What changed in this filing

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Item 1A. Risk Factors

2020-09-03 compared with 2019-09-04 · 51 added, 37 removed, 295 unchanged (23% of the section changed)

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Risk Factors Related to Our Business

The recent COVID-19 pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic and its effect on the oil and gas and other industries, could have a material adverse effect on our business, liquidity, results of operations and financial condition.

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the industries we serve.

These events have directly affected our business and have exacerbated the potential negative impact from many of the other risk factors described in this section, including those relating to our customers’ capital spending and trends in oil and natural gas prices.

Given the nature and significance of the events described above, we are not able to enumerate all potential risks to our business;

however, we believe potential impacts of these recent events include, but are not limited to:

• potential disruption to our supply chain for raw materials essential to our business;

• notices from customers, suppliers and other third parties arguing that their non-performance under our contracts with them is permitted as a result of force majeure or other reasons;

• liquidity challenges, including impacts related to delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies;

• a need to preserve liquidity, which could result in a delay or change in our capital investment plan;

• cybersecurity issues, as digital technologies may become more vulnerable and experience a higher rate of cyberattacks in the current environment of remote connectivity;

• litigation risk and possible loss contingencies related to COVID-19 and its impact, including with respect to commercial contracts, employee matters and insurance arrangements;

• reduction of our workforce to adjust to market conditions, including severance payments, retention issues, and an inability to hire employees when market conditions improve;

• costs associated with rationalization of our portfolio of real estate facilities, including exit of leases and facility closures to align with expected activity and workforce capacity;

• additional asset impairments, including an impairment of the carrying value of our goodwill or other intangible assets, along with other accounting charges as demand for our services and products decreases;

• infections and quarantining of our employees and the personnel of our customers, suppliers and other third parties in areas in which we operate;

• actions undertaken by national, regional and local governments and health officials to contain the virus or treat its effects;

• a structural shift in the global economy as a result of changes in the way people work, travel and interact, or in connection with a global recession.

Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and related market conditions will persist, the full extent of the impact they will have on our business, financial condition, results of operations or cash flows or the pace or extent of any subsequent recovery.

The confluence of events described above may have a significant impact on our business, and depending on the duration of the pandemic and its effect on the industries we serve, could have, a material adverse effect on our business, liquidity, consolidated results of operations and consolidated financial condition.

For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations - Operational Update.”

Unsatisfactory safety performance may subject us to penalties, affect customer relationships, result in higher operating costs, negatively impact employee morale and result in higher employee turnover.

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• our need to invest time and resources into functions such as training, business development, employee recruiting, and sales that are not chargeable to customer projects.

An inability to attract and retain qualified personnel, and in particular, engineers, project managers, and skilled craft workers, could impact our ability to perform on our contracts, which could harm our business and impair our future revenues and profitability.

Our ability to attract and retain qualified engineers, project managers, skilled craftsmen and other experienced professionals in accordance with our needs is an important factor in our ability to maintain profitability and grow our business.

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• supervising project performance, including performance by our employees, subcontractors and other third-party suppliers and vendors;

estimating costs for completion of contracts that is used to estimate amounts that can be reported as revenues and earnings on the contract under the percentage-of-completion method of accounting;

• estimating costs for completion of contracts that is used to estimate amounts that can be reported as revenue and earnings on the contract under the percentage-of-completion method of accounting;

• negotiating requests for change orders and the final terms of approved change orders;

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Our results of operations depend upon the award of new contracts and the timing of those awards.

Our revenues are derived primarily from contracts awarded on a project-by-project basis.

Our revenue is derived primarily from contracts awarded on a project-by-project basis.

Generally, it is difficult to predict whether and when we will be awarded a new contract due to lengthy and complex bidding and selection processes, changes in existing or forecasted market conditions, customers' access to financing, governmental regulations, permitting and environmental matters.

Because our revenues are derived from contract awards, our results of operations and cash flows can fluctuate materially from period to period.

Because our revenue are derived from contract awards, our results of operations and cash flows can fluctuate materially from period to period.

The uncertainty associated with the timing of contract awards may reduce our short-term profitability as we balance our current capacity with expectations of future contract awards.

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Therefore, it is likely that our business will continue to be cyclical in nature and vulnerable to general downturns in the United States, Canadian and world economies and changes in commodity prices, which could adversely affect the demand for our products and services.

The availability of engineering and construction projects is dependent upon economic conditions in the oil, gas, petrochemical, industrial, iron and steel and power industries, and specifically, the level of capital expenditures on energy infrastructure.

The availability of engineering and construction projects is dependent upon economic conditions in the oil, gas, petrochemical, industrial, and power industries, and specifically, the level of capital expenditures on energy infrastructure.

A prolonged period of relatively low commodity prices in North America has had an adverse impact on the level of capital expenditures of our customers and/or their ability to finance these expenditures.

