Atkore Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward- looking statements. Factors that could cause or contribute to these differences include those factors discussed below and included or referenced elsewhere in this report, particularly in the sections entitled "Forward-Looking Statements" and "Risk Factors". Impacts of COVID-19 The outbreak of the novel coronavirus (COVID-19) has continued to spread and is currently classified as a pandemic which is contributing to significant volatility and uncertainty in markets and the global economy. This heightened volatility and uncertainty makes it difficult for us to predict the extent of COVID-19’s impact on our operations going forward. As of the date of this filing, customers and end markets face some uncertainty and delays in timing of work. In particular, some construction site closures or project delays have occurred, and job sites have had to adjust to increased physical distancing and health-related precautions. Given the continued volatility within the economic impacts of the pandemic it is too early to make any judgment on how significant COVID-19 effect will become. Factors that contribute to our ability to adjust to the outbreak include currently being deemed an “essential business”, benefiting from mostly localized supply chains, and continuing to take actions within our control to minimize the disruptive impacts of the outbreak. However, there can be no assurance that we will not be materially and adversely impacted in the future. The extent to which COVID-19 will impact our business will depend on future developments and public health advancements, which are highly uncertain and cannot be predicted with confidence. Currently, we have no COVID-19 related facility closures as we look to serve our current levels of demand. In response to COVID-19, we have implemented a variety of countermeasures to promote the health and safety of our employees during this pandemic, including health screening, physical distancing practices, enhanced cleaning, use of personal protective equipment, business travel restrictions, and remote work capabilities. Results of Operations The results of operations for the three months ended March 26, 2021 and March 27, 2020 were as follows: Three months ended ($ in thousands) March 26, 2021 March 27, 2020 Change % Change Net sales $ 639,543 $ 455,654 $ 183,889 40.4 % Cost of sales 399,694 324,051 75,643 23.3 % Gross profit 239,849 131,603 108,246 82.3 % Selling, general and administrative 67,340 62,360 4,980 8.0 % Intangible asset amortization 8,096 8,071 25 0.3 % Operating income 164,413 61,172 103,241 168.8 % Interest expense, net 8,416 10,564 (2,148) (20.3) % Other income, net (7,240) (1,685) (5,555) 329.7 % Income before income taxes 163,237 52,293 110,944 212.2 % Income tax expense 38,304 13,100 25,204 192.4 % Net income $ 124,933 $ 39,193 $ 85,740 218.8 % 21 Net sales % Change Volume 0.1 % Average selling prices 35.6 % Foreign exchange 1.0 % Acquisitions 3.6 % Other 0.1 % Net sales 40.4 % Net sales increased by $183.9 million, or 40.4%, to $639.5 million for the three months ended March 26, 2021, compared to $455.7 million for the three months ended March 27, 2020. The increase in net sales is primarily attributed to increased average selling prices of $162.4 million which was mostly driven by the PVC electrical conduit and fittings product category within the Electrical segment and increased net sales of $16.2 million due to the acquisitions of Queen City Plastics and FRE Composites Group. Pricing for PVC products, as well as other parts of the business, are expected to return to more normal historical levels over time, but that time period is uncertain. Sales volume was mixed with increased volume of $2.4 million primarily from international cable management products sold within the Electrical segment, partially offset by lower volume of $1.9 million in the Safety and Infrastructure segment. Cost of sales % Change Volume 0.4 % Average input costs 18.2 % Foreign exchange 1.2 % Acquisitions 2.2 % Other 1.3 % Cost of sales 23.3 % Cost of sales increased by $75.6 million, or 23.3%, to $399.7 million for the three months ended March 26, 2021 compared to $324.1 million for the three months ended March 27, 2020. The increase was primarily due to higher input costs of steel, copper and PVC resin of $58.9 million and due to the acquisitions of Queen City Plastics and FRE Composites Group of $7.1 million. Selling, general and administrative Selling, general and administrative expenses increased by $5.0 million, or 8.0%, to $67.3 million for the three months ended March 26, 2021 compared to $62.4 million for the three months ended March 27, 2020. The increase was primarily due to higher variable compensation of $6.4 million and the acquisitions of Queen City Plastics and the FRE Composites Group of $1.6 million, offset by productivity efficiencies of $3.2 million. Intangible asset amortization Intangible asset amortization expense remained consistent at $8.1 million for the three months ended March 26, 2021 compared to $8.1 million for the three months ended March 27, 2020. Interest expense, net Interest expense, net decreased by $2.1 million, or 20.3% to $8.4 million for the three months ended March 26, 2021 compared to $10.6 million for the three months ended March 27, 2020. The decrease is primarily due to the Company's principal prepayments in fiscal 2020 and 2021, resulting in a lower principal balance in fiscal 2021 from which interest expense was derived. 