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Item 1A. Risk Factors

2021-02-25 compared with 2020-02-27 · 225 added, 161 removed, 150 unchanged (72% of the section changed)

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Our business, financial condition, and results of operations and cash flows could be materially and adversely impacted if any of these risks materialize.

Additional risk factors not currently known to us or that we believe are immaterial may also impair our business, financial condition, and results of operations and cash flows.

Additional risk factors not currently known to us or that we believe are immaterial may also impair our business, financial condition, and results of operations and cash flows, and require significant management time and attention.

In addition to the risks and uncertainties set forth in section below entitled “ Risks Related to the Coronavirus (COVID-19) Pandemic," many of the risks and uncertainties set forth in the other risk factors are exacerbated by the COVID-19 pandemic, corresponding government and business responses, and any further resulting decline in the global business and economic environment, and may be impacted by the extent and speed of the global economic recovery.

The risk factors below should be considered together with information included elsewhere in this Annual Report on Form 10-K as well as other required filings by us to the Securities Exchange Commission, such as our Form 10-Q’s, Form 8-K’s, proxy statements for our annual shareholder meetings, and subsequent amendments, if any.

RISKS RELATED TO THE CORONAVIRUS (COVID-19) PANDEMIC

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

In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic.

While we continue to actively monitor the pandemic and take steps to mitigate the risks posed by its spread, there is no guarantee that our efforts will mitigate the adverse impacts of COVID-19 or will be effective.

The pandemic has adversely affected, and is expected to continue to adversely affect, certain elements of our business, including our supply chain and production levels.

We have experienced operational interruptions as a result of COVID-19, including the temporary suspension of operations due to government-imposed restrictions at our facilities in Mexico and India.

As of December 31, 2020, all of our manufacturing operations have resumed, but we are unable to predict if there will be additional government-imposed restrictions on our ability to operate in future periods.

Additionally, certain portions of our workforce might not be able to work effectively due to quarantines, government orders and guidance, travel restrictions, and other precautionary measures and restrictions.

This could have an adverse effect on the productivity and profitability of such manufacturing facilities, which could in turn adversely impact our business and operations.

We also have experienced and expect to continue to experience unpredictable volatility in demand in our commercial aerospace and general industrial end markets.

Several countries, including the United States, have taken steps to restrict air travel, along with many companies, including us, adopting policies which prohibit non-essential business travel by their employees.

Even in the absence of formal restrictions and prohibitions, contagious illness and fear of contagion adversely affects travel behavior.

Ap proximately 14% of our net sales for the year ended December 31, 2020 were derived from sales to commercial aerospace customers.

Current travel restrictions, as well as changes in the propensity for the general public to travel by air as a result of the COVID-19 pandemic, have caused reductions in demand for commercial aircraft, which will adversely impact our net sales and operating results and may continue to do so for an extended period of time.

In addition, an overall reduction in business activity as a result of the disruption caused by COVID-19 has led to a decrease in sales to our general industrial market, which primarily includes industrial vehicle and industrial valve products.

Approximately 20% of our net sales for the year ended December 31, 2020 were derived from sales to our general industrial market.

While we are unable to predict the magnitude of such impact at this time, the loss of, or significant reduction in, purchases by our large commercial aircraft manufacturers and general industrial customers could have a material adverse effect on our business, financial condition, and results of operations.

If the pandemic continues and conditions worsen, we may continue to experience additio nal adverse impacts on our operational and commercial activities, costs, customer orders, and collections of accounts receivable, which may be material.

In addition, we may also incur additional costs to remedy damages caused by business disruptions, performance delays or interruptions, or payment defaults or bankruptcy of our third-party customers and suppliers, any of which could adversely affect our financial condition and results of operations.

Furthermore, the pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth.

Due to the speed with which the situation is developing, the global breadth of its spread and the range of governmental and community reactions thereto, there is uncertainty around its duration, ultimate impact, and the timing of recovery.

