal year 2018, the Company adopted new revenue recognition guidance which 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 Company adopted the guidance using the full retrospective transition method which results in restating each prior reporting period presented. The restated amounts include the application of a practical expedient that permitted the Company to reflect the aggregate effect of all modifications that occurred prior to fiscal year 2016 when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.

The Company implemented new business processes, internal controls, and modified information technology systems to assist in the ongoing application of the new guidance.

Franchise Fees

The adoption of the new guidance changed the timing of recognition of initial franchise fees, including master license and territory fees for our international business, and renewal and transfer fees. Previously, these fees were generally recognized upfront upon either opening of the respective restaurant, when a renewal agreement became effective, or upon transfer of a franchise agreement. The new guidance generally requires these fees to be recognized over the term of the related franchise license for the respective restaurant. Additionally, transfer fees were previously included within other revenues, but are now included within franchise fees and royalty income in the consolidated statements of operations. The new guidance did not materially impact the recognition of royalty income.

Advertising

The adoption of the new guidance changed the reporting of advertising fund contributions from franchisees and the related advertising fund expenditures, which were not previously included in the consolidated statements of operations. The new guidance requires these advertising fund contributions and expenditures to be reported on a gross basis in the consolidated statements of operations. The assets and liabilities held by the advertising funds, which were previously reported as restricted assets and liabilities of advertising funds, respectively, are now included within the respective balance sheet caption to which the assets and liabilities relate. Additionally, advertising costs that have been incurred by the Company outside of the advertising funds were previously included within general and administrative expenses, net, but are now included within advertising expenses in the consolidated statements of operations.

Previously, breakage from Dunkin’ Donuts and Baskin-Robbins gift cards was recorded as a reduction to general and administrative expenses, net, to offset the related gift card program costs. In accordance with the new guidance, breakage revenue is now reported on a gross basis in the consolidated statements of operations within advertising fees and related income, and the related gift card program costs are included in advertising expenses.

Ice Cream Royalty Allocation

The adoption of the new guidance requires a portion of sales of ice cream products to be allocated to royalty income as consideration for the use of the franchise license. As such, a portion of sales of ice cream and other products has been reclassified to franchise fees and royalty income in the consolidated statements of operations under the new guidance. This allocation has no impact on the timing of recognition of the related sales of ice cream products or royalty income.

Other Revenue Transactions

The adoption of the new guidance requires certain fees generated by licensing of our brand names and other intellectual property to be recognized over the term of the related agreement, including a one-time upfront license fee recognized in connection with the Dunkin’ K-Cup® pod licensing agreement in fiscal year 2015. Additionally, gains associated with the refranchise, sale, or transfer of restaurants that were not company-operated to new or existing franchisees are recognized over the term of the related agreement under the new guidance, instead of upon closing of the sale transaction or transfer.

Impacts to Prior Period Information

The new guidance for revenue recognition impacted the Company's previously reported financial statements as follows:



Consolidated Balance Sheets
December 30, 2017
(In thousands)
				Adjustments for new revenue recognition guidance
	Previously reported			Franchise fees		Advertising		Other revenue transactions		Restated

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

																											Consolidated Statements of Operations
Three months ended April 1, 2017
Three months ended July 1, 2017													Three months ended July 1, 2017
(In thousands, except per share data)
				Adjustments for new revenue recognition guidance													Adjustments for new revenue recognition guidance
	Previously reported			Franchise fees		Advertising		Ice cream royalty allocation		Other revenue transactions	Restated			Previously reported			Franchise fees		Advertising		Ice cream royalty allocation		Other revenue transactions		Restated

Revenues:
Franchise fees and royalty income	$	130,069		(5,145	)	—		2,791		—	127,715			$	145,066		(5,355	)	—		4,183		—		143,894
Advertising fees and related income	—			—		110,203		—		—	110,203			—			—		122,361		—		—		122,361
Rental income	24,422			—		—		—		—	24,422			27,408			—		—		—		—		27,408
Sales of ice cream and other products	25,297			—		—		(2,791	)	—	22,506			32,862			—		—		(4,183	)	—		28,679
Other revenues	10,884			(1,122	)	—		—		1,750	11,512			13,186			(1,033	)	—		—		(319	)	11,834
Total revenues	190,672			(6,267	)	110,203		—		1,750	296,358			218,522			(6,388	)	122,361		—		(319	)	334,176
Operating costs and expenses:
Occupancy expenses—franchised restaurants	14,138			—		—		—		—	14,138			14,287			—		—		—		—		14,287
Cost of ice cream and other products	16,922			—		—		—		—	16,922			22,199			—		—		—		—		22,199
Advertising expenses	—			—		111,072		—		—	111,072			—			—		123,676		—		—		123,676
General and administrative expenses, net	61,235			—		(866	)	—		—	60,369			62,382			—		(1,308	)	—		—		61,074
Depreciation	5,084			—		—		—		—	5,084			5,071			—		—		—		—		5,071
Amortization of other intangible assets	5,327			—		—		—		—	5,327			5,333			—		—		—		—		5,333
Long-lived asset impairment charges	47			—		—		—		—	47			60			—		—		—		—		60
Total operating costs and expenses	102,753			—		110,206		—		—	212,959			109,332			—		122,368		—		—		231,700
Net income of equity method investments	2,819			—		—		—		—	2,819			4,327			—		—		—		—		4,327
Other operating income, net	555			—		—		—		—	555			33			—		—		—		—		33
Operating income	91,293			(6,267	)	(3	)	—		1,750	86,773			113,550			(6,388	)	(7	)	—		(319	)	106,836
Other income (expense), net:
Interest income	321			—		—		—		—	321			425			—		—		—		—		425
Interest expense	(24,871		)	—		—		—		—	(24,871	)		(24,885		)	—		—		—		—		(24,885	)
Other gains, net	187			—		—		—		—	187			28			—		—		—		—		28
Total other expense, net	(24,363		)	—		—		—		—	(24,363	)		(24,432		)	—		—		—		—		(24,432	)
Income before income taxes	66,930			(6,267	)	(3	)	—		1,750	62,410			89,118			(6,388	)	(7	)	—		(319	)	82,404
Provision (benefit) for income taxes	19,463			(1,854	)	—		—		508	18,117			33,414			(1,980	)	—		—		(122	)	31,312
Net income	$	47,467		(4,413	)	(3	)	—		1,242	44,293			$	55,704		(4,408	)	(7	)	—		(197	)	51,092

Earnings per share—basic	$	0.52									0.48			$	0.61										0.56
Earnings per share—diluted	0.51										0.48			0.60											0.55



Consolidated Statements of Operations
Six months ended July 1, 2017
(In thousands, except per share data)
				Adjustments for new revenue recognition guidance
	Previously reported			Franchise fees		Advertising		Ice cream royalty allocation		Other revenue transactions	Restated

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

Earnings per share—basic	$	1.13									1.04
Earnings per share—diluted	1.11										1.03

The adoption of the new revenue recognition guidance had no impact on the Company’s total cash flows. Adjustments presented in the cash flow information below result from full consolidation of the advertising funds, and reflect the investing activities, consisting solely of additions to property, equipment, and ~~equipment,~~software, of such funds.

															Select Cash Flow Information	(In thousands)

	Three months ended April 1, 2017							Six months ended July 1, 2017
	Previously reported			Adjustments for new revenue recognition guidance		Restated		Previously reported			Adjustments for new revenue recognition guidance		Restated

Net cash used in operating activities	$	(9,924	)	1,424		(8,500	)
Net cash provided by operating activities								$	63,954		3,106		67,060
Net cash used in investing activities	(2,255		)	(1,424	)	(3,679	)	(3,723		)	(3,106	)	(6,829	)
Net cash used in financing activities	(21,709		)	—		(21,709	)	(152,218		)	—		(152,218	)
Decrease in cash, cash equivalents, and restricted cash	(33,669		)	—		(33,669	)	(91,589		)	—		(91,589	)

(4) Debt

Debt at ~~March 31,~~June 30, 2018 and December 30, 2017 consisted of the following (in thousands):


	March 31, 2018			December 30, 2017		June 30, 2018			December 30, 2017
2015 Class A-2-II Notes	$	1,697,500		1,701,875		$	1,693,125		1,701,875
2017 Class A-2-I Notes	598,500			600,000		597,000			600,000
2017 Class A-2-II Notes	798,000			800,000		796,000			800,000
Other						1,486			—
Debt issuance costs, net of amortization	(33,268		)	(34,518	)	(32,006		)	(34,518	)
Total debt	3,060,732			3,067,357		3,055,605			3,067,357
Less current portion of long-term debt	31,500			31,500		31,650			31,500
Total long-term debt	$	3,029,232		3,035,857		$	3,023,955		3,035,857

The Company's outstanding debt consists of Series 2015-1 3.980% Fixed Rate Senior Secured Notes, Class A-2-II (the “2015 Class A-2-II Notes”), Series 2017-1 3.629% Fixed Rate Senior Secured Notes, Class A-2-I (the “2017 Class A-2-I Notes”), 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”) issued by DB Master Finance LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of DBGI. In addition, the Master Issuer issued Series 2017-1 Variable Funding Senior Secured Notes, Class A-1 (the “2017 Variable Funding Notes” and, together with the 2017 Class A-2 Notes, the “2017 Notes”), which allow for the issuance of up to $150.0 million of 2017 Variable Funding Notes and certain other credit instruments, including letters of credit.

As of ~~March 31,~~June 30, 2018 and December 30, 2017, $32.4 million and $32.3 million, respectively, of letters of credit were outstanding against the 2017 Variable Funding Notes which relate primarily to interest reserves required under the base indenture and related supplemental indentures. There were no amounts drawn down on these letters of credit as of ~~March 31,~~June 30, 2018 or December 30, 2017.

The 2015 Class A-2-II Notes and 2017 Notes were each issued in a securitization transaction pursuant to which most of the Company’s domestic and certain of its foreign revenue-generating assets, consisting principally of franchise-related agreements, real estate assets, and intellectual property and license agreements for the use of intellectual property, are held by the Master Issuer and certain other limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company that act as guarantors of the 2015 Class A-2-II Notes and 2017 Notes and that have pledged substantially all of their assets to secure the 2015 Class A-2-II Notes and 2017 Notes.

