Fair Value of Financial Instruments

6 Months Ended

Jul. 13, 2024

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, accounts receivable, and short-term debt approximates fair value because of the short-term maturity of the instruments. Notes receivable are entered into in connection with the purchase of independent distributors’ distribution rights by independent distributor partners (“IDPs”). These notes receivable are recorded in the Condensed Consolidated Balance Sheets at carrying value, which represents the closest approximation of fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The company financed approximately 2,800 and 3,000 IDPs’ distribution rights as of July 13, 2024 and December 30, 2023, respectively, all with varied financial histories and credit risks. However, the current stated interest rates used to record the carrying values are appropriately reflective of our estimated interest rates that would be made to borrowers with similar credit ratings for the remaining maturities of the distributor notes receivable. The distribution rights are generally purchased by the IDP with a 5% down payment with the remainder financed for up to 10 years. The distributor notes receivable are collateralized by the IDPs’ distribution rights. The company maintains a wholly-owned subsidiary to assist in financing the distribution rights purchase activities if requested by new IDPs, using the distribution rights and certain associated assets as collateral. These notes receivable earn interest at a fixed rate.

Interest income was primarily related to the IDPs’ notes receivable and was as follows (amounts in thousands):

	Interest Income
For the twelve weeks ended July 13, 2024	$	4,070
For the twelve weeks ended July 15, 2023	$	4,758
For the twenty-eight weeks ended July 13, 2024	$	9,760
For the twenty-eight weeks ended July 15, 2023	$	11,709

At July 13, 2024 and December 30, 2023, respectively, the carrying value of the distributor notes receivable was as follows (amounts in thousands):

	July 13, 2024			December 30, 2023
Distributor notes receivable	$	128,224		$	133,335
Less: current portion of distributor notes receivable recorded in    accounts and notes receivable, net		(14,995	)		(9,764	)
Long-term portion of distributor notes receivable	$	113,229		$	123,571

The distributor notes receivable balance as of July 13, 2024 and December 30, 2023 include a reserve of $7.8 million and $14.8 million, respectively, related to a legal settlement. See Note 15, Commitments and Contingencies, for additional information.

The fair value of the company’s variable rate debt at July 13, 2024 approximates the recorded value. The fair value of the company’s 2.400% senior notes due 2031 (the "2031 notes") and 3.500% senior notes due 2026 (the “2026 notes”), as discussed in Note 13, Debt and Other Obligations, of this Form 10-Q, are estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements and are considered a Level 2 valuation. The fair value of the 2031 notes and 2026 notes are presented in the table below (amounts in thousands, except level classification):

	Carrying Value		Fair Value		Level
2031 notes	$	495,116	$	422,617	2
2026 notes	$	398,728	$	386,654	2

For fair value disclosure information about our derivative assets and liabilities see Note 9, Derivative Financial Instruments.