Red Lobster 2014 Annual Report Download - page 41

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Notes to Consolidated Financial Statements
Darden
2014 Annual Report 39
The effects of derivative instruments in fair value hedging relationships in the consolidated statements of earnings are as follows:
Amount of Gain (Loss) Location of Gain (Loss) Hedged Item Amount of Gain (Loss) Location of Gain (Loss)
Recognized in Earnings Recognized in Earnings in Fair Value Recognized in Earnings on Recognized in Earnings on
(in millions) on Derivatives on Derivatives Hedge Relationship Related Hedged Item Related Hedged Item
Fiscal Year Fiscal Year
2014 2013 2012 2014 2013 2012
Interest rate $(0.3) $(1.3) $(0.4) Interest, net Debt $0.3 $1.3 $0.4 Interest, net
The effects of derivatives not designated as hedging instruments in the consolidated statements of earnings are as follows:
Amount of Gain (Loss) Recognized in Earnings
Location of Gain (Loss) Fiscal Year
(in millions)
Recognized in Earnings 2014 2013 2012
Commodity contracts Cost of sales (1) $ – $(0.1) $(7.9)
Equity forwards Cost of sales (2) (0.5) 1.6 2.3
Equity forwards Selling, general and administrative (1.3) 1.4 6.0
$(1.8) $ 2.9 $ 0.4
(1) Location of the gain (loss) recognized in earnings is food and beverage costs and restaurant expenses, which are components of cost of sales.
(2) Location of the gain (loss) recognized in earnings is restaurant labor expenses, which is a component of cost of sales.
Based on the fair value of our derivative instruments designated as cash flow hedges as of May 25, 2014, we expect to reclassify $10.1 million of net
losses on derivative instruments from accumulated other comprehensive income (loss) to earnings during the next 12 months based on the timing of our
forecasted commodity purchases, the maturity of equity forwards and the amortization of losses on interest rate related instruments. However, the amounts
ultimately realized in earnings will be dependent on the fair value of the contracts on the settlement dates. Additionally, based on the results of our tender
offer in the first quarter of fiscal 2015 (see Note 9 – Long-Term Debt for further information), which is contingent upon the closing of the Red Lobster sale,
additional amortization of losses on interest-rate related instruments may be recognized.
NOTE 11
FAIR VALUE MEASUREMENTS
The fair values of cash equivalents, receivables, net, accounts payable and short-term debt approximate their carrying amounts due to their short duration.
The following tables summarize the fair values of financial instruments measured at fair value on a recurring basis at May 25, 2014 and May 26, 2013:
Items Measured at Fair Value at May 25, 2014
Quoted Prices in Active Market Significant Other Significant
Fair Value of Assets for Identical Assets (Liabilities) Observable Inputs Unobservable Inputs
(in millions) (Liabilities) (Level 1) (Level 2) (Level 3)
Fixed-income securities:
Corporate bonds (1) $ 9.7 $ – $ 9.7 $ –
U.S. Treasury securities (2) 6.1 6.1 – –
Mortgage-backed securities (1) 2.6 – 2.6 –
Derivatives:
Commodities futures, swaps & options (3) – – – –
Equity forwards (4) (1.7) – (1.7) –
Interest rate swaps (5) 1.6 – 1.6 –
Foreign currency forwards (6) 0.1 – 0.1 –
Total $18.4 $6.1 $12.3 $ –