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.
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, 2024 and 2023:
September 30, 2024 September 30, 2023
Cost Basis Carrying
Amount Average
Yield Cost Basis Carrying
Amount Average
Yield
(Dollars in thousands)
Cash and cash equivalents $ 150,667 $ 150,667 2.88 % $ 136,778 $ 136,778 3.05 %
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On May 8, 2018, we issued $400 million of senior notes in a private placement 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”). On December 17, 2021, we issued $550 million of additional senior notes of the same class as the 2019 Senior Notes in a private placement to qualified institutional investors (the “2021 Senior Notes” and collectively with the 2018 Senior Notes and 2019 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 face values and fair values for the Senior Notes at September 30, 2024 and 2023:
September 30, 2024 September 30, 2023
Face Value Fair Value Face Value Fair Value
(In thousands)
The 2018 Senior Notes $ 400,000 399,500 $ 400,000 $ 386,000
The 2019 Senior Notes and the 2021 Senior Notes 900,000 864,000 900,000 803,250
Total $ 1,300,000 $ 1,263,500 $ 1,300,000 $ 1,189,250
We have interest rate risk with respect to our unsecured revolving line of credit and term loans. Interest rates on amounts borrowed under the revolving line of credit and term loans are based on (i) an adjusted base rate, which is the greatest of (a) the prime rate, (b) the Federal Funds rate plus 0.5%, and (c) one-month adjusted term SOFR plus 1%, plus, in each case, an applicable margin, or (ii) an adjusted term SOFR plus an applicable margin (or, if such rate is no longer available, a successor benchmark rate determined in accordance with the terms of the credit agreement). Adjusted term SOFR is defined as term SOFR for the relevant interest period plus a SOFR adjustment of 0.10% per annum. The applicable margin for base rate borrowings and for SOFR borrowings is determined based on our consolidated leverage ratio. The applicable margin for base rate borrowings ranges from 0% to 0.75% per annum and for SOFR borrowings ranges from 1% to 1.75% per annum. 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. As of September 30, 2024, we had $210.0 million in borrowings outstanding under the revolving line of credit at a weighted-average interest rate of 6.396%, $258.8 million in outstanding balance of the $300 Million Term Loan at an interest rate of 6.344%, and $450.0 million in outstanding balance of the $450 Million Term Loan at an interest rate of 6.281%.
Foreign Currency Forward Contracts
We maintain a program to manage our foreign exchange rate risk on existing foreign-currency-denominated receivable and cash balances by entering into forward contracts to sell or buy foreign currencies. At period end, foreign-currency-denominated receivable and cash balances held by our various reporting entities are remeasured into their respective functional currencies at current market rates. The change in value from this remeasurement is then reported as a foreign exchange gain or loss for that period in our accompanying consolidated statements of income and comprehensive income and the resulting gain or loss on the forward contract mitigates the foreign exchange rate risk of the associated assets. All of our foreign currency forward contracts have maturity periods of less than three months. Such derivative financial instruments are subject to market risk.
The following tables summarize our outstanding foreign currency forward contracts, by currency, at September 30, 2024 and 2023:
September 30, 2024
Contract Amount Fair Value
Foreign
Currency USD USD
(In thousands)
Sell foreign currency:
Euro (EUR) EUR 13,000 $ 14,531 —
Buy foreign currency:
British pound (GBP) GBP 12,237 $ 16,400 —
Singapore dollar (SGD) SGD 7,404 $ 5,800 —
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September 30, 2023
Contract Amount Fair Value
Foreign
Currency USD USD
(In thousands)
Sell foreign currency:
Euro (EUR) EUR 12,900 $ 13,621 —
Buy foreign currency:
British pound (GBP) GBP 10,700 $ 13,100 —
Singapore dollar (SGD) SGD 8,569 $ 6,300 —
The foreign currency forward contracts were entered into on September 30, 2024 and 2023; therefore, their fair value was $0 at each of these dates.
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