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Item 1A. Risk Factors

2022-06-14 compared with 2021-06-14 · 206 added, 109 removed, 144 unchanged (69% of the section changed)

While we believe the risk factors described below are all the material risks currently facing our business, additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business operations.

Our financial condition or results of operations could be materially and adversely impacted by these risks, and the trading price of our common stock could be adversely impacted by any of these risks.

In assessing these risks, you should also refer to the other information included in or incorporated by reference into this Form 10-K, including our consolidated financial statements and related notes thereto appearing elsewhere or incorporated by reference in this Form 10-K.

Risks Related to the COVID-19 Pandemic

The current pandemic from the outbreak of COVID-19 could have a material impact on our results of operations and financial condition, and the continuation of this pandemic, further outbreaks of COVID-19, or any future outbreak of other highly infectious diseases or public health emergencies could have a similar or worse impact.

The outbreak of the COVID-19 pandemic has led to adverse impacts on the U.S.

and global economies and created uncertainty regarding the potential effects on our employees, supply chain, operations, and customer demand.

The COVID-19 pandemic could impact our operations and the operations of our customers, suppliers, and vendors because of quarantines, facility closures, travel, and logistics restrictions.

The extent to which the COVID-19 pandemic impacts us will depend on numerous factors and future developments, which are highly uncertain and cannot be predicted, including, but not limited to:

(i) the severity of the virus, (ii) the occurrence and duration of additional spikes, (iii) the effects of the pandemic on customers, suppliers, and vendors, (iv) the remedial actions and stimulus measures adopted by local, state and federal governments, (v) the availability and acceptance of vaccines, and (vi) the extent to which normal economic and operating conditions can resume.

Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business because of an economic recession or depression that has occurred or may occur in the future.

We could experience adverse impacts from COVID-19 in a number of ways, including, but not limited to, the following which have occurred to some extent during this fiscal year:

supply chain delays or stoppages due to shipping delays (cargo ship, train and truck shortages as well as staffing shortages) resulting in increased freight costs, closed supplier facilities or distribution centers, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;

reduced and/or deferred consumer demand for our products as a result of the economic downturn, during the COVID-19 pandemic;

financial condition or results of operations could be materially and adversely impacted by these risks, and the trading price of our common stock could be adversely impacted by any of these risks.

In assessing these risks, you should also refer to

the other information included in or incorporated by reference into this Form 10-K, including our consolidated financial statements and related notes thereto appearing elsewhere or incorporated by reference in this Form 10-K.

Risks Related to Economic, Political and Health Conditions

Developments in global and local conditions, such as slowing growth, inflation, the Russia/Ukraine conflict and the COVID-19 pandemic, have a material impact on our results of operations and

financial condition, and the continuation of or worsening of such conditions could have a similar or worse impact.

Several conditions have led to adverse impacts on the U.S.

and global economies and created uncertainty regarding the potential effects on

our employees, supply chain, operations, and customer demand.

These conditions impact our operations and the operations of our customers, suppliers, and

vendors because of quarantines, facility closures, travel, logistics restrictions and supply chain issues.

The extent to which these conditions impact us will depend on numerous factors and future developments, which are highly uncertain and

cannot be predicted, including, but not limited to:

(i) general economic and growth conditions, (ii) the impact of inflation on our expenses, (iii) the effects of the Russia/Ukraine conflict on international trade, customers, suppliers, and

vendors, (iv) public health crises, such as the COVID-19 pandemic, (v) actions and stimulus measures adopted by local, state and federal governments, and (vi) the extent to which normal economic and operating conditions can resume.

of these conditions subside, we may continue to experience adverse impacts to our business because of an economic recession or depression that has occurred or may occur in the future, as well as the lingering effects on logistics, supply chain

and the social norms of society.

We could experience adverse impacts from these conditions in a number of ways, including, but not limited to, the following which have occurred to some extent during this fiscal year:

scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;

reduced and/or deferred consumer demand for our products as a result of the economic downturn;

change in demand for or availability of our products as a result of our customers modifying their restocking, fulfillment, or shipping practices;

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fluctuations in foreign currency exchange rates or interest rates resulting from market uncertainties.

At this time, we are unable to predict accurately the impact the COVID-19 pandemic will have on our business and financial condition, in the future.

At this time, we are unable to predict accurately the impact these conditions will have on our business and financial condition in the future.

Unfavorable economic conditions may adversely affect our business.

credit markets may either lower demand for our products or increase our operational costs, or both.

In addition, elections and other changes in the political landscape could have similar effects.

Such conditions may also materially impact our

customers, suppliers and other parties with whom we do business.

Our revenue will be adversely affected if demand for our products declines.

The impact of unfavorable economic conditions may also impair the ability of our customers to pay for

products they have purchased.

As a result, reserves for doubtful accounts and write-offs of accounts receivables may increase and failure to collect a significant portion of amounts due on those receivables could have a material adverse effect upon

our business, results of operations, and financial condition.

In addition, we also get pressure from our suppliers to pay them faster and our customers to pay us slower, which could impact our cash flows.

Risks Related to Our Business and Industry

We rely on a few large customers for a majority of our business, and the loss of any of these customers, significant changes in the prices, marketing allowances or other important terms provided to any of these customers or adverse developments with respect to the financial condition of these customers could reduce our net income and operating results.

of these customers or adverse developments with respect to the financial condition of these customers could reduce our net

income and operating results.

Our net sales are concentrated among a small number of large customers.

Sales to our three largest customers in the aggregate represented 85%, and sales to our largest customer represented 38% of our net sales during fiscal 2022.

We are under ongoing pressure from our major customers to offer lower prices, extended payment terms, increased marketing and other allowances and other terms more favorable to these customers because our sales to these customers are concentrated, and the market in which we operate is very competitive.

These customer demands have put continued pressure on our operating margins and profitability, resulted in periodic contract renegotiation to provide more favorable prices and terms to these customers and significantly increased our working capital needs.

ongoing pressure from our major customers to offer lower prices, extended payment terms, increased marketing and other allowances and other terms more favorable to these customers because our sales to these customers are concentrated, and the

market in which we operate is very competitive.

and significantly increased our working capital needs.

In addition, this customer concentration leaves us vulnerable to any adverse change in the financial condition of these customers.

Changes in terms with, significant allowances for and collections from these customers could affect our operating results and cash flows.

Changes in terms with, significant allowances for and

collections from these customers could affect our operating results and cash flows.

The loss of or a significant decline in sales to any of these customers could adversely affect our business, results of operations, and financial condition.

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Our industry is highly competitive, and our success depends on our ability to compete with suppliers of automotive aftermarket products, some of which may have substantially greater financial, marketing and other resources than we do.

The automotive aftermarket industry is highly competitive, and our success depends on our ability to compete with domestic and international suppliers of automotive aftermarket products.

Due to the diversity of our product offering, we compete with several large and medium-sized companies, including BBB Industries and Cardone Industries for hard parts, and AVL and Horiba for test solutions and diagnostic equipment and a large number of smaller regional and specialty companies and numerous category specific competitors.

automotive aftermarket industry is highly competitive, and our success depends on our ability to compete with domestic and international suppliers of automotive aftermarket products.

Due to the diversity of our product offering, we compete with

several large and medium-sized companies, including BBB Industries and Cardone Industries for hard parts, and AVL and Horiba for test solutions and diagnostic equipment and a large number of smaller regional and specialty companies and numerous

category specific competitors.

In addition, we face competition from original equipment manufacturers, which, through their automotive dealerships, supply many of the same types of replacement parts we sell.

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In addition, other overseas competitors, particularly those located in China, are increasing their operations and could become a significant competitive force in the future.

Increased competition could put additional pressure on us to reduce prices or take other actions, which may have an adverse effect on our operating results.

Increased competition could put additional pressure on us to reduce

prices or take other actions, which may have an adverse effect on our operating results.

We may also lose significant customers or lines of business to competitors.

If we do not respond appropriately, the evolution of the automotive industry could adversely affect our business.

The automotive industry is increasingly focused on the development of hybrid and electric vehicles and of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully-automated driving experience.

There has also been an increase in consumer preferences for mobility on demand services, such as car and ride sharing, as opposed to automobile ownership, which may result in a long-term reduction in the number of vehicles per capita.

