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. ” Incremental Market Uncertainties The outbreak of the novel coronavirus ( “ COVID-19 ” ) has continued to spread and is currently classified as a pandemic which is contributing to 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. Factors that contribute to our ability to adjust to the outbreak include 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. In addition to the uncertainties brought about by COVID-19, recent events, including central bank interest rate increases and the Russia-Ukraine conflict, are creating additional uncertainty in the global economy, generally, and in the markets we operate in. COVID-19, the Russia-Ukraine conflict and other factors have had and will continue to have adverse effects on global supply chains, which may impact some aspects of our business. Furthermore, as hurricane season approaches, we are mindful of the effects that adverse weather can have on our domestic supply chain. RESULTS OF OPERATIONS The consolidated results of operations for the three months ended March 25, 2022 and March 26, 2021 were as follows: Three months ended (in thousands) March 25, 2022 March 26, 2021 Change % Change Net sales $ 982,573 $ 639,543 $ 343,030 53.6 % Cost of sales 566,157 399,694 166,463 41.6 % Gross profit 416,416 239,849 176,567 73.6 % Selling, general and administrative 88,918 67,340 21,578 32.0 % Intangible asset amortization 8,701 8,096 605 7.5 % Operating income 318,797 164,413 154,384 93.9 % Interest expense, net 7,514 8,416 (902) (10.7) % Other income, net (807) (7,240) 6,433 (88.9) % Income before income taxes 312,090 163,237 148,853 91.2 % Income tax expense 78,613 38,304 40,309 105.2 % Net income $ 233,477 $ 124,933 $ 108,544 86.9 % Net sales 23 % Change Volume (1.3) % Average selling prices 52.9 % Foreign exchange (0.4) % Acquisitions 2.3 % Other 0.1 % Net sales 53.6 % Net sales increased by $343.0 million, or 53.6%, to $982.6 million for the three months ended March 25, 2022, compared to $639.5 million for the three months ended March 26, 2021. The increase in net sales is primarily attributed to increased average selling prices across the Company’s products of $338.7 million which were mostly driven by the plastic pipe and conduit product category within the Electrical segment and increased net sales of $14.6 million from companies acquired during fiscal 2021 and fiscal 2022. These increases are offset by decreased sales volume of $8.5 million across varying product categories within both the Electrical and the Safety & Infrastructure segments. Pricing for PVC products, as well as other parts of the business, is expected to return to more normal historical levels over time, but that time is uncertain. Cost of sales % Change Volume (1.9) % Average input costs 37.9 % Foreign exchange (0.8) % Acquisitions 2.5 % Other 3.9 % Cost of sales 41.6 % Cost of sales increased by $166.5 million, or 41.6%, to $566.2 million for the three months ended March 25, 2022 compared to $399.7 million for the three months ended March 26, 2021. The increase was primarily due to higher input costs of steel, copper and PVC resin of $151.5 million and recent acquisitions during fiscal 2021 and fiscal 2022 of $10.1 million partially offset by lower sales volume of $7.7 million across varying product categories within both the Electrical and the Safety & Infrastructure segments. Selling, general and administrative Selling, general and administrative expenses increased by $21.6 million, or 32.0%, to $88.9 million for the three months ended March 25, 2022 compared to $67.3 million for the three months ended March 26, 2021. The increase was primarily due to higher sales commission expense of $8.1 million, increased general spending on business improvement initiatives of $5.8 million, higher variable compensation of $2.0 million and recent acquisitions in fiscal 2021 and 2022 of $1.6 million. The remaining increase of $4.1 million is spread across a variety of other spend categories. Intangible asset amortization Intangible asset amortization expense increased to $8.7 million for the three months ended March 25, 2022 compared to $8.1 million for the three months ended March 26, 2021. The increase in intangible asset amortization was driven by the acquisition of definite-lived intangible assets in fiscal 2022. Interest expense, net Interest expense, net decreased by $0.9 million, or 10.7% to $7.5 million for the three months ended March 25, 2022 compared to $8.4 million for the three months ended March 26, 2021. The decrease is primarily due to interest expense being derived from a lower average principal balance resulting from the Company’s fiscal 2021 debt restructuring transactions. 