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Item 1A. Risk Factors

2022-03-29 compared with 2021-03-09 · 106 added, 211 removed, 119 unchanged (73% of the section changed)

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Industry and Segment Risks

The cyclical nature of the industries in which our customers operate causes demand for our products to be cyclical, creating uncertainty regarding future profitability.

Various changes in general economic conditions affect the industries in which our customers operate.

The demand for our products may be cyclical, creating uncertainty regarding future profitability.

Various changes in general economic conditions affect (or disproportionately affect) the industries in which our customers operate.

These changes include decreases in the rate of consumption or use of our customers’ products due to economic downturns.

Other factors causing fluctuation in our customers’ positions are changes in market demand, capital spending, tariff induced price changes, lower overall pricing due to domestic and international overcapacity, lower priced imports, currency fluctuations, and increases in

use or decreases in prices of substitute materials.

As a result of these factors, our profitability has been and may in the future be subject to significant fluctuation.

Domestic competition could force lower product pricing and may have an adverse effect on our revenues and profitability.

Domestic competition and excess manufacturing capacity could force lower product pricing and may have an adverse effect on our revenues and profitability.

From time-to-time, intense competition and excess manufacturing capacity in the commodity stainless and galvanized steel industry have resulted in reduced selling prices, excluding raw material surcharges, for many of our stainless steel products sold by the Metals Segment.

In order to maintain market share, we would have to lower our prices to match the competition.

These factors have had and may continue to have an adverse impact on our revenues, operating results and financial condition, and may continue to do so in the future.

Oil prices are extremely volatile.

A substantial or extended decline in the price of oil could adversely affect our financial condition and results of operations.

Prices for oil can fluctuate widely.

Revenues from our Palmer and Specialty (Houston, Texas) units are highly dependent on our customers adding oil well drilling and pumping locations.

Should oil prices decline such that drilling becomes unprofitable for our customers, such customers will likely cap many of their current wells and cease or curtail expansion.

This will decrease the demand for our tanks and pipe and tube and adversely affect the results of our operations.

Significant changes in nickel prices could have an impact on the sales of the Metals Segment.

Nickel prices are currently at a relatively low level, which reduces our manufacturing costs for certain products.

When nickel prices increase, many of our customers increase their orders in an attempt to avoid future price increases, resulting in increased sales for the Metals Segment.

Conversely, when nickel prices decrease, many of our customers wait to place orders in an attempt to take advantage of subsequent price decreases, resulting in reduced sales for the Metals Segment.

On average, the Metals Segment turns its inventory of commodity pipe every four months, but the nickel surcharge on sales of commodity pipe is established on a monthly basis.

The difference, if any, between the price of nickel on the date of purchase of the raw material and the price, as established by the surcharge, on the date of sale has the potential to create an inventory price change gain or loss.

If the price of nickel steadily increases over time, the Metals Segment is the beneficiary of the increase in nickel price in the form of metal price change gains.

We will incur inventory price losses in the future if nickel prices decrease.

Any material changes in the cost of nickel could impact our sales and result in fluctuations in the profits of the Metals Segment.

Geographic, Trade and Customer Risks

Our business, financial condition and results of operations could be adversely affected by an increased level of imported products.

In such situations, in order to maintain market share, we would have to lower our prices to match the competition.

These factors have had and may in the future have a material adverse impact on our revenues, operating results and financial condition.

Overcapacity and overproduction by foreign producers in our industry could result in lower domestic prices, which would adversely affect our sales, margins and profitability.

Our business is susceptible to the import of products from other countries, particularly in our Metals Segment.

Import levels of various products are affected by, among other things, overall world-wide demand, lower cost of production in other countries, the trade practices of foreign governments, government subsidies to foreign producers, the strengthening of the U.S.

dollar, and government imposed trade restrictions in the United States.

dollar, and government-imposed trade restrictions in the United States, such as imposed in 2018 under Section 232 of the Trade Expansion Act of 1962 (section 232 tariffs).

Although imports from certain countries have been curtailed by anti-dumping duties, imported products from other countries could significantly reduce prices.

Increased imports of certain products, whether illegal dumping or legal imports, could reduce demand for our products in the future and adversely affect our business, financial position, results of operations or cash flows.

A substantial portion of our overall sales is dependent upon a limited number of customers, and the loss of one or more of such customers would have a material adverse effect on our business, results of operation and profitability.

There were no customers representing more than 10 percent of the Metals Segment's revenues in 2020 or 2019, respectively.

Palmer and Specialty, which are a part of the Metals Segment, sell much of their products to the oil and gas industry.

Any change in this industry, or any change in this industry’s demand for their products, would have a material adverse effect on the profits of the Metals Segment and the Company.

The products of the Specialty Chemicals Segment are sold to various industries nationwide.

The Specialty Chemicals Segment has one customer that accounted for approximately 16 percent of revenues in 2020 and 2019, respectively.

The loss of this customer would have a material adverse effect on the revenues of the Specialty Chemicals Segment and the Company.

Increased imports of certain products, whether illegal dumping or legal imports, could reduce demand for our products or cause us to lower our prices to maintain demand for our products, which could adversely affect our business, financial position, or results of operations.

A substantial portion of our sales in the Specialty Chemicals Segment is dependent upon a limited number of customers.

The top 15 customers in the Specialty Chemicals Segment accounted for approximately 60% and 63% of revenues for the years ended December 31, 2021 and 2020, respectively, with the top customer accounting for approximately 15% of revenues for 2021 and 16% of revenues for 2020.

An adverse change in, or termination of, the relationship with one or more of our top customers could materially and adversely affect our results of operations.

Operations and Supply Chain Risks

We rely on a small number of suppliers for our raw materials and any interruption in our supply chain could affect our operations.

In order to foster strong business relationships, the Metals Segment uses only a few raw material suppliers.

During the year ended December 31, 2020, 10 suppliers furnished approximately 95 percent of our total dollar purchases of raw materials, with one supplier providing 33 percent of purchases of raw materials.

However, these raw materials are available from a number of sources, and the Company anticipates no difficulties in fulfilling its raw materials requirements for the Metals Segment.

Raw materials used by the Specialty Chemicals Segment are generally available from numerous independent suppliers and approximately 48 percent of total purchases were made from our top 10 suppliers during the year ended December 31, 2020.

Although some raw material needs are met by a single supplier or only a few suppliers, the Company anticipates no difficulties in fulfilling its raw material requirements for the Specialty Chemicals Segment.

While the Company believes that raw materials for both segments are readily available from numerous sources, the loss of one or more key suppliers in either segment, or any other material change in our current supply channels, could have an adverse effect on the Company’s ability to meet the demand for its products, which could impact our operations, revenues and financial results.

The purchasing incentives we earn from product suppliers can be impacted if we reduce our purchases in response to declining customer demand.

Certain of our product and raw material suppliers have historically offered to their customers and distributors, including us, incentives for purchasing their products.

In addition to market or customer account-specific incentives, certain suppliers pay incentives to the customer or distributor for attaining specific purchase volumes during the program period.

When the demand for our products declines, we may be less willing to add inventory to take advantage of certain incentive programs, thereby potentially adversely impacting our profitability.

The Specialty Chemicals Segment uses significant quantities of a variety of specialty and commodity chemicals in its manufacturing processes, which are subject to price and availability fluctuations that may have an adverse impact on our financial performance and a lengthy sales cycle which makes it difficult to predict quarterly revenue levels and operating results.

The raw materials we use are generally available from numerous independent suppliers.

However, some of our raw material needs are met by a sole supplier or only a few suppliers.

If any supplier that we rely on for raw materials ceases or limits production, we may incur significant additional costs, including capital costs, in order to find alternate, reliable raw material suppliers.

Any interruption in our ability to procure raw materials, or significant volatility in the price of raw materials, could adversely affect our business and results of operations.

While the Company believes that raw materials for both segments are (in general) readily available from numerous sources, some of our raw material needs are met by a sole supplier or only a few suppliers and many such relationships are terminable by either party.

If any key supplier that we rely on for raw materials ceases or limits production, we may incur significant additional costs, including capital costs, in order to find alternate, reliable raw material suppliers.

We may also experience significant production delays while locating new supply sources, which could result in our failure to timely deliver products to our customers.

Purchase prices and availability of these critical raw materials are subject to volatility.

Some of the raw materials used by the Specialty Chemicals Segment are derived from petrochemical-based feedstock, such as crude oil and natural gas, which have been subject to historical periods of rapid and significant movements in price.

These fluctuations in price could be aggravated by factors beyond our control such as political instability, and supply and demand factors, including Organization of the Petroleum Exporting Countries ("OPEC") production quotas and increased global demand for petroleum-based products.

At any given time, we may be unable to obtain an adequate supply of these critical raw materials on a timely basis, at prices and other terms acceptable, or at all.

In addition, purchase prices and availability of these critical raw materials are subject to volatility which may negatively impact financial performance due to decreased sales volume and /or decreased profitability.

At any given time, we may be unable to obtain an adequate supply of these critical raw materials on a timely basis, at acceptable prices and other terms, or at all.

If suppliers increase the price of critical raw materials, we may not have alternative sources of supply.

We attempt to pass changes in the prices of raw materials along to our customers.

However, we cannot always do so, and any limitation on our ability to pass through any price increases could have an adverse effect on our financial performance.

Any significant variations in the cost and availability of our specialty and commodity materials may negatively affect our business, financial condition or results of operations, specifically for the Specialty Chemicals Segment.

Purchasing the products of the Specialty Chemicals Segment is also a major commitment on the part of our customers.

Before a potential customer determines to purchase products from the Specialty Chemicals Segment, the Company must produce test product material so that the potential customer is satisfied that we can manufacture a product to their specifications.

The production of such test materials is a time-consuming process.

Accordingly, the sales process for products in the Specialty Chemicals Segment is a lengthy process that requires a considerable investment of time and resources on our part.

As a result, the timing of our revenues is difficult to predict, and the delay of an order could cause our revenues to fall below our expectations and those of the public market analysts and investors.

As well, though we attempt to pass changes in the prices of raw materials along to our customers, we cannot always do so due to market competition, among other reasons, or price increases to customers may occur on a delayed basis.

In addition, although raw materials may remain available, volatility in raw material pricing may negatively impact customer ordering patterns.

The loss of or reduced supply from one or more key suppliers in either segment, or any other material change in our current supply channels, could materially affect the Company’s ability to meet the demand for its products and adversely affect the Company’s business and results of operations.

In addition, any limitations (or delay) on our ability to pass through any price increases in raw materials could have an adverse effect on our profitability.

Loss of a key supplier or lack of product availability from suppliers could adversely affect our sales and earnings .

Our Specialty Chemicals Segment depends on maintaining an immediately available supply of various products to meet customer demand.

Many of our relationships with key product suppliers are longstanding but are terminable by either party.

The loss of key supplier authorizations, or a substantial decrease in the availability of their products, could put us at a competitive disadvantage and have a material adverse effect on our business or results of operations.

Supply interruptions could arise from raw material shortages, inadequate manufacturing capacity or utilization to meet demand, financial difficulties, tariffs and other regulations affecting trade between the U.S.

and other countries, labor disputes, weather conditions affecting suppliers' production, transportation disruptions or other reasons beyond our control.

Our operating results are sensitive to the availability and cost of energy and freight, which are important in the manufacture and transport of our products.

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These market conditions often are affected by political and economic factors beyond our control.

Disruptions in the supply of energy resources could temporarily impair the ability to manufacture products for customers and may result in the decline of freight carrier capacity in our geographic markets, or make freight carriers unavailable.

Further, increases in energy or freight costs that cannot be passed on to customers, or changes in costs relative to energy and freight costs paid by competitors, has adversely affected, and may continue to adversely affect, our profitability.

Disruptions in the supply of energy resources could temporarily impair our ability to manufacture products for customers and may result in the decline of freight carrier capacity in our geographic markets, or make freight carriers unavailable or more expensive.

Further, increases in energy or freight costs that cannot be passed on to customers, or adverse changes in our costs relative to energy and freight costs paid by competitors, has adversely affected, and may continue to adversely affect, our profitability.

We are dependent upon the continued operation of our production facilities, which are subject to a number of hazards.

In both of our business segments, our production facilities are subject to hazards associated with the manufacture, handling, storage and transportation of chemical materials and products, including leaks and ruptures, explosions, fires, inclement weather and natural disasters, unscheduled downtime and environmental hazards which could result in liability for workplace injuries and fatalities.

In addition, some of our production capabilities are highly specialized, which limits our ability to shift production to another facility.

We cannot assure you that we will not experience these types of incidents in the future or that these incidents will not result in production delays, failure to timely fulfill customer orders or otherwise have a material adverse effect on our business, financial condition or results of operations.

Our manufacturing processes are dependent upon critical pieces of equipment.

This equipment may, on occasion, be out of service as a result of unanticipated failures.

We have experienced, and may in the future experience, material plant shutdowns or periods of reduced production as a result of such equipment failures.

In addition, our production facilities are subject to hazards associated with the manufacture, handling, storage and transportation of materials and products, including leaks and ruptures, explosions, fires, inclement weather and natural disasters, unscheduled downtime and environmental hazards.

As well, some of our production capabilities are highly specialized, which limits our ability to shift production to another facility.

The occurrence of incidents in the future may result in production delays, failure to timely fulfill customer orders or otherwise have a material adverse effect on our business, financial condition or results of operations.

Our operations present significant risk of injury and other liabilities.

The industrial activities conducted at our facilities present significant risk of serious injury or even death to our employees or other visitors to our operations, notwithstanding our safety precautions, including our material compliance with federal, state and local employee health and safety regulations, and we may be unable to avoid material liabilities for any such incidents.

We maintain various forms of insurance, including insurance covering claims related to our properties and risks associated with our operations, but there can be no assurance that the insurance coverage will be applicable and adequate, or will continue to be available on terms acceptable to us, or at all, which could result in material liability to us for any injuries or deaths.

We may not be able to make the operational and product changes necessary to continue to be an effective competitor.

We must continue to enhance our existing products and to develop and manufacture new products with improved capabilities in order to continue to be an effective competitor in our business markets.

In addition, we must anticipate and respond to changes in industry standards that affect our products and the needs of our customers.

We also must continue to make improvements in our productivity in order to maintain our competitive position.

When we invest in new technologies, processes or production capabilities, we face risks related to construction delays, cost over-runs and unanticipated technical difficulties.

We must continue to enhance our existing products, develop and manufacture new products with improved capabilities, and accurately predict future customer needs and preferences in order to continue to be an effective competitor in our business markets.

In addition, we must anticipate and respond to changes in industry standards, including government regulations, that affect our products and the needs of our customers.

The success of any new or enhanced products will depend on a number of factors, such as technological innovations, increased manufacturing and material costs, customer acceptance, and the performance and quality of the new or enhanced products.

As we introduce new products or refine existing products, we cannot predict the level of market acceptance or the amount of market share these new or enhanced products may achieve.

Moreover, we may experience delays in the introduction of new or enhanced products.

Any manufacturing delays or problems with new or enhanced product launches will adversely affect our operating results.

In addition, the introduction of new products could result in a decrease in revenues from existing products.

Also, we may need more capital for product development and enhancement than is available to us, which could adversely affect our business, financial condition, or results of operations.

We sell our products in industries that are affected by technological changes, new product introductions, and changing industry standards.

