What changed in this filing

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Item 1A. Risk Factors

2022-09-08 compared with 2021-09-02 · 43 added, 26 removed, 158 unchanged (30% of the section changed)

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RISK RELATED TO CORONAVIRUS AND OTHER HEALTH EPIDEMICS

The Coronavirus (COVID-19) pandemic adversely affected, and may continue to adversely affect, our operations and supply chains, in particular related to semiconductor chips, and we have experienced and may continue to experience reductions in demand for certain of our products and services as a result of the pandemic.

The Coronavirus (COVID-19) pandemic adversely affected, and may continue to adversely affect, our operations and supply chains, in particular related to the sourcing of semiconductor chips, and we have experienced and may continue to experience reductions in demand for certain of our products and services as a result of the pandemic and this supply chain disruption.

Because we manufacture our products in facilities around the world, including in Mexico and through our joint venture partners in Europe, China and India, we have been and may continue to be vulnerable to an outbreak of COVID-19 (or the resurgence of such an outbreak) or other contagious diseases in those regions as well as in the United States.

The effects of COVID-19 and other contagious diseases have included and may continue to include disruptions or restrictions on our ability to travel, our ability to manufacture our affected products and our ability to ship these affected products to customers as well as disruptions that have and may continue to affect our key customers and suppliers, including those in these regions or other affected regions of the world, including in the United States, Mexico, China and neighboring countries.

Current and future disruption of our ability to manufacture or distribute our products or of the ability of our customers to take orders of our products or our suppliers to deliver key raw materials on a timely basis has had and could continue to have a material adverse effect on our sales and operating results.

In addition, the COVID-19 outbreak (or a worsening of this outbreak) and future outbreaks of contagious diseases in the human population has resulted in and could continue to result in a widespread health crisis that adversely affects the economies and financial markets of many countries (including those where we operate or where our products are ultimately used), resulting in an economic downturn that has and could continue to affect demand for our products and impact our operating results.

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All of these additional actions have and may continue to adversely impact our operating results, financial condition and cash flows.

RISK RELATED TO GEOPOLITICAL INSTABILITY

We are currently operating in a period of geopolitical instability resulting from the ongoing military conflict between Russia and the Ukraine, which has significantly contributed to economic uncertainty, capital market disruption and supply chain interruptions in the U.S.

and global markets.

On February 24, 2022, a full-scale military invasion of the Ukraine by Russian troops began.

While the length and impact of the ongoing conflict is unpredictable, the Ukraine conflict could lead to market disruptions, including supply chain interruptions and significant volatility in commodity prices, and in credit and capital markets.

The conflict in the Ukraine has led to sanctions and other penalties being levied against Russia by the U.S., the EU, and other countries.

Additional potential sanctions and penalties have also been proposed.

Russian military actions and the resulting sanctions, as well as future geopolitical conflicts, could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially further disrupting the supply chain for necessary components and raw materials used by us or our customers in producing product.

Any of the foregoing factors could have a material adverse effect on our business, operating results, financial condition and cash flows.

BUSINESS RISKS

Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share – Sales to General Motors Company, Ford Motor Company and Fiat Chrysler Automobiles represented approximately 62 percent of our annual net sales (based on fiscal 2021 results) and, accordingly, these customers account for a significant percentage of our outstanding accounts receivable.

Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share – Sales to General Motors Company, Ford Motor Company and Stellantis (formerly Fiat Chrysler Automobiles) represented approximately 65 percent of our annual net sales (based on fiscal 2022 results) and, accordingly, these customers account for a significant percentage of our outstanding accounts receivable.

The contracts with these customers provide for supplying the customer’s requirements for a particular model.

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If our major customers cannot fund their operations, we may incur significant write-offs of accounts receivable, incur impairment charges or require restructuring actions.

Production Slowdowns by Customers – Our major customers and many of their suppliers were significantly impacted by the Great Recession of 2008/2009, by the COVID-19 pandemic in 2020 and by a semiconductor chip shortage in 2021.

Many of our major customers instituted production cuts during our fiscal 2009 and 2010 due to the Great Recession and shuttered plants during 2020 and 2021 in response to the effects of the COVID-19 pandemic and the semiconductor chip shortage.

While production subsequently increased after the cuts made in 2009 and again in 2021 when plants reopened from the COVID-19 closures, the current semiconductor chip shortage and additional economic slowdowns, pandemics or part supply shortages could bring about new production cuts which could have a material adverse effect on our existing and future revenues, operating results, financial condition and cash flows.

Many of our major customers instituted production cuts during our fiscal 2009 and 2010 due to the Great Recession and shuttered plants.

Similarly during 2020, 2021 and 2022 in response to the effects of the COVID-19 pandemic, the Ukraine conflict and the semiconductor chip shortage many of our major customers again instituted production cuts and shuttered plants.

While production subsequently increased after the cuts made in 2009 and again in 2021 when plants reopened following the COVID-19 closures, the current Ukraine conflict, semiconductor chip shortage and additional economic slowdowns, pandemics or part supply shortages could bring about new production cuts which could have a material adverse effect on our existing and future revenues, operating results, financial condition and cash flows.

Cross-border Trade Issues or Tariffs – Our business is impacted by international or cross-border trade, including the import and export of products and goods into and out of the United States and trade tensions among nations.

The shipping of goods across national borders is often more expensive and complicated than domestic shipping.

Customs and duty procedures and reviews,

including duty-free thresholds in various key markets, the application of tariffs, and security related governmental processes at international borders, may increase costs, discourage cross-border purchases, delay transit and create shipping uncertainties.

Customs and duty procedures and reviews, including duty-free thresholds in various key markets, the application of tariffs, and security related governmental processes at international borders, may increase costs, discourage cross-border purchases, delay transit and create shipping uncertainties.

Further, uncertainties stemming from changes in U.S.

trade policies in particular with European countries and China, tariffs and the reaction of other countries thereto, could have an adverse effect on our business and may adversely imp act our results of operations, financial condition and cash flows or reduce profitability on certain of our products.

trade policies in particular with European countries and China, tariffs and the reaction of other countries thereto, could have an adverse effect on our business and may adversely impact our results of operations, financial condition and cash flows or reduce profitability on certain of our products.

Highly Competitive Automotive Supply Industry – The automotive component supply industry is highly competitive.

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OPERATIONAL RISKS

Shortage of Raw Materials or Components Supply – In the event of catastrophic acts of nature such as fires, tsunamis, hurricanes, earthquakes and global pandemics or a rapid increase in production demands, either we or our customers or other suppliers may experience supply shortages of raw materials or components.

Shortage of Raw Materials or Components Supply – In the event of catastrophic acts of nature such as fires, tsunamis, hurricanes, earthquakes and global pandemics and wars or a rapid increase in production demands, either we or our customers or other suppliers may experience supply shortages of raw materials or components.

This could be caused by a number of factors, including a lack of production line capacity or manpower or working capital constraints.

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However, there can be no assurance that strong demand, capacity limitations, shortages of raw materials, labor disputes or other problems will not result in any shortages or delays in the supply of components to us.

Because of the COVID-19 pandemic, we have experienced supply chain disruptions in fiscal 2021 in particular with semiconductor chip shortages that impact our OEM customers’ ability to finish assembly of new vehicles and which have adversely impacted our results of operations and cash flows.

Because of the COVID-19 pandemic and the recent Ukraine conflict, we have experienced supply chain disruptions in fiscal 2021 and fiscal 2022 in particular with semiconductor chip shortages that impact our OEM customers’ ability to finish assembly of new vehicles and which have adversely impacted orders for our products and, accordingly, our results of operations and cash flows.

These shortages will most likely continue into our fiscal 2023.

