Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our cash flows and earnings are subject to fluctuations from changes in interest rates and foreign currency exchange rates. We manage our exposures to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of interest-rate swap agreements and forward exchange contracts. We do not enter into derivatives or other financial instruments for trading or speculative purposes.
Total debt outstanding was $1,139.5 million as of December 31, 2025, which was at fixed rates of interest ranging from 4.20% to 6.55% and variable rates of interest of:
(a) an adjusted term Secured Overnight Financing Rate (SOFR) plus a credit spread adjustment of 0.10% for the applicable interest period plus a margin ranging from 1.50% to 2.25% on the Revolving Facility, or
(b) a base rate plus a margin ranging from 0.50% to 1.25%, in each case, with such margin determined based on the lower of the ratings issued by Moody’s and S&P of senior, unsecured long-term debt (the “Ratings”) and our total net leverage ratio, and
(c) an adjusted term Sterling Overnight Index Average (SONIA) plus a credit spread adjustment of 0.10% for that applicable interest period plus a margin of 1.50% to 2.25% under Term Loan A, and
(d) a Euro Interbank offered Rate (EURIBOR) plus a credit spread of 2.75% under Term Loan B.
We are required to pay a fee on undrawn commitments under the Revolving Facility at a rate per annum that ranges from 0.20% to 0.35%, based on the lower of the Ratings and our total net leverage ratio.
The following is an analysis of the potential changes in interest rates and currency exchange rates based upon sensitivity analysis that models effects of shifts in rates. These are not forecasts.
• 47% of our year-end portfolio is comprised of fixed-rate debt, while the remaining 53% is variable-rate debt and therefore subject to market change in interest rates. As of December 31, 2025, a hypothetical 1% increase in prevailing interest rates would increase our 2025 interest expense by approximately $6.2 million.
• Based on a sensitivity analysis as of December 31, 2025, a 10% change in the foreign currency exchange rates for the year ended December 31, 2025 would have impacted our net earnings by approximately $7.4 million, due primarily to the euro, Japanese yen, British pound and Swedish krona. This calculation assumes that all currencies change in the same direction and proportion relative to the U.S. dollar and there are no indirect effects, such as changes in non-U.S. dollar sales volumes or prices.
To help mitigate foreign currency translation risk on our international operations, in the fourth quarter of 2025 we designated our euro‑denominated Term Loan B as a net investment hedge of certain foreign subsidiaries. This strategy aligns a portion of our debt with the currency of our international investments so that changes in exchange rates affect the debt and the underlying net investment in offsetting directions. As a result, the currency‑related impact of this hedge is recorded in CTA, a component of AOCI, rather than in earnings. This reduces period‑to‑period volatility in our results that would otherwise arise from movements in foreign exchange rates, while providing a more stable reflection of the underlying economic exposure of our international holdings.
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