What changed in this filing

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Item 1A. Risk Factors

2023-03-07 compared with 2022-03-09 · 66 added, 66 removed, 209 unchanged (39% of the section changed)

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Our financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19 .

The COVID-19 pandemic has subjected our business, operations, financial performance, cash flows and financial condition to a number of risks, including, but not limited to those discussed below.

Operations-related risks :

As a result of the COVID-19 pandemic, we have faced and are facing increased operational challenges from the need to protect employee health and safety, workplace disruptions and restrictions on the movement of people, raw materials and goods, both at our own facilities and at our customers and suppliers.

For example, we have experienced and will continue to experience incremental operating costs due to increased challenges with our workforce (including as a result of illness, absenteeism or government orders), access to necessary components and supplies, and access to fundamental support services (such as shipping and transportation).

The ultimate significance of these disruptions to our business, financial condition, results of operations, and cash flows will depend greatly on how long the disruptions continue.

Any inability to operate at full capacity, and/or any similar delay with respect to resumption of operations by one or more of our key suppliers, would result in further challenges to our business and may negatively affect our business, financial condition, results of operations, and cash flows.

Customer-related risks :

As a result of the COVID-19 pandemic, there have been and could continue to be changes in our customers’ priorities and practices, as our customers in both the United States and globally confront competing budget priorities and more limited resources.

To the extent that COVID-19 continues to impact demand for our products and services and impairs the viability of some of our customers, our financial condition, results of operations, and cash flows could be adversely affected, and those impacts could be material.

Other risks :

The magnitude and duration of the global COVID-19 pandemic continues to be uncertain.

As the pandemic continues to adversely affect portions of our business and our overall operating and financial results, it may also adversely affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect to present significant risks to our operations or financial results.

The extent of the pandemic’s effect on our business will depend on future developments, including the duration, spread and intensity of the pandemic and the successful distribution and acceptance of vaccines for COVID-19, all of which are uncertain and difficult to predict.

The COVID-19 pandemic subjected our business, operations, financial performance, cash flows and financial condition to a number of risks.

We have faced increased operational challenges and costs from the need to protect employee health and safety, workplace disruptions and restrictions on the movement of people, raw materials and goods, both at our own facilities and at our customers and suppliers.

The COVID-19 pandemic continues to create challenges for the global economy, and the ultimate impacts and significance of these challenges to our business, financial condition, results of operations, and cash flows will depend greatly on the future course of the COVID-19 pandemic.

The COVID-19 pandemic drove changes in our customers’ priorities and practices, as our customers in both the United States and globally confront competing budget priorities and more limited resources.

To the extent that COVID-19 continues to impact demand for our products and solutions or impairs the viability of some of our customers, our financial condition, results of operations, and cash flows could be adversely affected, and those impacts could be material.

The magnitude and duration of the impact of the COVID-19 pandemic on the global economy and the world’s response continue to be uncertain.

To the extent the pandemic continues to adversely affect portions of our business and our overall operating and financial results, it may also adversely affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect to present significant risks to our operations or financial results.

The extent of the pandemic’s effect on our business will depend on future developments, including the duration, spread and intensity of the pandemic and the successful distribution, acceptance, and efficacy of vaccines for COVID-19, all of which are uncertain and difficult to predict.

OPERATIONAL RISKS

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In addition, our manufacturing operations, suppliers and employees are located in many places around the world.

The future success of our business includes

growth in our sales in non-U.S.

The future success of our business includes growth in our sales in non-U.S.

Our global operations are subject to numerous financial, legal and operating risks, such as political and economic instability;

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In addition, we are affected by changes in foreign currency exchange rates, inflation rates and interest rates.

Our growth could suffer if the markets into which we sell our products and services decline.

Our growth could suffer if the markets into which we sell our products and solutions decline.

Our growth depends in part on the growth of the markets which we serve.

Any decline or lower than expected growth in our served markets could diminish demand for our products and services, which would adversely affect our financial results.

Certain of our businesses operate in industries that may experience periodic, cyclical downturns.

Demand for our products and services is also sensitive to changes in customer order patterns, which may be affected by announced price changes, changes in incentive programs, new product introductions and customer inventory levels.

Any decline or lower than expected growth in our served markets could diminish demand for our products and solutions, which would adversely affect our financial results.

We operate in industries that may experience periodic, cyclical downturns.

Demand for our products and solutions is also sensitive to changes in customer order patterns, which may be affected by announced price changes, changes in incentive programs, new product introductions and customer inventory levels.

Any of these factors could adversely affect our growth and results of operations in any given period.

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While the breaches of our IT systems to date have not been material to our business or results of operations, the costs of attempting to protect our IT systems and data will increase, and there can be no assurance that these added security efforts will prevent all breaches of our IT systems or thefts of our data.

If our IT systems are damaged or cease to function properly, the networks or service providers we rely upon fail to function properly, or we or one of our third-party providers suffer a loss or disclosure of our business or stakeholder information due to any number of causes ranging from catastrophic events or power outages to improper data handling or security breaches (including ransomware, denial-of-service attacks, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our technology systems and data) and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to potential disruption in operations, loss of customers, reputational, competitive and business harm as well as significant costs from remediation, ransom payments, litigation and regulatory actions.

availability of our technology systems and data) and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to potential disruption in operations, loss of customers, reputational, competitive and business harm as well as significant costs from remediation, ransom payments, litigation and regulatory actions.

We are also subject to an increasing number of evolving data privacy and security laws and regulations.

Failure to comply with such laws and regulations could result in the imposition of fines, penalties and other costs.

The European Union (“EU”) and United Kingdom’s General Data Protection Regulations and the EU’s pending ePrivacy Regulation

could disrupt our ability to sell products and solutions or use and transfer data because such activities may not be in compliance with applicable laws.

The European Union (“EU”) and United Kingdom’s General Data Protection Regulations and the EU’s pending ePrivacy Regulation could disrupt our ability to sell products and solutions or use and transfer data because such activities may not be in compliance with applicable laws.

Additionally, cybersecurity incidents related to export control technology information of our Aerospace & Defense customers could subject us to additional reporting requirements, could disrupt our ability to sell products to those customers and could subject us to additional costs, penalties, and fines all of which may be material to our operating results.

The Audit Committee of the Board of Directors is responsible for information security oversight and is comprised entirely of independent directors.

The Board of Directors and Audit Committee are responsible for information security oversight and the Audit Committee is comprised entirely of independent directors.

Additionally, two members of the Company’s Board of Directors have relevant information security and cybersecurity experience.

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Over the last three years, the Company has experienced one known information security breach, in connection with a ransomware incident that occurred in June 2021.

Over the last three years, costs incurred related to information security breaches did not have a material adverse effect on our results of operations.

However, as cybersecurity incidents continue to increase in scope and frequency, we may be unable to prevent a significant incident in the future which may materially impact our results of operations.

Every two to three years, the Company is audited by an external security services provider to the National Institute of Standards and Technology (NIST) SP 800-171 standards and enhances its security framework based upon the results of those audits.

For new associates, and on an annual basis, the Company requires associates to take security awareness training and has an on-going phishing recognition training and testing programs.

Costs incurred related to the information security breach did not have a material adverse effect on our results of operations in the years ended December 31, 2022, 2021, and 2020.

However, as cybersecurity incidents continue to increase in scope, complexity, and frequency, we may be unable to prevent a significant incident in the future which may materially impact our results of operations.

The Company regularly undertakes audits and evaluations (including to the National Institute of Standards and Technology (NIST) SP 800-171 standards) and enhances its security framework based upon the results of those audits and evaluations.

For new associates, and on an annual basis therefore the Company requires associates to take security awareness training and has an on-going phishing recognition training and testing programs.

We rely on suppliers to provide equipment, components and services, which creates certain risks and uncertainties that may adversely affect our business.

Our business requires that we buy equipment, components and services from third parties.

Our reliance on suppliers involves certain risks, including poor quality or an insecure supply chain, which could adversely affect the reliability and reputation of our products;

Our reliance on suppliers involves certain risks, including poor quality or an insecure supply chain, which could adversely affect the reliability and reputation of our products and solutions;

changes in the cost of these purchases due to inflation, exchange rates, tariffs, or other factors;

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Any of these uncertainties could adversely affect our profitability and ability to compete.

The effect of unavailability or delivery delays would be more severe if associated with our higher volume and more profitable products.

The effect of unavailability or delivery delays would be more severe if associated with our higher volume and more profitable products and solutions.

Even where substitute sources of supply are available, qualifying the alternate suppliers and establishing reliable supplies could cost more or could result in delays and a loss of sales.

Certain materials and components used in our products are required and qualified to be sourced from a single or a limited number of suppliers.

Certain materials and components used in our products and solutions are required and qualified to be sourced from a single or a limited number of suppliers.

As such, some materials and components could become in short supply resulting in limited availability and/or increased costs.

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We are also subject to risks associated with U.S.

and foreign legislation and regulations relating to imports, including quotas, duties, tariffs or taxes, and other charges or restrictions

on imports, which could adversely affect our operations and our ability to import products at current or increased levels.

and foreign legislation and regulations relating to imports, including quotas, duties, tariffs or taxes, and other charges or restrictions on imports, which could adversely affect our operations and our ability to import products at current or increased levels.

We cannot predict whether additional U.S.

and foreign customs quotas, duties, tariffs, taxes or other charges or restrictions, requirements as to where raw materials must be purchased, or other restrictions on our imports will be imposed upon the importation of our products in the future or adversely modified, or what effect such actions would have on our costs of operations.

and foreign customs quotas, duties, tariffs, taxes or other charges or restrictions, requirements as to where raw materials must be purchased, or other restrictions on our imports will be imposed upon the importation of our products and solutions in the future or adversely modified, or what effect such actions would have on our costs of operations.

We face competition that could harm our business and we may be unable to compete successfully against new entrants and established companies with greater resources.

Competition in connection with the manufacturing of our products may intensify in the future.

Competition in connection with the manufacturing of our products and solutions may intensify in the future.

The market for our technologies is competitive and subject to rapid technological change.

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These actions may lead to reduced revenues, lower margins and/or a decline in market share, any of which may adversely affect our business, financial condition and results of operations.

Quality problems with our products could harm our reputation, erode our competitive advantage and could result in warranty claims and additional costs.

Quality is important to us and our customers, and our products are held to high quality and performance standards.

In the event our products fail to meet these standards, our reputation could be harmed, which could damage our competitive advantage, causing us to lose customers and resulting in lower revenues.

Quality problems with our products and solutions could harm our reputation, erode our competitive advantage and could result in warranty claims and additional costs.

Quality is important to us and our customers, and our products and solutions are held to high quality and performance standards.

In the event our products and solutions fail to meet these standards, our reputation could be harmed, which could damage our competitive advantage, causing us to lose customers and resulting in lower revenues.

We generally allow customers to return defective or damaged products for credit, replacement, repair or exchange.

We generally warrant that our products will meet customer specifications and will be free from defects in materials and workmanship.

We generally warrant that our products and solutions will meet customer specifications and will be free from defects in materials and workmanship.

We reserve for our exposure to warranty claims based upon recent historical experience and other specific information as it becomes available.

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There is currently aggressive competition for employees who have experience in technology and engineering.

We may not be able to continue to attract and retain engineers or other qualified technical personnel necessary for the development and growth of our business or to replace personnel who may leave our employ in the future.

We may not be able to continue to attract and retain engineers or other qualified technical personnel

necessary for the development and growth of our business or to replace personnel who may leave our employ in the future.

The failure to retain and recruit key engineering and technical personnel could cause additional expense, potentially reduce the efficiency of our operations and could harm our business.

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A significant portion of our revenues and trade receivables are concentrated with a small group of customers.

These customers have a variety of suppliers to choose from and therefore can make substantial demands on us, including

demands on product pricing and on contractual terms, often resulting in the allocation of risk to us as the supplier.

These customers have a variety of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing and on contractual terms, often resulting in the allocation of risk to us as the supplier.

Our ability to maintain strong relationships with our principal customers is essential to our future performance.

If we lose a key customer, if any of our key customers reduce their orders of our products or require us to reduce our prices before we are able to reduce costs, if a customer is acquired by one of our competitors or if a key customer suffers financial hardship, our operating results would likely be harmed as well as the collectability of accounts receivable.

If we do not respond to changes in technology, our products may become obsolete and we may experience a loss of customers and lower revenues.

We sell our products to customers in several industries that experience rapid technological changes, new product introductions and evolving industry standards.

Without the timely introduction of new products and enhancements, our products and services will likely become technologically obsolete over time and we may lose a significant number of our customers.

Our product development efforts may be affected by a number of factors, including our ability to anticipate customer needs, allocate our research and development funding, innovate and develop new products, differentiate our offerings and commercialize new technologies, secure intellectual property protection for our products and manufacture products in a cost-effective manner.

If we lose a key customer, if any of our key customers reduce their orders of our products and solutions or require us to reduce our prices before we are able to reduce costs, if a customer is acquired by one of our competitors or if a key customer suffers financial hardship, our operating results would likely be harmed as well as the collectability of accounts receivable.

If we do not respond to changes in technology, our products and solutions may become obsolete and we may experience a loss of customers and lower revenues.