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These evolving areas have also attracted increased competition from entrants outside the traditional automotive industry.

If we do not continue to innovate and develop, or acquire, new and compelling products that capitalize upon new technologies, such as D&V Electronics, in response to consumer preferences, this could have an adverse impact on our results of operations.

continue to innovate and develop, or acquire, new and compelling products that capitalize upon new technologies in response to consumer preferences, it could have an adverse impact on our results of operations.

Work stoppages, production shutdowns and similar events could significantly disrupt our business.

Because the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage or production shutdown at one or more of our manufacturing and assembly facilities could have adverse effects on our business.

During fiscal 2021, we experienced multiple shutdowns at our production facilities in Mexico, Canada and Asia due to the COVID-19 pandemic, but none had a material effect on production or sales.

Due to production issues, sales were deferred in some cases.

Similarly, if one or more of our customers were to experience a work stoppage or production shutdown, that customer would likely halt or limit purchases of our products, which could result in the shutdown of the related manufacturing facilities.

A significant disruption in the supply of key components due to a work stoppage or production shutdown at one of our suppliers or any other supplier could have the same consequences and, accordingly, have an adverse effect on our financial results.

Unfavorable economic conditions may adversely affect our business.

Adverse changes in economic conditions, including inflation, recession, increased fuel prices, tariffs, and unemployment levels, availability of consumer credit, taxation or instability in the financial markets or credit markets may either lower demand for our products or increase our operational costs, or both.

In addition, elections and other changes in the political landscape could have similar effects.

Such conditions may also materially impact our customers, suppliers and other parties with whom we do business.

Our revenue will be adversely affected if demand for our products declines.

The impact of unfavorable economic conditions may also impair the ability of our customers to pay for products they have purchased.

adverse effects on our business.

During fiscal 2022, our production capacity at our Malaysian facility was impacted due to local government mandated restrictions in connection with the ongoing COVID-19 pandemic.

Due to this reduction in production

capacity, we were required to outsource certain finished goods purchases to meet demand, which resulted in incremental tariffs.

Similarly, if one or more of our customers were to experience a work stoppage, that customer would likely halt or limit

purchases of our products.

We have also experienced significant disruptions in the supply of several key components from Asia due to work stoppages, production shutdowns, government closures, and other supply chain issues at many of our suppliers,

leading to an adverse effect on our financial results.

Interruptions or delays in obtaining component parts could impair our business and adversely affect our operating results.

In our remanufacturing processes, we obtain Used Cores, primarily through the core exchange programs with our customers, and component parts from third-party manufacturers.

To supplement Used Cores received from our customers we purchase Used Cores from core brokers.

To supplement Used Cores received from our customers we purchase Used

Cores from core brokers.

Historically, the Used Core returned from customers together with purchases from core brokers have provided us with an adequate supply of Used Cores.

If there was a significant disruption in the supply of Used Cores, whether as a result of increased Used Core acquisitions by existing or new competitors or otherwise, our operating activities could be materially and adversely impacted.

In addition, a number of the other components used in the remanufacturing process are available from a very limited number of suppliers.

If there was a significant disruption in the supply of Used Cores,

whether as a result of increased Used Core acquisitions by existing or new competitors or otherwise, our operating activities could be materially and adversely impacted.

In addition, a number of the other components used in the remanufacturing

process are available from a very limited number of suppliers.

We are, as a result, vulnerable to any disruption in component supply, and any meaningful disruption in this supply would materially and adversely impact our operating results.

Increases in the market prices of key component raw materials could increase the cost of our products and negatively impact our profitability.

In light of the continuous pressure on pricing which we have experienced from our large customers, we may not be able to recoup the higher costs of our products due to changes in the prices of raw materials, particularly aluminum, copper, steel, and cardboard.

If we are unable to recover a substantial portion of our raw materials from Used Cores returned to us by our customers through the core exchange programs, the prices of Used Cores that we purchase may reflect the impact of changes in the cost of raw materials.

Sustained raw material price increases has had a non-material impact on our product costs and profitability to date, but we are unable to determine the overall impact, in the future, at this time.

aluminum, copper, steel, and cardboard.

the impact of changes in the cost of raw materials.