24 Other income, net Other income, net decreased to $0.8 million for the three months ended March 25, 2022 compared to $7.2 million for the three months ended March 26, 2021. The decrease was primarily due to a $6.0 million business interruption insurance recovery in fiscal 2021 from a flood at one of the Company’s manufacturing facilities. Income tax expense The Company ’ s income tax rate increased to 25.2% for the three months ended March 25, 2022 compared to 23.5% for the three months ended March 26, 2021. The increase in the current period effective tax rate was primarily driven by a decrease in the excess tax benefit associated with stock compensation. SEGMENT RESULTS 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 Safety & Infrastructure 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. 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, stock-based compensation, loss on extinguishment of debt, certain legal matters, 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, realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives, gain on purchase of business, restructuring costs and transaction costs. We define segment Adjusted EBITDA margin as segment Adjusted EBITDA as a percentage of segment Net sales. Electrical Three months ended (in thousands) March 25, 2022 March 26, 2021 Change % Change Net sales $ 759,877 $ 487,500 $ 272,377 55.9 % Adjusted EBITDA $ 330,970 $ 188,826 $ 142,144 75.3 % Adjusted EBITDA margin 43.6 % 38.7 % Net sales % Change Volume 0.1 % Average selling prices 54.1 % Foreign exchange (0.6) % Acquisitions 1.9 % Other 0.4 % Net sales 55.9 % 25 Net sales increased by $272.4 million, or 55.9%, to $759.9 million for the three months ended March 25, 2022 compared to $487.5 million for the three months ended March 26, 2021. The increase in net sales is primarily attributed to increased average selling prices of $263.4 million which were mostly driven by the plastic pipe and conduit product category and increased net sales of $9.2 million from companies acquired during fiscal 2021 and fiscal 2022. Pricing for PVC products, as well as other parts of the business, is expected to return to more normal historical levels over time, but that time is uncertain. Adjusted EBITDA Adjusted EBITDA for the three months ended March 25, 2022 increased by $142.1 million, or 75.3%, to $331.0 million from $188.8 million for the three months ended March 26, 2021. Adjusted EBITDA margins increased to 43.6% for the three months ended March 25, 2022 compared to 38.7% for the three months ended March 26, 2021. The increase in Adjusted EBITDA and Adjusted EBITDA margins was largely due to higher average selling prices over input costs. Safety & Infrastructure Three months ended (in thousands) March 25, 2022 March 26, 2021 Change % Change Net sales $ 224,285 $ 152,700 $ 71,585 46.9 % Adjusted EBITDA $ 28,917 $ 16,193 $ 12,724 78.6 % Adjusted EBITDA margin 12.9 % 10.6 % Net sales % Change Volume (5.9) % Average selling prices 49.3 % Acquisitions 3.5 % Other — % Net sales 46.9 % Net sales increased by $71.6 million, or 46.9%, for the three months ended March 25, 2022 to $224.3 million compared to $152.7 million for the three months ended March 26, 2021. The increase is primarily attributed to increased average selling prices of $75.2 million driven by higher input costs of steel and increased net sales of $5.4 million from companies acquired during fiscal 2022 partially offset by lower volumes of $9.0 million primarily in the mechanical pipe product line. Adjusted EBITDA Adjusted EBITDA increased by $12.7 million, or 78.6%, to $28.9 million for the three months ended March 25, 2022 compared to $16.2 million for the three months ended March 26, 2021. Adjusted EBITDA margins increased to 12.9% for the three months ended March 25, 2022 compared to 10.6% for the three months ended March 26, 2021. The Adjusted EBITDA increase is primarily due to the price increases, partially offset by lower volume, discussed above. The consolidated results of operations for the six months ended March 25, 2022 and March 26, 2021 were as follows: 26 Six months ended (in thousands) March 25, 2022 March 26, 2021 Change % Change Net sales $ 1,823,374 $ 1,150,625 $ 672,749 58.5 % Cost of sales 1,052,150 721,585 330,565 45.8 % Gross profit 771,224 429,040 342,184 79.8 % Selling, general and administrative 167,069 128,418 38,651 30.1 % Intangible asset amortization 16,930 16,356 574 3.5 % Operating income 587,225 284,266 302,959 106.6 % Interest expense, net 14,432 16,670 (2,238) (13.4) % Other income, net (1,115) (7,671) 6,556 (85.5) % Income before income taxes 573,908 275,267 298,641 108.5 % Income tax expense 135,588 65,268 70,320 107.7 % Net income $ 438,320 $ 209,999 $ 228,321 108.7 % Net sales % Change Volume (5.1) % Average selling prices 61.5 % Foreign exchange (0.1) % Acquisitions 2.2 % Net sales 58.5 % Net sales increased by $672.7 million, or 58.5%, to $1,823.4 million for the six months ended March 25, 2022, compared to $1,150.6 million for the six months ended March 26, 2021. The increase in net sales is primarily attributed to increased average selling prices of $707.9 million which were mostly driven by the plastic pipe and conduit product category within the Electrical segment and increased net sales of $25.6 million from companies acquired during fiscal 2021 and fiscal 2022. These increases are offset by decreased sales volume of $59.2 million across varying product categories within both the Electrical and the Safety & Infrastructure segments. 