volume of the production. We may not be able to make arrangements for transition supply and qualifying replacement suppliers in both a cost effective and timely manner. See
Managements Discussion and Analysis of Financial Condition and Results of OperationsOff-Balance Sheet Arrangements.
In May 2009, STI entered into a transition production agreement with Engineered Materials Solutions, LLC in order to support its Electrical
Contact Systems business unit, which is the primary supplier to us for electrical contacts in the manufacturing of certain of our controls products and which was at risk of closing. Although we have been developing a second source supplier, if
Engineered Materials Solutions was unable to continue as a supplier, it could have a material adverse effect on our business.
Our dependence on third parties for raw materials and components subjects us to the risk of supplier failure and customer dissatisfaction
with the quality of our products. Quality failures by our third-party manufacturers or changes in their financial or business condition which affect their production could disrupt our ability to supply quality products to our customers and thereby
materially harm our business.
Non-performance by our
suppliers may adversely affect our operations.
Because we purchase various types of raw materials and component parts from suppliers, we may be materially and adversely affected by the failure of those suppliers to perform as expected. This non-performance may consist of delivery delays
or failures caused by production issues or delivery of non-conforming products. The risk of non-performance may also result from the insolvency or bankruptcy of one or more of our suppliers.
Our efforts to protect against and to minimize these risks may
not always be effective. We may occasionally seek to engage new suppliers with which we have little or no experience. For example, we do not have a prior relationship with all of the suppliers that we are qualifying for the supply of contacts. The
use of new suppliers can pose technical, quality and other risks.
We depend on third parties for certain transportation, warehousing and logistics services.
We rely primarily on third parties for transportation of the products we manufacture. In particular, a significant portion of the goods we
manufacture are transported to different countries, requiring sophisticated warehousing, logistics and other resources. If any of the countries from which we transport products were to suffer delays in exporting manufactured goods, or if any of our
third-party transportation providers were to fail to deliver the goods we manufacture in a timely manner, we may be unable to sell those products at full value, or at all. Similarly, if any of our raw materials could not be delivered to us in a
timely manner, we may be unable to manufacture our products in response to customer demand.
A material disruption at one of our manufacturing facilities could harm our financial condition and operating results.
If one of our manufacturing facilities were to be shut down unexpectedly, or certain of our manufacturing
operations within an otherwise operational facility were to cease production unexpectedly, our revenue and profit margins would be adversely affected. Such a disruption could be caused by a number of different events, including:
prolonged power failures;
fires, floods, earthquakes or other catastrophes;