Dunkin' Donuts 2011 Annual Report Download - page 58

based compensation expense was recorded upon completion of the initial public offering related to approximately
0.8 million restricted shares granted to employees that were not eligible to vest until completion of an initial
public offering or change of control (performance condition). No future expense will be recorded related to this
tranche of restricted shares. The Company also recorded incremental share-based compensation expense of
approximately $0.9 million upon completion of the secondary offering in December 2011, related to
approximately 0.3 million stock options granted to employees that were not eligible to vest until the sale or
disposition of shares held by our Sponsors (performance condition). Finally, the Company incurred
approximately $1.0 million of transaction costs related to the secondary offering in fiscal year 2011.
Excluding the offering-related costs above, general and administrative expenses declined $0.9 million, or 0.4%,
in fiscal year 2011. This decrease was driven by a decline of $9.0 million in professional fees and legal costs
resulting from reduced information technology expenses and legal settlement reserves. Additionally, other
general and administrative expenses declined $5.2 million primarily as a result of reduced cost of sales for
company-owned restaurants due to a reduction in the average number of company-owned stores, net of expenses
incurred related to the roll-out of a new point-of-sale system for Baskin-Robbins franchisees. Offsetting these
declines was an increase in personnel costs of $13.2 million, of which approximately $2.4 million was
attributable to the extra week in fiscal year 2011, with the remaining increase related to investment in our
Dunkin’ Donuts U.S. contiguous growth strategy and higher projected incentive compensation payouts, offset by
prior year costs associated with our executive chairman transition.
Depreciation and amortization declined $5.3 million in fiscal year 2011 resulting primarily from a license right
intangible asset becoming fully amortized in July 2010, 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 due to assets becoming fully depreciated and the write-off of
leasehold improvements upon terminations of lease agreements, slightly offset by depreciation on capital
purchases.
The decrease in impairment charges in fiscal year 2011 of $5.0 million resulted primarily from the timing of
lease terminations in the ordinary course, which results in the write-off of favorable lease intangible assets and
leasehold improvements.
Equity in net income (loss) of joint ventures decreased $21.3 million in fiscal year 2011 primarily as a result of a
$19.8 million impairment charge recorded on the investment in our South Korea joint venture, offset by a
reduction in depreciation and amortization, net of tax, of $1.0 million resulting from the allocation of the
impairment charge to the underlying intangible and long-lived assets of the joint venture. The remaining decline
in equity in net income (loss) of joint ventures resulted from higher expenses for our South Korea joint venture,
slightly offset by stronger earnings from our Japan joint venture.
Fiscal year
2010
Fiscal year
2011
Increase (Decrease)
$ %
(In thousands, except percentages)
Interest expense, net ............................. $112,532 104,449 (8,083) (7.2)%
Loss on debt extinguishment and refinancing
transactions .................................. 61,955 34,222 (27,733) (44.8)%
Other gains, net ................................. (408) (175) 233 57.1%
Total other expense .......................... $174,079 138,496 (35,583) (20.4)%
The decrease in net interest expense for fiscal year 2011 resulted primarily from reductions in the average cost of
borrowing due to refinancing and re-pricing transactions, offset by an increase in the weighted average long-term
debt outstanding and an extra week of interest expense in fiscal year 2011. As the senior notes were fully repaid
upon completion of the initial public offering on August 1, 2011, interest expense is expected to decrease in the
future and remain consistent with the net interest expense realized in the fourth quarter of 2011 on a 13-week
basis.
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