22 Other income, net Other income, net increased by $5.6 million to $7.2 million for the three months ended March 26, 2021 compared to $1.7 million for the three months ended March 27, 2020. The increase was primarily due to a $6.0 million business interruption insurance recovery from a flood at one of the Company’s manufacturing facilities. See Note 14, ''Commitments and Contingencies'' to the accompanying condensed consolidated financial statements included elsewhere in this Quarterly Report. Income tax expense The Company's income tax rate decreased to 23.5% for the three months ended March 26, 2021 compared to 25.1% for the three months ended March 27, 2020. The decrease in the current period effective tax rate was primarily due to an increase in the excess tax benefit associated with stock compensation. Segment results Effective in the first quarter of fiscal 2021, the Company renamed and redefined its reportable segments. The Electrical Raceway segment was renamed as the Electrical segment. The Electrical segment manufactures high quality products used in the construction of electrical power systems including conduit, cable, and installation accessories. This segment serves contractors in partnership with the electrical wholesale channel. The Mechanical Products & Solutions segment was renamed as the Safety & Infrastructure segment. This segment designs and manufactures solutions including metal framing, mechanical pipe, perimeter security, and cable management for the protection and reliability of critical infrastructure. These solutions are marketed to contractors, original equipment manufacturers and end users. Effective in the first quarter of fiscal 2021, the Company implemented a realignment (the “Realignment”) of its segment financial reporting structure. The Company’s domestic cable management and prefabrication modular businesses had historically been reported in the Electrical Raceway segment. Due to transitions in the Company’s Executive Leadership Team, these businesses are now reported in the Safety & Infrastructure segment. The Realignment reflects how the Company’s Chief Operating Decision Maker now assesses the operating performance and allocates resources to the Safety & Infrastructure segment. The Company reflected these changes to its segment information retrospectively to the earliest period presented which resulted in a transfer of external net sales, intersegment sales, total assets, and Adjusted EBITDA from the Electrical segment to the Safety & Infrastructure segment. These changes had no impact on the Company’s previously reported consolidated net sales, operating income, net income or earnings per share. Both segments use Adjusted EBITDA as the primary measure of profit and loss. Segment Adjusted EBITDA is income (loss) before income taxes, adjusted to exclude unallocated expenses, depreciation and amortization, interest expense, net, restructuring charges, stock-based compensation, certain legal matters, transaction costs and other items, such as inventory reserves and adjustments, loss on disposal of property, plant and equipment, insurance recovery related to damages of property, plant and equipment, release of indemnified uncertain tax positions, and realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives. We define segment Adjusted EBITDA margin as segment Adjusted EBITDA as a percentage of segment Net sales. Electrical Three months ended ($ in thousands) March 26, 2021 March 27, 2020 Change % Change Net sales $ 487,500 $ 323,218 $ 164,282 50.8 % Adjusted EBITDA $ 188,826 $ 77,233 $ 111,593 144.5 % Adjusted EBITDA margin 38.7 % 23.9 % 23 Net sales % Change Volume 0.7 % Average selling prices 43.7 % Foreign exchange 1.4 % Acquisitions 5.0 % Net sales 50.8 % Net sales increased by $164.3 million, or 50.8%, to $487.5 million for the three months ended March 26, 2021 compared to $323.2 million for the three months ended March 27, 2020. The increase in net sales is primarily attributed to increased average selling prices of $141.4 million which was mostly driven by the PVC electrical conduit and fittings category and the metal electric conduit and fittings product categories and increased net sales of $16.2 million from the acquisitions of Queen City Plastics and FRE Composites Group. Additionally, sales volume increased $2.4 million primarily due to an increase in international cable management products sold, partially offset by declines in the armored cable and fittings and the metal electrical conduit and fittings product categories. Adjusted EBITDA Adjusted EBITDA for the three months ended March 26, 2021 increased by $111.6 million, or 144.5%, to $188.8 million from $77.2 million for the three months ended March 27, 2020. Adjusted EBITDA margins increased to 38.7% for the three months ended March 26, 2021 compared to 23.9% for the three months ended March 27, 2020. The increase in Adjusted EBITDA and Adjusted EBITDA margins was largely due to higher average selling prices in relation to changes in input costs, operational efficiencies and contributions from the acquisitions of Queen City Plastics and FRE Composites Group. Safety & Infrastructure Three months ended ($ in thousands) March 26, 2021 March 27, 2020 Change % Change Net sales $ 152,700 $ 133,130 $ 19,570 14.7 % Adjusted EBITDA $ 16,193 $ 17,888 $ (1,695) (9.5) % Adjusted EBITDA margin 10.6 % 13.4 % Net sales % Change Volume (1.4) % Average selling prices 15.7 % Other 0.4 % Net sales 14.7 % Net sales increased by $19.6 million, or 14.7%, for the three months ended March 26, 2021 to $152.7 million compared to $133.1 million for the three months ended March 27, 2020. The increase is primarily attributed to increased average selling prices of $21.0 million driven by higher input costs of steel, partially offset by lower volumes of $1.9 million primarily due to project delays and steel supply disruptions related to COVID-19. Adjusted EBITDA Adjusted EBITDA decreased by $1.7 million, or 9.5%, to $16.2 million for the three months ended March 26, 2021 compared to $17.9 million for the three months ended March 27, 2020. Adjusted EBITDA margins decreased to 10.6% for the three months ended March 26, 2021 compared to 13.4% for the three months ended March 27, 2020. The Adjusted EBITDA decrease is primarily due to the volume declines discussed above. 24 The results of operations for the six months ended March 26, 2021 and March 27, 2020 were as follows: Six months ended ($ in thousands) March 26, 2021 March 27, 2020 Change % Change Net sales $ 1,150,625 $ 903,102 $ 247,523 27.4 % Cost of sales 721,585 654,655 66,930 10.2 % Gross profit 429,040 248,447 180,593 72.7 % Selling, general and administrative 128,418 118,575 9,843 8.3 % Intangible asset amortization 16,356 16,184 172 1.1 % Operating income 284,266 113,688 170,578 150.0 % Interest expense, net 16,670 21,184 (4,514) (21.3) % Other income, net (7,671) (1,919) (5,752) 299.7 % Income before income taxes 275,267 94,423 180,844 191.5 % Income tax expense 65,268 20,440 44,828 219.3 % Net income $ 209,999 $ 73,983 $ 136,016 183.8 % Net sales % Change Volume (3.0) % Average selling prices 27.1 % Foreign exchange 0.7 % Acquisitions 2.7 % Other (0.1) % Net sales 27.4 % Net sales increased by $247.5 million, or 27.4%, to $1,150.6 million for the six months ended March 26, 2021, compared to $903.1 million for the six months ended March 27, 2020. The increase in net sales is primarily attributed to increased average selling prices of $244.4 million which was mostly driven by the PVC electrical conduit and fittings product category within the Electrical segment and increased net sales of $24.7 million from the acquisitions of Queen City Plastics and FRE Composites Group. Pricing for PVC products, as well as other parts of the business, are expected to return to more normal historical levels over time, but that time period is uncertain. The increase was partially offset by lower volume of $27.3 million primarily attributed to declines in the armored cable and fittings and the metal electrical conduit and fittings product categories within the Electrical segment. Cost of sales % Change Volume (3.0) % Average input costs 11.8 % Foreign exchange 0.8 % Acquisitions 1.6 % Other (1.1) % Cost of sales 10.2 % Cost of sales increased by $66.9 million, or 10.2% to $721.6 million for the six months ended March 26, 2021 compared to $654.7 million for the six months ended March 27, 2020. The increase was primarily due to higher input costs for steel, copper and resin of $77.5 million and the acquisitions of Queen City Plastics and FRE Composites Group of $10.8 25 million. The increases were partially offset by lower volume of $19.7 million and favorable inventory reserve adjustments of $11.7 million. Selling, general and administrative Selling, general and administrative expenses increased by $9.8 million, or 8.3% to $128.4 million for the six months ended March 26, 2021 compared to $118.6 million for the six months ended March 27, 2020. The increase was primarily due to higher variable compensation of $9.7 million, higher stock compensation expense of $2.3 million and the acquisitions of Queen City Plastics and the FRE Composites Group of $1.7 million, partially offset by productivity efficiencies of $6.7 million. Intangible asset amortization Intangible asset amortization expense remained consistent at $16.4 million for the six months ended March 26, 2021 compared to $16.2 million for the six months ended March 27, 2020. Interest expense, net Interest expense, net, decreased by $4.5 million, or 21.3% to $16.7 million for the six months ended March 26, 2021 compared to $21.2 million for the six months ended March 27, 2020. The decrease is primarily due to the Company's principal prepayments in fiscal 2020 and 2021, resulting in a lower principal balance in fiscal 2021 from which interest expense was derived. Other income, net Other income, net increased by $5.8 million to $7.7 million for the six months ended March 26, 2021 compared to $1.9 million for the six months ended March 27, 2020. The increase was primarily due to a $6.0 million business interruption insurance recovery from a flood at one of the Company’s manufacturing facilities. See Note 14, ''Commitments and Contingencies'' to the accompanying condensed consolidated financial statements included elsewhere in