We sell our products and solutions to customers in several industries that experience rapid technological changes, new product introductions and evolving industry standards.

Without the timely introduction of new products and solutions, our offerings will likely become technologically obsolete over time and we may lose a significant number of our customers.

Our product and solutions development efforts may be affected by a number of factors, including our ability to anticipate customer needs, allocate and process our research and development funding, innovate and develop new products, differentiate our offerings and commercialize new technologies, secure intellectual property protection for our products and manufacture products in a cost-effective manner.

We would be harmed if we did not meet customer requirements and expectations.

Our inability, for technological or other reasons, to successfully develop and introduce new and innovative products could result in a loss of customers and lower revenues.

Our inability, for technological or other reasons, to successfully develop and introduce new and innovative products and solutions could result in a loss of customers and lower revenues.

We face the challenge of accurately aligning our capacity with our demand.

We have experienced capacity constraints and longer lead times for certain products in times of growing demand and have also experienced idle capacity as economies slow or demand for certain products decline.

We have experienced capacity constraints and longer lead times for certain products and solutions in times of growing demand and have also experienced idle capacity as economies slow or demand for certain products decline.

Accurately forecasting our expected volumes and appropriately adjusting our capacity have been, and will continue to be, important factors in determining our results of operations.

We cannot guarantee that we will be able to increase manufacturing capacity to a level that meets demand for our products, which could prevent us from meeting increased customer demand and could harm our business.

We cannot guarantee that we will be able to increase manufacturing capacity to a level that meets demand for our products and solutions, which could prevent us from meeting increased customer demand and could harm our business.

However, if we overestimate our demand and overbuild our capacity, we may have significantly underutilized assets and we may experience reduced margins.

If we do not accurately align our manufacturing capabilities with demand it could have a material adverse effect on our results of operations.

The manufacture of many of our products is a highly exacting and complex process, and if we directly or indirectly encounter problems manufacturing products, our reputation, business and financial results could suffer.

The manufacture of many of our products is an exacting and complex process.

The manufacture of many of our products and solutions is a highly exacting and complex process, and if we directly or indirectly encounter problems manufacturing products, our reputation, business and financial results could suffer.

The manufacture of many of our products and solutions is an exacting and complex process.

Problems may arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, natural disasters and environmental factors, and if not discovered before the product is released to market could result in recalls and product liability exposure.

Because of the time required to develop and maintain manufacturing facilities, an alternative manufacturer may not be available on a timely basis to replace such production capacity.

We have also undertaken certain manufacturing footprint rationalization activities, which may include new challenges related to management and monitoring of the manufacturing of our products and solutions.

Any of these manufacturing problems could result in significant costs and liability, as well as negative publicity and damage to our reputation that could reduce demand for our products.

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Although it is not possible to predict such events or their consequences, these events could decrease demand for our products or make it difficult or impossible for us to deliver products.

We face potential operational impacts associated with volatility in energy markets.

Volatility in the supply and cost for energy exists in the locations where we operate, particularly Europe and China.

As Europe continues to face impacts from the conflict in Ukraine and sanctions between the European Union and Russia, there are concerns about the availability and costs related to providing resources to meet the energy needs of Europe.

Should these energy needs not be met, there are risks that the European operations of the Company may experience uncertainties related to the availability and cost of such resources.

At times, China has experienced energy shortages, and has, in the past, resorted to rolling blackouts.

Although these blackouts have not materially impacted our operations, it remains a risk we may face in the future.

STRATEGIC RISKS

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We may have difficulty finding these opportunities, or if we do identify these opportunities, we may not be able to complete the transactions for various reasons including a failure to secure financing.

To the extent that we are able to complete the transactions (including our recent acquisitions of Dynamic Controls, ORMEC, ALIO and Spectrum Controls), we will face the operational and financial risks commonly encountered with an acquisition strategy.

As we complete acquisitions, we face the operational and financial risks commonly encountered with an acquisition strategy.

These risks include the challenge of integrating acquired businesses while managing the ongoing operations of each business, the challenge of combining the business cultures of each company, and the need to retain key personnel of our existing business and the acquired business.

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We cannot assure that these indemnification provisions will protect us fully or at all, and as a result we may face unexpected liabilities that adversely affect our financial results.

We intend to develop new products and expand into new markets, which may not be successful and could harm our operating results.

We intend to expand into new markets and develop new and modified products based on our existing technologies and engineering capabilities, including the continued expansion of our controlled motion systems and integrated electronics.

