BRC Group Holdings, Inc. 10-K

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We periodically use derivative instruments, which primarily consist of the purchase of forward exchange contracts, for certain loans receivable and Auction and Liquidation engagements with operations outside the United States. As of 77 Table of Contents December 31, 2022, no forward exchange contracts were outstanding. As of December 31, 2021, €6.0 million forward exchange contracts were outstanding. The forward exchange contracts were entered into to improve the predictability of cash flows related to a retail store liquidation engagement and a loan receivable. The forward exchange contracts had a net gain of $0.1 million and net gain of $1.1 million during the years ended December 31, 2022 and 2021, respectively. This amount is reported as a component of selling, general and administrative expenses in the consolidated statements of operations. We transact business in various foreign currencies. In countries where the functional currency of the underlying operations has been determined to be the local country’s currency, revenues and expenses of operations outside the United States are translated into United States dollars using average exchange rates while assets and liabilities of operations outside the United States are translated into United States dollars using period-end exchange rates. The effects of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets. Transaction gains (losses) are included in selling, general and administrative expenses in our consolidated statements of operations. Interest Rate Risk Our primary exposure to market risk consists of risk related to changes in interest rates. We utilize borrowings under our senior notes payable and credit facilities to fund costs and expenses incurred in connection with our acquisitions and operations. Borrowings under our senior notes payable are at fixed interest rates and borrowings under our credit facilities bear interest at floating rates of interest. In our portfolio of securities owned we invest in loans receivable that primarily bear interest at a floating rate of interest. If floating rates of interest had increased by 1% during the year ended December 31, 2022, the rate increase would have resulted in an increase in interest expense of $4.2 million. The primary objective of our investment activities is to preserve capital for the purpose of funding operations while at the same time maximizing the income we receive from investments without significantly increasing risk. To achieve these objectives, our investments allow us to maintain a portfolio of cash equivalents, short-term investments through a variety of securities owned that primarily includes common stocks, loans receivable and investments in partnership interests. Our cash and cash equivalents through December 31, 2022 included amounts in bank checking and liquid money market accounts. We may be exposed to interest rate risk through trading activities in convertible and fixed income securities as well as U.S. Treasury securities, however, based on our daily monitoring of this risk, we believe we currently have limited exposure to interest rate risk in these activities. Foreign Currency Risk The majority of our operating activities are conducted in U.S. dollars. Revenues generated from our foreign subsidiaries totaled $101.9 million and $50.5 million during the years ended December 31, 2022 and 2021, respectively, or 9.4% and 3.3% of our total revenues of $1,080.7 million and $1,554.7 million during the years ended December 31, 2022 and 2021, respectively. The financial statements of our foreign subsidiaries are translated into U.S. dollars at period-end rates, with the exception of revenues, costs, and expenses, which are translated at average rates during the reporting period. We include gains and losses resulting from foreign currency transactions in income, while we exclude those resulting from translation of financial statements from income and include them as a component of accumulated other comprehensive income (loss). Transaction gains (losses), which were included in our consolidated statements of operations, amounted to a gain of $2.2 million and gain of $1.3 million during the years ended December 31, 2022 and 2021, respectively. We may be exposed to foreign currency risk; however, our operating results during the years ended December 31, 2022 and 2021 included $101.9 million and $50.5 million of revenues and $55.0 million and $42.8 million of operating expenses, respectively, from our foreign subsidiaries and a 10% appreciation or depreciation of the U.S. dollar relative to the local currency exchange rates would result in an approximately $5.9 million and $0.7 million change in our operating income during the years ended December 31, 2022 and 2021, respectively. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item 8 is submitted as a separate section beginning on page 91 of this Annual Report on Form 10-K (the “Financial Statements”). 78 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.