this Quarterly Report. Income tax expense The Company's income tax rate increased to 23.7% for the six months ended March 26, 2021 compared to 21.6% for the six months ended March 27, 2020. The increase in the six month period effective tax rate was primarily due to a smaller increase in the net discrete tax benefit compared to the increase in earnings period over period. Electrical Six months ended ($ in thousands) March 26, 2021 March 27, 2020 Change % Change Net sales $ 874,645 $ 647,765 $ 226,880 35.0 % Adjusted EBITDA $ 322,099 $ 145,352 $ 176,747 121.6 % Adjusted EBITDA margin 36.8 % 22.4 % Net sales % Change Volume (4.2) % Average selling prices 34.5 % Foreign exchange 0.9 % Acquisitions 3.8 % Net sales 35.0 % Net sales increased by $226.9 million, or 35.0%, to $874.6 million for the six months ended March 26, 2021 compared to $647.8 million for the six months ended March 27, 2020. The increase in net sales is primarily attributed to increased 26 average selling prices of $223.3 million which was mostly driven by the PVC electrical conduit and fittings and the metal electrical conduit and fittings product categories and increased net sales of $24.7 million from the acquisitions of Queen City Plastics and FRE Composites Group. The increase was partially offset by lower volume of $27.0 million primarily attributed to declines in the armored cable and fittings and the metal electrical conduit and fittings product categories. Adjusted EBITDA Adjusted EBITDA for the six months ended March 26, 2021 increased by $176.7 million, or 121.6%, to $322.1 million from $145.4 million for the six months ended March 27, 2020. Adjusted EBITDA margins increased to 36.8% for the six months ended March 26, 2021 compared to 22.4% for the six months ended March 27, 2020. The increase in Adjusted EBITDA and Adjusted EBITDA margins was largely due to higher average selling prices in relation to changes in input costs, operational efficiencies and contributions from the acquisitions of Queen City Plastics and FRE Composites Group. Safety & Infrastructure Six months ended ($ in thousands) March 26, 2021 March 27, 2020 Change % Change Net sales $ 277,465 $ 256,638 $ 20,827 8.1 % Adjusted EBITDA $ 30,445 $ 36,615 $ (6,170) (16.9) % Adjusted EBITDA margin 11.0 % 14.3 % Net sales Change (%) Volume (0.1) % Average selling prices 8.2 % Net sales 8.1 % Net sales increased by $20.8 million, or 8.1%, for the six months ended March 26, 2021 to $277.5 million compared to $256.6 million for the six months ended March 27, 2020. The increase is primarily attributed to increased average selling prices of $21.0 million primarily driven by higher input costs of steel. Adjusted EBITDA Adjusted EBITDA decreased $6.2 million, or 16.9%, to $30.4 million for the six months ended March 26, 2021 compared to $36.6 million for the six months ended March 27, 2020. Adjusted EBITDA margins decreased to 11.0% for the six months ended March 26, 2021 compared to 14.3% for the six months ended March 27, 2020. The Adjusted EBITDA decrease is primarily due to the timing lag in reflecting the rising input costs of steel in average selling prices and constrained supply chains in the steel market. Liquidity and Capital Resources We believe we have sufficient liquidity to support our ongoing operations and to invest in future growth and create value for stockholders. Our cash and cash equivalents were $304.5 million as of March 26, 2021, of which $53.2 million was held at non-U.S. subsidiaries. Those cash balances at foreign subsidiaries may be subject to withholding or local country taxes if the Company's intention to permanently reinvest such income were to change and cash was repatriated to the United States. In general, we require cash to fund working capital investments, acquisitions, capital expenditures, debt repayment, interest payments, taxes and share repurchases. We have access to the ABL Credit Facility to fund operational needs. As of March 26, 2021, there were no outstanding borrowings under the ABL Credit Facility and $9.5 million of letters of credit issued under the ABL Credit Facility. The borrowing base was estimated to be $325.0 million and approximately $315.5 million was available under the ABL Credit Facility as of March 26, 2021. Outstanding letters of credit count as utilization of the commitments under the ABL Credit Facility and reduce the amount available for borrowings. 27 The agreements governing the First Lien Term Loan Facility and the ABL Credit Facility (collectively, the "Credit Facilities") contain covenants that limit or restrict AII's ability to incur additional indebtedness, repurchase debt, incur liens, sell assets, make certain payments (including dividends) and enter into transactions with affiliates. AII has been in compliance with the covenants under the agreements for all periods presented. We may from time to time repurchase our debt or take other steps to reduce our debt. These actions may include open market repurchases, negotiated repurchases or opportunistic refinancing of debt. The amount of debt, if any, that may be repurchased or refinanced will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations. Our use of cash may fluctuate during the year and from year to year due to differences in demand and changes in economic