Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our primary exposure to market risk relates to unfavorable changes in concentration of credit risk, interest rates and currency exchange rates.

Credit Risk. We are subject to concentrations of credit risk related to our cash and cash equivalents and net receivable position with customers, which includes amounts related to billed and unbilled accounts receivable and contract assets net of advanced billings with the same customer. Substantially all of our cash and cash equivalents are managed by what we believe to be high credit quality financial institutions. In accordance with our investment policies, these institutions are authorized to invest cash and cash equivalents in a diversified portfolio of what we believe to be high-quality investments, which primarily include interest-bearing demand deposits, money market investments and money market mutual funds. Although we do not currently believe the principal amounts of these cash and cash equivalents are subject to any material risk of loss, changes in economic conditions could impact the interest income we receive from these investments.

In addition, we grant credit under normal payment terms, generally without collateral, and therefore are subject to potential credit risk related to our customers’ inability to pay for services provided. Furthermore, the risk of nonpayment may be heightened as a result of depressed economic and financial market conditions, including in connection with the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic. We believe the concentration of credit risk related to billed and unbilled receivables and contract assets is limited because of the diversity of our customers, and we perform ongoing credit risk assessments of our customers and financial institutions and in some cases obtain collateral or other security from our customers. However, certain customers within our Underground Utility and Infrastructure Solutions segment have encountered operational and/or financial difficulties that have resulted in delayed payment and nonpayment of receivables in recent years. For additional information regarding these matters, see Revenue Recognition - Accounts Receivable and Allowance for Credit Losses in Note 4 and Concentrations of Credit Risk in Note 16 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for additional information.

Interest Rate Risk. As of December 31, 2021, we had no derivative financial instruments to manage interest rate risk. As such, we were exposed to earnings and fair value risk due to changes in interest rates with respect to our variable rate debt, which is comprised of certain borrowings under the credit agreement for our senior credit facility. As of December 31, 2021, the fair value of our variable rate debt of $1.20 billion approximated book value, and our weighted average interest rate on our variable rate debt for the year ended December 31, 2021 was 1.9%. The annual effect on our pretax earnings of a hypothetical 50 basis point increase or decrease in variable interest rates would be approximately $6.0 million based on our December 31, 2021 balance of variable rate debt.

Additionally, the transition in financial markets away from LIBOR, which is scheduled to occur by mid-2023 may lead to additional volatility in interest rates and could cause our debt service obligations to increase significantly. While the credit agreement for our senior credit facility includes LIBOR benchmark replacement provisions that are designed to mitigate volatility associated with this transition, the ultimate impact of the transition away from LIBOR remains unknown and subject to numerous factors, including determination of a replacement benchmark, and could materially and adversely affect our interest expense in future periods. For additional information on our debt instruments, including our senior notes, senior credit facility, the bridge facility commitment and interest requirements, see Note 10 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report*.*

Foreign Currency Risk. The U.S. dollar is the functional currency for the majority of our operations, which are primarily located within the United States. The functional currency for our foreign operations, which are primarily located in Canada and Australia, is typically the currency of the country in which the foreign operating company is located. Accordingly, our financial performance is subject to fluctuation due to changes in foreign currency exchange rates relative to the U.S. dollar. During 2021, revenues from our foreign operations accounted for 14.7% of our consolidated revenues. Fluctuations in foreign exchange rates during the year ended December 31, 2021 caused an increase of approximately $114 million in foreign revenues and an increase of approximately $4 million in foreign operating income compared to the year ended December 31, 2020. Fluctuations in foreign exchange rates during the year ended December 31, 2020 caused a decrease of approximately $17 million in foreign revenues and an increase of approximately $4 million in foreign operating income compared to the year ended December 31, 2019.

We are also subject to foreign currency risk with respect to sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of our operating companies. To minimize the risk from changes in foreign currency exchange rates, we may enter into foreign currency derivative contracts to hedge our foreign currency risk on a cash flow basis. There were no outstanding foreign currency derivative contracts at December 31, 2021.

We also have foreign exchange risk related to cash and cash equivalents in foreign banks. Based on the balance of cash and cash equivalents in foreign banks of $23.3 million as of December 31, 2021, an assumed 5% adverse change to foreign exchange rates would result in a fair value decline of $0.8 million.