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 is uncertain. Cost of sales % Change Volume (5.6) % Average input costs 44.6 % Foreign exchange (0.2) % Acquisitions 2.2 % Other 4.8 % Cost of sales 45.8 % Cost of sales increased by $330.6 million, or 45.8% to $1,052.2 million for the six months ended March 25, 2022 compared to $721.6 million for the six months ended March 26, 2021. The increase in cost of sales was primarily due to higher input costs for steel, copper and resin of $321.7 million and recent acquisitions in fiscal 2021 and fiscal 2022 of $15.9 million, partially offset by lower sales volume of $40.3 million across varying product categories within both the Electrical and the Safety & Infrastructure segments. Selling, general and administrative 27 Selling, general and administrative expenses increased by $38.7 million, or 30.1% to $167.1 million for the six months ended March 25, 2022 compared to $128.4 million for the six months ended March 26, 2021. The increase was primarily due to higher sales commission expense of $16.0 million, increased general spending on business improvement initiatives of $9.4 million, higher variable compensation of $4.2 million, recent acquisitions in fiscal 2021 and 2022 of $1.6 million and transaction costs of $1.1 million. The remaining increase of $6.4 million is spread across a variety of other spend categories. Intangible asset amortization Intangible asset amortization expense increased to $16.9 million for the six months ended March 25, 2022 compared to $16.4 million for the six months ended March 26, 2021. The increase in intangible asset amortization was driven by the acquisition of definite-lived intangible assets in fiscal 2022. Interest expense, net Interest expense, net, decreased by $2.2 million, or 13.4% to $14.4 million for the six months ended March 25, 2022 compared to $16.7 million for the six months ended March 26, 2021. 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 decreased to $1.1 million for the six months ended March 25, 2022 compared to $7.7 million for the six months ended March 26, 2021. The decrease was primarily due to a $6.0 million business interruption insurance recovery in fiscal 2021 from a flood at one of the Company’s manufacturing facilities. Income tax expense The Company ’ s income tax rate decreased to 23.6% for the six months ended March 25, 2022 compared to 23.7% for the six months ended March 26, 2021. The decrease in the six month period effective tax rate was primarily due to an increase in the excess tax benefit associated with stock compensation partially offset by the increase in non-deductible executive compensation. SEGMENT RESULTS Electrical Six months ended (in thousands) March 25, 2022 March 26, 2021 Change % Change Net sales $ 1,401,560 $ 874,645 $ 526,915 60.2 % Adjusted EBITDA $ 610,517 $ 322,099 $ 288,418 89.5 % Adjusted EBITDA margin 43.6 % 36.8 % Net sales % Change Volume (2.6) % Average selling prices 60.5 % Foreign exchange (0.2) % Acquisitions 2.3 % Other 0.2 % Net sales 60.2 % 28 Net sales increased by $526.9 million, or 60.2%, to $1,401.6 million for the six months ended March 25, 2022 compared to $874.6 million for the six months ended March 26, 2021. The increase in net sales is primarily attributed to increased average selling prices of $529.6 million which were mostly driven by the plastic pipe and conduit product category and increased net sales of $20.2 million from companies acquired during fiscal 2021 and fiscal 2022. These increases were partially offset by decreased sales volume of $22.8 million. 