Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Derivatives policies
Hedging foreign exchange exposure using forward contracts are specifically contemplated to manage risk in accordance with management's policies and reduce the risks inherent in currency fluctuations. We do not utilize derivatives for speculative purposes or enter into market risk sensitive instruments for trading purposes. Derivatives are transaction specific such that a specific contract or invoice determines the amount, maturity, and other specifics of the hedge.
Foreign exchange rates
Our sales transactions are generally conducted in USD, as is the business of the tobacco industry. However, local country operating costs, including the purchasing and processing costs for tobaccos, are subject to the effects of exchange fluctuations of the local currency against the USD. We attempt to minimize such currency risks by matching the timing of our working capital borrowing needs against the tobacco purchasing and processing funds requirements in the currency of the country where the tobacco is grown. Also, in some cases, our sales pricing arrangements with our customers allow adjustments for the effect of currency exchange fluctuations on local purchasing and processing costs. Fluctuations in the value of foreign currencies can significantly affect our operating results. In our cost of goods and services sold, we have recognized exchange losses of $6.0 million, $3.7 million, and $5.2 million for the years ended March 31, 2025, 2024, and 2023, respectively. We recognized exchange losses of $1.1 million, $0.1 million, and $1.8 million related to tax balances in our tax expense for the years ended March 31, 2025, 2024, and 2023, respectively. In addition, foreign currency fluctuations in the Euro and Pound Sterling can significantly impact the currency translation adjustment component of accumulated other comprehensive income. We recognized (losses) gains of $(0.4) million, $0.7 million, and $1.7 million for the years ended March 31, 2025, 2024, and 2023, respectively, as a result of fluctuations in these currencies.
Our consolidated SG&A expenses denominated in foreign currencies are subject to translation risks from currency exchange fluctuations. These foreign denominated expenses accounted for approximately $35.9 million, or 20.0%, of our total SG&A expenses for the year ended March 31, 2025. A 10% change in the value of the USD relative to those currencies would have caused the reported value of those expenses to increase or decrease by approximately $3.6 million.
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Interest rates
We manage our exposure to interest rate risk through the proportion of fixed rate and variable rate debt in our total debt portfolio. A 1% change in variable interest rates would have increased or decreased our reported interest cost for the year ended March 31, 2025 by approximatel y $9.7 million. A substantial portion of our borrowings are denominated in USD and bear interest at commonly quoted rates.
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