AAON, INC. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto, which are included in this report, and our audited consolidated financial statements and the notes thereto, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. This discussion contains or incorporates by reference “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on expectations, estimates, assumptions and projections about our industry, business and future financial results, based on information available at the time this report is filed with the SEC or, with respect to any document incorporated by reference, available at the time that such document was prepared. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those identified in the section entitled “Forward-Looking Statements” in this Item 2 of this Quarterly Report on Form 10-Q and in the section entitled “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. We do not assume any obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise, except as required by law. Overview We engineer, manufacture, market, and sell premium air conditioning and heating equipment consisting of standard, semi-custom, and custom rooftop units, data center cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls. These products are marketed and sold to retail, manufacturing, educational, lodging, supermarket, data centers, medical and pharmaceutical, and other commercial industries. We market our products to all 50 states in the United States and certain provinces in Canada. Foreign sales were approximately $12.6 million of our total net sales for the three months ended March 31, 2023 and $6.0 million of our sales during the same period of 2022. Our business can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate. Both the new construction and replacement markets are cyclical. If the domestic economy were to slow or enter a recession, this could result in a decrease in our sales volume and profitability. Sales in the commercial and industrial new construction markets generally lag the housing market, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, the state of the economy and other macroeconomic factors over which we have no control. Sales in the replacement markets are driven by various factors, including general economic growth, the Company’s new product introductions, fluctuations in the average age of existing equipment in the market, government regulations and stimulus, changes in market demand between more customized higher performing HVAC equipment and lower priced standard equipment, as well as many other factors. When new construction is down, we emphasize the replacement market. - 27 - We sell our products to property owners and contractors mainly through a network of independent manufacturers’ Representatives. This go-to-market strategy is unique compared to most of our larger competitors in that most control their sales channel. We value the independent sales channel as we think it is a more effective way of increasing market share. Although we concede full control of the sales process with this strategy, the entrepreneurial aspect of the independent sales channel attracts the most talent and provides greater financial incentives for its salespeople. Furthermore, the independent sales channel sells different types of equipment from various manufacturers, allowing it to operate with more of a solutions-based mindset, as opposed to an internal sales department of a manufacturing company that is incentivized to only sell its equipment regardless if it is the best solution for the end customer. We also have a small internal sales force that supports the relationships between the Company and our sales channel partners. BASX sells highly customized products for unique applications to a more concentrated customer base. A combination of our internal sales force and select group of independent sales representatives is most effective for BASX's products. The principal components of cost of goods sold are labor, raw materials, component costs, factory overhead, freight and engineering expense. The principal high volume raw materials used in our manufacturing processes are steel, copper and aluminum, and are obtained from domestic suppliers. We also purchase from domestic manufacturers certain components, including coils, compressors, motors, and electrical controls. The price levels of our raw materials fluctuate given that the market continues to be volatile and unpredictable as a result of the uncertainty related to the U.S. economy and global economy. At March 31, 2023, the price (year to date average) for copper, stainless steel and aluminum increased 6.1%, 5.3%, and 16.0%, respectively, as compared to the price (year to date average) at March 31, 2022, while the price (year to date average) for galvanized steel decreased 39.83% as compared to the price (year to date average) at March 31, 2022. We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations. We occasionally increase the price of our products to help offset any inflationary headwinds. In 2022, we implemented two significant price increases as well as a recurring 1% monthly price increase effective June 1, 2022. Backlog The following table shows our historical backlog levels: March 31, 2023 December 31, 2022 March 31, 2022 (in thousands) $ 599,912 $ 548,022 $ 461,400 Our bookings remain strong in the first quarter of 2023, with an increase in our backlog of 9.5% since December 