Therefore, the pandemic could lead to an extended disruption of economic activity whereby the impact on our consolidated results of operations, financial position and cash flows could be material.

RISKS RELATED TO OUR OPERATIONS

Intrusion on our systems could damage our business.

We store sensitive data, including intellectual property, proprietary business information, and confidential employee information on our servers and databases.

Various privacy and securities laws require us to manage and protect sensitive and confidential information, including personal data of our employees, from disclosure.

The COVID-19 pandemic has caused us to modify our business practices, including

requiring many of our office-based associates to work from home.

As a result, we are increasingly dependent upon our information systems to operate our business.

Our ability to effectively manage our business depends on the security, reliability, and adequacy of our information systems.

In addition, various privacy and securities laws require us to manage and protect sensitive and confidential information, including personal data of our employees, from disclosure.

For example, the European Union's General Data Protection Regulation, which became effective in May 2018, extends the scope of the European Union data protection laws to all companies processing data of European Union residents, regardless of the company's location.

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Any such intrusion could cause us to be non-compliant with applicable laws or regulations, subject us to legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and services, any of which could have a material adverse effect on our business, financial condition, and results of operations.

Our future growth and continued success is dependent upon our key personnel.

Our success is dependent upon the efforts of our senior management personnel and our ability to attract and retain other highly qualified management and technical personnel.

We face competition for management and qualified technical personnel from other companies and organizations.

Therefore, we may not be able to retain our existing management and technical personnel or fill new management or technical positions or vacancies created by expansion or turnover at our existing compensation levels.

Although we have entered into change of control agreements with some members of senior management, we do not have employment contracts with our key executives.

As some of our key executives approach retirement age, we have made a concerted effort to reduce the effect of the loss of our senior management personnel through management succession planning.

However, we may be required to devote significant time and resources to identify and integrate key new personnel should key management losses occur earlier than anticipated.

The loss of members of our senior management and qualified technical personnel could have a material adverse effect on our business.

Potential product liability risks exist from the products that we sell.

We may be exposed to liabilities for personal injury, death, or property damage due to the failure of a product that we have sold.

We typically agree to indemnify our customers against certain liabilities resulting from the products we sell, and any third-party indemnification we seek from our suppliers and our liability insurance may not fully cover our indemnification obligations to customers.

We may also not be able to maintain insurance coverage in the future at an acceptable cost.

Any liability for which third-party indemnification is not available that is not covered by insurance could have a material adverse effect on our business, financial condition, and results of operations.

In addition, an accident caused by one of our products could damage our reputation for selling quality products.

We believe that our customers consider safety and reliability as key criteria in selecting our products and believe that our reputation for quality assurance is a significant competitive strength.

If an accident were to be caused by one of our products, or if we were to otherwise fail to maintain a satisfactory record of safety and reliability, our ability to retain and attract customers may be materially adversely affected.

We are subject to liability under warranty obligations .

The majority of our contracts contain provisions which expose us to potential liability for warranty claims made by customers or third parties with respect to products that have been designed, manufactured, or serviced by us or our suppliers.

Material product warranty obligations could have a material adverse effect on our business, financial condition, and results of operations.

Further, our reputation may be adversely affected by such defective product claims, whether or not successful, including potential negative publicity about our products.

If we fail to satisfy our contractual obligations, our contracts may be terminated and we may incur significant costs or liabilities, including liquidated damages and penalties.

In general, our contracts may be terminated for our failure to satisfy our contractual obligations.

In addition, some of our contracts contain substantial liquidated damages provisions and financial penalties related to our failure to satisfy our contractual obligations.

For example, the terms of the Electro-Mechanical Division's AP1000 China and AP1000 U.S.

contracts with Westinghouse Electric Company (WEC) include liquidated damage penalty provisions for failure to meet contractual delivery dates if we caused the delay and the delay was not excusable.

