Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of business, we are exposed to market risk from changes in foreign currency exchange rates and changes in interest rates.
Foreign Currency Exchange Rate Risk
We have subsidiaries with operations in China, Australia, Canada and Vietnam who conduct business in their local currencies (functional currencies) and are therefore subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing and investing transactions in currencies other than the U.S. dollar. Currently, we do not have any open foreign currency forward contracts to hedge this risk.
Additionally, certain intercompany balances between our U.S. and foreign subsidiaries as well as other financial assets and liabilities are denominated in U.S. dollars. Since this is not the functional currency of our foreign subsidiaries, the changes in these balances are translated in our Consolidated Statements of Income, resulting in the recognition of a remeasurement gain or loss. In order to provide a hedge against currency fluctuations on the U.S. dollar denominated assets and liabilities held by certain of our foreign subsidiaries, we enter into monthly foreign currency forward contracts (balance sheet hedges) to attempt to offset the remeasurement gain or loss recorded at the foreign subsidiary. As of December 31, 2025, if the U.S. dollar strengthened or weakened 5%, the impact to the unrealized value of our forward contracts would be less than $0.1 million. The gain or loss on the forward contracts would be largely offset by the gain or loss on the underlying foreign subsidiary assets and liabilities, and therefore, would have minimal impact on future earnings.
Interest Rate Risk
Our Amended ABL Credit Facility (as defined in Note 6 in the notes to the Consolidated Financial Statements) is variable rate debt. At December 31, 2025, there were no borrowings outstanding. Borrowings under our Amended ABL Credit Facility and Term Loan Facility bear interest at Cactus Company’s option at either the Alternate Base Rate (as defined therein) or the Adjusted Term SOFR Rate (as defined therein), plus, in each case, an applicable margin.
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