Jack In The Box 2014 Annual Report Download - page 61
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Objectives and strategies — We are exposed to interest rate volatility with regard to our variable rate debt. To reduce our exposure to rising interest rates, in
August 2010, we entered into two interest rate swap agreements that effectively converted $100.0 million of our variable rate term loan borrowings to a fixed-
rate basis from September 2011 through September 2014. Additionally, in April 2014, we entered into nine forward-starting interest rate swap agreements that
effectively convert $300.0 million of our variable rate borrowings to a fixed rate basis from October 2014 through October 2018. These agreements have been
designated as cash flow hedges under the terms of the FASB authoritative guidance for derivatives and hedging. To the extent that they are effective in
offsetting the variability of the hedged cash flows, changes in the fair values of the derivatives are not included in earnings but are included in OCI. These
changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on our term
debt.
Financial position — The following derivative instruments were outstanding as of the end of each fiscal year (in thousands):
Derivatives designated as hedging instruments:
Interest rate swaps (Note 5)
Accrued
liabilities
$ (1,789)
Accrued
liabilities
$ (1,190)
Total derivatives
$ (1,789)
$ (1,190)
Financial performance — The following is a summary of the accumulated OCI activity related to our interest rate swap derivative instruments (in
thousands):
Loss recognized in OCI
N/A
$ (1,890)
$ (110)
$ (1,055)
Loss reclassified from accumulated OCI into net earnings
Interest
expense, net
$ (1,291)
$ (1,353)
$ (1,304)
Amounts reclassified from accumulated OCI into interest expense represent payments made to the counterparty for the effective portions of the interest rate
swaps. During 2014, 2013 and 2012, our interest rate swaps had no hedge ineffectiveness.
The detail of our long-term debt at the end of each fiscal year is as follows (in thousands):
Revolver, variable interest rate based on an applicable margin plus LIBOR, 2.12% at September 28, 2014
$ 306,000
$ 175,000
Term loan, variable interest rate based on an applicable margin plus LIBOR, 1.91% at September 28, 2014
197,500
190,000
Capital lease obligations, 10.20% weighted average interest rate at September 28, 2014
4,383
5,282
507,883
370,282
Less current portion
(10,871)
(20,889)
$ 497,012
$ 349,393
New credit facility — In March 2014, the Company refinanced its former credit facility and entered into an amended and restated credit agreement. The new
credit facility is comprised of (i) a $600.0 million revolving credit facility and (ii) a $200.0 million term loan facility. The interest rate on the new credit
facility is based on the Company’s leverage ratio and can range from the London Interbank Offered Rate (“LIBOR”) plus 1.25% to 2.00% with no floor. The
initial interest rate was LIBOR plus 1.75%. The revolving credit facility and the term loan facility both have maturity dates of March 19, 2019. As part of the
credit agreement, we may also request the issuance of up to $75.0 million in letters of credit, the outstanding amount of which reduces our net borrowing
capacity under the agreement. As of September 28, 2014, our unused borrowing capacity was $271.8 million.
Use of proceeds — The Company borrowed $200.0 million under the new term loan and approximately $220.0 million under the new revolving credit
facility. The proceeds from the refinancing transaction were used to repay all borrowings under the former facility and to pay related transaction fees and
expenses associated with the refinance of the facility, and will also be available for permitted share repurchases, permitted dividends, permitted acquisitions,
ongoing working capital requirements and other general
F-17