Turning Point Brands, Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Sensitivity Our inventory purchases from RTI are denominated in euros. Accordingly, we have exposure to potentially adverse movements in the euro exchange rate. In addition, RTI provides a contractual hedge against catastrophic currency fluctuation in our agreement. We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that offsets the effects of changes in foreign exchange rates. We regularly review our foreign currency risk and hedging programs and may as part of that review determine at any time to change our hedging policy. During 2020 , we executed various forward contracts for the purchase of €19.7 million and sale of €21.4 million with maturity dates ranging from December 2020 to November 2021. At December 31, 2020, we had forward contracts for the purchase of €18.0 million and sale of €19.6 million. A 10% change in the euro to U.S. dollars exchange rate would change pre-tax income by approximately $0.9 million per year. Credit Risk At December 31, 2020 and 2019, we had bank deposits, including MSA escrows, in excess of federally insured limits of approximately $69.7 million and $126.0 million, respectively. The Company has chosen to invest a portion of the MSA escrows, from time to time, in U.S. Government securities including Treasury Notes and Treasury Bonds. We sell our products to distributors, retail establishments, and individual consumers throughout the U.S. and also have sales of Zig-Zag ® premium cigarette papers in Canada. In 2020, 2019, and 2018, we had no customers that accounted for more than 10% of our net sales. We perform periodic credit evaluations of our customers and generally do not require collateral on trade receivables. Historically, we have not experienced significant losses due to customer credit issues. Interest Rate Sensitivity We have exposure to interest rate volatility principally relating to interest rate changes applicable to loans under our 2018 Credit Facility. As of December 31, 2020, our 2018 Credit Facility bears interest at variable rates. However, the Company had swap contracts for a total notional amount of $70 million at December 31, 2020. The fair values of the swap contracts are based upon quoted market prices and resulted in a liability of $3.7 million as of December 31, 2020. We believe that the effect, if any, of reasonably possible near-term changes in interest rates on our consolidated financial position, results of operations or cash flows would not be significant. A 1% change in the interest rate would change pre-tax income by approximately $0.6 million per year. 54 Table of Contents