Baskin Robbins 2012 Annual Report Download - page 81

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The tables below summarizes the effects of derivative instruments on the consolidated statements of operations and
comprehensive income for fiscal year 2012:
Derivatives designated as
cash flow hedging
instruments
Amount of gain
(loss) recognized in
other comprehensive
income (loss)
Amount of net gain
(loss) reclassified
into earnings
Consolidated statement of operations
classification
Total effect on other
comprehensive
income (loss)
Interest rate swaps (3,673) (864) Interest expense (2,809)
Income tax effect 1,509 355 Provision (benefit) for income taxes 1,154
Net of income taxes (2,164) (509)(1,655)
There was no ineffectiveness of the interest rate swaps since inception, and therefore, ineffectiveness had no impact on the
consolidated statements of operations for fiscal year 2012. The Company reclassified $864 thousand from accumulated other
comprehensive income (loss) into the consolidated statements of operations related to the swaps in fiscal year 2012, which is
included in interest expense. The interest expense had not been paid in cash as of December 29, 2012 and is accrued in other
current liabilities in the consolidated balance sheets. During the next twelve months, the Company estimates that $3.4 million
will be reclassified from accumulated other comprehensive income (loss) as an increase to interest expense based on current
projections of LIBOR.
The Company is exposed to credit-related losses in the event of non-performance by the counterparties to its hedging
instruments. To mitigate counterparty credit risk, the Company only enters into contracts with major financial institutions based
upon their credit ratings and other factors, and continually assesses the creditworthiness of its counterparties. At December 29,
2012, all of the counterparties to the interest rate swaps had investment grade ratings. To date, all counterparties have
performed in accordance with their contractual obligations.
The Company has agreements with each of its derivative counterparties that contain a provision whereby if the Company
defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the
lender, then the Company could also be declared in default on its derivative obligations. As of December 29, 2012, the
Company has not posted any collateral related to these agreements. As of December 29, 2012, the termination value of
derivatives is a net liability of $3.7 million, which includes accrued interest but excludes any adjustment for nonperformance
risk, related to these agreements.
(10) Other current liabilities
Other current liabilities at December 29, 2012 and December 31, 2011 consisted of the following (in thousands):
December 29,
2012
December 31,
2011
Gift card/certificate liability $ 145,981 144,965
Accrued salary and benefits 31,136 31,001
Accrued legal liabilities (see note 17(d)) 27,305 4,658
Accrued interest 13,564 659
Accrued professional costs 2,996 3,427
Other 18,949 15,887
Total other current liabilities $ 239,931 200,597
(11) Leases
The Company is the lessee on certain land leases (the Company leases the land and erects a building) or improved leases (lessor
owns the land and building) covering restaurants and other properties. In addition, the Company has leased and subleased land
and buildings to others. Many of these leases and subleases provide for future rent escalation and renewal options. In addition,
contingent rentals, determined as a percentage of annual sales by our franchisees, are stipulated in certain prime lease and
sublease agreements. The Company is generally obligated for the cost of property taxes, insurance, and maintenance relating to
these leases. Such costs are typically charged to the sublessee based on the terms of the sublease agreements. The Company
also leases certain office equipment and a fleet of automobiles under noncancelable operating leases.