What changed in this filing

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Item 1A. Risk Factors

2022-02-24 compared with 2021-02-25 · 75 added, 69 removed, 306 unchanged (32% of the section changed)

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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.

The COVID-19 pandemic has adversely impacted, and is expected to continue to pose 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.

The COVID-19 pandemic and the associated pandemic-related responses continue to cause significant and volatile disruptions in global economies, in capital markets, and across industries.

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.

As of December 31, 2021, all of our manufacturing operations are operational.

However, we are unable to predict if there will be additional government-imposed restrictions on our ability to operate in future periods.

Additionally, our ability to continue to manufacture products is highly dependent on our ability to maintain the safety and health of our factory employees.

The ability of our employees to work may be significantly impacted by the individuals contracting or being exposed to COVID-19 and its variants.

While we are following the requirements of governmental authorities and taking preventative and protective measures to prioritize the safety of our employees, these measures are not always successful, and we may be required to temporarily close facilities or take other measures.

Potential future directives curtailing in-person operations due to illness, quarantines, government actions, facility closures or other restrictions in connection with the COVID-19 pandemic could change at any time.

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.

The COVID-19 pandemic has disrupted the global supply chain to a certain extent and availability of raw materials, particularly electronic parts.

Because we strive to limit the volume of raw materials and component parts on hand, our business could be adversely affected if we were unable to obtain these raw materials and components from our suppliers in the quantities we require or on favorable terms.

We continue to monitor the situation, assessing possible implications on our operations, supply chain, liquidity, cash flow and customer orders, and will continue taking actions in an effort to mitigate adverse consequences.

Recognizing the unprecedented

nature, scale and uncertainty associated with this global health crisis, the duration and extent of the ongoing impacts cannot be reasonably estimated at this time .

RISKS RELATED TO OUR OPERATIONS

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

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

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

The COVID-19 pandemic has caused us to modify our business practices, including empowering many of our office-based associates to work productively from home on a hybrid basis when appropriate to do so.

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

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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.

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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 inability to sufficiently satisfy contractual obligations could have a material adverse effect on our reputation, business, financial condition, results of operations, and cash flows.

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

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

As part of our capital allocation strategy, we aim to grow our business by selectively pursuing acquisitions to supplement our organic growth.

As part of our capital allocation strategy, we aim to grow our business by selectively pursuing acquisitions and technologies that supplement our organic growth.

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

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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.

As a result, they may be better able to withstand the effects of periodic economic downturns, including withstanding the current global pandemic.

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.

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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, 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.

However, the BCA remains in place, extended through 2029.

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 discretionary spending in 2020 and 2021 and extended the mandatory BCA spending reductions through 2029.

Absent additional legislative or other remedial action, the sequestration could require reduced U.S.

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Government defense spending or changes in spending allocation could result in one or more of our programs being reduced, delayed, or terminated.

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.

In the event that one or more of our programs are reduced, delayed, or terminated for which we provide products and services, we may experience a reduction in our revenues and earnings and a material adverse effect on our business, financial condition, and results of operations.

The BBA also temporarily suspended the public debt limit through July 31, 2021, which Congress temporarily extended through December 3, 2021.

However, on December 16, 2021, President Biden signed legislation into law increasing the debt ceiling by $2.5 trillion, which is expected to allow the U.S.

government to cover its debt obligations into fiscal year 2023.

Failure by Congress to further suspend or increase the debt ceiling could delay or result in the loss of contracts for the procurement of our products and services, and we may be asked or required to continue to perform for some period of time on certain of our U.S.

government contracts, even if the U.S.

government is unable to make timely payments.

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.

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, environmental concerns, inclusive of climate change, 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.

For example, the COVID-19 pandemic drastically reduced air traffic as travel restrictions and social distancing measures were implemented to help control the spread of the virus.

The reduced air traffic applied financial pressures on airlines, who, in order to preserve cash and liquidity, dramatically reduced flight hours and delayed the purchases of new aircraft.

Although U.S.

domestic air travel has increased during 2021, international travel has not yet begun to recover at the same pace.

Given the uncertain length of this pandemic and associated restrictions to travel long distances, the commercial market may shift away from wide-body aircraft.

Furthermore, as companies and employees become accustomed to working remotely, business travel and the associated flight hours may not reach the pre-pandemic levels.

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

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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.