Sustained raw material price increases has had an impact on our product costs and profitability to date, but we are unable to determine the overall impact, in the future, at this time.

Our financial results are affected by automotive parts failure rates that are outside of our control.

Our operating results are affected over the long term by automotive parts failure rates.

These failure rates are impacted by a number of factors outside of our control, including product designs that have resulted in greater reliability, the number of miles driven by consumers, and the average age of vehicles on the road.

These failure rates are impacted by a number of factors outside of our control, including product designs that have resulted in greater reliability, the

number of miles driven by consumers, and the average age of vehicles on the road.

A reduction in the failure rates of automotive parts would adversely affect our sales and profitability.

Our reliance on foreign suppliers for some of the automotive parts we sell to our customers or included in our products presents risks to our business .

Our reliance on foreign suppliers for some of the automotive parts we sell to our customers or

included in our products presents risks to our business .

A significant portion of automotive parts and components we use in our remanufacturing process are imported from suppliers located outside the U.S., including China and other countries in Asia.

As a result, we are subject to various risks of doing business in foreign markets and importing products from abroad, such as the following, which we have experienced in the last fiscal year:

significant delays in the delivery of cargo due to port security considerations;

As a result, we are

subject to various risks of doing business in foreign markets and importing products from abroad, such as the following, which we have experienced in the last fiscal year:

significant delays in the delivery of cargo due to port security and over-crowding considerations;

imposition of duties, taxes, tariffs or other charges on imports;

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disruption of imports by labor disputes or strikes and local business practices;

natural disasters, disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;

inability of our non-U.S.

suppliers to obtain adequate credit or access liquidity to finance their operations;

natural disasters, disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in

infected areas.

It is also possible, in the future, that we may experience the following risks related to doing business in foreign markets and importing products from abroad, such as the following:

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political or military conflict involving the U.S., which could cause a delay in the transportation of our products and an increase in transportation costs;

heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods;

inability of our non-U.S.

suppliers to obtain adequate credit or access liquidity to finance their operations;

our ability to enforce any agreements with our foreign suppliers.

Any of the foregoing factors, or a combination of them, could increase the cost or reduce the supply of products available to us and materially and adversely impact our business, financial condition, results of operations or liquidity.

In addition, because we depend on independent third parties to manufacture a significant portion of our wheel hub, brake calipers, brake master cylinders, and other purchased finished goods, we cannot be certain that we will not experience operational difficulties with such manufacturers, such as reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality controls and failure to meet production deadlines or increases in manufacturing costs.

operations or liquidity.

In addition, because we depend on independent third parties to manufacture a significant portion of our wheel hub, brake-related products, and other purchased finished goods, we cannot be certain that we will not

experience operational difficulties with such manufacturers, such as reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality controls and failure to meet production deadlines

or increases in manufacturing costs.

An increase in the cost or a disruption in the flow of our imported products may significantly decrease our sales and profits.

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A disruption in the shipping or cost of such merchandise may significantly decrease our sales and profits.

In addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands.

Merchandise from alternative sources may also be of lesser quality and more expensive than those we currently import.

addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands.

Merchandise from alternative sources may also be of lesser quality and more expensive than

those we currently import.

Risks associated with our reliance on imported merchandise include disruptions in the shipping and importation or increase in the costs of imported products.

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Products manufactured overseas and imported into the U.S.

and other countries are subject to import restrictions and duties, which could delay their delivery or increase their cost.

and other countries are subject to import restrictions and duties, which could

delay their delivery or increase their cost.

Following an audit in fiscal 2019, the U.S.

Customs and Border Protection stated that it believed that we owed additional duties of approximately $17 million from 2011 through mid-2018 relating to products that we imported from Mexico.

Customs and Border Protection stated that it believed that we owed additional duties of approximately

$17 million from 2011 through mid-2018 relating to products that we imported from Mexico.

We do not believe that this amount is correct and believe that we have numerous defenses and are disputing this amount vigorously.

We cannot assure you that the U.S.

We cannot assure you that

Customs and Border Protection will agree or that we will not need to accrue or pay additional amounts in the future.

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We have experienced significant variations in our annual and quarterly results of operations.

These fluctuations have resulted from many factors, including shifts in the demand and pricing for our products, general economic conditions, including changes in prevailing interest rates, and the introduction of new products.

These fluctuations have resulted from many factors, including shifts in the demand and pricing for our products, general economic conditions, including

changes in prevailing interest rates, and the introduction of new products.

Our gross profit percentage fluctuates due to numerous factors, some of which are outside of our control.

These factors include the timing and level of marketing allowances provided to our customers, actual sales during the relevant period, pricing strategies, the mix of products sold during a reporting period, and general market and competitive conditions.

We also incur allowances, accruals, charges and other expenses that differ from period to period based on changes in our business, which causes our operating income to fluctuate.

These factors include the timing and level of marketing allowances

provided to our customers, actual sales during the relevant period, pricing strategies, the mix of products sold during a reporting period, and general market and competitive conditions.

We also incur allowances, accruals, charges and other

expenses that differ from period to period based on changes in our business, which causes our operating income to fluctuate.

Regulations related to conflict minerals could adversely impact our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo (“DRC”) and adjoining countries.

Republic of Congo (“DRC”) and adjoining countries.

These rules could adversely affect the sourcing, supply, and pricing of materials used in our products, as the number of suppliers who provide conflict-free minerals may be limited.

We may also suffer reputational harm if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to modify our products to avoid the use of such materials.

We may also face challenges in satisfying customers who may require that our products be certified as containing conflict-free minerals.

suffer reputational harm if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to modify our products to avoid the use of such materials.

We may also face challenges in satisfying

customers who may require that our products be certified as containing conflict-free minerals.

The products we manufacture or contract to manufacture contain small quantities of Tin and Gold.

We manufacture or contract to manufacture one product with small quantities of Tantalum.

For the reporting year ending December 31, 2020, we increased the number of our first tier suppliers surveyed to include our undercar and brake product lines, as well as our subsidiaries.

This inquiry yielded 289 smelters, refiners, or metal processing facilities for these minerals that are, or could be, in our supply chain.

Of these, 68% were validated as conflict-free, per publicly available information on the Conflict Free Sourcing Initiative website.

For the reporting year ending December 31, 2021, we

surveyed 283 smelters, refiners, or metal processing facilities for these minerals that are, or could be, in our supply chain.

Of these, 69% were validated as conflict-free, per publicly available information on the Conflict Free Sourcing

Initiative website.

We have not been able to ascertain the conflict-free status of the remaining smelters or refiners.

Our strategy for managing risks associated with conflict minerals in products includes continuing to encourage our suppliers to engage in conflict-free sourcing and obtaining data from our suppliers that is more applicable to the products we purchase.

We continue to monitor progress on industry efforts to ascertain whether some facilities that suppliers identified are actually smelters.

We do not believe conflict minerals pose risk to our operations.

We are a member of the Automobile Industry Action Group (AIAG) and support their efforts in the conflict minerals area.

We are a member of the Automobile

Industry Action Group (AIAG) and support their efforts in the conflict minerals area.

Natural disasters or other disruptions in our business in California and Baja California, Mexico could increase our operating expenses or cause us to lose revenues.

A substantial portion of our operations are located in California and Baja California, Mexico, including our headquarters, remanufacturing and warehouse facilities.

Any natural disaster, such as an earthquake, or other damage to our facilities from weather, fire or other events could cause us to lose inventory, delay delivery of orders to customers, incur additional repair-related expenses, disrupt our operations or otherwise harm our business.

These events could also disrupt our information systems, which would harm our ability to manage our operations worldwide and compile and report financial information.

As a result, we could incur additional expenses or liabilities or lose revenues, which could exceed any insurance coverage and would adversely affect our financial condition and results of operations.

Our past material weakness, and any future failure to maintain effective internal control over financial reporting, may affect our ability to accurately report our financial results and could materially and adversely affect the market price of our common stock.

Any natural disaster, such as an earthquake, or other damage to our facilities

from weather, fire or other events could cause us to lose inventory, delay delivery of orders to customers, incur additional repair-related expenses, disrupt our operations or otherwise harm our business.

These events could also disrupt our

information systems, which would harm our ability to manage our operations worldwide and compile and report financial information.

As a result, we could incur additional expenses or liabilities or lose revenues, which could exceed any insurance

coverage and would adversely affect our financial condition and results of operations.

