What changed in this filing

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Item 1A. Risk Factors

2022-05-11 compared with 2021-11-02 · 157 added, 137 removed, 399 unchanged (42% of the section changed)

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Risks Related to our Business

We serve customers and have manufacturing facilities throughout the world and are subject to global pandemic and other similar risks, including without limitation, COVID-19, which could materially adversely affect our business, financial condition, and results of operations.

Global pandemics or other disasters or public health concerns in regions of the world where we have operations or source material or sell products could result in the disruption of our business.

Specifically, these pandemics, disasters and health concerns can result in increased travel restrictions and extended shutdowns of certain businesses in the region, as well as social, economic, or labor instability.

We serve customers and have manufacturing facilities throughout the world and are subject to risks caused by local and global pandemics and other similar risks, including without limitation, the COVID-19 pandemic, which could materially adversely affect our business, financial condition, and results of operations.

Local and global pandemics or other disasters or public health concerns in regions of the world where we have operations or source material or sell products could result in the disruption of our business.

Specifically, these pandemics, disasters and health concerns can result in increased travel restrictions and extended shutdowns of certain businesses in the regions in which we operate, as well as social, economic, or labor instability.

Disruptions in our product shipments or impacts on our manufacturing in affected regions over a prolonged period could have a material adverse impact on our business and our financial results.

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President announced a National Emergency relating to the disease.

Widespread infection in the United States and abroad has the potential for catastrophic impact.

National, state and local authorities have recommended social distancing and at times have imposed quarantine and isolation measures on large portions of the population, including mandatory business closures.

These measures, while intended to protect human life, had, and in the future may have, serious adverse impacts on domestic and foreign economies of uncertain severity and duration.

The effectiveness of economic stabilization e fforts, including on-going and further potential government payments and benefits to affected citizens and industries, is uncertain.

Even as efforts to contain the pandemic, including vaccinations, have made progress and some restrictions have been relaxed, new variants of the virus are causing additional outbreaks.

The Delta variant of COVID-19 has caused a surge in COVID-19 cases globally.

The impact of the Delta variant, or other variants that may emerge, cannot be predicted at this time, and could depend on numerous factors, including the availability of vaccines in different parts of the world, vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant and other variants, and the response by governmental bodies to reinstate restrictive measures.

In particular, our business may be negatively impacted by the fear of exposure to or actual effects of COVID-19 and other disease outbreaks, epidemics, pandemics and similar widespread public health concerns.

Federal, state, and local government responses to COVID-19 and our responses to the outbreak have all, at times, disrupted and will likely continue to disrupt our business.

In the United States, individuals at times and in certain locations are being required to practice social distancing, in many places have been restricted from gathering in large groups, and in some cases have been placed on complete restriction from non-essential movements outside of their homes.

Even as efforts to contain the pandemic have made progress and many restrictions have relaxed, new variants of the virus have arisen globally.

At times, variants of COVID-19 have caused a surge in COVID-19 cases, both regionally, such as the recent outbreak in Mainland China that forced temporary lockdown orders in several cities in which we operate, and globally.

The ultimate impact of new variants, such as the Delta variant and Omicron variant, or other variants that may emerge, cannot be predicted at this time, and could depend on numerous factors, including the availability of vaccines in different parts of the world, vaccination rates among the population, the effectiveness of COVID-19 vaccines, and the response by governmental bodies to reinstate restrictive measures.

In particular, multiple facets of our business may be negatively impacted by the fear of exposure to or actual effects of COVID-19 and other disease outbreaks, epidemics, pandemics and similar widespread public health concerns.

These impacts include but are not limited to:

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supply chain risks such as disruptions of supply chains, excess demand on suppliers, and scrutiny or embargoing of goods produced in infected areas;

reduced workforces and labor shortages, which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates and incentives;

reduced workforces and labor shortages at all levels of our organization, which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates and incentives;

temporary business closures due to reduced workforces or government mandates;

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Any of the foregoing factors, or other cascading effects that are not currently foreseeable, could materially increase our costs, negatively impact our sales, or damage the Company’s financial condition, results of operations, cash flows and its liquidity position, possibly to a significant degree.

The duration of any such impacts cannot be predicted because of the sweeping, on-going and uncertain nature of the circumstances involving the COVID-19 pandemic.

We serve customers and have manufacturing facilities outside the United States and are subject to the risks characteristic of international operations, including recently imposed tariffs.

The duration of any such impacts cannot be predicted because of the sweeping, ongoing and uncertain nature of the circumstances involving the COVID-19 pandemic.

We have pursued and intend to continue to pursue potential divestitures of assets and acquisitions of other businesses and may encounter risks associated with these activities, which could harm our business and operating results.

If we are unable to manage our growth effectively, our business, financial condition, and results of operations could be materially adversely affected.

As part of our business strategy, we expect that we will continue to implement and align our strategy by pursuing potential divestitures of assets and acquisitions of businesses, technologies, assets, or product lines that complement or expand our business, such as our recently announced proposed acquisition of Telephonics Corporation and ISC Farmingdale Corp.

Risks related to such activities and transactions may include:

the potential inability to successfully integrate acquired operations and businesses or to realize anticipated synergies, economies of scale, or other expected value;

diversion of management’s attention from normal daily operations of our existing business to focus on integration of the newly acquired business;

unforeseen expenses associated with the integration of the newly acquired business or assets;

difficulties in managing production and coordinating operations at new sites;

the potential loss of key employees of acquired or divested operations;

the potential inability to retain existing customers of acquired companies when we desire to do so;

insufficient revenues to offset increased expenses associated with acquisitions;

the potential decrease in overall gross margins associated with acquiring a business with a different product mix;

the inability to identify certain unrecorded liabilities;

the inability to consummate a potential divestiture due to regulatory constraints or other closing conditions;

the separation of business infrastructure involved in a potential divestiture may create disruption in our business;

the tax burden related to the divestiture may be larger than expected;

the potential divestiture of assets or product lines could create dis-synergies and change our profitability;

the potential need to restructure, modify, or terminate customer relationships of the acquired or divested assets or company;

an increased concentration of business from existing or new customers;

the potential inability to identify assets best suited to our business plan.

Acquisitions may cause us to:

enter lines of business and/or markets in which we have limited or no prior experience;

issue debt and be required to abide by stringent loan covenants;

assume liabilities;

record goodwill and intangible assets that will be subject to impairment testing and potential periodic impairment charges;

become subject to litigation and environmental issues, which include product material content certifications related to conflict minerals;

incur unanticipated costs;

incur large and immediate write-offs;

incur substantial transaction-related costs, whether or not a proposed acquisition is consummated.

Acquisitions of high technology companies and assets are inherently risky, and no assurance can be given that our prior or future acquisitions will be successful.

Failure to manage and successfully integrate acquisitions we make could have a material adverse effect on our business, financial condition, and results of operations.

Even when an acquired company has already developed and marketed products, product enhancements may not be made in a timely fashion.

In addition, unforeseen issues might arise with respect to such products after any such acquisition.

As we continue to experience growth in the scope and complexity of our operations, we may be required to implement additional operating and financial controls and hire and train additional personnel.

There can be no assurance that we will be able to do so in the future, and failure to do so could jeopardize our expansion plans and seriously harm our operations.

In addition, growth in our capacity could result in reduced capacity utilization and a corresponding decrease in gross margins.

Uncertainty and adverse changes in the global economy and financial markets, including the conflict between Russia and Ukraine, could have an adverse impact on our business and operating results.

Uncertainty or adverse changes in the economy could lead to a significant decline in demand for the end products manufactured by our customers, which, in turn, could result in a decline in the demand for our products and increase pressure to reduce our prices.

Any decrease in demand for our products could have an adverse impact on our financial condition, operating results and cash flows.