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

RISKS RELATED TO LEGAL AND REGULATORY MATTERS

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We have been, and expect to continue to be, subjected to audits and investigations by government agencies.

The failure to comply with the terms of our government contracts could harm our business reputation.

The failure to comply with the terms of our government

contracts could harm our business reputation.

It could also result in our progress payments being withheld.

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We include documentation with our products sold to aircraft manufacturing customers certifying that each part complies with applicable regulatory requirements and meets applicable standards of airworthiness established by the FAA or the equivalent regulatory agencies in other countries.

In order to sell our products, the Corporation as well as the products we manufacture must also be certified by our individual original equipment manufacturers (OEM) customers.

In order to sell our products, the Corporation as well as the products that we manufacture must also be certified by our individual OEM customers.

If any of the material authorizations or approvals qualifying us to supply our products is revoked or suspended, then the sale of such product would be prohibited by law, which would have an adverse effect on our business, financial condition, and results of operations.

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.

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.

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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.

We may be subject to periodic litigation and regulatory proceedings, which may adversely affect our business and financial performance.

From time to time, we are involved in lawsuits and regulatory actions brought or threatened against us in the ordinary course of business.

These actions and proceedings may involve claims for, among other things, compensation for alleged personal injury, workers’ compensation, employment discrimination, or breach of contract.

Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such actions or proceedings.

The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify, as plaintiffs may seek recovery of very large or indeterminate amounts in these types of lawsuits, and the magnitude of the potential loss may remain unknown for substantial periods of time.

In addition, plaintiffs in many types of actions may seek punitive damages, civil penalties, consequential damages or other losses, or injunctive or declaratory relief.

These proceedings could result in substantial cost and may require us to devote substantial resources to defend ourselves.

The ultimate resolution of these matters through settlement, mediation, or court judgment could have a material impact on our financial condition, results of operations, and cash flows.

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

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Doing business in foreign countries is subject to numerous risks, including without limitation:

political and economic instability, the uncertainty of the ability of non-U.S.

customers to finance purchases, restrictive trade policies, changes in the local labor-relations climate, economic conditions in local markets, health concerns, and complying with foreign regulatory and tax requirements that are subject to change.

political and economic instability and potential for social unrest, the uncertainty of the ability of non-U.S.

customers to finance purchases, restrictions on the repatriation of funds, restrictive trade policies, tariff regulations, difficulties in obtaining export and import licenses, government financed competition, changes in the local labor-relations climate, economic conditions in local markets, health concerns (including the COVID-19 pandemic), complying with foreign regulatory and tax requirements that are subject to change, and limitations on our ability to enforce legal rights and remedies.

While these factors or the impact of these factors are difficult to predict, any one or more of these factors could adversely affect our operations.

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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.

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

The Biden administration announced in 2021 several tax proposals to fund new government investments in infrastructure, healthcare, and education, among others.

Certain of these proposals involve an increase in the domestic corporate tax rate, which if implemented could have a material impact on our future results of operations and cash flows.

In addition, 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.

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.

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Long-term contract accounting requires judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions for schedule and technical issues.

Due to the size and nature of many of our contracts, the estimation of total revenues and costs at completion is complicated and subject to many variables.

Due to the size and nature of many of our contracts, the estimation of total

revenues and costs at completion is complicated and subject to many variables.

For example, assumptions have to be made regarding the length of time to complete the contract as costs also include expected increases in wages and prices for materials.

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Our future financial results could be adversely impacted by asset impairment charges.

As of December 31, 2020, we had goodwill and other intangible assets, net of accumulated amortization, of approximately $2,065 million, which represented approximately 51% of our total assets.

As of December 31, 2021, we had goodwill and other intangible assets, net of accumulated amortization, of approximately $2.0 billion, which represented approximately 49% of our total assets.

Our goodwill is subject to an impairment test on an annual basis and is also tested whenever events and circumstances indicate that goodwill may be impaired.

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Our current debt, and debt we may incur in the future, could adversely affect our business and financial position.

As of December 31, 2020, we had $1,058 million of debt outstanding.

As of December 31, 2021, we had $1.0 billion of debt outstanding.

Our level of debt could have significant consequences for our business including:

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GENERAL RISKS

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

Our future growth and continued success are 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.

