What changed in this filing

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Item 1A. Risk Factors

2022-03-11 compared with 2021-03-05 · 34 added, 38 removed, 160 unchanged (31% of the section changed)

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The COVID-19 outbreak has adversely affected and could in the future continue to adversely affect our business.

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, supply chains and distribution systems, and we have experienced and expect to continue to experience varying levels of reductions in demand for our products and services, particularly in the aviation aftermarket.

The global aviation market is experiencing a significant decline, specifically in global commercial air travel, which is having a significant impact on the parts distribution and maintenance, repair and overhaul services markets supporting general aviation and commercial aircraft.

Our Aviation segment experienced the most impactful reduction in demand for our products and services during fiscal 2020 compared to fiscal 2019, as a decline in commercial aircraft revenue passenger miles contributed to a reduction in demand for aftermarket parts and MRO services.

We expect this reduction in demand to continue throughout the first half of 2021.

This decrease in demand will adversely impact our operating results for 2021.

The ongoing COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, supply chains and distribution systems, and we have experienced and expect to continue to experience varying levels of reductions in demand for our products and services, particularly in the aviation aftermarket as compared to pre-pandemic levels.

The global aviation market experienced a significant decline, specifically in global commercial air travel, which had a significant impact on the parts distribution and maintenance, repair and overhaul services markets supporting general aviation and commercial aircraft.

Our Aviation segment experienced the most impactful reduction in demand for our products and services during fiscal 2021 and fiscal 2020 compared to fiscal 2019, as a decline in commercial aircraft revenue passenger miles contributed to a reduction in demand for aftermarket parts and MRO services.

This reduction in demand moderated to some extent but otherwise continued throughout 2021 and may continue into 2022, subject to the duration and severity of the pandemic.

This decrease in demand may continue to adversely impact our operating results for 2022.

We cannot estimate with certainty the severity of this impact, but we expect it to be consistent with overall aviation industry trends.

We operate numerous “touch labor” warehouse and maintenance facilities supporting each of our three business segments both in our own facilities and customer facilities.

A local outbreak of the virus in any of these facilities could temporarily shut down operations at those facilities until they have been thoroughly cleaned.

Employees who become exposed to the virus would need to be quarantined and would be unable to work for 14 days or longer.

Similarly, customers who have warehouse or maintenance facilities could be impacted, slowing or reducing demand for our parts distribution services.

Due to the impact of COVID-19 and decisions by our customers to delay the use of, or permanently retire, certain aircraft, demand levels for aviation disruption inventory could decrease in the near term or midterm, which could result in a write-down of existing inventory to adjust to current market trends and adversely affect our results of operations.

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Such continued delays could further negatively impact our business, results of operations and financial condition.

The impact of the COVID-19 pandemic continues to evolve, and while we expect it to continue to have an adverse effect on our business, financial condition, liquidity, cash flow and results of operations, we are unable to predict the extent, nature or duration of these impacts at this time, although we expect such negative impacts to continue in the first half of 2021.

We are unable to predict the extent, nature or duration of these impacts at this time.

Supply chain delays, disruptions, and potential geopolitical uncertainty could adversely affect our business operations and expenses

Due to the ongoing pandemic, supply chain disruptions, and geopolitical uncertainty our business could be adversely impacted by delays or the inability to source products and services for our customers.

If our suppliers experience increased disruptions to their operations as a result of these dynamics, they may be unable to fill our supply needs in a timely, compliant and cost-effective manner.

We have incurred and may in the future incur additional costs and delays in our business, including higher prices, schedule delays or the costs associated with identifying alternative suppliers.

In instances where we may not be able to mitigate these consequences, our ability to perform on our contracts may be impacted, which could result in reduced revenues and profits.

We continue to monitor these dynamics and assess potential implications to our business, supply chain and customers, and take certain actions in an effort to mitigate potential adverse impacts.

Given the uncertainties, we are unable to predict the extent, nature or duration of these impacts at this time.

Certain programs comprise a material portion of our revenue.

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The timing of both the roll out of a new fleet and the retirement of the current vehicles and their decision on how many of such vehicles will remain in the fleet could potentially have a significant impact on our future revenues and profits.

Acquisitions, which have been a part of our business strategy in recent years, present certain risks.

Acquisitions, which are a part of our business strategy, present certain risks.

A key element of our business strategy is growth through the acquisition of additional companies.

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Changes in future business conditions could cause business investments, recorded goodwill, and/or purchased intangible assets to become impaired, resulting in substantial losses and write-downs that would reduce our operating income.

As part of our business strategy, we acquire non-controlling and controlling interests in businesses.

We make acquisitions and investments following careful analysis and due diligence processes designed to achieve a desired return or strategic objective.

As part of our business strategy, we make acquisitions and investments following careful analysis and due diligence processes designed to achieve a desired return or strategic objective.

Business acquisitions involve estimates, assumptions, and judgments to determine acquisition prices, which are allocated among acquired assets, including goodwill, based upon fair market values.

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In addition, declines in the trading price of our common stock or the market as a whole can result in goodwill and/or purchased intangible asset impairment charges associated with our existing businesses.

As of December 31, 2020, goodwill and purchased intangible assets generated from prior business acquisitions accounted for approximately 31% and 13%, respectively, of our total assets.

We evaluate goodwill values for impairment annually in the fourth quarter or when evidence of potential impairment exists.

We also evaluate the values of purchased intangible assets when evidence of potential impairment exists.

As of December 31, 2021, goodwill and intangible assets, net of amortization, accounted for 27% and 12%, respectively, of our total assets.

We test our goodwill for impairment annually in the fourth quarter or when evidence of potential impairment exists.

We test acquired intangible assets for impairment whenever events or changes in circumstances indicate their carrying value may be impaired.

The impairment tests are based on several factors requiring judgments.

As a general matter, a significant decrease in expected cash flows or changes in market conditions may indicate potential impairment of recorded goodwill or purchased intangible assets.

As a general matter, a significant decrease in expected cash flows or changes in market conditions may indicate potential impairment of recorded goodwill or intangible assets.

Adverse equity market conditions that result in a decline in market multiples and the trading price of our common stock, or other events, such as reductions in future contract awards or significant adverse changes in our operating margins or the operating results of acquired businesses that vary significantly from projected results on which purchase prices are based, could result in an impairment of goodwill or other intangible assets.

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Unsuccessful bidders frequently protest contract awards, which can delay or reverse the contract awards.

Additionally, the government has frequently used contract award criteria that emphasizes lowest price, technically acceptable bids, which further intensifies competition in our government markets.

Additionally, the government has

frequently used contract award criteria that emphasizes lowest price, technically acceptable bids, which further intensifies competition in our government markets.

Our success is highly dependent on the performance of the aviation aftermarket, which could be impacted by lower demand for business aviation and commercial air travel or airline fleet changes causing lower demand for our goods and services.

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These global industry and economic conditions may have a material adverse effect on our business, financial condition and results of operations.

The COVID-19 pandemic has resulted in travel disruption has had an adverse impact on airline spending and demand that has caused a reduction in demand for our aviation products and services for most of 2020.

At this point, the extent or duration of the impact that the COVID-19 pandemic may have on our future results remains uncertain.

At this point, the extent or duration of the impact that the COVID-19 pandemic may have on our future results remains uncertain, and the reduction in demand could extend into 2022.

Global economic conditions and political factors could adversely affect our revenues.

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Economic conditions in both the United States and foreign countries, and global prices and availability of oil and other commodities could potentially have an adverse effect on the demand for some of our services, including our aviation services.

Prolonged periods of inflation where we do not have adequate inflation protections in our customer contracts may adversely affect us by increasing costs beyond what we can recover through price increases.

Recently, inflation has increased throughout the U.S.

Inflation can adversely affect us by increasing the costs of labor, material and other costs.

In addition, inflation is often accompanied by higher interest rates, which could increase the cost of our outstanding debt obligations.

In an inflationary environment, depending on economic conditions, we may be unable to raise prices enough to keep up with the rate of inflation, which would reduce our profit margins.

Although we have minimized the effect of inflation on our business through contractual protections, the presence of longer pricing periods within our contracts increases the likelihood that there will be sustained or higher than anticipated increases in costs of labor or material.

We have experienced, and continue to experience, increases in the prices of labor, materials and other costs of providing service.

Continued inflationary pressures could impact our profitability.

The nature of our operations and work performed by our employees present certain challenges related to work force management.

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If an audit or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with the government.

In addition, we could suffer serious harm to our reputation if

allegations of impropriety were made.

In addition, we could suffer serious harm to our reputation if allegations of impropriety were made.

Performance of international work can expose us to risks associated with the Foreign Corrupt Practices Act and Export Control Act compliance.

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The payment of cash dividends and repurchases of our common stock are subject to limitations under applicable law and our bank loan agreement, and to the discretion of our board of directors, considered in the context of then current conditions, including our earnings, other operating results, and capital requirements.

Declines in asset values or increases in liabilities, including liabilities associated with benefit plans and assets and liabilities associated with taxes, can reduce stockholders’ equity.

Declines in asset values or increases in liabilities,

including liabilities associated with benefit plans and assets and liabilities associated with taxes, can reduce stockholders’ equity.

A deficit in stockholders’ equity could limit our ability under Delaware law to pay dividends.

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• Limiting our ability to borrow additional funds.

In addition, the interest rate on our term loan borrowings and revolving loan borrowings is based on the London Interbank Offered Rate (“LIBOR”).

LIBOR is the subject of recent national, international, and other regulatory guidance and proposals for reform.

In July 2017, the Chief Executive of the U.K.

Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021.

This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021, and it appears likely that LIBOR will be discontinued or modified by 2021.

The consequences of the discontinuance of the LIBOR benchmark cannot be entirely predicted but could result in an increase in the cost of our variable rate indebtedness.

Market volatility and adverse capital market conditions may affect our ability to access cost-effective sources of funding and may expose us to risks associated with the financial viability of suppliers and subcontractors.

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The occurrence of any or all of these events may adversely affect our ability to fund our operations, meet contractual commitments, make future investments or desirable acquisitions, or respond to competitive challenges.

If the disruptions caused by the COVID-19 global pandemic continue to adversely impact our operations and financial performance, we may face further challenges regarding compliance with the financial covenants in our debt facility.

We have a loan agreement with a bank group comprised of ten banks.

Under the terms of our debt facility, we are required to maintain certain financial covenants.

As a result of the COVID-19 global pandemic, our business operations have been and could be further disrupted, which could adversely affect our ability to satisfy our financial covenant requirements.

In June 2020, we amended our loan agreement to provide increased financial covenant flexibility.

We believe the amendment will provide sufficient covenant relief for future near term compliance, however, there can be no assurance that any further future disruption will not adversely impact our business and result in an inability to comply with the financial covenants in our loan agreement.

There can be no assurance that we would be able to obtain future changes in a timely manner, on acceptable terms, or at all.

If we were not able to satisfactorily obtain further changes to the debt facility, we could be in default, which could trigger an acceleration of repayment provisions that we would be unable to meet and would impair our ability to operate our businesses.

If we make changes, it may lead to fees, increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable to us under the debt facility.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors