Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. These risks include the following:
Foreign Exchange Risk
Our net revenue is primarily denominated in U.S. dollars, with some denominated in foreign currencies, and a portion of our operating expenses are incurred outside the United States, denominated in foreign currencies. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates, particularly changes in the Canadian Dollar, Euro and British Pound, or weak economic conditions in foreign markets. We are exposed to changes in foreign currency rates as a result of our foreign operations and international suppliers from whom we purchase primarily in US dollars. Revenue and income generated by our operations in Canada, France and the United Kingdom will increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates. As of June 27, 2026, foreign currency transaction gains and losses have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging transactions.
Interest Rate Risk
Our cash and cash equivalents as of June 27, 2026, consisted of $76.6 million in cash and cash equivalents. Such interest-earning instruments carry a degree of interest rate risk. The goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate exposure. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents.
Our exposure to interest rate risk is related to the Credit Facility. The Credit Facility bears interest based on floating reference rates. A 100 basis point increase in market interest rates would have a negative effect on net profit in the amount of $1.8 million for the quarter ended June 27, 2026. A 100 basis point decrease in market interest rates would have an approximately equal and opposite effect. The revolving credit facility is currently not utilized and therefore has no impact on interest costs at present.
Inflation Risk
Inflationary factors such as increases in the cost of our products and overhead costs may adversely affect our results of operations. We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.