OPEN TEXT CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk We are primarily exposed to market risks associated with fluctuations in interest rates on our term loans, revolving loans and foreign currency exchange rates. Interest rate risk Our exposure to interest rate fluctuations relates primarily to our Term Loan B, Revolver, Acquisition Term Loan and Bridge Loan. As of September 30, 2022, we had an outstanding balance of $955.0 million on Term Loan B. Term Loan B bears a floating interest rate of 1.75% plus LIBOR. As of September 30, 2022, an adverse change of one percent on the interest rate would have the effect of increasing our annual interest payment on Term Loan B by approximately $9.6 million, assuming that the loan balance as of September 30, 2022 is outstanding for the entire period (June 30, 2022—$9.6 million). As of September 30, 2022, we had no outstanding balance under the Revolver. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed rate that is dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%. As of September 30, 2022, with no outstanding balance on the Revolver, an adverse change of one percent on the interest rate would have no effect on our annual interest payment (June 30, 2022—nil). As of September 30, 2022, we had no borrowings under the Acquisition Term Loan. As of September 30, 2022, with no outstanding balance on the Acquisition Term Loan, an adverse change of one percent on the interest rate would have no effect on our annual interest payment (June 30, 2022—nil). As of September 30, 2022, we had no borrowings under the Bridge Loan. As of September 30, 2022, with no outstanding balance on the Bridge Loan, an adverse change of one percent on the interest rate would have no effect on our annual interest payment (June 30, 2022—nil). For more information regarding the impact of LIBOR and SOFR rates, see “Stress in the global financial system may adversely affect our finances and operations in ways that may be hard to predict or to defend against” included within Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2022. Foreign currency risk Foreign currency transaction risk We transact business in various foreign currencies. Our foreign currency exposures typically arise from intercompany fees, intercompany loans and other intercompany transactions that are expected to be cash settled in the near term and are transacted in non-functional currency. We expect that we will continue to realize gains or losses with respect to our foreign currency exposures. Our ultimate realized gain or loss with respect to foreign currency exposures will generally depend on the size and type of cross-currency transactions that we enter into, the currency exchange rates associated with these exposures and changes in those rates. We have hedged certain of our Canadian dollar foreign currency exposures relating to our payroll expenses in Canada. Based on the CAD foreign exchange forward contracts outstanding as of September 30, 2022, a one cent change in the Canadian dollar to U.S. dollar exchange rate would have caused a change of $0.6 million in the mark-to-market valuation on our existing foreign exchange forward contracts (June 30, 2022—$0.5 million). Additionally, in connection with the Micro Focus Acquisition, in August 2022, the Company entered into certain derivative transactions to meet certain foreign currency obligations related to the purchase price of the proposed Micro Focus Acquisition, mitigate the risk of foreign currency appreciation in the GBP denominated purchase price and mitigate the risk of foreign currency appreciation in the EUR denominated existing debt held by Micro Focus. The Company entered into the following derivatives: (i) three deal-contingent forward contracts, (ii) a non-contingent forward contract, and (iii) EUR/USD cross currency swaps. These instruments were entered into as economic hedges to mitigate foreign currency risks associated with the proposed Micro Focus Acquisition. The instruments do not qualify for hedge accounting at inception. Based on the deal contingent and non-contingent forward contracts outstanding as of September 30, 2022, a one cent change in the British Pound to U.S. dollar forward exchange rate would have caused a change of $22.7 million in the mark-to-market valuation on our existing deal-contingent forward and non-contingent forward contracts (June 30, 2022—nil). Based on the cross currency swaps outstanding as of September 30, 2022, a one cent change in the Euro to U.S. dollar forward exchange rate would have caused a change of $0.6 million in the mark-to-market valuation on our existing cross currency swaps (June 30, 2022—nil). Foreign currency translation risk Our reporting currency is the U.S. dollar. Fluctuations in foreign currencies impact the amount of total assets and liabilities that we report for our foreign subsidiaries upon the translation of these amounts into U.S. dollars. In particular, the 67 Table of C ontents amount of cash and cash equivalents that we report in U.S. dollars for a significant portion of the cash held by these subsidiaries is subject to translation variance caused by changes in foreign currency exchange rates as of the end of each respective reporting period (the offset to which is recorded to accumulated other comprehensive income (loss) on our Condensed Consolidated Balance Sheets). The following table shows our cash and cash equivalents denominated in certain major foreign currencies as of September 30, 2022 (equivalent in U.S. dollar): (In thousands) U.S. Dollar Equivalent at September 30, 2022 U.S. Dollar Equivalent at June 30, 2022 Euro $ 208,912 $ 254,546 British Pound 48,875 44,020 Canadian Dollar 14,372 14,640 Swiss Franc 88,908 48,674 Other foreign currencies 154,470 127,060 Total cash and cash equivalents denominated in foreign currencies 515,537 488,940 U.S. Dollar 1,188,848 1,204,801 Total cash and cash equivalents $ 1,704,385 $ 1,693,741 If overall foreign currency exchange rates in comparison to the U.S. dollar uniformly weakened by 10%, the amount of cash and cash equivalents we would report in equivalent U.S. dollars would decrease by $51.6 million (June 30, 2022—$48.9 million), assuming we have not entered into any derivatives discussed above under “Foreign Currency Transaction Risk.”