If we do not respond by developing new products or enhancing existing products on a timely basis, our products will become obsolete over time and our revenues, cash flows, profitability and competitive position will suffer.

In addition, if we fail to accurately predict future customer needs and preferences, we may invest heavily in the development of new or enhanced products that do not result in significant sales and revenue.

Even if we successfully innovate in the development of new and enhanced products, we may incur substantial costs in doing so, and our profitability may suffer.

Our products must be kept current to meet the needs of our customers.

To remain competitive, we must develop new and innovative products on an on-going basis.

If we fail to make innovations, or the market does not accept our new or enhanced products, our sales and results could suffer.

Our inability to anticipate and respond to changes in industry standards and the needs of our customers, or to utilize changing technologies in responding to those changes, could have a material adverse effect on our business and our results of operations.

We depend on third parties to distribute certain of our products and because we have no control over such third parties we are subject to adverse changes in such parties’ operations or interruptions of service, each of which may have an adverse effect on our operations.

We use third parties over which we have only limited control to distribute certain of our products.

Because we rely on these third parties to provide distribution services, any change in our ability to access these third party distribution services could have an adverse impact on our revenues and put us at a competitive disadvantage with our competitors.

Freight costs for products produced in our Palmer facility restrict our sales area for this facility.

The freight and other distribution costs for products sold from our Palmer facility result in the market area for these products being restricted, which limits the geographic market for Palmer’s tanks and the ability to significantly increase revenues derived from sales of products from the Palmer facility.

Loss of key supplier authorizations or lack of product availability could adversely affect our sales and earnings .

Our Specialty business depends on maintaining an immediately available supply of various products to meet customer demand.

Many of our relationships with key product suppliers are longstanding, but are terminable by either party.

Supply interruptions could arise from raw material shortages, inadequate manufacturing capacity or utilization to meet demand, financial problems, tariffs and other regulations affecting trade between the U.S.

and other countries, labor disputes or weather conditions affecting suppliers' production, transportation disruptions or other reasons beyond our control.

Changes in supplier distribution programs could adversely affect sales and earnings in our Specialty business.

Specialty, as a master distributor, faces the risk of key product suppliers changing their relationships with distributors generally in a manner that adversely impacts us.

For example, key suppliers could change the following:

the prices we must pay for their products relative to other distributors or relative to competing products;

the geographic or product line breadth of distributor authorizations;

supplier purchasing incentive or other support programs;

or product purchase or stock expectations.

Our existing property and liability insurance coverages contain exclusions and limitations on coverage.

We maintain various forms of insurance, including insurance covering claims related to our properties and risks associated with our operations.

From time-to-time, in connection with renewals of insurance, we have experienced additional exclusions and limitations on coverage, larger self-insured retentions and deductibles and higher premiums.

As a result, our existing coverage may not be sufficient to cover any losses we may incur and in the future our insurance coverage may not cover claims to the extent that it has in the past and the costs that we incur to procure insurance may increase significantly, either of which could have an adverse effect on our results of operations or cash flows.

We cannot predict the level of market acceptance or the amount of market share these new or enhanced products may achieve, and we may experience delays or problems in the introduction of new or enhanced products.

Any failure in our ability to effectively and efficiently launch new or enhanced products could materially and adversely affect our business, financial condition or results of operation.

Government Regulation Risks

Our operations expose us to the risk of environmental, health and safety liabilities and obligations, which could have a material adverse effect on our financial condition, results of operations or cash flows.

Our operations expose us to the risk of environmental, health and safety liabilities and obligations, which could have a material adverse effect on our financial condition or results of operations.

We are subject to numerous federal, state and local environmental protection and health and safety laws governing, among other things:

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We are also required to maintain various environmental permits and licenses, many of which require periodic modification and renewal.

Our operations entail the risk of violations of those laws and regulations, and we cannot assure you that we have been or will be at all times in compliance with all of these requirements.

Our operations entail the risk of violations of those laws

and regulations, and we may not have been in the past or will be at all times in the future, in compliance with all of these requirements.

In addition, these requirements and their enforcement may become more stringent in the future.

We have incurred, and expect to continue to incur, additional capital expenditures in addition to ordinary costs to comply with applicable environmental laws.

We have incurred, and expect to continue to incur, additional capital expenditures (in addition to ordinary or other costs and capital expenditures) to comply with applicable environmental laws.

Our failure to comply with applicable environmental laws and permit requirements could result in civil and/or criminal fines or penalties, enforcement actions, and regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, such as the installation of pollution control equipment, which could have a material adverse effect on our financial condition, results of operations or cash flows.

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We also may be required to make significant site or operational modifications at substantial cost.

Future developments also could restrict or eliminate the use of or require us to make modifications to our products, which could have a significant negative impact on our results of operations and cash flows.

At any given time, we are involved in claims, litigation, administrative proceedings and investigations of various types involving potential environmental liabilities, including cleanup costs associated with hazardous waste disposal sites at our facilities.

We cannot assure you that the resolution of these environmental matters will not have a material adverse effect on our results of operations or cash flows.

The ultimate costs and timing of environmental liabilities are difficult to predict.

Future developments also could restrict or eliminate the use of or require us to make modifications to our products, which could have a significant negative impact on our results of operations.

