Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
We are exposed to certain market risks, which are inherent in our financial instruments and arise from transactions entered into in the normal course of business. We may enter into derivative financial instrument transactions in order to manage or reduce market risk in connection with specific foreign-currency-denominated transactions. We do not enter into derivative financial instrument transactions for speculative purposes.
We are subject to interest rate risk on our borrowings under our bank lines of credit. Consequently, our interest expense would fluctuate with changes in the general level of these interest rates if we were to borrow any amounts under the credit facility.
Importance of International Markets
International markets provide us with significant growth opportunities. Our financial results in future periods could, however, be adversely affected by periodic economic downturns in different regions of the world, changes in trade
64
Table of Contents
policies or tariffs, civil or military conflict and other political instability. We monitor economic and currency conditions around the world to evaluate whether there may be any significant effect on our international sales in the future.
Foreign Currency
Our international operations are subject to certain opportunities and risks, including from foreign currency fluctuations and governmental actions. We conduct business in more than 20 countries. We closely monitor our operations in each country in which we do business and seek to adopt appropriate strategies that are responsive to changing economic and political environments, and to fluctuations in foreign currencies. Weaknesses in the currencies of some of the countries in which we do business are often offset by strengths in other currencies. Foreign currency financial statements are translated into U.S. dollars at period-end rates, except that revenues, costs and expenses are translated at average rates during the reporting period. We include gains and losses resulting from foreign currency transactions in income, while we exclude those resulting from translation of financial statements from income and include them as a component of accumulated other comprehensive loss. Transaction gains and losses, which were included in our consolidated statement of operations, amounted to a gain (loss) of approximately $(1.3) million, $0.1 million, and $(3.4) million for the fiscal years ended June 30, 2018, 2019 and 2020, respectively. A 10% appreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net increase in our operating income of approximately $5.8 million in fiscal 2020. Conversely, a 10% depreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net decrease in our operating income of approximately $5.8 million in fiscal 2020.
Inflation
We do not believe that inflation has had a material impact on our results of operations.
Interest Rate Risk
The principal maturity and estimated value of our long-term debt exposure for each of the fiscal years set forth below as of June 30, 2020 were as follows (in thousands):
Maturity
2025 and
2020
2021
2022
2023
2024
thereafter
Total
Fair Value
Convertible senior notes
$
—
$
—
$
—
$
287,500
$
—
$
—
$
287,500
$
287,500
Cash interest rate on convertible notes
1.25
%
1.25
%
1.25
%
1.25
%
—
%
—
%
1.25
%
1.25
%
Finance lease obligations
$
1,005
$
712
$
342
$
61
$
—
$
—
$
2,120
$
2,120
Average interest rate of finance lease obligations
4.8
%
4.8
%
4.8
%
4.8
%
—
%
—
%
4.8
%
4.8
%
At June 30, 2020, we had $59.0 million of borrowing outstanding under our revolving credit facility. These borrowings are subject to fluctuations in LIBOR.