31, 2022. While our pricing has been increasing 1% a month since June of 2022 for the legacy business, the growth in the backlog is primarily due to organic volumes as a result of our favorable lead times. Results of Operations Three months ended March 31, 2023 2022 (in thousands) Net Sales $ 265,953 $ 182,771 Cost of Sales 188,799 136,707 Gross Profit 77,154 46,064 Selling, general and administrative expenses 32,942 23,056 Loss (gain) on disposal of assets 6 (2) Income from operations $ 44,206 $ 23,010 - 28 - The following are recent highlights and items that impacted our results of operations, cash flows and financial condition: • We continue to have a record backlog. Total backlog increased 9.5% from December 31, 2022 and 30.0% from a year ago. • Sales for the three months ended March 31, 2023 grew 45.5% due to record production rates and price increases realized during the period as compared to the quarter ended March 31, 2022. • Our gross profit margin for the quarter ended March 31, 2023 of 29.0% increased 380 basis points from the quarter ended March 31, 2022. We report our financial results based on three reportable segments: AAON Oklahoma, AAON Coil Products, and BASX, which are further described in "Segments" (Note 19) within our notes to the consolidated financial statements. The Company's chief decision maker ("CODM"), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and income from operations. The CODM does not evaluate operating segments using asset or liability information. Segment Operating Results for Three Months Ended March 31, 2023 and Three Months Ended March 31, 2022 Three Months Ended March 31, 2023 Percent of Sales 1 March 31, 2022 Percent of Sales 1 $ Change % Change (in thousands) Net Sales 2 AAON Oklahoma $ 202,002 76.0 % $ 139,867 76.5 % $ 62,135 44.4 % AAON Coil Products 33,412 12.6 % 21,935 12.0 % 11,477 52.3 % BASX 30,539 11.5 % 20,969 11.5 % 9,570 45.6 % Net sales $ 265,953 $ 182,771 $ 83,182 45.5 % Cost of Sales 2 AAON Oklahoma $ 140,152 69.4 % 106,031 75.8 % $ 34,121 32.2 % AAON Coil Products 26,254 78.6 % 14,629 66.7 % 11,625 79.5 % BASX 22,393 73.3 % 16,047 76.5 % 6,346 39.5 % Cost of sales $ 188,799 71.0 % $ 136,707 74.8 % $ 52,092 38.1 % Gross Profit 2 AAON Oklahoma $ 61,850 30.6 % $ 33,836 24.2 % $ 28,014 82.8 % AAON Coil Products 7,158 21.4 % 7,306 33.3 % (148) (2.0) % BASX 8,146 26.7 % 4,922 23.5 % 3,224 65.5 % Gross profit $ 77,154 29.0 % $ 46,064 25.2 % $ 31,090 67.5 % 1 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment's net sales. Total cost of sales and total gross profit are calculated as a percentage of total net sales. 2 Presented after intercompany eliminations. Total net sales increased $83.2 million or 45.5%, with increases at all three operating segments driven by increased organic volume growth. Volume growth accounted for 23.5% of the increase in net sales with the remaining 22.0% increase resulting from realization of price increases put in place during 2022. Gross profit as a percent of sales increased to 29.0% for the three months ended March 31, 2023 as compared to 25.2% for the three months ended March 31, 2022. Total gross profit increased mostly due to the multiple price increases realized for the three months ended March 31, 2023 counteracting the increasing cost of materials and labor. As shown in the table below, we've experienced year over year increases in the cost of several raw materials. We implemented multiple price increases during 2022 and 2023 to counteract the increased cost of material. Some of the price increases have yet to be realized. Additionally, in order to retain our existing employees, we continue to award periodic raises in addition to our - 29 - annual merit raises to our employees. In the first quarter of 2023, our gross profit decreased by approximately $3.7 million for changes in our paid time off policies and for payroll taxes and 401(k) matching contributions related to profit sharing payments and stock transactions as our stock reached record highs consistently during the first quarter. Raw Material Costs Three-month average raw material cost per pound as of March 31: 2023 2022 % Change Copper $ 5.71 $ 5.38 6.1 % Galvanized steel $ 0.71 $ 1.18 (39.8) % Stainless steel $ 3.35 $ 3.18 5.3 % Aluminum $ 2.32 $ 2.00 16.0 % Selling, General and Administrative Expenses Three Months Ended Percent of Sales March 31, 2023 March 31, 2022 2023 2022 (in thousands) Warranty $ 2,408 $ 1,157 0.9 % 0.6 % Profit sharing 4,866 2,669 1.8 % 1.5 % Salaries & benefits 12,733 9,392 4.8 % 5.1 % Stock compensation 1,873 1,669 0.7 % 0.9 % Advertising 846 341 0.3 % 0.2 % Depreciation & amortization 2,645 1,691 1.0 % 0.9 % Insurance 1,233 709 0.5 % 0.4 % Professional fees 1,105 1,482 0.4 % 0.8 % Donations 125 189 — % 0.1 % Other 5,108 3,757 1.9 % 2.1 % Total SG&A $ 32,942 $ 23,056 12.4 % 12.6 % Overall, selling, general and administrative expenses increased $9.9 million from the prior year period, but expenses did decrease overall as a percentage of sales for the three months ended March 31, 2023. Warranty expense increased consistent with our increase in net sales. We continue to focus on our commitment to reliability and quality. Profit sharing increased $2.2 million or 82.3% due to our increased operating results. Salaries and benefits increased $3.3 million or 35.6% which is primarily attributable to overall increased headcount as well as the the impact of employee pay increases and