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3/25/22, 9:42 AM Table of Contents Seasonality road -20210930 The activity of our business fluctuates due to seasonality because our business is primarily conducted outdoors. Therefore, seasonal changes and other weather-related conditions, in particular extended snowy, rainy or cold weather in the winter, spring or fall and major weather events, such as hurricanes, tornadoes, tropical storms and heavy snows, can adversely affect our business and operations through a decline in both the use of our products and the demand for our services. In addition, construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall. Warmer and drier weather during our third and fourth fiscal quarters typically result in higher activity and revenues during those quarters. Our first and second fiscal quarters typically have lower levels of activity due to adverse weather conditions. Our third fiscal quarter varies greatly with spring rains and wide temperature variations. A cool, wet spring increases drying time on projects, which can delay sales in the third fiscal quarter, while a warm, dry spring may facilitate earlier project commencement dates. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Commodity Price Risk We are subject to commodity price risk with respect to price changes in liquid asphalt and energy, including fossil fuels and electricity for aggregates and asphalt paving mix production, natural gas for HMA production and diesel fuel for distribution vehicles and production -related mobile equipment. In order to manage or reduce commodity price risk, we monitor the costs of these commodities at the time of bid and price them into our contracts accordingly. Furthermore, liquid asphalt escalator provisions in most of our public contracts, and in some of our private and commercial contracts, limit our exposure to price fluctuations in this commodity. In addition, we enter into various firm purchase commitments, with terms generally less than one year, for certain raw materials. Our risk management activities also include the use of financial derivative instruments. We have entered into fuel swap contracts to mitigate the financial impact of fluctuations in fuel prices. We do not enter into fuel swap contracts for speculative or trading purposes. These fuel swap contracts provide a fixed price for less than 50% of our estimated fuel usage for the remainder of fiscal years 2022 and part of 2023. The table below provides information about the Company's fuel swap contracts that are sensitive to changes in commodity prices, specifically diesel fuel, as of September 30, 2021. Carrying Amount Fair Value Fuel swap contracts (r) Contract volumes (1,000 gallons) 2,100 Weighted average price (per gallon) $ 1.36 Contract amount (in thousands) $ 1,812 $ 1,812 0) See also Note 21 -Fair Value Measurements and Note 22 - Investments in Derivative Instruments to the consolidated financial statements included in this report. Interest Rate Risk We are exposed to interest rate risk on certain of our short- and long-term debt obligations used to finance our operations and acquisitions. We have LIBOR -based floating rate borrowings under the Credit Agreement, which expose us to variability in interest payments due to changes in the reference interest rates. From time to time, we use derivative instruments as hedges against the impact of interest rate changes on future earnings and cash flows. We do not enter into such derivative instruments for speculative or trading purposes. At September 30, 2021, we had a total of $217.5 million of variable rate borrowings outstanding. Holding other factors constant and absent the interest rate swap agreements described above, a hypothetical I% change in our borrowing rates would result in a $2.2 million change in our annual interest expense based on our variable rate debt at September 30, 2021. The following table presents the future principal payment obligations, interest payments, and fair values associated with the Company's debt instruments assuming the Company's actual level of variable rate debt as of September 30, 2021 (in thousands). 37 httpsl/www.sec.gov/Archives/edgar/data/0001718227/000171822721000107/road-20210930.htm 71/144