Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures of Market Risks
Commodity Price Risk. We are exposed to market risks from changes in commodity prices. Many of the food products purchased by us are affected by weather, production, availability, and other factors outside our control. Although we attempt to minimize the effect of price volatility by negotiating fixed price contracts for the supply of key ingredients, there are no established fixed price markets for bone-in chicken wings, and as a result we are subject to prevailing market conditions. Bone-in chicken wings accounted for approximately 23.1% and 34.5% of our company-owned restaurant costs of sales in fiscal years 2022 and 2021. A hypothetical 10.0% increase in the bone-in chicken wing costs in fiscal year 2022 would have increased costs of sales by approximately $1.5 million during the year. We do not engage in speculative financial transactions nor do we hold or issue financial instruments for trading purposes.
Interest Rate Risk. Our long-term debt, including current portion, consisted entirely of the $724.6 million incurred under the 2022 Notes and 2020 Notes as of December 31, 2022 (excluding unamortized debt issuance costs). The Company’s predominantly fixed-rate debt structure has reduced its exposure to interest rate increases that could adversely affect its earnings and cash flows, but the Company remains exposed to changes in market interest rates reflected in the fair value of the debt and to the risk that the Company may need to refinance maturing debt with new debt at a higher rate. The Company is exposed to interest rate increases under the 2022 Variable Funding Notes; however, the Company had no outstanding borrowings under its 2022 Variable Funding Notes as of December 31, 2022.
Item 8. Financial Statements and Supplementary Data
Information with respect to this Item is set forth beginning on page F-1. See “ Item 15 - Exhibits and Financial Statement Schedules ” below.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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