ALTRA INDUSTRIAL MOTION CORP. Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company's current estimates, expectations and projections about the Company's future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning the Company's possible future results of operations including revenue, costs of goods sold, gross margin, future profitability, future economic improvement, business and growth strategies, financing plans, expected leverage levels, the Company's competitive position and the effects of competition, the projected growth of the industries in which we operate, and the Company's ability to consummate strategic acquisitions and other transactions. In addition, all statements regarding the novel coronavirus, or COVID-19, pandemic and the responses thereto, including the pandemic's impact on general economic and market conditions, as well as on our business, customers, end markets, results of operations and financial condition, as well as other statements that are not strictly historic in nature are forward looking. Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "plan," "may," "should," "will," "would," "project," "forecast," and similar expressions or variations. These forward-looking statements are based upon information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could cause the Company's actual results, performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause the Company's actual results to differ materially from the results referred to in the forward-looking statements the Company makes in this report include the risks associated with:
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the effects of intense competition in the markets in which we operate; • the cyclical nature of the markets in which we operate; • the Company's ability to invest in new technologies and manufacturing techniques and to develop or adapt to changing technology and manufacturing techniques; • political and economic conditions globally, nationally, regionally, and in the markets in which we operate; • international operations, including currency risks; • the loss of independent distributors on which we rely; • the accuracy of estimated forecasts of OEM customers; • the scope and duration of the COVID-19 global pandemic and its impact on global economic systems, our employees, sites, operations, customers, and supply chain, including the impact of the pandemic on manufacturing and supply capabilities throughout the world; • disruption of our supply chain including the impact of the global semiconductor chip shortage; • the disruption of the Company's production or commercial activities; • natural disasters, war, civil unrest, terrorism, fire, floods, tornadoes, earthquakes, hurricanes, pandemics, including, but not limited to, the COVID-19 pandemic, and the ongoing military action betweenRussia andUkraine , or other matters beyond the Company's control; • fluctuations in the costs of raw materials used in our products; • work stoppages and other labor issues involving the Company's facilities or the Company's customers; • the Company's ability to retain key executives; • the Company's ability to recruit, retain and motivate key sales, marketing or engineering personnel; • the Company's ability to obtain or protect intellectual property rights and avoid infringing on the intellectual property rights of others; • unplanned repairs or equipment outages; • failure of the Company's operating equipment or information technology infrastructure, including cyber-attacks or other security breaches, and failure to comply with data privacy laws or regulations; • the Company's ability to implement and maintain enhancements to its Enterprise Resource Planning (ERP) system; • the Company's exposure to renewable energy markets; • the Company's ability to achieve the efficiencies, savings and other benefits anticipated from our cost reduction, margin improvement, restructuring, plant consolidation and other business optimization initiatives; • the Company's ability to achieve its business plans, including with respect to an uncertain economic environment; • global economic changes and continued volatility and disruption in global financial markets; • adverse conditions in the credit and capital markets limiting or preventing the Company's and its customers' and suppliers' ability to borrow or raise capital; • changes in market conditions that would result in the impairment of goodwill, indefinite lived intangibles or other assets of the Company; • any negative effects of the Company's leverage, which could adversely affect its financial health; • the significant operating and financial restrictions imposed by the Credit Agreement; 30
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the Company's exposure to variable interest rates and foreign currency exchange rates, including risks related to transitioning from LIBOR to a replacement alternative reference rate and risks related to the use of hedging arrangements to manage interest rate and currency risk; • changes in accounting rules and standards, audits, compliance with the Sarbanes-Oxley Act, and regulatory investigations; • changes to trade policies, legislation, treaties, regulations and tariffs both in and outside ofthe United States ; • exposure toUnited Kingdom political developments, including the effect of its withdrawal from theEuropean Union , and the uncertainty surrounding the effect of Brexit and related negative developments in theEuropean Union and elsewhere; • defects, quality issues, inadequate disclosure or misuse with respect to our products and capabilities and related potential product liability claims; • the outcome of litigation to which the Company is a party from time to time; • changes in labor or employment laws; • environmental laws and regulations and the Company's failure to comply with such laws; • tax laws and regulations in various jurisdictions to which the Company is subject and the inability to successfully defend claims from taxing authorities related to the Company's current or acquired businesses; • changes in the Company's tax rates or exposure to additional income tax liabilities or assessments, as well as audits by tax authorities; • changes in volatility of the Company's stock price and the risk of litigation following a decline in the price of the Company's stock; • the Company's ability to successfully execute, manage and integrate key acquisitions and mergers, including the RegalRexnord Merger , the Nook acquisition and the Fortive Transaction; • risks related to the RegalRexnord Merger diverting management's attention away from the Company's ongoing business operations; • the effect of the pendency of the RegalRexnord Merger on the Company's ability to retain and hire key personnel, its ability to maintain relationships with its customers, suppliers and others with whom it does business, its ability to respond effectively to competitive pressures, industry developments and future business opportunities, or its operating results and business generally; • the risks associated with the Company's ability to successfully divest or otherwise dispose of businesses that that are deemed not to fit with our strategic plan or are not achieving the desired return on investment; • the Company's debt and access to capital, credit ratings, indebtedness, and ability to raise additional capital and operate under the terms of the Company's debt obligations; • restrictions relating to the tax free treatment of the Fortive Transaction; and • other factors, risks, and uncertainties referenced in the Company's filings with theSecurities and Exchange Commission , including the "Risk Factors" set forth in this document.
ALL FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS REPORT. EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS REPORT OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR ANY PERSON ACTING ON THE COMPANY'S BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS SECTION AND IN OUR RISK FACTORS SET FORTH IN PART I, ITEM 1A OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND IN OTHER REPORTS FILED WITH THE SEC BY THE COMPANY.
The following discussion of the financial condition and results of operations of
The following generally discusses 2022 and 2021 items and year-to-year
comparison between 2022 and 2021. Discussion of historical items and
year-to-year comparisons between 2021 and 2020 that are not included in this
discussion can be found in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K for the
fiscal year ended
General
We are a leading global designer, producer and marketer of a wide range of electromechanical power transmission motion control ("PTMC") products. Our technologies are used in various motion related applications and across a wide variety of
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high-volume manufacturing and non-manufacturing processes in which reliability and precision are critical to avoid costly down time and enhance the overall efficiency of operations.
We market our products under well recognized and established brands, which have
been in existence for an average of over 90 years. We serve a diversified group
of customers comprised of over 1,000 direct original equipment manufacturers
("OEMs") including
On
The Regal
On
Critical Accounting Policies and Significant Accounting Estimates
The Company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in
Our significant accounting policies are discussed in Note 1 to the financial statements. We believe the following accounting policies and estimates are the most critical in that they are important to the financial statements and they require the most difficult, subjective or complex judgments in the preparation of the financial statements.
Inventory. Inventories are generally stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. The cost of inventory includes direct materials, direct labor, and production overhead. We state inventories acquired through acquisitions at their fair value at the date of acquisition based on the replacement cost of raw materials, the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts, and, for work-in-process, the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts and costs to complete.
We periodically review our quantities of inventories on hand and compare these amounts to the historical and expected usage of each particular product or product line. We record as a charge to cost of sales any amounts required to reduce the carrying value of inventories to net realizable value.
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We record an inventory excess and obsolescence reserve for obsolete, excess and slow-moving inventory. In calculating our inventory excess and obsolescence reserve, we analyze historical and projected data regarding customer demand within specific product categories and make assumptions regarding economic conditions within customer specific industries, as well as product changes. Our accounting estimate related to inventory excess and obsolescence is a critical accounting estimate because our assumptions are based on factors that can be variable and largely beyond our control, and changes in our reserve for inventory excess and obsolescence could materially affect our results of operations.
Business Combinations. Business combinations are accounted for at fair value. Acquisition costs are generally expensed as incurred and recorded in selling, general and administrative expenses. The accounting for business combinations is a critical accounting estimate because it requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets and liabilities acquired. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management's estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.
Accounting standards require that an annual goodwill impairment assessment be conducted at the reporting unit level using either a quantitative or qualitative approach. The Company has determined that its Power Transmission Technologies ("PTT") reporting segment is comprised of three reporting units. The Company has also determined that its A&S Business reporting segment is comprised of three reporting units.
In connection with the Company's annual impairment review, goodwill is assessed
for impairment by comparing the fair value of the reporting unit to the carrying
value. The Company's measurement date is
Management believes the preparation of revenue and profitability growth rates for use in the long-range plan and the discount rate requires significant use of judgment. If any of our reporting units do not meet our forecasted revenue and/or profitability estimates, we could be required to perform an interim goodwill impairment analysis in future periods. In addition, if our discount rate increases, we could be required to perform an interim goodwill impairment analysis.
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For our indefinite lived intangible assets, mainly trademarks, we estimate the fair value by first estimating the total revenue attributable to the trademarks. Second, we estimate an appropriate royalty rate using the return on assets method by estimating the required financial return on our assets, excluding trademarks, less the overall return generated by our total asset base. The return as a percentage of revenue provides an indication of our royalty rate. We compared the estimated fair value of the trademarks with the carrying value of the trademarks and did not identify any impairment as of the annual impairment date or for any of the periods presented.
