PREFORMED LINE PRODUCTS CO 10-K

Item 1. Business Background Preformed Line Products Company together with its subsidiaries (the “Company”) is an international designer and manufacturer of products and systems employed in the construction and maintenance of overhead, ground-mounted and underground networks for the energy, telecommunication, cable operators, information (data communication) and other similar industries. The Company’s primary products support, protect, connect, terminate and secure cables and wires. The Company also provides solar hardware systems and mounting hardware for a variety of solar power applications. The Company’s goal is to continue to achieve profitable growth as a leader in the research, innovation, development, manufacture and marketing of technically advanced products and services related to energy, communications and cable systems and to take advantage of this leadership position to sell additional quality products in familiar markets. The Company serves a worldwide market through strategically located domestic and international manufacturing facilities. Each of the Company’s domestic and international manufacturing facilities have obtained an International Organization of Standardization (“ISO”) 9001:2015 Certified Management System Certificate. The ISO 9001:2015 certified management system is a globally recognized certified quality standard for manufacturing and assists the Company in marketing its products throughout the world. The Company’s customers include public and private energy utilities and communication companies, cable operators, financial institutions, governmental agencies, contractors and subcontractors, distributors and value-added resellers. The Company is not dependent on a single customer or small group of customers. No single customer accounts for more than 10% of the Company's consolidated revenues. The Company’s products include: • Energy Products • Communications Products • Special Industries Products Energy Products are used to support, protect, terminate and secure both power conductor and fiber communication cables and to control cable dynamics (e.g., vibration). Formed wire products are based on the principle of forming a variety of stiff wire materials into a helical (spiral) shape. Advantages of using the Company’s helical formed wire products are that they are economical, dependable and easy to use. The Company introduced formed wire products to the power industry over 70 years ago and such products enjoy an almost universal acceptance in the Company’s markets. Related products include hardware for supporting and protecting transmission conductors, spacers, spacer-dampers, stockbridge dampers, corona suppression devices and various compression fittings for dead-end applications. Energy products were approximately 61%, 66% and 67% of the Company’s revenues in 2021, 2020 and 2019, respectively. Communications Products , including protective closures, are used to protect fixed line communication networks, such as fiber optic cable or copper cable, from moisture, environmental hazards and other potential contaminants. The protective closures also support Fiber-to-the-Premises ("FTTP") applications by carrying fiber optic technology into homes and businesses. In addition to closures, the Company supplies the communication industry with formed wire products to hold, support, protect and terminate the copper wires and cables and the fiber optic cables used by that industry to transfer voice, video or data signals. Communications products were approximately 30%, 24% and 22% of the Company’s revenues in 2021, 2020 and 2019, respectively. Special Industries Products include hardware assemblies, pole line hardware, resale products, underground connectors, solar hardware systems, guy markers, tree guards, fiber optic cable markers, pedestal markers and urethane products. They are used by energy, renewable energy, communications, cable and special industries (i.e., metal building, tower and antenna industries, the agriculture and arborist industries, and marine systems industry) for various applications and are defined as products that complement the Company’s core line offerings. Special industries products were approximately 9%, 10% and 11% of the Company’s revenues in 2021, 2020 and 2019, respectively. International Operations The international operations of the Company are essentially the same as its domestic ("PLP-USA") business. The Company manufactures similar types of products in its international plants as are sold domestically, sells to similar types of customers and faces similar types of competition (and in some cases, the same competitors). Sources of supply of raw materials are not significantly different internationally. See Note M in the Notes to Consolidated Financial Statements for information and financial data relating to the Company’s international operations that represent reportable segments. 5 Sales and Marketing Domestically and internationally, the Company markets its products through a direct sales force and manufacturing representatives. The direct sales force is employed by the Company and works with manufacturers’ representatives, as well as key direct accounts and distributors who also buy and resell the Company’s products. The manufacturer’s representatives are independent organizations that represent the Company as well as other complimentary product lines. These organizations are paid a commission based on the sales amount they generate. Research and Development The Company is committed to providing technical leadership through scientific research and product development in order to continue to expand the Company’s position as a supplier to the communications and power industries. Research is conducted on a continuous basis using internal experience in conjunction with outside professional expertise to develop state-of-the-art materials for several of the Company’s products. These products capitalize on cost-efficiency while offering exacting mechanical performance that meets or exceeds