What changed in this filing

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Item 1A. Risk Factors

2021-02-19 compared with 2020-02-21 · 59 added, 45 removed, 136 unchanged (43% of the section changed)

4 unchanged sentences

Management’s Discussion and Analysis of Results of Operations and Financial Position,” when evaluating an investment in our capital stock.

Risks Relating to the COVID-19 Pandemic

The COVID-19 pandemic and global responsive measures have impacted our business and results of operations and could materially adversely affect our business, results of operations and financial position in future periods.

The COVID-19 pandemic has spread globally and resulted in governmental authorities implementing numerous responsive measures, such as travel bans and other restrictions, including quarantines, shelter-in-place and stay-home orders, transportation disruptions, closures and shutdowns.

We maintain significant manufacturing and administrative operations in the U.S., China, Belgium, Germany, South Korea and Hungary, and each of these countries has been significantly affected by the outbreak and taken measures to try to contain it and to distribute vaccines as they are approved.

We have also modified our business practices in an effort to ensure business continuity while promoting continued employee health and well-being.

Collectively, these measures have impacted and are likely to continue to impact our workforce and operations.

In addition, the outbreak and associated responsive measures have resulted in significant disruption of the global economy, leading to steep declines and increased volatility in the financial markets, and it is possible that a potentially severe global recession will follow.

There is considerable uncertainty regarding the effect of COVID-19 as well as current and future responsive measures on our business, including on our workforce and operations.

We may experience sustained demand reductions for our products in certain end markets, be unable to satisfy customer demand and face increased operating costs, asset impairments and cash flow reductions, all of which could have a material adverse effect on our business, results of operations and financial position.

Risks Relating to Our Business, Strategy and Operations

Failure to capitalize on, volatility within, or other adverse changes with respect to the Company’s growth drivers, including advanced mobility and advanced connectivity, may adversely affect our business.

We derived approximately 25% and 24% of our net sales for the year ended December 31, 2020 from sales relating to the key market growth drivers of advanced mobility and advanced connectivity, respectively.

These growth drivers are served by our direct and indirect customers in a variety of markets, including automotive (i.e.

ADAS) and EV/HEV, wireless infrastructure and portable electronics.

These growth drivers are served by our direct and indirect customers in a variety of markets, including automotive (i.e., ADAS) and EV/HEV, wireless infrastructure and portable electronics.

These growth drivers, as well as specific market and industry trends within them, may be volatile, cyclical and sensitive to a variety of factors, including general economic conditions, technology disruptions, consumer preferences and political priorities.

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In particular, we have experienced and expect that we may in the future experience impacts on our business due to the increase in trade conflicts between the U.S.

In May 2019, the U.S.

Department of Commerce designated Huawei to its

“entity list,” which limits the ability of U.S.

companies to export products and license technologies to Huawei.

We generally sell our products to fabricators that are not subject to such limitations, which incorporate them into products they sell to Huawei.

Although the impact of the Huawei export controls on 5G demand and the demand for our products is currently uncertain, such export controls, as well as retaliatory controls and tariffs that China has imposed and which remain in place to a certain extent under the Phase 1 agreement reached between the U.S.

and China on January 15, 2020, could restrict our ability to do business with Huawei and other Chinese customers.

The May 2019 U.S.

Department of Commerce addition of Huawei to its “entity list,” and subsequently implemented Foreign Direct Products Rules, limits the ability of U.S.

and foreign companies to export products and license technologies to Huawei.

Although we have been able to continue supplying Huawei’s fabricators while in compliance with all restrictions, the ongoing impact of the Huawei export controls on 5G demand and the demand for our products is currently uncertain.

Such export controls, as well as retaliatory controls and tariffs that China has imposed and which remain in place to a certain extent under the Phase 1 agreement reached between the U.S.

and China on January 15, 2020, could continue to restrict our ability to do business with Huawei and other Chinese customers.

government actions to protect domestic economic and security interests could lead to further restrictions.

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We operate in a highly competitive global environment and compete with domestic and international companies principally on the basis of the following:

• innovation;

• historical customer relationships;

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As a result, these transactions may not ultimately create value for us or our shareholders and may harm our reputation and materially adversely affect our business, results of operations and financial position.

The failure to attract and retain specialized technical and management personnel could impair our expected growth and future success.

We depend upon the continued services and performance of key executives, senior management and skilled technical personnel, particularly our sales engineers and other professionals with significant experience in the key industries we serve.

