Baskin Robbins 2011 Annual Report Download - page 63

Depreciation and amortization declined a total of $5.1 million from fiscal 2009 to fiscal 2010. The decrease is
due primarily to a license right intangible asset becoming fully amortized, as well as terminations of lease
agreements in the normal course of business resulting in the write-off of favorable lease intangible assets, which
thereby reduced future amortization. Additionally, depreciation declined from the prior year due to assets
becoming fully depreciated, sales of corporate assets, and the write-off of leasehold improvements upon
terminations of lease agreements.
The decrease in impairment charges from fiscal 2009 to fiscal 2010 resulted from an impairment charge recorded
in 2009 related to corporate assets, offset by additional impairment charges recorded in 2010 on favorable
operating leases due to terminations of lease agreements.
Equity in net income of joint ventures increased from fiscal 2009 to fiscal 2010 as a result of increases in income
from both our Japan and South Korea joint ventures. The increases in Japan and South Korea joint venture
income from 2009 were primarily driven by sales growth, as well as favorable impact of foreign exchange.
Fiscal year
2009
Fiscal year
2010
Increase (Decrease)
$ %
(In thousands, except percentages)
Interest expense, net .................... $115,019 112,532 (2,487) (2.2)%
Loss (gain) on debt extinguishment ........ (3,684) 61,955 65,639 1,781.7%
Other gains, net ........................ (1,066) (408) 658 61.7%
Total other expense ................ $110,269 174,079 63,810 57.9%
Net interest expense declined from fiscal 2009 to fiscal 2010 due to the voluntary retirement of long-term debt
with a face value of $99.8 million in the second quarter of 2010, reducing interest paid, insurer premiums, and
the amortization of deferred financing costs. These decreases were slightly offset by incremental interest expense
on approximately $528 million of additional long-term debt obtained in the fourth quarter of 2010.
The fluctuation in gains and losses on debt extinguishment resulted from the refinancing of existing long-term
debt in the fourth quarter of 2010, which yielded a $58.3 million loss, as well as the voluntary retirement of long-
term debt in the second quarter of 2010, which resulted in a $3.7 million loss. The gain on debt extinguishment of
$3.7 million recorded in 2009 resulted from the voluntary retirement of long-term debt in the third quarter of
2009.
The decline in other gains from fiscal 2009 to fiscal 2010 resulted from reduced net foreign exchange gains,
primarily as a result of significant weakening of the U.S. dollar against the Canadian dollar in 2009.
Fiscal year
2009
Fiscal year
2010
(In thousands, except percentages)
Income before income taxes .................. $74,276 19,446
Provision for income taxes ................... 39,268 (7,415)
Effective tax rate .......................... 52.9% (38.1)%
The negative effective tax rate of 38.1% in fiscal 2010 was primarily attributable to changes in state tax rates,
which resulted in a deferred tax benefit of approximately $5.7 million in fiscal 2010. The effective tax rate for
both years was also impacted by changes in reserves for uncertain tax positions, which are not driven by changes
in income before income taxes. Reserves for uncertain tax positions were $9.1 million in fiscal 2009, as
compared to a benefit of $3.1 million in fiscal 2010. The effective tax rate for fiscal 2010 was also impacted by a
reduced income before income taxes, driven by the loss on debt extinguishment, which magnified the impact of
permanent and other tax differences. Additionally, the higher effective tax rate in fiscal 2009 resulted from a $5.8
million additional valuation allowance recorded on capital loss carryforwards.
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