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Item 1A. Risk Factors

2023-03-10 compared with 2022-03-02 · 67 added, 47 removed, 186 unchanged (38% of the section changed)

Risks and Uncertainties

We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could have a material and adverse effect on our business, financial condition, and results of operations.

The following risk factors highlight what we believe to be the more material factors that have affected us and could affect us in the future.

We have grouped the risk factors into six categories for ease of reading, and without any reflection on the importance of, or likelihood of, any particular category.

We may also be affected by unknown risks or risks that we currently believe are immaterial.

The Company operates in a changing environment that involves numerous known and unknown risks and uncertainties that could have a material and adverse effect on its business, financial condition, and results of operations.

The following risk factors highlight what it believes to be the more material factors that have affected the Company and could affect it in the future.

The Company has grouped the risk factors into five categories for ease of reading, and without any reflection on the importance of, or likelihood of, any particular category.

The Company may also be affected by unknown risks or risks that it currently believes are immaterial.

If any one or more such events actually occur, our business, financial condition, and results of operations could be materially and adversely affected.

One should carefully consider the following risk factors and other information contained in this Annual Report on Form 10-K and any other risks discussed in our other periodic filings with the SEC before deciding to invest in our common stock.

COVID-19 Risks

The COVID-19 pandemic could continue to adversely affect our business.

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations and supply chains, and we have experienced and expect to continue to experience unpredictable reductions in demand for certain of our products and services.

If we do not successfully manage our supply chain or identify new sources of supplies, we may be unable to satisfy customer orders, which could harm our reputation and customer relationships and materially adversely affect our business, financial condition, and operating results.

Though we have implemented safety measures and protocols in accordance with local government orders, an outbreak of COVID-19 at any one of our facilities could result in production delays or otherwise interrupt our operations.

While COVID-19 has adversely affected each of the markets we serve, the impact on the midstream energy markets has been

particularly adverse, and has contributed to volatility in the prices of oil and natural gas, weakened demand, and reduced customer spending.

In the rail, transit, friction management, and fabricated steel products businesses, governmental stay-at-home and work-from-home orders both in the U.S.

and globally, particularly in the U.K., have resulted in reduced traffic and demand for our products and services, and many public works projects have been deferred or delayed as a result of governmental pandemic mitigation efforts, adversely impacting our businesses.

and non-domestic governmental and private pandemic mitigation measures such as stay-at-home orders have slowed travel and movement of goods throughout the world, contributing to reduction in demand for our products and services.

Such measures have also contributed to a tight labor market which in turn adversely impacts our supply chain.

We expect that these adverse impacts will continue but we are unable to predict the extent, nature, or duration of the impacts on our results of operations and financial condition at this time.

Business and Operational Risks

Our inability to successfully manage acquisitions, divestitures, and other significant transactions could harm our financial results, business, and prospects.

As part of our business strategy, we acquire or divest businesses or assets, enter into strategic alliances and joint ventures, or make investments to realize anticipated benefits, actions which involve a number of inherent risks and uncertainties.

As part of our business strategy, we acquire or divest businesses or assets, enter into strategic alliances and joint ventures, or make investments to realize anticipated benefits, which are actions that involve a number of inherent risks and uncertainties.

Material acquisitions, dispositions, and other strategic transactions involve numerous risks, including, but not limited to:

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Rising inflation, labor costs, labor disruptions, and other increases in costs due to tariffs or other reasons in the geographic areas in which we operate could have a significant adverse impact on our profitability and results of operations.

During 2021, the Company experienced increased costs in labor and materials as a result of the inflationary environment, competitive labor market, and supply chain constraints which adversely impacted the Company’s profitability.

During 2022 and 2021, the Company experienced increased costs in labor and materials as a result of the inflationary environment, competitive labor market, and supply chain constraints, which adversely impacted the Company’s profitability.

We expect that these adverse impacts will continue but we are unable to predict the extent, nature, or duration of the impacts on our results of operations and financial condition at this time.

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We are currently working through an enterprise resource planning (“ERP”) system transition.

Certain divisions of our Company migrated into the new ERP system during 2016, additional divisions have since migrated, including during 2021, and certain other divisions may be transitioned during 2022 and in subsequent years.

