XML 34 R20.htm IDEA: XBRL DOCUMENT v3.3.1.900
Commitments and Contingencies
12 Months Ended
Jan. 31, 2016
Commitments and Contingencies [Abstract]  
Commitments and Contingencies

Note 13 — Commitments and Contingencies 

Except as disclosed below, we currently are not a party to any material legal proceedings. 

 

Pending Litigation

 

K2 Asia Litigation

 

On April 7, 2009, a Cayman Islands corporation, K2 Asia Ventures, and its owners filed a lawsuit in Forsyth County, North Carolina Superior Court against us, our franchisee in the Philippines, and other persons associated with the franchisee.  The suit alleges that we and the other defendants conspired to deprive the plaintiffs of claimed “exclusive rights” to negotiate franchise and development agreements with prospective franchisees in the Philippines, and seeks unspecified damages.  We therefore do not know the amount or range of possible loss related to this matter.  We believe that these allegations are false and continue to vigorously defend against the lawsuit.  On July 26, 2013, the Superior Court dismissed the Philippines-based defendants for lack of personal jurisdiction, and the plaintiffs appealed that decision.  On January 22, 2015, the North Carolina Supreme Court denied the plaintiffs' request to review the case.  We moved for summary judgment on May 7, 2015 and are awaiting a decision by the Superior Court.  We do not believe it is probable that a loss has been incurred with respect to this matter, and accordingly no liability related to it has been reflected in the accompanying financial statements.

 

Other Legal Matters

 

We also are engaged in various legal proceedings arising in the normal course of business.  We maintain insurance policies against certain kinds of such claims and suits, including insurance policies for workers' compensation and personal injury, all of which are subject to deductibles.  While the ultimate outcome of these matters could differ from management's expectations, management currently does not believe their resolution will have a material adverse effect on our consolidated financial statements.

 

Other Commitments and Contingencies

     We have guaranteed certain franchisee lease obligations, usually in connection with subleasing or assigning leases in connection with refranchising transactions. The aggregate liability recorded for such obligations was $844,000 at January 31, 2016, and is included in accrued liabilities.

     Our primary bank had issued letters of credit on our behalf totaling $10.2 million at January 31, 2016, substantially all of which secure our reimbursement obligations to insurers under our self-insurance arrangements.

     We are exposed to the effects of commodity price fluctuations on the cost of ingredients for our products, of which flour, shortening and sugar are the most significant. In order to secure adequate supplies of products and bring greater stability to the cost of ingredients, we routinely enter into forward purchase contracts with suppliers under which we commit to purchase agreed-upon quantities of ingredients at agreed-upon prices at specified future dates. Typically, the aggregate outstanding purchase commitment at any point in time will range from one month's to several years' anticipated ingredients purchases, depending on the ingredient. In addition, from time to time we enter into contracts for the future delivery of equipment purchased for resale and components of doughnut-making equipment manufactured by us. As of January 31, 2016, we had approximately $57 million of commitments under ingredient and other forward purchase contracts. While we have multiple suppliers for most of our ingredients, the termination of our relationships with vendors with whom we have forward purchase agreements, or those vendors' inability to honor the purchase commitments, could adversely affect our results of operations and cash flows.

     In addition to entering into forward purchase contracts, we from time to time purchase exchange-traded commodity futures contracts or options on such contracts for raw materials which are ingredients of our products or which are components of such ingredients, including wheat and soybean oil. We typically assign the futures contract to a supplier in connection with entering into a forward purchase contract for the related ingredient. We may also purchase futures, options on futures or enter into other contracts to hedge our exposure to rising gasoline prices. See Note 20 for additional information about these derivatives.