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Item 3 — Quantitative and Qualitative Disclosures About Market Risk
Ceco Environmental Corp. · 10-Q · Q2 FY2026 · Period ended Jun 30, 2026
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We are exposed to certain market risks, primarily changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. For the Company, these exposures are primarily related to changes in interest rates. We do not currently hold any derivatives or other financial instruments purely for trading or speculative purposes.
The carrying value of the Company’s total long-term debt at June 30, 2026 was $736.7 million. Market risk was estimated as the potential decrease (increase) in future earnings and cash flows resulting from a hypothetical 10% increase (decrease) in the Company’s estimated weighted average borrowing rate at June 30, 2026. Most of the interest on the Company’s debt is indexed to SOFR market rates. The estimated annual impact of a hypothetical 10% change in the estimated weighted average borrowing rate at June 30, 2026 is $3.0 million.
The Company has wholly-owned subsidiaries in several countries, including in the Netherlands, Canada, the People’s Republic of China, Mexico, United Kingdom, Singapore, India, United Arab Emirates, Germany, South Korea and Saudi Arabia. In the past, we have not hedged our foreign currency exposure, and fluctuations in exchange rates have not materially affected our operating results. Future changes in exchange rates may positively or negatively impact our revenues, operating expenses and earnings. Transaction (gains) losses included in “Other expense, net” line of the Condensed Consolidated Statements of Operations were $2.1 million and $(1.4) million for the three months ended June 30, 2026 and 2025, respectively, and $3.4 million and $(0.9) million for the six months ended June 30, 2026 and 2025, respectively.