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Item 1A. Risk Factors

2022-05-10 compared with 2021-11-04 · 35 added, 36 removed, 3 unchanged (96% of the section changed)

2 unchanged sentences

Risk Factors” in our 2021 Form 10-K, we face the following risks:

Risks Relating to the Separation

The separation of our fabrication technology and medical technology business into two, differentiated, independent publicly traded companies may not be completed on the currently contemplated timeline, or at all, and may not achieve the intended benefits.

In March 2021, we announced our intention to separate our fabrication technology and medical technology business into two, differentiated, independent publicly traded companies (the “Separation”).

We are targeting completion of the Separation in the first quarter of 2022.

Completion of the Separation is subject to, among other things, completion of financing and other transactions on satisfactory terms, other steps necessary to qualify the Separation as a generally tax-free transaction, receipt of other regulatory approvals, obtaining final approvals from our board of directors and market conditions.

The Separation is complex in nature, and unanticipated developments or changes, including changes in the law, macroeconomic environment and competitive conditions of our markets, the need both to receive regulatory approvals or clearances and to satisfy the requirements to effectuate a generally tax-free transaction, the uncertainty of the financial markets and challenges in executing the Separation, could delay or prevent the completion of the Separation or cause the Separation to occur on terms or conditions that are different or less favorable than expected.

Whether or not we complete the Separation, our ongoing businesses may face material challenges in connection with the Separation, including, but not limited to:

• the diversion of our management’s attention from operating and growing our business as a result of the significant amount of time and effort required to execute the Separation;

• foreseen and unforeseen costs and expenses that will be incurred in connection with the Separation, including accounting, tax, legal and other professional services costs, and potential prepayment charges and write-offs of deferred costs related to establishing new capital structures;

• retaining existing business and operational relationships, including with customers, suppliers and employees, as well as cultivating new business relationships;

• potential negative reactions from the financial markets if we fail to complete the Separation in its currently intended form, within the anticipated time frame or at all.

Additionally, volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets.

Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or if there are other significantly unfavorable changes in economic conditions.

These conditions may adversely affect our anticipated timeline to complete the Separation and the expected benefits of the Separation, including by increasing the time and expense involved in the Separation.

Other challenges associated with effectively executing the Separation include attracting, retaining and motivating key management and employees during the pendency of the Separation and following its completion, addressing any disruptions to our supply chain, manufacturing, sales and distribution, and other operations resulting from separating our fabrication and specialty medical technology business into two, differentiated, independent publicly traded companies.

Any of these factors could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or the price of our common stock.

Furthermore, if the Separation is completed, we cannot provide assurance that

the Separation will achieve the full strategic and financial benefits expected to result from the Separation, nor can we provide assurance that each independent company will be successful in meeting its objectives.

If the Separation occurs, our financial and operational profile will change, and we will be a smaller, less diversified company than we are today.

If the Separation occurs, it will result in two smaller, less diversified companies, each with a more concentrated area of focus.

As a result, each company may be more vulnerable to changing market conditions and competitive pressures, which could have a material adverse effect on our business, financial condition and results of operations.

The diversification of revenues, costs and cash flows will diminish as a result of the Separation, such that each company’s results of operations, cash flows, working capital, effective tax rate and financing requirements may be subject to increased volatility, and each company’s ability to fund capital expenditures, investments and service our debt may be diminished.

There can be no assurance that the combined value of the common stock of the two independent publicly traded companies following the completion of the Separation will be equal to or greater than what the value of our common stock would have been had the Separation not occurred.

If the Separation and/or certain related transactions do not qualify as transactions that are generally tax-free for U.S.

federal income tax purposes, we and our stockholders could be subject to significant tax liabilities.

Notwithstanding that we intend to structure the Separation to generally be a tax-free transaction, the U.S.

Internal Revenue Service (the “IRS”) could determine that the Separation and/or certain related transactions should be treated as taxable transactions for U.S.

federal income tax purposes.

Accordingly, there can be no assurance that the IRS will not assert that the Separation and/or certain related transactions do not qualify for tax-free treatment for U.S.

federal income tax purposes or that a court would not sustain such a challenge.

In the event the IRS were to prevail with such challenge, we and our stockholders could be subject to significant U.S.

federal income tax liability.

If the Separation, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S.

federal income tax purposes under Sections 355 and 368(a)(1)(D) of the U.S.

Internal Revenue Code of 1986, as amended (the “Code”), in general, for U.S.

federal income tax purposes, we would recognize taxable gain as if we had sold the common stock of the separated entity in a taxable sale for its fair market value (unless we and the separated entity jointly make an election under Section 336(e) of the Code with respect to the Separation, in which case, in general, (a) we would recognize taxable gain as if the separated entity had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of its common stock and the assumption of all its liabilities and (b) the separated entity would obtain a related step-up in the basis of its assets), and our stockholders who receive shares of common stock of the separated entity in the Separation would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.

We may not achieve some or all of the expected benefits of the Separation, and the Separation may adversely affect our businesses.

We may not be able to achieve the full strategic and financial benefits expected to result from the Separation, or such benefits may be delayed or not occur at all.

The Separation is expected to provide the following benefits, among others:

• the Separation will allow investors to value the Company based on its distinct investment identity, and enable investors to evaluate the merits, performance and future prospects of the Company’s businesses based on the distinct characteristics;

• the Separation will facilitate incentive compensation structures for employees more directly tied to the performance of the Company’s businesses, and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives;

• the Separation will allow us to more effectively pursue our operating priorities and strategies, and enable management to focus on unique opportunities for long-term growth and profitability.

We may not achieve these and other anticipated benefits for a variety of reasons, including, among others:

• certain costs and liabilities that were otherwise less significant to the Company prior to the Separation will be more significant for us as a separate company after the Separation;

• we may not achieve the anticipated benefits of the Separation for a variety of reasons, including, among others, (i) we may be more susceptible to market fluctuations and other adverse events than we were prior to the Separation and (ii) following the Separation, our businesses are less diversified than they were prior to the Separation.

If we fail to achieve some or all of the benefits expected to result from the Separation, or if such benefits are delayed, our businesses, operating results and financial condition could be adversely affected.

We could incur significant liability if the separation and distribution of ESAB Corp is determined to be a taxable transaction.

We have received an opinion from outside tax counsel to the effect that the separation and distribution of ESAB Corp qualifies as a transaction that is described in Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code.

The opinion relies on certain facts, assumptions, representations and undertakings from ESAB and us regarding the past and future conduct of the companies’ respective businesses and other matters.

If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, our stockholders and we may not be able to rely on the opinion of tax counsel and could be subject to significant tax liabilities.

Notwithstanding the opinion of tax counsel we have received, the IRS could determine on audit that the separation and distribution are taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion.

If the separation and distribution of ESAB are determined to be taxable for U.S.

federal income tax purposes, our stockholders that are subject to U.S.

federal income tax and we could incur significant U.S.

federal income tax liabilities.

Potential indemnification liabilities to ESAB Corp pursuant to the separation agreement could materially and adversely affect our businesses, financial condition, results of operations and cash flows.

We entered into a separation and distribution agreement and related agreements with ESAB Corp to govern the separation and distribution of ESAB Corp and the relationship between the two companies going forward.

These agreements provide for specific indemnity and liability obligations of each party and could lead to disputes between us.

If we are required to indemnify ESAB Corp under the circumstances set forth in these agreements, we may be subject to substantial liabilities.

In addition, with

respect to the liabilities for which ESAB Corp has agreed to indemnify us under these agreements, there can be no assurance that the indemnity rights we have against ESAB Corp will be sufficient to protect us against the full amount of the liabilities, or that ESAB Corp will be able to fully satisfy its indemnification obligations.

Each of these risks could negatively affect our businesses, financial condition, results of operations and cash flows.

Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine.

The global economy has been negatively impacted by the military conflict between Russia and Ukraine.

Furthermore, governments in the United States, United Kingdom and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia and Russia has imposed counter-sanctions in response.

Although we have no direct operations in Russia or Ukraine or government-imposed sanctions on our products currently, we could experience sanctions in the future and/or shortages in materials, increased costs for raw material and other supply chain issues due in part to the negative impact of the Russia-Ukraine military conflict on the global economy.

Further escalation of geopolitical tensions related to the military conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, additional supply disruptions, lower consumer demand and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain.

In addition, the effects of the ongoing conflict could heighten many of our known risks described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 22, 2022.

Unregistered Sales of Equity Securities and Use of Proceeds

Defaults Upon Senior Securities

Mine Safety Disclosures

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-Q

Item 1A. Risk Factors