Item 3. Quantitative and Qualitative Disclosures About Market Risk
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Risk:
We are exposed to foreign exchange risk with respect to revenues and expenses denominated in the Pound Sterling, Euro, Canadian Dollar and Hungarian Forint. We provide radiological services in the United Kingdom, conduct Artificial Intelligence operations in the Netherlands, and maintain research and development centers in Canada and Hungary. We do not have any foreign currency exchange contracts to mitigate this risk. At March 31, 2024, a hypothetical 1% decline in the currency exchange rates between the U.S. dollar against these currencies, would have resulted in an annual increase of approximately $0.3 million in operating expenses.
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Interest Rate Sensitivity :
Our debt instruments including borrowings under our Barclays term loan and revolving credit facility and our Truist term loan and revolving credit facility bear interest at variable rates. Accordingly, our interest expense and consequently, our earnings, are affected by changes in short term interest rates. We purchased the 2019 swaps to mitigate interest rate risk on a portion of our outstanding term loan debt as described below.
We can elect SOFR or Alternative Base Rate interest options on amounts outstanding under the Barclays Term Loans. At March 31, 2024, after giving effect to the $400 million notional amount of our 2019 swaps we had $278.7 million outstanding subject to a SOFR election and our effective rate plus applicable margin was 8.57%. A hypothetical 1% increase in the SOFR rates under the Barclay's credit facility would result in an increase of $1.2 million in annual interest expense and a corresponding decrease in income before taxes. The 2019 Swaps secure a 1 month Term SOFR rate of 1.98% for the $400 million notional amount.
We can elect SOFR or Base Rate interest rate options on amounts outstanding under the Truist credit facility. At March 31, 2024, we had $142.5 million outstanding subject to an adjusted SOFR election on the Truist term loan. At March 31, 2024, our effective SOFR rate plus applicable margin was 6.93%. A hypothetical 1% increase in the adjusted Eurodollar rates under the Truist credit facility would result in an increase of approximately $1.4 million in annual interest expense and a corresponding decrease in income before taxes.
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