Cracker Barrel 2009 Annual Report Download - page 68

Download and view the complete annual report

Please find page 68 of the 2009 Cracker Barrel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 82

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82

66
The Credit Facility also imposes restrictions on the
amount of dividends the Company is able to pay. If there is
no default then existing and there is at least $100,000
then available under the Revolving Credit facility, the
Company may both: (1) pay cash dividends on its common
stock if the aggregate amount of dividends paid in any
fiscal year is less than 15% of Consolidated EBITDA from
continuing operations (as defined in the Credit Facility)
during the immediately preceding fiscal year; and (2) in
any event, increase its regular quarterly cash dividend in
any quarter by an amount not to exceed the greater of $.01
or 10% of the amount of the dividend paid in the prior
fiscal quarter.
Note Payable
The note payable consists of a five-year note with a
vendor with an original principal amount of $507 and
represents the financing of prepaid maintenance for
telecommunications equipment. The note payable is payable
in monthly installments of principal and interest of $9
through October 16, 2013 and bears interest at 2.88%.
6DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses derivative instruments to mitigate its
interest rate risk. The Company does not hold or use
derivative instruments for trading purposes. The Company
also does not have any derivatives not designated as
hedging instruments and has not designated any non-
derivatives as hedging instruments.
The Company has interest rate risk relative to its
outstanding borrowings under its Credit Facility (see Note 5).
Loans under the Credit Facility bear interest, at the
Company’s election, either at the prime rate or LIBOR plus
a percentage point spread based on certain specified
financial ratios.
The Company’s policy has been to manage interest cost
using a mix of fixed and variable rate debt (see Note 5). To
manage this risk in a cost efficient manner, the Company
entered into an interest rate swap on May 4, 2006 in which
it agreed to exchange with a counterparty, at specified
intervals effective August 3, 2006, the difference between
fixed and variable interest amounts calculated by reference
to an agreed-upon notional principal amount. The interest
rate swap was accounted for as a cash flow hedge. The
swapped portion of the Company’s outstanding debt is
fixed at a rate of 5.57% plus the Company’s credit spread,
or 7.07% based on the Company’s credit spread at July 31,
2009 over the 7-year life of the interest rate swap.
The swapped portion of the outstanding debt or notional
amount of the interest rate swap is as follows:
From August 3, 2006 to May 2, 2007 $ 525,000
From May 3, 2007 to May 5, 2008 650,000
From May 6, 2008 to May 4, 2009 625,000
From May 5, 2009 to May 3, 2010 600,000
From May 4, 2010 to May 2, 2011 575,000
From May 3, 2011 to May 2, 2012 550,000
From May 3, 2012 to May 3, 2013 525,000
At July 31, 2009, the estimated fair value of the
Company’s derivative instrument was as follows:
July 31, 2009
Balance Sheet Location Fair Value
Interest rate swap Interest rate swap liability $61,232
Total $61,232
The estimated fair value of the interest rate swap liability
at July 31, 2009 increased $21,614 from its estimated fair
value of $39,618 at August 1, 2008. The estimated fair
value of the Company’s interest rate swap liability at July 31,
2009 incorporates the Company’s own non-performance
risk. The adoption of SFAS No. 157 resulted in a $5,809
decrease in the Company’s interest rate swap liability
related to non-performance risk in the first quarter of 2009.
The adjustment related to the Company’s non-performance
risk at July 31, 2009 decreased $437 from adoption which
resulted in an increase of $437 in the fair value of the
interest rate swap liability. The offset to the interest rate
swap liability is recorded in accumulated other compre-
hensive loss (“AOCL”), net of the deferred tax asset, and
will be reclassified into earnings over the term of the
underlying debt. Any portion of the fair value of the swap
determined to be ineffective will be recognized currently
in earnings.
Cash flows related to the interest rate swap are included
in interest expense and in operating activities. As of
July 31, 2009, the estimated pre-tax portion of AOCL that
is expected to be reclassified into earnings over the
next twelve months is $28,782.
The following table summarizes the pre-tax effects of
the Company’s derivative instrument on income and AOCL
6948Financials.qxd:Layout 1 10/6/09 3:10 PM Page 66