BRC Group Holdings, Inc. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. We transact business in various foreign currencies. In countries where the functional currency of the underlying operations has been determined to be the local country’s currency, revenues and expenses of operations outside the United States are translated into United States dollars using average exchange rates while assets and liabilities of operations outside the United States are translated into United States dollars using period-end exchange rates. The effects of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive income in the accompanying unaudited condensed consolidated balance sheets. Transaction gains (losses) are included in selling, general and administrative expenses in our unaudited condensed consolidated statements of operations. Interest Rate Risk We have exposure to interest rate risk which primarily relates to changes in cost of borrowings as a result of changes in interest rates. We utilize borrowings under our senior notes payable and credit facilities to fund costs and expenses incurred in connection with our acquisitions and operations. Borrowings under our senior notes payable are at fixed interest rates and borrowings under our credit facilities bear interest at a floating rates of interest. As of March 31, 2025, approximately 86% of our debt obligations bore interest at fixed rates and not impacted by changes in interest rates. Our interest expense from variable-rate debt obligations is principally affected by changes in the published Secured Overnight Financing Rate in connection with our credit facilities. Our variable-rate debt obligations are principally used to provide financing to our operating businesses which are supported by cash flows from operations for those businesses. The cash flows of such operating businesses are utilized to help to mitigate any increases in interest expense as a result of an increase in interest rates. Management monitors the composition of debt obligations and debt investments on a periodic basis, as well as projected net interest income, interest coverage, and sensitivity of interest income changes in interest rates. This exposure is also monitored by our risk management group and reviewed periodically in risk committee meetings. If floating rates of interest had increased or decreased by 1% during the three months ended March 31, 2025, the rate increase or decrease would have resulted in an increase or decrease in interest expense of $0.5 million. If conditions existed in which Management would seek to mitigate potential interest rate risk, Management could elect to take steps such as entering into interest rate hedges, and refinancing debt obligations from floating-rate to fixed-rate. An objective of our investment activities is to preserve capital for the purpose of funding operations while at the same time maximizing the income that we receive from investments without significantly increasing risk. To achieve these objectives, our investments allow us to maintain a portfolio of cash equivalents, short-term investments through a variety of securities owned that primarily includes common stocks, loans receivable, and investments in partnership interests. Our cash and cash equivalents through March 31, 2025, included amounts in bank checking and liquid money market accounts. We may be exposed to interest rate risk through trading activities in convertible and fixed income securities as well as U.S. Treasury securities, however, based on our daily monitoring of this risk, we believe we currently have limited exposure to interest rate risk in these activities. Foreign Currency Risk The majority of our operating activities are conducted in U.S. dollars. Revenues generated from our foreign subsidiaries totaled $26.0 million and $32.0 million during the three months ended March 31, 2025 and 2024, respectively, or 14.0% and 10.8% of our total revenues of $186.1 million and $297.6 million. The financial statements of our foreign subsidiaries are translated into U.S. dollars at period-end rates, with the exception of revenues, costs, and expenses, which are translated at average rates during the reporting period. We include gains and losses resulting from foreign currency transactions in income, while we exclude those resulting from translation of financial statements from income and include them as a component of accumulated other comprehensive income (loss). Transaction gains (losses), which were included in our unaudited condensed consolidated statements of operations, amounted to gains of $0.3 million and $1.6 million during the three months ended March 31, 2025 and 2024, respectively. We may be exposed to foreign currency risk; however, our operating results during the three months ended March 31, 2025 and 2024, included $26.0 million and $32.0 million of revenues, respectively, and $5.5 million and $6.4 million of operating expenses from our foreign subsidiaries, respectively, and a 10% appreciation or depreciation of the U.S. dollar relative to the local currency exchange rates would result in an approximately $0.3 million and $0.2 million change in our operating income during the three months ended March 31, 2025 and 2024, respectively. 85 Table of Contents