We also began the implementation of a global financial planning and consolidation system during 2021 that will be operational in 2022.

Certain divisions of our Company migrated into the new ERP system during 2016, additional divisions have since migrated, including during 2022.

We also began the implementation of a global financial planning and consolidation system during 2021 that became operational in 2022.

The system implementations are intended to enable us to better meet the information requirements of our users, increase our integration efficiencies, and identify additional synergies in the future.

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In October 2020, we experienced a cyber-attack on our information technology systems.

While the cyber-attack caused temporary disruption and interference with our operations, it did not and will not result in a material adverse effect on our business operations.

While the cyber-attack caused temporary disruption and interference with our operations, it did not result in a material adverse effect on our business operations.

Despite the steps we take to deter and mitigate cybersecurity risks, we may not be successful.

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Our technology based solutions and services are dependent on electronic components and the ability to source these items.

During 2021, the Company experienced increasing costs of sources materials due to supply chain

constraints and inflationary environment.

During 2022, the Company experienced increased raw material costs due to supply chain constraints and the inflationary environment.

No assurances can be given that our financial results would not be adversely affected if prices or availability of these materials were to change in a significantly unfavorable manner.

Labor disputes may have a material and adverse effect on our operations and profitability.

Three of our manufacturing facilities are staffed by employees represented by labor unions.

Approximately 86 employees employed at these facilities are currently working under three separate collective bargaining agreements.

Two of our manufacturing facilities are staffed by employees represented by labor unions.

Approximately 44 employees employed at these facilities are currently working under two separate collective bargaining agreements.

Disputes with regard to the terms of these agreements or our potential inability to renegotiate acceptable contracts with these unions could result in, among other things, strikes, work stoppages, slowdowns, or lockouts, which could cause a disruption of our operations and have a material and adverse effect on our results of operations, financial condition, and liquidity.

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Changes in demographics, training requirements, and the availability of qualified personnel could negatively affect our ability to compete and lead to a reduction in our profitability.

A pandemic could continue to adversely affect our business.

The COVID-19 pandemic is adversely affecting, and any future pandemics could adversely affect, our operations and supply chains and we have experienced and expect to continue to experience unpredictable reductions in demand for certain of our products and services.

Though we have implemented and enhanced safety measures and protocols in accordance with local government orders, a pandemic-related outbreak at any one of our facilities could result in production delays or otherwise interrupt our operations.

While the COVID-19 pandemic has adversely affected each of the markets we serve, the impact on the midstream energy markets has been particularly adverse, and has contributed to volatility in the prices of oil and natural gas, weakened demand, and reduced customer spending.

In the rail, transit, friction management, and fabricated steel products businesses, governmental stay-at-home orders and government and business work-from-home orders and arrangements in the U.S.

Such measures have also contributed to a tight labor market which in turn adversely impacts our supply chain.

We expect that these adverse impacts will continue but we are unable to predict the extent, nature, or duration of the impacts on our results of operations and financial condition at this time.

We may not foresee or be able to control certain events that could adversely affect our business.

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If we are unable to protect our intellectual property and prevent its improper use by third parties, our ability to compete may be harmed.

We possess intellectual property including proprietary rail product formulations and systems and component designs, and we own a number of patents and trademarks under the intellectual property laws of the U.S., Canada, Europe, and other countries in which product sales are possible.

We possess and in some cases license intellectual property including proprietary rail product and precast concrete formulations and systems and component designs, and we own a number of patents and trademarks under the intellectual property laws of the U.S., Canada, Europe, and other countries in which product sales are possible.

While we have not perfected patent and trademark protection of our proprietary intellectual property for all products in all countries, we periodically assess our portfolio to determine the need for pursuing further protection.

The decision not to obtain patent and trademark protection in additional countries may result in other companies copying and marketing products that are based upon our proprietary intellectual property.

This could impede growth into new markets where we do not have such protections and result in a greater supply of similar products in such markets, which in turn could result in a loss of pricing power and reduced revenue.

This, and failure to continue such licenses, could impede growth into new markets where we do not have such protections and result in a greater supply of similar

products in such markets, which in turn could result in a loss of pricing power and reduced revenue.

In some cases, we may decide that the best way to protect our intellectual property is to retain proprietary information as trade secrets and confidential information rather than to apply for patents, which would involve disclosure of proprietary information to the public.

Any misappropriation or reverse engineering of our trade secrets could result in competitive harm and may result in

costly and time-consuming litigation.

Any misappropriation or reverse engineering of our trade secrets could result in competitive harm and may result in costly and time-consuming litigation.

If any of these events should occur, it could materially adversely affect our results of operations and financial condition.

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Factors that may cause the carrying value of our intangible and long-lived assets to not be recoverable include, but are not limited to, a decline in stock price and resulting market capitalization, a significant decrease in the market value of an asset, or a significant decrease in operating or cash flow projections.

No impairments of goodwill or intangible assets were recorded in 2021 and 2020.

Impairment charges were recorded on long-lived assets related to the since divested IOS Test and Inspection Services business during 2020.

In 2022, the Company recorded goodwill impairment related to its Fabricated Bridge reporting unit.

No impairments of goodwill or intangible assets were recorded in 2021.

Impairment charges were recorded on long-lived assets related to the Company's precision measurement products and systems business during 2022 and the since divested IOS Test and Inspection Services business during 2020.

No assurances can be given that we will not be required to record future significant charges related to tangible or intangible asset impairments.

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Any such acceleration of our indebtedness would have a material and adverse effect on our business, financial condition, and results of operations.

Certain portions of our variable rate debt, including our revolving credit facility, use LIBOR as a benchmark for establishing the interest rate.

The consequences of this and other developments with respect to LIBOR cannot be entirely predicted but may result in an increase in the interest cost of our variable rate debt.

Changes in our tax rates or exposure to additional income tax liability could impact our profitability and management projections, estimates, and judgments, particularly with respect to reserves for litigation, deferred tax assets, and the fair market value of certain assets and liabilities, may be inaccurate and not be indicative of our future performance.

Our management team is required to use certain estimates in preparing our financial statements, including accounting estimates to determine reserves related to litigation, deferred tax assets, and the fair market value of certain assets and liabilities.

Certain asset and liability valuations are subject to management’s judgment and actual results are influenced by factors outside our control.

We are required to maintain a valuation allowance for deferred tax assets and record a charge to income if we determine, based on evidence available at the time the determination is made, that it is more likely than not some portion or all of the deferred tax assets

will not be realized.

This evaluation process involves significant management judgment about assumptions that are subject to change from period to period.

The use of different estimates can result in changes in the amount of deferred taxes recognized, which can result in earnings volatility because such changes are reported in current period earnings.

See Part II, Item 8, Financial Statements and Supplementary Data, Note 14 to the Consolidated Financial Statements, contained in this Annual Report on Form 10-K, for additional discussion of our deferred taxes.

The phase-out of LIBOR and transition to SOFR as a benchmark interest rate will have uncertain and possibly adverse side effects.

In advance of the cessation of the London Interbank Offered Rate (“LIBOR”) on June 30, 2023, on August 12, 2022, the Company amended its Credit Agreement to obtain approval for the VanHooseCo acquisition and temporarily modify certain financial covenants to accommodate the transaction.

The Second Amendment also provided for the conversion from LIBOR-based to be based on the Secured Overnight Financing Rate (“SOFR”).

Due to the broad use of LIBOR as a reference rate, the impact of this transition to SOFR could adversely affect our financing costs, including spread pricing on our senior secured facilities and any other variable rate debt obligations, as well as our operations and cash flows.

There is no guarantee that the transition from LIBOR to SOFR will not

result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could affect our interest expense and earnings and may have an adverse effect on our business, results of operations, financial condition, and stock price.

Whether or not SOFR attains market acceptance as a LIBOR replacement tool remains uncertain.

Legal, Tax, and Regulatory Risks

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These regulations include those related to currency conversion, repatriation of earnings, taxation of our earnings and the earnings of our personnel, and the increasing requirement in some countries to make greater use of local employees and suppliers, including, in some jurisdictions, mandates that provide for greater local participation in the ownership and control of certain local business assets.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

We have certain tax attributes, including U.S.

federal, state and foreign operating loss carryforwards, and federal research and development credits, which may be available to offset future taxable income in certain jurisdictions.

Realization of these net operating loss and research and development credit carryforwards depends on future income, and there is a risk that certain of our existing carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our operating results and financial condition.

In addition, under Sections 382 and 383 of the Internal Revenue Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in ownership by “5 percent shareholders” over a rolling three-year period, the corporation’s ability to use its pre-change net operating loss carryovers and other pre-change tax attributes, such as research and development credits, to offset its post-change income or taxes may be limited.

Similar rules apply under U.S.

state tax laws.

We have, and may in the future, experience ownership changes as a result of shifts in our stock ownership.

As a result, if we earn net taxable income, our ability to use our pre-change U.S.

net operating loss carryforwards to offset U.S.

federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us.

Certain asset and liability valuations are subject to management’s judgment and actual results are influenced by factors outside our control.

This evaluation process involves significant management judgment about assumptions that are subject to change from period to period.

The use of different estimates can result in changes in the amount of deferred taxes recognized, which can result in earnings volatility because such changes are reported in current period earnings.

Shifting federal, state, local, and foreign regulatory policies impose risks to our operations.

We are subject to regulation by federal, state, local, and foreign regulatory agencies and are therefore subject to a variety of legal proceedings and compliance risks, including those described in Item 3 - Legal Proceedings and in Part II, Item 8, Financial Statements and Supplementary Data, Note 18 to the Consolidated Financial Statements, contained in this Annual Report on Form 10-K.

Statements and Supplementary Data, Note 18 to the Consolidated Financial Statements, contained in this Annual Report on Form 10-K.

Like other companies engaged in environmentally sensitive businesses, we are required to comply with numerous laws and regulations, including environmental matters relating to, among other things, the treatment, disposal, and storage of wastes, investigation and remediation of contaminated soil and groundwater, the discharge of effluent into waterways, and the emissions of substances into the air.

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However, given the amount of North American trade that moves by truck and rail, it could have a significant impact on supply and demand for the raw materials that we use in manufacturing processes and for finished goods in the markets we serve, and could adversely impact the amount, movement, and patterns of products that we ship.

Potential material modifications to USMCA, or certain other international trade agreements, including with respect to the

modification of trade agreements with or among the E.U.

Potential material modifications to USMCA, or certain other international trade agreements, including with respect to the modification of trade agreements with or among the E.U.

and the U.K., may have a material adverse effect on our business, financial condition, and results of operations.

Legislative or regulatory initiatives related to climate change could have a material adverse effect on our business.

Greenhouse gases may have an adverse effect on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters.

Such events could have a negative effect on our business.

Concern over climate change may result in new or additional legislative and regulatory requirements to reduce or mitigate the effects of climate change on the environment, which could result in future tax, transportation cost, and utility increases.

Moreover, natural disasters and extreme weather conditions may impact the productivity of our facilities, the operation of our supply chain, or consumer buying patterns.

Any of these risks could have a material adverse effect on our business.

International Risks

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and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments, and taxation.

Increasing sales to foreign countries, including Canada, China, India, Mexico, the U.K., and countries within the E.U., expose the Company to increased risk of loss from foreign currency fluctuations and exchange controls as well as longer accounts receivable payment cycles.

Increasing sales to foreign countries, including Brazil, Canada, China, India, Mexico, the U.K., and countries within the E.U., expose the Company to increased risk of loss from foreign currency fluctuations and exchange controls as well as longer accounts receivable payment cycles.

We have little control over most of these risks and may be unable to anticipate changes in international economic and political conditions and, therefore, be unable to alter our business practices in time to avoid the adverse effect of any of these possible changes.

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operated under a transitional arrangement that expired on December 31, 2020.

The EU-UK Trade and Cooperation Agreement was agreed in principle and became provisionally operative on January 1, 2021 and terms of this new relationship between the U.K.

The EU-UK Trade and Cooperation Agreement was agreed in principle and became provisionally operative on January 1, 2021, and formally in force on May 1, 2021, and terms of this new relationship between the U.K.

remains subject to uncertainties.

There has been volatility in currency exchange rate fluctuations between the U.S.

There has been volatility in

currency exchange rate fluctuations between the U.S.

dollar relative to the British pound, which could continue.

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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