Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
The global nature of our operations (particularly, the EU, China, Canada, the United Kingdom, Brazil, and India), both in the manufacture and sale of our products, results in foreign currency exposure to our financial statements. Because we manufacture and sell products and finance operations in a number of countries throughout the world, we are exposed to the impact of movements in currency exchange rates on revenue and expenses. A hypothetical 10% unfavorable change in the average
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exchange rate used to translate Net income for the fiscal twelve months ended December 28, 2025 from local currencies to U.S. dollars would result in a decline in Net income of approximately $122 million.
We manage the impact of foreign exchange rate translation and transaction exposures through operational means and the use of derivative financial instruments such as forward foreign exchange contracts and cross currency swap contracts. The derivative financial instruments are utilized as risk management tools and are not used for trading or speculative purposes. The fair value of forward foreign exchange contracts and cross currency swap contracts is sensitive to changes in foreign currency rates. As of December 28, 2025, a hypothetical 10% unfavorable change in exchange rates would result in an unrealized loss of approximately $182 million associated with the change in the fair value of the forward foreign exchange contracts and the cross currency swap contracts. Gains or losses on these contracts are generally offset by the gains or losses on the underlying transactions, and therefore, would have no impact on future anticipated earnings and cash flows.
Inflation Risk
Inflationary pressures have increased in recent years, and the costs of raw materials, packaging components, and other inputs for our products may increase in the future. In recent years, we have experienced, and we may in the future experience, higher than expected inflation, including escalating transportation, commodity, and other supply chain costs and disruptions that have adversely affected, and could in the future adversely affect, our results of operations. During 2023, 2024, and 2025, we partially offset the impact of prior inflationary increases, as well as tariffs, through price increases, in addition to continued supply chain optimization initiatives.
However, if our costs continue to be subject to inflationary pressures or higher tariffs, which remain subject to frequent and rapid change, we may not be able to offset the higher costs through price increases, achieve cost efficiencies, or otherwise manage the exposure through sourcing strategies, ongoing productivity initiatives, and the use of commodity hedging contracts, which could adversely affect our business, results of operations, or financial condition.
Interest Rate Risk
We are subject to interest rate risk related to our cash equivalents and marketable securities. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Interest rate risk is managed through the maintenance of a portfolio of variable and fixed-rate debt composed of short-term and long-term instruments. The objective is to maintain a cost-effective mix that management deems appropriate.
From time to time, we also hedge the anticipated issuance of fixed-rate debt by entering into forward starting interest rate swaps, which are designated as cash flow hedging relationships at the date of contract inception. See Note 16, “Fair Value Measurements,” to the Consolidated Financial Statements included herein for additional information. As of December 28, 2025, our outstanding long-term debt portfolio was comprised of primarily fixed-rate debt, and therefore, any fluctuation in market interest rate is not expected to have a material impact on our results of operations.
Our interest expense for any new floating rate debt we may incur in the future, including under the Revolving Credit Facility, could be exposed to changes in interest rates. Interest rate risk is highly sensitive due to many factors, including the monetary and tax policies of the United States and other countries, market and economic factors, and other factors beyond our control.
Commodity Price Risk
We are exposed to commodity and other price risks, including from resins, silicon, pulp and corn derivatives, paper, agrochemicals, vegetable oils and oleochemicals; and other inputs, including energy, labor, transportation (such as trucks, containers, and ocean freight), and logistics services. We use various strategic pricing mechanisms to manage cost exposures on certain material purchases with the objective of obtaining appropriate costs for these commodities.
Credit Risk
We are exposed to potential credit losses in the event of nonperformance by counterparties to our receivables, including our customers. Concentrations of credit risk arising from receivables from customers are limited due to the diversity of our customers. We perform credit evaluations of our customers’ financial conditions and may also obtain collateral or other security as appropriate. Notwithstanding these efforts, current adverse macroeconomic factors across the global economy may increase the difficulty in collecting receivables. We are also exposed to the risk of credit loss in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely and any nonperformance is
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unlikely to be material as it is our policy to contract with diverse, creditworthy counterparties based upon both strong credit ratings and other credit considerations.
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