Long-lived assets, including definite-lived intangible assets are reviewed for impairment when events or circumstances indicate that the carrying amount of a long lived asset may not be recovered. Long-lived assets are considered to be impaired if the carrying amount of the asset exceeds the undiscounted future cash flows expected to be generated by the asset over its remaining useful life. If an asset is considered to be impaired, the impairment is measured by the amount by which the carrying amount of the asset exceeds its fair value, and is charged to results of operations at that time.
Management continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value. While management believes the judgements and assumptions used in the impairment tests are reasonable, management considers it a critical accounting estimate because different assumptions or changes in general industry and economic conditions could change the estimated fair values and, therefore, future impairment charges could be required, which could be material to the financial statements. Refer to Note 7 for additional discussion and results of the Company's annual impairment review.
Recent Accounting Standards
See the discussion of significant accounting policies in Note 1 of the
consolidated financial statements for the year ended
Results of Operations.
Amounts in millions, except percentage data
Years Ended December 31,
2022 2021 2020
Net sales $ 1,945.5 $ 1,899.8 $ 1,726.0
Cost of sales 1,252.6 1,224.4 1,103.6
Gross profit 692.9 675.4 622.4
Gross profit percentage 35.6 % 35.6 % 36.1 %Selling, general and administrative expenses 370.0 368.7 332.2 Impairment charges
13.2 142.4 147.5
Research and development expenses 64.1 63.9 57.8
Restructuring costs 5.2 3.0 7.4
Income from operations 240.4 97.4 77.5
Interest expense, net 51.5 94.5 72.1
Other non-operating (income) expense, net (0.4 ) (4.9 ) 1.4
Income before income taxes 189.3 7.8 4.0
(Benefit)/Provision for income taxes 62.3 (19.9 ) 29.5
Net income/(loss) $ 127.0 $ 27.7 $ (25.5 )
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Segment Performance.
Amounts in millions, except percentage data
Years Ended December 31,
2022 2021 2020
Net Sales :
Power Transmission Technologies $ 985.6 $ 924.8 $ 818.6
Automation & Specialty 965.5 979.0 911.8
Intra-segment eliminations (5.6 ) (4.0 ) (4.4 )
Net sales $ 1,945.5 $ 1,899.8 $ 1,726.0
Income from operations:
Segment earnings:
Power Transmission Technologies $ 136.8 $ 128.6 $ 97.5
Automation & Specialty 136.0 (8.3 ) (10.4 )
Corporate (27.2 ) (19.9 ) (2.2 )
Restructuring and consolidation costs (5.2 ) (3.0 ) (7.4 ) Income from operations
$ 240.4 $ 97.4 $ 77.5
Year Ended
Amounts in millions, except percentage data Years Ended December 31,
2022 2021 Change %
Net sales $ 1,945.5 $ 1,899.8 $ 45.7 2.4 %
Amounts in millions, except percentage data Years Ended December 31,
2022 2021 Change %
Gross profit $ 692.9 $ 675.4 $ 17.5 2.6 %
Gross profit as a percent of net sales 35.6 % 35.6 %
Gross profit. Gross profit as a percentage of net sales during the year ended
Amounts in millions, except percentage
data Years Ended December 31,
2022 2021 Change %
Selling, general and administrative
expense ("SG&A") $ 370.0 $ 368.7 $ 1.3 0.4 %
SG&A as a percent of net sales 19.0 % 19.4 %
Selling, general and administrative expenses. The increase in SG&A during the
year ended
Amounts in millions, except percentage data Years Ended December 31,
2022 2021 Change %
Research and development expenses ("R&D")
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Research and development expenses. The increase in R&D during the year ended
Amounts in millions, except percentage data Years Ended December 31,
2022 2021 Change %
Restructuring costs $ 5.2 $ 3.0 $ 2.2 73.3 %
Restructuring costs. During the quarter ended
During 2019, we commenced a restructuring plan ("2019 Altra Plan") to drive
efficiencies, reduce the number of facilities and optimize our operating margin.
We have incurred and expect to incur expenses related to workforce reductions,
lease termination costs and other facility rationalization costs. We expect to
incur an additional
Amounts in millions, except percentage data Years Ended December 31,
2022 2021 Change %
Interest expense, net $ 51.5 $ 94.5 $ (43.0 ) (45.5 )%
Interest expense. The decrease in interest expense during the year ended
Amounts in millions, except percentage
data Years Ended December 31,
2022 2021 Change %
Provision/(Benefit) for income taxes
income taxes 32.9 % (255.1 )%
Provision/(Benefit) for income taxes. The provision for income tax as a
percentage of income before income taxes increased during the year ended
Segment Performance
Power
Net sales in the Power Transmission Technologies segment were
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Automation & Specialty
Net sales in the Automation & Specialty business segment were
Liquidity and Capital Resources
Overview
We finance our capital and working capital requirements through a combination of
cash flows from operating activities and borrowings under the Revolving Credit
Facility (as defined below). At
We believe, based on current and projected levels of cash flows from operating activities, together with our ability to borrow under the Revolving Credit Facility (as defined herein), we have sufficient liquidity to meet our short-term and long-term needs to make required payments of interest on our debt, make amortization payments under the Credit Facilities (as defined herein), fund our operating needs, fund working capital and capital expenditure requirements and comply with the financial ratios in our debt agreements. In the event additional funds are needed for operations, we could attempt to obtain new debt and/or refinance existing debt, or attempt to raise capital in the equity markets. There can be no assurance, however, that additional debt or equity financing will be available on commercially acceptable terms, if at all.
Notes
On
The unaffiliated selling securityholder received the Selling Securityholder
Notes from Fortive prior to the closing of the Private Placement in exchange for
certain outstanding Fortive debt held or acquired by the unaffiliated selling
securityholder.
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2021 Altra Credit Agreement
On
The Credit Facilities are guaranteed on a senior secured basis by certain direct and indirect domestic subsidiaries of the Company (each a "Guarantor" and collectively the "Guarantors"; the Guarantors collectively with the Borrowers, the "Loan Parties").
The amounts available under the Revolving Credit Facility may be drawn upon in
accordance with the terms of the Credit Agreement. All amounts outstanding under
the Credit Facilities are due on the stated maturity or such earlier time, if
any, required under the Credit Agreement. The amounts owed under either of the
Credit Facilities may be prepaid at any time, subject to usual notification and
breakage payment provisions. Interest on the amounts outstanding under the
Credit Facilities is calculated using either a Base Rate or Eurocurrency Rate,
plus the applicable margin. The applicable margins for Eurocurrency Loans are
between 1.000% to 1.750%, and for Base Rate Loans are between 0.000% and 0.750%.
The amounts of the margins are calculated based on the Total Leverage Ratio (as
defined in the Credit Agreement). A portion of the Revolving Credit Facility may
be used for the issuance of letters of credit, and a portion of the amount of
the Revolving Credit Facility is available for borrowings in certain agreed upon
foreign currencies. The interest rate on the Credit Facilities was 5.446% at
Revolving borrowings and issuances of letters of credit under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including the accuracy of representations and warranties and the absence of defaults.
The Credit Agreement contains usual and customary representations and warranties, usual and customary affirmative and negative covenants and restrictions, which among other things, will require the Borrowers to provide certain financial reports to the Lenders, require the Borrowers to maintain certain financial covenants relating to consolidated leverage and interest coverage, and limit the ability of the Company and its subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, purchase or redeem capital stock or debt, make certain investments, sell assets, engage in certain transactions, and effect a consolidation or merger. The obligations of the borrowers of the Credit Facilities under the Credit Agreement may be accelerated upon customary events of default, including non-payment of principal, interest, fees and other amounts, inaccuracy of representations and warranties, violation of covenants, cross default and cross acceleration, voluntary and involuntary bankruptcy or insolvency proceedings, inability to pay debts as they become due, material judgments, ERISA events, actual or asserted invalidity of security documents or guarantees and change in control.
Pursuant to the Credit Agreement, on
In connection with the Guarantee and Collateral Agreement, certain of the Loan Parties delivered a Patent Security Agreement and a Trademark Security Agreement in favor of the Administrative Agent pursuant to which each of the Loan Parties signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent applications, registered trademarks and trademark applications owned by such Loan Parties.
2018 Altra Credit Agreement
On
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Agreement provided for a seven-year senior secured term loan to the Company in
an aggregate principal amount of
On
Borrowings
Below is a summary of borrowings as of
Amounts in millions
Years Ended December 31,
2022 2021
Debt:
Term loan $ 390.0 $ 400.0
Revolver 265.0 605.0
Notes 383.7 400.0
Mortgages and other 7.2 9.2
Finance leases 0.3 0.1
Total gross debt $ 1,046.2 $ 1,414.3 Below is a reconciliation of net debt for the year ended
Amounts in millions
Years Ended December 31,
2022 2021
Total gross debt $ 1,046.2 $ 1,414.3
Cash (208.9 ) (246.1 )
Net Debt $ 837.3 $ 1,168.2
Cash and Cash Equivalents
The following is a summary of our cash balances and cash flows (in millions) as
of and for the years ended
2022 2021 Change
Cash and cash equivalents at the beginning of
the year $ 246.1 $ 254.4 $ (8.3 ) Cash flows provided by operating activities 125.0 217.0 (92.0 ) Cash flows provided by (used in) in investing activities
253.1 (163.6 ) 416.7
Cash flows used in financing activities (395.7 ) (52.5 ) (343.2 )
Effect of exchange rate changes on cash and
cash equivalents (19.6 ) (9.2 ) (10.4 )
Cash and cash equivalents at the end of the
year $ 208.9 $ 246.1 $ (37.2 )
Cash Flows for 2022
Net cash provided by operating activities was approximately
Net cash provided by investing activities was approximately
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Net cash used in financing activities was approximately
We intend to use our remaining cash and cash equivalents and cash flow from
operations to provide for our working capital needs, to fund potential future
acquisitions, to service our debt, including principal payments, for capital
expenditures, for pension funding, and to pay dividends to our stockholders. As
of
Capital Expenditures
We made capital expenditures of approximately
Long-Term Cash Requirements
Our cash requirements greater than twelve months include payments related to our debt obligations and operating and finance leases. Refer to Note 11 Long-Term Debt and Note 4 Lease Accounting in the Notes to Consolidated Financial Statements for further detail of our contractual obligations and the timing of expected future payments.
From time to time, we may have cash funding requirements associated with our
pension plans. As of
We may be required to make cash outlays related to our unrecognized tax benefits. However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities.
Stock-based Compensation
The 2014 Omnibus Incentive Plan (the "2014 Plan") was approved by the Company's
stockholders at its 2014 annual meeting. The 2014 Plan provides for various
forms of stock-based compensation to our directors, executive personnel and
other key employees and consultants. Under the 2014 Plan, the total number of
shares of common stock available for delivery pursuant to the grant of awards
("Awards") was originally 750,000. Shares of our common stock subject to Awards
or grants awarded under our prior 2004 Equity Incentive Plan and outstanding as
of the effective date of the 2014 Plan (except for substitute awards) that
terminate without being exercised, expire, are forfeited or canceled, are
exchanged for Awards that did not involve shares of common stock, are not issued
on the stock settlement of a stock appreciation right, are withheld by the
Company or tendered by a participant (either actually or by attestation) to pay
an option exercise price or to pay the withholding tax on any Award, or are
settled in cash in lieu of shares will again be available for Awards under the
2014 Plan. An amendment to the 2014 Plan to, among other things, make an
additional 2,200,000 shares of common stock available for grant under the 2014
Plan was approved by the Company's stockholders at the special meeting of
stockholders on
As of
Income Taxes
We are subject to taxation in multiple jurisdictions throughout the world. Our effective tax rate and tax liability will be affected by a number of factors, such as the amount of taxable income in particular jurisdictions, the tax rates in such jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds between jurisdictions and repatriate income, and changes in law. Generally, the tax liability for each legal entity is determined either (a) on a non-consolidated and non-combined basis or (b) on a consolidated and combined basis only with other eligible entities subject to tax in the same jurisdiction, in either case without regard to the taxable losses of non-consolidated and non-combined affiliated entities. As a result, we may pay income taxes to some jurisdictions even though on an overall basis we incur a net loss for the period.
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Seasonality
General economic conditions impact our business and financial results, and certain of our businesses experience seasonal and other trends related to the industries and end markets that they serve. For example, sales to OEMs are often stronger immediately preceding and following the launch of new products. In addition, we experience seasonality in our turf and garden business. As our large OEM customers prepare for the spring season, our shipments generally start increasing in December, peak in February and March, and begin to decline in April and May. This allows our customers to have inventory in place for the peak consumer purchasing periods for turf and garden products. The June-through-November period is typically the low season for us and our customers in the turf and garden market. Seasonality is also affected by weather and the level of housing starts. However, as a whole, we are not subject to material seasonality.
Inflation
Inflation can affect the costs of goods and services we use. The majority of the countries that are of significance to us, from either a manufacturing or sales viewpoint, have experienced rising inflation, and there can be no assurance that inflation will moderate in future periods. The competitive environment in which we operate inevitably creates pressure on us to provide our customers with cost-effective products and services.
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