Annual Report for Fiscal Year Ending December 29, 2025 (Form 10-K)

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business operations, we are exposed to risks associated with fluctuations in interest rates and foreign currency exchange rates. We address these risks through controlled risk management that includes the use of derivative financial instruments to economically hedge or reduce these exposures. We do not enter into derivative financial instruments for trading or speculative purposes. As of December 29, 2025, we did not have any material commodity contracts in place and believe our exposure to commodity price risk is not material.

We have not experienced any losses to date on any derivative financial instruments due to counterparty credit risk.

Interest Rate Risks

Our business is exposed to risk resulting from fluctuations in interest rates. Our interest expense is more sensitive to fluctuations in the general level of Term SOFR interest rates than to changes in rates in other markets. Increases in interest rates would increase interest expense relating to our outstanding variable rate borrowings and increase the cost of debt. Fluctuations in interest rates can also lead to significant fluctuations in the fair value of our debt obligations.

In March 2023, we entered into a four-year pay-fixed, receive-floating (1-month CME Term SOFR), interest rate swap arrangement with a notional amount of $250.0 million for the period beginning April 1, 2023 and ending on April 1, 2027. Under the terms of the interest rate swap, we pay a fixed rate of 3.49% against a portion of our Term SOFR-based debt and receive floating 1-month CME Term SOFR during the swap period.

At inception, we designated the interest rate swap as a cash flow hedge and the fair value of the interest rate swap was zero. As of December 29, 2025, the fair value of the interest rate swap was recorded as a liability in the amount of $0.4 million included as a component of other long-term liabilities. As of December 30, 2024, the fair value of the interest rate swap was recorded as an asset in the amount of $3.1 million, of which $1.8 million is included as a component of prepaid expenses and other current assets and $1.3 million is included as a component of deposits and other non-current assets. No ineffectiveness was recognized for the year ended December 29, 2025. During the years ended December 29, 2025 and December 30, 2024, the interest rate swap decreased interest expense by $1.9 million and $4.2 million, respectively. For the year ended December 29, 2025, we received $10.6 million in floating-rate interest at an average rate of 4.24% and paid $8.8 million in fixed-rate interest at 3.49%.

See Liquidity and Capital Resourcesin Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operationsand Part II, Item 8, Note 7, Long-term Debt and Letters of Credit, of the Notes to Consolidated Financial Statements included in this Report for further discussion of our financing facilities and capital structure. As of December 29, 2025, approximately 81.4% of our debt was based on fixed rates. Based on our borrowings as of December 29, 2025, an assumed 100 basis point change in variable rates would cause our annual interest cost to change by $1.7 million.

Foreign Currency Exchange Rate Risks

In the normal course of business, we are exposed to risks associated with fluctuations in foreign currency exchange rates related to transactions that are denominated in currencies other than our functional currencies, as well as the effects of translating amounts denominated in a foreign currency to the U.S. Dollar as a normal part of our financial reporting process. Most of our foreign operations have the U.S. Dollar as their functional currency. However, one of our China facilities utilizes the RMB, which results in recognition of translation adjustments included as a component of other comprehensive income (loss). Our foreign exchange exposure results primarily from employee-related and other costs of running our operations in foreign countries, foreign currency denominated purchases, and translation of balance sheet accounts denominated in foreign currencies. We do not engage in hedging to manage this foreign currency risk. However, we may consider the use of derivatives in the future. Our primary foreign exchange exposure is to the RMB and MYR.

Debt Instruments

The fiscal calendar maturities of our debt instruments for the next five years were as follows: