Baskin Robbins 2013 Annual Report Download - page 83

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-73-
In September 2012, the Company entered into variable-to-fixed interest rate swap agreements with three counterparties to
hedge the risk of increases in cash flows (interest payments) attributable to increases in three-month LIBOR above 1.0%, the
designated benchmark interest rate being hedged, through November 2017. The notional value of the swaps totals $900.0
million, and the Company is required to make quarterly payments on the notional amount at a fixed average interest rate of
approximately 1.37%, resulting in a total interest rate of approximately 4.12% on the hedged amount when considering the
applicable margin in effect at December 28, 2013. In exchange, the Company receives interest on the notional amount at a
variable rate based on a three-month LIBOR spot rate, subject to a 1.0% floor. Interest is settled quarterly on a net basis with
each counterparty. The swaps have been designated as hedging instruments and are classified as cash flow hedges. They are
recognized on the Company's consolidated balance sheets at fair value and classified based on the instruments' maturity dates.
Changes in the fair value measurements of the derivative instruments are reflected as adjustments to other comprehensive
income (loss) and/or current earnings.
The fair values of derivatives instruments consisted of the following (in thousands):
December 28,
2013
December 29,
2012
Consolidated balance sheet
classification
Interest rate swaps - asset $ 10,221 — Other assets
Total fair values of derivative instruments - asset $ 10,221 —
December 28,
2013
December 29,
2012
Consolidated balance sheet
classification
Interest rate swaps - liability $ — 2,809 Other long-term liabilities
Total fair values of derivative instruments - liability $ — 2,809
The tables below summarizes the effects of derivative instruments on the consolidated statements of operations and
comprehensive income for fiscal year 2013:
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 $ 9,648 (3,382) Interest expense 13,030
Income tax effect (3,909) 1,381 Provision for income taxes (5,290)
Net of income taxes $ 5,739 (2,001) 7,740
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 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 years 2012 and 2013. As of December 28, 2013 and December 29, 2012, $836
thousand and $864 thousand, respectively, of interest expense related to interest rate swaps is accrued in other current liabilities
in the consolidated balance sheets. As of December 28, 2013, the Company estimates that $3.4 million will be reclassified from
accumulated other comprehensive income as an increase to interest expense during the next twelve months, 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 28,
2013, 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.