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Item 1A. Risk Factors

2021-02-16 compared with 2020-02-11 · 122 added, 117 removed, 132 unchanged (64% of the section changed)

1 unchanged sentence

There may be additional risks that impact our business that we currently do not recognize as, or that are not currently, material to our business.

The effects of the COVID-19 pandemic materially affected how we and our customers operated our businesses in 2020, and the duration and extent to which this or future epidemics or pandemics will impact our future results of operations and overall financial performance remains uncertain.

In December 2019, a novel coronavirus disease (“COVID-19”) was first reported and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.

The widespread health crisis is adversely affecting the broader economies, financial markets and overall demand environment for many of our products.

Our operations and the operations of our suppliers, channel partners and customers were disrupted to varying degrees by a range of external factors related to the COVID-19 pandemic, some of which are not within our control.

Many governments imposed, and may yet impose, a wide range of restrictions on the physical movement of people in order to limit the spread of COVID-19.

The COVID-19 pandemic has had, and likely will continue to have, an impact on the attendance and productivity of our employees, and those of our channel partners or customers, resulting in negative impacts to our results of operations and overall financial performance.

Additionally, COVID-19 has resulted, and likely will continue to result, in delays in non-residential construction, non-crisis-related IT purchases and project completion schedules in general, all of which can negatively impact our results in both current and future periods.

The duration and extent of the impact from the COVID-19 pandemic or any future epidemic or pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, the effects of measures enacted by policy makers and central banks around the globe, and the impact of these and other factors on our employees, customers, channel partners and suppliers.

If we are not able to respond to and manage the impact of such events effectively, our business will be affected.

A challenging global economic environment or a downturn in the markets we serve could adversely affect our operating results and stock price in a material manner.

A challenging global economic environment could cause substantial reductions in our revenue and results of operations as a result of weaker demand by the end users of our products and price erosion.

Price erosion may occur through competitors becoming more aggressive in pricing practices.

A challenging global economy could also make it difficult for our customers, our vendors, and us to accurately forecast and plan future business activities.

Our customers could also face issues gaining timely access to sufficient credit, which could have an adverse effect on our results if such events cause reductions in revenues, delays in collection, or write-offs of receivables.

Further, the demand for many of our products is economically sensitive and will vary with general economic activity, trends in nonresidential construction, investment in manufacturing facilities and automation, demand for information technology equipment, and other economic factors.

Global economic uncertainty could result in a significant decline in the value of foreign currencies relative to the U.S.

dollar, which could result in a significant adverse effect on our revenues and results of operations;

could make it difficult for our customers and us to accurately forecast and plan future business activities;

and could cause our customers to slow or reduce spending on our products and services.

Economic uncertainty could also arise from fiscal policy changes in the countries in which we operate.

Changes in foreign currency rates and commodity prices can impact the buying power of our customers.

For example, a strengthened U.S.

dollar can result in relative price increases for our products for customers outside of the U.S., which can have a negative impact on our revenues and results of operations.

Furthermore, customers’ ability to invest in capital expenditures, such as our products, can depend upon proceeds from commodities, such as oil and gas markets.

A decline in energy prices, therefore, can have a negative impact on our revenues and results of operations.

Potential cyber security incidents could interfere with our business and operations.

Computer hacking, malware, phishing, and spamming attacks against online networking platforms have become more prevalent.

Though it is difficult to determine what, if any, harm may directly result from any specific attack or interruption, such events could also be expensive to remedy, harm our reputation or brands, and/or lead users to lose trust and confidence in our business.

We, and others on our behalf, also store “personally identifiable information” (“PII”) with respect to employees, vendors, customers, and others.

While we have implemented safeguards to protect the privacy of this information, it is possible that hackers or others might obtain this information in the future, as occurred in November 2020.

Based upon this occurrence or any future occurrence, in addition to having to take potentially costly remedial action, we may also be subject to fines, penalties, lawsuits, and reputational damage.

Furthermore, we rely on our information systems and those of third parties for storing proprietary company information about our products and intellectual property, as well as for processing customer orders, manufacturing and shipping products, billing our customers, tracking inventory, supporting accounting functions and financial statement preparation, paying our employees, and otherwise running our business.

In addition, we may need to enhance our information systems to provide additional capabilities and functionality.

The implementation of new information systems and enhancements is frequently disruptive to the underlying business of an enterprise.

Any disruptions affecting our ability to accurately report our financial performance on a timely basis could adversely affect our business in a number of respects.

If we are unable to successfully implement potential future information systems enhancements, our financial position, results of operations, and cash flows could be negatively impacted.

Changes in tax laws may adversely affect our financial position.

We are a U.S.-based multinational company subject to tax in multiple U.S.

and foreign tax jurisdictions.

Significant judgment is required in determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis.

While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these positions may be contested or overturned by jurisdictional tax authorities, which may have a significant impact on our global provision for income taxes.

Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied.

recently enacted significant tax reform, and certain provisions of the new law may adversely affect us.

In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies.

Many countries in the European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering changes to existing tax laws.

If tax laws and related regulations change, our financial results could be materially impacted.

Given the unpredictability of these possible changes and their potential interdependency, it is possible such changes could adversely impact our financial results.

We may experience significant variability in our quarterly and annual effective tax rate which would affect our reported net income.

We have a complex tax profile due to the global nature of our operations, which encompass multiple taxing jurisdictions.

Variability in the mix and profitability of domestic and international activities, identification and resolution of various tax uncertainties, changes in tax laws and rates, and the extent to which we are able to realize net operating loss and other carryforwards included in deferred tax assets and avoid potential adverse outcomes included in deferred tax liabilities, among other matters, may significantly affect our effective income tax rate in the future.

Our effective income tax rate is the result of the income tax rates in the various countries in which we do business.

Our mix of income and losses in these jurisdictions affects our effective tax rate.

For example, relatively more income in higher tax rate jurisdictions would increase our effective tax rate and thus lower our net income.

Similarly, if we generate losses in tax jurisdictions for which no benefits are available;

our effective income tax rate will increase.

Our effective income tax rate may also be impacted by the recognition of discrete income tax items, such as required adjustments to our liabilities for uncertain tax positions or our deferred tax asset valuation allowance.

A significant increase in our effective income tax rate could have a material adverse impact on our earnings.

Changes in the price and availability of raw materials we use could be detrimental to our profitability.

Copper is a significant component of the cost of most of our cable products.

Over the past few years, the prices of metals, particularly copper, have been volatile.

Prices of other materials we use, such as polyvinylchloride (PVC) and other plastics derived from petrochemical feedstocks, have also been volatile.

Generally, we have recovered much of the higher cost of raw materials through higher pricing of our finished products.

The majority of our products are sold through distribution, and we manage the pricing of these products through published price lists which we update from time to time, with new prices typically taking effect a few weeks after they are announced.

Some OEM contracts have provisions for passing through raw material cost changes, generally with a lag of a few weeks to three months.

Especially during periods of inflation, if we are unable to raise prices timely and sufficiently to recover our material costs, our earnings could decline.

If we raise our prices but competitors raise their prices less, we may lose sales, and our earnings could decline.

If the price of copper were to decline, we may be compelled to reduce prices to remain competitive, which could have a negative effect on revenues.

While we generally believe the supply of raw materials (copper, plastics, and other materials) is adequate, we have experienced instances of limited supply of certain raw materials, resulting in extended lead times and higher prices.

If a supply interruption or shortage of materials were to occur (including due to labor or political disputes), this could have a negative effect on revenues and earnings.

Future operating results depend upon the Company’s ability to obtain components in sufficient quantities on commercially reasonable terms.

Because the Company currently obtains certain components from single or limited sources, the Company is subject to significant supply and pricing risks.

Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages that could materially adversely affect the Company’s financial condition and operating results.

While the Company has entered into agreements for the supply of many components, there can be no assurance that the Company will be able to extend or renew these agreements on similar terms, or at all.

Component suppliers may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting the Company’s ability to obtain sufficient quantities of components on commercially reasonable terms.

A regional health crises, like the Coronavirus, could lead to quarantines or labor shortages, thus impacting the output of key suppliers.

If the Company’s supply of components for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially adversely affected.

The Company’s business and financial performance could also be materially adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source.

The global markets in which we operate are highly competitive.

We face competition from other manufacturers for each of our global business platforms and in each of our geographic regions.

These companies compete on technical features, quality, availability, price, customer support, and distribution coverage.

Some multinational competitors have greater engineering, financial, manufacturing, and marketing resources than we have.

Actions that may be taken by competitors, including pricing, business alliances, new product introductions, intellectual property advantages, market penetration, and other actions, could have a negative effect on our revenues and profitability.

Moreover, some competitors that are highly leveraged both financially and operationally could become more aggressive in their pricing of products.

Our revenue for any particular period can be difficult to forecast.

Our revenue for any particular period can be difficult to forecast, especially in light of the challenging and inconsistent global macroeconomic environment and related market uncertainty.

Our revenue may grow at a slower rate than in past periods or even decline on a year-over-year basis.

Changes in market growth rates can have a significant effect on our operating results.

The timing of orders for customer projects can also have a significant effect on our operating results in the period in which the products are shipped and recognized as revenue.

The timing of such projects is difficult to predict, and the timing of revenue recognition from such projects may affect period to period changes in revenue.

As a result, our operating results could vary materially from quarter to quarter based on the receipt of such orders and their ultimate recognition as revenue.

Similarly, we are often informed by our customers well in advance that such customer intends to place an order related to a specific project in a given quarter.

Such a customer’s timeline for execution of the project, and the resulting purchase order, may be unexpectedly delayed to a future quarter, or cancelled.

The frequency of such delays can be difficult to predict.

As a result, it is difficult to precisely forecast revenue and operating results for future quarters.

In addition, our revenue can be difficult to forecast due to unexpected changes in the level of our products held as inventory by our channel partners and customers.