benefit improvements discussed above. Income Taxes Three Months Ended Effective Tax Rate March 31, 2023 March 31, 2022 2023 2022 (in thousands) Income tax provision $ 6,356 $ 4,782 14.7 % 20.9 % The Company’s estimated annual 2023 effective tax rate, excluding discrete events, is expected to be approximately 24.3%. During the three months ended March 31, 2023, the Company recorded an excess tax benefit of $3.8 million as compared to $0.5 million during the same period in 2022. The increase was primarily due to timing of stock option exercises as a result of our high stock price during the three months ended March 31, 2023. - 30 - Liquidity and Capital Resources Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the use of the revolving bank line of credit based on our current liquidity at the time. Working Capital - Our unrestricted cash decreased $2.9 million from December 31, 2022 to March 31, 2023 and totaled $2.5 million at March 31, 2023. Revolving Line of Credit - Our revolving credit facility (as amended, "Revolver"), provides for maximum borrowings of $200.0 million. As of March 31, 2023 and December 31, 2022, we had $83.7 million and $71.0 million, respectively, outstanding under the Revolver. We had one standby letter of credit totaling $0.3 million as of March 31, 2023. At March 31, 2023, we have $116.0 million of borrowings available under the Revolver. The Revolver expires May 27, 2027. Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate ("SOFR") plus the applicable margin. Applicable margin, ranging from 1.25% - 1.75%, is determined quarterly based on the Company's leverage ratio. The Company is also subject to letter of credit fees, ranging from 1.25% - 1.75%, and a commitment fee, ranging from 0.10% - 0.20%. The applicable fee percentage is determined quarterly based on the Company's leverage ratio. The weighted average interest rate on borrowings outstanding on the Revolver was 6.0% and 1.3% for the three months ended March 31, 2023 and 2022. Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the three months ended March 31, 2023 and 2022. If SOFR cannot be determined pursuant to the definition, as defined by the Revolver agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate ("ABR") loans. ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50%, or (c) daily simple SOFR for a one-month tenor in effect on such day plus 1.00%. At March 31, 2023, we were in compliance with our financial covenants, as defined by the Revolver. These covenants require that we meet certain parameters related to our leverage ratio. At March 31, 2023, our leverage ratio was 0.47 to 1.0, which meets the requirement of not being above 3 to 1. On April 20, 2023 we amended the Revolver to allow for the occurrence of transactions associated with the New Markets Tax Credit executed on April 25, 2023 (Note 16). 2019 New Markets Tax Credit - On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “Project”). In connection with the NMTC transaction, the Company received a $23.0 million NMTC allocation for the Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities. Upon closing of the NMTC transaction, the Company provided an aggregate of approximately $15.9 million to the Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%. This $15.9 million in proceeds plus capital contributed from the Investor was used to make an aggregate $22.5 million loan to a subsidiary of the Company. This financing arrangement is secured by equipment at the Company's Longview, Texas facilities, and a guarantee from the Company, including an unconditional guarantee of NMTCs. 2023 New Markets Tax Credit On April 25, 2023, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2023 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2023 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “Project”). In connection with the 2023 NMTC transaction, the Company received a $23.0 million NMTC allocation for the Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities. Upon closing of the 2023 NMTC transaction, the Company provided an aggregate of approximately $16.7 million to the Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%. This $16.7 million - 31 - in proceeds plus capital contributed from the Investor was used to make an aggregate $23.8 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of NMTCs. Stock Repurchases - The Board has authorized one active stock repurchase program for the Company. The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market. On November 3, 2022, the Board of Directors approved an updated stock repurchase plan with repurchases under the plan not to exceed $50 million. The current repurchase plan will expire at the Board of Directors discretion. Our open market repurchase programs are as follows: Effective Date Authorized Repurchase $ Expiration Date March 13, 2020 $20 million November 9, 2022 November 3, 2022 $50 million ** 1 1 Expiration Date is at Board's discretion. The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board. The Company repurchases shares of AAON, Inc. stock from employees for payment of statutory tax withholdings on stock transactions. All other repurchases from directors or employees are contingent upon Board approval. All repurchases are done at current market prices. Lastly, the Company also had a stock repurchase arrangement by which employee-participants in our 401(k) savings and investment plan were entitled to have shares