Competition for these personnel from other companies, academic institutions and government entities is intense, and our expected growth and future success will depend, in large part, upon our ability to attract and retain these individuals.

If we suffer loss or disruption to our facilities, supply chains, distribution systems or information technology systems due to catastrophe or other events, our business could be seriously harmed.

Our facilities, supply chains, distribution systems and information technology systems are subject to catastrophic loss or disruption due to fire, flood, earthquake, hurricane, public health crisis, war, terrorism or other natural or man-made disasters or events.

If any of these facilities, supply chains or systems were to experience a catastrophic loss or disruption, it could disrupt our operations, delay production and shipments, result in defective products or services, damage customer relationships and our reputation and result in legal exposure and large repair or replacement expenses.

For instance, the COVID-19 pandemic and related quarantines and work and travel restrictions have disrupted, and may continue to disrupt, production of and demand for certain of our products.

Additionally, there was a fire at our UTIS manufacturing facility in Ansan, South Korea in early February 2021, which resulted in extensive damage to the manufacturing site.

The extent to which these events will affect our results of operations and financial position remains uncertain.

The third-party insurance coverage that we maintain will vary from time to time in both type and amount depending on cost, availability and our decisions regarding risk retention, and may be unavailable or insufficient to protect us against losses or disruptions.

A significant disruption in, or breach in security of, our information technology systems or violations of data protection laws could materially adversely affect our business and reputation.

In the ordinary course of business, we collect and store confidential information, including proprietary business information belonging to us, our customers, suppliers, business partners and other third parties and personally identifiable information of our employees.

We rely on information technology systems to protect this information and to keep financial records, process orders, manage inventory, coordinate shipments to customers, and operate other critical functions.

Our information technology systems are susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, telecommunication failures, systems upgrades (including the planned implementation of a new enterprise resource planning system) and user errors.

If we experience a disruption in our information technology systems, it could result in the loss of sales and customers and significant incremental costs, which could materially adversely affect our business.

We are also subject to security breaches caused by computer viruses, illegal break-ins or hacking, sabotage, or acts of vandalism by disgruntled employees or third parties.

The risk of a security breach or disruption, particularly through cyberattack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased, in part because of evolving technologies, the ubiquitous use of the Internet and telecommunications technologies (including mobile devices) to conduct business transactions.

Our information technology network and systems have been and, we believe, continue to be under constant attack.

Accordingly, despite our security measures or those of our third-party service providers, we have experienced and may in the future experience security breaches, including breaches that we may not be able to detect.

Security breaches of our information technology systems, including through mobile devices, could result in the misappropriation or unauthorized disclosure of confidential information belonging to us or to our customers, suppliers, business partners, employees or other third parties, which could result in our suffering significant financial and reputational damage.

If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our security processes and procedures and our compliance with applicable laws and regulations, including evolving government cyber security requirements for government contractors.

In addition, the processing and storage of certain information is increasingly subject to privacy and data security regulations, and many such regulations are country-specific.

The interpretation and application of data protection laws in the U.S., Europe, and elsewhere, including the EU General Data Protection Regulation and the California Consumer Privacy Act, are uncertain, evolving and may be inconsistent among jurisdictions.

Compliance with these various laws may be onerous and require us to incur substantial costs or to change our business practices in a manner that adversely affects our business, while failure to comply with such laws may subject us to substantial penalties.

Employee benefit cost increases could reduce our profitability.

Our profitability is affected by employee benefit costs, particularly medical and other employee benefits.

In recent years, employee medical costs have increased due to factors such as the increase in health care costs in the U.S.

These factors will continue to put pressure on our business and financial performance, as employee benefit costs continue to escalate.

We may not succeed in limiting future cost increases.

Continued employee benefit cost increases could have an adverse effect on our results of operations, cash flows and financial position.

We also sponsor one material defined benefit pension plan that covers certain union employees.

Our costs of providing this plan are dependent upon a number of factors and assumptions that drive the plan’s funding status and projected annual expenses, such as discount rates, the actual and projected rates of return on the plans’ assets, governmental regulation, global equity prices, portfolio composition, mortality rates and required or voluntary contributions to the plan.

Changes in these factors and assumptions could have a negative impact on our defined benefit pension plan, which could result in unfavorable changes in the net assets and funded status of the plan and increases in annual net periodic benefit costs.

Unfavorable changes in the plan’s net assets and funded status could result in increased funding requirements.

All of these potential changes could negatively impact our results of operations, cash flows and financial position.

Legal, Compliance and Regulatory Risks

Our business may be materially adversely affected if we cannot protect our proprietary technology or if we infringe the proprietary rights of others.

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Any of these events may have a material adverse effect on our business, results of operations and financial position.

The failure to attract and retain specialized technical and management personnel could impair our expected growth and future success.

As a multinational corporation doing business in the U.S.

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Failure to satisfy these financial ratios or to comply with the covenants in our credit agreement would constitute a default.

An uncured default with respect to one or more of our covenants could result in outstanding borrowings thereunder being declared immediately due and payable, which may also trigger an obligation to repay other outstanding indebtedness.

An uncured default with respect to one or more of our covenants could result in outstanding borrowings thereunder being declared

immediately due and payable, which may also trigger an obligation to repay other outstanding indebtedness.

Any such acceleration of our indebtedness would have a material adverse effect on our cash flows, financial position and results of operations.

1 unchanged sentence

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021.

LIBOR borrowings may become unavailable before that date, and it remains unclear what reference rate or rates might replace it.

If LIBOR becomes unavailable, the credit agreement presently provides for the interest rate on our loans to convert to a higher base reference rate plus a spread.

Even if we agree with our lenders to amend the credit agreement to identify a new reference rate for borrowings thereunder, this rate may be higher than our present interest rate, thereby causing the cost of our borrowings to increase.

However, LIBOR borrowings may become unavailable before that date.

When LIBOR becomes unavailable, our credit agreement provides for a new reference rate for borrowings thereunder, dependent upon certain facts and circumstances.

There is a risk that this new reference rate may be higher than our projected future LIBOR interest rates, thereby causing the cost of our borrowings to increase.

We may be adversely affected by litigation stemming from product liability and other claims.

19 unchanged sentences

Financial Statements and Supplementary Data.”

If we suffer loss or disruption to our facilities, supply chains, distribution systems or information technology systems due to catastrophe or other events, our business could be seriously harmed.

For instance, the recent spread of the novel coronavirus and related quarantines and work and travel restrictions in China has disrupted, and may continue to disrupt, production of and demand for certain of our products, and the extent to which these events will affect our results of operations and financial position remains uncertain.

A significant disruption in, or breach in security of, our information technology systems or violations of data protection laws could materially adversely affect our business and reputation.

Our information technology systems are susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, telecommunication failures, systems upgrades and user errors.

We are also subject to security breaches caused by computer viruses, illegal break-ins or hacking, sabotage, or acts of vandalism by disgruntled employees or third parties.

Our information technology network and systems have been and, we believe, continue to be under constant attack.

Accordingly, despite our security measures or those of our third party service providers, we have experienced and may in the future experience security breaches, including breaches that we may not be able to detect.

In addition, the processing and storage of certain information is increasingly subject to privacy and data security regulations, and many such regulations are country-specific.

and may be inconsistent among jurisdictions.

Employee benefit cost increases could reduce our profitability.

Our profitability is affected by employee benefit costs, particularly medical, pension and other employee benefits.

In recent years, employee medical costs have increased due to factors such as the increase in health care costs in the U.S.

These factors will continue to put pressure on our business and financial performance, as employee benefit costs continue to escalate.

We may not succeed in limiting future cost increases.

Continued employee benefit cost increases could have an adverse effect on our results of operations, cash flows and financial position.

We also sponsor various defined benefit pension plans that cover certain employees.

Our costs of providing defined benefit pension plans have risen dramatically in recent years, and are dependent upon a number of factors and assumptions that drive our projected liabilities and annual expenses, such as discount rates, the actual and projected rates of return on the plans ’ assets, governmental regulation, global equity prices, portfolio composition, mortality rates and required or voluntary contributions to the plans.

Changes in assumptions, the inability to grow our pension investments over time to increase the value of the plans’ assets, and other factors relating to worldwide and domestic economic trends and financial market conditions, could all have a negative impact on our pension plans, which could result in an increase in our pension liabilities, a reduction in the funded status of our plan, increases in annual expense recognized related to the plans, and requirements to increase funding for some or all of our defined benefit pension plans, among other factors, all of which could negatively impact our results of operations and financial position.

Unresolved Staff Comments

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