Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are potentially exposed to market risks associated with changes in foreign currency translation rates, interest rates and commodity prices. See also Note 22, Derivative Instruments and Hedging Activities for more information on these risks. We selectively use financial instruments to reduce these risks. All transactions related to risk management techniques are authorized and executed pursuant to our policies and procedures. Analytical techniques used to manage and monitor foreign currency translation and interest rate risk include market valuations and sensitivity analysis.
We have estimated our market risk exposure using sensitivity analysis. To test the sensitivity of our market risk exposure, we have estimated the changes in fair value of market risk sensitive instruments assuming a hypothetical 10 percent adverse change in market prices or rates. The results of the sensitivity analyses are summarized below.
Foreign Currency Risk
We generate a substantial portion of our revenues in international markets, principally Germany and other countries in the European Union, Switzerland and Japan, which exposes our operations to the risk of exchange rate fluctuations. The impact of currency exchange rate movement can be positive or negative in any period. Our costs related to sales in foreign currencies are largely denominated in the same respective currencies, reducing our transaction risk exposure. However, for foreign currency denominated sales in certain regions, such as Japan, where we do not incur significant costs denominated in Japanese Yen, we are more exposed to the impact of foreign currency fluctuations.
For sales not denominated in U.S. Dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. Dollars, it will require more of the foreign currency to equal a specified amount of U.S. Dollars than before the rate increase. In such cases, if we price our products in the foreign currency, we will receive less in U.S. Dollars than we would have received before the rate increase went into effect. If we price our products in U.S. Dollars and our competitors price their products in local currency, an increase in the relative strength of the U.S. Dollar could result in our prices not being competitive in a market where business is transacted in the local currency. For example, if the U.S. Dollar strengthened against the Japanese Yen, our Japanese-based competitors would have a greater pricing advantage over us.
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Our revenue by geography was as follows for the periods presented (dollars in millions):
Year Ended
December 31,
2025
2024
Revenue
Percentage of
Revenue
Revenue
Percentage of
Revenue
United States
$
891.3
25.9
%
$
938.5
27.9
%
Germany
297.0
8.6
%
310.7
9.2
%
Europe excluding Germany
950.2
27.7
%
873.0
25.9
%
China
475.8
13.8
%
471.2
14.0
%
Asia Pacific excluding China
552.6
16.1
%
518.5
15.4
%
Other
269.6
7.9
%
254.5
7.6
%
Total revenue
$
3,436.5
100.0
%
$
3,366.4
100.0
%
Changes in foreign currency exchange rates increased our revenue by approximately 2.3% during the year ended December 31, 2025, and decreased our revenue by approximately 0.4% during the year ended December 31, 2024.
Assets and liabilities of our foreign subsidiaries, where the functional currency is the local currency, are translated into U.S. Dollars using period-end exchange rates. Revenues and expenses of foreign subsidiaries are translated at the average exchange rates in effect during the year. Adjustments resulting from financial statement translations are included as a separate component of shareholders’ equity. We recorded a net gain of $115.1 million and a net loss of $79.6 million, during the years ended December 31, 2025, and 2024, respectively, from currency translation adjustments. A 10% depreciation in functional currencies, relative to the U.S. Dollar, at December 31, 2025, would have resulted in a reduction of shareholders’ equity of approximately $207.1 million.
As of December 31, 2025, we have several cross-currency swap agreements with a notional value of $124.1 million of U.S. Dollar to Swiss Franc and a notional value of $124.1 million of U.S. Dollar to Euro to hedge the variability in the movement of foreign currency exchange rates on portions of our Euro and Swiss Franc denominated net asset investments. Under the U.S. GAAP hedge accounting guidance, changes in fair value of the derivative that relates to changes in the foreign currency spot rate are recorded in the currency translation adjustment in comprehensive income (loss) and remain in accumulated comprehensive income (loss) in shareholders’ equity until the sale or substantial liquidation of the foreign operation. The before tax gains and losses related to hedges of net asset investments in international operations that were recorded within the cumulative translation adjustment section of other comprehensive income were a loss of $251.5 million for the year ended December 31, 2025, gain of $89.1 million for the year ended December 31, 2024, and loss of $100.9 million for the year ended December 31, 2023. The difference between the interest rate received and paid under the cross-currency swap derivative agreement is recorded in interest income in the statements of operations.
Gains and losses resulting from foreign currency transactions are reported in Interest and other income (expense), net in the consolidated statements of operations and comprehensive income. Our foreign currency transaction gains, net were $11.6 million and $23.7 million for years ended December 31, 2025, and 2024, respectively.
From time to time, we have entered into forward currency contracts designed to minimize the volatility that fluctuations in foreign currency have on our cash flows related to purchases and sales denominated in foreign currencies. Under these arrangements, we agree to purchase a fixed amount of a foreign currency in exchange for a fixed amount of U.S. Dollars or other currencies on specified dates typically with maturities of less than twelve months with some agreements extending to longer periods. These transactions are recorded at fair value with the corresponding gains and losses recorded in Interest and other income (expense), net in the consolidated statements of operations and comprehensive income. The impact of currency exchange rate movement can be positive or negative in any period. We will continue to evaluate our currency risks, and in the future, may utilize foreign currency contracts more frequently.
Interest Rate Risk
From time to time, we may invest excess cash in short-term investments that are subject to changes in interest rates. We believe that the market risk arising from holding these financial instruments is minimal because of our policy of investing in money market funds and short-term financial instruments issued by highly rated financial institutions.
Our exposure to interest rate risk related primarily to outstanding variable rate debt under the U.S. Dollar denominated 2019 Term Loan and adverse movements in the related market rates. This exposure was managed as part of an interest rate swap which involved us paying fixed, receiving floating. The interest rate swap agreement was terminated during the third quarter of 2025 following the repayment of the 2019 Term Loan.
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Commodity Price Risk
We are exposed to certain commodity risks associated with prices for various raw materials. The prices of copper and certain other raw materials, particularly niobium-tin, used to manufacture superconductors have increased significantly over the last decade. Copper and niobium-tin are the main components of low temperature superconductors and continued commodity price increases for copper and niobium, as well as other raw materials, may negatively affect our profitability. Periodically, we enter into commodity forward purchase contracts to minimize the volatility that fluctuations in the price of copper have on our sales of these products. At December 31, 2025, and 2024, the fair value of the fixed price commodity contracts was de minimis. As commodity contracts settle, gains (losses) as a result of changes in fair values are adjusted to the contracts with the customers through revenues. We will continue to evaluate our commodity risks and may utilize commodity forward purchase contracts more frequently in the future.
Inflation Risk
We are subject to inflationary cost pressures across global operating supply networks. Certain components, parts, or materials are experiencing significant cost pressures that have impacted or may impact our cost of operations in future periods. Further, inflation has increased our selling, general and administrative expenses and may vary between countries in which we operate. We continue to evaluate these cost increases in relation to our new orders and may continue to see a negative impact on our financial results for a period of time.
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