Our channel partners and customers purchase and hold our products in their inventory in order to meet the service and on-time delivery requirements of their customers.

As our channel partners and customers change the level of Belden products owned and held in their inventory, our revenue is impacted.

As we are dependent upon our channel partners and customers to provide us with information regarding the amount of our products that they own and hold in their inventory, unexpected changes can occur and impact our revenue forecast.

The presence of substitute products in the marketplace may reduce demand for our products and negatively impact our business.

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These factors, either together or in isolation, may negatively impact revenue and profitability.

The increased prevalence of cloud computing and other disruptive business models may negatively impact certain aspects of our business.

The nature in which many of our products are purchased or used is evolving with the increasing prevalence of cloud computing and other methods of off-premises computing and data storage.

This may negatively impact one or more of our businesses in a number of ways, including:

• Consolidation of procurement power leading to the commoditization of IT products;

• Reduction in the demand for infrastructure products previously used to support on-site data centers;

• Lowering barriers to entry for certain markets, leading to new market entrants and enhanced competition;

• Preferences for software as a service billing and pricing models may reduce demand for non-cloud “packaged” software.

Our future success depends in part on our ability to develop and introduce new products and respond to changes in customer preferences.

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Further, if a competitor is able to more quickly or efficiently adapt, or if cloud computing results in significantly lower barriers to entry and new competitors enter our markets, demand for our products may be reduced.

The increased prevalence of cloud computing and other disruptive business models may negatively impact certain aspects of our business.

The nature in which many of our products are purchased or used is evolving with the increasing prevalence of cloud computing and other methods of off-premises computing and data storage.

This may negatively impact one or more of our businesses in a number of ways, including:

• Consolidation of procurement power leading to the commoditization of IT products;

• Reduction in the demand for infrastructure products previously used to support on-site data centers;

• Lowering barriers to entry for certain markets, leading to new market entrants and enhanced competition;

Preferences for software as a service billing and pricing models may reduce demand for non-cloud “packaged” software.

We may be unable to achieve our goals related to growth.

In order to meet the goals in our strategic plan, we must grow our business, both organically and through acquisitions.

Our goal is to generate total revenue growth of 5-7% per year in constant currency.

We may be unable to achieve this desired growth due to a failure to identify growth opportunities, such as trends and technological changes in our end markets.

We may ineffectively execute our Market Delivery System (“MDS”), which is designed to identify and capture growth opportunities.

In order to meet the goals in our strategic plan, we must execute our Market Delivery System ("MDS") and grow our business, both organically and through acquisitions.

We may be unable to achieve our goals due to a failure to identify growth opportunities, such as trends and technological changes in our end markets.

The enterprise and industrial end markets we serve may not experience the growth we expect.

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As a result, we may be unable to make acquisitions or be forced to pay more or agree to less advantageous acquisition terms for the companies that we would like to acquire.

Additionally, our strategic plan includes the divestiture of our Grass Valley disposal group (as discussed in Note 5) and the planned divestiture of certain low-margin cable businesses representing up to $250 million in annual revenues.

As discussed in Note 28, we entered into a definitive agreement to sell the Grass Valley disposal group on February 4, 2020, which is subject to closing conditions.

If we are unable to close the divestiture of Grass Valley per the terms of the definitive agreement or are unable to find an alternative buyer for the business with similar terms, it could have a material adverse effect on our operating results, financial condition, and cash flow.

We may also be unable to find a suitable buyer(s) for certain low-margin cable assets with acceptable terms.

Additionally, our strategic plan includes the planned divestiture of certain low-margin cable businesses representing up to $200 million in annual revenues.

The inability to find a suitable buyer(s) with acceptable terms could have an adverse effect on our operating results.

We may have difficulty integrating the operations of acquired businesses, which could negatively affect our results of operations and profitability.

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Our results of operations are subject to foreign and domestic political, social, economic, and other uncertainties and are affected by changes in currency exchange rates.

In addition to manufacturing and other operating facilities in the U.S., we have manufacturing and other operating facilities in Brazil, Canada, China, India, Japan, Mexico, St.

In addition to manufacturing and other operating facilities in the U.S., we have manufacturing and other operating facilities in Brazil, Canada, China, India, Mexico, St.

Kitts, and several European countries.

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Other than the U.S.

dollar, the principal currencies to which we are exposed through our manufacturing operations, sales, and related cash holdings are the euro, the Canadian dollar, the Hong Kong dollar, the Chinese yuan, the Japanese yen, the Mexican peso, the Australian dollar, the British pound, and the Brazilian real.

dollar, the principal currencies to which we are exposed through our manufacturing operations, sales, and related cash holdings are the euro, the Canadian dollar, the Hong Kong dollar, the Chinese yuan, the Mexican peso, the Australian dollar, the British pound, and the Brazilian real.

Generally, we have revenues and costs in the same currency, thereby reducing our overall currency risk, although any realignment of our manufacturing capacity among our global facilities could alter this balance.

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operations are translated at a lower exchange rate and thus into lower reported revenues and earnings.