Cracker Barrel 2011 Annual Report Download - page 38

$200,000. is interest rate swap was also accounted for as a
cash flow hedge. e rate on the portion of the Company’s
outstanding debt covered by the 2010 swap will be fixed at a
rate of 2.73% plus the Company’s credit spread over the
2-year life of the 2010 swap.
On July 25, 2011, the Company entered into two additional
interest rate swaps; one with a 2-year life (the “2011 2-year
swap”) and one with a 3-year life (the “2011 3-year swap”).
For both of these interest rate swaps, the Company agreed
to exchange with counterparties, effective May 3, 2013, the
difference between fixed and variable interest amounts
calculated by reference to the notional principal amount of
$50,000 for each interest rate swap. ese interest rate
swaps were also accounted for as cash flow hedges. e rates
on the portion of the Company’s outstanding debt covered
by the 2011 2-year swap and 2011 3-year swap will be fixed at
2.00% and 2.45%, respectively, plus the Company’s credit
spreads over the respective lives of the interest rate swaps.
Additionally,on September19, 2011, the Company entered
into two interest rate swaps. For both of these interest rate
swaps, the Company agreed to exchange with counterparties,
effective May 3, 2013, the difference between fixed and
variable interest amounts calculated by reference to the notional
principal amount of $25,000 for each interest rate swap.
ese interest rate swaps were also accounted for as cash flow
hedges. e rate on the portion of the Company’s outstand-
ing debt covered by these swaps will be fixed at a rate of
1.05% plus the Company’s credit spread over the 2-year life of
each swap.
Companies may elect whether or not to offset related assets
and liabilities and report the net amount on their financial
statements if the right of setoffexists. Under a master neing
agreement, the Company has the legal right to offset the
amounts owed to the Company against amounts owed by the
Company under a derivative instrument that exists between
the Company and a counterparty.
When the Company is engaged in more than one outstand-
ing derivative transaction with the same counterparty and
also has a legally enforceable master neing agreement with
that counterparty, its credit risk exposure is based on the
net exposure under the master neing agreement. If, on a net
basis, the Company owes the counterparty, the Company
regards its credit exposure to the counterparty as being zero.
e Company does not hold or use derivative instruments
for trading purposes. e Company also does not have any
derivatives not designated as hedging instruments and has not
designated any non-derivatives as hedging instruments.
See Note 6 for additional information on the Company’s
derivative and hedging activities.
Many of the food products purchased by the Company
are affected by commodity pricing and are, therefore, subject
to price volatility caused by market conditions, weather,
production problems, delivery difficulties and other factors
that are outside the control of the Company and generally are
unpredictable. Changes in commodity prices affect the
Company and its competitors generally and, depending on
terms and duration of supply contracts, sometimes simultane-
ously. In many cases, the Company believes it will be able to
pass through some or much of increased commodity costs by
adjusting its menu pricing. From time to time, competitive
circumstances or judgments about consumer acceptance of
price increases may limit menu price flexibility, and in
those circumstances, increases in commodity prices can result
in lower margins for the Company.
Comprehensive income – Comprehensive income
includes net income and the effective unrealized portion of
the changes in the fair value of the Company’s interest
rate swaps.
Segment reporting – Operating segments are components
of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and
in assessing performance. Utilizing these criteria, the Company
manages its business on the basis of one reportable operating
segment (see Note 8).
Revenue recognition – e Company records revenue
from the sale of products as they are sold.e Company
provides for estimated returns based on return history and
sales levels. e Company’s policy is to present sales in
the Consolidated Statements of Income on a net presentation
basis aer deducting sales tax.
Unredeemed gi cards and certicates – Unredeemed
gicards and certificates represent a liability of the Company
related to unearned income and are recorded at their expected
redemption value. No revenue is recognized in connection
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