AECON GROUP INC 25 have provided surety bonds guaranteed joint and severally to cover construction and concession related performance obligations an advance payment bond and a retention release bond In each case the Companys share is supported by guarantees issued by EDC If Aecon was called upon to honour these obligations or should the project incur signifcant cost overruns its fnancial results and position would be adversely impacted Aecon continually evaluates its exposure to unusual risks inherent in international projects and where deemed appropriate in the circumstances mitigates these risks through specifc contract provisions insurance coverage and forward exchange agreements However there are no assurances that such measures would offset or materially reduce the effects of such risks Foreign exchange risks are actively managed and hedged where possible and considered cost effective when directly tied to quantifable contractual cash fows accruing directly to Aecon within periods of one or two years Major projects executed through joint ventures generally have a longer term and result in foreign exchange translation exposures that Aecon has not hedged Such translation exposure will have an impact on Aecons consolidated fnancial results Practical and cost effective hedging options to fully hedge this longer term translational exposure are not generally available Aecons investment in the Quiport JV is denominated in US dollars and as such the value of this investment fuctuates with the relationship between the Canadian dollar and the US dollar For further information on currency risk see Note 32 Financial Instruments in the Companys 2012 consolidated fnancial statements MARKET VOLATILITY The volatility created by the global fnancial and European sovereign debt crises damaged investor confdence in global equity markets and negatively impacted the value of publiclytraded securities of many companies The duration and severity of these crises remain unpredictable and continue to pose risks beyond Aecons control including currency and foreign exchange rates interest rates infation liquidity economic growth trade fows business investment and capital expenditures corporate earnings government spending and commodity price risks ECONOMIC FACTORS Aecons proftability is closely tied to the general state of the economy in those geographic areas in which it operates More specifcally the demand for infrastructure which is the principal component of Aecons operations is perhaps the largest single driver of the Companys growth and proftability In North America which tends to have relatively sophisticated infrastructure Aecons proftability is dependent both on the development rehabilitation and expansion of basic infrastructure such as among others highways airports dams and hydroelectric plants and on the type of infrastructure that fows from commercial and population growth Commercial growth demands incremental facilities for the movement of goods within and outside of the community along with water and sewer systems and heat light and power supplies Population growth creates a need to move people to and from work schools and other public facilities and demands similar services to new homes Since growth in both these areas with the possible exception of road maintenance and construction is directly affected by the general state of the local economy a prolonged economic downturn in the markets in which Aecon operates or related constraints on public sector funding including as a result of government defcits may have a signifcant impact on Aecons operations ONGOING FINANCING AVAILABILITY Aecons business strategy involves the selective growth of its operations through internal growth and acquisitions Certain of Aecons operating segments particularly its Infrastructure segment and Industrial segment require substantial working capital during their peak busy periods As these businesses grow Aecon is continually seeking to enhance its access to funding in order to fnance the higher working capital associated with this growth However given the expected demand for infrastructure services over the next several years and the size of many of these projects Aecon may be constrained in its ability to capitalize on growth opportunities to the extent that fnancing is either insuffcient or unavailable ACCESS TO BONDING PREQUALIFICATION RATING AND LETTERS OF CREDIT Many of Aecons construction contracts require suffcient bonding prequalifcation rating or letters of credit The surety industry has endured a certain degree of instability and uncertainty arising from the recent economic downturn the longterm effects of which may constrain overall industry capacity Furthermore the issuance of bonds under surety facilities is at the sole discretion of the surety company on a project by project basis As such even sizeable surety facilities are no guarantee of surety support on any specifc individual project Although the Company believes it will be able to continue to maintain surety capacity adequate to satisfy its requirements should those requirements be materially greater than anticipated or should suffcient surety capacity not be available to Aecon or its joint venture partners see Large Project Risk under Risk Factors herein for reasons related to an economic downturn or otherwise or should the cost of bonding rise substantially whether Aecon specifc or industry wide this may have an adverse effect on the ability of Aecon to operate its business or take advantage of all market opportunities The Company also believes that it has suffcient capacity with respect to letters of credit to satisfy its requirements but should these requirements be materially greater than anticipated or should industry capacity be materially impacted by domestic or international conditions unrelated to Aecon this may have an adverse effect on the ability of Aecon to operate its business INSURANCE RISK Aecon maintains insurance in order to both satisfy the requirements of its various construction contracts as well as a corporate risk management strategy Insurance products from time to time experience market fuctuations that can impact pricing and availability Therefore senior management through Aecons insurance broker monitors developments in the insurance markets to ensure that the Companys insurance needs are met Insurance risk entails inherent unpredictability that can arise from assuming longterm policy liabilities or from uncertainty of future events Although Aecon has been able to meet its insurance needs there can be no assurances that Aecon will be able to secure all necessary or appropriate insurance on a going forward basis Failure to do so could lead to uninsured losses or limit Aecons ability to pursue some construction contracts both of which could impact results