What changed in this filing

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Item 1A. Risk Factors

2022-10-25 compared with 2021-10-25 · 55 added, 54 removed, 163 unchanged (40% of the section changed)

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Additional risks and uncertainties not currently known to us, or that we currently believe are immaterial, also may adversely impact our business, including our ability to execute our strategic growth and profitability objectives.

Risks Related to COVID-19

We have been and continue to be negatively impacted by the COVID-19 pandemic and its related impacts to our employees, operations, customers and suppliers.

The COVID-19 pandemic first had a significant impact on our global operations in the third quarter of fiscal 2020, continues to adversely impact our business and may continue to affect our business in the future.

Such impacts include, and could continue to include, reductions in demand for certain of our products and services, the inability of our global teams and suppliers to meet our customers’ demand, other disruptions of supply chain, restrictions on our employees’ ability to visit customers, our service technicians’ ability to travel to job sites, or labor constraints resulting from employee turnover or departures due to resistance to vaccine mandates.

Other adverse effects could result from government-imposed mandatory closures of job sites, manufacturing facilities or other important business locations, work-from-home orders, or other such restrictions.

Should such conditions occur, persist or increase in severity, they could materially affect our ability to adequately staff and maintain our operations and impact our financial results.

The duration and ultimate impact of the COVID-19 pandemic on our business, results of operations and financial condition, including liquidity, capital and financing resources, will depend on numerous evolving factors and future developments.

Such factors and developments may include the geographic spread, severity and duration of the COVID-19 pandemic, including whether there are periods of increased COVID-19 cases, disruption to our operations resulting from employee illnesses, the long-term efficacy of vaccines or their effectiveness against variants such as the Delta variant, governmental responses to outbreaks including health and safety measures, such as mandatory facility closures of non-essential businesses, stay-at-home orders or similar restrictions, social distancing mandates and travel bans, and import and export restrictions, which could disrupt our relationship with customers.

Further, the President of the United States has directed the Occupational Safety and Health Administration to write regulations requiring certain companies to vaccinate their employees or test those who are not vaccinated at least once per week.

If we are unable to respond to and manage the impact of these events, our business and results of operations may be adversely affected.

Although our current accounting estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position.

In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic.

The severity, magnitude and duration of the pandemic, as well as its economic consequences, are uncertain, result in significant volatility for our business and are difficult to predict.

As a result, our accounting estimates and assumptions may change over time in response to COVID-19.

Such changes could result in future impairments of goodwill, intangible assets, long-lived assets, incremental credit losses on accounts receivable, the valuation of our inventory, or a decrease in the carrying amount of our deferred tax assets.

Any of these events could amplify the other risks and uncertainties described herein and could have an adverse effect on our business and financial results.

Risks Related to Economic Conditions

Supply chain issues, including shortages of adequate component supply that increase our costs or cause delays in our ability to fulfill orders, and our failure to estimate customer demand properly may result could have an adverse impact on our business and operating results and our relationships with customers.

Supply chain issues, including shortages of adequate component supply that increase our costs or cause delays in our ability to fulfill orders, and our failure to estimate customer demand properly may result or could have an adverse impact on our business and operating results and our relationships with customers.

We are reliant on our supply chain for components and raw materials to manufacture our products and provide services to our customers, and this reliance could have an adverse impact on our business and operating results.

A reduction or interruption in supply, including disruptions due to the COVID-19 pandemic, a significant natural disaster, shortages in global freight capacity, significant increases in the price of critical components and raw materials, a failure to appropriately forecast or adjust our requirements for components or raw materials based on our business needs, or volatility in demand for our products could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.

Our vendors also may be unable to meet our demand, significantly increase lead times for deliveries or impose significant price increases we are unable to offset through alternate sources of supply, price increases to our customers or increased productivity in our operations.

A reduction or interruption in supply, including disruptions due to the COVID-19 pandemic, geopolitical conflicts such as the invasion of Ukraine by Russia and the imposition of international sanctions in response thereto, a significant natural disaster, shortages in global freight capacity, significant increases in the price of critical components and raw materials, a failure to appropriately forecast or adjust our requirements for components or raw materials based on our business needs, or volatility in demand for our products could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.

Our vendors also may be unable to meet our demand, significantly increase lead times for deliveries, or impose significant price increases that we may be unable to offset through alternate sources of supply, price increases to our customers or increased productivity in our operations.

We procure certain components for our products from single or limited suppliers.

In the event of supply disruptions from these suppliers, we may not be able to diversify our supply base for such components in a timely manner or may experience

quality issues with alternate sources.

Further, we procure a significant portion of our components from suppliers located in China, and we are therefore exposed to potential disruptions in deliveries from these suppliers due to political tensions with China, geopolitical risks, government-mandated facility closures in China due to energy shortages or other causes.

In the event of supply disruptions from these suppliers, we may not be able to diversify our supply base for such components in a timely manner or may experience quality issues with alternate sources.

Our growth and ability to meet customer demand depend in large part on our ability to obtain timely deliveries of components and raw materials from our suppliers, and significant disruptions in their supply could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.

We currently are experiencing supply shortages and inflationary pressures for certain components and raw materials that are important to our manufacturing proc ess.

Expected growth in the global economy may exacerbate these pressures on us and our suppliers, and we expect these supply chain challenges and cost impacts to continue for the foreseeable future.

Growth in the global economy may exacerbate these pressures on us and our

suppliers, and we expect these supply chain challenges and cost impacts to continue for the foreseeable future.

Although we have generally secured additional supply from existing or alternate suppliers or taken other mitigating actions when such disruptions have occurred in past periods, there is no guarantee we can continue to do so in the future, and our business, results of operations, and financial condition could be adversely affected.

When facing component supply-related challenges, we may also increase our inventories and purchase commitments to shorten lead times and ensure adequate inventories to meet customer expectations.

If the demand for our products is less than our expectations or if we otherwise fail to anticipate customer demand properly, an oversupply of components could result in excess or obsolete inventory that could also lead to significant excess and obsolete inventory charges and affect our operating and financial results.

If the demand for our products is less than our expectations or if we otherwise fail to anticipate customer demand properly, an oversupply of components could result in inventory levels that could also lead to significant excess and obsolete inventory charges and affect our operating and financial results.

Deterioration of, or instability in, the domestic and international economy and challenging end-market conditions could impact our ability to grow the business and adversely impact our ability to execute our strategy, financial condition, results of operations and cash flows.

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A portion of our revenues is derived from customers in the midstream and downstream oil & gas industry.

Decreases in demand for oil due to the disruption caused by the COVID-19 pandemic or other factors can negatively affect oil prices, and negatively affect cash flows for many of those customers.

Changes in demand for oil due to the disruption caused by the COVID-19 pandemic, the Russia-Ukraine conflict and related sanctions, or other factors can negatively affect oil prices, and negatively affect cash flows for many of those customers.

This has resulted in, and in the future could result in, lower capital expenditures and project modifications, delays or cancellations in that end market that may adversely affect the results of our operations and financial condition.

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Risks Related to Our Business and Operations

We may not be able to fully realize expected cost savings from our ASCEND transformation program and from restructuring actions.

On March 23, 2022, we announced the launch of ASCEND, a new transformation program focused on driving accelerated earnings growth and efficiency across the business with the goal of delivering improved annual operating profit once fully implemented.

The ASCEND program focuses on the following key initiatives:

(i) accelerating organic growth go-to-market strategies, (ii) improving operational excellence and production efficiency by utilizing a lean approach and (iii) driving greater efficiency and productivity in selling, general and administrative expenses.

In addition, from time to time, we implement other plans that incur restructuring costs to (i) eliminate redundancies in our corporate or regional structures (ii) eliminate excess capacity in our facilities as a result of integration of acquisitions or divestitures of product lines, or (iii) eliminate product or service lines that do not meet targeted profitability metrics.

Although we expect that the improved operating profit, cost savings and realization of efficiencies will offset the related costs of these initiatives and provide additional annual benefit, we may not fully achieve the expected benefits of these efforts (see Note 4, "Restructuring Charges," Note 3.

"ASCEND Transformation Program" in the notes to the consolidated financial statements and "Business Update" within Item 7 for further discussion of the ASCEND program and other current restructuring activities).