Uncertainty and adverse changes in the economy could also increase the cost and decrease the availability of potential sources of financing and increase our exposure to losses from bad debts, either of which could have a material adverse effect on our financial condition, operating results and cash flows.

In February 2022, Russia commenced military hostilities against Ukraine, which has created extreme volatility in the global economy and markets and is expected to create geopolitical instability and have further global economic consequences, including disruptions of the global supply chain and energy markets.

The effects of the conflict could also include significant volatility in credit and capital markets, changes in laws and regulations affecting our business, sanctions or counter-sanctions which may be enacted and increased cybersecurity threats and concerns.

As a result, there is a risk that supplies of our products may be significantly delayed by or may become unavailable as a result of the conflict between Russia and Ukraine affecting us or our suppliers.

The conflict may also reduce demand for our products because of reduced global or national economic activity, disruptions and extreme volatility in global financial markets, increased rates of default and bankruptcy, and reduced levels of business and consumer spending.

The effects of the conflict between Russia and Ukraine could heighten or exacerbate many of the risk factors described in this Item 1A, Risk Factors , and may adversely affect our business, financial condition and results of operation.

We have manufacturing facilities and serve customers outside the United States and are subject to the risks characteristic of international operations, including tariffs.

We have significant manufacturing operations in Asia and Canada and sales offices located in Asia and Europe.

We continue to consider additional opportunities to make foreign investments and construct new foreign facilities.

For the quarter ended September 27, 2021, we generated approximately 58% of our net sales from non-U.S.

In addition, for the quarter ended April 4, 2022, we generated approximately 58% of our net sales from non-U.S.

operations, and a significant portion of our manufacturing material was provided by international suppliers during this period.

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government or political unrest;

conflict or war between nations over territory that impacts the electronics supply chain leading to potential trade restrictions to and from the nations involved, including Russia, Ukraine and China;

longer payment cycles;

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government imposed sanction laws and regulations.

Further, the conflict between Russia and Ukraine described in the previous risk factors, and the effects thereof, may adversely affect our manufacturing facilities and our customers.

Rising labor costs and labor shortages, including due to pandemics and other disasters, employee strikes and other labor-related disruptions may materially adversely affect our business, financial condition, and results of operations.

Our business is labor intensive, utilizing large numbers of engineering and manufacturing personnel.

There is uncertainty with respect to rising labor costs.

Furthermore, labor disputes and strikes based partly on wages have in the past slowed or stopped production by certain manufacturers in China.

In some cases, employers have responded by significantly increasing the wages of workers at such plants.

Any increase in labor costs due to minimum wage laws or customer requirements about scheduling and overtime that we are unable to recover in our pricing to our customers could materially adversely affect our business, financial condition, and results of operations.

In addition, general labor shortages (such as occurred during 2021), a high turnover rate and our difficulty in recruiting and retaining qualified employees at any level of our organization could result in a potential for defects in our products, production disruptions or delays, or the inability to ramp production to meet increased customer orders, resulting in order cancellation or imposition of customer penalties if we are unable to deliver products in a timely manner.

To respond to competitive pressures and customer requirements, we may further expand internationally in lower-cost locations.

If we pursue such expansions, we may be required to make additional capital expenditures.

For instance, we recently announced our plans to construct a new plant in Penang, Malaysia, which we project will require approximately $130.0 million in capital expenditures over a three-year period.

In addition, the cost structure in certain countries that are now considered to be favorable may increase as economies develop or as such countries join multinational economic communities or organizations, causing local wages to rise.

As a result, we may need to continue to seek new locations with lower costs and the employee and infrastructure base to support PCB manufacturing.

We cannot assure investors that we will realize the anticipated strategic benefits of our international operations, including our new plant, or that our international operations will contribute positively to our operating results.

In North America, we are experiencing wage inflation pressures, some of which are mandated by local and state governments.

Further, we are experiencing rising health care costs.