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However, the development of future sourcing issues related to using existing or alternative raw materials and the global availability of these materials as well as significant fluctuations in the market prices of these materials may have an adverse effect on our results of operations, financial condition and cash flows if the increased raw material costs cannot be recovered from our customers.

During fiscal 2021, we experienced higher raw material costs on the items listed above including freight costs on both raw material and purchased components.

During fiscal 2021 and 2022, we experienced higher raw material costs on the items listed above including freight costs on both raw material and purchased components.

Given the significant financial impact on us relating to changes in the cost of our primary raw materials, commencing with fiscal 2008 and thereafter, we began quoting quarterly material price adjustments for changes in our zinc costs in our negotiations with our customers.

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These relocation costs and start-up costs have been financed internally and externally by VAST China.

Additionally, our VAST LLC joint ventures in Brazil and India continue to report losses due to the weak automotive build in those regions.

Additionally, our VAST LLC joint ventures in Brazil and India continue to report losses or breakeven results due to the weak automotive build in those regions.

The impact of any future planned capital expenditures or future expansion by VAST LLC in China, Brazil and India, may result in the need for additional future capital contributions to fund the operations of these joint venture investments.

Cyber Vulnerability – In the ordinary course business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information of our customers and employees, in our internal data centers, cloud services and on our networks.

Cyber Vulnerability – In the ordinary course of business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information of our customers and employees, in our internal data centers, cloud services and on our networks.

The secure processing, maintenance and transmission of this information is critical to our operations and business strategy.

Despite our security measures, our information technology and infrastructure, as well as that of our partners, may be vulnerable to malicious attacks or breaches due to employee error, malfeasance or other disruptions, including as a result of rollouts of new systems.

Any such breach or operation failure would compromise our networks or that of our business partners and the information stored could be accessed, publically disclosed, lost or stolen.

Although we have cyber security insurance in place, such access or other loss of information could result in legal claims or proceedings, regulatory fines or penalties, disruption in our operations, damage to our reputation, or loss of confidence in our products and services, any of which could have a negative impact on our business, results of operations, financial condition and cash flows.

Cybersecurity attacks are becoming more sophisticated and include, but are not limited to, malicious software attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, corruption or destruction of data and other manipulation or improper use of systems or networks.

Despite our security measures, our information technology and infrastructure, as well as that of our partners, customers and suppliers, may be vulnerable to malicious attacks, breaches or system failures due to employee error, malfeasance or other disruptions, including as a result of rollouts of new systems.

Any such breach or operation failure would compromise our networks or that of our business partners, customers or suppliers, and the information stored could be accessed, publicly disclosed, lost or stolen, cause transaction processing errors, processing inefficiencies, delays or cancellation of customer orders, the loss of customers, impediments to the manufacturing or shipment of products, or other business disruptions.

Although we have cybersecurity insurance in place, such access or other loss of information could result in legal claims or proceedings, regulatory fines or penalties, disruption in our operations, damage to our reputation, loss of confidence in our products and services, increased costs, or the loss of assets, any of which could have a negative impact on our business, results of operations, financial condition and cash flows.

In addition, as security threats and cybersecurity and data privacy and protection laws and regulations continue to evolve and increase in terms of sophistication, we may be required to or choose to invest additional resources in the security of our systems.

Any such increased level of investment could adversely affect our financial condition or

results of operations.

We have programs in place to address and mitigate cybersecurity risks.

These programs include regular monitoring of outside threats, continuous update of software to mitigate risk, education of employees to the risks of external threats, and simplification of infrastructure to minimize servers.

Although we believe the foregoing programs are reasonable actions to mitigate cybersecurity risks, the failure of these programs to adequately protect against these risks could have a negative impact on our busine ss, results of operations , financial condition and cash flows.

Qualified Personnel – Our business success depends, to a significant degree, on attracting and retaining qualified personnel.