Logistics challenges, including global freight capacity shortages or significant increases in freight costs, could continue to increase our freight costs or cause delays in our ability to fulfill orders and could have an adverse impact on our business and operating results.

The Company’s ability to import products in a timely and cost-effective manner has been, and may continue to be, adversely affected by the current global shortage of freight capacity, delays at ports and other issues that otherwise affect transportation and warehousing providers.

The Company’s ability to import products in a timely and cost-effective manner has been, and may continue to be, adversely affected by the current global shortage of freight capacity, delays at ports, port strikes, and other issues that otherwise affect transportation and warehousing providers.

These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers.

These alternatives may not be available on short notice or could result in higher freight and logistics costs, which could have an adverse impact on the Company’s business and financial condition.

These alternatives may not be available on

short notice or could result in higher freight and logistics costs, which could have an adverse impact on the Company’s business and financial condition.

Collection risk for receivables in foreign jurisdictions.

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An attack also could result in losses due to ransomware payments, security breaches, theft, lost or corrupted data, misappropriation of sensitive, confidential or personal data or information, loss of trade secrets and commercially valuable information, production downtimes and operational disruptions.

We attempt to mitigate these risks by employing measures including employee training, network monitoring and testing, maintenance of protective systems, contingency planing, and the engagement of third-party experts but we remain potentially vulnerable to additional known or unknown threats.

We attempt to mitigate these risks by employing measures including employee training, network monitoring and testing, maintenance of protective systems, contingency planning, and the engagement of third-party experts but we remain potentially vulnerable to additional known or unknown threats.

There is no assurance the financial or operational impact from such threats will not be material.

We may not be able to fully realize expected cost savings from restructuring actions

From time to time, we incur restructuring costs to (i) eliminate redundancies in our corporate or regional structures (ii) eliminate excess capacity in our facilities as a result of integration of acquisitions or divestitures of product lines, or (iii) eliminate product or service lines that do not meet targeted profitability metrics.

Although we expect that the related cost savings and realization of efficiencies will offset the restructuring related costs and provide additional annual benefit, we may not fully achieve the desired net benefits of these efforts (see Note 3, "Restructuring Charges" and "Business Update" within Item 7 for further discussion of our current restructuring activities and future anticipated cost savings).

A material disruption at a significant manufacturing facility could adversely affect our ability to generate sales and result in increased costs that we cannot recover.

Our financial performance could be adversely affected due to our inability to meet customer demand for our products or services in the event of a material disruption at one of our significant manufacturing or services facilities.

Equipment failures, natural disasters, power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes or other influences could create a material disruption.

Equipment failures, natural disasters, health issues (including COVID-19), power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes or other influences could create a material disruption.

Interruptions to production could increase our cost of sales, harm our reputation and adversely affect our ability to attract or retain our customers.

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Our international operations present significant and varied risks, such as from political tensions among China and the United States, potential temporary closures of our manufacturing and sourcing operations in China, currency exchange rate fluctuations, exposure to local economic and political conditions, export and import restrictions and controls on repatriation of cash.

Further, the uncertainty surrounding the consequences of Brexit (the United Kingdom's exit from the European Union) may also cause disruptions to, and create a uncertainty surrounding our business, including potential import and export restrictions between the United Kingdom and the European Union, change in demand for our products and services due to the economic conditions created by Brexit and increased foreign exchange rate volatility.

Foreign currency exchange rates result in volatility in our financial results, as over one-third of our sales are generated outside of the United States in currencies other than the U.S.

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We operate in end markets and industries in which our customers and business partners seek to contractually shift significant risks associated with their operations or projects to us.

We structure our commercial and contracting practices to assess and manage the risks we are assuming, but we cannot assure that material liabilities will not arise from our contracts with our business partners.

We structure our commercial and contracting practices to

assess and manage the risks we are assuming, but we cannot assure that material liabilities will not arise from our contracts with our business partners.

Also, our contracting standards may be more stringent than those of certain competitors, and as a result, we may experience market share losses or the reduction in growth opportunities.

Imposition of climate-related laws and regulations that disadvantage the oil & gas industry compared to other industries or consumer behavior that reduces demand for petroleum products may have an adverse impact on our results of operations.

A significant portion of our revenues are derived from the sale of products and services to end users in the oil & gas industry.

Accordingly, our results of operations may be adversely affected by the imposition of climate-related laws and regulations that disadvantage the oil & gas industry compared to other industries and have the effect of reducing the production of petroleum products.

In addition, a reduction in the production of petroleum products as a result of consumer behavior that embraces alternative sources of energy over oil & gas could similarly adversely affect our results of operations by reducing the demand for our products and services.

Risks Related to COVID-19

We have been and continue to be negatively impacted by the COVID-19 pandemic and its related impacts to our employees, operations, customers and suppliers.

Should such conditions occur, persist or increase in severity, they could materially affect our ability to adequately staff and maintain our operations and impact our financial results.

Such factors and developments may include the geographic spread, severity and duration of the COVID-19 pandemic, including whether there are periods of increased COVID-19 cases, disruption to our operations resulting from employee illnesses, the long-term efficacy of vaccines or their effectiveness against variants such as the Omicron variant, governmental responses to outbreaks including health and safety measures, such as mandatory facility closures of non-essential businesses, stay-at-home orders or similar restrictions, social distancing mandates and travel bans, and import and export restrictions, which could disrupt our relationship with customers.

If we are unable to respond to and manage the impact of these events, our business and results of operations may be adversely affected.

In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic.

The severity, magnitude and duration of the pandemic, as well as its economic consequences, are uncertain, result in significant volatility for our business and are difficult to predict.

As a result, our accounting estimates and assumptions may change over time in response to COVID-19.

Any of these events could amplify the other risks and uncertainties described herein and could have an adverse effect on our business and financial results.

Risks Related to the Execution of Our Strategy

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We plan to make acquisitions to grow our business, enhance our global market position and broaden our industrial tools product offerings.

Our ability to successfully execute acquisitions will be impacted by factors including the availability of financing on terms acceptable to us, the potential reduction of our ability or willingness to incur debt to fund acquisitions due to COVID-19 impacts on our financial results, the reluctance of target companies to sell in current markets, our ability to identify acquisition candidates that meet our valuation parameters and increased competition for acquisitions.

Our ability to successfully execute acquisitions will be impacted by factors including the availability of financing on terms acceptable to us, the potential reduction of our ability or willingness to incur debt to fund acquisitions, the reluctance of target companies to sell in current markets, our ability to identify acquisition candidates that meet our valuation parameters and increased competition for acquisitions.

The process of integrating acquired businesses into our existing operations also may result in unforeseen operating difficulties and may require additional financial resources and attention from management that would otherwise be available for the ongoing development or expansion of our existing operations.

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These divestitures pose risks and challenges that could negatively impact our business, including retained liabilities related to divested businesses, obligations to indemnify buyers against contingent liabilities and potential disputes with buyers.

If we do not realize the expected benefits of these divestitures or our post-completion liabilities and continuing obligations are substantial and exceed our expectations, our consolidated financial position, results of operations and cash flows could be negatively impacted.

If we do not realize the expected benefits of these divestitures or our post-completion liabilities and continuing obligations are substantial and exceed our expectations, our financial position, results of operations and cash flows could be negatively impacted.

Any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impact from the loss of revenue and profits associated with the divestiture, as well as significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition.

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If future operating performance at one or more of our reporting units were to fall below current levels, we could be required to recognize a non-cash charge to operating earnings to impair the related goodwill or other intangible assets.

We recognized $6 million in impairment charges in fiscal 2021 related to the goodwill in our Cortland Industrial reporting unit (Other Segment) (see Note 6, "Goodwill, Intangible Assets and Long-Lived Assets" and "Critical Accounting Estimates" for further discussion on goodwill, intangible asset and long-lived asset impairments).

We recognized $1 million and $6 million in impairment charges in fiscal 2022 and 2021, respectively, related to the goodwill in our Cortland Industrial operating segment (Other Segment) (see Note 7, "Goodwill, Intangible Assets and Long-Lived Assets" in the notes to the consolidated financial statements and "Critical Accounting Estimates" for further discussion on goodwill, intangible asset and long-lived asset impairments).

Any future goodwill or intangible asset impairments could negatively affect our financial condition and results of operations.

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Examples of laws or regulations that may have an adverse effect on our operations, financial condition and growth strategies include tax law, export and import controls, anti-corruption law, competition law, data privacy regulations, currency controls and economic or political sanctions.

In addition, changes in laws or regulations, for example, the proposed regulations of the Securities and Exchange Commission with respect to climate-related disclosures, may significantly increase our costs, adversely affecting our results of operations.

Legal compliance risks could result in significant costs to our business or cause us to restrict current activities or curtail growth plans.

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We have incurred, and may in the future incur, significant indebtedness in connection with acquisitions or other strategic growth initiatives.

While at current debt levels and in the current interest rate environment, we have significant flexibility on our financial debt covenants, should we incur additional indebtedness to fund acquisitions or other strategic growth initiatives, our level of debt and the limitations imposed on us by our debt agreements could adversely affect our operating flexibility and put us at a competitive disadvantage.

While at current debt levels we have significant flexibility on our financial debt covenants, should we incur additional indebtedness to fund acquisitions or other strategic growth initiatives, our level of debt and the limitations imposed on us by our debt agreements could adversely affect our operating flexibility and put us at a competitive disadvantage.

Our ability to make scheduled principal and interest payments, refinance our indebtedness and satisfy our other debt and lease obligations will depend upon our future operating performance and credit market conditions, which could be adversely affected by factors beyond our control.

For instance, our Senior Credit Facility has variable interest rates that are based on

London Interbank Offered Rate (“LIBOR”) .

In July 2017, the U.K.

Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after December 2021 for non-U.S.

dollar LIBOR tenors and after June 2023 for most U.S.

dollar tenors.

These reforms may cause LIBOR to perform differently than in the past and LIBOR may ultimately cease to exist after June 2023.

Alternative benchmark rate(s) may replace LIBOR and changes to benchmark rates may have an uncertain affect on our interest payments, which could impact our results of operations and cash flows.

In addition, there can be no assurance that future borrowings or equity financings will be available to us on favorable terms, or at all, for the payment or refinancing of our indebtedness.

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Our failure to comply with these covenants also could result in events of default which, if not cured or waived, could require us to repay indebtedness before its due date, and we may not have the financial resources or otherwise be able to arrange alternative financing to do so.

Our compliance with the covenants of our Senior Credit Facility may be adversely affected by severe market contractions or disruptions, such as those caused by the COVID-19 pandemic, to the extent they reduce our earnings for a prolonged period and we are not able to reduce our debt levels or cost structure accordingly.

Our compliance with the covenants of our senior credit facility may be adversely affected by severe market contractions or disruptions to the extent they reduce our earnings for a prolonged period and we are not able to reduce our debt levels or cost structure accordingly.

Borrowings under our senior credit facility are secured by most domestic personal property assets and are guaranteed by most of our domestic subsidiaries and by a pledge of the stock of most of our domestic and certain foreign subsidiaries.

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General Risk Factors

Geopolitical unrest and terrorist activities may cause the economic conditions in the U.S.

or abroad to deteriorate, which could harm our business.

Terrorist attacks against targets in the U.S.

or abroad, rumors or threats of war, other geopolitical activity or trade disruptions, such as those caused by the Russia-Ukraine conflict or any conflict or threatened conflict between China and Taiwan, may cause general economic conditions in the U.S.

or abroad to deteriorate.

The occurrence of any of these events could result in a prolonged economic slowdown or recession in the U.S.

or in other areas and could have a significant impact on our business, financial condition or results of operations.

Our inability to attract, develop and retain qualified employees could have a material adverse impact on our operations.

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If we are found to infringe any third-party rights, we could be required to pay substantial damages or we could be enjoined from offering some of our current products and services.

Geopolitical unrest and terrorist activities may cause the economic conditions in the U.S.

or abroad to deteriorate, which could harm our business.

Terrorist attacks against targets in the U.S.

or abroad, rumors or threats of war, other geopolitical activity or trade disruptions may cause general economic conditions in the U.S.

or abroad to deteriorate.

The occurrence of any of these events could result in a prolonged economic slowdown or recession in the U.S.

or in other areas and could have a significant impact on our business, financial condition or results of operations.

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