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There are numerous factors beyond our control that influence the level of maintenance and capital expenditures of our customers, including:

current or projected commodity prices, including oil, gas, power, steel and mineral prices;

• current or projected commodity prices, including oil, gas, power and mineral prices;

• refining margins;

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• changing taxes, price controls, and laws and regulations.

The aforementioned factors are beyond our control and could have a material adverse effect on our results of operations and on our financial position or cash flow, particularly in the Storage Solutions and Oil Gas & Chemical segments.

The operations of our Storage Solutions segment are influenced by the overall forward market for crude oil, and certain market conditions may adversely affect that segment’s financial and operating results.

The results of our Storage Solutions segment may be influenced by the overall forward market for crude oil.

The aforementioned factors are beyond our control and could have a material adverse effect on our results of operations and on our financial position or cash flow.

The volume of storage related projects are influenced by the overall forward market for crude oil, and certain market conditions may adversely affect financial and operating results.

Our results may be influenced by the overall forward market for crude oil.

A “contango” market (meaning that the price of crude oil for future delivery is higher than the current price) is associated with greater demand for crude oil storage capacity, because a party can simultaneously purchase crude oil at current prices for storage and sell at higher prices for future delivery.

A “backwardated” market (meaning that the price of crude oil for future delivery is lower than the current price) is associated with lower demand for crude oil storage capacity, because a party can capture a premium for prompt delivery of crude oil rather than storing it for future sale.

A prolonged backwardated market or other adverse market conditions could have an adverse impact on demand for new construction in our Storage Solutions segment.

A prolonged backwardated market or other adverse market conditions could have an adverse impact on demand for new storage related construction.

Finally, higher absolute levels of crude oil prices increase the costs of financing and insuring crude oil in storage, which negatively affects storage economics.

As a result, the overall forward market for crude oil may have an adverse effect on our Storage Solution segment’s business, results of operations and financial condition.

As a result, the overall forward market for crude oil may have an adverse effect on our business, results of operations and financial condition.

The terms of our contracts could expose us to unforeseen costs and costs not within our control, which may not be recoverable and could adversely affect our results of operations and financial condition.

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Our use of percentage-of-completion accounting for fixed-price contracts and our reporting of profits for cost-plus contracts prior to contract completion could result in a reduction or elimination of previously reported profits.

Our revenues are recognized using the percentage-of-completion method of accounting.

Under percentage-of-completion accounting, contract revenues and earnings are recognized ratably over the contract term based on the proportion of actual costs incurred to total estimated costs.

Our revenue are recognized using the percentage-of-completion method of accounting.

Under percentage-of-completion accounting, contract revenue and earnings are recognized ratably over the contract term based on the proportion of actual costs incurred to total estimated costs.

In addition, some contracts contain penalty provisions for failure to achieve certain milestones, schedules or performance standards.

We review our estimates of contract revenues, costs and profitability on a monthly basis.

We review our estimates of contract revenue, costs and profitability on a monthly basis.

As a result, we may adjust our estimates on one or more occasions as a result of changes in cost estimates, change orders to the original contract, or claims against the customer for increased costs incurred by us due to customer-induced delays and other factors.

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Actual results could differ from the estimates and assumptions that we use to prepare our financial statements.

To prepare financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions, as of the date of the financial statements, which affect the reported values of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities.

To prepare financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions, as of the date of the financial statements, which affect the reported values of assets, liabilities, revenue and expenses and disclosures of contingent assets and liabilities.

Areas requiring significant estimation by our management include:

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Our actual results could materially differ from these estimates.

The steel industry is cyclical and sensitive to general economic conditions, which could have a material adverse effect on our operating results and financial condition.

A significant percentage of our Industrial segment's revenues are derived from the steel industry.

Demand for steel products is cyclical in nature and sensitive to general economic conditions.

The timing and magnitude of the cycles in the markets in which our customers’ products are used, including automobiles and construction, are difficult to predict.

The cyclical nature of our customers’ operations tends to reflect and be amplified by changes in economic conditions, both domestically and internationally, supply/demand imbalances, foreign currency exchange fluctuations, and foreign and domestic import tariffs on steel.

Economic downturns or a prolonged period of slow growth in the U.S.

and foreign markets or any of the industries in which our steel industry customers operate could have a material adverse effect on our results of operations, financial condition and cash flows.

Domestic and Foreign trade tariffs could have a material adverse effect on our customers' businesses and could raise the price and reduce the availability of raw materials to us, which could negatively impact our operating results and financial condition.

Domestic and foreign trade tariffs could have a material adverse impact on our customers' businesses, which could cause our customers to reduce spending on capital and maintenance projects.

This reduction in spending could lead to fewer project awards and/or more competition.

Fewer project awards and more competition could reduce our revenues and gross margins.

In addition, domestic and foreign trade tariffs could raise the price and reduce the availability of raw materials such as steel plate and steel pipe, which are key materials used by the Company.

Domestic and Foreign trade tariffs could raise the price and reduce the availability of raw materials to us, which could negatively impact our operating results and financial condition.

Domestic and foreign trade tariffs could raise the price and reduce the availability of raw materials such as steel plate and steel pipe, which are key materials used by us.

Supplies of these materials are available throughout the United States and globally from numerous sources.

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These potential liabilities could have a material adverse effect on our business.

We may not be able to successfully integrate our acquisitions, which could cause our business to suffer.

We may not be able to successfully integrate our acquisitions, which could adversely impact our business.

We may not be able to successfully complete our ongoing integration of the operations, personnel and technology from our acquisitions.

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Our integration activities have required significant attention from management, which potentially decreases the time that management may devote to serve existing customers, attract new customers and develop new services and strategies.

We may also experience difficulties in combining corporate cultures, maintaining employee morale and retaining key

We may also experience difficulties in combining corporate cultures, maintaining employee morale and retaining key employees.

The integration efforts may also impose substantial demands on our operations or other projects.

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The loss of one or more of our significant customers could adversely affect us.

One or more customers have in the past and may in the future contribute a material portion of our revenues in any one year.

One or more customers have in the past and may in the future contribute a material portion of our revenue in any one year.

Because these significant customers generally contract with us for specific projects or for specific periods of time, we may lose these customers from year to year as the projects or maintenance contracts are completed.

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These difficult conditions may also cause us to incur additional, unanticipated costs that we might not be able to pass on to our customers.

We are susceptible to adverse weather conditions, which may harm our business and financial results.

We are susceptible to severe weather conditions as a result of climate change or otherwise, which may harm our business and financial results.

Our business may be adversely affected by severe weather in areas where we have significant operations.

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• loss of productivity.

The frequency and severity of severe weather conditions may be enhanced by present and future changes to our climate.

Our senior secured revolving credit facility imposes restrictions that may limit business alternatives.

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In addition, we perform an impairment review whenever events or changes in circumstances indicate the carrying value of goodwill or an intangible or fixed asset may not be recoverable.

As of June 30, 2019, the Company had $19.5 million of amortizing intangible assets and $93.4 million of non-amortizing goodwill representing 3.1% and 14.7% of the Company's total assets, respectively.

In fiscal 2020, we had $40.0 million of goodwill and other intangible asset impairments, of which $1.5 million was reported as restructuring costs.

As of June 30, 2020, we had $8.8 million of amortizing intangible assets and $60.4 million of non-amortizing goodwill representing 1.7% and 11.7% of our total assets, respectively.

We are involved, and are likely to continue to be involved in legal proceedings, which will increase our costs and, if adversely determined, could have a material effect on our financial condition, results of operations, cash flows and liquidity.

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If we are unable to obtain insurance at an acceptable cost or otherwise protect against the claims described above, we will be exposed to significant liabilities, which may materially and adversely affect our financial condition and results of operations.

Employee, subcontractor or partner misconduct or our overall failure to comply with laws or regulations could harm our reputation, damage our relationships with customers, reduce our revenues and profits, and subject us to criminal and civil enforcement actions.

Employee, subcontractor or partner misconduct or our overall failure to comply with laws or regulations could harm our reputation, damage our relationships with customers, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.

Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of our employees, subcontractors or partners could have a significant negative impact on our business and reputation.

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The precautions we take to prevent and detect these activities may not be effective, since our internal controls are subject to inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud.

Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, harm our reputation, damage our relationships with customers, reduce our revenues and profits and subject us to criminal and civil enforcement actions.

Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, harm our reputation, damage our relationships with customers, reduce our revenue and profits and subject us to criminal and civil enforcement actions.

Environmental factors and changes in laws and regulations could increase our costs and liabilities.

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Any security breach resulting in the unauthorized use or disclosure of certain personal information could put individuals at risk of identity theft and financial or other harm and result in costs to the Company in investigation, remediation, legal defense and in liability to parties who are financially harmed.

We may incur significant costs to protect against the threat of information security

breaches or to respond to or alleviate problems caused by such breaches.

We may incur significant costs to protect against the threat of information security breaches or to respond to or alleviate problems caused by such breaches.

For example, laws may require notification to regulators, clients or employees and enlisting credit monitoring or identity theft protection in the event of a privacy breach.

A cybersecurity attack could also be directed at our systems and result in interruptions in our operations or delivery of services to our clients and their customers.

Furthermore, a material security breach could cause us to lose revenues, lose clients or cause damage to our reputation.

Furthermore, a material security breach could cause us to lose revenue, lose clients or cause damage to our reputation.

To reduce organizational risk from cybersecurity threats, the Company has undertaken several initiatives in recent years.

We strengthened our identity and access management capabilities by requiring multi-factor authentication, increased the threat detection efficiencies within our security information and event management capacity, and completed projects designed to reduce our organization's external attack surface.

In addition, in the area of security awareness and training, we have updated our foundational curriculum, established mandatory recurring training requirements, and commenced periodic phishing campaign assessments.

We rely on internally and externally developed software applications and systems to support critical functions including project management, estimating, scheduling, human resources, accounting, and financial reporting.

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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