On October 10, 2013, we received a letter from WEC stating entitlements to the maximum amount of liquidated damages allowable under the AP1000 China contract of approximately $25 million.

To date, we have not met certain contractual delivery dates under our AP1000 U.S.

and China contracts;

however, there are significant counterclaims and uncertainties as to which parties are responsible for the delays.

In January 2021, we agreed to participate in formal non-binding mediation with WEC.

We believe that the ultimate resolution of these matters will not have a material impact on our consolidated financial stateme nts.

However, as of December 31, 2020, the range of possible loss for these matters is $0 to $55.5 million.

Our earnings and margins depend in part on subcontractor performance, as well as raw material and component availability and pricing.

Our businesses depend on suppliers and subcontractors for raw materials and components.

At times subcontractors perform services that we provide to our customers.

Our supply chain has been and may continue to be impacted by the COVID-19

We depend on these subcontractors and suppliers to meet their contractual obligations in full compliance with customer requirements.

Nonperformance or underperformance by subcontractors and suppliers could materially impact our ability to perform obligations to our customers, which could result in a customer terminating our contract for default, expose us to liability, and substantially impair our ability to compete for future contracts and orders.

Generally, raw materials and purchased components are available from a number of different suppliers, though several suppliers are our sole source of certain components.

If a sole-source supplier should cease or otherwise be unable to deliver such components, our operating results could be adversely impacted.

In addition, our supply networks can sometimes experience price fluctuations.

Our ability to perform our obligations as a prime contractor may be adversely affected if one or more of these suppliers are unable to provide the agreed-upon supplies or perform the agreed-upon services in a timely and cost-effective manner.

While we have attempted to mitigate the effects of increased costs through price increases, there are no assurances that higher prices can effectively be passed through to our customers or that we will be able to fully offset the effects of higher raw materials costs through price increases on a timely basis.

Our business involves risks associated with complex manufacturing processes.

Our manufacturing processes depend on certain sophisticated and high-value equipment.

Unexpected failures of this equipment may result in production delays, revenue loss, and significant repair costs.

In addition, equipment failures could result in injuries to our employees.

Moreover, the competitive nature of our businesses requires us to continuously implement process changes intended to achieve product improvements and manufacturing efficiencies.

These process changes may at times result in production delays, quality concerns, and increased costs.

Any disruption of operations at our facilities due to equipment failures or process interruptions could have a material adverse effect on our business.

RISKS RELATED TO OUR STRATEGY

Implementing our acquisition strategy involves risks, and our failure to successfully implement this strategy could have a material adverse effect on our business.

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We are continuing to actively pursue additional acquisition opportunities, some of which may be material to our business and financial performance.

Although we have been successful with this strategy in the past, we may not be able to grow our business in the future through acquisitions for a number of reasons, including:

Although we have been successful with this strategy in the past, we may not be able to grow our business in the future through acquisitions for several reasons, including:

• Encountering difficulties identifying and executing acquisitions;

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• Acquisition financing not being available on acceptable terms, or at all.

In addition, there are potential risks associated with growing our business through acquisitions, including the failure to successfully integrate and realize the expected benefits of an acquisition.

In addition, there are potential risks associated with growing our business through acquisitions, including the failure to successfully integrate and realize the expected benefits of an acquisition, which could be exacerbated by the impact of the COVID-19 pandemic.

For example, with any past or future acquisition, there is the possibility that:

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Failure to successfully implement our acquisition strategy, including successfully integrating acquired businesses, could have a material adverse effect on our business, financial condition, and results of operations.

Our business, financial condition, and results of operations could be materially adversely affected if the United States were to withdraw from or materially modify certain international trade agreements, or if tariffs or other restrictions on the foreign-sourced goods that we sell were to increase.

A significant portion of our business activities are conducted in foreign countries, including Mexico and Canada.

Our business benefits from free trade agreements such as the North American Free Trade Agreement (NAFTA) and also relies on various U.S.

corporate tax provisions related to international commerce as we build, market, and sell our products globally.