Our past material weakness, and any future failure to maintain effective internal control over financial reporting, may affect our ability to accurately report our financial results and could

materially and adversely affect the market price of our common stock.

Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight.

Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company.

If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed.

internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company.

If we cannot provide reliable financial reports or prevent fraud, our

reputation and operating results would be harmed.

We cannot assure you that our internal control over financial reporting will be effective in the future or that other material weakness will not be discovered in the future.

Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain listed with the NASDAQ Global Select Market or subject us to adverse regulatory consequences.

Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our stock.

Any failure to maintain

effective controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain listed with the

NASDAQ Global Select Market or subject us to adverse regulatory consequences.

Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative

effect on the trading price of our stock.

Risks Related to Our Overseas Operations

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These and other factors may have a material adverse effect on our offshore activities and on our business, results of operations and financial condition.

Our overall success as a business depends substantially upon our ability to manage our foreign operations.

We may not continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business, and failure to do so could materially and adversely impact our business, results of operations, and financial condition.

Our overall success as a business depends substantially upon our ability to manage our

foreign operations.

operations, and financial condition.

Unfavorable currency exchange rate fluctuations could adversely affect us.

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dollar and the currencies of the foreign countries in which we operate.

In fiscal 2021, approximately 23% of our total expenses were in currencies other than the U.S.

In fiscal 2022, approximately 24% of our total expenses were in currencies

other than the U.S.

As a result of our extensive operations in Mexico, our primary risk relates to changes in the rates between the U.S.

dollar and the Mexican peso.

To mitigate this currency risk, we enter into forward foreign exchange contracts to exchange U.S.

To mitigate this currency risk, we enter into forward foreign exchange

contracts to exchange U.S.

dollars for Mexican pesos.

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dollars for Chinese yuan in order to mitigate risk related to our purchases and payments to our Chinese vendors.

The extent to which we use forward foreign exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements.

The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in the exchange rates.

We do not engage in currency speculation or hold or issue financial instruments for trading purposes.

to which we use forward foreign exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements.

The use of derivative financial instruments allows us to reduce our

exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in the exchange rates.

We do not engage in currency speculation or hold or issue financial

instruments for trading purposes.

These contracts generally expire in a year or less.

Any change in the fair value of foreign exchange contracts is accounted for as an increase or decrease to “foreign exchange impact of lease liabilities and forward contracts” in the consolidated statements of operations.

We recorded a non-cash gain of $7,713,000 and a non-cash loss of $6,491,000 due to the change in the fair value of the forward foreign currency exchange contracts during fiscal 2021 and 2020, respectively.

In addition, we recorded a gain of $9,893,000 and a loss of $11,710,000 in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2021 and 2020, respectively.

Any change in the fair value of foreign exchange contracts is accounted for as an increase or decrease to “foreign exchange impact of lease liabilities and

forward contracts” in the consolidated statements of operations.

We recorded a non-cash loss of $316,000 and a non-cash gain of $7,713,000 due to the change in the fair value of the forward foreign currency exchange contracts during fiscal 2022 and

2021, respectively.

In addition, we recorded gains of $1,989,000 and $9,893,000 in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2022 and 2021, respectively.

Changes in trade policy and other factors beyond our control could materially adversely affect our business.

The former presidential administration advocated for greater restrictions on international trade generally, including with respect to the North American Free Trade Agreement (“NAFTA”) and the World Trade Organization (the “WTO”).

In December 2019, the United States, Mexico and Canada signed the amended United States-Mexico-Canada Agreement (the “USMCA”), which replaced NAFTA.

In July 2020, the U.S.

notified the United Nations of its intention to withdraw from the WTO.

notified the United Nations of its intention to withdraw from

While the current presidential administration has rejoined the WTO, it remains difficult to predict what affect the USMCA, the WTO or other trade agreements and organizations will have on our business.

were to withdraw from or materially modify any other international trade agreements to which it is a party or if the U.S.

were to withdraw from or

materially modify any other international trade agreements to which it is a party or if the U.S.

imposes significant additional tariffs on imports from China or other restrictions, it could have an adverse impact on our business.

