What changed in this filing

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Item 1A. Risk Factors

2022-03-01 compared with 2021-02-25 · 52 added, 48 removed, 226 unchanged (31% of the section changed)

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Although the risks are organized by headings, and each risk is discussed separately, many of the risks are interrelated.

Readers should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.

Additional risks and uncertainties not currently known to us or that we currently believe are immaterial may also impact our business operations, financial results and liquidity.

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Centers for Disease Control and Prevention ("CDC") and implemented other precautionary measures as necessary to maintain social distancing.

COVID-19 has also affected our customers and suppliers, and we have been and will continue to collaborate with them to minimize supply chain disruptions.

The COVID-19 pandemic has also affected our customers and suppliers, and we have been and will continue to collaborate with them to minimize supply chain disruptions.

We have also implemented pandemic and business continuity plans, as well as other precautionary measures on behalf of our customers and employees, including supporting remote work opportunities for certain of our employees.

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The COVID-19 pandemic has impacted our results of operations, and we expect it will continue to impact us in the future at varying levels.

For example, due in part to the impact of the COVID-19 pandemic, sales for our dispensing and closure products increased, while sales in our Aerospace and Specialty Products segments decreased in 2020.

Although it is not possible to predict the ultimate impact of COVID-19, including on our business, results of operations, financial position or cash flows, such impacts that may be material and include, but are not limited to:

For example, sales for our dispensing and closure products used to help fight the spread of gems continue to be much stronger than before the COVID-19 pandemic, while sales in our Aerospace segment have been lower than historical levels as a result of the reduction of new commercial aircraft builds.

Although it is not possible to predict the ultimate impact of COVID-19, including on our business, results of operations, financial position or cash flows, such impacts that have been or may be material and include, but are not limited to:

(i) shifting customer demand for many of our products, including those used in cosmetic, personal care, pharmaceutical, home care, food and beverage, and industrial markets, as well as aerospace markets;

(ii) increased credit risk, including increased failure by customers experiencing business disruptions to make timely payments;

(ii) delays and disruptions in the availability of and timely delivery of materials and components used in our operations, as well as increased costs for such materials and components;

(iii) reduced availability and productivity of employees, as well as increased costs associated with our high-deductible medical insurance plan if our employees become ill;

(iv) increased operational risks as a result of manufacturing facility disruptions or remote work arrangements, including the potential effects on internal controls and procedures, as well as cybersecurity risks and increased vulnerability to security breaches, information technology disruptions and other similar events;

(v) delays and disruptions in the availability of and timely delivery of materials and components used in our operations, as well as increased costs for such materials and components;

(v) increased credit risk, including increased failure by customers experiencing business disruptions to make timely payments;

(vi) customer requirements to accelerate the relocation of certain of our production lines to North America, which may increase our capital investment needs and launch costs;

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The extent of the COVID-19 pandemic's effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time.

Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the resumption of widespread economic activity.

Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the resumption of widespread economic activity, including air travel.

The emergence of new variants of COVID-19, evolving governmental plans to institute vaccination mandates and limited availability of vaccines in various jurisdictions create uncertainty that may impact our employees and result in labor shortages and unforeseen costs.

In addition, because we cannot predict the impact that COVID-19 will ultimately have, the actual impact may also exacerbate other risks discussed in this Item 1A.

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Our financial performance depends, in large part, on conditions in the markets that we serve in both the U.S.

and global economies.

Although with the sale of Lamons in December 2019 we significantly reduced our exposure to the oil and gas end market, we still are exposed to highly cyclical end markets for industrial goods (including our remaining exposure in oil and gas), and to a lesser extent, aerospace and consumer products.

and globally.

Although with the sale of our Lamons business ("Lamons") in December 2019 we significantly reduced our exposure to the oil and gas end market, we still are exposed to highly cyclical end markets for industrial goods (including our remaining exposure in oil and gas), and to a lesser extent, aerospace and consumer products.

When combined with ongoing customer consolidation activity and periodic inventory reduction initiatives, an uncertain macro-economic and political climate could lead to reduced demand from our customers, variations in timing of sales to our customers, increased price competition for our products, increased risk of excess and obsolete inventories, uncollectible receivables, and higher overhead costs as a percentage of revenue, all of which could impact our operating margins.

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Our largest material purchases are for resins (such as polypropylene and polyethylene), steel, aluminum and other oil and metal-based purchased components.

Prices for these products fluctuate with market conditions, and have generally increased over time.

