Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK INTEREST RATES
Our exposure to changes in interest rates results from our borrowing activities.
In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by approximately $0.1 million assuming
our average borrowing levels remained constant on our variable rate Revolving Credit Facility. As of March 27, 2021,
33
Table of Contents
$40.0 million was available under our Revolving Credit Facility, of which
$8.9 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. As described above under “Liquidity
and Capital Resources,” we also have a $15.0 million (original principal) term loan. As of March 27, 2021, $10.6 million was outstanding
on the term loan and was included in long-term debt and current portion of long-term debt on the Consolidated Balance Sheets. The term
loan requires total principal and interest repayments of $0.2 million per month through December 2025.
At our option, we borrow from our Revolving Credit Facility at the variable
one-month LIBOR, subject to the 1% floor or at a fixed rate for a designated period at the LIBOR corresponding to such period, in each
case, plus a margin. Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. Our interest
rate during fiscal year 2021 for our Revolving Credit Facility ranged from 1.4% to 2.7%. Interest on outstanding borrowings of the 2018
Term Loan accrues at a fixed rate of 4.15% over the term of the loan. On March 27, 2021, we had no hedging arrangements in place to limit
our exposure to upward movements in interest rates.
FOREIGN CURRENCY
Approximately 93% of our total revenues for fiscal years 2021 and 2020
were denominated in U.S. dollars, with the remainder denominated in Canadian dollars. A 10% change in the value of the Canadian dollar
to the U.S. dollar would impact our revenue by less than 1%. Since the onset of the COVID-19 pandemic in North America, the Canadian dollar
has weakened compared to the U.S. dollar. We monitor the relationship between the U.S. and Canadian currencies on a monthly basis and
adjust sales prices for products and services sold in Canadian dollars as we believe to be appropriate, including in response to the COVID-19
pandemic.
We continually utilize short-term foreign exchange forward contracts to
reduce the risk that future earnings would be adversely affected by changes in currency exchange rates. We do not apply hedge accounting
and therefore the net change in the fair value of the contracts, which totaled a net loss of less than $0.1 million in each of fiscal
years 2021 and 2020, was recognized as a component of other expense in the Consolidated Statements of Income. The change in the fair value
of the contracts is offset by the change in fair value on the underlying receivables denominated in Canadian dollars being hedged. On
March 27, 2021, we had a foreign exchange contract, which matured in April 2021, outstanding in the notional amount of $3.9 million. The
foreign exchange contract was renewed in April 2021 and continues to be in place. We do not use hedging arrangements for speculative purposes.
34
Table of Contents