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

On September 9, 2021, President Biden directed the Department of Labor’s Occupational Safety and Health Administration (“OSHA”) to issue an Emergency Temporary Standard (“ETS”) requiring that all employers with at least 100 employees ensure that their employees are fully vaccinated for COVID-19 or obtain a negative COVID-19 test at least once a week.

President Biden also issued an Executive Order requiring certain COVID-19 precautions for government contractors and their subcontractors, including mandatory employee vaccination, with exemptions only for medical or religious reasons.

On November 4, 2021, the OSHA issued an emergency regulation to carry out this mandate, which was expected to take effect on January 4, 2022.

However, the U.S.

Supreme Court issued a nationwide stay prohibiting OSHA from enforcing or implementing the ETS.

But many states and localities are free to impose vaccine requirements.

Despite the previous legal and timing uncertainties relating to these regulations, we implemented requirements regarding mandatory vaccines for U.S.

based covered employees, subject to approved exemptions.

It is possible that additional vaccine and testing mandates may be announced in other jurisdictions in which we operate our business.

While it is not currently possible to predict with any certainty the exact impact any new state, local or foreign vaccine regulations would have on our operations, our suppliers and our customers, the implementation of such state, local or foreign government mandated vaccination or testing mandates may impact our ability to retain current employees, attract new employees, and result in labor disruptions and may have an adverse effect on future profitability.

Further, implementation could also have similar consequences for our subcontractors, which may impact their ability to deliver the goods and services we need from them.

In addition, any requirement to impose obligations on our suppliers under the Executive Order covering government contractors and their subcontractors could impact the price and continuity of supply of raw materials, whereby our results of operations and financial condition could be adversely affected.

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.

Our business benefits from free trade agreements such as the United States-Mexico-Canada Trade Agreement (USMCA) and relies on various U.S.

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

federal government has altered U.S.

international trade policy and has indicated its intention to renegotiate or terminate certain existing trade agreements and treaties with foreign governments.

On November 30, 2018, the U.S.

reached an agreement with Canada and Mexico on the United States-Mexico-Canada Trade Agreement (USMCA), which replaced NAFTA.

The USMCA was ratified by all three countries and became effective on July 1, 2020.

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

Although we have determined that there have been no immediate effects on our operations with respect to USMCA, we cannot predict future developments in the political

climate involving the United States, Mexico and Canada, and thus, these may have an adverse and material impact on our operations and financial growth.

The United States and other countries have levied tariffs and taxes on certain goods.

General trade tensions between the United States and China have been escalating since 2018, with U.S.

tariffs on Chinese goods and retaliatory Chinese tariffs on U.S.

Although there are no immediate effects on our operations with respect to USMCA, we cannot predict future developments in the political climate involving the United States, Mexico and Canada, and thus, these may have an adverse and material impact on our operations and financial growth.

The United States and other countries have levied tariffs and taxes on certain goods (such as those implemented by the United States and China in recent years).

Some of our products are included in these tariffs.

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.

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Although we have generally enjoyed good relations with both our unionized and non-unionized employees, we may experience an adverse impact on our operating results if we are subject to labor actions.

Future terror attacks, war, natural disasters, pandemic diseases (including the COVID-19 pandemic), or other events beyond our control could adversely impact our businesses.

Despite our concerted effort to minimize risk to our production capabilities and corporate information systems and to reduce the effect of unforeseen interruptions through business continuity planning and disaster recovery plans, we could be adversely impacted by terror attacks, war, natural disasters such as hurricanes, floods, tornadoes, pandemic diseases such as COVID-19, or other events such as strikes by the workforce of a significant customer or supplier.

Future terror attacks, war, natural disasters, climate change-related events, pandemic diseases (including the COVID-19 pandemic), or other events beyond our control could adversely impact our businesses.

Despite our concerted effort to minimize risk to our production capabilities and corporate information systems and to reduce the effect of unforeseen interruptions through insurance or other risk transfer mechanisms, such as our business continuity planning and disaster recovery plans, we could be adversely impacted by terror attacks, war, natural disasters such as hurricanes, floods, tornadoes, climate change-related events, pandemic diseases such as COVID-19, or other events such as strikes by the workforce of a significant customer or supplier.

These risks could negatively impact demand for or supply of our products and could also cause disruption to our facilities or systems, which could also interrupt operational processes and adversely impact our ability to manufacture our products and provide services and support to our customers.

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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