in AAON, Inc. stock in their accounts sold to the Company. The 401(k) Plan was amended in June 2022 to discontinue this program. No additional shares have been purchased by the Company under this arrangement since June 2022. Our repurchase activity is as follows: Three Months Ended March 31, 2023 March 31, 2022 (in thousands, except share and per share data) Program Shares Total $ $ per share Shares Total $ $ per share Open market — $ — $ — — $ — $ — 401(k) — — — 54,305 3,278 60.36 Directors and employees 11,673 1,030 88.24 13,358 804 60.19 Total 11,673 $ 1,030 $ 88.24 67,663 $ 4,082 $ 60.33 Our repurchase activity since Company inception, including our current authorized stock repurchase programs, are as follows: Inception to March 31, 2023 (in thousands, except share and per share data) Program Shares Total $ $ per share Open market 4,327,367 $ 81,616 $ 18.86 401(k) 8,308,368 171,789 20.68 Directors and employees 2,056,628 24,390 11.86 Total 14,692,363 $ 277,795 $ 18.91 - 32 - Dividends - At the discretion of the Board, we pay cash dividends. Board approval is required to determine the date of declaration and amount for each cash dividend payment. Our recent cash dividends are as follows: Declaration Date 1 Record Date Payment Date Dividend per Share Annualized Dividend per Share May 18, 2022 June 3, 2022 July 1, 2022 $0.19 $0.38 November 8, 2022 November 28, 2022 December 16, 2022 $0.24 $0.48 March 1, 2023 March 13, 2023 March 31, 2023 $0.12 $0.48 1 Effective with the cash dividend declared on March 1, 2023 (paid on March 31, 2023), the Company moved from semi-annual cash dividends to quarterly cash dividends. Based on historical performance and current expectations, we believe our cash and cash equivalents balance, the projected cash flows generated from our operations, our existing committed revolving credit facility (or comparable financing) and our expected ability to access capital markets will satisfy our working capital needs, capital expenditures, and other liquidity requirements associated with our operations in 2023 and the foreseeable future. - 33 - Statement of Cash Flows The following table reflects the major categories of cash flows for the three months ended March 31, 2023 and 2022. For additional details, see the consolidated financial statements. Three Months Ended March 31, 2023 March 31, 2022 (in thousands) Operating Activities Net Income $ 36,814 $ 18,059 Income statement adjustments, net 14,917 11,730 Changes in assets and liabilities: Accounts receivable (33,740) (43,244) Income taxes 5,262 3,631 Inventories (861) (16,041) Contract assets 25 (4,252) Prepaid expenses and other long-term assets (3,613) (3,588) Accounts payable (16,318) 6,325 Contract liabilities 713 17,998 Extended warranties 777 68 Accrued liabilities & other long-term liabilities 847 2,511 Net cash provided by (used in) operating activities 4,823 (6,803) Investing Activities Capital expenditures (28,935) (14,031) Cash paid in business combination, net of cash acquired — (249) Other 116 16 Net cash used in investing activities (28,819) (14,264) Financing Activities Borrowings under revolving credit facility 105,172 25,000 Payments under revolving credit facility (92,512) — Stock options exercised 15,856 2,890 Repurchase of stock — (3,278) Employee taxes paid by withholding shares (1,030) (804) Cash dividends paid to stockholders (6,459) — Net cash provided by financing activities $ 21,027 $ 23,808 Cash Flows Provided by Operating Activities The Company currently manages cash needs through working capital as well as drawing on its line of credit. Collections and payments cycles are on a normal pattern and fluctuate due to timing of receipts and payments. In early 2022, the Company began increasing the purchase of inventory to take advantage of favorable pricing opportunities and also to mitigate the impact of future supply chain disruptions on our operations. Payment terms for BASX jobs typically require upfront cash to fund the job resulting in cash inflows related to our contract liabilities and cash inflows fluctuate due to job timing and scheduling. - 34 - Cash Flows Used in Investing Activities The capital expenditures for the three months ended March 31, 2023 relate to our continued investment in our production capabilities. Purchases for the first quarter relate to a partial interest in an airplane, additional warehouse space in Longview, Texas and additional sheetmetal machinery for both replacement and growth. The capital expenditure program for 2023 is estimated to be approximately $135.0 million. Many of these projects are subject to review and cancellation at the discretion of our CEO and Board of Directors without incurring substantial charges. Cash Flows Provided by Financing Activities The change in cash from financing activities in 2023 is primarily related to borrowings under our revolving credit facility to manage our working capital needs, especially strategic purchases of inventory to avoid supply chain delays and the funding of certain capital expenditures, offset by repayments we were able to make due to our increased operating results and financial condition. Furthermore, cash flows from financing activities is historically affected by the timing of stock options exercised by our employees. Stock options exercised increased due to the increase in the number of employee options exercised and increase in our average stock price during the three months