Baskin Robbins 2013 Annual Report Download - page 70

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-60-
Financial assets and liabilities measured at fair value on a recurring basis as of December 28, 2013 and December 29, 2012 are
summarized as follows (in thousands):
December 28, 2013 December 29, 2012
Quoted prices
in active
markets for
identical assets
(Level 1)
Significant
other
observable
inputs
(Level 2) Total
Quoted prices
in active
markets for
identical assets
(Level 1)
Significant
other
observable
inputs
(Level 2) Total
Assets:
Mutual funds $ 1,012 — 1,012 2,505 — 2,505
Interest rate swaps — 10,221 10,221 — — —
Total assets $ 1,012 10,221 11,233 2,505 — 2,505
Liabilities:
Deferred compensation liabilities $ — 7,181 7,181 — 7,379 7,379
Interest rate swaps — — — — 2,809 2,809
Total liabilities $ — 7,181 7,181 — 10,188 10,188
The deferred compensation liabilities relate primarily to the Dunkin’ Brands, Inc. Non-Qualified Deferred Compensation Plan
(“NQDC Plan”), which allows for pre-tax salary deferrals for certain qualifying employees (see note 18). Changes in the fair
value of the deferred compensation liabilities are derived using quoted prices in active markets of the asset selections made by
the participants. The deferred compensation liabilities are classified within Level 2, as defined under U.S. GAAP, because their
inputs are derived principally from observable market data by correlation to hypothetical investments. The Company holds
mutual funds, as well as money market funds, to partially offset the Company’s liabilities under the NQDC Plan as well as
other benefit plans. The changes in the fair value of the mutual funds are derived using quoted prices in active markets for the
specific funds. As such, the mutual funds are classified within Level 1, as defined under U.S. GAAP.
The Company uses readily available market data to value its interest rate swaps, such as interest rate curves and discount
factors. Additionally, the fair value of derivatives includes consideration of credit risk in the valuation. The Company uses a
potential future exposure model to estimate this credit valuation adjustment (“CVA”). The inputs to the CVA are largely based
on observable market data, with the exception of certain assumptions regarding credit worthiness which make the CVA a Level
3 input, as defined under U.S. GAAP. As the magnitude of the CVA is not a significant component of the fair value of the
interest rate swaps as of December 28, 2013, it is not considered a significant input and the derivatives are classified as Level 2.
The carrying value and estimated fair value of long-term debt at December 28, 2013 and December 29, 2012 were as follows
(in thousands):
December 28, 2013 December 29, 2012
Financial liabilities
Carrying
value
Estimated
fair value
Carrying
value
Estimated
fair value
Term loans $ 1,823,609 1,836,212 1,849,958 1,878,980
The estimated fair value of our term loans is based on current bid prices for our term loans. Judgment is required to develop
these estimates. As such, our term loans are classified within Level 2, as defined under U.S. GAAP.
(f) Inventories
Inventories consist primarily of ice cream products sold to certain international markets that are in-transit from our third-party
manufacturer to our international licensees, during which time we hold title to such products. Inventories are valued at the
lower of cost or estimated net realizable value, and cost is generally determined based on the actual cost of the specific
inventory sold. Inventories are included within prepaid expenses and other current assets in the accompanying consolidated
balance sheets.
(g) Assets held for sale
Assets held for sale primarily represent costs incurred by the Company for store equipment and leasehold improvements
constructed for sale to franchisees, as well as restaurants formerly operated by franchisees waiting to be resold. The value of
such restaurants and related assets is reduced to reflect net recoverable values, with such reductions recorded to general and
administrative expenses, net in the consolidated statements of operations. Generally, internal specialists estimate the amount to
be recovered from the sale of such assets based on their knowledge of the (a) market in which the store is located, (b) results of