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 is uncertain. Adjusted EBITDA Adjusted EBITDA for the six months ended March 25, 2022 increased by $288.4 million, or 89.5%, to $610.5 million from $322.1 million for the six months ended March 26, 2021. Adjusted EBITDA margins increased to 43.6% for the six months ended March 25, 2022 compared to 36.8% for the six months ended March 26, 2021. The increase in Adjusted EBITDA and Adjusted EBITDA margins was largely due to higher average selling prices in relation to changes in input costs, and contributions from acquisitions. Safety & Infrastructure Six months ended (in thousands) March 25, 2022 March 26, 2021 Change % Change Net sales $ 424,795 $ 277,465 $ 147,330 53.1 % Adjusted EBITDA $ 56,349 $ 30,445 $ 25,904 85.1 % Adjusted EBITDA margin 13.3 % 11.0 % Net sales Change (%) Volume (13.1) % Average selling prices 64.3 % Acquisitions 2.0 % Other (0.1) % Net sales 53.1 % Net sales increased by $147.3 million, or 53.1%, for the six months ended March 25, 2022 to $424.8 million compared to $277.5 million for the six months ended March 26, 2021. The increase is primarily attributed to increased average selling prices of $178.3 million primarily driven by higher input costs and increased net sales of $5.4 million from companies acquired during fiscal 2022 partially offset by lower volumes of $36.4 million primarily in the mechanical pipe product line. Adjusted EBITDA Adjusted EBITDA increased $25.9 million, or 85.1%, to $56.3 million for the six months ended March 25, 2022 compared to $30.4 million for the six months ended March 26, 2021. Adjusted EBITDA margins increased to 13.3% for the six months ended March 25, 2022 compared to 11.0% for the six months ended March 26, 2021. The Adjusted EBITDA increase is primarily due to the price increases, partially offset by lower volume, discussed above. 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 $390.4 million as of March 25, 2022, of which $53.7 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. 29 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 25, 2022, there were no outstanding borrowings under the ABL Credit Facility and $12.1 million of letters of credit issued under the ABL Credit Facility. The borrowing base was estimated to be $325.0 million and approximately $312.9 million was available under the ABL Credit Facility as of March 25, 2022. Outstanding letters of credit count as utilization of the commitments under the ABL Credit Facility and reduce the amount available for borrowings. The agreements governing the Senior Secured 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 the 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 payments of interest and principal on our debt. There have been no material changes in our contractual obligations and commitments since the filing of our Annual Report on Form 10-K. 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 Credit Facilities 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 Credit Facilities 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 Senior Secured 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. AII has been in compliance with the covenants under the agreements for all periods presented. The table below summarizes cash flow information derived from our statements of cash flows for the periods indicated: 30 Six months ended (in thousands) March 25, 2022 March 26, 2021 Cash flows provided by (used in): Operating activities $ 161,159 $ 153,246 Investing activities (60,799) (60,935) Financing activities (285,572) (75,404) Operating activities During the six months ended March 25, 2022, the Company was provided $161.2 million by operating activities compared to $153.2 million during the six months ended March 26, 2021. The $7.9 million increase in cash provided was primarily due to higher cash flows from the increase in operating income of $303.0 million. This increase in operating income was offset primarily by increased income tax impacts of $150.7 million and a $104.4 million increase in cash used in working capital primarily due to higher inventory build during the first two quarters of fiscal 2022, Investing activities During the six months ended March 25, 2022, the Company used $60.8 million in investing activities compared to $60.9 million during the six months ended March 26, 2021. Investing activities in both periods were primarily related to the acquisitions of Sasco and Four Star in fiscal 2022 and Queen City and FRE Composites in fiscal 2021, as well as consistent levels of capital expenditures in both periods. Financing Activities During the six months ended March 25, 2022, the Company used $285.6 million in financing activities compared to $75.4 million used during the six months ended March 26, 2021. The increase in cash used in financing activities is primarily due to $226.1 million more cash used to repurchase common stock during the six months ended March 25, 2022 compared to the same period in the prior year. CHANGES 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 Form 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. 31 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: • 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; 32 • our inability to continue importing raw materials, component parts 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, increases in the 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 Quarterly 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, 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.