Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The information in this section should be read in connection with the information on financial market risk related to changes in interest rates and currency exchange rates in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of Part II of our 2020 Annual Report. 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 ongoing COVID-19 pandemic and the currently challenged energy market. 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. For example, certain customers within our Underground Utility and Infrastructure Solutions segment have encountered operational and/or financial difficulties. For additional information regarding these matters, see Revenue Recognition - Current and Long-Term Accounts Receivable and Allowance for Credit Losses in Note 2 and Concentrations of Credit Risk in Note 10 of the Notes to Condensed Consolidated Financial Statements in Item 1. Financial Statements of Part I of this Quarterly Report.

Interest Rate Risk. As of September 30, 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 borrowings under the credit agreement for our senior credit facility. As of September 30, 2021, the fair value of our variable rate debt of $415.9 million approximated book value, and our weighted average interest rate on our variable rate debt for the three months ended September 30, 2021 was 2.13%. The annual effect on our pretax earnings of a hypothetical 50 basis point increase or decrease in variable interest rates would be approximately $2.1 million based on our September 30, 2021 balance of variable rate debt.

Additionally, the transition in financial markets away from the LIBOR beginning in 2021 may lead to additional volatility in interest rates and could cause our debt service obligations to increase significantly as further described in Liquidity and Capital Resources - Debt Instruments in Item 2. Management’s Discussion and Analysis of Part I of this Quarterly 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 unit 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 the three and nine months ended September 30, 2021, revenues from our foreign operations accounted for 13.7% and 15.3% of our consolidated revenues. Fluctuations in foreign currency exchange rates during the three and nine months ended September 30, 2021 caused a net increase of approximately $21 million and $99 million related to foreign revenues when compared to the three and nine months ended September 30, 2020.

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 units. 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. We had no outstanding foreign currency derivative contracts at September 30, 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 $31.2 million as of September 30, 2021, an assumed 5% adverse change to foreign exchange rates would result in a fair value decline of $1.2 million.