Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Disclosures
We are exposed to market risk related to changes in interest rates and foreign exchange rates. We do not use derivative financial instruments for speculative or trading purposes.
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Interest Rate
We maintain an investment portfolio consisting of bank deposits and money market funds. The funds provide daily liquidity and may be subject to interest rate risk and fall in value if market interest rates increase. We do not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates. The following table presents the principal amounts and related weighted-average yields for our investments with interest rate risk at September 30, 2020 and 2019 :
September 30, 2020
September 30, 2019
Cost Basis
Carrying
Amount
Average
Yield
Cost Basis
Carrying
Amount
Average
Yield
(Dollars in thousands)
Cash and cash equivalents
$
157,394
$
157,394
0.05
%
$
106,426
$
106,426
0.76
%
On July 14, 2010, we issued $245 million of senior notes in a private placement to a group of institutional investors, the outstanding aggregate principal amount of which was paid in full at maturity on July 14, 2020 (the “2010 Senior Notes”). On May 8, 2018, we issued $400 million of senior notes in a private offering to qualified institutional investors (the “2018 Senior Notes”). On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes,” along with the 2010 Senior Notes and 2018 Senior Notes, the “Senior Notes”). The fair value of the Senior Notes may increase or decrease due to various factors, including fluctuations in market interest rates and fluctuations in general economic conditions. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity for additional information on the Senior Notes. The following table presents the carrying amounts and fair values for the Senior Notes at September 30, 2020 and 2019 :
September 30, 2020
September 30, 2019
Face Value (*)
Fair Value
Face Value (*)
Fair Value
(In thousands)
The 2010 Senior Notes
$
—
$
—
$
85,000
$
86,121
The 2018 Senior Notes
400,000
442,000
400,000
428,000
The 2019 Senior Notes
350,000
358,750
—
—
Total
$
750,000
$
800,750
$
485,000
$
514,121
(*) The carrying value of the Senior Notes was reduced by the net debt issuance costs of $10.6 million and $5.2 million at September 30, 2020 and 2019 , respectively.
We have interest rate risk with respect to our $400 million unsecured revolving line of credit. Interest on amounts borrowed under the credit facility is based on (i) a base rate, which is the greater of (a) the prime rate and (b) the Federal Funds rate plus 0.500% and (c) the one-month LIBOR rate plus 1.000% , plus, in each case, an applicable margin, or (ii) an adjusted LIBOR rate plus an applicable margin. The applicable margin for base rate borrowings ranges from 0% to 0.875% and for LIBOR borrowings ranges from 1.000% to 1.875% and is determined based on our consolidated leverage ratio. A change in interest rates on this variable rate debt impacts the interest incurred and cash flows, but does not impact the fair value of the instrument. We had $95.0 million in borrowings outstanding at a weighted-average interest of 1.285% under the credit facility as of September 30, 2020 .
Foreign Currency Forward Contracts
We use derivative instruments to manage risks caused by fluctuations in foreign exchange rates. The primary objective of our derivative instruments is to protect the value of foreign-currency-denominated receivable and cash balances from the effects of volatility in foreign exchange rates that might occur prior to conversion to their functional currencies. We principally utilize foreign currency forward contracts, which enable us to buy and sell foreign currencies in the future at fixed exchange rates and economically offset changes in foreign exchange rates. We routinely enter into contracts to offset exposures denominated in the British pound, Euro and Singapore dollar.
Foreign-currency-denominated receivable and cash balances are remeasured at foreign exchange rates in effect on the balance sheet date with the effects of changes in foreign exchange rates reported in other income, net. The forward contracts are not designated as hedges and are marked to market through other income, net. Fair value changes in the forward contracts help mitigate the changes in the value of the remeasured receivable and cash balances attributable to changes in foreign exchange rates. The forward contracts are short-term in nature and typically have average maturities at inception of less than three months.
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The following tables summarize our outstanding foreign currency forward contracts, by currency, at September 30, 2020 and 2019 :
September 30, 2020
Contract Amount
Fair Value
Foreign
Currency
USD
USD
(In thousands)
Sell foreign currency:
Euro (EUR)
EUR
15,000
$
17,656
—
Buy foreign currency:
British pound (GBP)
GBP
16,555
$
21,300
—
Singapore dollar (SGD)
SGD
7,815
$
5,700
—
September 30, 2019
Contract Amount
Fair Value
Foreign
Currency
USD
USD
(In thousands)
Sell foreign currency:
Euro (EUR)
EUR
10,800
$
11,723
—
Buy foreign currency:
British pound (GBP)
GBP
5,200
$
6,400
—
Singapore dollar (SGD)
SGD
5,798
$
4,200
—
The foreign currency forward contracts were entered into on September 30 of each fiscal year; therefore, the fair value was $0 on September 30, 2020 and 2019 .
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