On November 30, 2018, President Trump signed the United States-Mexico-Canada Agreement (USMCA) to replace NAFTA.

The USMCA maintains duty-free access for most products and leaves most key provisions of the NAFTA agreement largely intact.

The USMCA has been approved by the U.S.

and Mexico, but still requires approval by Canada’s Parliament before becoming effective.

Additionally, in December 2018, President Trump announced his intention for the United States to withdraw from NAFTA.

The outcome of the approval process is uncertain, but it is possible that withdrawal from NAFTA or failure of Canada’s Parliament to approve the USMCA could cause an increase in customs duties.

This in turn could adversely affect intercompany transactions among our operating subsidiaries in Canada, Mexico, and the U.S., as well as increase transaction costs with third-party suppliers and customers.

Furthermore, the current administration has threatened to impose more stringent trade terms with China and other countries.

Despite the execution of the trade deal between the U.S.

and China in January 2020, tariffs in some cases will remain in place, albeit at a lower rate.

All of this could lead to increased costs and diminished sales opportunities in the U.S.

and China markets.

Media and political reactions in the affected countries could potentially exacerbate the impact on our operations in those countries.

Administration’s assertive trade policies could result in further conflicts with U.S.

trading partners, which could affect our supply chains, sourcing, and markets.

Foreign countries may impose additional burdens on us through the use of local regulations, tariffs, or other requirements, which could increase our operating costs in those foreign jurisdictions.

At this time, it remains unclear what actions, if any, President Trump will take with respect to other international trade agreements as well as U.S.

tax provisions related to international commerce.

Our future success will depend, in part, on our ability to develop new technologies.

Virtually all products produced and sold by us are highly engineered and require sophisticated manufacturing and system-integration techniques and capabilities.

The commercial and government markets in which we operate are characterized by rapidly changing technologies.

The product and program needs of our government and commercial customers change and evolve regularly.

Accordingly, our future performance depends in part on our ability to:

identify emerging technological trends in our current and target markets;

develop and manufacture competitive products, systems, and services;

enhance our offerings by adding technological innovations that differentiate our products, systems, and services from those of our competitors;

and develop, manufacture, and bring those products, systems, and service to market quickly at cost-effective prices.

We operate in highly competitive markets.

Many of our products and services are sold in highly competitive markets and are affected by varying degrees of competition.

We compete against companies that often have higher sales volumes and greater financial, technological, research and development, human, and marketing resources than we have.

As a result, they may be better able to withstand the effects of periodic economic downturns.

In addition, some of our largest customers could develop the capability to manufacture products or provide services similar to products that we manufacture or services that we provide.

This would result in these customers supplying their own products or services and competing directly with us for sales of these products or services, all of which could significantly reduce our revenues.

Furthermore, we are facing increased international competition and cross-border consolidation of competition.

Our management believes that the principal points of competition in our markets are technology, product quality, product performance, price, technical expertise, timeliness of delivery, superior customer service and support, and continued certification under customer quality requirements and assurance programs.

If we are unable to compete successfully with existing or new competitors in these areas, we may experience a material adverse effect on our business, financial condition, and results of operations.

We may be unable to protect the value of our intellectual property.

Obtaining, maintaining, and enforcing our intellectual property rights and avoiding infringing on the intellectual property rights of others are important factors to the operation of our business.

While we take precautionary steps to protect our technological advantages and intellectual property and rely in part on patent, trademark, trade secret, and copyright laws, we cannot assure that the precautionary steps we have taken will completely protect our intellectual property rights.

Because patent applications in the United States are maintained in secrecy until either the patent application is published or a patent is issued, we may not be aware of third-party patents, patent applications, and other intellectual property relevant to our products that may block our use of our intellectual property or may be used in third-party products that compete with our products and processes.