industry standards. The Company’s research and development activities have resulted in numerous patents being issued to the Company (see “Patents and Trademarks” below). Early in its history, the Company recognized the need to understand the performance of its products and the needs of its customers. To that end, the Company developed a 38,000 square foot Research and Engineering Center located at its corporate headquarters in Mayfield Village, Ohio. Using the Research and Engineering Center, engineers and technicians simulate a wide range of external conditions encountered by the Company’s products to ensure quality, durability and performance. The work performed in the Research and Engineering Center includes advanced studies and experimentation with various forms of vibration and environmental changes. The Research and Engineering Center is one of the most sophisticated in the world in its specialized field. The Research and Engineering Center also has an advanced prototyping technology machine on-site to develop models of new designs where intricate part details are studied prior to the construction of expensive production tooling. Today, the Company’s reputation for vibration testing, tensile testing, fiber optic cable testing, environmental testing, field vibration monitoring and third-party contract testing is a competitive advantage. In addition to testing, the work performed at the Company’s Research and Development Center continues to fuel product development efforts. For example, the Company estimates that approximately 17.9% of 2021 revenues were attributed to products developed by the Company in the past five years. In addition, the Company’s position in the industry is further reinforced by its long-standing leadership role in many key international technical organizations which are charged with the responsibility of establishing industry-wide specifications and performance criteria, including IEEE (Institute of Electrical and Electronics Engineers), CIGRE (Counsiel Internationale des Grands Reseaux Electriques a Haute Tension), and IEC (International Electromechanical Commission). Research and development costs are expensed as incurred. Research and development costs for new products were $3.3 million in 2021, $2.8 million in 2020 and $3.0 million in 2019. Patents and Trademarks The Company applies for patents in the U.S. and other countries, as appropriate, to protect its significant patentable developments. As of December 31, 2021, the Company had in force 49 U.S. patents and 131 international patents in 21 countries and had 37 pending U.S. patent applications and 47 pending international applications. While such domestic and international patents expire from time to time, the Company continues to apply for and obtain patent protection on a regular basis. Patents held by the Company in the aggregate are of material importance in the operation of the Company’s business. The Company, however, does not believe that any single patent, or group of related patents, is essential to the Company’s business as a whole or to any of its businesses. Additionally, the Company owns and uses a substantial body of proprietary information and numerous trademarks. The Company relies on nondisclosure agreements to protect trade secrets and other proprietary data and technology. As of December 31, 2021, the Company had obtained U.S. registration on 32 trademarks and 4 trademark application remained pending. International registrations amounted to 240 registrations in 35 countries, with 25 pending international registrations. U.S. patents are issued for terms of 20 years beginning with the date of filing of the patent application. Patents issued by international countries generally expire 20 years after filing. U.S. and international patents are not renewable after expiration of their initial term. U.S. and international trademarks are generally perpetual, renewable in 10-year increments upon a showing of continued use. To the knowledge of management, the Company is not subject to any significant allegation or charges of infringement of intellectual property rights by any organization. In the normal course of business, the Company occasionally makes and receives inquiries with regard to possible patent and trademark infringement. The extent of such inquiries from third parties has been limited generally to verbal remarks or letters to Company representatives. The Company believes that it is unlikely that the outcome of these inquiries will have a material adverse effect on the Company’s financial position. 6 Competition All of the markets that the Company serves are highly competitive. In each market, the principal methods of competition are price, performance, and service. The Company believes, however, that several factors (described below) provide the Company with a competitive advantage. • The Company has a strong and stable workforce. This consistent and continuous knowledge base has afforded the Company the ability to provide superior service to the Company’s customers and representatives. • The Company’s Research and Engineering Center in Mayfield Village, Ohio and the engineering departments at the Company’s subsidiary operations around the world maintain a strong technical support function to develop unique solutions to customer problems. • The Company is vertically integrated both in manufacturing and distribution and is continually upgrading equipment and processes. • The Company is sensitive to the marketplace and provides an extra measure of service in cases of emergency, storm damage and other supply delivery situations. This high level of customer service and customer responsiveness is a hallmark of the Company. • The Company’s 30 sales and manufacturing locations ensure close support and proximity to customers worldwide. Domestically, there are several competitors for formed wire products. Although it has other competitors in many of the countries where it has plants, the Company has leveraged its expertise and is very strong in the global market. The Company believes that it is the world’s largest manufacturer of formed wire products for energy and communications markets. However, the Company’s formed wire products compete against other pole line hardware products manufactured by other companies. The fiber optic closure market is one of the most competitive product areas for the Company, with the Company competing against, among others, CommScope and Corning. There are a number of primary competitors and several smaller niche competitors that compete at all levels in the marketplace. The Company believes that it is one of four leading suppliers of fiber optic closures. Sources and Availability of Raw Materials The principal raw materials used by the Company are galvanized wire, stainless steel, aluminum covered steel wire, aluminum rod, plastic resins, glass-filled plastic compounds, neoprene rubbers and aluminum castings. The Company also uses certain other materials such as fasteners, packaging materials and fiber communications devices. The Company believes that it has adequate sources of supply for the raw materials used in its manufacturing processes and it regularly attempts to develop and maintain sources of supply in order to extend availability and encourage competitive pricing of these products. Most plastic resins are purchased under contracts to stabilize costs and improve delivery performance and are available from a number of reliable suppliers. Wire and aluminum rods are purchased in standard stock diameters and coils under contracts from a number of reliable suppliers. Contracts have firm prices except for fluctuations of base metals and petroleum prices, which result in surcharges when global demand is greater than the available supply. The Company also relies on certain other manufacturers to supply products that complement the Company’s product lines, such as ferrous castings, fiber optic cable and connectors and various metal racks. The Company believes there are multiple sources of supply for these products. The Company relies on sole source manufacturers for certain raw materials used in production. The current state of economic uncertainty presents a risk that existing suppliers could go out of business or be unable to meet customer demand. However, there are other potential sources available for these materials, and the Company believes that it could relocate the tooling and processes to other manufacturers if necessary. Raw material costs increased throughout 2021, partially as a result of supply chain constraints. The Company expects prices on metals and plastics to continue to increase throughout 2022. Throughout 2021, the Company experienced significant raw material and transportation cost inflation that negatively affected its earnings. To offset these increased costs, the Company implemented several price increases in the U.S. and internationally in 2021. Due to the large volume in the Company's backlog, tailwinds from these increases are expected in 2022, however, continued cost inflation in these areas may require further price adjustments in future periods to maintain profit margin. Any price increases could have a negative effect on demand. 7 Backlog Orders The Company’s order backlog is incredibly strong and was approximately $242.9 million at the end of 2021 and $115.1 million at the end of 2020. All customer orders entered are firm at the time of entry. Substantially all of the backlog existing at December 31, 2021 is expected to be shipped to customers in 2022. Seasonality The Company markets products that are used by utility maintenance and construction crews worldwide. The products are marketed through distributors and directly to end users, who maintain stock to ensure adequate supply for their customers or construction crews. As a result, the Company does not have a wide variation in sales from quarter to quarter. Environmental, Social and Governance Matters The Company is subject to extensive and changing federal, state, and local environmental laws, including laws and regulations that (i) relate to air and water quality, (ii) impose limitations on the discharge of pollutants into the environment, (iii) establish standards for the treatment, storage and disposal of toxic and hazardous waste, and (iv) require proper storage, handling, packaging, labeling, and transporting of products and components classified as hazardous materials. Stringent fines and penalties may be imposed for noncompliance with these environmental laws. In addition, environmental laws could impose liability for costs associated with investigating and remediating contamination at the Company’s facilities or at third-party facilities at which the Company has arranged for the disposal treatment of hazardous materials. The Company believes it is in compliance in all material respects, with all applicable environmental laws and the Company is not aware of any noncompliance or obligation to investigate or remediate contamination that could reasonably be expected to result in a material liability. The Company does not expect to make any material capital expenditures during 2022 for environmental control facilities. The environmental laws continue to be amended and revised to impose stricter obligations, and compliance with future additional environmental requirements could necessitate capital outlays. However, the Company does not believe that these expenditures will ultimately result in a material adverse effect on its financial position or results of operations. The Company cannot predict the precise effect such future requirements, if enacted, would have on the Company. The Company believes that such regulations would be enacted over time and would affect the industry as a whole. Climate change may impact the Company’s business by increasing operating costs due to damage to its facilities and distribution systems and disruptions to its manufacturing processes due to the increased frequency and severity of storms, floods, fires, fog, mist, freezing conditions, sea-level rise and other climate-related events. As discussed above, climate change-related regulatory activity and developments may adversely affect the Company’s business and financial results by requiring the Company to reduce its emissions, make capital investments to modernize certain aspects of its operations, purchase carbon offsets, or otherwise pay for its emissions. The Company seeks to address these potential risks in its business continuity planning; however, such events could make it difficult for the Company to deliver products and services to its customers and cause it to incur substantial expense. The Company is committed to supporting environmental, social and governance ("ESG") initiatives and to its efforts to being a responsible and sustainable contributor to the environment, its employees, and the communities in which it operates. The Company is committed to reducing harmful air emissions, improving gas, electric and water usage efficiency while implementing alternative energy sources. The Company’s locations are also focused on efforts to reduce its waste, water and energy consumption through the implementation of such programs as pollution prevention, recycling waste materials in both manufacturing and office facilities, reducing solid waste disposal, reducing harmful air emissions, and implementing alternative energy sources. An example of this commitment is through solar power installations at some of the Company’s locations around the globe which are currently generating 1.4 megawatts of power. The Company has also installed more efficient LED lighting at many of its operations to further reduce energy usage. Some locations have also achieved the ISO-14001: Environmental Management Systems Certification. The Company has adopted several policies, including the Code of Conduct, which stresses the importance of adhering to the laws and contributing to society. In addition to monitoring and managing compliance with environmental regulations, the Company is also committed to sustainability and environmental protection initiatives. For example, the Company is committed to protecting wildlife by working with utility companies to design and manufacture wildlife protection products that aid in reducing wildlife mortalities from interaction with electric power distribution lines, structures, and equipment. Its Wildlife Protection line of products includes the BIRD-FLIGHT™ Diverter, RAPTOR PROTECTOR™ Platform and a Squirrel Deterrent System. The Company is also committed to partnering with its customers to develop innovative products, technologies, and services that meet their needs while mitigating risk to the environment and natural resources. 8 Additionally, the Company's product offerings further enhance global climate sustainability by bolstering grid reliability and efficiency, strengthening resilience to climate events, enabling transitions to renewable energy and upgrading aging infrastructure. The Company also quickly provides repair products to customers in the event of emergencies or natural disasters such as hurricanes, tornadoes, earthquakes, floods or ice storms. The Company has always supported numerous charitable organizations and promotes community involvement. It makes donations to various organizations and encourages employees to do the same by offering matching donations. The Company shares its successes with the communities in which it operates at both a corporate and local level. Donations and investments in enhancing the lives of the people within the communities it impacts are an integral part of who the Company is and how it intends to represent its values. Human Capital At December 31, 2021, the Company had 2,927 employees, the overwhelming majority of which are full-time employees. Approximately 28% of the Company’s employees are located in the U.S. The Company views its employees and culture as keys to its success and believes that its employees are its greatest asset. The Company aims to attract and retain employees who will be empowered to have the freedom to make decisions and take actions in the best interest of the Company, while being recognized and accountable for those decisions and actions. The Company focuses on innovation, inclusion and diversity, safety and engagement to develop the best talent. The Company’s goal is to create a work environment that enables employees to perform in an environment where they feel respected and valued. As a global company with employees in over 20 countries, the Company values its broad diversity of cultures, ethnicities, races, languages, religions, sexual and gender orientations and is committed to cultivating a diverse, open and inclusive work environment. Workplace satisfaction is a key to attracting and retaining employees. The Company has built a culture where integrity and honesty guide the decision-making process, while promoting a culture of learning and talent development through tuition reimbursement, training, wellness programs, flexible benefits, and competitive compensation. The Company has always had safety as a core value and promotes a health and safety culture that engages and empowers its employees to take responsibility for the health and safety of themselves and their co-workers. Further, throughout the COVID-19 pandemic, the Company has been successful with proactive measures to protect the health and safety of its employees and to maintain business continuity. The Company has established several safety protocols in its production and office areas, including, but not limited to, schedule rotations, face coverings, barriers, physical distance requirements, enhanced cleaning procedures, body temperature monitoring, vaccination clinics and employer-sponsored COVID-19 testing. The Company continues to assess all challenges related to COVID-19 and regularly updates its employees. For more information on the risks related to the Company’s human capital resources, see Item 1A – Risk Factors. Available Information The Company maintains an Internet site at http://www.preformed.com, on which the Company makes available, free