(5) Other current liabilities

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


	March 31, 2018		December 30, 2017	June 30, 2018		December 30, 2017
Gift card/certificate liability	$	169,944	228,783	$	169,341	228,783
Accrued payroll and benefits	18,402		30,768	21,285		30,768
Accrued interest	13,823		17,902	14,003		17,902
Accrued professional costs	5,746		5,527	5,277		5,527
Accrued advertising expenses	32,778		35,210	31,943		35,210
Franchisee profit-sharing liability	4,617		13,243	11,179		13,243
Other	27,081		23,677	31,740		23,677
Total other current liabilities	$	272,391	355,110	$	284,768	355,110

The decrease in the gift card/certificate liability was driven by the seasonality of our gift card program. The decrease in accrued payroll and benefits was primarily due to incentive compensation payments made during the ~~three~~six months ended ~~March 31,~~June 30, 2018 related to fiscal year 2017. The franchisee profit-sharing liability represents amounts owed to franchisees from the net profits primarily on the sale of Dunkin’ K-Cup® pods, retail packaged coffee, and ready-to-drink bottled iced coffee in certain retail outlets.

(6) Segment information

The Company is strategically aligned into two global brands, Dunkin’ Donuts and Baskin-Robbins, which are further segregated between U.S. operations and international operations. Additionally, the Company administers and directs the development of all advertising and promotional programs in the U.S. advertising funds. As such, the Company has determined that it has five reportable segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., Baskin-Robbins International, and 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. Baskin-Robbins International primarily derives its revenues from sales of ice cream products, as well as royalty income, franchise fees, and license fees. U.S. Advertising Funds primarily derive revenues through continuing advertising fees from Dunkin’ Donuts and Baskin-Robbins franchisees. The operating results of each segment are regularly reviewed and evaluated separately by the Company’s senior management, which includes, but is not limited to, the chief executive officer. Senior management primarily evaluates the performance of its segments and allocates resources to them based on operating income adjusted for amortization of intangible assets, long-lived asset impairment charges, impairment of our equity method investments, and other infrequent or unusual charges, which does not reflect the allocation of any corporate charges. This profitability measure is referred to as segment profit. When senior management reviews a balance sheet, it is at a consolidated level. The accounting policies applicable to each segment are generally consistent with those used in the consolidated financial statements.

Revenues for all operating segments include only transactions with unaffiliated customers and include no intersegment revenues. Revenues reported as “Other” include revenues earned through certain licensing arrangements with third parties in which our brand names are used, including the licensing fees earned from the Dunkin’ K-Cup® pod licensing agreement and sales of ~~Dunkin'~~Dunkin’ Donuts branded ready-to-drink bottled iced coffee and retail packaged coffee, 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 ~~breakage revenue,~~program, all of which are not allocated to a specific segment. Revenues by segment were as follows (in thousands):


	Revenues			Revenues
	Three months ended			Three months ended			Six months ended
	March 31, 2018		April 1, 2017	June 30, 2018		July 1, 2017	June 30, 2018	July 1, 2017
Dunkin’ Donuts U.S.	$	139,911	136,040	$	157,390	150,991	297,301	287,031
Dunkin’ Donuts International	5,365		4,833	5,258		4,612	10,623	9,445
Baskin-Robbins U.S.	10,513		10,577	14,099		14,256	24,612	24,833
Baskin-Robbins International	25,888		26,280	34,018		34,007	59,906	60,287
U.S. Advertising Funds	104,167		102,321	119,174		113,824	223,341	216,145
Total reportable segment revenues	285,844		280,051	329,939		317,690	615,783	597,741
Other	15,498		16,307	20,701		16,486	36,199	32,793
Total revenues	$	301,342	296,358	$	350,640	334,176	651,982	630,534

Amounts included in “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					Segment profit
	Three months ended					Three months ended					Six months ended
	March 31, 2018			April 1, 2017		June 30, 2018			July 1, 2017		June 30, 2018		July 1, 2017
Dunkin’ Donuts U.S.	$	105,063		101,694		$	119,562		116,113		224,625		217,807
Dunkin’ Donuts International	3,206			1,427		3,503			1,571		6,709		2,998
Baskin-Robbins U.S.	7,235			7,383		10,622			10,865		17,857		18,248
Baskin-Robbins International	7,441			8,171		11,526			12,530		18,967		20,701
U.S. Advertising Funds	—			—		—			—		—		—
Total reportable segments	122,945			118,675		145,213			141,079		268,158		259,754
Corporate and other	(27,238		)	(26,528	)	(25,403		)	(28,850	)	(52,641	)	(55,378	)
Interest expense, net	(30,835		)	(24,550	)	(31,022		)	(24,460	)	(61,857	)	(49,010	)
Amortization of other intangible assets	(5,375		)	(5,327	)	(5,307		)	(5,333	)	(10,682	)	(10,660	)
Long-lived asset impairment charges	(501		)	(47	)	(653		)	(60	)	(1,154	)	(107	)
Other income (losses), net	(327		)	187		(272		)	28		(599	)	215
Income before income taxes	$	58,669		62,410		$	82,556		82,404		141,225		144,814

Net income of equity method investments is included in segment profit for the Dunkin’ Donuts International and Baskin-Robbins International reportable segments. Amounts reported as “Other” in the segment profit table below include the reduction in depreciation and amortization, net of tax, reported by our equity method investees as a result of previously recorded impairment charges. Net income of equity method investments by reportable segment was as follows (in thousands):


	Net income (loss) of equity method investments					Net income (loss) of equity method investments
	Three months ended					Three months ended			Six months ended
	March 31, 2018			April 1, 2017		June 30, 2018		July 1, 2017	June 30, 2018		July 1, 2017
Dunkin’ Donuts International	$	(444	)	(90	)	$	60	13	(384	)	(77	)
Baskin-Robbins International	1,727			2,026		2,926		2,950	4,653		4,976
Total reportable segments	1,283			1,936		2,986		2,963	4,269		4,899
Other	750			883		859		1,364	1,609		2,247
Total net income of equity method investments	$	2,033		2,819		$	3,845	4,327	5,878		7,146

(7) Stockholders’ deficit

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


	Total stockholders’ deficit			Total stockholders’ deficit
Balance as of December 30, 2017	$	(254,539	)	$	(254,539	)
Net income	50,152			110,650
Other comprehensive income, net	2,175
Other comprehensive loss, net				(5,174		)
Dividends paid on common stock	(28,639		)	(57,439		)
Exercise of stock options	18,175			30,433
Accelerated share repurchases of common stock	(650,368		)	(650,368		)
Share-based compensation expense	3,204			6,949
Other, net	(441		)	1,683
Balance as of March 31, 2018	$	(860,281	)
Balance as of June 30, 2018				$	(817,805	)

(a) Treasury stock

In February 2018, the Company entered into two accelerated share repurchase agreements (the “February 2018 ASR Agreements”) with two third-party financial institutions. Pursuant to the terms of the February 2018 ASR Agreements, the Company paid the financial institutions $650.0 million from cash on hand and received an initial delivery of 8,478,722 shares of the Company's common stock in February 2018, representing an estimate of 80% of the total shares expected to be delivered under the February 2018 ASR Agreements. At settlement, the financial institutions may be required to deliver additional shares of common stock to the Company or, under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make cash payment to the financial institutions. Final settlement of each of the February 2018 ASR Agreements is expected to be completed in the third quarter of fiscal year ~~2018, although the settlement may be accelerated at each financial institution’s option.~~2018.

The Company accounts for treasury stock under the cost method based on the cost of the shares on the dates of repurchase plus any direct costs incurred. During the ~~three~~six months ended ~~March 31,~~June 30, 2018, the Company retired 8,478,722 shares of treasury stock repurchased under the February 2018 ASR Agreements. The repurchase and retirement of these shares of treasury stock resulted in a decrease in additional paid-in capital of $65.2 million and an increase in accumulated deficit of $455.1 million. Additionally, the Company recorded a decrease in additional paid-in capital of $130.0 million related to the remaining cash paid under the February 2018 ASR Agreements since the final settlement was not completed as of ~~March 31,~~June 30, 2018.

(b) Equity incentive plans

During the ~~three~~six months ended ~~March 31,~~June 30, 2018, the Company granted stock options to purchase 909,027 shares of common stock and ~~50,838~~64,566 restricted stock units (“RSUs”) to certain ~~employees.~~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 an exercise price of $59.60 per share and have a weighted average grant-date fair value of $10.44 per

share. The RSUs granted to employees and members of our board of directors vest in equal

annual amounts over a three-year period and a one-year period, respectively, subsequent to the grant date and have a weighted average grant-date fair value of ~~$56.76~~$58.33 per share.

In addition, the Company granted 67,993 performance stock units (“PSUs”) to certain employees during the ~~three~~six months ended ~~March 31,~~June 30, 2018. These PSUs are generally eligible to cliff-vest approximately three years from the grant date. Of the total PSUs granted, 30,974 PSUs are subject to a service condition and a market vesting condition linked to the level of total shareholder return received by the Company’s shareholders during the performance period measured against the companies in the S&P 500 Composite Index (“TSR PSUs”). The remaining 37,019 PSUs granted are subject to a service condition and a performance vesting condition based on the level of adjusted operating income growth achieved over the performance period (“AOI PSUs”). The maximum vesting percentage that could be realized for each of the TSR PSUs and the AOI PSUs is 200% based on the level of performance achieved for the respective awards. All of the PSUs are also subject to a one-year post-vesting holding period. The TSR PSUs were valued based on a Monte Carlo simulation model to reflect the impact of the total shareholder return market condition, resulting in a grant-date fair value of $65.52 per share. The probability of satisfying a market condition is considered in the estimation of the grant-date fair value for TSR PSUs and the compensation cost is not reversed if the market condition is not achieved, provided the requisite service has been provided. The AOI PSUs have a grant-date fair value of $57.10 per share. Total compensation cost for the AOI PSUs is determined based on the most likely outcome of the performance condition and the number of awards expected to vest based on the outcome.

Total compensation expense related to all share-based awards was ~~$3.2~~$3.7 million and ~~$3.5~~$3.8 million for the three months ended ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017, respectively, and $6.9 million and $7.2 million for the six months ended June 30, 2018 and July 1, 2017, respectively, and is included in general and administrative expenses, net in the consolidated statements of operations.

