Papa Johns 2000 Annual Report Download - page 43

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38
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company’ s debt at December 31, 2000 is principally comprised of a $145.0 million outstanding
principal balance on the $200.0 million unsecured revolving line of credit. The interest rate on the revolving
line of credit is variable and is based on the London Interbank Offered Rate (LIBOR). An increase in
interest rate of 100 basis points would increase interest expense approximately $1.5 million annually. The
weighted average interest rate on the revolving line of credit was 7.13% in 2000 and 7.25% as of
December 31, 2000. In March 2000, we entered into a $100.0 million interest rate collar, which is effective
until March 2003. The collar establishes a 6.36% floor and a 9.50% ceiling on the LIBOR base rate on a
no-fee basis.
Substantially all of our business is transacted in U.S. dollars. Accordingly, foreign exchange rate
fluctuations do not have a significant impact on the Company.
Cheese, representing approximately 35 to 40% of our food cost, is subject to seasonal fluctuations,
weather, availability, demand and other factors that are beyond our control. We have entered into a
purchasing arrangement with a third-party entity formed at the direction of the Franchise Advisory Council
for the sole purpose of reducing cheese price volatility. Under this arrangement, we are able to purchase
cheese at a fixed quarterly price, based in part on historical average cheese prices. Gains and losses
incurred by the selling entity will be used as a factor in determining adjustments to the selling price over
time. Ultimately, we will purchase cheese at a price approximating the actual average market price, but
with less short-term volatility. See "Note 12" of "Notes to Consolidated Financial Statements" for further
information.