conditions primarily related to the prices of commodities we purchase. Capital expenditures have historically been necessary to expand and update the production capacity and improve the productivity of our manufacturing operations. Our ongoing liquidity needs are expected to be funded by cash on hand, net cash provided by operating activities and, as required, borrowings under the ABL Credit Facility. We expect that cash provided from operations and available capacity under the ABL Credit Facility will provide sufficient funds to operate our business, make expected capital expenditures and meet our liquidity requirements for at least the next twelve months, including payment of interest and principal on our debt. Limitations on Distributions and Dividends by Subsidiaries AI, AII, and AIH are each holding companies, and as such have no independent operations or material assets other than ownership of equity interests in their respective subsidiaries. Each company depends on its respective subsidiaries to distribute funds to it so that it may pay obligations and expenses, including satisfying obligations with respect to indebtedness. The ability of our subsidiaries to make distributions and dividends to us depends on their operating results, cash requirements and financial and general business conditions, as well as restrictions under the laws of our subsidiaries' jurisdictions. The agreements governing the ABL Credit Facility significantly restrict the ability of our subsidiaries, including AII, to pay dividends, make loans or otherwise transfer assets from AII and, in turn, to us. Further, AII's subsidiaries are permitted under the terms of the ABL Credit Facility to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans by such subsidiaries to AII and, in turn, to us. The First Lien Term Loan Facility requires AII to meet a certain consolidated coverage ratio on an incurrence basis in connection with additional indebtedness. The ABL Credit Facility contains limits on additional indebtedness based on various conditions for incurring the additional debt. The table below summarizes cash flow information derived from our statements of cash flows for the periods indicated: Six months ended (in thousands) March 26, 2021 March 27, 2020 Cash flows provided by (used in): Operating activities $ 153,246 $ 49,284 Investing activities (60,935) (17,109) Financing activities (75,404) (17,421) Operating activities During the six months ended March 26, 2021, the Company was provided $153.2 million by operating activities compared to $49.3 million during the six months ended March 27, 2020. The $104.0 million increase in cash provided was primarily due to higher cash flows from the increase in operating income of $170.6 million, including a business interruption insurance recovery of $6.0 million. This was partially offset by a $79.7 million increase in cash used in working capital primarily driven by higher sales. 28 Investing activities During the six months ended March 26, 2021, the Company used $60.9 million in investing activities compared to $17.1 million during the six months ended March 27, 2020. The increase in cash used in investing activities is primarily due the acquisition of Queen City Plastics for $6.2 million and FRE Composites Group for $37.1 million during the six months ended March 26, 2021. Financing Activities During the six months ended March 26, 2021, the Company used $75.4 million in financing activities compared to $17.4 million used during the six months ended March 27, 2020. The increase in cash used in financing activities is primarily due to $40.0 million of debt repayments and $35.0 million used to repurchase common stock during the six months ended March 26, 2021. Contractual Obligations and Commitments There have been no material changes in our contractual obligations and commitments since the filing of our Annual Report on Form 10-K. Change in Critical Accounting Policies and Estimates There have been no material changes in our critical accounting policies and estimates since the filing of our Annual Report on Form 10-K. Recent Accounting Standards See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' to our unaudited condensed consolidated financial statements. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's beliefs and assumptions and information currently available to management. Some of the forward-looking statements can be identified by the use of forward-looking terms such as "believes," "expects," "may," "will," "shall," "should," "would," "could," "seeks," "aims," "projects," "is optimistic," "intends," "plans," "estimates," "anticipates" or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report on From 10-Q and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, financial position; results of operations; cash flows; prospects; growth strategies or expectations; customer retention; the outcome (by judgment or settlement) and costs of legal, administrative or regulatory proceedings, investigations or inspections, including, without limitation, collective, representative or class action litigation; and the impact of prevailing economic conditions. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors, including, without limitation, the risks and uncertainties discussed or referenced under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements. Additional factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation: 29 • declines in, and uncertainty regarding, the general business and economic conditions in the United States and international markets in which we operate; • weakness or another downturn in the United States non-residential construction industry; • widespread outbreak of diseases, such as the novel coronavirus (COVID-19) pandemic; • changes in prices of raw materials; • pricing pressure, reduced profitability, or loss of market share due to intense competition; • availability and cost of third-party freight carriers and energy; • high levels of imports of products similar to those manufactured by us; • changes in federal, state, local and international governmental regulations and trade policies; • adverse weather conditions; • increased costs relating to future capital and operating expenditures to maintain compliance with environmental, health and safety laws; • reduced spending by, deterioration in the financial condition of, or other adverse developments, including inability or unwillingness to pay our invoices on time, with respect to one or more of our top customers; • increases in our working capital needs, which are substantial and fluctuate based on economic activity and the market prices for our main raw materials, including as a result of failure to collect, or delays in the collection of, cash from the sale of manufactured products; • work stoppage or other interruptions of production at our facilities as a result of disputes under existing collective bargaining agreements with labor unions or in connection with negotiations of new collective bargaining agreements, as a result of supplier financial distress, or for other reasons; • changes in our financial obligations relating to pension plans that we maintain in the United States; • reduced production or distribution capacity due to interruptions in the operations of our facilities or those of our key suppliers; • loss of a substantial number of our third-party agents or distributors or a dramatic deviation from the amount of sales they generate; • security threats, attacks, or other disruptions to our information systems, or failure to comply with complex network security, data privacy and other legal obligations or the failure to protect sensitive information; • possible impairment of goodwill or other long-lived assets as a result of future triggering events, such as declines in our cash flow projections or customer demand and changes in our business and valuation assumptions; • safety and labor risks associated with the manufacture and in the testing of our products; • product liability, construction defect and warranty claims and litigation relating to our various products, as well as government inquiries and investigations, and consumer, employment, tort and other legal proceedings; • our ability to protect our intellectual property and other material proprietary rights; • risks inherent in doing business internationally; • changes in foreign laws and legal systems, including as a result of Brexit; • our inability to introduce new products effectively or implement our innovation strategies; • our inability to continue importing raw materials, component parts and/or finished goods; • the incurrence of liabilities and the issuance of additional debt or equity in connection with acquisitions, joint ventures or divestitures and the failure of indemnification provisions in our acquisition agreements to fully protect us from unexpected liabilities; • failure to manage acquisitions successfully, including identifying, evaluating, and valuing acquisition targets and integrating acquired companies, businesses or assets; • the incurrence of additional expenses, increase in complexity of our supply chain and potential damage to our reputation with customers resulting from regulations related to "conflict minerals"; • disruptions or impediments to the receipt of sufficient raw materials resulting from various anti-terrorism security measures; • restrictions contained in our debt agreements; • failure to generate cash sufficient to pay the principal of, interest on, or other amounts due on our debt; • challenges attracting and retaining key personnel or high-quality employees; • future changes to tax legislation; • failure to generate sufficient cash flow from operations or to raise sufficient funds in the capital markets to satisfy existing obligations and support the development of our business; and • other risks and factors described in this report and from time to time in documents that we file with the SEC. You should read this quarterly report completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements attributable to us or persons acting on our behalf that are made in this quarterly report are qualified in their entirety by these cautionary statements. These forward-looking statements are made only as of the date of this quarterly report, and we do not undertake any obligation, other than as may be required by law, 30 to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to the quantitative and qualitative disclosures about market risks previously disclosed in our Annual Report on Form 10-K.