ended March 31, 2023 compared to the three months ended March 31, 2022. Effective with the cash dividend declared on March 1, 2023 (paid on March 31, 2023), the Company moved from semi-annual cash dividends to quarterly cash dividends. Commitments and Contractual Obligations We are occasionally party to short-term and long-term, cancellable and occasionally non-cancellable, contracts with suppliers for the purchase of raw material and component parts. We expect to receive delivery of raw material and component parts for use in our manufacturing operations. These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption. We had no material contractual purchase obligations as of March 31, 2023 except as described below. On April 27, 2022, the Company entered into a purchase and sale agreement with a third-party manufacturer to purchase certain assets to design and manufacture fan wheels for the purchase price of $6.5 million. As of March 31, 2023, we have paid approximately $3.5 million related to this agreement, which is included in other long-term assets and property, plant and equipment, with the remaining $3.0 million included in accounts payable and other long-term assets on our consolidated balance sheets. The final payment will be made in 2023. In April 2023, we purchased several properties near our Tulsa, OK location, including four buildings which will add approximately 47,000 square feet of office space and approximately 53,000 square feet of additional warehouse space. Additionally, we purchased approximately 14.26 acres immediately adjacent to our Tulsa, OK facilities. Total amount paid for these properties was approximately $10.4 million. Critical Accounting Policies There have been no material changes in the Company’s critical accounting policies during the three months ended March 31, 2023. Recent Accounting Pronouncements See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements. - 35 - Forward-Looking Statements This Quarterly Report on Form 10-Q (or statements otherwise made by the Company or on the Company’s behalf from time to time in other reports, filings with the Securities and Exchange Commission (“SEC”), news releases, conferences, website postings, presentations or otherwise) includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. For all of these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “confident”, “outlook”, “project”, “should”, “will”, and variations of such words and other words of similar meaning or similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Important factors that could cause results to differ materially from those in the forward-looking statements include, among others: • market conditions and customer demand for our products; • the timing and extent of changes in raw material and component prices; • naturally-occurring events, pandemics, and other disasters causing disruption to our manufacturing operations, product deliveries and production capacity; • the impact caused by inflationary cost pressures, national or global health issues, such as the coronavirus pandemic (“COVID-19”), any variants or similar outbreaks (including the response thereto) and their effects on, among other things, demand for our products, supply chain disruptions, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to secure new orders, our ability to convert backlog to revenue and impacts to the operations status of our facilities; • natural disasters and extreme weather conditions, including, without limitation, their effects on locations where our products are manufactured; • the effects of fluctuations in the commercial/industrial new construction market; • the timing of introduction and market acceptance of new products; • the timing and extent of changes in interest rates, as well as other competitive factors during the year; • general economic, market or business conditions; • tightening of labor markets and the ability to hire employees for continued growth • creditworthiness of our customers and their access to capital; • changing technologies; • the material failure, interruption of service, compromised data or information technology security, phishing emails, cybersecurity breaches or other impacts to our information technology and related systems and networks (including any of the foregoing of third-party vendors and other contractors who provide information technology or other services); • costs and results of litigation, including trial and appellate costs; • economic, market or business conditions in the specific industry and market in which our businesses operate; • future levels of capital expenditures, research and development and indebtedness, including, without limitation, our ability to reduce indebtedness and risks associated with the same; • legal, regulatory, and environmental issues, including, without limitation, compliance of our products with mandated standards and specifications; and • integration of acquired businesses and our ability to realize synergies and cost savings. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Except as required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events, occurrences or developments after the date on which such statement is made. For a discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, please see Item 1A “Risk Factors” included in our Annual Report on Form 10-K, and as otherwise disclosed from time to time in our other filings with the SEC.