Utz Brands, Inc. 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain commodity and interest rate risks as part of our ongoing business operations. We may use derivative financial instruments, where appropriate, to manage some of these risks related to interest rates. We do not use derivatives for trading purposes. Commodity Risk We purchase certain raw materials that are subject to price volatility caused by weather, market conditions, growing and harvesting conditions, governmental actions and other factors beyond our control. Our most significant raw material requirements include potatoes, oil, flour, wheat, corn, cheese, spices, and seasonings. We also purchase packaging materials that are subject to price volatility. In the normal course of business, in order to mitigate the risks of volatility in commodity markets to which we are exposed, we enter into forward purchase agreements with certain suppliers based on market prices, forward price projections and expected usage levels. Amounts committed under these forward purchase agreements are discussed in Note 9 “ Derivative Financial Instruments and Purchase Commitments ” to the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. 47 Interest Rate Risk Our variable-rate debt obligations incur interest at floating rates based on changes in the LIBOR rate. To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements to maintain a desired proportion of fixed to variable-rate debt. See Note 9 “ Derivative Financial Instruments and Purchase Commitments ” to the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information related to our interest rate swap agreements. While these interest rate swap agreements fixed a portion of the interest rate at a predictable level, interest expense would have been $0.2 million lower and equivalent without these swaps during the thirteen and thirty-nine weeks ended September 27, 2020, respectively. Including the effect of the interest rate swap agreement, the weighted average interest rate was 4.2% and 5.8%, respectively, as of September 27, 2020 and December 29, 2019. A 1% increase in the LIBOR rate would not have significantly impacted interest expense during the third fiscal quarter or through the first thirty-nine weeks of 2020. Credit Risk We are exposed to credit risks related to our accounts and notes receivable. We perform ongoing credit evaluations of our customers to minimize the potential exposure. We experienced no material credit losses during the first and third fiscal quarters of 2020 or 2019. During the thirteen and thirty-nine weeks ended September 27, 2020, net bad debt expense was $0.3 million and $0.7 million, respectively. During the thirteen and thirty-nine weeks ended September 29, 2019, net bad debt expense was $0.2 million and $0.2 million, respectively. Our reserve for potential future bad debt was $0.0 million as of September 27, 2020 and $1.4 million as of December 29, 2019.