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Small business Small businesses are corporations, partnerships, or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being able to apply for government support and qualify for preferential tax policy varies depending on the country and industry.
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Risk Factors
KAYDON CORP ITEM 1A RISK FACTORS The following risk factors could affect the Company’s financial condition and/or operating results
The Company’s customers’ economic cycles may affect Kaydon’s operating results
Many of our customers are in industries that are cyclical in nature and sensitive to changes in general economic conditions and other factors, including capital spending levels
Such industries include commercial and military aerospace, specialty electronics manufacturing equipment, power generation, off-road and heavy industrial equipment, and other capital equipment manufacturing
As a result, the demand for our products by these customers depends, in part, upon general economic conditions
Historically, downward economic cycles have reduced customer demand for our products, thereby reducing sales of our products and resulting in reductions to our revenues and net earnings
3 _________________________________________________________________ [59]Table of Contents Increased competition in the Company’s key markets could result in a reduction in Kaydon’s revenues and earnings and adversely affect the Company’s financial condition
The industries in which we operate are fragmented and we face competition from multiple companies across our diverse product lines
We expect competitive pressures from new products and aggressive pricing to increase, which may cause us to lose market share or compel us to reduce prices to remain competitive, which could result in reduced levels of revenues and earnings
Our competitors include US and non-US companies, some of which benefit from lower labor costs and fewer regulatory burdens
In addition, certain competitors, including Eaton, Timken, SKF, and INA/ FAG, are larger than Kaydon and may have access to greater financial, technical, development, marketing, manufacturing, sales and distribution services and other resources
Increased competition with these companies or new entrants to our key markets could prevent price increases for our products or could require price reductions for our products, which could adversely affect our financial condition, results of operations, growth or liquidity
Future acquisitions may require Kaydon to incur costs and liabilities which may adversely affect the Company’s operating results
In addition to internal growth, our current strategy involves growth through acquisitions of complementary businesses as well as acquisitions that diversify our product offerings
Like other companies with similar growth strategies, we may be unable to continue to implement our growth strategy, and this strategy may be ultimately unsuccessful
A portion of our expected future growth in revenues may result from acquisitions
We frequently engage in evaluations of potential acquisitions and negotiations for possible acquisitions, certain of which, if consummated, could be significant to the Company
Although it is our policy only to acquire companies in transactions which are accretive to both earnings and cash flow, any potential acquisitions may result in material transaction expenses, increased interest and amortization expense, increased depreciation expense and increased operating expense, any of which could have a material adverse effect on our operating results
Acquisitions may entail integration and management of the new businesses to realize economies of scale and control costs
In addition, acquisitions may involve other risks, including diversion of management resources otherwise available for ongoing development of our business and risks associated with entering new markets
We may not be able to identify suitable acquisition candidates in the future, obtain acceptable financing or consummate any future acquisitions
Finally, as a result of our acquisitions of other businesses, we may be subject to the risk of unanticipated business uncertainties or legal liabilities relating to those acquired businesses for which the sellers of the acquired businesses may not indemnify the Company
Future acquisitions may also result in potentially dilutive issuances of securities
Political, economic and regulatory conditions inherent in the international markets in which Kaydon participates could adversely affect the Company’s financial condition
Typically, sales of our products from our foreign subsidiaries and from our domestic subsidiaries selling to foreign locations account for approximately 30dtta0 percent of net sales
These foreign sales could be adversely affected by changes in various foreign countries’ political and economic conditions, trade protection measures, differing intellectual property rights and changes in regulatory requirements that restrict the sales of our products or increase our costs
We generate significant revenues outside the United States
Currency fluctuations between the US dollar and the currencies in which those customers do business may have an impact on the demand for our products in foreign countries where the US dollar has increased in value compared to the local currency
We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposure and the potential volatility of currency exchange rates
Relationships with customers and effective terms of sale frequently vary by country, often with longer-term receivables than are typical in the United States
Kaydon’s manufactured critical performance products expose the Company to potential litigation-related costs which may adversely affect the Company’s financial position and operating results
As a provider of critical performance products in a variety of industries including aerospace, defense, construction, marine, medical, material handling, machine tool positioning and other industrial applications, we face a risk of exposure to claims in the event that the failure, use or misuse of our products results, or is alleged to result, in 4 _________________________________________________________________ [60]Table of Contents bodily injury and/or property damage
The Company, along with certain other companies, was named as a defendant in a lawsuit arising from an August 2000 fatal accident involving a MH53E helicopter manufactured by Sikorsky Aircraft Corporation
The final settlement agreement and release documents related to this lawsuit have been executed and the lawsuit has been dismissed by the court
The Company made no payments related to this lawsuit
In the past, costs related to legal proceedings and settlements have had a material effect on our business, financial condition, results of operations and liquidity
We cannot assure you that the ultimate cost of current known or future unknown litigation and claims will not exceed management’s current expectations and it is possible that such costs could have a material adverse effect on the Company
In addition, litigation is time consuming and could divert management attention and resources away from our business
Failing to continue to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 may adversely affect investor perceptions and the market value of Company common stock
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, Kaydon Corporation has included in this Annual Report a report of management’s assessment of the effectiveness of the Company’s system of internal control over financial reporting
Also included in this Annual Report is a report from the Company’s independent registered public accounting firm on their assessment of the effectiveness of the Company’s system of internal control, and on their evaluation of management’s assessment
In order to issue their report, management has documented both the design of the system of internal control, and the testing processes that support their evaluation and conclusion
While the Company and its independent registered public accounting firm believe that the Company maintained effective internal control over financial reporting as of December 31, 2005, the requirements of Section 404 are ongoing, and, if in the future the Company’s management or its independent registered public accounting firm determine that the internal controls are not effective, as defined under Section 404, investor perceptions of the Company may be adversely affected