Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the
noncontrolling ownership interest in a subsidiary (minority interest). SFAS 160 clarifies that a minority interest in a subsidiary should be
reported as a separate component of equity in the parent’s financial statements. This statement also requires consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and the minority interest. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008, which is our 2009 fiscal year that began December 29, 2008. Our adoption of this statement did
not have a material impact on our consolidated financial statements.
ITEM 7A: Quantitative and Qualitative Disclosures about Market Risk.
We are subject to interest rate, commodity price and foreign currency market risks.
Interest Rate Risk
We are exposed to market risk from changes in the variable interest rates (primarily LIBOR) incurred on our revolving line of credit,
which at December 28, 2008 had borrowings outstanding of $401.9 million. We have entered into an interest rate swap contract which
effectively fixes the LIBOR component of our interest rate to a fixed rate of 3.62% on $150.0 million of our borrowings, leaving us with
$251.9 million of variable rate debt as of December 28, 2008. After giving effect to the swap, a 100 basis point increase in the variable
interest rates on our revolving line of credit at December 28, 2008, would increase our annual interest expense by approximately $2.5
million.
Commodity Price Risk
Commodity prices of certain food products that we purchase, primarily cheese and dough, vary throughout the year due to changes in
demand, supply and other factors. We currently have not entered into any hedging arrangements to reduce the volatility of the commodity
prices from period to period. The estimated increase in our food costs from a hypothetical $0.10 increase in the average cheese block price
per pound (approximately 6% of the unit cheese price as of December 28, 2008) would have been approximately $0.8 million for fiscal
2008. The estimated increase in our food costs from a hypothetical $0.10 increase in the average dough price per pound (approximately
20% of the unit dough price as of December 28, 2008) would have been approximately $1.5 million for fiscal 2008.
Foreign Currency Risk
As of December 28, 2008 we operated a total of 14 Company-owned stores in Canada. As a result, we have market risk associated
with changes in the value of the Canadian dollar. These changes result in cumulative translation adjustments, which are included in
“Accumulated other comprehensive income”, and potentially result in transaction gains or losses, which are included in our earnings.
During 2008, our Canada stores represented approximately 2.6% of our operating income. A hypothetical 10% devaluation in the average
quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during 2008 would have reduced our reported operating income by
approximately $0.2 million.
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