Prices for these products, along with costs for transportation and energy, fluctuate with market conditions, and have generally increased over time.

For example, during 2021, commodity costs related to certain types of resins significantly increased from prior years, and we estimate that we incurred approximately $11 million more in cost increases than we were able to recover via commercial actions.

We may be unable to offset the impact with price increases on a timely basis due to outstanding commitments to our customers, competitive considerations or our customers’ resistance to accepting such price increases and our financial performance could be adversely impacted.

A failure by our suppliers to continue to supply us with certain raw materials or component parts on commercially reasonable terms, or at all, could have a material adverse effect on us.

A failure by our suppliers to continue to supply us with certain raw materials, component parts, or at all, could have a material adverse effect on us.

To the extent there are energy supply disruptions or material fluctuations in energy costs, our margins could be materially adversely impacted.

Our business may be exposed to risks associated with an increasingly concentrated customer base.

While no individual customer accounted for 10% or more of our consolidated net sales for 2020, 2019 or 2018, our customer base has become, and may further become, increasingly concentrated as a result of our smaller revenue base following the 2019 sale of Lamons, or due to customer consolidations and/or through sales growth to existing customers.

In 2020, our Packaging and Aerospace segments each had customers that comprised more than 10% of its segment revenue.

While no individual customer accounted for 10% or more of our consolidated net sales for 2021, 2020 or 2019, our customer base has become, and may further become, increasingly concentrated as a result of our strategy to focus on grow sales with existing customers in packaging end markets, or due to customer consolidations.

In 2021, our Aerospace and Specialty Products segments each had customers that comprised 10% or more of its segment revenue.

As a result of these factors, changes to or reductions in the buying patterns of these larger customers may expose our business and results of operations to greater volatility.

For example, prior to the outbreak of COVID-19, a large commercial aircraft manufacturer announced significant production delays and/or reductions on certain of its platforms for which we provide products, which has impacted our sales, profit and production efficiencies compared with historical levels and is expected to continue into the foreseeable future until and if these delays and/or reductions are lifted.

The mix and type of customers, and sales to any single customer, may vary significantly from quarter to quarter and from year to year, and have a significant impact on our financial condition, results of operations and cash flows.

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We are dependent on our manufacturing facilities for the production of our highly engineered products, which subjects us to risks associated with disruptions and changing technology and manufacturing techniques that could place us at a competitive disadvantage.

If our manufacturing facilities become unavailable either temporarily or permanently due to labor disruptions or circumstances beyond our control, such as geopolitical developments or logistical complications arising from acts of war, cyber-attacks, weather, global climate change, earthquakes or other natural disasters including public health crises, we may be unable to shift production to other facilities or to make up for lost production.

If our manufacturing facilities become unavailable either temporarily or permanently due weather, earthquakes or other natural disasters related to global climate change, or geopolitical developments or logistical complications arising from acts of war, cyber-attacks, public health crises or labor disruptions, we may be unable to shift production to other facilities or to make up for lost production.

For example, our Aerospace manufacturing facilities are predominately located in southern California, an area known for earthquakes, and are thus vulnerable to damage.

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In some instances, we depend upon a single source of supply.

Any service disruption from one of these suppliers, either due to circumstances beyond the supplier’s control, such as geopolitical developments or logistical complications due to weather, global climate change, earthquakes or other natural disasters, or as a result of performance problems or financial difficulties, could have a material adverse effect on our ability to meet commitments to our customers or increase our operating costs.

Trends in oil and natural gas prices may affect the demand for, and profitability of, our energy-related products and services, which could have an adverse effect on our business, consolidated results of operations, and consolidated financial condition.

The oil and gas industry historically has experienced periodic downturns.

Demand for our energy-related products, such as pump jack engines and compressors, is sensitive to the level of production activity of, and the corresponding capital spending by, oil and natural gas companies.

The level of production activity is directly affected by trends in oil (and related derivatives) and natural gas prices, which have been at lower levels over the past four years, and may continue to remain at depressed levels and be subject to future volatility.

Prices for oil and natural gas are subject to large fluctuations in response to changes in the supply of and demand for oil and natural gas, market uncertainty, geopolitical developments, alternative production methods and a variety of other factors that are beyond our control.

Even the perception of longer-term lower oil and natural gas prices can reduce or defer major capital expenditures by our customers in the oil and gas industry.

A growing portion of our sales may be derived from international sources, which exposes us to certain risks which may adversely affect our financial results and impact our ability to service debt.

During 2021, we experienced many supply chain delays and inconsistencies with our subcontractors and suppliers as a result of the ongoing COVID-19 pandemic, resulting in labor and manufacturing inefficiencies given the challenges in production scheduling.

Any material service disruption from one of these suppliers, either due to circumstances beyond the supplier’s control, such as geopolitical developments or logistical complications due to weather, global climate change, earthquakes or other natural disasters, or as a result of performance problems or financial difficulties, could have a material adverse effect on our ability to meet commitments to our customers or increase our operating costs.

A growing portion of our sales and earnings may be derived from international sources, which exposes us to certain risks which may adversely affect our financial results and impact our ability to service debt.

We have operations outside of the United States.

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We cannot be assured that any of these indemnification provisions will fully protect us, and as a result we may incur unexpected liabilities that adversely affect our profitability and financial position.

We could be negatively impacted by stakeholder and market focus on ESG matters.

There has been an increasing focus on corporate ESG practices and disclosures over the past few years, and expectations in this area are rapidly evolving.

We have announced certain areas of focus, which include health and safety, environmental matters, diversity, equity and inclusion, talent development, and innovation for sustainable products.

The criteria used to evaluate ESG practices may continue to evolve, which could result in greater expectations and may cause us to undertake costly initiatives to satisfy new criteria.

The increasing attention to sustainability could also result in reduced demand for certain of our products and/or reduced profits.

If we are unable to respond effectively, investors may conclude that our ESG policies and/or actions are inadequate.

If we are perceived to have failed to achieve our ESG initiatives or accurately disclose our progress on such matters, our reputation, business, financial condition and results of operations could be adversely impacted.

Regulatory, Legal and Environmental Risks

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Free trade laws and regulations provide certain duties and tariffs on qualifying imports and exports, subject to compliance with the applicable classification and other requirements.

government has indicated its intent to alter its approach to international trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries.

The United States government has indicated its intent to alter its approach to international trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries.

For example, beginning in October 2018, the U.S.

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These tariffs and actions may, directly or indirectly, lead to higher costs and cause us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold.

For example, in the past two years, we experienced higher input costs as a direct result of recently imposed tariffs on certain raw materials and components imported from China.

In certain cases, we have passed-through these incremental costs to the customer, while in some cases we have not changed pricing to retain or expand volume, and in other cases we are working to install capacity in facilities where there currently is no tariff.

In addition, our U.S.

suppliers raised prices for certain components in response to an overall increase in demand for domestic sources as a result of recently imposed tariffs.

For example, in the past few years, we have experienced higher input costs as a direct result of tariffs imposed on certain raw materials and components imported from China.

In certain cases, we have passed-through these incremental costs to the customer, while in some cases we have not changed pricing to retain or expand volume, and in other cases we continue to work to install capacity in facilities where there currently is no tariff.

In addition, certain of our U.S.

suppliers raised prices for components in response to an overall increase in demand for domestic sources.

It remains unclear what the U.S.

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We may incur material losses and costs as a result of product liability, recall and warranty claims brought against us.

We are subject to a variety of litigation incidental to our businesses, including claims for damages arising out of use of our products, claims relating to intellectual property matters and claims involving employment matters and commercial disputes.

We are, from time to time, subject to a variety of claims or litigation incidental to our businesses, including demands for damages arising out of use of our products, claims relating to intellectual property matters and claims involving employment matters and commercial disputes.

We currently carry insurance and maintain reserves for potential product liability claims.

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We also may be required to incur additional defense costs and pay damage awards or settlements or become subject to equitable remedies in the future that could adversely affect our businesses.

Our business may be materially and adversely affected by compliance obligations and liabilities under environmental laws and regulations.

Our business may be materially and adversely affected by compliance obligations and liabilities under environmental laws and regulations, including related to climate change.

We are subject to increasingly stringent environmental laws and regulations, including those relating to air emissions, wastewater discharges and chemical and hazardous waste management and disposal.

Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances or wastes.

A number of governments or governmental bodies have introduced or are contemplating introducing regulatory changes in response to climate change, including regulating greenhouse gas emissions.

Some of these laws hold owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances or wastes.

Other environmental laws and regulations require obtaining and complying with environmental permits.

To date, costs of complying with environmental, health and safety requirements have not been material.

However, the nature of our operations and our long history of industrial activities at certain of our current or former facilities, as well as those acquired, could potentially result in material environmental liabilities.