When others infringe on our intellectual property rights, the value of our products is diminished, and we may incur substantial litigation costs to enforce our rights.

Similarly, we may incur substantial litigation costs and the obligation to pay royalties if others claim we infringed on their intellectual property rights.

When we develop intellectual property and technologies with funding from U.S.

Government contracts, the government has the royalty-free right to use that property.

In addition to our patent rights, we also rely on unpatented technology, trade secrets, and confidential information.

Others may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our technology.

We may not be able to protect our rights in unpatented technology, trade secrets, and confidential information effectively.

We generally require each of our employees and consultants to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us.

There is no guarantee that we will succeed in obtaining and retaining executed agreements from all employees or consultants.

Moreover, these agreements may not provide effective protection of our information or, in the event of unauthorized use or disclosure, they may not provide adequate remedies.

RISKS RELATED TO MARKET CONDITIONS

A substantial portion of our revenues and earnings depends upon the continued willingness of the U.S.

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At other times, spending by the military can decrease.

In August 2011, Congress enacted the Budget Control Act of 2011 (BCA), which imposed spending caps and certain reductions in defense spending over a ten-year period through 2021.

In August 2011, Congress enacted the Budget Control Act of 2011 (BCA), which imposed spending caps and certain reductions in defense spending over

a ten-year period through 2021.

These spending caps and reductions, referred to as sequestration, went into effect in March 2013.

Through a series of bipartisan agreements, Congress has been able to temporarily lift discretionary spending limits every year through 2019.

On August 2, 2019, President Trump signed the Bipartisan Budget Act of 2019 (BBA) into law, which raised the BCA budget caps for both defense and non-defense spending in 2020 and 2021.

On August 2, 2019, the Bipartisan Budget Act of 2019 (BBA) was signed into law, which raised the BCA budget caps for both defense and non-defense spending in 2020 and 2021.

The BBA also temporarily suspends the public debt limit through July 31, 2021.

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In the event that one or more of our programs are reduced, delayed, or terminated for which we provide products and services and are not offset by revenues from foreign sales, new programs, or products or services that we currently manufacture or provide, we may experience a reduction in our revenues and earnings and a material adverse effect on our business, financial condition, and results of operations.

Government contractor, we are subject to a number of procurement rules and regulations.

A downturn in the aircraft market could adversely affect our business.

Our sales to large commercial aircraft manufacturers are cyclical in nature and can be adversely affected by a number of factors, including current and future passenger traffic levels, increasing fuel and labor costs, intense price competition, the retirement of older aircraft, regulatory changes, outbreak of infectious disease such as the COVID-19 pandemic, terrorist attacks, general economic conditions, worldwide airline profits, and backlog levels, all of which can be unpredictable and are outside our control.

Any decrease in demand resulting from a downturn in the aerospace market could adversely affect our business, financial condition, and results of operations.

Our backlog is subject to reduction and cancellation, which could negatively impact our revenues and results of operations.

Backlog represents products or services that our customers have contractually committed to purchase from us.

Total backlog includes both funded (unfilled orders for which funding is authorized, appropriated, and contractually obligated by the customer) and unfunded backlog (firm orders for which funding has not been appropriated and/or contractually obligated by the customer).

We are a subcontractor to prime contractors for the vast majority of our government business;

as such, substantially all amounts in backlog are funded.

Backlog excludes unexercised contract options and potential orders under ordering type contracts (e.g.

Indefinite Delivery / Indefinite Quantity).

Backlog is adjusted for changes in foreign exchange rates and is reduced for contract cancellations and terminations in the period in which they occur.

Backlog as of December 31, 2020 was $2.2 billion.

Backlog is subject to fluctuations and is not necessarily indicative of future sales.

The timing of backlog may be impacted by project delays.

Government may unilaterally modify or cancel its contracts.

In addition, under certain of our commercial contracts, our customers may unilaterally modify or terminate their orders at any time for their convenience.

Accordingly, certain portions of our backlog can be cancelled or reduced at the option of the U.S.

Government and commercial customers.

We believe that these risks are heightened due to the global economic impact of the COVID-19 pandemic.

Our failure to replace cancelled or reduced backlog could negatively impact our revenues and results of operations.

RISKS RELATED TO LEGAL AND REGULATORY MATTERS

Government contractor, we are subject to numerous procurement rules and regulations.

We must comply with and are affected by laws and regulations relating to the award, administration, and performance of U.S.

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Noncompliance with these laws, regulations, and restrictions could expose us to fines, penalties, suspension, or debarment, which could have a material adverse effect on our profitability and overall financial condition.

We have contracts and operations in many parts of the world subject to United States and foreign laws and regulations, including the False Claims Act, regulations relating to import-export control (including the International Traffic in Arms Regulation promulgated under the Arms Export Control Act), technology transfer restrictions, repatriation of earnings, exchange controls, the Foreign Corrupt Practices Act, the U.K.

We have contracts and operations in many parts of the world subject to United States and foreign laws and regulations, including the False Claims Act, regulations relating to import-export control (including the International Traffic in Arms Regulation promulgated under the Arms Export Control Act), sanctions programs implemented by the Office of Foreign Assets Control of the U.S.

Department of Treasury, technology transfer restrictions, repatriation of earnings, exchange controls, the Foreign Corrupt Practices Act, the U.K.

Anti-Bribery Act, and the anti-boycott provisions of the U.S.

Export Administration Act.

Because the COVID-19 pandemic has so negatively impacted local economies, government intervention has increased, which in turn can create elevated risk and opportunity for corruption.

Although we have implemented policies and procedures and provided training that we believe are sufficient to address these risks, we cannot guarantee that our operations will always comply with these laws and regulations.

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export control laws and regulations discovered by us in the course of our business activities, employee training, or internal reviews and audits.

To date, our voluntary disclosures have not resulted in a fine, penalty, or export privilege denial or restriction that has had a material adverse impact on

our financial condition or ability to export.

To date, our voluntary disclosures have not resulted in a fine, penalty, or export privilege denial or restriction that has had a material adverse impact on our financial condition or ability to export.

Our failure, or failure by our sales representatives or consultants to comply with these laws and regulations could result in administrative, civil, or criminal liabilities and could, in the extreme case, result in suspension or debarment from government contracts or suspension of our export privileges, which could have a material adverse effect on our business.

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From time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to existing regulations, which are usually more stringent than existing regulations.

If these proposed regulations are adopted and enacted, we may incur significant additional costs to achieve compliance, which could have a material adverse effect on our business, financial condition, and results of operations.

Our future success will depend, in part, on our ability to develop new technologies.

Virtually all of the products produced and sold by us are highly engineered and require sophisticated manufacturing and system-integration techniques and capabilities.

The commercial and government markets in which we operate are characterized by rapidly changing technologies.

The product and program needs of our government and commercial customers change and evolve regularly.

Accordingly, our future performance depends in part on our ability to:

identify emerging technological trends in our current and target markets, develop and manufacture competitive products, systems, and services, enhance our offerings by adding technological innovations that differentiate our products, systems, and services from those of our competitors, and develop, manufacture, and bring those products, systems, and service to market quickly at cost-effective prices.

We operate in highly competitive markets.

Many of our products and services are sold in highly competitive markets and are affected by varying degrees of competition.

We compete against companies that often have higher sales volumes and greater financial, technological, research and development, human, and marketing resources than we have.

As a result, they may be better able to withstand the effects of periodic economic downturns.

In addition, some of our largest customers could develop the capability to manufacture products or provide services similar to products that we manufacture or services that we provide.

Furthermore, we are facing increased international competition and cross-border consolidation of competition.

If we are unable to compete successfully with existing or new competitors in these areas, we may experience a material adverse effect on our business, financial condition, and results of operations.

