Baskin Robbins 2012 Annual Report Download - page 45

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Net income (loss) of equity method investments increased $25.8 million in fiscal year 2012 primarily as a result of a $19.8
million impairment charge recorded in the fourth quarter of 2011 on the investment in our South Korea joint venture.
Additionally, the allocation of the impairment charge to the underlying intangible and long-lived assets of the joint venture
reduced depreciation and amortization, resulting in an increase in income from the joint venture in fiscal year 2012 of $2.6
million. The remaining increase in net income (loss) of equity method investments resulted from stronger sales and earnings
performance at our South Korea joint venture.
Fiscal year Increase (Decrease)
2012 2011 $ %
(In thousands, except percentages)
Interest expense, net $ 73,488 104,449 (30,961) (29.6)%
Loss on debt extinguishment and refinancing transactions 3,963 34,222 (30,259) (88.4)%
Other gains, net (23)(175) 152 (86.9)%
Total other expense $ 77,428 138,496 (61,068) (44.1)%
The decrease in net interest expense for fiscal year 2012 resulted primarily from the repayment of $375.0 million of 9.625%
senior notes with proceeds from the Company’s initial public offering completed in August 2011. Net interest expense for fiscal
year 2012 also benefited from the re-pricing of outstanding term loans in conjunction with the February and May 2011 upsize
transactions, the proceeds of which were used to repay the higher rate senior notes, as well as the impact of the extra week of
interest expense in the prior year. Offsetting these decreases was incremental interest expense on $400.0 million of additional
term loan borrowings at an interest rate of 4.0%, which were used to repurchase 15.0 million shares of common stock from
certain shareholders in August 2012. Considering the February 2013 amendment of the senior credit facility more fully
described under "Liquidity and capital resources" contained herein, we expect interest expense to be approximately $80.6
million in fiscal year 2013.
The loss on debt extinguishment and refinancing transactions for fiscal year 2012 of $4.0 million primarily related to the
$400.0 million of additional term loan borrowings in August 2012. The loss on debt extinguishment and refinancing
transactions of $34.2 million for fiscal year 2011 resulted from the term loan upsize and re-pricing transactions and related
repayments of senior notes completed in the first and second quarters of 2011, as well as the repayment of senior notes with
proceeds from the Company's initial public offering in the third quarter of 2011.
The decline in other gains from fiscal year 2011 to fiscal year 2012 resulted primarily from reduced net foreign exchange gains.
Fiscal year
2012 2011
(In thousands, except percentages)
Income before income taxes $ 162,001 66,813
Provision for income taxes 54,377 32,371
Effective tax rate 33.6% 48.5%
The reduced effective tax rate for fiscal year 2012 primarily resulted from net tax benefits of $10.2 million related to the
reversal of reserves for uncertain tax positions for which settlement with the taxing authorities was reached during the period.
Offsetting these tax benefits was $4.6 million of deferred tax expense recorded in fiscal year 2012 primarily related to an
increase in our overall state tax rate for a shift in the apportionment of income to state jurisdictions, as a result of the closure of
the Peterborough manufacturing plant and transition to Dean Foods.
The higher effective tax rate for fiscal year 2011 primarily resulted from the impairment related to the Korea joint venture
investment, which reduced income before income taxes but for which there is no corresponding tax benefit, as well as enacted
increases in state tax rates that resulted in additional deferred tax expense of approximately $1.9 million.
Operating segments
We operate four reportable operating segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., and
Baskin-Robbins International. We evaluate the performance of our segments and allocate resources to them based on earnings
before interest, taxes, depreciation, amortization, impairment charges, loss on debt extinguishment and refinancing transactions,
other gains and losses, and unallocated corporate charges, referred to as segment profit. Segment profit for the Dunkin’ Donuts
International and Baskin-Robbins International segments include equity in net income (loss) from joint ventures, except for the
impairment charge, net of the related reduction in depreciation and amortization, net of tax, recorded in fiscal year 2011 on the
investment in our South Korea joint venture. For a reconciliation to total revenues and income before income taxes, see the
notes to our consolidated financial statements. Revenues for all segments include only transactions with unaffiliated customers