Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Sensitivity
Our inventory purchases from RTI and Clipper 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 2023, we executed various foreign
exchange contracts for the purchase of €20.1 million and sale of €15.2 million with maturity dates ranging from July 2023 to September 2024. At December 31, 2023, we had foreign currency contracts outstanding for the purchase of €15.2 million and
sale of €15.2 million. A 10% change in the euro to U.S. dollars exchange rate would change pre-tax income by approximately $2.6 million per year.
Credit Risk
At December 31, 2023 and 2022, we had bank deposits, including MSA escrows, in excess of federally insured limits of approximately $119.0 million and $105.2 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 2023, 2022, and 2021, 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
In February 2021, we issued the Senior Secured Notes in an aggregate principal amount of $250 million. In July 2019, we issued Convertible Senior Notes in an aggregate principal amount of
$172.5 million, which after total repurchases of $54 million, results in an outstanding principal balance of $118.5 million. We carry the Senior Secured Notes and Convertible Senior Notes at face value. Since the Senior Secured Notes and
Convertible Senior Notes bear interest at a fixed rate, we have no financial statement risk associated with changes in interest rates. However, the fair value of the Senior Secured Notes and Convertible Senior Notes change when the market price
of our stock fluctuates, or interest rates change.
In November 2023, the ABL Borrower entered into the 2023 ABL Facility to refinance a portion of the Convertible Senior Notes at or before maturity. The 2023 ABL Facility is subject to a
floating rate. Accordingly, if we make borrowings under the 2023 ABL Facility, we will be exposed to fluctuations in interest rates.
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