Panera Bread 2010 Annual Report Download - page 50

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condition. In addition, the updated guidance requires that in the reconciliation for fair value measurements using
significant unobservable inputs, or Level 3, a reporting entity separately disclose information about purchases,
sales, issuances and settlements on a gross basis rather than as one net number. This guidance is effective for fiscal
years beginning after December 15, 2010 and for interim periods therein. Therefore, we have not yet adopted the
guidance with respect to the roll forward activity in Level 3 fair value measurements. We expect that the adoption of
this new guidance will not have a material effect on our consolidated financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk
We manage our commodity risk in several ways. On occasion, we have entered into swap agreements to
manage our fluctuating butter prices. All derivative instruments are entered into for other than trading purposes. In
fiscal 2010, 2009 and 2008, we did not have any derivative instruments. In addition, we purchase certain
commodities, such as flour, coffee, and proteins, for use in our business. These commodities are sometimes
purchased under agreements of one month to one year time frames usually at a fixed price. As a result, we are
subject to market risk that current market prices may be above or below our contractual price.
Interest Rate Sensitivity
We are also exposed to market risk primarily from fluctuations in interest rates on our revolving credit facility.
Our revolving credit facility provides for a $250.0 million secured facility under which we may select interest rates
equal to (1) the Base Rate (which is defined as the higher of the Bank of America prime rate and the Federal funds
rate plus 0.50 percent) or (2) LIBOR plus an applicable rate ranging from 0.75 percent to 1.50 percent as set forth in
the Amended and Restated Credit Agreement. We did not have an outstanding balance on our credit facility at
December 28, 2010. We may have future borrowings under our credit facility, which could result in an interest rate
change that may have an impact on our consolidated results of operations.
Foreign Currency Exchange Risk
In the fourth quarter of fiscal 2008, we expanded our operations into Canadian markets by opening two
franchise-operated bakery-cafes. We opened one additional bakery-cafe in Canada in the first quarter of fiscal 2009.
We purchased a controlling interest in the three aforementioned cafes on March 31, 2010 and subsequently
purchased the remaining noncontrolling interest on December 28, 2010. Our operating expenses and cash flows are
subject to fluctuation due to changes in the exchange rate of the Canadian Dollar, in which our operating obligations
in Canada are paid. To date, we have not entered into any hedging contracts, although we may do so in the future.
Fluctuations in currency exchange rates could affect our business in the future.
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