Item 7A: Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to market risk from changes in interest rates and foreign currency exchange rates, which may adversely affect our consolidated financial position and results of operations. We seek to minimize these risks through regular operating and financing activities, and when deemed appropriate, through the use of interest rate swaps. It is our policy to enter into interest rate swaps only to the extent considered necessary to meet our risk management objectives. We do not purchase, hold or sell derivative financial instruments for trading or speculative purposes.

 

Variable Rate Indebtedness

 

We are subject to interest rate risk on our variable rate indebtedness. Fluctuations in interest rates have a direct effect on interest expense associated with our outstanding indebtedness. As of March 31, 2021, we had $232.0 million in outstanding variable rate indebtedness, after consideration of the interest rate swap. We manage, or hedge, interest rate risks related to our borrowings by means of interest rate swap agreements. At March 31, 2021, we had an interest rate swap agreement that covered 4.3% of our $242.3 million of our total outstanding indebtedness. At March 31, 2021, we had $232.0 million in unhedged variable rate indebtedness with a weighted average interest rate of 2.11%. Each quarter point change in interest rates would result in a change of approximately $0.6 million in our interest expense on an annual basis.

 

We may also be exposed to credit risk in derivative contracts we may use. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We have sought to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.

 

Foreign Currency Exchange Rate Risk

 

We conduct a small portion of our operations outside of the U.S. in currencies other than the U.S. dollar. Our non-U.S. operations are conducted primarily in their local currencies, which are also their functional currencies, and include the Australian dollar, British pound, Canadian dollar and Vietnamese dong. Foreign currency exposures arise from translation of foreign-denominated assets and liabilities into U.S. dollars and from transactions denominated in a currency other than a non-U.S. operation’s functional currency. We realized net (losses) gains associated with foreign currency translation of $4.8 million, $(2.3) million and $(2.0) million for the years ended March 31, 2021, 2020 or 2019, respectively, which are included in accumulated other comprehensive income (loss). We recognized foreign currency transaction net gains (losses) of $(0.9) million, $0.3 million and $0.4 million for the years ended March 31, 2021, 2020 or 2019, respectively, which are included in other income (expense), net on our consolidated statements of operations.

 

Based on a sensitivity analysis at March 31, 2021, a 10% change in the foreign currency exchange rates for the year ended March 31, 2021 would have impacted our income from continuing operations by less than 1%. This calculation assumes that all currencies change in the same direction and proportion relative to the U.S. dollar and that there are no indirect effects, such as changes in non-U.S. dollar sales volumes or prices.

 

 

Chargement...