Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates.
COVID-19. The current COVID-19 outbreak situation remains dynamic and subject to rapid and possibly material change including, but not limited to, changes that may materially affect the operations of our customers and supply chain partners, which ultimately could result in material negative effects on our business and results of operations. Refer to Item 1A, Risk Factors, for additional discussion of our risks associated with pandemics, epidemics or disease outbreaks, such as COVID-19.
Interest rate risk. We are subject to interest rate risk in connection with borrowing based on a variable interest rate. Derivative financial instruments, such as interest rate swap agreements and interest rate cap agreements, may be used for the purpose of managing fluctuating interest rate exposures that exist from our variable rate debt obligations that are expected to remain outstanding. Interest rate changes do not affect the market value of such debt, but could affect the amount of our interest payments, and accordingly, our future earnings and cash flows, assuming other factors are held constant. Assuming average variable rate debt levels during the year, a 1% increase in interest rates would have increased interest expense by approximately $5.3 million for the fifty-two weeks ended August 28, 2021.
Foreign currency risk. We are exposed to changes in currency rates as a result of investments in foreign operations and revenue generated in currencies other than the U.S. Dollar. Revenue and profit generated by international operations will increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates. Historically, our foreign currency risk has primarily related to our operations in Canada, which were largely related to the SimplyProtein brand. With the SimplyProtein Sale in September 2020 as well as the restructuring-related business activities in Europe, we have mitigated some of our risk of exposure to changes in foreign currency rates.
Inflation. While inflation may affect our revenue and cost of services and products, we believe the effects of inflation, if any, on our results of operations and financial condition during the fifty-two weeks ended August 28, 2021 have not been significant. However, there can be no assurance that results of operations and financial condition will not be materially affected by inflation in the future.
Supply chain. We are exposed to risks associated with changes in the costs of our raw materials as well as changes to our supply and distribution costs. We expect higher raw material and freight costs in fiscal year 2022. As a result, in June 2021, management notified our customers of our plans to institute a price increase effective in September 2021, the first month of our fiscal year 2022. Management believes the price increase and productivity initiatives will enable us to continue to invest in projects that drive growth. However, there can be no assurance that the price increase will fully offset the effects of higher raw material and freight costs on our results of operations and financial condition. We have also begun to see logistics challenges, which we believe have contributed to lower retail and e-commerce sales of our products due to out-of-stock situations, delayed recognition of sales and higher than historical inventory levels. In addition, we could experience additional lost sale opportunities at our retail and e-commerce customers if our products are not available for purchase as a result of disruptions in our supply chain relating to an inability to obtain ingredients or packaging, labor challenges at our logistics providers or our contract manufacturers, or if our customers experience delays in stocking our products. Refer to Item 1A, Risk Factors, for additional discussion of our risks associated with the costs of our raw materials, such as our core ingredients and packaging, and our supply chain.
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