Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of risks, including changes in interest rates affecting the return on our invested cash and borrowing activities and foreign currency fluctuations. We have established policies and procedures to manage our exposure to fluctuations in interest rates and foreign currency exchange rates.
Interest Rate Risk
Exposure to interest rate risk is related to changing interest rates under our Credit Agreement, which are variable and determined by reference to a term benchmark rate or a base rate at our option. The rates range from 1.00% to 2.00% above the term benchmark rate or from 0.00% to 1.00% above the defined base rate for base rate borrowings, in each case based upon our leverage ratio. Additionally, we may borrow certain foreign currencies at rates set in the same range above the respective term benchmark rates for those currencies. The outstanding balance of the term loan as of November 30, 2023 was $261.3 million.
On July 9, 2019, we entered into an interest rate swap contract with an initial notional amount of $150.0 million to manage the variability of cash flows associated with approximately one-half of our variable rate debt. The contract matures on April 30, 2024 and requires periodic interest rate settlements. In June 2023, the interest rate swap agreement was amended to implement certain changes in the reference rate from LIBOR to SOFR. Under the agreement, we receive a floating rate based on the greater of 1-month SOFR or 0.00% and pay a fixed rate of 1.855% on the outstanding notional amount. W e were previously exposed to market risk due to variable interest rates based on LIBOR and are now exposed to market risk due to variable interest rates based on SOFR.
November 30, 2023 November 30, 2022
Notional Value Fair Value Notional Value Fair Value
Interest rate swap contracts designated as cash flow hedges $ 103,125 $ 1,495 $ 120,000 $ 4,407
Foreign Currency Risk
We generally use forward contracts that are not designated as hedging instruments to hedge economically the impact of the variability in exchange rates on intercompany accounts receivable and loans receivable denominated in certain foreign currencies. We generally do not hedge the net assets of our international subsidiaries. All forward contracts are recorded at fair value in other current assets, other assets, other accrued liabilities, or other noncurrent liabilities on the consolidated balance sheets at the end of each reporting period and expire between 30 days and 2 years from the date the contract was entered. In fiscal year 2023, realized and unrealized gains of $2.3 million from our forward contracts were recognized in foreign currency loss, net on the consolidated statements of operations. These losses were substantially offset by realized and unrealized gains and losses on the offsetting positions.
Based on a hypothetical 10% adverse movement in all foreign currency exchange rates, our revenue would be adversely affected by approximately 3%, or $18 million, and our net income would be adversely affected by approximately 11%, or $8 million (excluding any offsetting positive impact from our ongoing hedging programs), although the actual effects may differ materially from the hypothetical analysis.
The table below details outstanding foreign currency forward contracts at November 30, 2023 and 2022 where the notional amount is determined using contract exchange rates (in thousands):
November 30, 2023 November 30, 2022
Notional Value Fair Value Notional Value Fair Value
Forward contracts to sell U.S. dollars $ 102,229 $ (2,526) $ 74,578 $ (2,995)
Forward contracts to purchase U.S. dollars 844 (4) 544 (5)
Total $ 103,073 $ (2,530) $ 75,122 $ (3,000)
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