Papa Johns 2014 Annual Report Download - page 64

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These and other risk factors are discussed in detail in “Part I. Item 1A. – Risk Factors” of this Annual
Report on Form 10-K. We undertake no obligation to update publicly any forward-looking statements,
whether as a result of future events, new information or otherwise, except as required by law.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our debt is comprised entirely of an unsecured revolving credit facility with outstanding balances of
$230.5 million as of December 28, 2014 and $157.9 million as of December 29, 2013. On October 31,
2014, we amended our unsecured revolving credit facility (“Amended Line”) to increase the amount
available from $300 million to $400 million and extend the maturity date from April 30, 2018 to October
31, 2019. Additionally, we have the option to increase the Amended Line an additional $100 million. The
interest rate charged on the outstanding balances is LIBOR plus 75 to 175 basis points. The commitment
fee on the unused balance ranges from 15 to 25 basis points.
We attempt to minimize interest risk exposure and to lower our overall borrowing costs for changes in
interest rates through the utilization of interest rate swaps, which are derivative financial instruments. Our
swaps are entered into with financial institutions and have reset dates and critical terms that match those
of the underlying debt. By using a derivative instrument to hedge exposures to changes in interest rates,
we expose ourselves to credit risk. Credit risk is the failure of the counterparty to perform under the terms
of the derivative contract. We minimize the credit risk by entering into transactions with high-quality
counterparties whose credit rating is evaluated on a quarterly basis.
On July 30, 2013, we terminated our $50 million interest rate swap agreement, which had a fixed rate of
0.56%. Upon termination of the $50 million swap, we entered into a $75 million swap with an interest
rate of 1.42% and a maturity date of April 30, 2018. In May 2014, we entered into a $50 million forward
interest rate swap with an interest rate of 1.36%, an effective date of December 30, 2014 and a maturity
date of April 30, 2018.
The effective interest rate on the revolving line of credit, including the impact of the interest rate swap
agreements, was 2.1% as of December 28, 2014. An increase in the present interest rate of 100 basis
points on the line of credit balance outstanding as of December 28, 2014, including the impact of the
interest rate swaps, would increase interest expense by $1.1 million.
Foreign Currency Exchange Rate Risk
We do not enter into financial instruments to manage foreign currency exchange rates since only 6.4% of
our total revenues are derived from sales to customers and royalties outside the United States.
Commodity Price Risk
In the ordinary course of business, the food and paper products we purchase, including cheese
(historically representing 35% to 40% of our food cost), are subject to seasonal fluctuations, weather,
availability, demand and other factors that are beyond our control. We have pricing agreements with some
of our vendors, including forward pricing agreements for a portion of our cheese purchases for our
domestic Company-owned restaurants, which are accounted for as normal purchases; however, we still
remain exposed to on-going commodity volatility.