What changed in this filing

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Item 1A. Risk Factors

2023-03-02 compared with 2022-02-28 · 46 added, 27 removed, 215 unchanged (25% of the section changed)

4 unchanged sentences

In late 2019, a novel strain of the coronavirus (COVID-19) was reported to have been detected in Wuhan, China and on March 11, 2020 it was declared by the World Health Organization to be a global pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupting the financial markets and increasing volatility, and has impeded global supply chains, restricted manufacturing operations and resulted in significantly reduced economic activity and higher unemployment rates.

The COVID-19 pandemic has negatively affected the global economy, disrupting the financial markets and increasing volatility, and has impeded global supply chains, restricted manufacturing operations and resulted in significantly reduced economic activity and higher unemployment rates.

It has disrupted, and may continue to disrupt for an indefinite period of time, the global vehicle industry and customer sales, production volumes and purchases of automotive, commercial, off-highway and agricultural vehicles by end-consumers.

International, federal, state and local public health and governmental authorities have taken and may continue to take actions to contain the outbreak and spread of COVID-19 throughout most regions of the world, including travel bans, quarantines, "work-from-home"

orders and similar mandates that have caused many businesses to modify normal operations.

Beginning in 2020 we took actions to enhance our financial flexibility and minimize the impact on our business, such as the ramping down of certain production facilities in response to customer plant closures and changes in vehicle production schedules, imposing certain travel restrictions, amending our existing Credit Facility twice providing covenant relief through March 2023 and actively managing costs, capital spending and working capital to further strengthen our liquidity.

Despite these measures, the ultimate impact to our business continues to remain highly uncertain and we have experienced, and may continue to experience, delays in the production and distribution of our products, supply chain disruptions impacting the availability of production materials and the loss or delay of customers’ sales.

Beginning in 2020 we took actions to enhance our financial flexibility and minimize the impact on our business, such as the ramping down of certain production facilities in response to customer plant closures and changes in vehicle production schedules, imposing certain travel restrictions, amending our existing Credit Facility three times providing covenant relief through September 2023 and actively managing costs, capital spending and working capital to further strengthen our liquidity.

Despite these measures, the ultimate impact to our business continues to remain highly uncertain and we have experienced, and may continue to experience, delays in the production and distribution of our products, supply chain disruptions affecting the availability of production materials and the loss or delay of customers’ sales.

Uncertain Economic and Market Conditions

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In 2022, approximately 94% of our net sales were derived from automotive, commercial, off-highway and agricultural vehicle markets while approximately 6% were derived from aftermarket distributors, mass merchandisers and monitoring services markets.

Due to the overall global economic conditions in 2021 and 2020, largely as a result of COVID-19 pandemic and resulting supply chain issues, the automotive, commercial, off-highway and agricultural vehicle markets experienced a decline in global customer sales and production volumes.

Due to the overall global economic conditions in 2022 and 2021, largely as a result of supply chain issues and the impact of the COVID-19 pandemic and resulting supply chain issues, the automotive, commercial, off-highway and agricultural vehicle markets experienced volatility in global customer sales and production volumes.

As a result, we have experienced and may continue to experience reductions in orders from our customers in certain regions.

An economic downturn or other adverse industry conditions that result in a decline in automotive, commercial, off-highway or agricultural vehicle production, or a material decline in market share by our significant customers, could adversely affect our results of operations and financial condition.

An economic downturn or other adverse industry conditions that result in a decline in automotive, commercial, off-highway or agricultural vehicle production, or a

material decline in market share by our significant customers, could adversely affect our results of operations and financial condition.

The loss or insolvency of any of our principal customers would adversely affect our future results.

We are dependent on several principal customers for a significant percentage of our net sales.

In 2021, our top five customers were Volvo, VW Group, Ford Motor Company, PACCAR and American Axle which comprised 9%, 9%, 8%, 6% and 6% of our net sales, respectively.

In 2022, our top five customers were PACCAR, Volvo, VW Group, Ford Motor Company and Daimler AG, which comprised 15%, 11%, 9%, 7% and 7% of our net sales, respectively.

In 2022, our top ten customers accounted for 63 % of our net sales.

The loss of any significant portion of our sales to these customers would have a material adverse effect on our results of operations and financial condition.

In addition, we have significant receivable balances related to these customers and other major customers that would be at risk in the event of their bankruptcy.

In addition, we have significant receivable balances related to these customers and other major customers that would be at risk in the event of their insolvency.

The Company’s estimated sourced future sales from awarded programs may not be realized.

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We cannot assure that we will be able to achieve technological advances or introduce new products that may be necessary to remain competitive.

Our inability to continuously improve existing products, to develop new products and to achieve technological advances could have a material adverse effect on our business, financial condition or results of operations.

Our inability to continuously improve existing products, develop new products and achieve technological advances could have a material adverse effect on our business, financial condition or results of operations.

The discontinuation of, loss of business or lack of commercial success, with respect to a particular vehicle model for which the Company is a significant supplier could reduce the Company’s sales and harm its profitability.

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As of December 31, 2022, there was $167.8 million in borrowings outstanding on our Fourth Amended and Restated Credit Agreement, as amended, (the “Credit Facility”).

In addition, we are permitted under our Credit Facility to incur additional debt, subject to specified limitations.

In addition, we are permitted under our Credit Facility to incur additional

debt, subject to specified limitations.

Our leverage and the terms of our indebtedness may have important consequences including the following:

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• covenants relating to our debt may limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

● we may be placed at a competitive disadvantage against any less leveraged competitors.

• we may be placed at a competitive disadvantage against less leveraged competitors.

These and other consequences of our leverage and the terms of our indebtedness could have a material adverse effect on our business, financial condition or results of operations.

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• substantially change the nature of our business.

On February 28, 2022, we amended the Credit Facility.

As amended the Credit Facility provides for certain financial covenant relief and additional covenant restrictions during the “Specified Period” (the period from February 28, 2022 until the date that the Company delivers a compliance certificate for the quarter ending March 31, 2023 in form and substance satisfactory to the administrative agent).

During the Specified Period:

● the maximum net leverage ratio is changed to 4.0x for the year ended December 31, 2021, suspended for the quarters ending March 31, 2022 through September 30, 2022 and cannot exceed 4.75 to 1.00 for the quarter ended December 31, 2022 or 3.50 to 1.00 for the quarter ended March 31, 2023;

● the minimum interest coverage ratio of 3.50 is reduced to 2.50 for the quarter ended March 31, 2022, 2.25 for the quarter ended June 30, 2022 and 3.00 for the quarters ended September 30, 2022 and December 31, 2022;

● an additional condition to drawing on the Credit Facility has been added that restricts borrowings if the Company’s total of 100% of domestic and 65% of foreign cash and cash equivalents exceeds $70.0 million;

● there are certain additional restrictions on Restricted Payments (as defined);

● a Permitted Acquisition (as defined) may not be consummated unless the net leverage ratio is below 3.50x during the Specified Period.

Following the Specified Period, the agreement governing our Credit Facility requires us to maintain a maximum leverage ratio of 3.50 to 1.00, and a minimum interest coverage ratio of 3.50 to 1.00.

On March 1, 2023, we amended the Credit Facility.

As amended the Credit Facility provides for certain financial covenant relief and additional covenant restrictions during the “Amendment No.

4 Specified Period” (the period from March 1, 2023 until the date that the Company delivers a compliance certificate for the quarter ending September 30, 2023 in form and substance satisfactory to the administrative agent).

During the Amendment No.

4 Specified Period:

• the maximum net leverage ratio was changed to 4.75 to 1.00 for the quarter ended March 31, 2023 and 4.25 to 1.00 for the quarter ended June 30, 2023;

• the minimum interest coverage ratio of 3.50 was reduced to 3.00 for the quarters ended March 31, 2023 and June 30, 2023;

• drawing on the Credit Facility continues to be restricted if the Company's total of 100% of domestic and 65% of foreign cash and cash equivalents exceeds $70.0 million;

• there continue to be certain additional restrictions on Restricted Payments (as defined);

• consistent with Amendment No.

3, a Permitted Acquisition (as defined) may not be consummated unless the net leverage ratio is below 3.50 to 1.00 during the Amendment No.

4 Specified Period.

Our ability to comply with these covenants as well as the negative covenants under the terms of our indebtedness may be affected by events beyond our control.

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If demand for raw materials we require increases, we may have difficulties obtaining adequate raw materials and other supplies from our suppliers to satisfy our customers.

Currently, and at times in the past, we have experienced difficulty obtaining adequate supplies of semiconductors and memory chips.

Currently, and at times in the past, we have experienced difficulty obtaining adequate supplies of semiconductors, memory chips and other electronic components.

In addition, there have been challenges at times in obtaining timely supply of nylon and resins for our Control Devices segment and audio component parts for our Stoneridge Brazil segment.

1 unchanged sentence

The adverse impacts of the COVID-19 pandemic led to a significant vehicle production slowdown in the first half of 2020, which was followed by increased consumer demand and vehicle production schedules in the second half of 2020.

This surge in demand led to a worldwide semiconductor supply shortage at the end of 2020 and throughout 2021, as semiconductor suppliers have been unable to rapidly reallocate production lines to serve the transportation industry.

This surge in demand led to a worldwide semiconductor supply shortage at the end of 2020 and through 2022, as semiconductor suppliers have been unable to rapidly reallocate production lines to serve the transportation industry.

In addition, we have experienced longer lead-times, higher costs and delays in procuring other component parts and raw materials.

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Any failure to successfully integrate such acquisitions could have a material adverse effect on our business, financial condition or results of operations.

If we do not respond appropriately, the evolution of the global transportation industry toward electrification and shared mobility could adversely affect our business.

The global transportation industry is increasingly focused on the development of more fuel-efficient solutions to meet demands from consumers and governments worldwide to address climate change and an increased desire for environmentally sustainable solutions.

The impacts of these changes on us are uncertain and could ultimately prove dramatic.

If we do not respond appropriately, the evolution toward electrification and other energy sources could adversely affect our business.

The increased adoption of electrified and other non-internal combustion-based powertrains may result in lower demand for some of our products.

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

The evolution of the industry toward electrification and shared mobility has also attracted increased competition from entrants outside of the traditional light vehicle industry, some of whom may seek to provide products which compete with ours.

Failure to innovate and to develop or acquire new and compelling products that capitalize upon new technologies in response to these evolving consumer preferences and demands could adversely affect our business, financial condition or results of operations.

Product Liability Risks

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We may be subject to product liability claims in the event that the failure of any of our products results in personal injury or death and we cannot assure that we will not experience material product liability losses in the future.

We cannot assure that our product liability insurance will be adequate for liabilities ultimately incurred or that it will continue to be available on terms acceptable to us.

We cannot assure that

our product liability insurance will be adequate for liabilities ultimately incurred or that it will continue to be available on terms acceptable to us.

In addition, if any of our products prove to be defective, we may be required to participate in government-imposed or customer OEM-instituted recalls involving such products.

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These claims are being made by patent-holders seeking royalties and who may enter into litigation based on patent infringement allegations.

The Company has taken actions to mitigate this risk from new programs, however, significant indemnification claims related to these products could have a material adverse effect on our business, financial condition or results of operations.

The Company has taken actions to mitigate this risk from new programs;

however, significant indemnification claims related to these products could have a material adverse effect on our business, financial condition or results of operations.

Information Technology and Cybersecurity Risks

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The secure operation of these IT networks and systems and the proper processing and maintenance of this information are critical to our business operations.

Also, we continually expand and update our IT networks and systems in response to the changing needs of our business and periodically upgrade our ERP systems.

In addition, we continually expand and update our IT networks and systems in response to the changing needs of our business and periodically upgrade our ERP systems.

Should our networks or systems not be implemented successfully, or if the systems do not perform in a satisfactory manner once implementation is complete, our business and operations could be disrupted and our results of operations could be adversely affected, including our ability to report accurate and timely financial results.

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A breach in security could expose us and our customers and suppliers to risks of misuse of confidential information, manipulation and destruction of data, production downtimes and operations disruptions, which in turn could adversely affect our reputation, competitive position, business or results of operations.

While we have taken steps to protect the Company from cybersecurity risks and security breaches (including enhancing our firewall, workstation, email security and network monitoring and alerting capabilities, and training employees around phishing, malware and other cybersecurity risks), and we have policies and procedures to prevent or limit the impact of systems failures, interruptions, and security breaches, there can be no assurance that such events will not occur or that they will be adequately addressed if they do.

While we have taken steps to protect the Company from cybersecurity risks and security breaches (including enhancing our firewall, workstation, email security and network monitoring with managed detection and response (MDR) and alerting capabilities, and training employees around phishing, malware and other cybersecurity risks), and we have policies and procedures to prevent or limit the impact of systems failures, interruptions, and security breaches, there

can be no assurance that such events will not occur or that they will be adequately addressed if they do.

Although we rely on commonly used security and processing systems to provide the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from all potential compromises or breaches of security.

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Changes in environmental, health and safety laws, regulations and requirements or other governmental regulations could increase our cost of doing business or adversely affect the demand for our products.

An emphasis on global climate change and other ESG matters by various stakeholders could negatively affect our business.

Customer, investor, employee and other stakeholder expectations of us and our supply base in areas such as the environment, social matters and corporate governance have been rapidly evolving and increasing.

The enhanced stakeholder focus on ESG requires the continuous monitoring of various and evolving standards and their associated requirements.

Our failure, or that of our supply base, to adequately meet stakeholder expectations may result in, among other things, the loss of business, diluted market valuation, an inability to attract customers or an inability to attract and retain top talent that could adversely affect our business, financial condition or results of operations.

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