Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Like other global companies, we are exposed to market risks relating to fluctuations in commodity prices, interest rates and foreign currency exchange rates. The objective of our financial risk management is to minimize the volatility of commodity price, interest rate and foreign exchange rate fluctuations on our earnings, cash flows and equity.
To manage commodity price risk, we enter into swap contracts for future forecasted purchases of copper. This reduces the impact of commodity price volatility on gross profit. To manage interest rate risks, we use a combination of fixed and variable rate debt and interest rate swaps. This reduces the impact of short-term fluctuations in interest rates. To manage foreign currency exchange rate risks, we use forward exchange contracts to hedge firm commitments up to twelve months, and all such contracts are marked to market with the recognition of a gain or loss at each reporting period.
The following analyses present the sensitivity of the market value, earnings and cash flows of our financial instruments and foreign operations to hypothetical changes in interest and exchange rates and market prices for copper as if these changes occurred at December 31, 2025. The range of changes chosen for these analyses reflects our view of changes which are reasonably possible over a one-year period. Market values are the present values of projected future cash flows based on copper price, interest rate and exchange rate assumptions. These forward-looking statements are selective in nature and only address the potential impacts from financial instruments and foreign operations. They do not include other potential effects that could impact our business as a result of these changes.
Commodity Price Sensitivity Analysis . Our exposure to market risk for changes in copper prices relates primarily to the purchase price of the raw material and the fixed price sales agreements we have with customers of our PC segment. We utilize swap contracts to manage this price risk. See Note 5 – Derivative Financial Instruments for quantities and the financial statement impact of these contracts as of December 31, 2025. Holding other variables constant, if there were a 10 percent reduction in the December 31, 2025 market price of copper, the fair value of these contracts would be a gain of $17.4 million, all of which would be recognized in income, before tax.
Interest Rate and Debt Sensitivity Analysis . Our exposure to market risk for changes in interest rates relates primarily to our interest payments on our variable rate debt obligations. See Note 15 – Debt for discussion of the changes in debt and Note 5 - Derivative Financial Instruments for discussion of our interest rate swap agreements. For variable rate debt, interest rate changes impact earnings and cash flows. Assuming other factors are held constant, a one percentage point increase in interest rates would have decreased earnings and cash flows by approximately $5.4 million over a twelve-month period, holding other variables constant, inclusive of interest rate swap effects.
Exchange Rate Sensitivity Analysis . Our exchange rate exposures result primarily from our investment and ongoing operations in Australia, Brazil, Canada, Chile, Denmark, the Netherlands, New Zealand and the United Kingdom. Holding other variables constant, if there were a ten percent reduction in all relevant exchange rates, the effect on our earnings, based on actual earnings from foreign operations for the year ended December 31, 2025, would be a reduction of approximately $4.2 million.
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Koppers Holdings Inc. 2025 Annual Report