At any given time, we are (or may be) involved in claims, litigation, administrative proceedings and investigations of various types involving potential environmental liabilities, including cleanup costs associated with hazardous waste disposal sites at our facilities.

We cannot assure you that the resolution of these environmental matters will not have a material adverse effect on our results of operations.

The occurrence and ultimate costs and timing of environmental liabilities are difficult to predict.

Liability under environmental laws relating to contaminated sites can be imposed retroactively and on a joint and several basis.

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We could also be subject to environmental indemnification claims in connection with assets and businesses that we have acquired or divested.

There can be no assurance that any future capital and operating expenditures to maintain compliance with environmental laws, as well as costs to address contamination or environmental claims, will not exceed any current estimates or adversely affect our financial condition and results of operations.

In addition, any unanticipated liabilities or obligations arising, for example, out of discovery of previously unknown conditions or changes in laws or regulations, could have an adverse effect on our business, financial condition, results of operations or cash flows.

Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing, as well as governmental reviews of such activities could result in delays or eliminate new wells from being started, thus reducing the demand for our fiberglass and steel storage tanks, pressure vessels and heavy walled pipe and tube.

There can be no assurance that any future capital and operating expenditures to maintain compliance with environmental laws, as well as costs incurred to address contamination or environmental claims, will not exceed any current estimates or adversely affect our financial condition and results of operations.

Hydraulic fracturing (“fracking”) is currently an essential and common practice to extract oil from dense subsurface rock formations, and this lower cost extraction method is a significant driving force behind the surge of oil exploration and drilling in several locations in the United States.

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Congress and state legislatures have considered adopting legislation to provide additional regulations and disclosures surrounding this process.

In the event that new legal restrictions surrounding the fracking process are adopted in the areas in which our customers operate, we may see a dramatic decrease in Palmer's and Specialty - Texas' profitability which could have an adverse impact on our financial results.

New regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.

In the event that new legal restrictions surrounding the fracking process are adopted in the areas in which our customers operate, we may experience a decrease in revenue, which could have an adverse impact on our results of operations, including profitability.

Regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.

On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the SEC adopted new requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties.

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These metals are used to varying degrees in our welding materials and are also present in specialty alloy products.

These new requirements could adversely affect the sourcing, availability and pricing of minerals used in our products.

In addition, we could incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the

relevant minerals and metals used in our products.

These new requirements

could adversely affect the sourcing, availability and pricing of minerals used in our products.

In addition, we could incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products.

Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation.

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Certain of our employees in the Metals Segment are covered by collective bargaining agreements, and the failure to renew these agreements could result in labor disruptions and increased labor costs.

As of December 31, 2020, we had 232 employees represented by unions at our Bristol, Tennessee, Mineral Ridge, Ohio, and Munhall, Pennsylvania facilities, which is 44 percent of the aggregate number of Company employees.

These employees are represented by three local unions affiliated with the USW.

The collective bargaining contracts for the USW will expire at various dates between 2023 and 2024.

As of December 31, 2021, we had 342 employees represented by unions at our Bristol, Tennessee, Mineral Ridge, Ohio, Munhall, Pennsylvania and Danville, Virginia facilities, which is approximately 48% of the aggregate number of Company employees.

These employees are represented by three local unions affiliated with the USW and one local affiliated with the UFCW.

Collective bargaining contracts for the USW locals expire at various dates between 2023 and 2024.

Collective bargaining contracts for the UFCW local expires in 2024.

Although we believe that our present labor relations are strong, our failure to renew these agreements on reasonable terms as the current agreements expire could result in labor disruptions and increased labor costs, which could adversely affect our financial performance.

If we do not successfully manage the transitions associated with the election of three new members of our Board of Directors, the appointment of a new Chairman of the Board, the retirement of our Chief Executive Officer and appointment of a new Interim Chief Executive Officer and a new Chief Financial Officer, it could have an adverse impact on our business operations, including our internal controls over financial reporting, as well as be viewed negatively by our customers and shareholders.

The Company appointed Sally M.

Cunningham Senior Vice President and Chief Financial Officer effective June 30, 2020 after the resignation of Dennis M.

In addition, on July 7, 2020, the Company announced the election of three new members of the Board of Directors at the 2020 Annual Meeting of Shareholders.

On July 9, 2020, the Company's Board of Directors elected Henry L.

Guy as Chairman of the Board of Directors.

On October 27, 2020, the Company announced the retirement of Craig C.

Bram, the Company's President and Chief Executive Officer and member of the Company's Board of Directors, effective November 9, 2020.

On October 27, 2020, the Company announced the appointment of Christopher G.

Hutter, a member of the Company's Board of Directors, as interim President and Chief Executive Officer, effective November 9, 2020.

Such leadership transitions can be inherently difficult to manage, and an inadequate transition may cause disruption to our business, including our relationships with customers, suppliers, vendors, and employees.

It may also make it more difficult to hire and retain key employees.

The loss of key members of our management team, or difficulty attracting and retaining experienced technical personnel, could reduce our competitiveness and have an adverse effect on our business and results of operations.

The successful implementation of our strategies and handling of other issues integral to our future success will depend, in part, on our experienced management team.

The loss of key members of our management team could have an adverse effect on our business.

Although we have entered into employment agreements with key members of our management team including Christopher G.

Hutter, Interim President and Chief Executive Officer and Sally M.

Cunningham, Senior Vice President and Chief Financial Officer, employees may resign from the Company at any time and seek employment elsewhere, subject to certain non-competition and confidentiality restrictions.

Additionally, if we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed.

Failure to attract and retain key personnel may adversely impact our strategy and execution and financial results.

Our ability to successfully operate, grow our business and implement our business strategies is largely dependent on the efforts, abilities and services of our employees.

The loss of employees or our inability to attract, train and retain additional personnel could reduce the competitiveness of our business or otherwise impair our operations.

Our future success will also depend, in part, on our ability to attract and retain qualified personnel who have experience in the application of our products and are knowledgeable about our business, markets and products.

We also face risks associated with the actions taken in response to COVID-19, including those associated with workforce reductions, and may experience difficulties with hiring additional employees or replacing employees following the pandemic, which may be exacerbated by the tight labor market.

In addition, COVID-19 has, and may again result in quarantines of our personnel or an inability to access facilities, which could adversely affect our operations.

Financial and Strategic Risks

Our current capital structure includes indebtedness, which is secured by all or substantially all of our assets and which contains restrictive covenants that may prevent us from obtaining adequate working capital, making acquisitions or capital improvements.

Our existing credit facility contains restrictive covenants that limit our ability to, among other things, borrow money or guarantee the debts of others, use assets as security in other transactions, make investments or other restricted payments or distributions, change our business or enter into new lines of business, and sell or acquire assets or merge with or into other companies.

In addition, our credit facility requires us to meet a minimum fixed charge coverage ratio which could limit our ability to plan for or react to market conditions or meet extraordinary capital needs and could otherwise restrict our financing activities.

Our ability to comply with the covenants and other terms of our credit facility will depend on our future operating performance.

If we fail to comply with such covenants and terms, we will be in default and the maturity of any then outstanding related debt could be accelerated and become immediately due and payable.

In addition, in the event of such a default, our lender may refuse to advance additional funds, demand immediate repayment of our outstanding indebtedness, and elect to foreclose on our assets that secure the credit facility.

There were no events of default under our credit facility as of December 31, 2020.

Although we believe we will remain in compliance with these covenants in the foreseeable future and that our relationship with our lender is strong, there is no assurance our lender would consent to an amendment or waiver in the event of noncompliance;

or that such consent would not be conditioned upon the receipt of a cash payment, revised principal payout terms, increased interest rates or restrictions in the expansion of the credit facility for the foreseeable future, or that our lender would not exercise rights that would be available to them, including, among other things, demanding payment of outstanding borrowings.

In addition, our ability to obtain additional capital or alternative borrowing arrangements at reasonable rates may be adversely affected.

All or any of these adverse events would further limit our flexibility in planning for, or reacting to, downturns in our business.

There are risks associated with our outstanding and future indebtedness.

As of December 31, 2021, we had $67.9 million of total outstanding indebtedness, and we may incur additional indebtedness in the future.

We have customary restrictive covenants in our current debt agreements, which may limit our flexibility to operate our business.

Failure to comply with this covenant could result in an event of default that, if not cured or waived, could have a material adverse effect on our business, results of operations and financial condition.

Additionally, our ability to pay interest and repay the principal for our indebtedness is dependent upon our ability to manage our business operations, generate sufficient cash flows to service such debt and the other factors discussed in this section.

There can be no assurance that we will be able to manage any of these risks successfully.

Our Credit Agreement with BMO Harris Bank N.A.

(as amended, the "Credit Agreement") bears interest at variable interest rates, primarily based on the London Interbank Offered Rate ("LIBOR").

LIBOR is currently in the process of being phased out.

The Credit Agreement includes provisions intended to provide for the replacement of LIBOR with the Secured Overnight Financing Rate ("SOFR") upon the cessation of LIBOR or the occurrence of other triggering events, with corresponding adjustments to the applicable interest rate margins.

However, uncertainty as to the timing and nature of such modifications could cause the interest rate calculated for the Credit Agreement to be materially different than expected, and there is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could have an adverse effect on our business, results of operations and financial condition.

Our failure to manage these risks effectively could adversely affect our financial condition and results of operations.

We may need new or additional financing in the future to expand our business or refinance existing indebtedness, and our inability to obtain capital on satisfactory terms or at all may have an adverse impact on our operations and our financial results.

If we are unable to access capital on satisfactory terms and conditions, we may not be able to expand our business or meet our payment requirements under our existing credit facility.

If we are unable to access capital on satisfactory terms and conditions, we may not be able to expand our business or meet our payment requirements under the Credit Agreement.

Our ability to obtain new or additional financing will depend on a variety of factors, many of which are beyond our control.

We may not be able to obtain new or additional financing because we may have substantial debt, our current receivable and inventory balances do not support additional debt availability or because we may not have sufficient cash flows to service or repay our existing or future debt.

We may not be able to obtain new or additional financing because we may

have substantial debt, our current receivable and inventory balances do not support additional debt availability or because we may not have sufficient cash flows to service or repay our existing or future debt.

In addition, depending on market conditions and our financial performance, equity financing may not be available on satisfactory terms or at all.

If we are unable to access capital on satisfactory terms and conditions, this could have an adverse impact on our operations and our financial results.

We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined .

On July 27, 2017, the Financial Conduct Authority (the “FCA”) announced its intention to phase out LIBOR rates by the end of 2021.

The discontinuation date for submission and publication of rates for certain tenors of USD LIBOR (1-month, 3-month, 6-month and 12-month) is currently under consultation by the ICE Benchmark Administration and may be extended until June 2023.

It is not possible to predict the further effect of the rules of the FCA, any changes in the methods by which LIBOR is determined, or any other reforms to LIBOR that may be enacted in the United Kingdom, the European Union or elsewhere.

Any such developments may cause LIBOR to perform differently than in the past or cease to exist.

In addition, any other legal or regulatory changes made by the FCA, ICE Benchmark Administration Limited, the European Money Markets Institute (formerly Euribor-EBF), the European Commission or any other successor governance or oversight body, or future changes adopted by such body, in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination, and, in certain situations, could result in LIBOR no longer being determined and published.

If a published U.S.

dollar LIBOR rate is unavailable after 2021, the interest rates on our debt which is indexed to LIBOR will be determined using various alternative methods, any of which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S.

dollar LIBOR was available in its current form.

Further, the same costs and risks that may lead to the discontinuation or unavailability of U.S.

dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine.

Any of these proposals or consequences could have a material adverse effect on our financing costs.

Our strategy of using acquisitions and dispositions to position our businesses may not always be successful, which may have a material adverse impact on our financial results and profitability.

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and unanticipated changes in business and economic conditions affecting an acquisition or other transaction.

The amount and type of consideration and deal charges paid could have a short-term dilutive effect on the Company's earnings per share.

However, such transactions are anticipated to provide long-term economic benefit to the Company.

The amount and type of consideration and deal charges paid could have an adverse or dilutive effect on our profitability and other financial results, despite having anticipated long-term economic benefit to the Company.

If acquisition opportunities are not available, or if one or more acquisitions are not successfully integrated into our operations, this could have a material adverse impact on our financial results and profitability.

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We rely on a combination of trade secrets and non-disclosure and other contractual agreements and technical measures to protect our rights in our intellectual property.

We also depend upon confidentiality agreements with our officers, directors, employees, consultants and subcontractors, as well as collaborative partners, to maintain the proprietary nature of our intellectual property.

These measures may not afford us sufficient or complete protection, and others may independently develop intellectual property similar to ours, otherwise avoid our confidentiality agreements or produce technology that would adversely affect our business, prospects, financial condition and results of operations.

We also depend upon confidentiality agreements with our officers, employees, consultants and subcontractors, as well as collaborative partners, to maintain the proprietary nature of our intellectual property.

These measures may not afford us sufficient or complete protection, and others may independently

develop intellectual property similar to ours, otherwise avoid our confidentiality agreements or produce technology that would adversely affect our business, financial condition or results of operations.

General Risk Factors

Our business, financial condition, results of operations and cash flows may be adversely affected by global public health epidemics and pandemics, including the COVID-19 outbreak.

Our business and operations expose us to risks associated with global health epidemics or pandemics, such as the outbreak of the coronavirus (COVID-19) which has spread from China to many other countries including the United States.

The outbreak has resulted in governments around the world implementing increasingly stringent measures to help the control of the spread of the virus, including quarantines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, and school closures among others.

The COVID-19 pandemic has significantly impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets and increased unemployment levels leading to the Federal Reserve enacting fiscal and monetary stimulus measures to counteract the impacts of COVID-19 in the United States.

Our business, financial condition and results of operations may be adversely affected by global public health epidemics and pandemics, including the COVID-19 outbreak.

Our business and operations expose us to risks associated with global health epidemics or pandemics, such as the global outbreak of the coronavirus (COVID-19).

The outbreak has resulted in governments around the world implementing varying measures to help the control of the spread of the virus, including quarantines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, and school closures among others.

The COVID-19 pandemic has had, and may in the future have, a significant impact on the global economy, including supply chains, financial markets, and labor markets.

We are a company operating in a critical infrastructure industry, as defined by the U.S.

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Consistent with federal guidelines and with state and local orders to date, we currently continue to operate across our business footprint.

Notwithstanding our continued operations, COVID-19 has begun to have and may have additional negative impacts on our operations and customers, which may compress our margins, including as a result of preventative and precautionary measures that we, other businesses, and governments are taking.

Any resulting economic downturn could adversely affect the demand for our products and contribute to volatile supply and demand conditions affecting prices and volumes in the markets for our products and raw materials.

Notwithstanding our continued operations, COVID-19 has had and may continue to have negative impacts on our operations and customers, which may compress our margins, including as a result of preventative and precautionary measures that we, other businesses, and governments are taking.

Any future economic downturn could adversely affect the demand for our products and contribute to volatile supply and demand conditions affecting prices and volumes in the markets for our products and raw materials.

The continued progression of the outbreak could also negatively impact our business or results of operations through the temporary closure or suspension of manufacturing operations at our operating locations or those of our customers or suppliers.

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Our customers may be directly impacted by business curtailments or weak market conditions and may not be able to fulfill their contractual obligations.

Our bank credit agreement requires that we maintain certain financial and other covenants.

Events resulting from the effects of the COVID-19 outbreak may negatively affect our ability to comply with these covenants, which could lead us to seek amendment or waivers from our lenders, limit access to or require accelerated repayment of our existing credit facilities, or require us to pursue alternative financing arrangements.

We have no assurance that any alternative financing arrangements, if required, could be obtained at acceptable terms to us, or at all, given effects of the financial markets at such time.

The extent to which the COVID-19 outbreak may adversely affect our business depends on future developments, which are highly uncertain and unpredictable, including new information about the severity of the outbreak and the effectiveness of actions to contain or mitigate its effects.

As such, the related financial impacts cannot be reasonably estimated at this time.

We encounter significant competition in all areas of our businesses and may be unable to compete effectively, which could result in reduced profitability and loss of market share.

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Competitive pressures can also result in the loss of major customers.

If we cannot compete successfully, our business, financial condition and profitability could be adversely affected.

Our allowance for credit losses may not be adequate to cover actual losses.

An allowance for credit losses is maintained for estimated losses resulting from the inability of our customers to make required payments.

This allowance may not be adequate to cover actual losses, and future provisions for losses could materially and adversely affect our operating results.

The allowance for credit losses is based on an evaluation of the outstanding receivables and existing economic conditions.

The amount of future losses is susceptible to changes in economic, operating and other outside forces and conditions, all of which are beyond our control, and these losses may exceed current

Although management believes that the allowance for credit losses is adequate to cover current estimated losses, management cannot make assurances that we will not further increase the allowance for credit losses based on subsequent events and economic conditions.

A significant increase in the allowance for credit losses could adversely affect our earnings.

Our internal controls over financial reporting could fail to prevent or detect misstatements.

We are subject to Section 404 of The Sarbanes-Oxley Act of 2002 ("Section 404"), and the related rules of the SEC which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting.

Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting.

Effective April 27, 2020, the SEC adopted amendments to the "accelerated filer" and "large accelerated filer" definitions in Rule 12b-2 under the Securities and Exchange Act of 1934.

The amendments exclude from the "accelerated filer" and "large accelerated filer" definitions an issuer that is eligible to be a smaller reporting company and that had a public float outstanding of less than $75 million as of the end of the registrant's most recent fiscal second quarter.

We determined that the Company does not meet the accelerated or large accelerated filer definitions as of June 30, 2020.

For so long as we remain a smaller reporting company and non-accelerated filer, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies, including but not limited to, not being required as a non-accelerated filer to comply with the auditor attestation requirements of Section 404(b).

An independent assessment by our independent registered public accounting firm of the effectiveness of internal control over financial reporting could detect problems our management's assessment may not.

Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.

During the course of the review and testing of our internal control for the purpose of providing the reports required by these rules, we may identify deficiencies and be unable to remediate them before we must provide the required reports.

Furthermore, if we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.

We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall.

In addition, as a public company we are required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act.

Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from the NASDAQ Global Market or other adverse consequences that would materially harm our business.

In addition, if our status as a "non-accelerated filer" changes, we will be required to have our independent registered public accounting firm attest to the effectiveness of internal control over financial reporting.

If our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are an accelerated filer or large accelerated filer, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock could be negatively affected.

Our business could be negatively affected as a result of actions of activist shareholders.

From time to time, we may be subject to proposals by shareholders urging us to take certain corporate actions.

If activist shareholder activities ensue, our business could be adversely impacted because (i) responding to actions by activist shareholders can be costly and time-consuming, and divert the attention of our management and employees;

(ii) perceived uncertainties as to our future direction may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners;

and (iii) pursuit of an activist shareholder's agenda may adversely affect our ability to effectively implement our business strategy and create additional value for our shareholders.

Cyber security risks and cyber incidents could adversely affect our business and disrupt operations.

If we cannot compete successfully, our business, financial condition and results of operation could be adversely affected.

We may discover weaknesses in our internal controls over financial reporting, which may adversely affect investor confidence in the accuracy and completeness of our financial reports and consequently the market price of our securities.

As a public company, we are required to design and maintain proper and effective internal controls over financial reporting and to report any material weaknesses in such internal controls.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a management report on the internal controls over financial reporting, which, when required, must be attested to by our independent registered public accounting firm.

If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.

The process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 is challenging and costly.

In the future, we may not be able to complete our evaluation, testing, and any required remediation in a timely fashion.

If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if, when required, our independent registered public accounting firm

is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities could be negatively affected, and we could become subject to investigations by the Financial Industry Regulatory Authority, the SEC, or other regulatory authorities, which could require additional financial and management resources.

Cybersecurity risks and cyber incidents could adversely affect our business and disrupt operations.

Cyber incidents can result from deliberate attacks or unintentional events.

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The result of these incidents could include, but are not limited to, disrupted operations, misstated financial data, liability for stolen assets or information, increased cyber security protection costs, litigation and reputational damage adversely affecting customer or investor confidence.

We have taken steps to address these concerns and have implemented internal control and security measures to protect our systems and networks from security breaches;

however, there can be no assurance that a system or network failure, or security breach, will not impact our business, results of operations and financial condition.

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