Dunkin' Donuts 2011 Annual Report Download - page 59

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The loss on debt extinguishment incurred in fiscal year 2010 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 loss on debt extinguishment
and refinancing transactions incurred in fiscal year 2011 resulted from the completion of the initial public
offering and related repayment of senior notes, as well as term loan re-pricing and upsize transactions completed
in the first half of 2011. Loss on debt extinguishment and refinancing transactions in 2011 totaled $25.9 million
related to the retirement of senior notes and $8.3 million related to term loans.
The decline in other gains from fiscal 2010 to fiscal 2011 resulted primarily from reduced net foreign exchange
gains.
Fiscal year
2010
Fiscal year
2011
(In thousands, except percentages)
Income before income taxes .................. $19,446 66,813
Provision for income taxes ................... (7,415) 32,371
Effective tax rate .......................... (38.1)% 48.5%
The negative effective tax rate of 38.1% in fiscal year 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, as well as a benefit of
$3.1 million related to reserves for uncertain tax positions. The effective tax rate for fiscal year 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. The increased 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.
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,
foreign currency gains and losses, 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 and include no intersegment revenues. Revenues not included in segment revenues include retail sales
from company-owned restaurants, as well as revenue earned through arrangements with third parties in which
our brand names are used and revenue generated from online training programs for franchisees that are not
allocated to a specific segment. For purposes of evaluating segment profit, Dunkin’ Donuts U.S. includes the net
operating income earned from company-owned restaurants.
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