While we must comply with existing and pending climate change legislation, regulation and international treaties or accords, current laws and regulations have not had a material impact on our business, capital expenditures or financial position.

Future events, including those relating to climate change or greenhouse gas regulation, could require us to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites.

Economic conditions and regulatory changes following the United Kingdom's exit from the European Union could have a material adverse effect on our business and results of operations.

The United Kingdom's exit from the European Union and the resulting significant change to the United Kingdom's relationship with the European Union and with countries outside the European Union (and the laws, regulations and trade deals impacting business conducted between them) could disrupt the overall economic growth or stability of the United Kingdom and the European Union and negatively impact our operations.

The United Kingdom exited the European Union on January 31, 2020.

These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets.

Any of these factors could depress economic activity and restrict our access to capital, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our equity shares.

We operate manufacturing facilities internationally, including in the United Kingdom.

Accordingly, the United Kingdom's withdrawal from the European Union may have an adverse impact on our international operations, particularly in the United Kingdom.

Future events, including those relating to climate change or greenhouse gas regulation, could require us to incur expenses related to fund energy efficiency activities, fees or restrictions on certain activities, the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites.

Any adopted future regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations, and we may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely impact our results of operations, cash flow or financial condition.

Our reputation, ability to do business, and results of operations may be impaired by legal compliance risks.

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We have debt principal and interest payment requirements that may restrict our future operations and impair our ability to meet our obligations.

As of December 31, 2020, we have approximately $346.3 million of outstanding debt.

As of December 31, 2021, we have approximately $393.8 million of outstanding long-term debt.

We are subject to variable interest rates on our revolving credit facility.

Such interest rates are based on the London Interbank Offered Rate ("LIBOR") plus 1.50%.

We may experience increases in our interest expense as a result of general increases in interest rate levels, which could be affected by the replacement of LIBOR as the benchmark interest rate.

We had $50.5 million outstanding under our revolving credit facility as of December 31, 2020.

We may experience increases in our interest expense as a result of general increases in interest rate levels.

In addition, we could be further impacted by changes in variable interest rates.

Although we have amended our credit facility to utilize the Secured Overnight Financing Rate ("SOFR") beginning in 2022, SOFR has a limited history and may perform differently from U.S.

dollar LIBOR, which may affect our net interest expense and require changes to our future risk, pricing and hedging strategies.

We had no amounts outstanding under our revolving credit facility as of December 31, 2021.

Our degree of leverage and level of interest expense may have important consequences, including:

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Human Capital Risks

We depend on the services of key individuals and relationships, the loss of which could materially harm us.

Our success will depend, in part, on the efforts of our key leadership, including key operational, technical, commercial, manufacturing and financial personnel.

Our business leadership teams have served a vast majority of their careers in, and are deeply experienced in, the industries we operate.

Our future success will also depend on, among other factors, our ability to retain or attract other qualified personnel.

The loss of the services of any of our key employees or the failure to retain or attract employees could have a material adverse effect on us.

We may be subject to further unionization and work stoppages at our facilities or our customers may be subject to work stoppages, which could seriously impact the profitability of our business.

As of December 31, 2020, we have one facility, located in Commerce, California (USA) where our hourly employees operate under a collective bargaining agreement, and which represents approximately 14% of our U.S.

As of December 31, 2021, we have one facility, located in Commerce, California, where our hourly employees operate under a collective bargaining agreement, and which represents approximately 14% of our employees located in the United States.

We have four facilities outside of the United States where our employees are affiliated with state-controlled or trade unions, which covers approximately 47% of our non-U.S.

Our labor agreement with the United Automobile, Aerospace and Agricultural Implement Workers of America at our TriMas Aerospace facility in Commerce, California expires in 2021.

Our labor agreement with the United Automobile, Aerospace and Agricultural Implement Workers of America at our TriMas Aerospace facility in Commerce, California, expired in August 2021, at which time we entered into a new three-year collective bargaining agreement.

We are not aware of any present active union organizing drives at any of our other facilities.

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Additionally, foreign competitors and many domestic competitors provide fewer benefits to their employees, and this difference in cost could adversely impact our competitive position.

We depend on the services of key individuals and relationships, the loss of which could materially harm us.

Our success will depend, in part, on the efforts of our key leadership, including key technical, commercial and manufacturing personnel.

Our future success will also depend on, among other factors, our ability to retain or attract other qualified personnel.

The loss of the services of any of our key employees or the failure to retain or attract employees could have a material adverse effect on us.

Unresolved Staff Comments

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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