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A sixteen-day strike by these associates in June 2001 resulted in increased costs as all salaried associates worked with additional outside resources to produce the components necessary to meet customer requirements.

The current contract with our unionized associates is effective through September 17, 2021.

The current contract with our Milwaukee unionized associates is effective through November 1, 2025.

We also have unionized associates at our Leon, Mexico facility.

The current contract with our Leon unionized associates is effective through April 12, 2023.

We may encounter further labor disruption and we may also encounter unionization efforts in our other plants or other types of labor conflicts, any of which could have an adverse effect on our business, financial results, financial condition and cash flows.

Labor contracts between General Motors Company, Ford Motor Company and Fiat Chrysler Automobiles and their unionized associates under the United Auto Workers union expire in September 2023.

Labor contracts between General Motors Company, Ford Motor Company and Stellantis (formerly Fiat Chrysler Automobiles) and their unionized associates under the United Auto Workers union expire in September 2023.

In addition, their respective labor agreements with the Canadian auto workers union expire in Fall 2023.

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During the above time frame, several automotive suppliers filed for bankruptcy protection or ceased operations.

The potential continuation or renewal of financial distress within the supply base (whether from COVID-19 or otherwise) and our suppliers’ inability to obtain credit from lending institutions could lead to commercial disputes and possible supply chain interruptions.

In addition, the potential for future adverse industry conditions (including from COVID-19 or otherwise) may require us to provide financial assistance or other measures to ensure uninterrupted production.

The potential continuation or renewal of financial distress within the supply base (whether from COVID-19, the Ukraine conflict, the ongoing supply chain and logistics disruptions or otherwise) and our suppliers’ inability to obtain credit from lending institutions could lead to commercial disputes and possible supply chain interruptions.

In addition, the potential for future adverse industry conditions (including from COVID-19, the Ukraine conflict or otherwise) may require us to provide financial assistance or other measures to ensure uninterrupted production.

The continuation or renewal of these industry conditions could have a material adverse effect on our existing and future revenues, financial results, financial condition and cash flows.

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This requires us to generate cost reductions, including reductions in the cost of components purchased from outside suppliers.

If we are unable to generate sufficient production cost savings in the future to offset pre-programmed price reductions, our gross margin and profitability will be adversely affected.

If we are unable to generate sufficient production cost savings in the future to offset pre-programmed price reductions or additional price reduction demands, our gross margin and profitability will be adversely affected.

Currency Exchange Rate Fluctuations – Our sales are denominated in U.S.

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As additional information becomes available, actual results may differ from recorded estimates or we may need to record additional warranty provisions, similar to as in 2015 and 2018.

If our customers demand higher warranty-related cost recoveries, or if our products fail to perform as expected, it could have a material adverse impact on our results of operations, financial condition and cash flows .

Although we have product recall insurance in place, if our customers demand higher warranty-related cost recoveries, or if our products fail to perform as expected, it could have a material adverse impact on our results of operations, financial condition and cash flows.

LEGAL AND REGULATORY RISKS

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An environmental reserve was established in 1995 for estimated costs to remediate a site at our Milwaukee facility.

The site was contaminated from a former above-ground solvent storage tank, located on the east side of the facility.

contaminated from a former above-ground solvent storage tank, located on the east side of the facility.

The contamination occurred in 1985 and is being monitored in accordance with Federal, state and local requirements.

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These factors could have a material adverse impact on our results of operations, financial condition, and cash flows.

Additionally, political and social turmoil, international conflicts and terrorist acts may put pressure on global economic conditions that may adversely impact our operating results.

Additionally, political and social turmoil, international conflicts (such as the Ukraine conflict) and terrorist acts may put pressure on global economic conditions that may adversely impact our operating results.

Unstable political, social or economic conditions may make it difficult for us, our customers and our suppliers to accurately forecast and plan future business activities.

If such conditions arise or persist, they could have a material adverse impact on our results of operations, financial condition and cash flows.

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