PAPA JOHNS INTERNATIONAL INC 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk ​ Interest Rate Risk ​ We are exposed to the impact of interest rate changes on our PJI Revolving Facility. We attempt to minimize interest rate risk exposure by fixing our interest rate through the utilization of interest rate swaps, which are derivative financial instruments. The interest rate swaps were de-designated following the issuance of the Notes in the third quarter of 2021. Our swaps are entered into with financial institutions that participate in the PJI Revolving Facility. By using a derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk due to the possible failure of the counterparty to perform under the terms of the derivative contract. We do not enter into contracts for trading purposes and do not use leveraged instruments. The market risks associated with our debt obligations as of March 27, 2022 have not changed from those reported in “Part II. Item 7A. Quantitative and Qualitative Disclosure About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2021. See “Note 8” of “Notes to Condensed Consolidated Financial Statements” for additional information on our debt obligations and derivative instruments. ​ Foreign Currency Exchange Rate Risk ​ We are exposed to foreign currency exchange rate fluctuations from our operations outside of the United States, which can adversely impact our revenues, net income and cash flows. Our international operations principally consist of distribution sales to franchised Papa John’s restaurants located in the United Kingdom and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our international franchisees. For each of the periods presented, between 6% and 7% of our revenues were derived from these operations. ​ We have not historically hedged our exposure to foreign currency fluctuations. Foreign currency exchange rate fluctuations had an unfavorable impact of approximately $1.2 million on International revenues for first quarter of 2022 compared to a favorable impact of approximately $1.9 million in the first quarter of 2021. Foreign currency exchange rate fluctuations had an unfavorable impact of approximately $0.6 million on operating income in the first quarter of 2022 compared to a favorable impact of $0.5 million in the first quarter of 2021. ​ Commodity Price Risk ​ In the ordinary course of business, the food and paper products we purchase, including cheese (our largest individual food cost item), 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 remain exposed to on-going commodity volatility. ​ 38 Table of Contents The following table presents the actual average block price for cheese by quarter through the first quarter of 2022 and the projected average block price by quarter for 2022 (based on the April 29, 2022 Chicago Mercantile Exchange cheese futures market prices): ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ ​ Projected ​ Actual ​ Block Price Block Price ​ ​ ​ ​ ​ ​ ​ Quarter 1 $ 1.966 $ 1.676 Quarter 2 ​ 2.352 ​ 1.680 Quarter 3 ​ 2.374 ​ 1.676 Quarter 4 ​ 2.318 ​ 1.786 Full Year $ 2.253 * $ 1.705 ​ *The full year estimate is based on futures prices and does not include the impact of forward pricing agreements we have for a portion of our cheese purchases for our domestic Company-owned restaurants. Additionally, the price charged to restaurants can vary somewhat by quarter from the actual block price based upon our monthly pricing mechanism. ​