Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item
3. Quantitative and Qualitative Disclosures about Market Risk
Interest
Rate Risk
Our
exposure to market risk includes interest rate fluctuations in connection with our Revolving Facility (see Note 5 – Credit Facilities).
As detailed in the BMO Credit Agreement, borrowings under the Revolving Facility bear interest, at the Company’s election, at either
(i) the Adjusted Term SOFR plus an applicable margin or (ii) the Base Rate plus an applicable margin. The applicable margin varies based
on the Company’s Total Net Leverage Ratio and ranges from 1.50% to 2.00% for SOFR loans and from 0.50% to 1.00% for Base Rate loans.
Borrowings under the Revolving Facility are therefore subject to risk based upon prevailing market interest rates. Interest rate risk
may result from many factors, including governmental monetary and tax policies, domestic and international economic and political considerations
and other factors that are beyond our control.
Foreign
Currency Risk
We
have wholly-owned subsidiaries in Hong Kong, China, the United Kingdom, Germany, France, the Netherlands, Italy, Canada, Mexico and Chile.
Sales are generally made by these operations on FOB China or Hong Kong terms and are denominated in U.S. dollars. However, purchases
of inventory and Hong Kong operating expenses are typically denominated in Hong Kong dollars and local operating expenses in the United
Kingdom, Germany, France, the Netherlands, Italy, Canada, Mexico, Chile and China are denominated in local currency, thereby creating
exposure to changes in exchange rates. Changes in the U.S. dollar exchange rates may positively or negatively affect our results of operations.
We do not believe that near-term changes in these exchange rates, if any, will result in a material effect on our future earnings, fair
values or cash flows. Therefore, we have chosen not to enter into foreign currency hedging transactions. We cannot assure you that this
approach will be successful, especially in the event of a significant and sudden change in the value of these foreign currencies.
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