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Item 1A. Risk Factors

2024-02-29 compared with 2023-02-23 · 25 added, 35 removed, 237 unchanged (20% of the section changed)

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and globally.

In the past, our operations have been exposed to volatility due to changes in general economic conditions or consumer preferences, recessions or adverse conditions in the markets we serve, including the impact of global pandemics, such as the coronavirus and related variants ("COVID-19"), and the Russia-Ukraine conflict.

We are exposed to highly cyclical end markets for industrial goods, and to a lesser extent, aerospace and consumer products.

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If our customers are adversely affected by these factors, we may experience lower product volume orders, which could have an unfavorable impact on our revenue and operating profit.

For example, a number of our consumer packaged goods customers increased their first-half 2022 orders for our products due to concerns over capacity constraints and rising inflation, and significantly reduced their orders in the back half of 2022, alerting us that they need to sell through a substantial portion of their existing inventory levels prior to placing significant additional orders.

For example, beginning in the back half of 2022 and continuing through 2023, demand for dispensing and closure products fell as a result of some of our larger customers' choices to rebalance on-hand inventory levels and caution in current purchasing behaviors given the current inflationary macro-economic environment.

Our ability to precisely forecast the level of our customers’ orders is limited and can result in inefficiencies in scheduling our installed manufacturing capacity and result in sub-optimal business and financial results.

The COVID-19 pandemic has adversely impacted, and continues to pose risks, to our businesses, the nature and extent of which are highly uncertain and unpredictable.

We have been managing matters related to the global outbreak of the COVID-19, including impacts to our operations and strategic supplier-partners in Asia, as well as our manufacturing operations in Europe and North America since early 2020.

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, sales for our dispensing and closure products used to help fight the spread of gems significantly increased in 2020 and 2021, and receded in 2022.

Sales in our Aerospace segment significantly declined at the onset of the pandemic, and have increased in 2022 as air travel and new aircraft production increases.

The primary impacts on our business to date have been related 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) 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;

and (iii) reduced availability and productivity of employees.

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 ongoing impact in the regions in which we do business, and any future impacts on 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 or other global pandemics will ultimately have, the actual impact may also exacerbate other risks discussed in this Item 1A.

Many of the markets we serve are highly competitive, which could limit sales volumes and reduce our operating margins.

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As we seek to sell or separate certain assets, equity interests or businesses, we may also encounter difficulty in finding buyers, managing interdependencies across multiple transactions and other Company initiatives, implementing separation plans or executing alternative exit strategies on acceptable terms, which could delay or prevent the accomplishment of our strategic and financial objectives.

Moreover, the effect of dispositions over time will reduce our cash flow and earnings capacity and result in a less diversified portfolio of businesses, and we will have a greater dependency on remaining businesses for our financial results.

Moreover, the effect of dispositions over time will reduce our cash flow and earnings capacity and result in a less diversified portfolio of businesses, creating a greater dependency on remaining businesses for our financial results.

Accordingly, risks related to strategic acquisitions or dispositions may result in the disruption of our ongoing business, diversion of management's attention, the failure of such transactions to be completed, or the failure to realize the financial and strategic benefits contemplated at the time of a transaction, some or all of which could materially and adversely affect our business strategy, financial condition and results of operations.

Increases in our raw material or energy costs or the loss of critical suppliers could adversely affect our profitability and other financial results.

We are sensitive to price movements in our raw materials supply base.

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

We are sensitive to price movements and availability of our raw materials supply.

Our largest raw material purchases are for resins (such as polypropylene and polyethylene), steel, aluminum superalloys (such as titanium, A286 stainless steel and Iconcel) and other oil and metal-based purchased components, each of which have experienced recent cost volatility.

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

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In addition, we have experienced, and expect to continue to experience, the impact of cost inflationary pressure on raw materials, wage rates and freight.

We have generally been able to recover such costs during 2022, as market prices have generally stabilized.

We may be unable to offset the impact of future cost increases 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.

For 2023, material and other input costs have decreased from 2022 levels, primarily in our Packaging segment, although pressure on wage rates remain.

Although we have generally been able to recover costs increases, we may be unable to offset the impact of future cost increases 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, component parts, or at all, could have a material adverse effect on us.

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Any material service disruption from one of our suppliers, either due to circumstances beyond the supplier’s control, such as geopolitical developments, including any potential impacts resulting from rising tensions between the United States and China, or logistical complications or operational disruptions 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.

Since the outbreak of the COVID-19 pandemic, we have experienced even greater uncertainties in the economic environment, including input cost inflation, supply chain disruptions with our subcontractors and suppliers, shortages in global markets for commodities, logistics and labor, all of which have resulted in labor and manufacturing inefficiencies given the challenges in production scheduling.

In recent years we have experienced even greater uncertainties in the economic environment, including input cost inflation, supply chain disruptions with our subcontractors and suppliers, shortages in global markets for commodities, logistics and labor, all of which have resulted in labor and manufacturing inefficiencies given the challenges in production scheduling.

We have significant goodwill and intangible assets, and future impairment of our goodwill and intangible assets could have a material negative impact on our financial results.

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While no individual customer accounted for 10% or more of our consolidated net sales for 2023, 2022 or 2021, our customer base has become, and may further become, increasingly concentrated as a result of our strategy to focus on growing sales with existing customers in packaging end markets, or due to customer consolidations.

In 2022, 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 significantly impacted our sales, profit and production efficiencies compared with historical levels.

In 2023, our Aerospace and Specialty Products segments each had a customer 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, including our customers diversifying their supply base, may expose our business and results of operations to greater volatility.

For example, in a prior period, a large commercial aircraft manufacturer announced significant production delays and/or reductions on certain of its platforms for which we provide products, which significantly impacted our sales, profit and production efficiencies compared to historical levels.

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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For example, a number of our consumer packaged goods customers ordered higher levels of inventory due to concerns over capacity constraints and rising inflation in the first half of 2022, and subsequently reduced their order levels in the back-half of 2022.

Sales of our consumer and industrial packaging products decreased in 2023, which we believe was due to lower customer order activity given high customer stocking levels, as well as continuing uncertainty around consumer sentiment as a result of the inflationary environment.

In addition, major customers may require that we localize manufacturing and supply capacity rather than sourcing from lower cost countries, or seek pricing, payment, intellectual property-related or other commercial terms that are less favorable to us, which may have a negative impact on our business.

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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 weather, earthquakes or other natural disasters related to global climate change, or geopolitical developments, including any potential impacts resulting from rising tensions between the United States and China, or logistical complications or operational disruptions arising from adverse regulatory actions, 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.

If our manufacturing facilities become unavailable either temporarily or permanently due to weather, earthquakes or other natural disasters related to global climate change, or geopolitical developments, including any potential impacts resulting from tensions between the United States and China, or logistical complications or operational disruptions arising from adverse regulatory actions, 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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New tax laws and regulations and changes in existing tax laws and regulations could result in increased expenditures by us for tax liabilities in the future and could materially and adversely impact our financial condition, results of operations and cash flows.

We continue to monitor and evaluate legislative developments related to the Global Anti-Base Erosion Proposal ("GloBE") established by the Organization of Economic Cooperation and Development's ("OECD") Pillar Two framework.

On December 12, 2022, the European Union member states agreed to implement the OECD's Pillar Two global corporate minimum tax rate of 15% on companies with revenues of at least $790,000, which would go into effect beginning in 2024.

While we will continue to analyze this law to determine potential impacts, at this time, we do not expect the Pillar Two legislation to have a material impact on our consolidated financial statements.

We may face liability associated with the use of products for which patent ownership or other intellectual property rights are claimed.

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See Note 15, " Commitments and Contingencies ," included in Item 8, " Financial Statements and Supplementary Data ," within this Form 10-K for additional information.

Total settlement costs (exclusive of defense costs) for all such cases, some of which were filed over 25 years ago, have been $12.5 million.

Total settlement costs (exclusive of defense costs) for all such cases, some of which were filed more than 30 years ago, have been $13.1 million.

All relief sought in the asbestos cases is monetary in nature.

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Any such allegations, violations of law or improper actions could subject us to civil or criminal investigations in the U.S.

and in other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties, and related shareholder lawsuits, could lead to increased costs of compliance, could damage our reputation and could have a material effect on our financial statements.

Risks Related to our Debt and Other Financial Obligations

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

Such interest rates, effective January 1, 2022, are based on the Secured Overnight Financing Rate, the Sterling Overnight Index Average and the Euro Short Term Rate depending upon the currency of borrowing, all plus a spread of 1.50%.

Such interest rates are subject to benchmark interest rates based on the currency denomination of borrowings, with British pound sterling borrowings subject to the Sterling Overnight Index Average and Euro borrowings subject to the Euro InterBank Offered Rate, both plus a spread of 1.625%, and U.S.

dollar borrowings subject to the Secured Overnight Financing Rate plus a spread of 1.725%.

The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date.

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

Our reference rates under our revolving credit facility may perform differently from the historical use of U.S.

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

Our reference rates under our revolving credit facility may perform differently from historical rates, 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, 2023.

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If our credit ratings were to decline, our ability to access certain financial markets may become limited, the perception of us in the view of our customers, suppliers and security holders may worsen and as a result, we may be adversely affected.

We have significant operating lease obligations and our failure to meet those obligations could adversely affect our financial condition.

We have significant operating and finance lease obligations and our failure to meet those obligations could adversely affect our financial condition.

We lease many of our manufacturing and distribution branch facilities, and certain capital equipment.

Our rental expense in 2022 under these operating leases was $13.9 million.

Our rental expense in 2023 under these leases was $14.9 million.

A failure to pay our rental obligations would constitute a default allowing the applicable landlord to pursue any remedy available to it under applicable law, which would include taking possession of our property and, in the case of real property, evicting us.

These leases are categorized as operating leases and are not considered indebtedness for purposes of our debt instruments.

The majority of our leases are categorized as operating leases and are not considered indebtedness for purposes of our debt instruments.

Human Capital Risks

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As of December 31, 2023, we have one facility, located in Commerce, California, where our hourly employees operate under a collective bargaining agreement, and which represents 12% of our employees located in the United States.

We have five facilities outside of the United States where our employees are affiliated with state-controlled or trade unions, which covers 48% of our non-U.S.

We have four facilities outside of the United States where our employees are affiliated with state-controlled or trade unions, which covers 21% of our non-U.S.

In 2021 we entered a three-year collective bargaining agreement with the United Automobile, Aerospace and Agricultural Implement Workers of America at our TriMas Aerospace facility in Commerce, California, which expires in August 2024.

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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.

Unresolved Staff Comments

Not applicable.

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