of charge, the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. The Company’s SEC reports can be accessed through the investor relations section of its Internet site. The information found on the Company’s Internet site is not part of this or any other report that is filed or furnished to the SEC. The public may read and copy any materials the Company files with or furnishes to the SEC at the SEC’s Public Reference Room at 100 F. Street, NE., Washington, DC 20549. Information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information filed with the SEC by electronic filers. The SEC’s Internet site is http://www.sec.gov. The Company also has a link from its Internet site to the SEC’s Internet site. This link can be found on the investor relations page of the Company’s Internet site. 9 Item 1A. Ri sk Factors The Company’s business, operating results, financial condition and cash flows may be affected by a number of factors including, but not limited to those discussed below. Any of these factors could cause the Company’s actual results to vary material from recent results of future anticipated results. Industry and Economic Risks Due to the Company’s dependency on the energy and telecommunication industries, the Company is susceptible to negative trends relating to those industries that could adversely affect the Company’s operating results. The Company’s sales to the energy and telecommunication industries represent a substantial portion of the Company’s historical sales. The concentration of revenue in such industries is expected to continue into the foreseeable future. Demand for products to these industries depends primarily on capital spending by customers for constructing, rebuilding, maintaining or upgrading their systems. The amount of capital spending and, therefore, the Company’s sales and profitability are affected by a variety of factors, including general economic conditions, access by customers to financing, government regulation, demand for energy and cable services, energy prices and technological factors. As a result, some customers may significantly reduce or delay their spending or may not continue as going concerns, which could have a material adverse effect on the Company’s business, operating results and financial condition. In addition, the Company may incur exit-related costs and impairments of goodwill, definite and indefinite-lived intangible assets and property, fixtures and equipment as the Company makes corresponding changes to its business to reflect these changes and uncertainties in the Company’s industries and customer demand, and these costs and impairments could have a significant negative impact on the Company’s operating results for the period in which they are incurred. Consolidation presents an additional risk to the Company in that merged customers will rely on relationships with a source other than the Company. Consolidation may also increase the pressure on suppliers, such as the Company, to sell product at lower prices. The intense competition in the Company’s markets, particularly telecommunication, may lead to a reduction in sales and earnings. The markets in which the Company operates are highly competitive. The level of intensity of competition may increase in the foreseeable future due to anticipated growth in the telecommunication and data communication industries. The Company’s competitors in the telecommunication and data communication markets are larger companies with significant influence over the distribution network. The Company may not be able to compete successfully against its competitors, many of which may have access to greater financial resources than the Company. In addition, the pace of technological development in the telecommunication market is rapid and these advances (i.e., wireless, fiber optic network infrastructure, etc.) may adversely affect the Company’s ability to compete in this market. Competitors’ introduction of products embodying new technologies or the emergence of new industry standards can render existing products or products under development obsolete or unmarketable and result in lost sales. The energy and telecommunication industries are characterized by rapid technological change. Satellite, wireless and other communication technologies currently being deployed may represent a threat to copper, coaxial and fiber optic-based systems by reducing the need for wire-line networks. Future advances or further development of these or other new technologies may have a material adverse effect on the Company’s business, operating results and financial condition as a result of lost sales. Price increases or decreased or delayed availability of raw materials could result in lower earnings. The Company’s cost of sales may be materially adversely affected by increases in the market prices of the raw materials used in the Company’s manufacturing processes. During 2021, the Company implemented several price increases in the U.S. and internationally to mitigate rising material costs. This may have impacted or could continue to impact the Company's demand for its products. The Company may not be able to pass on further price increases in raw materials to the Company’s customers through increases in product prices. As a result, the Company’s operating results could be adversely affected. In addition, any decrease or delay in the availability of these materials or interruptions generally in the global supply chain could slow production and delivery to the Company’s customers. The impact of the COVID-19 pandemic and recent inflation, which is expected to continue, has disrupted and may continue to disrupt the global supply chain and could have a material, adverse effect on the ability to secure raw materials and supplies. The Company’s international operations subject the Company to additional business risks that may have a material adverse effect on the Company’s business, operating results and financial condition. International sales account for a substantial portion of the Company’s net sales (50%, 57% and 60% in 2021, 2020 and 2019, respectively). Due to its international sales, the Company is subject to the risks of conducting business internationally, including unexpected changes in, or impositions of, legislative or regulatory requirements, which could materially adversely affect U.S. dollar sales or operating expenses, tariffs and other barriers and restrictions, potentially longer payment cycles, greater difficulty in accounts 10 receivable collection, reduced or limited protection of intellectual property rights, potentially adverse taxes and the burdens of complying with a variety of international laws and communications standards. The Company is subject to foreign currency volatility, which could materially impact the Company’s operating results, including the impact of hyper-inflationary conditions in certain economies, particularly where exchange controls limit or eliminate the Company’s ability to convert from local currency. The Company is also subject to general geopolitical risks, such as political and economic instability, social unrest, acts of war, military conflict, international hostilities or the perception that hostilities may be imminent, terrorism and changes in diplomatic and trade relationships, including any retaliatory measures, sanctions or tariffs imposed in response to any acts of war or military conflicts in connection with its international operations. Any such disruption could cause delays in the production and distribution of the Company’s products and the loss of sales and customers. Moreover, these types of events could negatively impact consumer spending or the economy in the impacted regions or depending upon the severity, globally. These risks of conducting business internationally may have a material adverse effect on the Company’s business, operating results and financial condition. Additionally, in 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union (“Brexit”). Continued uncertainty relating to Brexit could adversely impact the Company. The United Kingdom formally exited the European Union on January 31, 2020 and had a transition period that ended on December 31, 2020. Since January 1, 2021, the European Union – United Kingdom Trade and Cooperative Agreement has provisionally been in effect and entered into force on May 21, 2021. Due to the lack of comparable precedent, the ultimate effect of Brexit and the trade and cooperative agreement are difficult to predict and could continue to have a further adverse impact on global economic conditions, the stability of global financial markets and global market liquidity, including effects on the discontinuation, reform or replacement of LIBOR as a reference interest rate included under the Company’s credit facility. Any of these factors could depress economic activity or lead to long-term volatility in the currency markets which could adversely impact the Company’s business, financial condition and results of operations. The Company's financial results could be adversely affected by the change in interest rates. Any period of interest rate increases may adversely affect the Company’s profitability. As of December 31, 2021, 38% of the Company's indebtedness bears interest at rates that float with the market. A higher level of floating rate debt would increase the exposure to changes in interest rates. Additionally, the interest rates on some of the Company’s debt is tied to LIBOR. The use of LIBOR is expected to be phased out by June 2023. The uncertainty regarding the transition from LIBOR to another reference rate or rates could have adverse impacts on the Company’s available debt that currently uses LIBOR as a reference rate, and ultimately, adversely affect our financial condition and results of operations. The COVID-19 pandemic may continue to have a material adverse effect on the Company’s business, operating results and financial condition. The Company is subject to public health concerns, including viral outbreaks such as the COVID-19 pandemic. Worldwide economic conditions have been significantly impacted by COVID-19 and the effects could continue to have an adverse effect on the Company’s operations and businesses as government authorities could continue to impose mandatory closures, work-from-home orders and social distancing protocols along with other unknown potential restrictions. COVID-19 has disrupted and could continue to disrupt the global supply chain, which could have a material, adverse effect on the Company’s ability to secure raw materials and supplies and could result in increased costs and the loss of sales and customers. The impact of COVID-19 could potentially exacerbate all the risks discussed and lead to the creation of new risks, any of which could have a material adverse effect on the Company’s business, operating results and financial condition. The duration and scope of the COVID-19 pandemic cannot be predicted, and therefore, any anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated. Business and Operations Risks The Company’s business will suffer if the Company fails to develop and successfully introduce new and enhanced products that meet the changing needs of the Company’s customers. The Company’s ability to anticipate changes in technology and industry standards and to successfully develop and introduce new products on a timely basis is a significant factor in the Company’s ability to grow and remain competitive. New product development often requires long-term forecasting of market trends, development and implementation of new designs and processes and a substantial capital commitment. The trend toward consolidation of the energy, telecommunication and data communication industries may require the Company to quickly adapt to rapidly changing market conditions and customer requirements. Any failure by the Company to anticipate or respond in a cost-effective and timely manner to technological developments or changes in industry standards or customer requirements, or any significant delays in product development or introduction or any failure of new products to be widely accepted by the Company’s customers, could have a material adverse effect on the Company’s business, operating results and financial condition as a result of reduced net sales. 11 The Company may not be able to successfully integrate businesses that it may acquire in the future or complete acquisitions on satisfactory terms, which could have a material adverse effect on the Company’s business, operating results and financial condition. A portion of the Company’s growth in sales and earnings has been generated from acquisitions. The Company expects to continue a strategy of identifying and acquiring businesses with complementary products. In connection with this growth strategy, the Company faces certain risks and uncertainties in addition to the risks faced in the Company’s day-to-day operations, including the risks pertaining to integrating acquired businesses, realizing the benefits of acquired technology, utilizing new personnel and operating in new jurisdictions. In addition, the Company may incur debt to finance future acquisitions, and the Company may issue securities in connection with future acquisitions that may dilute the holdings of current and future shareholders. Covenant restrictions relating to additional indebtedness could restrict the Company’s ability to pay dividends, fund capital expenditures, consummate additional acquisitions and significantly increase the Company’s interest expense. Any failure to successfully complete acquisitions or to successfully integrate such strategic acquisitions could have a material adverse effect on the Company’s business, operating results and financial condition. The Company may have interruptions in or lose business due to the uncertainty of the global economy, specifically related to the lack of available funding for the Company’s customers. The demand for the Company’s products is significantly affected by the amount of discretionary business and consumer spending, each of which is impacted by the continued uncertainty of the global economy. The Company’s operations could be adversely affected by global economic conditions such as recession, political or social unrest, economic instability, acts of war, military conflict, international hostilities or the perception that hostilities may be imminent, terrorism and changes in diplomatic and trade relationships, including any retaliatory measures, sanctions or tariffs imposed in response to any acts of war or military conflicts, public health concerns or otherwise. The liquidity and financial position of the Company’s customers could also impact their ability to pay in full and/or on a timely basis. This lack of funding could have a negative impact on the Company’s operating results and financial condition. The Company employs information technology systems to support its business, and any material breach, interruption or failure may adversely impact the Company’s business. The Company employs information technology systems to support its business. Security breaches and other disruptions to the Company’s information technology infrastructure could interfere with the Company’s operations, and compromise information belonging to the Company and its customers, suppliers and employees, exposing the Company to liability which could adversely impact the Company’s business and reputation. In the ordinary course of business, the Company relies on information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities. Additionally, the Company collects and stores certain data, including proprietary business information, and may have access to confidential or personal information in certain of its businesses that is subject to privacy and security laws, regulations and customer-imposed controls. Despite the Company’s cybersecurity measures and oversight of such matters by the Board of Directors, which are continuously reviewed and upgraded, the Company’s information technology networks and infrastructure and protected data may still be vulnerable to damage, disruptions or shutdowns due to attack by hackers or breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures, systems failures, service providers including cloud services, natural disasters or other catastrophic events. It is possible for such vulnerabilities to remain undetected for an extended period, up to and including several years. Any such events could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to the Company’s reputation, which could adversely affect the Company’s business. Legal, Tax and Regulatory Risks The Company may be adversely impacted by laws, regulation, and litigation. The Company is subject to various laws and regulation. For example, extensive environmental regulations related to air and water quality, the discharge of pollutants, climate change, the handling of toxic waste and the handling and transport of products and components classified as hazardous impact its daily operations. The introduction of new laws or regulations, or changes in existing laws or regulations, could increase the costs of doing business. It is difficult to predict what impact, if any, changes in federal policy, including environmental and tax policies will have on our industry, the economy as a whole, consumer confidence and spending. As a result, the nature, timing and impact on our business of potential changes to the current legal and regulatory frameworks are uncertain. At any given time, the Company may also be subject to litigation or claims related to its products, suppliers, customers, employees, shareholders, distributors, sales representatives, intellectual property or acquisitions, among other things, the disposition of which may have an adverse effect upon the Company’s business, financial condition, or results of operation. The outcome of litigation is difficult to assess or quantify. Lawsuits can result in the payment of substantial damages by defendants. If the Company is required to pay substantial damages and expenses as a result of these or other types of lawsuits, the Company’s business and results of operations would be adversely affected. Regardless of whether any claims against the Company are valid or whether it is liable, claims may be expensive to defend, 12 may cause reputational harm (particularly where any claims relate to significant harm to persons and property) and may divert time and money away from the Company’s operations. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of the Company’s insurance coverage or financial statement accruals for any claims could adversely affect the Company’s business and operating results. The Company may not be able to successfully manage its intellectual property and may be subject to infringement claims. The Company relies on a combination of contractual rights and patent, trademark, copyright and trade secret laws to establish and protect its proprietary technology. Third parties may challenge, invalidate, circumvent, infringe or misappropriate the Company’s intellectual property, or such intellectual property may not be sufficient to permit the Company to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of certain product offerings or other competitive harm. Others, including its competitors may independently develop similar technology, duplicate or design around the Company’s intellectual property, and in such cases, it could not assert its intellectual property rights against such parties. The Company may also be subject to costly litigation in the event its technology infringes upon or otherwise violate a third party’s proprietary rights. Any claim from third parties may result in a limitation on its ability to use the intellectual property subject to these claims or the requirement to pay a licensing fee or royalty. The Company may be forced to litigate to enforce or determine the scope and enforceability of its intellectual property rights, trade secrets and know-how, which is expensive, could cause a diversion of resources and may not prove successful, especially in countries where such rights are more difficult to enforce. The loss of intellectual property protection or the inability to obtain third party intellectual property could harm its business and ability to compete. Tax matters, including changes in tax rates, disagreements with taxing authorities and imposition of new taxes could impact the Company’s operating results and financial condition. The Company is subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating the provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. The Company’s effective tax rates could be affected by numerous factors, including but not limited to, intercompany transactions, the relative amount of its foreign earnings, including earnings being lower than anticipated in jurisdictions where the Company has lower statutory rates and higher than anticipated in jurisdictions where the Company has higher statutory rates, losses incurred in jurisdictions for which the Company is not able to realize the related tax benefit, changes in foreign currency exchange rates, changes in its deferred tax assets and liabilities and any related valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations. In addition, many countries are actively pursuing changes to their tax laws applicable to corporate multinationals such as the proposed U.S. Build Back Better Plan, which potentially could raise the U.S. corporate tax rate. Additionally, due to the COVID-19 pandemic, foreign governments facilitated economic stimulus by enacting new tax legislation throughout 2021. Foreign governments will continue to contemplate future changes to tax law to assist in economic recovery. These future changes could materially affect the Company’s financial position and results of operations. Risk Factors Related to Human Capital The Company depends on maintaining a skilled workforce and any interruption in the workforce could negatively impact the Company’s operating results and financial condition. The Company’s ability to sustain and grow its business requires a commitment to hire, retain and develop a highly skilled and diverse management team and workforce. Failure to ensure that the Company has the depth and breadth of personnel with the necessary skill set and experience, the loss of key employees or interruptions in the Company's workforce, including unionization efforts and changes in labor relations, could impede the Company’s ability to deliver its growth objectives and execute its strategy. Additionally, the health of the Company's employees is critical and protection of its employees is the Company's top priority. The Company continues to develop and invest in human capital through continuing education, work-related certifications, and talent and performance management systems. These efforts directly impact the ability to deliver its growth objectives and execute its strategy. Item 1B. Unresolve d Staff Comments The Company does not have any unresolved staff comments. 13 Item 2. P roperties The Company currently owns or leases 40 facilities, which together contain approximately 2.6 million square feet of manufacturing, warehouse, research and development, sales and office space worldwide. Most of the Company’s international facilities contain space for offices, research and engineering (R&E), warehousing and manufacturing with manufacturing using a majority of the space. The following table provides information regarding the Company’s principal facilities: Total Approximate Type of Facilities Square Feet Segment Location Manufacturing Warehouse R&E Office Owned Leased United States United States 2 2 1 3 704,900 Americas Brazil 1 1 1 1 167,600 Argentina 1 1 1 26,400 Canada 2 2 1 2 124,400 Mexico 1 1 2 113,000 1,100 Asia-Pac Australia 1 1 1 4 122,900 79,200 China 1 1 1 1 132,100 Indonesia 2 1 2 197,900 Malaysia 1 1 18,600 Thailand 1 3 1 80,000 49,500 New Zealand 1 2 1 2 34,200 6,200 EMEA Great Britain 1 1 1 1 90,400 Austria 1 1 14,100 Czech Republic 2 1 1 1 66,700 South Africa 1 1 1 1 68,800 Spain 1 1 1 1 63,300 10,800 Poland 1 1 1 1 175,000