What changed in this filing

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Item 1A. Risk Factors

2022-08-10 compared with 2022-05-11 · 43 added, 42 removed, 514 unchanged (14% of the section changed)

16 unchanged sentences

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.

The ultimate impact of new variants that have emerged from time to time, 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.

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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.

(Gritel) and ISC Farmingdale Corp.

in June 2022.

Risks related to such activities and transactions may include:

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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.

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

Uncertainty, volatility 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.

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

The effects of the conflict have contributed to significant volatility in credit and capital markets, changes in laws and regulations that may affect our business, sanctions or counter-sanctions 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.

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

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

In addition, for the quarter ended July 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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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.

In addition, general labor shortages (such as occurred during 2021 and that have continued in 2022), 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.

For instance, in March 2022 we 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.

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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.

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.

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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.

Should the supply of materials used in the above manufacturing processes become limited, our ability to obtain the quantities necessary to meet our customers’ demand may be impacted which could cause us to encounter reduced revenue levels or price increases which would impact our profit margins.

to encounter reduced revenue levels or price increases which would impact our profit margins.

If either of these situations occurs, our financial condition and results of operations could be negatively impacted .

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If our goodwill or other intangible assets become impaired in the future, we would be required to record a non-cash charge to earnings, which may be material and would also reduce our stockholders’ equity.

As of April 4, 2022, our consolidated condensed balance sheet included $867.6 million of goodwill and definite-lived intangible assets.

As of July 4, 2022, our consolidated condensed balance sheet included $1,026.9 million of goodwill and definite-lived intangible assets.

We periodically evaluate whether events and circumstances have occurred, such that the potential for reduced expectations for future cash flows coupled with further decline in the market price of our stock and market capitalization may indicate that the remaining balance of goodwill and definite-lived intangible assets may not be recoverable.

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The prominence of EMS companies as our customers could reduce our gross margins, potential sales, and customers.

Sales to EMS companies represented approximately 40% and 35% of our net sales for the quarters ended April 4, 2022 and March 29, 2021, respectively.

Sales to EMS companies represented approximately 34% and 36% of our net sales for the quarters ended July 4, 2022 and June 28, 2021, respectively.

Sales to EMS providers include sales directed by OEMs as well as orders placed with us at the EMS providers’ discretion.

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A small number of customers are responsible for a significant portion of our sales.

Our five largest OEM customers collectively accounted for approximately 33% and 32% of our net sales for the quarters ended April 4, 2022 and March 29, 2021, respectively.

Our five largest OEM customers collectively accounted for approximately 30% and 29% of our net sales for the quarters ended July 4, 2022 and June 28, 2021, respectively.

Furthermore, our business has benefited from OEMs deciding to outsource their PCB manufacturing and backplane assembly needs to us, and our future revenue growth partially depends on new outsourcing opportunities from OEMs.

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In addition, during industry downturns, we may need to reduce prices to limit the level of order losses, and we may be unable to collect payments from our customers.

There can be no assurance that key customers would not cancel orders, that they would continue to place orders with us in the future at the same levels as experienced by us in prior periods, that they would be able to meet their payment obligations, or that the end-products that use our products would be successful.

This concentration of customer base may materially adversely affect our business, financial condition, and results of operations due to the loss or cancellation of business

from any of these key customers, significant changes in scheduled deliveries to any of these customers or decreases in the prices of the products sold to any of these customers .

their payment obligations, or that the end-products that use our products would be successful.

This concentration of customer base may materially adversely affect our business, financial condition, and results of operations due to the loss or cancellation of business from any of these key customers, significant changes in scheduled deliveries to any of these customers or decreases in the prices of the products sold to any of these customers .

We depend on the U.S.

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The contracts between our direct customers and the government end user are subject to political and budgetary constraints and processes, changes in short-range and long-range strategic plans, the timing of contract awards, the congressional budget authorization and appropriation processes, the government’s ability to terminate contracts for convenience or for default, as well as other risks, such as contractor suspension or debarment in the event of certain violations of legal and regulatory requirements.

For the quarter ended April 4, 2022, aerospace and defense sales accounted for approximately 30% of our total net sales.

For the quarter ended July 4, 2022, aerospace and defense sales accounted for approximately 30% of our total net sales.

The substantial majority of aerospace and defense sales are related to both U.S.

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Additionally, our OEM customers often direct a significant portion of their purchases through a relatively limited number of EMS companies.

Sales to EMS companies represented approximately 40% and 35% of our net sales for the quarters ended April 4, 2022 and March 29, 2021, respectively.

Sales to EMS companies represented approximately 34% and 36% of our net sales for the quarters ended July 4, 2022 and June 28, 2021, respectively.

Our contractual relationship is often with the EMS companies, who are obligated to pay us for our products.

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We manufacture products to our customers’ specifications, which are highly complex and may contain design or manufacturing errors or failures, despite our quality control and quality assurance efforts.

Defects in the products we manufacture, whether caused by a design, manufacturing, or materials failure or error, may result in delayed shipments, customer dissatisfaction, a reduction or cancellation of purchase orders, or liability claims against us.

Defects in the products we manufacture, whether caused by a design, manufacturing, or materials failure or error, may result in delayed shipments, customer dissatisfaction, a

reduction or cancellation of purchase orders, or liability claims against us.

If these defects occur either in large quantities or too frequently, our business reputation may be impaired , and our customers may decrease the orders for products or services that they purchase from us, thereby decreasing our overall revenue .

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In addition, we manufacture products for a range of automotive customers.

If any of our products

are or are alleged to be defective, we may be required to participate in a recall of such products.

If any of our products are or are alleged to be defective, we may be required to participate in a recall of such products.

As suppliers become more integral to the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contributions when faced with product liability claims or recalls.

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This time frame could be lengthy and result in significant expenses for repair and related costs.

While we have disaster

recovery plans in place, there can be no assurance that such plans will be sufficient to allow our operations to continue in the event of every natural or man-made disaster, required repair or other extraordinary event.

While we have disaster recovery plans in place, there can be no assurance that such plans will be sufficient to allow our operations to continue in the event of every natural or man-made disaster, required repair or other extraordinary event.

Any extended inability to continue our operations at unaffected facilities following such an event would reduce our revenue and potentially damage our reputation as a reliable supplier.

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Subject to the limits contained in the credit agreements governing the Term Loan Facility, the U.S.

Asset-Based Lending Credit Agreement (U.S.

ABL), the Asia ABL, the indenture governing the Senior Notes due 2029, and our other debt instruments, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments, or acquisitions, or for other purposes.

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limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or the general economy;

increase our vulnerability to general adverse economic and industry conditions, including movements in interest rates, which could result in increased borrowing costs;

increase our vulnerability to general adverse economic and industry conditions, including increases in interest rates, that result in increased borrowing costs;

limit management’s discretion in operating our business;

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Certain central banks, such as the U.S.

Federal Reserve, have effected interest rate increases in 2022 and signaled that further rate increases are likely to be implemented later in 2022.

Increases in interest rates would increase our cost of borrowing and/or potentially make it more difficult to refinance our existing indebtedness, if necessary.

Federal Reserve, have effected multiple interest rate increases in 2022 and have signaled that further rate increases are likely to be implemented later in 2022.

Increases in interest rates increase our cost of borrowing and/or potentially make it more difficult to refinance our existing indebtedness, if necessary.

At times, we have sought to reduce our exposure to interest rate fluctuations by entering into interest rate hedging arrangements.

Although we are currently in a four-year pay-fixed, receive floating (1-month LIBOR) interest rate swap arrangement, that arrangement is scheduled to end on June 1, 2022, and we do not currently

expect to enter into a new interest rate swap arrangement.

Our four-year pay-fixed, receive floating (1-month LIBOR) interest rate swap arrangement ended on June 1, 2022, and we do not currently expect to enter into a new interest rate swap arrangement.

As a result, as interest rates increase we will likely need to dedicate more of our cash flow from operations to service our debt obligations.

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Regulatory Risks

Because of power shortages in China, we may have to temporarily close our China operations, which would adversely impact our ability to manufacture our products, meet customer orders, and result in reduced revenues.

China is currently facing a growing power supply shortage.

Because of periodic power shortages in China, we may have to temporarily close our China operations, which would adversely impact our ability to manufacture our products, meet customer orders, and result in reduced revenues.

China is facing a generally persistent and growing power supply shortage.

Instability in electrical supply can cause sporadic outages among residential and commercial consumers.

As a result, the Chinese government is implementing power restrictions to ease the energy shortage.

As a result, the Chinese government from time to time has implemented

power restrictions to ease the energy shortage.

If we are required to make temporary closures of our facilities in China at any time, we may be unable to manufacture our products, and would then be unable to meet customer orders except from inventory on hand.

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government industrial security regulations.

Further, due to the fact that a portion of our

voting equity is owned by a non-U.S.

Further, due to the fact that a portion of our voting equity is owned by a non-U.S.

entity, we are required to be governed by and operate in accordance with the terms and requirements of a Special Security Agreement (SSA).

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Similar laws have been adopted in other jurisdictions and may become increasingly prevalent.

In addition, we must also certify as to the non-

applicability of the EU’s Waste Electrical and Electronic Equipment directive for certain products that we manufacture.

In addition, we must also certify as to the non-applicability of the EU’s Waste Electrical and Electronic Equipment directive for certain products that we manufacture.

The REACH directive requires the identification of Substances of Very High Concern, or SVHCs periodically.

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Department of Commerce.

We must comply with all applicable economic sanction laws and regulations of the United States and other countries.

We must comply with all applicable economic sanction laws and regulations of the United States

and other countries.

Imposition of economic sanction laws and regulations on a company or country could impact our revenue levels.

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There can be no assurances that we will be in compliance in the future.

Any such violation could result in significant criminal or civil

fines, penalties, or other sanctions and repercussions, including reputational harm, which could have a material adverse effect on our business, financial condition, and results of operations .

Any such violation could result in significant criminal or civil fines, penalties, or other sanctions and repercussions, including reputational harm, which could have a material adverse effect on our business, financial condition, and results of operations.

We may need additional capital in the future to fund investments in our operations, refinance our indebtedness, and to maintain and grow our business, and such capital may not be available on a timely basis, on acceptable terms, or at all.

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Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be vulnerable to computer viruses, break-ins, cyber-attacks, attacks by hackers or breaches due to employee or third party (including suppliers and business partners) error, malfeasance, or other disruptions.

If we or our vendors are unable to prevent such outages and breaches, our operations could be disrupted.

If unauthorized parties gain access to our information systems or such information is used in an unauthorized manner, misdirected, altered, lost, or stolen during transmission, any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers that we have not performed our contractual obligations, loss of customers, litigation by affected parties, and possible financial obligations for damages related to the theft or misuse of such information, any of which could have a material adverse effect on our business, financial condition, and results of operations.

If we or our vendors are unable to prevent such outages and breaches, our operations could

be disrupted.

Issues arising during the upgrade of our enterprise resource planning system could affect our operating results and ability to manage our business effectively.

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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-Q

Item 1A. Risk Factors