CUMBERLAND PHARMACEUTICALS INC 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk We are exposed to market risk related to changes in interest rates on our cash on deposit in highly-liquid money market accounts and revolving credit facility. We do not utilize derivative financial instruments or other market risk-sensitive instruments to manage exposure to interest rate changes. The main objective of our cash investment activities is to preserve principal while maximizing interest income through low-risk investments. Our investment policy focuses on principal preservation and liquidity. We believe that our interest rate risk related to our cash and cash equivalents is not material. The risk related to interest rates for these accounts would produce less income than expected if market interest rates fall. Based on current interest rates, we do not believe we are exposed to significant downside risk related to a change in interest on our money market accounts. The Company did not have any investments in marketable securities at December 31, 2021. The interest rate risk related to borrowings under our line of credit is based on LIBOR plus an interest rate spread. There is no LIBOR minimum and the LIBOR pricing provides for an interest rate spread of 1.75% to 2.75% (representing an interest rate of 3.65% at December 31, 2021). When the LIBOR rate is discontinued, the Pinnacle Agreement allows for the LIBOR rate to be replaced by a Benchmark Rate, which may be the Daily Simple SOFR (Secured Overnight Financing Rate). The Benchmark Rage will be determined in consultation with Pinnacle Bank. As of December 31, 2021, we had $15.0 million in borrowings outstanding under our revolving line of credit. Exchange Rate Risk While we operate primarily in the U.S., we are exposed to foreign currency risk. A portion of our research and development is performed abroad. Currently, we do not utilize financial instruments to hedge exposure to foreign currency fluctuations. We believe our exposure to foreign currency fluctuation is minimal as our purchases in foreign currency have a maximum exposure of 90 days based on invoice terms with a portion of the exposure being limited to 30 days based on the due date of the invoice. Foreign currency exchange losses were immaterial for 2021, 2020 and 2019. Neither a five percent increase nor decrease from current exchange rates would have had a material effect on our operating results or financial condition. Item 8. Financial Statements and Supplementary Data. See consolidated financial statements, including the reports of the independent registered public accounting firm, starting on page F-1, which is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.