While we strive to manage these challenges, there can be no assurance that our efforts will succeed which would result in higher costs and lower profits.

The competition for talent and labor in general is currently extremely high.

In this competitive environment, our business could be adversely impacted by increases in labor costs, which could include increases in wages and benefits necessary to attract and retain high quality employees with the right skill sets, increases triggered by regulatory actions regarding wages, scheduling, and benefits;

increases in health care and workers’ compensation insurance costs;

and increases in benefits and costs related to the COVID-19 pandemic and its resurgence from time to time.

In light of the current challenging labor market conditions, due in part to the COVID-19 pandemic, our wages and benefits programs and any steps we take to increase our wages and benefits, may be insufficient to attract and retain talent at all levels of our organization.

Existing labor shortages, and our inability to attract employees to maintain a qualified workforce, could adversely affect our production and our overall business and financial performance.

Strikes or labor disputes with our unionized employees, primarily in China, may adversely affect our ability to conduct our business.

If we are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective bargaining agreements, we may be subject to work interruptions or stoppages.

Any of these events could be disruptive

to our operations and could result in negative publicity, loss of contracts, and a decrease in revenues.

We may also become subject to additional collective bargaining agreements in the future if more employees or segments of our workforce become unionized, including any of our employees in the United States .

We may be unable to hire and retain sufficient qualified personnel at all levels of our organization, and the loss of any of our key executive officers, or the inability to maintain a sufficient workforce to satisfy production demands, could materially adversely affect our business, financial condition, and results of operations.

We believe that our future success will depend in large part on our ability to attract and retain highly skilled, knowledgeable, sophisticated, and qualified managerial and professional personnel.

Furthermore, we have limited patent or trade secret protection for our manufacturing processes and rely on the collective experience of our employees involved in our manufacturing processes to ensure that we continuously evaluate and adopt new technologies in our industry.

We may not be able to retain our executive officers and key personnel or attract additional qualified management in the future.

We can make no assurances that future changes in executive management will not have a material adverse effect on our business, financial condition, or results of operations.

Our business also depends on our continuing ability to recruit, train, and retain highly qualified employees, particularly engineering and sales and marketing personnel.

The competition for these employees is intense, and the loss of these employees could harm our business.

In addition, our industry experienced in 2021, and continues to experience, a shortage of workers.

Although we believe this shortage is due, in part, to the COVID-19 pandemic, the shortage may be systemic and may continue after the pandemic ends.

We rely on maintaining a sufficient workforce at all levels of our organization to design, manufacture and distribute our products.

If the labor markets remain tight and we are unable to adequately staff our facilities due to a shortage of qualified workers, our operations and financial performance would likely be adversely affected.

We rely on suppliers and equipment manufacturers for the timely delivery of raw materials, components, equipment, and spare parts used in manufacturing our PCBs.

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In the case of backplane assemblies, components include connectors, sheet metal, capacitors, resistors and diodes, many of which are custom made and controlled by our customers’ approved vendors.

Our success is due in part to our ability to deliver products timely to our customers, which requires successful planning and logistics infrastructure, including, ordering, transportation and receipt processing, and the ability of suppliers to meet our materials requirements.

Consolidations and restructuring in our supplier base and equipment fabricators related to our raw materials purchases or the manufacturing equipment we use to fabricate our products may result in adverse changes in pricing of materials due to reduction in competition among our raw material suppliers or an elimination or shortage of equipment and spare parts from our manufacturing equipment supply base.

Suppliers and equipment manufacturers may be impacted by other events outside our control including macro-economic events, financial instability, environmental occurrences, or supplier interruptions due to fire, natural catastrophes, public health crises (including, but not limited to, the COVID-19 pandemic) or otherwise.

Suppliers and equipment manufacturers may extend lead times, limit supplies, or increase prices due to capacity constraints or other factors, which could harm our ability to deliver our products on a timely basis and negatively impact our financial results.

In addition, in extreme circumstances, the suppliers we purchase from could cease production due to a fire, natural disaster, consolidation or liquidation of their businesses.