We intend to develop new products and solutions and expand into new markets, which may not be successful and could harm our operating results.

We intend to expand into new markets and develop new and modified products and solutions based on our existing technologies and engineering capabilities, including the continued expansion of our controlled motion systems and

integrated electronics.

These efforts have required and will continue to require us to make substantial investments, including significant research, development and engineering expenditures and capital expenditures for new, expanded or improved manufacturing facilities.

Specific risks in connection with expanding into new products and markets include longer product development cycles, the inability to transfer our quality standards and technology into new products, and the failure of our customers to accept the new or modified products.

We may experience difficulties that could delay or prevent the successful development of new products or product enhancements under new and existing contracts, and new products or product enhancements may not be accepted by our customers.

Specific risks in connection with expanding into new products, solutions, and markets include longer product development cycles, the inability to transfer our quality standards and technology into new products, and the failure of our customers to accept the new or modified products and solutions.

We may experience difficulties that could delay or prevent the successful development of new products or product enhancements under new and existing contracts, and new products and solutions or product enhancements may not be accepted by our customers.

In addition, the development expenses we incur may exceed our cost estimates, and new products we develop may not generate sales sufficient to offset our costs.

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Our competitiveness depends on successfully executing our growth initiatives and our global optimization strategies.

We continue to invest in initiatives to support future growth, such as the creation of a more effective corporate structure,

implementation of our enterprise resource planning system, launch of a new integrated website, implementation of a structured approach to identify target markets, and the expansion of our AST (continuous improvement initiatives in quality, delivery, and cost).

We continue to invest in initiatives to support future growth, such as the creation of a more effective corporate structure, implementation of our enterprise resource planning system, launch of a new integrated website, implementation of a structured approach to identify target markets, and the expansion of our AST (continuous improvement initiatives in quality, delivery, and cost).

The failure to achieve our objectives on these initiatives could have an adverse effect on our operating results and financial condition.

Our global optimization strategy includes localization of our products and services to be closer to our customers and identified growth opportunities.

Our global optimization strategy includes localization of our products, solutions, and services to be closer to our customers and identified growth opportunities.

Localization of our products and services includes expanding our capabilities, including supply chain and sourcing activities, product design, manufacturing, engineering, marketing and sales and support.

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Our indebtedness may limit our operations and our use of our cash flow, and any failure to comply with the covenants that apply to our indebtedness could adversely affect our liquidity and financial results.

Our ability to service our indebtedness depends on our financial performance, which is affected by prevailing economic conditions and financial, business, regulatory and other factors.

Our ability to service our indebtedness depends on our financial performance, which is affected by prevailing economic

conditions and financial, business, regulatory and other factors.

Some of these factors are beyond our control.

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Any such actions could have a material adverse effect on our business, financial condition, results of operations and liquidity.

In addition, certain of our variable rate debt uses London Interbank Offer Rate ("LIBOR") as a benchmark for establishing the interest rate, a portion of which is hedged with LIBOR-based interest rate derivatives.

In addition, certain of our variable rate debt uses Term Standard Overnight Financing Rate ("SOFR") as a benchmark for establishing the interest rate, a portion of which is hedged with London Interbank Offering Rate (“LIBOR”) based interest rate derivatives.

LIBOR has been the subject of proposals for reform, and is currently scheduled to be discontinued on June 30, 2023.

While all of our material financing arrangements indexed to LIBOR provide procedures for determining an alternative base rate when LIBOR is discontinued, there can be no assurances as to whether such alternative base rate will be more or less favorable than LIBOR.

We intend to monitor developments with respect to the phasing out of LIBOR and will work to minimize the impact of any LIBOR transition.

The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness.

The Company expects to amend LIBOR-based interest rate derivative agreements by negotiating new SOFR-based agreements.

The discontinuation of LIBOR is not expected to materially impact our interest rate exposure.

Unforeseen exposure to additional income tax liabilities may negatively affect our operating results.

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We may never realize the full value of our substantial intangible assets.

These intangible assets consist primarily of goodwill, customer lists, trade names and patented technology arising from our acquisitions.

These intangible assets consist primarily of goodwill, customer lists, trade names and technology arising from our acquisitions.

Goodwill is not amortized;

it is tested annually or upon the occurrence of certain events which indicate that the assets may be impaired.

it is tested at least annually or upon the occurrence of certain events which indicate that the assets may be impaired.

Definite lived intangible assets are amortized over their estimated useful lives and are tested for impairment upon the occurrence of certain events which indicate that the assets may be impaired.

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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