Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks in the normal course of business. Our current market risk exposures are primarily related to interest rates and foreign currency fluctuations. The following information about our market sensitive financial instruments contains forward-looking statements.
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates primarily to long-term debt obligations and derivatives. Our policy authorizes, with Board of Directors’ approval, the limited use of derivative instruments to hedge specific interest rate risks.
DEBT AND DERIVATIVES
As of January 2, 2026, and January 3, 2025, we had $4.6 billion and $4.7 billion of debt, respectively, which included $500 million related to our senior unsecured term loans that have a variable stated interest rate that is determined based on the Secured Overnight Financing Rate (“SOFR”) plus a margin. As a result, we may experience fluctuations in interest expense.
We had interest rate swap agreements to hedge the cash flows of a portion of our variable rate senior unsecured term loan (“Variable Rate Loan”). Under the terms of the interest rate swap agreements, we received monthly variable interest payments based on the one-month SOFR rate and paid interest at a fixed rate. As of January 3, 2025, the notional value of the interest rate swap agreements was $500 million. The interest rate swap agreements effectively converted a portion of our variable rate borrowing to a fixed rate borrowing. The fair value of our interest rate swap agreements with respect to our Variable Rate Loan was an asset of $4 million as of January 3, 2025. The interest rate swap agreements matured in August 2025. The counterparties to these agreements were financial institutions. We did not hold or issue derivative financial instruments for trading or speculative purposes.
We cannot predict future market fluctuations in interest rates. A net hypothetical 10% movement in the one-month SOFR rate would not have a significant impact on our annual interest expense. For additional information related to our interest rate swap agreements and debt, see “Note 12—Derivative Instruments” and “Note 13—Debt,” respectively, of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.
CASH AND CASH EQUIVALENTS
As of January 2, 2026, and January 3, 2025, our cash and cash equivalents included investments in several large institutional money market accounts. For fiscal 2025 and fiscal 2024, a hypothetical 10% interest rate movement would not have a significant impact on the value of our holdings or on interest income.
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FOREIGN CURRENCY RISK
Although the majority of our transactions are denominated in U.S. dollars, some of our transactions are denominated in foreign currencies. Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and certain intercompany transactions denominated in currencies other than our (or one of our subsidiaries’) functional currency. Our foreign operations represented 8% of total revenues for both fiscal 2025 and 2024, and 9% for fiscal 2023.
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