As such, this may impact our ability to deliver our products on a timely basis, harm our customer relationships and negatively impact our financial results.

Several of these factors, including the ongoing COVID-19 pandemic, have contributed to supply chain constraints we have experienced during 2021 and into 2022.

As a result, suppliers and equipment manufacturers have extended lead times, limited supplies, and/or increased prices due to capacity constraints and other factors.

These have impacted our ability to deliver our products on a timely basis, our inventory levels and cash flow, and could negatively impact our financial results.

The severity of the constraints in the supply chain is continuously changing, which creates substantial uncertainties in our business.

In addition, in extreme circumstances, the suppliers we purchase from could cease production altogether due to a fire, natural disaster, consolidation or liquidation of their businesses.

The supply chain constraints and other factors discussed above may continue to impact our ability to deliver our products on a timely basis, harm our customer relationships and negatively impact our financial results.

In particular, the current macroeconomic trends towards increasing inflation could increase the cost of our raw materials and components.

If raw material and component prices increase or if there is inflationary pressure on the cost of the metals that we use to produce our product, especially if the prices of copper, gold, palladium and other precious metals we use to manufacture our products increase, it may reduce our gross margins.

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Significant inflation or disproportionate changes in foreign exchange rates could occur as a result of general economic conditions, acts of war or terrorism, changes in governmental monetary or tax policy, or changes in local interest rates Further, China’s government imposes controls over the convertibility of RMB into foreign currencies, which subjects us to further currency exchange risk.

Rising labor costs, including due to employee strikes and other labor-related disruptions may materially adversely affect our business, financial condition, and results of operations.

Our business is labor intensive, utilizing large numbers of engineering and manufacturing personnel.

There is uncertainty with respect to rising labor costs.

Furthermore, labor disputes and strikes based partly on wages have in the past slowed or stopped production by certain manufacturers in China.

In some cases, employers have responded by significantly increasing the wages of workers at such plants.

In addition, the high turnover rate and our difficulty in recruiting and retaining qualified employees could result in a potential for defects in our products, production disruptions or delays, or the inability to ramp production to meet increased customer orders, resulting in order cancellation or imposition of customer penalties if we are unable to deliver products in a timely manner.

To respond to competitive pressures and customer requirements, we may further expand internationally in lower-cost locations.

If we pursue such expansions, we may be required to make additional capital expenditures.

As a result, we may need to continue to seek new locations with lower costs and the employee and infrastructure base to support PCB manufacturing.

We cannot assure investors that we will realize

the anticipated strategic benefits of our international operations or that our international operations will contribute positively to our operating results .

In North America, we are experiencing wage inflation pressures, some of which are mandated by local and state governments.

Further, we are experiencing rising health care costs.

While we strive to manage these challenges, there can be no assurance that our efforts will succeed which would result in higher costs and lower profits.

The competition for talent is currently extremely high.

In this competitive environment, our business could be adversely impacted by increases in labor costs, including wages and benefits, including those increases triggered by regulatory actions regarding wages, scheduling and benefits;

increased health care and workers’ compensation insurance costs;

increased wages and costs of other benefits necessary to attract and retain high quality employees with the right skill sets and increased wages, and benefits and costs related to the COVID-19 pandemic and its resurgence.

In addition, our wages and benefits programs, combined with the challenging conditions due to the COVID-19 pandemic, may be insufficient to attract and retain talent.

Strikes or labor disputes with our unionized employees, primarily in China, may adversely affect our ability to conduct our business.

Any of these events could be disruptive to our operations and could result in negative publicity, loss of contracts, and a decrease in revenues.

If we are unable to manage our growth effectively, our business, financial condition, and results of operations could be materially adversely affected.

As part of our business strategy, we expect that we will continue to align our strategy by pursuing potential divestitures of assets and acquisitions of businesses, technologies, assets, or product lines that complement or expand our business.

Risks related to such activities may include: