Item 3. Quantitative and Qualitative Disclosures About Market Risk
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our quantitative and qualitative market risks since August 01, 2025. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of the 2025 Form 10-K.
Interest Rate Risk . We have interest rate risk relative to our outstanding borrowings under our revolving credit facility. At May 01, 2026, no borrowings were outstanding under our 2025 Revolving Credit Facility (see Note 4 to the Condensed Consolidated Financial Statements). Accordingly, no interest rate sensitivity analysis has been presented.
In accordance with the 2025 Revolving Credit Facility, outstanding borrowings bear interest, at our election, either at (1) the Term Secured Overnight Financing Rate (SOFR) or (2) a base rate equal to the greatest of (i) the prime rate, (ii) a rate that is 0.5% in excess of the Federal Funds Rate, and (iii) one-month Term SOFR plus 1.0%, in each case plus an applicable margin based on the Company’s consolidated total leverage ratio. Our policy has been to manage interest cost using a mix of fixed and variable rate debt (see Note 4 to our Condensed Consolidated Financial Statements). Additionally, the 2026 Notes and the 2030 Notes bear cash interest at a fixed rate of 0.625% and 1.75%, respectively, per annum.
Credit Risk. In 2021, the Company issued the 2026 Notes and entered into certain convertible note hedge transactions (“Convertible Note Hedge Transactions”) and warrant transactions (“Warrant Transactions”) with certain of the initial purchasers of the 2026 Notes and/or their respective affiliates and other financial institutions (the “Hedge Counterparties”). In 2025, the Company issued the 2030 Notes and entered into certain privately negotiated capped call transactions (“Capped Call Transactions”). In connection with the issuance of the 2030 Notes, the Company entered into partial unwind agreements with the Hedge Counterparties to unwind a portion of the Convertible Note Hedge Transactions and the Warrant Transactions. Subject to the movement in the Company’s common stock price, the Company could be exposed to credit risk arising out of the net settlement of the Capped Call Transactions, Convertible Note Hedge Transactions and the Warrant Transactions in its favor. Based on the Company’s review of the possible net settlements and the creditworthiness of the Hedge Counterparties and their affiliates, the Company believes it does not have a material exposure to credit risk as a result of these transactions at this time.
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