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government has placed tariffs on certain goods imported from China and may impose new tariffs on goods imported from China and other countries, including products that we import.

In retaliation, China has responded by imposing tariffs on a wide range of products imported from the U.S.

In retaliation, China has responded by imposing tariffs

on a wide range of products imported from the U.S.

and by adjusting the value of its currency.

If renegotiations of existing tariffs are unsuccessful or additional tariffs or trade restrictions are implemented by the U.S.

or other countries in connection with a global trade war, the resulting escalation of trade tensions could have a material adverse effect on world trade and the global economy.

Even in the absence of further tariffs or trade restrictions, the related uncertainty and the market's fear of an economic slowdown could lead to a decrease in consumer spending and we may experience lower net sales than expected.

Reduced net sales may result in reduced operating cash flows if we are not able to appropriately manage inventory levels or leverage expenses.

or other countries in

connection with a global trade war, the resulting escalation of trade tensions could have a material adverse effect on world trade and the global economy.

Even in the absence of further tariffs or trade restrictions, the related uncertainty and the

market’s fear of an economic slowdown could lead to a decrease in consumer spending and we may experience lower net sales than expected.

Reduced net sales may result in reduced operating cash flows if we are not able to appropriately manage

inventory levels or leverage expenses.

Risks Related to Our Indebtedness

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Fluctuations in those rates could impact our operating results and cash flows.

In particular, interest rates have been rising recently,

which increases our interest expense.

In addition, our credit facility has covenants that limit aspects of our operations.

We may also incur additional debt in the future, which could further increase our leverage, reduce our cash flow or further restrict our business.

We may also incur additional debt in the future, which could further increase our leverage, reduce our cash flow or further

restrict our business.

Our lenders may not waive future defaults under our credit agreements.

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If we fail to meet any of these covenants in the future, there is no assurance that our lenders will waive any such defaults.

If obtained, any such waiver may impose significant costs or covenants on us.

If obtained, any such waiver may

impose significant costs or covenants on us.

In addition, as the capital markets get more volatile, it may become more difficult to obtain such waivers or refinance our debt.

Risks Related to Owning Our Stock

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Our stock price has fluctuated in the past and may decline substantially in the future as a result of developments in our business, the volatile nature of the stock market, and other factors beyond our control.

Our stock price and the stock market generally has, from time to time, experienced extreme price and volume fluctuations.

Our stock price and the stock

market generally has, from time to time, experienced extreme price and volume fluctuations.

Many factors may cause the market price for our common stock to decline, including:

(i) our operating results failing to meet the expectations of securities analysts or investors in any period, (ii) downward revisions in securities analysts’ estimates, (iii) market perceptions concerning our future earnings prospects, (iv) public or private sales of a substantial number of shares of our common stock, (v) adverse changes in general market conditions or economic trends, and (vi) market shocks generally or in our industry, such as what has recently occurred in connection with COVID-19.

(i) our operating results failing to meet the expectations of securities

analysts or investors in any period, (ii) downward revisions in securities analysts’ estimates, (iii) market perceptions concerning our future earnings prospects, (iv) public or private sales of a substantial number of shares of our common stock,

(v) adverse changes in general market conditions or economic trends, and (vi) market shocks generally or in our industry, such as what has recently occurred.

General Risk Factors

We may continue to make strategic acquisitions of other companies or businesses and these acquisitions introduce significant risks and uncertainties, including risks related to integrating the acquired businesses and achieving benefits from the acquisitions.

We may continue to make strategic acquisitions of other companies or businesses and these acquisitions introduce significant risks and uncertainties, including risks related to integrating the

acquired businesses and achieving benefits from the acquisitions.

In order to position ourselves to take advantage of growth opportunities, we have made, and may continue to make, strategic acquisitions that involve significant risks and uncertainties.

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We may also incur significant expenses to pursue and consummate acquisitions.

Any of the foregoing, or a combination of them, could cause us to incur additional expenses and materially and adversely impact our business, financial condition, results of operations, or liquidity.

If our technology and telecommunications systems were to fail, or we were not able to successfully anticipate, invest in or adopt technological advances in our industry, it could have an adverse effect on our operations.

Any of the foregoing, or a combination of them, could cause us to incur additional expenses and materially and adversely impact our business, financial condition,

results of operations, or liquidity.

Increasing attention to environmental, social, and governance matters may impact our business, financial results, or stock price.

In recent years, increasing attention has been given to corporate activities related to environmental, social, and governance (“ESG”) matters in public discourse and the investment community.

A number of advocacy groups, both domestically and

internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds, universities, and

other members of the investing community.

These activities include increasing attention and demands for action related to climate change and promoting the use of energy saving building materials.

A failure to comply with investor or customer

expectations and standards, which are evolving, or if we are perceived to not have responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, could also cause reputational harm to our

business and could have a material adverse effect on us.

If our technology and telecommunications systems were to fail, or we were not able to successfully anticipate, invest in or adopt technological advances in our industry, it could have an adverse

effect on our operations.

We rely on computer and telecommunications systems to communicate with our customers and vendors and manage our business.

The temporary or permanent loss of our computer and telecommunications equipment and software systems, through casualty, operating malfunction, software virus or service provider failure, could disrupt our operations.

The temporary or permanent loss of our computer and telecommunications equipment and software systems, through casualty,

operating malfunction, software virus or service provider failure, could disrupt our operations.

In addition, our future growth may require additional investment in our systems to keep up with technological advances in our industry.

If we are not able to invest in or adopt changes to our systems, or such upgrades take longer or cost more than anticipated, our business, financial condition and operating results may be adversely affected.

If we are not

able to invest in or adopt changes to our systems, or such upgrades take longer or cost more than anticipated, our business, financial condition and operating results may be adversely affected.

Cyber-attacks or other breaches of information technology security could adversely impact our business and operations.

The incidence of cyber-attacks and other breaches of information technology security have increased worldwide during the COVID-19 pandemic.

Cyber-attacks or other breaches of network or information technology security may cause equipment failure or disruption to our operations.

The incidence of cyber-attacks and other breaches of information technology security have increased worldwide.

Cyber-attacks or other breaches of network or information technology security may cause equipment failure or disruption to our

Such attacks, which include the use of malware, computer viruses and other means for disruption or unauthorized access, on companies have increased in frequency, scope and potential harm in recent years.

While, to the best of our knowledge, we have not been subject to cyber-attacks or to other cyber incidents which, individually or in the aggregate, have been material to our operations or financial conditions, the preventive actions we take to reduce the risk of cyber incidents and protect our information technology and networks may be insufficient to repel a major cyber-attack in the future.

To the extent that any disruption or security breach results in a loss or damage to our data or unauthorized disclosure of confidential information, it could cause significant damage to our reputation, affect our relationship with our customers, suppliers and employees, and lead to claims against us and ultimately harm our business.

Additionally, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

While we maintain specific cyber insurance coverage, which may apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case.

While, to the best of our

knowledge, we have not been subject to cyber-attacks or to other cyber incidents which, individually or in the aggregate, have been material to our operations or financial conditions, the preventive actions we take to reduce the risk of cyber

incidents and protect our information technology and networks may be insufficient to repel a major cyber-attack in the future.

To the extent that any disruption or security breach results in a loss or damage to our data or unauthorized disclosure

of confidential information, it could cause significant damage to our reputation, affect our relationship with our customers, suppliers and employees, and lead to claims against us and ultimately harm our business.

Additionally, we may be required

to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

While we maintain specific cyber insurance coverage, which may apply in the event of various breach scenarios, the amount of

coverage may not be adequate in any particular case.

Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage.

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Any weakness in the credit markets could result in significant constraints on liquidity and availability of borrowing terms from lenders and accounts payable terms with vendors.

Modest economic growth in most major industrial countries in the world and uncertain prospects for continued growth threaten to cause tightening of the credit markets, more stringent lending standards and terms, and higher interest rates.

The persistence of these conditions could have a material adverse effect on our borrowings and the availability, terms and cost of such borrowings.

Modest economic growth in most major industrial countries in the

world and uncertain prospects for continued growth threaten to cause tightening of the credit markets, more stringent lending standards and terms, and higher interest rates.

The persistence of these conditions could have a material adverse effect

on our borrowings and the availability, terms and cost of such borrowings.

In addition, deterioration in the U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors