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Item 1A. Risk Factors

2021-06-02 compared with 2020-05-20 · 90 added, 93 removed, 118 unchanged (61% of the section changed)

You should consider carefully the following risks when reading the information, including the financial information, contained in this Annual Report on Form 10-K.

Shareholders are cautioned that these and other factors may affect future performance and cause actual results to differ from those which may be anticipated.

Additionally, the impact of the global coronavirus (“COVID-19”) pandemic could further exacerbate many of the risk factors described below or described elsewhere herein.

You should consider carefully the following material factors regarding risks relating to an investment in our securities and when reading the information, including the financial information, contained in this Annual Report on Form 10-K.

Shareholders are cautioned that these and other factors may affect future performance and cause actual results to differ materially from those that may be anticipated.

Additionally, the impact of the global coronavirus (“COVID-19”) pandemic could further exacerbate many of the risk factors as described below or elsewhere in this report.

COMPETITIVE AND REPUTATIONAL RISKS

We operate in a highly competitive environment and face significant competition and price pressure.

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If we are unable to maintain our profitability or competitive position, we could lose market share to our competitors and experience reduced profitability.

Adverse publicity or negative public perception regarding particular ingredients or products or the nutraceuticals industry in general could adversely affect the financial performance of those portions of our business.

Purchasing decisions made by consumers of products that contain our ingredients may be affected by adverse publicity or negative public perception regarding particular ingredients or products or the nutraceuticals industry in general.

This negative public perception may include publicity regarding the risks, efficacy, legality or quality of particular ingredients or products in general or of other companies or our products or ingredients specifically.

Negative public perception may also arise from regulatory investigations, regardless of whether those investigations involve us.

We are highly dependent upon consumers’ perception of the safety and quality of products that contain our ingredients as well as similar products distributed by other companies.

Thus, the mere publication of reports asserting that such products may be harmful could have a material adverse effect on us, regardless of whether these reports are scientifically supported.

Publicity related to dietary supplements or food ingredients may also result in increased regulatory scrutiny of our industry.

Adverse publicity may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our businesses expose us to potential product liability claims and recalls, which could adversely affect our financial condition and performance.

The repackaging, blending, mixing and distribution of products by us, including chemical products and products used in food or food ingredients or with medical, pharmaceutical or dietary supplement applications, involve an inherent risk of exposure to product liability claims, product recalls, product seizures and related adverse publicity, including, without limitation, claims for exposure to our products, spills or escape of our products, personal injuries, food-related claims and property damage or environmental claims.

A product liability claim, judgment or recall against our customers could also result in substantial and unexpected expenditures for us, affect consumer confidence in our products and divert management’s attention from other responsibilities.

Although we maintain product liability insurance, there can be no assurance that the type or level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all.

A product recall or a partially or completely uninsured judgment against us could have a material adverse effect on our business, financial condition and results of operations.

Changes in our customers’ needs or failure of our products to meet customers’ specifications could adversely affect our sales and profitability.

Our products are used for a broad range of applications by our customers.

Changes in our customers’ product needs or processes, or reductions in demand for their end products, may enable or require our customers to reduce or eliminate consumption of the products that we provide.

Customers may also find alternative materials or processes that no longer require our products.

Consequently, it is important that we develop new products to replace the sales of products that mature and decline in use.

Our products provide important performance attributes to our customers’ products.

If our products fail to meet the customers’ specifications or comply with applicable laws or regulations, perform in a manner inconsistent with the customers’ expectations or have a shorter useful life than required, a customer could seek replacement of the product or damages for costs incurred as a result of the product failure.

A successful claim or series of claims against us could have a material adverse effect on our financial condition and results of operations and could result in a loss of one or more customers.

Reductions in demand for our products could adversely affect our sales and financial results and result in facility closures.

Failure to adequately protect critical data and technology systems could materially affect our operations.

Information technology system failures, network disruptions and breaches of data security due to internal or external factors including cyber-attacks could disrupt our operations by causing delays or cancellation of customer orders, impede the manufacture or shipment of products or cause standard business processes to become ineffective, resulting in the unintentional disclosure of information or damage to our reputation.

While we have taken steps to address these concerns by implementing network security and internal control measures, including employee training, comprehensive monitoring of our networks and systems, maintenance of backup and protective systems and disaster recovery and incident response plans, our employees, systems, networks, products, facilities and services remain potentially vulnerable to sophisticated cyber-assault, especially while certain employees are working remotely during the COVID-19 pandemic, and, as such, there can be no assurance that a system failure, network disruption or data security breach will not have a material adverse effect on our business, financial condition, operating results or cash flows.

RISKS RELATED TO OUR INDUSTRY

Fluctuations in the prices and availability of our raw materials, which may be cyclical in nature, could have a material adverse effect on our operations and the margins we receive on sales of our products.

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We cannot predict whether the markets for our raw materials will favorably impact or negatively impact the margins we can realize.

Our principal chemical raw materials are generally purchased under supply contracts.

The prices we pay under these contracts generally lag the market prices of the underlying raw material and the cost of inventory we have on hand, particularly inventories of our bulk commodity chemicals where we have significant volumes stored at our facilities, generally will lag the current market pricing of such inventory.

The prices we pay for our principal chemical raw materials generally lag the market prices of the underlying raw material and the cost of inventory we have on hand, particularly inventories of our bulk commodity chemicals where we have significant volumes stored at our facilities, generally will lag the current market pricing of such inventory.

The pricing within our supply contracts generally adjusts quarterly or monthly.

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Although we sell to areas traditionally considered non-cyclical, such as water treatment, food products and health and nutritional ingredients, many of our customers are in businesses that are cyclical in nature, such as the industrial manufacturing and energy industries which include the ethanol and agriculture industries.

In addition, due to the extreme pressures of the current economic environment driven by

the COVID-19 pandemic, even markets that had seemed stable may no longer be stable and may experience significant downturns and variability in demand for our products.

In addition, due to the extreme pressures of the current economic environment driven by the COVID-19 pandemic, even markets that had seemed stable may no longer be stable and may experience significant downturns and variability in demand for our products.

Downturns in these industries could adversely affect our sales and our financial results by affecting demand for and pricing of our products.

Changes in our customers’ needs or failure of our products to meet customers’ specifications could adversely affect our sales and profitability.

Our products are used for a broad range of applications by our customers.

Customers may also find alternative materials or processes that no longer require our products.

Consequently, it is important that we develop new products to replace the sales of products that mature and decline in use.

Our products provide important performance attributes to our customers’ products.

A successful claim or series of claims against us could have a material adverse effect on our financial condition and results of operations and could result in a loss of one or more customers.

Reductions in demand for our products could adversely affect our sales and financial results and result in facility closures.

As the country emerges from the COVID-19 pandemic, our business results, particularly in our Health and Nutrition segment, could be adversely impacted if demand for health and immunity products that contain our ingredients decreases.

Our business is subject to hazards common to chemical businesses, any of which could interrupt our production and adversely affect our results of operations.

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Accordingly, these hazards and their consequences could have a material adverse effect on our operations as a whole, including our results of operations and cash flows, both during and after the period of operational difficulties.

Environmental problems at any of our facilities could result in significant unexpected costs.

We are subject to federal, state and local environmental regulations regarding the ownership of real property and the operations conducted on real property.

Under various federal, state and local laws, ordinances and regulations, we may own or operate real property or may have arranged for the disposal or treatment of hazardous or toxic substances at a property and, therefore, may become liable for the costs of removal or remediation of certain hazardous substances released on or in our property or disposed of by us, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property).

Such liability may be imposed whether or not we knew of, or were responsible for, the presence of these hazardous or toxic substances.

Further, future changes in environmental laws or regulations may require additional investment in capital equipment or the implementation of additional compliance programs in the future.

The cost of investigation, remediation or removal of such substances may be substantial.

In the conduct of our operations, we have handled and do handle materials that are considered hazardous, toxic or volatile under federal, state and local laws.

The accidental release of such products cannot be completely eliminated.

In addition, we operate or own facilities located on or near real property that was formerly owned and operated by others.

These properties may have been used in ways that involved hazardous materials.

Contaminates may migrate from, within or through any such property, which may give rise to claims against us.

Third parties who are responsible for contamination may not have funds, or may not make funds available when needed, to pay remediation costs imposed upon us jointly with them under environmental laws and regulations.

Our Water Treatment Group and our agricultural product sales within our Industrial Group are subject to seasonality and weather conditions, which could adversely affect our results of operations.

Our Water Treatment Group has historically experienced higher sales during April to September, primarily due to a seasonal increase in chemicals used by municipal water treatment facilities.

Our agricultural product sales within our Industrial Group are also seasonal, primarily corresponding with the planting season.

Demand in both of these areas is also affected by weather conditions, as either higher or lower than normal precipitation or temperatures may affect water usage and the timing and the amount of consumption of our products.

We cannot assure you that seasonality or fluctuating weather conditions will not have a material adverse effect on our results of operations.

OPERATIONAL RISKS

We are highly dependent upon transportation infrastructure to ship and receive our products and delays in these shipments could adversely affect our results of operations.

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Disruptions in transportation are common, are often out of our control, and can happen suddenly and without warning.

Rail limitations, such as limitations in rail capacity, availability of railcars and adverse weather conditions have disrupted or delayed rail shipments in the past and we expect they will continue into the future.

Rail limitations, such as limitations in rail capacity, availability of railcars and adverse weather conditions have disrupted or delayed rail shipments in the past and could do so in the future.

Barge shipments are delayed or impossible under certain circumstances, including during times of high or low water levels, when waterways are frozen and when locks and dams are inoperable.

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Our failure to ship or receive products in a timely and efficient manner could have a material adverse effect on our financial condition and results of operations.

If we are unable to retain key personnel or attract new skilled personnel, it could have an adverse impact on our businesses.

Because of the specialized and technical nature of our businesses, our future performance is dependent on the continued service of, and on our ability to attract and retain, qualified management, scientific, technical and support personnel.

The unanticipated departure of key members of our management team could have an adverse impact on our business.

We may not be able to successfully consummate future acquisitions or dispositions or integrate acquisitions into our business, which could result in unanticipated expenses and losses.

As part of our business growth strategy, we have acquired businesses and may pursue acquisitions in the future.

Our ability to pursue this strategy will be limited by our ability to identify appropriate acquisition candidates and our financial resources, including available cash and borrowing capacity.

In addition, we may seek to divest of businesses that are underperforming or not core to our future business.

The expense incurred in consummating transactions, the time it takes to integrate an acquisition or our failure to integrate businesses successfully could result in unanticipated expenses and losses.

Furthermore, we may not be able to realize the anticipated benefits from acquisitions.

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

The risks associated with the integration of acquisitions include potential disruption of our ongoing businesses and distraction of management, unforeseen claims, liabilities, adjustments, charges and write-offs, difficulty in conforming the acquired business’ standards, processes, procedures and controls with our operations, and challenges arising from the increased scope, geographic diversity and complexity of the expanded operations.

Our businesses are subject to risks stemming from natural disasters or other extraordinary events outside of our control, which could interrupt our production and adversely affect our results of operations.

Natural disasters have the potential of interrupting our operations and damaging our properties, which could adversely affect our businesses.

Flooding of the Mississippi River has temporarily shifted the Company’s terminal operations out of its buildings four times since the spring of 2010, including most recently the spring of 2019.

We can give no assurance that flooding or other natural disasters will not recur or that there will not be material damage or interruption to our operations in the future from such disasters.

Chemical-related assets may be at greater risk of future terrorist attacks than other possible targets in the United States.

Federal law imposes site security requirements, specifically on chemical facilities, which have increased our overhead expenses.

Federal regulations have also been adopted to increase the security of the transportation of hazardous chemicals in the United States.

We ship and receive materials that are classified as hazardous and we believe we have met these requirements, but additional federal and local regulations that limit the distribution of hazardous materials are being considered.

Bans on movement of hazardous materials through certain cities could adversely affect the efficiency of our logistical operations.

Broader restrictions on hazardous material movements could lead to additional investment and could change where and what products we provide.

The occurrence of extraordinary events, including future terrorist attacks, global health developments and pandemics (including the COVID-19 outbreak), or escalation of hostilities, cannot be predicted, but their occurrence can be expected to negatively affect the economy in general, and specifically the markets for our products.

The resulting damage from a direct attack on our assets, or assets used by us, could include loss of life and property damage.

In addition, available insurance coverage may not be sufficient to cover all of the damage incurred or, if available, may be prohibitively expensive.

We may not be able to renew our leases of land where four of our operations facilities reside.

We lease the land where our three main terminals are located and where another significant manufacturing plant is located.

These leases, including all renewal periods, have expiration dates from 2023 to 2044.

The failure to secure extended lease terms on any one of these facilities may have a material adverse impact on our business, as they are where a portion of our chemicals are manufactured and where the majority of our bulk chemicals are stored.

While we can make no assurances, based on historical experience and anticipated future needs, we intend to extend these leases and believe that we will be able to renew our leases as the renewal periods expire.

If we are unable to renew three of our leases (two relate to terminals and one to manufacturing) any property remaining on the land becomes the property of the lessor, and the lessor has the option to either maintain the property or remove the property at our expense.

The fourth lease provides that we turn any property remaining on the land over to the lessor for them to maintain or remove at their expense.

The cost to relocate our operations could have a material adverse effect on our results of operations and financial condition.

LEGAL AND REGULATORY RISKS

Environmental, health and safety, transportation and storage laws and regulations cause us to incur substantial costs and may subject us to future liabilities and risks.

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and the investigation and cleanup of any spills or releases that may result from our management, handling, storage, sale, or transportation of chemicals and other products.

The nature of our business exposes us

to risks of liability under these laws and regulations.

The nature of our business exposes us to risks of liability under these laws and regulations.

Ongoing compliance with such laws and regulations is an important consideration for us and we invest substantial capital and incur significant operating costs in our compliance efforts.

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We have in the past been, and may in the future be, subject to claims relating to exposure to hazardous materials and the associated liabilities may be material.