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

Effect of foreign currency translation Other Accumulated other comprehensive income (loss)
Balance as of December 30, 2017 $ (8,084 ) (1,451 ) (9,535 )
Other comprehensive income, net 1,547
628
2,175
Balance as of March 31, 2018 $ (6,537 ) (823 ) (7,360 )



	Effect of foreign currency translation			Other		Accumulated other comprehensive loss
Balance as of December 30, 2017	$	(8,084	)	(1,451	)	(9,535	)
Other comprehensive income (loss), net	(5,744		)	570		(5,174	)
Balance as of June 30, 2018	$	(13,828	)	(881	)	(14,709	)

(d) Dividends

The Company paid a quarterly dividend of $0.3475 per share of common stock on March 21, 2018 and June 6, 2018 totaling approximately $28.6 ~~million.~~million and $28.8 million, respectively. On ~~April~~July 26, 2018, the Company announced that its board of directors approved the next quarterly dividend of $0.3475 per share of common stock payable ~~June 6,~~September 5, 2018 to shareholders of record as of the close of business on ~~May 29,~~August 27, 2018.

(8) Earnings per share

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


	Three months ended			Three months ended			Six months ended
	March 31, 2018		April 1, 2017	June 30, 2018		July 1, 2017	June 30, 2018	July 1, 2017
Net income—basic and diluted	$	50,152	44,293	$	60,498	51,092	110,650	95,385
Weighted average number of common shares:
Common—basic	86,451,167		91,656,559	82,869,232		91,207,455	84,660,208	91,432,007
Common—diluted	87,877,254		93,120,231	84,113,681		92,606,525	85,995,475	92,863,378
Earnings per common share:
Common—basic	$	0.58	0.48	$	0.73	0.56	1.31	1.04
Common—diluted	0.57		0.48	0.72		0.55	1.29	1.03

The weighted average number of common shares in the common diluted earnings per share calculation includes the dilutive effect of ~~1,426,087~~1,244,449 and ~~1,463,672~~1,399,070 equity awards for the three months ended ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017, respectively, and

includes the dilutive effect of 1,335,267 and 1,431,371 equity awards for the six months ended June 30, 2018 and July 1, 2017, respectively, using the treasury stock method. The weighted average number of common shares in the common diluted earnings per share

calculation for all periods excludes all contingently issuable equity awards for which the contingent vesting criteria were not yet met as of the fiscal period end. As of ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017, there were ~~258,019~~256,350 and 150,000 shares, respectively, related to equity awards that were contingently issuable and for which the contingent vesting criteria were not yet met as of the fiscal period end. Additionally, the weighted average number of common shares in the common diluted earnings per share calculation excludes ~~1,883,298~~982,054 and ~~2,135,477 shares related to~~1,123,482 equity awards for the three months ended ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017, respectively, and 1,432,676 and 1,629,480 equity awards for the six months ended June 30, 2018 and July 1, 2017, respectively, as they would be antidilutive.

(9) Commitments and contingencies

(a) Supply chain guarantees

The Company has various supply chain agreements that provide for purchase commitments, the majority of which result in the Company being contingently liable upon early termination of the agreement. As of ~~March 31,~~June 30, 2018 and December 30, 2017, the Company was contingently liable under such supply chain agreements for approximately ~~$129.9~~$119.9 million and $116.7 million, respectively. For certain supply chain commitments, as product is purchased by the Company’s franchisees over the term of the agreement, the amount of the guarantee is reduced. The Company assesses the risk of performing under each of these guarantees on a quarterly basis, and, based on various factors including internal forecasts, prior history, and ability to extend contract terms, we accrued an immaterial amount of reserves related to supply chain commitments as of ~~March 31,~~June 30, 2018 and December 30, 2017.

(b) Letters of credit

As of ~~March 31,~~June 30, 2018 and December 30, 2017, the Company had standby letters of credit outstanding for a total of $32.4 million and $32.3 million, respectively. There were no amounts drawn down on these letters of credit.

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 ~~March 31,~~June 30, 2018 and December 30, 2017, ~~$1.6~~$1.7 million and $3.6 million, respectively, was included in other current liabilities in the consolidated balance sheets to reflect the Company’s estimate of the probable losses ~~which may be~~ incurred in connection with all outstanding litigation.

(10) Related-party transactions

The Company recognized revenues from its equity method investees, consisting of royalty income and sales of ice cream and other products, as follows (in thousands):


	Three months ended			Three months ended			Six months ended
	March 31, 2018		April 1, 2017	June 30, 2018		July 1, 2017	June 30, 2018	July 1, 2017
B-R 31 Ice Cream Company., Ltd.	$	345	289	$	626	587	971	876
BR-Korea Co., Ltd.	946		1,017	1,181		1,035	2,127	2,052
Palm Oasis Ventures Pty. Ltd.	705		1,009	768		958	1,473	1,967
	$	1,996	2,315	$	2,575	2,580	4,571	4,895

As of ~~March 31,~~June 30, 2018 and December 30, 2017, the Company had ~~$4.2~~$4.4 million and $5.1 million, respectively, of receivables from its equity method investees, which were recorded in accounts receivable, net of allowance for doubtful accounts, in the consolidated balance sheets.

The Company made net payments to its equity method investees totaling approximately ~~$1.0 million~~$825 thousand and ~~$1.1 million~~$742 thousand during the three months ended ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017, respectively, and $1.9 million and $1.8 million during the six months ended June 30, 2018 and July 1, 2017, respectively, primarily for the purchase of ice cream products.

(11) Advertising funds

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


	March 31, 2018			December 30, 2017		June 30, 2018			December 30, 2017
Accounts receivable, net	$	19,896		18,075		$	21,359		18,075
Notes and other receivables, net	1,393			1,250		4,853			1,250
Prepaid income taxes	62			48		62			48
Prepaid expenses and other current assets	19,875			15,498		17,270			15,498
Total current assets	41,226			34,871		43,544			34,871
Property, equipment, and software, net	12,380			12,537		14,460			12,537
Other assets	1,346			14		1,466			14
Total assets	$	54,952		47,422		$	59,470		47,422

Accounts payable	$	46,294		37,110		$	50,005		37,110
Deferred revenue—current^(a)	(453		)	(550	)	(743		)	(550	)
Other current liabilities	26,036			29,032		24,574			29,032
Total current liabilities	71,877			65,592		73,836			65,592
Deferred revenue—long-term^(a)	(7,345		)	(7,518	)	(7,155		)	(7,518	)
Other long-term liabilities	27			30		23			30
Total liabilities	$	64,559		58,104		$	66,704		58,104

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

(12) Income taxes

On December 22, 2017, the U.S. federal government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly changes U.S. tax law by, among other things, reducing the corporate income tax rate from 35% to 21% effective January 1, 2018, establishing a territorial-style system for taxing foreign-source income of domestic multinational corporations, and imposing a one-time mandatory transition tax on deemed repatriated earnings of certain foreign joint ventures and subsidiaries. As a result of the Tax Act, the Company recorded a provisional net tax benefit of $143.4 million during fiscal year 2017.

The provisional amount included a $145.1 million tax benefit for the remeasurement of certain U.S. deferred tax assets and liabilities. In addition, the provisional amount included a $1.7 million tax expense for the income tax on the deemed repatriation of unremitted foreign earnings, net of estimated foreign tax credits. The provisional net tax benefit was computed based on information available to the Company at the time. There have been no material changes to these provisional amounts during the ~~three~~six months ended ~~March 31,~~June 30, 2018, and there is still uncertainty as to the application of the Tax Act, including as it relates to state income taxes, because regulations and interpretations have not been released. In addition, certain estimates were used in computing the provisional amount, which will be finalized upon the filing of the Company’s 2017 U.S. federal tax return. As we complete our analysis of U.S. tax reform in fiscal year 2018, we may make adjustments to the provisional amounts, which may impact our provision for income taxes in the period in which the adjustments are made.

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

Forward-Looking Statements

Certain statements contained herein are not based on historical fact and are “forward-looking statements” within the meaning of the applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “should,” or “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include all matters that are not historical facts.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These risks and uncertainties include, but are not limited to: the ongoing level of profitability of franchisees and licensees; our ~~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' Donuts U.S. Blueprint for Growth; the strength of our brand in the markets in which we compete; changes in competition within the quick service restaurant segment of the food industry; changes in consumer behavior resulting from changes in technologies or alternative methods of delivery; economic and political conditions in the countries where we operate; our substantial indebtedness; our ability to protect our intellectual property rights; consumer preferences, spending patterns and demographic trends; the impact of seasonal changes, including weather effects, on our business; the success of our growth strategy and international development; changes in commodity and food prices, particularly coffee, dairy products and sugar, and other operating costs; shortages of coffee; failure of our network and information technology systems; interruptions or shortages in the supply of products to our franchisees and licensees; the impact of food borne-illness or food safety issues or adverse public or media opinions regarding the health effects of consuming our products; our ability to collect royalty payments from our franchisees and licensees; uncertainties relating to litigation; the ability of our franchisees and licensees to open new restaurants and keep existing restaurants in operation; our ability to retain key personnel; any inability to protect consumer credit card data and catastrophic events.

Forward-looking statements reflect management’s analysis as of the date of this quarterly report. Important factors that could cause actual results to differ materially from our expectations are more fully described in our other filings with the Securities and Exchange Commission, including under the section headed “Risk Factors” in our most recent annual report on Form 10-K. Except as required by applicable law, we do not undertake to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.

Introduction and overview

We are one of the world’s leading franchisors of quick service restaurants (“QSRs”) serving hot and cold coffee and baked goods, as well as hard serve ice cream. We franchise restaurants under our Dunkin’ Donuts and Baskin-Robbins brands. With more than ~~20,500~~20,600 points of distribution in more than 60 countries worldwide, we believe that our portfolio has strong brand awareness in our key markets. QSR is a restaurant format characterized by counter or drive-thru ordering and limited or no table service. As of ~~March 31,~~June 30, 2018, Dunkin’ Donuts had ~~12,598~~12,676 global points of distribution with restaurants in 43 U.S. states, ~~and~~ the District of Columbia, and in 45 foreign countries. Baskin-Robbins had ~~7,993~~8,011 global points of distribution as of the same date, with restaurants in 44 U.S. states, the District of Columbia, Puerto Rico, and 5354 foreign countries.

We are organized into five reporting segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., Baskin-Robbins International, and U.S. Advertising Funds. We generate revenue from five primary sources: (i) royalty income and franchise fees associated with franchised restaurants, (ii) continuing advertising fees from Dunkin’ Donuts and Baskin-Robbins franchisees and breakage and other revenue related to the gift ~~cards,~~card program, (iii) rental income from restaurant properties that we lease or sublease to franchisees, (iv) sales of ice cream and other products to franchisees in certain international markets, and (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.