A downturn in the aircraft market could adversely affect our business.

Our sales to large commercial aircraft manufacturers are cyclical in nature and can be adversely affected by a number of factors, including current and future passenger traffic levels, increasing fuel and labor costs, intense price competition, the retirement of older aircraft, regulatory changes, outbreak of infectious disease, terrorist attacks, general economic conditions, worldwide airline profits, and backlog levels, all of which can be unpredictable and are outside our control.

Any decrease in demand resulting from a downturn in the aerospace market could adversely affect our business, financial condition, and results of operations.

Global economic conditions may adversely affect our business, operating results and financial condition.

Although we currently generate significant operating cash flows, which combined with access to the credit markets provides us with significant discretionary funding capacity, global macroeconomic uncertainty, including escalating trade disputes between the United States and Chin a, the United Kingdom’s withdrawal from the European Union, and uncertainty regarding the stability of global credit and financial markets could affect our ability to fund our operations.

In addition, certain of our customers and suppliers could be affected directly by an economic downturn and could face credit issues or cash flow problems that could give rise to payment delays, increased credit risk, bankruptcies, and other financial hardships, which could impact customer demand for our products as well as our ability to manage normal commercial relationships with our customers and suppliers.

Depending on their severity and duration, the effects and consequences of a global economic downturn could have an adverse impact on our results of operations and financial condition.

If these proposed regulations are adopted and enacted,

we may incur significant additional costs to achieve compliance, which could have a material adverse effect on our business, financial condition, and results of operations.

We are subject to liability under environmental and health and safety laws and regulations.

Our business and facilities are subject to numerous federal, state, local, and foreign laws and regulations relating to the use, manufacture, storage, handling, and disposal of hazardous materials and other waste products.

Environmental laws generally impose liability for investigation, remediation, and removal of hazardous materials and other waste products on property owners and those who dispose of materials at waste sites, whether or not the waste was disposed of legally at the time in question.

We are currently addressing environmental remediation at certain current and former facilities, and we have been named as a potentially responsible party along with other organizations in a number of environmental clean-up sites and may be named in connection with future sites.

We are required to contribute to the costs of the investigation and remediation and to establish reserves in our financial statements for future costs deemed probable and estimable.

Although we have estimated and reserved for future environmental remediation costs, the final resolution of these liabilities may significantly vary from our estimates and could potentially have an adverse effect on our results of operations and financial position.

We are also subject to worker health and safety requirements as well as various state and local public health laws, rules, regulations and orders related to COVID-19, including mask and social distancing requirements.

While we are in compliance with government health and safety regulations related to COVID-19, the cost of complying, or failing to comply, with these regulations could have an adverse effect on our operating results.

Our business, financial condition, and results of operations could be materially adversely affected by climate change regulations.

Climate change regulations at the federal, state, or local level or in international jurisdictions could require us to limit emissions, change our manufacturing processes, obtain substitute materials which may cost more or be less available, increase our investment in control technology for greenhouse gas emissions, fund offset projects, or undertake other costly activities.

These regulations could significantly increase our costs and restrict our manufacturing operations by virtue of requirements for new equipment.

New permits may be required for our current operations, or expansions thereof.

Failure to timely receive permits could result in fines, suspension of production, or cessation of operations at one or more facilities.

In addition, restrictions on carbon dioxide or other greenhouse gas emissions could result in significant costs such as higher energy costs and the passing down of carbon taxes, emission cap and trade programs, and renewable portfolio standards by utility companies.

The cost of complying, or of failing to comply, with these and other climate change and emissions regulations could have an adverse effect on our operating results.

Increasing focus on environmental, social, and governance responsibility may impose additional costs on us and expose us to new risks.

Regulators, stockholders, and other interested constituencies have focused increasingly on the environmental, social, and governance practices of companies.

Our customers may require us to implement environmental, social, or governance responsibility procedures or standards before they continue to do business with us.

