CTS CORP 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk (in thousands) Our cash flows and earnings are subject to fluctuations resulting from changes in foreign currency exchange rates and interest rates. We manage our exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. Our policies do not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes, and we are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed. Interest Rate Risk We are exposed to risk of changes in interest rates on our revolving credit facility. There was $54,600 and $99,700 outstanding under our revolving credit facility at December 31, 2020, and 2019, respectively. As of December 31, 2020, we had interest rate swaps that fix interest costs on $50,000 of our long-term debt through February 2024. Foreign Currency Risk We are exposed to foreign currency exchange rate risks. Our significant foreign subsidiaries are located in China, Czech Republic, Mexico, and Taiwan. As of December 31, 2020, we had foreign currency forward contracts outstanding with a notional value of $14,958 to hedge our exposure against the Mexican Peso. Commodity Price Risk Many of our products require the use of raw materials that are produced in only a limited number of regions around the world or are available from only a limited number of suppliers. Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, the quality of available raw materials deteriorates, or there are significant price increases for CTS CORPORATION 24 Table of Contents these raw materials. For periods in which the prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers, which would result in decreased margins for the products in which they are used. For periods in which the prices are declining, we may be required to write down our inventory carrying cost of these raw materials, since we record our inventory at the lower of cost or net realizable value. Public Health Risk The COVID-19 outbreak is adversely affecting our business. We and some of our suppliers and customers have facilities that were required to remain closed for a period of time, and when permitted to reopen, employees have been limited in their ability to return to work due to governmental restrictions. The consequences of the outbreak, and the actions taken to limit its spread, have adversely affected our sales and results of operations in 2020 and could impact our results in 2021, and possibly longer if coronavirus consequences continue. CTS CORPORATION 25