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 as of ~~March 31,~~June 30, 2018,, we are less affected by store-level costs, profitability, and fluctuations in commodity costs than other QSR operators.

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 ~~three~~six-month periods ended ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017 reflect the results of operations for the 13-week and 26-week periods ended on those dates. ~~Operating~~

Operating results for the three- and ~~three~~six-month ~~period~~periods ended ~~March 31,~~June 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2018.

As a result of the adoption of new guidance related to revenue recognition during fiscal year 2018 (see note 3 of the unaudited consolidated financial statements included herein), all prior period amounts included below have been restated to reflect the new guidance.

Selected operating and financial highlights


Amounts and percentages may not recalculate due to rounding	Three months ended					Three months ended					Six months ended
	March 31, 2018			April 1, 2017		June 30, 2018			July 1, 2017		June 30, 2018		July 1, 2017
Financial data (in thousands):
Total revenues	$	301,342		296,358		$	350,640		334,176		651,982		630,534
Operating income	89,831			86,773		113,850			106,836		203,681		193,609
Adjusted operating income	95,707			92,147		119,810			112,229		215,517		204,376
Net income	50,152			44,293		60,498			51,092		110,650		95,385
Adjusted net income	54,383			47,517		64,789			54,328		119,172		101,845
Systemwide sales (in millions):
Dunkin’ Donuts U.S.	$	2,015.9		1,957.1		$	2,275.6		2,175.0		4,291.5		4,132.1
Dunkin’ Donuts International	190.2			174.9		183.5			169.4		373.7		344.3
Baskin-Robbins U.S.	132.7			129.1		187.7			187.5		320.4		316.6
Baskin-Robbins International	321.2			268.8		383.3			370.7		704.4		639.5
Total systemwide sales	$	2,660.0		2,529.9		$	3,030.0		2,902.6		5,690.0		5,432.5
Systemwide sales growth	5.1		%	4.6	%	4.4		%	4.6	%	4.7	%	4.6	%
Comparable store sales growth (decline):
Dunkin’ Donuts U.S.	(0.5		)%	—	%	1.4		%	0.8	%	0.5	%	0.4	%
Dunkin’ Donuts International	2.1		%	(0.2	)%	4.0		%	(2.8	)%	2.8	%	(1.3	)%
Baskin-Robbins U.S.	(1.0		)%	(2.4	)%	(0.4		)%	(0.9	)%	(0.8	)%	(1.4	)%
Baskin-Robbins International	10.0		%	(2.0	)%	(2.5		)%	3.3	%	3.0	%	0.9	%

Our financial results are largely driven by changes in systemwide sales, which include sales by all points of distribution, whether owned by our franchisees or joint ventures. While we do not record sales by franchisees or joint ventures as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe systemwide sales information aids in understanding how we derive royalty revenue and in evaluating our performance relative to competitors.

Comparable store sales growth (decline) for Dunkin’ Donuts U.S. and Baskin-Robbins U.S. is calculated by including only sales from franchisee-operated restaurants that have been open at least 78 weeks and that have reported sales in the current and comparable prior year week. Comparable store sales growth (decline) for Dunkin’ Donuts International and Baskin-Robbins International generally represents the growth (decline) in local currency average monthly sales for franchisee-operated restaurants, including joint ventures, that have been open at least 13 months and that have reported sales in the current and comparable prior year month.

Overall growth in systemwide sales of ~~5.1%~~4.4% and 4.7% for the ~~three months~~three- and six-month periods ended ~~March 31,~~June 30, 2018 over the same ~~period~~periods in the prior fiscal year resulted from the following:

Dunkin’ Donuts U.S. systemwide sales growth of ~~3.0%~~4.6% and 3.9% for the three and six months ended ~~March 31,~~June 30, 2018, asrespectively, was primarily a result of 313 net new restaurants opened since ~~April~~July 1, ~~2017. Dunkin' Donuts U.S.~~2017 and comparable store sales growth of 1.4% and 0.5%, respectively. The increases in the first quarter declined as a decline in traffic was offset by an increase in average ticket. From a category standpoint, beverage sales growth was driven by the introduction of Girl Scout Cookie-inspired coffee flavors and afternoon break value offers which helped increase total espresso and iced coffee sales. Breakfast sandwichcomparable store sales were driven by ~~successful value menu tests.~~increased average ticket, offset by a decline in traffic. Comparable store sales growth for the three and six months ended June 30, 2018 was driven primarily by breakfast sandwich sales and beverage sales, including iced coffee and frozen beverages.

Dunkin’ Donuts International systemwide sales growth of ~~8.8%~~8.3% and 8.6% for the three and six months ended ~~March 31,~~June 30, 2018, respectively, was driven ~~primarily~~ by sales growth ~~in Europe,~~across all regions. For each of the ~~Middle East,~~three- and six-month periods ended June 30, 2018, sales in South Korea and ~~Latin America. Sales~~Europe were positively impacted by foreign exchange rates. Additionally, for the six months ended June 30, 2018, sales in ~~South Korea, Europe, and~~ Latin America were positively impacted by ~~favorable~~ foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately ~~4%.~~6% and 5% for the three and six months ended

June 30, 2018, respectively. Dunkin’ Donuts International comparable store sales grew ~~2.1%~~4.0% and 2.8% for the three and six months ended ~~March 31,~~June 30, 2018, respectively, due primarily ~~due~~ to growth in Asia and the Middle ~~East, Asia, and Latin America.~~

East.

Baskin-Robbins U.S. systemwide sales ~~growth of 2.8%~~grew 0.1% and 1.2% for the three and six months ended ~~March 31,~~June 30, 2018, respectively, primarily as a result of 2710 net new restaurants opened since ~~April~~July 1, 2017. ~~Baskin-Robbins U.S. comparable~~Comparable store sales declined ~~1.0% during~~0.4% and 0.8% for the ~~first quarter~~three and six months ended June 30, 2018, respectively, as a ~~decline~~decrease in traffic was offset by an increase in average ticket. ~~Beverage sales were up~~Sales of beverages, including shakes and smoothies, as well as the take-home category, grew during the ~~quarter driven by shakes, smoothies,~~three and ~~Cappuccino Blast.~~six months ended June 30, 2018.

Baskin-Robbins International systemwide sales growth of ~~19.5%~~3.4% and 10.1% for the three and six months ended ~~March 31,~~June 30, 2018, ~~primarily~~respectively, was driven by sales growth in South Korea, ~~Japan,~~Asia, and Canada, offset by a decline in the Middle East. Sales in ~~both~~Japan declined for the three-month period, while they grew for the six-month period. Sales in South Korea and Japan were positively impacted by favorable foreign exchange ~~rates.~~rates for each of the three- and six-month periods ended June 30, 2018. Additionally, sales in Asia were positively impacted by favorable foreign exchange rates for the six-month period. On a constant currency basis, systemwide sales increased by approximately 1% and 6% for the three and six months ended June 30, 2018, respectively. Baskin-Robbins International comparable store sales declined 2.5% for the three months ended ~~March 31,~~June 30, 2018 ~~increased~~driven primarily by ~~approximately 13%. Baskin-Robbins International comparable~~declines in Japan and the Middle East, offset by growth in South Korea. Comparable store sales ~~grew 10.0%~~growth of 3.0% for the ~~three~~six months ended ~~March 31,~~June 30, 2018 was driven primarily by growth in South Korea and Japan, ~~and South Korea.~~offset by a decline in the Middle East.

Changes in systemwide sales are impacted, in part, by changes in the number of points of distribution. Points of distribution and net openings as of and for the three and six months ended ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017 were as follows:


	March 31, 2018	April 1, 2017	June 30, 2018	July 1, 2017
Points of distribution, at period end:
Dunkin’ Donuts U.S.	9,197	8,884	9,261	8,948
Dunkin’ Donuts International	3,401	3,403	3,415	3,402
Baskin-Robbins U.S.	2,566	2,539	2,561	2,551
Baskin-Robbins International	5,427	5,283	5,450	5,341
Consolidated global points of distribution	20,591	20,109	20,687	20,242


	Three months ended			Three months ended				Six months ended
	March 31, 2018	April 1, 2017		June 30, 2018		July 1, 2017		June 30, 2018	July 1, 2017
Net openings (closings) during the period:
Dunkin’ Donuts U.S.	56	56		64		64		120	120
Dunkin’ Donuts International	4	(27	)	14		(1	)	18	(28	)
Baskin-Robbins U.S.	6	1		(5	)	12		1	13
Baskin-Robbins International	5	(1	)	23		58		28	57
Consolidated global net openings	71	29		96		133		167	162

Total revenues for the three and six months ended ~~March 31,~~June 30, 2018 increased ~~$5.0~~$16.5 million, or ~~1.7%~~4.9%, and $21.4 million, or 3.4%, respectively, due primarily to increases in franchise fees and royalty income ~~of $4.8 million and advertising fees and related income of $0.8 million, both~~ driven by Dunkin’ Donuts U.S. systemwide sales ~~growth.~~growth, as well as advertising fees and related income. The increases in advertising fees and related income were due primarily to additional gift card program service fees and an increase in advertising fees, offset by a decline in breakage income. Also contributing to the increases in revenues were increases in other revenues driven primarily by license fees related to Dunkin’ Donuts K-Cup® pods. These increases in revenues were offset by ~~a decrease~~decreases in sales of ice cream and other ~~products of $0.7 million.~~products.

Operating income and adjusted operating income for the three months ended ~~March 31,~~June 30, 2018 increased ~~$3.1~~$7.0 million, or ~~3.5%~~6.6%, and ~~$3.6~~$7.6 million, or ~~3.9%~~6.8%, respectively, from the prior year period. Operating income and adjusted operating income for the six months ended June 30, 2018 increased $10.1 million, or 5.2%, and $11.1 million, or 5.5%, respectively, from the prior year period. The increases were primarily as a result of the increase in royalty income and a reduction of general and administrative ~~expenses. These increases in operating income and adjusted operating income were~~expenses, offset by ~~a decrease in net income from our South Korea joint venture,~~ a decrease in net margin on ice cream due primarily to an increase in commodity ~~costs,~~costs. Additionally, the increases in operating and adjusting operating income for the six-month period were offset by a ~~gain recognized~~decrease in ~~connection with the sale of real estate in the prior year period.~~net income from our South Korea joint venture.

Net income and adjusted net income for the three months ended ~~March 31,~~June 30, 2018 increased ~~$5.9~~$9.4 million, or ~~13.2%~~18.4%, and ~~$6.9~~$10.5 million, or ~~14.4%~~19.3%, ~~respectively,~~respectively. Net income and adjusted net income for the six months ended June 30, 2018 increased $15.3

million, or 16.0%, and $17.3 million, or 17.0%, respectively. These increases were primarily as a result of a decrease in income tax expense and the increases in operating income and adjusted operating income. The decrease in income tax expense was driven by a lower tax rate due to the enactment of the Tax Cuts and Jobs Act in the fourth quarter of fiscal year 2017 and an increase in excess tax benefits from share-based compensation. The increases in net income and adjusted net income were offset by an increase in net interest expense driven by additional borrowings incurred in conjunction with the refinancing transaction completed during the fourth quarter of fiscal year 2017.

Adjusted operating income and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for amortization of intangible assets, long-lived asset impairments, and certain other non-recurring, infrequent, or unusual charges, net of the tax impact of such adjustments in the case of adjusted net income. We use adjusted operating income and adjusted net income as key performance measures for the purpose of evaluating performance internally. We also believe adjusted operating income and adjusted net income provide our investors with useful information regarding our historical operating results. These non-GAAP measurements are not intended to replace the presentation of our financial results

in accordance with GAAP. Use of the terms adjusted operating income and adjusted net income may differ from similar measures reported by other companies.

Adjusted operating income and adjusted net income are reconciled from operating income and net income, respectively, determined under GAAP as follows:


	Three months ended					Three months ended					Six months ended
	March 31, 2018			April 1, 2017		June 30, 2018			July 1, 2017		June 30, 2018		July 1, 2017
	(In thousands)					(In thousands)
Operating income	$	89,831		86,773		$	113,850		106,836		203,681		193,609
Adjustments:
Amortization of other intangible assets	5,375			5,327		5,307			5,333		10,682		10,660
Long-lived asset impairment charges	501			47		653			60		1,154		107
Adjusted operating income	$	95,707		92,147		$	119,810		112,229		215,517		204,376

Net income	$	50,152		44,293		$	60,498		51,092		110,650		95,385
Adjustments:
Amortization of other intangible assets	5,375			5,327		5,307			5,333		10,682		10,660
Long-lived asset impairment charges	501			47		653			60		1,154		107
Tax impact of adjustments^(a)	(1,645		)	(2,150	)	(1,669		)	(2,157	)	(3,314	)	(4,307	)
Adjusted net income	$	54,383		47,517		$	64,789		54,328		119,172		101,845


(a)	Tax impact of adjustments calculated at effective tax rates of 28% for the three and six months ended June 30, 2018 and 40% for the three and six months ended ~~March 31, 2018 and April~~July 1, ~~2017, respectively.~~2017.

Earnings per share

Earnings per share and diluted adjusted earnings per share were as follows:


	Three months ended			Three months ended			Six months ended
	March 31, 2018		April 1, 2017	June 30, 2018		July 1, 2017	June 30, 2018	July 1, 2017
Earnings per share:
Common—basic	$	0.58	0.48	$	0.73	0.56	1.31	1.04
Common—diluted	0.57		0.48	0.72		0.55	1.29	1.03
Diluted adjusted earnings per share	0.62		0.51	0.77		0.59	1.39	1.10

Diluted adjusted earnings per share is calculated using adjusted net income, as defined above, and diluted weighted average shares outstanding. Diluted adjusted earnings per share is not a presentation made in accordance with GAAP, and our use of the term diluted adjusted earnings per share may vary from similar measures reported by others in our industry due to the potential differences in the method of calculation. Diluted adjusted earnings per share should not be considered as an alternative to earnings per share derived in accordance with GAAP. Diluted adjusted earnings per share has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, we rely primarily on our GAAP results. However, we believe that presenting diluted adjusted earnings per share is appropriate to provide investors with useful information regarding our historical operating results.

The following table sets forth the computation of diluted adjusted earnings per share:


	Three months ended			Three months ended			Six months ended
	March 31, 2018		April 1, 2017	June 30, 2018		July 1, 2017	June 30, 2018	July 1, 2017
	(In thousands, except share and per share data)			(In thousands, except share and per share data)
Adjusted net income	$	54,383	47,517	$	64,789	54,328	119,172	101,845
Weighted average number of common shares—diluted	87,877,254		93,120,231	84,113,681		92,606,525	85,995,475	92,863,378
Diluted adjusted earnings per share	$	0.62	0.51	$	0.77	0.59	1.39	1.10

Results of operations

Consolidated results of operations


	Three months ended							Three months ended							Six months ended
	March 31, 2018		April 1, 2017	Increase (Decrease)				June 30, 2018		July 1, 2017	Increase (Decrease)				June 30, 2018		July 1, 2017	Increase (Decrease)
	March 31, 2018		April 1, 2017	$		%		June 30, 2018		July 1, 2017	$		%		June 30, 2018		July 1, 2017	$		%
	(In thousands, except percentages)							(In thousands, except percentages)
Franchise fees and royalty income	$	132,507	127,715	4,792		3.8	%	$	151,242	143,894	7,348		5.1	%	$	283,749	271,609	12,140		4.5	%
Advertising fees and related income	111,007		110,203	804		0.7	%	131,539		122,361	9,178		7.5	%	242,546		232,564	9,982		4.3	%
Rental income	24,478		24,422	56		0.2	%	27,400		27,408	(8	)	(0.0	)%	51,878		51,830	48		0.1	%
Sales of ice cream and other products	21,777		22,506	(729	)	(3.2	)%	28,140		28,679	(539	)	(1.9	)%	49,917		51,185	(1,268	)	(2.5	)%
Other revenues	11,573		11,512	61		0.5	%	12,319		11,834	485		4.1	%	23,892		23,346	546		2.3	%
Total revenues	$	301,342	296,358	4,984		1.7	%	$	350,640	334,176	16,464		4.9	%	$	651,982	630,534	21,448		3.4	%

Total revenues for the three and six months ended ~~March 31,~~June 30, 2018 increased ~~$5.0~~$16.5 million, or ~~1.7%~~4.9%, and $21.4 million, or 3.4%, respectively, due primarily to increases in franchise fees and royalty income ~~of $4.8 million and advertising fees and related income $0.8 million, both~~ driven by Dunkin’ Donuts U.S. systemwide sales ~~growth.~~growth, as well as advertising fees and related income. The increases in advertising fees and related income were due primarily to additional gift card program service fees and increases in advertising fees, offset by declines in breakage income. Also contributing to the increases in revenues were increases in other revenues driven primarily by license fees related to Dunkin’ Donuts K-Cup® pods. These increases in revenues were offset by ~~a decrease~~decreases in sales of ice cream and other ~~products of $0.7 million.~~products.


	Three months ended							Three months ended								Six months ended
	March 31, 2018		April 1, 2017	Increase (Decrease)				June 30, 2018			July 1, 2017	Increase (Decrease)				June 30, 2018			July 1, 2017	Increase (Decrease)
	March 31, 2018		April 1, 2017	$		%		June 30, 2018			July 1, 2017	$		%		June 30, 2018			July 1, 2017	$		%
	(In thousands, except percentages)							(In thousands, except percentages)
Occupancy expenses—franchised restaurants	$	13,980	14,138	(158	)	(1.1	)%	$	14,314		14,287	27		0.2	%	$	28,294		28,425	(131	)	(0.5	)%
Cost of ice cream and other products	16,864		16,922	(58	)	(0.3	)%	22,781			22,199	582		2.6	%	39,645			39,121	524		1.3	%
Advertising expenses	111,972		111,072	900		0.8	%	132,579			123,676	8,903		7.2	%	244,551			234,748	9,803		4.2	%
General and administrative expenses, net	59,824		60,369	(545	)	(0.9	)%	59,301			61,074	(1,773	)	(2.9	)%	119,125			121,443	(2,318	)	(1.9	)%
Depreciation and amortization	10,408		10,411	(3	)	—	%	10,432			10,404	28		0.3	%	20,840			20,815	25		0.1	%
Long-lived asset impairment charges	501		47	454		966.0	%	653			60	593		988.3	%	1,154			107	1,047		978.5	%
Total operating costs and expenses	$	213,549	212,959	590		0.3	%	$	240,060		231,700	8,360		3.6	%	$	453,609		444,659	8,950		2.0	%
Net income of equity method investments	2,033		2,819	(786	)	(27.9	)%	3,845			4,327	(482	)	(11.1	)%	5,878			7,146	(1,268	)	(17.7	)%
Other operating income, net	5		555	(550	)	(99.1	)%
Other operating income (loss), net								(575		)	33	(608	)	(1,842.4	)%	(570		)	588	(1,158	)	(196.9	)%
Operating income	$	89,831	86,773	3,058		3.5	%	$	113,850		106,836	7,014		6.6	%	$	203,681		193,609	10,072		5.2	%

Occupancy expenses for franchised restaurants for the three months ended ~~March 31,~~June 30, 2018 remained consistent with the prior year period. Occupancy expenses for franchised restaurants for the six months ended June 30, 2018 decreased ~~$0.2~~$0.1 million due primarily to the timing of expenses incurred to record lease-related liabilities.

Net margin on ice cream and other products for the three and six months ended ~~March 31,~~June 30, 2018 decreased ~~$0.7~~$1.1 million, ~~to approximately $4.9~~or 17.3%, and $1.8 million, or 14.9%, respectively, due primarily to ~~a decline in sales and~~ an increase in commodity costs.

Advertising expenses increased ~~$0.9~~$8.9 million and $9.8 million for the three and six months ended ~~March 31,~~June 30, 2018, respectively, driven by the ~~increase~~increases in advertising fees and related income.

General and administrative expenses for the three and six months ended ~~March 31,~~June 30, 2018 decreased ~~by $0.5~~$1.8 million and $2.3 million, respectively, due primarily to costs incurred to support brand-building activities in the prior year periods, as well as decreases in personnel costs and travel expenses. Offsetting these decreases in general and administrative expenses were ~~offset by increases~~expenses incurred in ~~other general expenses.~~the second quarter of fiscal year 2018 to support initiatives for the Dunkin’ Donuts U.S. “Blueprint for Growth,” our multi-year strategic growth plan.

Depreciation and amortization for each of the three and six months ended ~~March 31,~~June 30, 2018 remained consistent with the respective prior year ~~period.~~periods.

Long-lived asset impairment charges for the three and six months ended ~~March 31,~~June 30, 2018 increased ~~$0.5~~$0.6 million and $1.0 million, respectively, from the prior year ~~period.~~periods. Such charges generally fluctuate based on the timing of lease terminations and the related write-off of favorable lease intangible assets and leasehold improvements.

Net income of equity method investments for the three and six months ended ~~March 31,~~June 30, 2018 decreased ~~$0.8~~$0.5 million and $1.3 million, respectively, primarily as a result of ~~a decrease~~decreases in net income from our South Korea and Japan joint ~~venture.~~

ventures.

Other operating income (loss), net, which includes net gains and losses recognized in connection with the sale or disposal of ~~real estate,~~property, equipment, and software, fluctuates based on the timing of such transactions.


	Three months ended							Three months ended							Six months ended
	March 31, 2018		April 1, 2017		Increase (Decrease)			June 30, 2018		July 1, 2017		Increase (Decrease)			June 30, 2018		July 1, 2017		Increase (Decrease)
	March 31, 2018		April 1, 2017		$	%		June 30, 2018		July 1, 2017		$	%		June 30, 2018		July 1, 2017		$	%
	(In thousands, except percentages)							(In thousands, except percentages)
Interest expense, net	$	30,835	24,550		6,285	25.6	%	$	31,022	24,460		6,562	26.8	%	$	61,857	49,010		12,847	26.2	%
Other losses (income), net	327		(187	)	514	(274.9	)%	272		(28	)	300	n/m		599		(215	)	814	n/m
Total other expense	$	31,162	24,363		6,799	27.9	%	$	31,294	24,432		6,862	28.1	%	$	62,456	48,795		13,661	28.0	%

~~The increase in net~~Net interest expense ~~of $6.3~~increased $6.6 million and $12.8 million for the three and six months ended ~~March 31,~~June 30, 2018, ~~was~~respectively, driven primarily by the securitization refinancing transaction that occurred in October 2017, which resulted in additional borrowings and an increase in the weighted average interest rate, offset by an increase in interest income earned on our cash balances.

The fluctuation in other losses (income), net, for the three and six months ended ~~March 31,~~June 30, 2018 resulted primarily from net foreign exchange gains and losses driven primarily by fluctuations in the U.S. dollar against foreign currencies.


	Three months ended					Three months ended					Six months ended
	March 31, 2018			April 1, 2017		June 30, 2018			July 1, 2017		June 30, 2018		July 1, 2017
	(In thousands, except percentages)					(In thousands, except percentages)
Income before income taxes	$	58,669		62,410		$	82,556		82,404		141,225		144,814
Provision for income taxes	8,517			18,117		22,058			31,312		30,575		49,429
Effective tax rate	14.5		%	29.0	%	26.7		%	38.0	%	21.6	%	34.1	%

The decrease in the effective tax rate for the three and six months ended ~~March 31,~~June 30, 2018 was driven by the enactment of the Tax Cuts and Jobs Act in the fourth quarter of fiscal year 2017 which reduced the enacted corporate tax rate. Additionally, excess tax benefits from share-based compensation reduced the provision for income taxes by ~~$7.6~~$1.4 million and $9.0 million for the three and six months ended ~~March 31,~~June 30, 2018, respectively, compared to ~~$6.1~~$0.7 million inand $6.8 million for the ~~prior year period.~~three and six months ended July 1, 2017, respectively.

Operating segments

We operate five reportable operating segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., Baskin-Robbins International, and U.S. Advertising Funds. We evaluate the performance of our segments and allocate resources to them based on operating income adjusted for amortization of intangible assets, long-lived asset impairment charges, and other infrequent or unusual charges, which does not reflect the allocation of any corporate charges. This profitability measure is referred to as segment profit. Segment profit for the Dunkin’ Donuts International and Baskin-Robbins International segments includes net income of equity method investments, except for other-than-temporary impairment charges and the related reduction in depreciation, net of tax, on the underlying long-lived assets.

For reconciliations to total revenues and income before income taxes, see note 6 to the unaudited consolidated financial statements included herein. Revenues for all segments include only transactions with unaffiliated customers and include no intersegment revenues. Revenues not included in segment revenues include revenue earned through certain licensing arrangements with third parties in which our brand names are used, revenue generated from online training programs for franchisees, and breakage and other revenue related to the gift card ~~breakage revenue,~~program, all of which are not allocated to a specific segment.

Dunkin’ Donuts U.S.


	Three months ended							Three months ended							Six months ended
	March 31, 2018		April 1, 2017	Increase (Decrease)				June 30, 2018		July 1, 2017	Increase (Decrease)				June 30, 2018		July 1, 2017	Increase (Decrease)
	March 31, 2018		April 1, 2017	$		%		June 30, 2018		July 1, 2017	$		%		June 30, 2018		July 1, 2017	$		%
	(In thousands, except percentages)							(In thousands, except percentages)
Royalty income	$	110,833	107,175	3,658		3.4	%	$	125,221	119,096	6,125		5.1	%	$	236,054	226,271	9,783		4.3	%
Franchise fees	4,707		4,298	409		9.5	%	4,765		4,564	201		4.4	%	9,472		8,862	610		6.9	%
Rental income	23,591		23,524	67		0.3	%	26,506		26,533	(27	)	(0.1	)%	50,097		50,057	40		0.1	%
Other revenues	780		1,043	(263	)	(25.2	)%	898		798	100		12.5	%	1,678		1,841	(163	)	(8.9	)%
Total revenues	$	139,911	136,040	3,871		2.8	%	$	157,390	150,991	6,399		4.2	%	$	297,301	287,031	10,270		3.6	%
Segment profit	$	105,063	101,694	3,369		3.3	%	$	119,562	116,113	3,449		3.0	%	$	224,625	217,807	6,818		3.1	%

Dunkin’ Donuts U.S. revenues increased ~~$3.9~~$6.4 million and $10.3 million for the three and six months ended ~~March 31,~~June 30, 2018, respectively, due primarily to ~~an increase~~increases in royalty income driven by systemwide sales growth, as well as ~~an increase~~increases in franchise ~~fees due primarily to net development and the recognition of revenue upon the closure of restaurants, offset by a decrease in other revenues.~~fees.

Dunkin’ Donuts U.S. segment profit increased $3.4 million and $6.8 million for the three and six months ended ~~March 31,~~June 30, 2018, respectively, which was driven primarily by the ~~increase~~increases in royalty income and franchise fees, offset by increases in general and administrative expenses, due primarily to expenses incurred in the second quarter of fiscal year 2018 to support the Dunkin’ Donuts U.S. Blueprint for Growth initiatives. Additionally, the increase to segment profit for the six-month period was offset by a gain recognized in connection with the sale of real estate in the prior year period.

Dunkin’ Donuts International


	Three months ended									Three months ended								Six months ended
	March 31, 2018			April 1, 2017		Increase (Decrease)				June 30, 2018			July 1, 2017		Increase (Decrease)			June 30, 2018			July 1, 2017			Increase (Decrease)
	March 31, 2018			April 1, 2017		$		%		June 30, 2018			July 1, 2017		$	%					July 1, 2017		$			%
	(In thousands, except percentages)									(In thousands, except percentages)
Royalty income	$	4,938		4,412		526		11.9	%	$	4,732		4,157		575	13.8	%	June 30, 2018	$	9,670		8,569			1,101			12.8	%
Franchise fees	448			433		15		3.5	%	535			475		60	12.6	%	983			908			75			8.3	%
Other revenues	(21		)	(12	)	(9	)	75.0	%	(9		)	(20	)	11	n/m		(30		)	(32	)		2			n/m
Total revenues	$	5,365		4,833		532		11.0	%	$	5,258		4,612		646	14.0	%	$	10,623		9,445			1,178			12.5	%
Segment profit	$	3,206		1,427		1,779		124.7	%	$	3,503		1,571		1,932	123.0	%	$	6,709		2,998			3,711			123.8	%

Dunkin’ Donuts International revenues for the three and six months ended ~~March 31,~~June 30, 2018 increased by ~~$0.5 million. The increase in revenues was~~$0.6 million and $1.2 million, respectively, primarily as a result of ~~an increase~~increases in royalty income driven by systemwide sales growth.

Segment profit for Dunkin’ Donuts International ~~increased $1.8 million~~ for the three and six months ended ~~March 31,~~June 30, 2018 increased $1.9 million and $3.7 million, respectively, primarily as a result of ~~a decrease~~the increase in revenues, as well as decreases in both general and administrative expenses and advertising expenses. These increases in segment profit for the ~~increase in revenues,~~six-month period were offset by an increase in ~~the~~ net loss from our South Korea joint venture.

Baskin-Robbins U.S.


	Three months ended							Three months ended							Six months ended
	March 31, 2018		April 1, 2017	Increase (Decrease)				June 30, 2018		July 1, 2017	Increase (Decrease)				June 30, 2018			July 1, 2017			Increase (Decrease)
	March 31, 2018		April 1, 2017	$		%		June 30, 2018		July 1, 2017	$		%					July 1, 2017		$			%
	(In thousands, except percentages)							(In thousands, except percentages)
Royalty income	$	6,409	6,684	(275	)	(4.1	)%	$	9,005	9,080	(75	)	(0.8	)%	June 30, 2018	$	15,414		15,764			(350	)		(2.2	)%
Franchise fees	289		206	83		40.3	%	303		193	110		57.0	%	592			399			193			48.4	%
Rental income	767		784	(17	)	(2.2	)%	763		763	—		—	%	1,530			1,547			(17	)		(1.1	)%
Sales of ice cream and other products	678		526	152		28.9	%	842		883	(41	)	(4.6	)%	1,520			1,409			111			7.9	%
Other revenues	2,370		2,377	(7	)	(0.3	)%	3,186		3,337	(151	)	(4.5	)%	5,556			5,714			(158	)		(2.8	)%
Total revenues	$	10,513	10,577	(64	)	(0.6	)%	$	14,099	14,256	(157	)	(1.1	)%	$	24,612		24,833			(221	)		(0.9	)%
Segment profit	$	7,235	7,383	(148	)	(2.0	)%	$	10,622	10,865	(243	)	(2.2	)%	$	17,857		18,248			(391	)		(2.1	)%

Baskin-Robbins U.S. revenues for each of the three and six months ended ~~March 31,~~June 30, 2018 decreased ~~to $10.5~~$0.2 million ~~from the prior year period~~ due primarily to adecreases in royalty income and other revenues, offset by increases in franchise fees. Additionally, the decrease in ~~royalty income,~~revenues for the six-month period was offset by an increase in sales of ice cream and other products.

~~Segment profit for~~ Baskin-Robbins U.S. ~~decreased to $7.2 million~~segment profit for the three and six months ended ~~March 31,~~June 30, 2018 decreased $0.2 million and $0.4 million, respectively, primarily as a result of the ~~decrease~~decreases in ~~royalty income, offset by an increase~~total revenues, as well as increases in ~~net margin on ice cream driven by an increase in sales volume.~~general and administrative expenses.

Baskin-Robbins International


	Three months ended							Three months ended							Six months ended
	March 31, 2018		April 1, 2017	Increase (Decrease)				June 30, 2018		July 1, 2017	Increase (Decrease)				June 30, 2018			July 1, 2017			Increase (Decrease)
	March 31, 2018		April 1, 2017	$		%		June 30, 2018		July 1, 2017	$		%					July 1, 2017		$			%
	(In thousands, except percentages)							(In thousands, except percentages)
Royalty income	$	1,543	1,431	112		7.8	%	$	2,154	1,858	296		15.9	%	June 30, 2018	$	3,697		3,289			408			12.4	%
Franchise fees	206		285	(79	)	(27.7	)%	251		288	(37	)	(12.8	)%	457			573			(116	)		(20.2	)%
Rental income	120		114	6		5.3	%	131		112	19		17.0	%	251			226			25			11.1	%
Sales of ice cream and other products	23,972		24,404	(432	)	(1.8	)%	31,409		31,685	(276	)	(0.9	)%	55,381			56,089			(708	)		(1.3	)%
Other revenues	47		46	1		2.2	%	73		64	9		14.1	%	120			110			10			9.1	%
Total revenues	$	25,888	26,280	(392	)	(1.5	)%	$	34,018	34,007	11		0.0	%	$	59,906		60,287			(381	)		(0.6	)%
Segment profit	$	7,441	8,171	(730	)	(8.9	)%	$	11,526	12,530	(1,004	)	(8.0	)%	$	18,967		20,701			(1,734	)		(8.4	)%

Baskin-Robbins International revenues ~~decreased $0.4 million~~ for the three months ended ~~March 31,~~June 30, 2018 ~~due primarily to~~were consistent with the prior year period as an increase in royalty income was offset by a decrease in sales of ice cream and other products.

Baskin-Robbins International revenues for the six months ended June 30, 2018 decreased $0.4 million due primarily to decreases in sales of ice cream products and franchise fees, offset by an increase in royalty income.

Baskin-Robbins International segment profit ~~decreased $0.7 million~~ for the three months ended ~~March 31,~~June 30, 2018 decreased $1.0 million as a result of a decrease in net margin on ice cream driven primarily by an increase in commodity costs, offset by the increase in royalty income.

Baskin-Robbins International segment profit for the six months ended June 30, 2018 decreased $1.7 million as a result of a decrease in net margin on ice cream driven primarily by an increase in commodity costs, as well as ~~a decrease~~an increase in net ~~income~~loss from our ~~South Korea~~Japan joint ~~venture. These decreases to segment profit were~~venture, offset by the increase in royalty income and a decrease in general and administrative expenses.

U.S. Advertising Funds


	Three months ended						Three months ended						Six months ended
	March 31, 2018		April 1, 2017	Increase (Decrease)			June 30, 2018		July 1, 2017	Increase (Decrease)			June 30, 2018				July 1, 2017	Increase (Decrease)
	March 31, 2018		April 1, 2017	$	%		June 30, 2018		July 1, 2017	$	%					$		%
	(In thousands, except percentages)						(In thousands, except percentages)
Advertising fees and related income	$	104,167	102,321	1,846	1.8	%	$	119,174	113,824	5,350	4.7	%	June 30, 2018		$	223,341	July 1, 2017	216,145	7,196		3.3	%
Total revenues	$	104,167	102,321	1,846	1.8	%	$	119,174	113,824	5,350	4.7	%	$	223,341			216,145	7,196	3.3	%
Segment profit	$	—	—	—	—	%	$	—	—	—	—	%	$	—			—	—	—	%

U.S. Advertising Funds revenues ~~of $104.2 million~~ for the three and six months ended ~~March 31,~~June 30, 2018 increased ~~1.8%~~$5.4 million, or 4.7%, and $7.2 million, or 3.3%, respectively, compared to the prior year ~~period~~periods due primarily to ~~Dunkin'~~Dunkin’ Donuts U.S. systemwide sales growth. 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 ~~March 31,~~June 30, 2018, we held $~~338.5~~367.9 million of cash and cash equivalents and ~~$82.6~~$85.0 million of short-term restricted cash that was restricted under our securitized financing facility. Included in cash and cash equivalents is $~~135.5~~138.4 million of cash held for advertising funds and reserved for gift card/certificate programs. In addition, as of ~~March 31,~~June 30, 2018, we had a borrowing capacity of $117.6 million under our $150.0 million 2017 Variable Funding Notes (as defined below).

Operating, investing, and financing cash flows

Net cash ~~used in~~provided by operating activities was ~~$16.2~~$67.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2018, as compared to ~~$8.5~~$67.1 million in the prior year period. The ~~$7.7~~$0.7 million ~~decrease~~increase in operating cash flows was driven primarily by ~~an increase~~a decrease in cash paid for ~~interest, an increase in incentive compensation payments, and other changes in working capital. These decreases in cash flows were offset by~~income taxes, as well as favorable cash flows related to our gift card program due primarily to the timing of holidays and our prior year fiscal year ~~end, as well as a decrease~~end. Offsetting these increases in operating cash inflows were increases in cash paid for ~~income taxes.~~

interest and other changes in working capital.

Net cash used in investing activities was ~~$5.8~~$32.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2018, as compared to ~~$3.7~~$6.8 million in the prior ~~fiscal~~ year period. The ~~$2.1~~$26.1 million increase in investing cash outflows was driven primarily by an increase in capital expenditures of ~~$2.2 million.~~$26.2 million primarily due to investments in technology infrastructure to support the Dunkin' Donuts U.S. Blueprint for Growth strategy.

Net cash used in financing activities was ~~$669.4~~$694.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2018, as compared to ~~$21.7~~$152.2 million in the prior year period. The ~~$647.7~~$541.8 million increase in financing cash outflows was driven primarily by incremental cash used in the current year period for accelerated share repurchases of common stock of ~~$650.4~~$550.4 million, ~~in the current year period,~~ as well as an increase in the ~~quarterly~~ repayment of long-term debt of ~~$1.6 million.~~$3.3 million as a result of the refinancing completed in October 2017. Offsetting these increases in financing cash outflows was ~~the~~ incremental cash generated from the exercise of stock options in the current year period of ~~$3.4~~$10.5 million, as well as a decrease in cash used to pay ~~the~~ quarterly ~~dividend~~dividends of ~~$1.0~~$1.4 million.

Adjusted operating and investing cash flow

Net cash flows from operating and investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017 include decreases of ~~$40.2~~$37.3 million and ~~$48.4~~$54.2 million, respectively, in cash held for advertising funds and reserved for gift card/certificate programs, which were primarily driven by the timing of holidays ~~and~~relative to our ~~prior year~~ fiscal year end. Excluding cash held for advertising funds and reserved for gift card/certificate programs, ~~and excluding the fluctuation in restricted cash,~~ we generated $~~18.2~~72.2 million and $~~36.2~~114.4 million of adjusted operating and investing cash flow during the ~~three~~six months ended ~~March 31,~~June 30, 2018 and ~~April~~July 1, 2017, respectively. The decrease in adjusted operating and investing cash flow was driven primarily by an increase in capital expenditures, an increase in cash paid for interest ~~an increase in incentive compensation payments,~~and other changes in working ~~capital, and an increase in capital expenditures.~~capital. These decreases in adjusted operating and investing cash flow were offset by a decrease in cash paid for income taxes.

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

GAAP, and adjusted operating and investing cash flow does not represent residual cash flows available for discretionary expenditures. Use of the term adjusted operating and investing cash flow may differ from similar measures reported by other companies.

Adjusted operating and investing cash flow is reconciled from net cash provided by operating activities determined under GAAP as follows (in thousands):


	Three months ended					Six months ended
	March 31, 2018			April 1, 2017		June 30, 2018			July 1, 2017
Net cash used in operating activities	$	(16,203	)	(8,500	)
Net cash provided by operating activities						$	67,739		67,060
Plus: Decrease in cash held for advertising funds and gift card/certificate programs	40,209			48,361		37,324			54,186
Plus: Net cash used in investing activities	(5,803		)	(3,679	)	(32,902		)	(6,829	)
Adjusted operating and investing cash flow	$	18,203		36,182		$	72,161		114,417

Borrowing capacity

As of ~~March 31,~~June 30, 2018, our securitized financing facility included original borrowings of approximately $1.75 billion, $1.40 billion, and $150.0 million related to the 2015 Class A-2-II Notes (as defined below), the 2017 Class A-2 Notes (as defined below), and the 2017 Variable Funding Notes (as defined below), respectively. As of ~~March 31,~~June 30, 2018, there was approximately $3.09 billion of total principal outstanding on the 2015 Class A-2-II Notes and 2017 Class A-2 Notes, while there was $117.6 million in available commitments under the 2017 Variable Funding Notes as $32.4 million of letters of credit were outstanding.

In January 2015, DB Master Finance LLC (the “Master Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of Dunkin’ Brands Group, Inc. (“DBGI”), issued Series 2015-1 3.262% Fixed Rate Senior Secured Notes, Class A-2-I (the “2015 Class A-2-I Notes”) with an initial principal amount of $750.0 million and Series 2015-1 3.980% Fixed Rate Senior Secured Notes, Class A-2-II (the “2015 Class A-2-II Notes” and, together with the 2015 Class A-2-I Notes, the “2015 Class A-2 Notes”) with an initial principal amount of $1.75 billion. In addition, the Master Issuer also issued Series 2015-1 Variable Funding Senior Secured Notes, Class A-1 (the “2015 Variable Funding Notes” and, together with the 2015 Class A-2 Notes, the “2015 Notes”), which allowed the Master Issuer to borrow up to $100.0 million on a revolving basis. The 2015 Variable Funding Notes could also be used to issue letters of credit.

In October 2017, the Master Issuer issued Series 2017-1 3.629% Fixed Rate Senior Secured Notes, Class A-2-I (the ~~"2017~~“2017 Class A-2-I ~~Notes"~~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 ClassA-2-II Notes"~~“2017 Class A-2-II Notes” and, together with the 2017 Class A-2-I Notes, the ~~"2017~~“2017 Class A-2 ~~Notes"~~Notes”) with an initial principal amount of $800.0 million. In addition, the Master Issuer issued ~~series~~Series 2017-1 Variable Funding Senior Secured Notes, Class A-1 ~~( the"2017~~(the “2017 Variable Funding ~~Notes"~~Notes” and, together with the 2017 Class A-2 Notes, the ~~"2017 Notes"~~“2017 Notes”), which allows for the issuance of up to $150.0 million of 2017 Variable Funding Notes and certain other credit instruments, including letters of credit.

A portion of the proceeds of the 2017 Notes was used to repay the remaining $731.3 million of principal outstanding on the 2015 Class A-2-I Notes and to pay related transaction fees. The additional net proceeds were used for general corporate purposes, which included a return of capital to the ~~Company's~~Company’s shareholders in 2018, as discussed below. In connection with the issuance of the 2017 Variable Funding Notes, the Master Issuer terminated the commitments with respect to its existing 2015 Variable Funding Notes.

The 2015 Notes and 2017 Notes were issued pursuant to a base indenture and related supplemental indentures (collectively, the ~~"Indenture"~~“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~~“Anticipated Repayment ~~Dates"~~Dates”). Principal amortization payments, payable quarterly, are required to be made on the 2015 Class A-2-II Notes, 2017 Class A-2-I Notes, and 2017 Class A-2-II Notes equal to $17.5 million, $6.0 million, and $8.0 million, respectively, per calendar year through the respective Anticipated Repayment Dates. No principal payments are required if a specified leverage ratio, which is a measure of outstanding debt to earnings before interest, taxes, depreciation, and amortization, adjusted for certain items (as specified in the Indenture), is less than or equal to 5.0 to 1.0. If the 2015 Class A-2-II Notes or the 2017 Class A-2 Notes have not been repaid or refinanced by their respective Anticipated Repayment Dates, a rapid amortization event will occur in which residual net cash flows of the Master Issuer, after making certain required payments, will be applied to the outstanding principal of the 2015 Class A-2-II Notes and the 2017 Class A-2 Notes. Various

other events, including failure to maintain a minimum ratio of net cash flows to debt service, may also cause a rapid amortization event.

It is anticipated that the principal and interest on the 2017 Variable Funding Notes will be repaid in full on or prior to November 2022, subject to two additional one-year extensions.

In February 2018, we entered into two accelerated share repurchase agreements (the ~~“February~~"February 2018 ASR ~~Agreements”~~Agreements") with two third-party financial institutions. Pursuant to the terms of the February 2018 ASR Agreements, we paid the financial institutions $650.0 million from cash on hand and received an initial delivery of 8,478,722 shares of our common stock on February 16, 2018, representing an estimate of 80% of the total shares expected to be delivered under the February 2018 ASR Agreements. At settlement, the financial institutions may be required to deliver additional shares of common stock to us or, under certain circumstances, we may be required to deliver shares of its common stock or may elect to make cash payment to the financial institutions. Final settlement of each of the February 2018 ASR Agreements is expected to be completed in the third quarter of fiscal year ~~2018, although the settlement may be accelerated at each financial institution’s option.~~2018.

In order to assess our current debt levels, including servicing our long-term debt, and our ability to take on additional borrowings, we monitor a leverage ratio of our long-term debt, net of cash (“Net Debt”), to adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”). This leverage ratio, and the related Net Debt and Adjusted EBITDA measures used to compute it, are non-GAAP measures, and our use of the terms Net Debt and Adjusted EBITDA may vary from other companies, including those in our industry, due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. Net Debt reflects the gross principal amount outstanding under our securitized financing facility, notes payable, and capital lease obligations, less short-term cash, cash equivalents, and restricted cash, excluding cash reserved for gift card/certificate programs. Adjusted EBITDA is defined in our securitized financing facility as net income before interest, taxes, depreciation and amortization, and impairment charges, as adjusted for certain items that are summarized in the table below. Net Debt should not be considered as an alternative to debt, total liabilities, or any other obligations derived in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income, operating income, or any other performance measures derived in accordance with GAAP, as a measure of operating performance, or as an alternative to cash flows as a measure of liquidity. Net Debt, Adjusted EBITDA, and the related leverage ratio have important limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. However, we believe that presenting Net Debt, Adjusted EBITDA, and the related leverage ratio are appropriate to provide additional information to investors to demonstrate our current debt levels and ability to take on additional borrowings.

As of ~~March 31,~~June 30, 2018, we had a Net Debt to Adjusted EBITDA ratio of ~~5.4~~5.3 to 1.0. The following is a reconciliation of our Net Debt and Adjusted EBITDA to the corresponding GAAP measures as of and for the twelve months ended ~~March 31,~~June 30, 2018, respectively (in thousands):


	March 31, 2018			June 30, 2018
Principal outstanding under 2017 Class A-2 Notes	$	1,396,500		$	1,393,000
Principal outstanding under 2015 Class A-2 Notes	1,697,500			1,693,125
Other notes payable				1,486
Total capital lease obligations	7,629			7,482
Less: cash and cash equivalents	(338,461		)	(367,940		)
Less: restricted cash, current	(82,605		)	(84,970		)
Plus: cash held for gift card/certificate programs	133,909			137,045
Net Debt	$	2,814,472		$	2,779,228


	Twelve months ended		Twelve months ended
	March 31, 2018		June 30, 2018
Net income	$	277,068	$	286,474
Interest expense	112,029		119,682
Income tax expense	2,518
Income tax benefit			(6,736		)
Depreciation and amortization	41,416		41,444
Impairment charges	2,071		2,664
EBITDA	435,102		443,528
Adjustments:
Share-based compensation expense	14,636		14,628
Loss on debt extinguishment and refinancing transactions	6,996		6,996
Increase in deferred revenue related to franchise and licensing agreements	54,822		50,779
Other^(a)	8,405		8,222
Total adjustments	84,859		80,625
Adjusted EBITDA	$	519,961	$	524,153


(a)	Represents costs and fees associated with various franchisee-related investments, including investments in the Dunkin' Donuts U.S. Blueprint for Growth, bank fees, legal reserves, the allocation of share-based compensation expense to the advertising funds, and other non-cash gains and losses.

Based upon our current level of operations and anticipated growth, we believe that the cash generated from our operations and amounts available under our 2017 Variable Funding Notes will be adequate to meet our anticipated debt service requirements, capital expenditures, and working capital needs for at least the next twelve months. We believe that we will be able to meet these obligations even if we experience no growth in sales or profits. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our 2017 Variable Funding Notes or otherwise to enable us to service our indebtedness, including our securitized financing facility, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend, or refinance the securitized financing facility will be subject to future economic conditions and to financial, business, and other factors, many of which are beyond our control.

Recently Issued Accounting Standards

See note ~~2(g)~~2(g) and note 3 to the unaudited consolidated financial statements included in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the foreign exchange or interest rate risks discussed in Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2017.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~March 31,~~June 30, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~March 31,~~June 30, 2018, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

During the ~~quarterly~~six month period ended ~~March 31,~~June 30, 2018, we adopted new revenue recognition guidance. We implemented internal controls to ensure we adequately evaluated our contracts with customers and properly assessed the impact of the new guidance to facilitate the adoption. Additionally, we implemented new business processes, internal controls, and modified information technology systems to assist in the ongoing application of the new guidance.

Part II. Other Information

Item 1. Legal Proceedings

We are engaged in several matters of litigation arising in the ordinary course of our business as a franchisor. Such matters include disputes related to compliance with the terms of franchise and development agreements, including claims or threats of claims of breach of contract, negligence, and other alleged violations by us. As of ~~March 31,~~June 30, 2018, ~~$1.6~~$1.7 million is recorded within other current liabilities in the consolidated balance ~~sheets~~sheet in connection with all outstanding litigation.

Item 1A. Risk Factors.

There have been no material changes from the risk factors disclosed in Part I, Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table contains information regarding purchases of our common stock made during the quarter ended ~~March 31,~~June 30, 2018 by or on behalf of Dunkin’ Brands Group, Inc. or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Securities Exchange Act of 1934:

Issuer Purchases of Equity Securities
Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs⁽¹⁾
12/31/17 - 01/27/18 —
$ —
—
$ 650,000,000
01/28/18 - 03/03/18⁽²⁾
8,478,722
61.33
8,478,722
—
03/04/18 - 03/31/18 —
—
—
—
Total 8,478,722
$ 61.33
8,478,722



	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⁾
04/01/18 - 04/28/18	—	$	—	—	$	—
04/29/18 - 06/02/18	—	—		—	250,000,000
06/03/18 - 06/30/18	—	—		—	250,000,000
Total	—	$	—	—

(1)

On October 25, 2017, our board of directors approved 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.

~~(2)~~

On May 22, 2018, our board of directors authorized a new share repurchase program for up to an aggregate of $250.0 million of our outstanding common stock. This repurchase authorization is valid for a period of two years. Under the program, purchases may be made in the open market or in privately negotiated transactions from time to time subject to market conditions.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits:



~~10.1~~		Form of Fixed Dollar Accelerated Share Repurchase Transaction Confirmation dated February 14, 2018 between Dunkin’ Brands Group, Inc. and Citibank, N.A (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 February 15, 2018)

~~10.2~~		Form of Fixed Dollar Accelerated Share Repurchase Transaction Confirmation dated February 14, 2018 between Dunkin’ Brands Group, Inc. and JPMorgan Chase Bank, National Association, London Branch (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, File No. 001-35258, filed with the SEC on February 15, 2018)

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.

Ex. 101.INS*101.INS XBRL Instance Document

Ex. 101.SCH*101.SCH XBRL Taxonomy Extension Schema Document

Ex. 101.CAL*101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

Ex. 101.LAB*101.LAB XBRL Taxonomy Extension Label Linkbase Document

Ex. 101.PRE*101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

Ex. 101.DEF*101.DEF XBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DUNKIN’ BRANDS GROUP, INC.




Date:	~~May 9,~~August 8, 2018	By:	/s/ ~~Nigel Travis~~David Hoffmann
			~~Nigel Travis,~~David Hoffmann ~~Chairman and~~ Chief Executive Officer

3844



	Effect of foreign currency translation			Other		Accumulated other comprehensive income (loss)
Balance as of December 30, 2017	$	(8,084	)	(1,451	)	(9,535	)
Other comprehensive income, net	1,547			628		2,175
Balance as of March 31, 2018	$	(6,537	)	(823	)	(7,360	)