Additionally, we may face reputational challenges in the event that our environmental, social, or governance responsibility procedures or standards do not meet the standards set by certain constituencies.

The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations.

RISKS RELATED TO FINANCIAL MATTERS

Political and economic changes in foreign countries and markets, including foreign currency fluctuations, may have a material effect on our operating results.

During 2019, approximately 31% of our total net sales were to customers outside of the United States.

During 2020, approximate ly 26% of ou r total net sales were to customers outside of the United States.

Additionally, we also have operating facilities located in foreign countries.

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Significant fluctuations in the value of the currencies of the countries in which we do business could have an adverse effect on our results of operations.

Potential product liability risks exist from the products that we sell.

We may be exposed to liabilities for personal injury, death, or property damage due to the failure of a product that we have sold.

We may also not be able to maintain insurance coverage in the future at an acceptable cost.

In addition, an accident caused by one of our products could damage our reputation for selling quality products.

We believe that our customers consider safety and reliability as key criteria in selecting our products and believe that our reputation for quality assurance is a significant competitive strength.

We are subject to liability under warranty obligations .

Material product warranty obligations could have a material adverse effect on our business, financial condition, and results of operations.

Further, our reputation may be adversely affected by such defective product claims, whether or not successful, including potential negative publicity about our products.

Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our cash flows and financial condition.

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Changes in domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain revenues or the deductibility of certain expenses, thereby affecting our income tax expense and profitability.

In addition, the amount of income taxes paid by us is subject to examination by U.S.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic.

The CARES Act, among other things, included certain changes in tax law intended to stimulate the U.S.

economy in light of the COVID-19 pandemic, including temporary beneficial changes to the treatment of net operating losses, interest deductibility limitations.

and payroll tax matters.

The CARES Act is subject to interpretation and implementation guidance by both federal and state tax authorities, as well as amendments and technical corrections.

Any or all of these could impact our business unfavorably.

Additionally, tax rates in various jurisdictions in which we operate or sell into may increase as a means of funding the significant cost of governmental stimulus measures enacted to assist and protect individuals and businesses impacted by the COVID-19 pandemic.

It cannot be predicted whether, when, in what form, or with what effective dates, new tax laws or changes in tax rates may be enacted, or regulations and rulings may be enacted, promulgated or issued under existing or new tax laws, which could result in an increase in our tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law or in the interpretation thereof.

Furthermore, the amount of income taxes paid by us is subject to examination by U.S.

federal, state, and local tax authorities and by non-U.S.

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If the ultimate determination of our taxes owed were for an amount in excess of amounts reserved, our operating results, cash flows, and financial condition could be materially and adversely affected.

If we fail to satisfy our contractual obligations, our contracts may be terminated and we may incur significant costs or liabilities, including liquidated damages and penalties.

In general, our contracts may be terminated for our failure to satisfy our contractual obligations.

In addition, some of our contracts contain substantial liquidated damages provisions and financial penalties related to our failure to satisfy our contractual obligations.

For example, the terms of the Electro-Mechanical Division's AP1000 China and AP1000 U.S.

contracts with Westinghouse Electric Company (WEC) include liquidated damage penalty provisions for failure to meet contractual delivery dates if we caused the delay and the delay was not excusable.

On October 10, 2013, we received a letter from WEC stating entitlements to the maximum amount of liquidated damages allowable under the AP1000 China contract of approximately $25 million.

To date, we have not met certain contractual delivery dates under the AP 1000 China and U.S.

however there are significant uncertainties as to which parties are responsible for the delays, and we believe we have adequate legal defenses.

Consequently, as a result of the above matters, we may incur significant costs or liabilities, including penalties, which could have a material adverse effect on our financial position, results of operations, or cash flows.

As of December 31, 2019, the range of possible loss for liquidated damages on the WEC U.S.

and China contracts is $0 to $55.5 million.

We are subject to liability under environmental laws.