What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-12-06 compared with 2022-12-06 · 86 added, 87 removed, 136 unchanged (56% of the section changed)

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Risk Factors,” included elsewhere in this Annual Report.

We develop, design, manufacture and service custom-engineered equipment and systems which (1) distribute, control and monitor the flow of electrical energy and (2) provide protection to motors, transformers and other electrically powered equipment.

We develop, design, manufacture and service custom-engineered equipment and systems that (1) distribute, control and monitor the flow of electrical energy and (2) provide protection to motors, transformers and other electrically powered equipment.

We are headquartered in Houston, Texas and serve the oil and gas and petrochemical markets, which include onshore and offshore production, LNG facilities and terminals, pipelines, refineries and petrochemical plants.

Additional markets include electric utility and light rail traction power as well as mining and metals, pulp and paper and other municipal, commercial and other industrial markets.

Additional markets include electric utility, light rail traction power as well as mining and metals, pulp and paper, data centers and other municipal, commercial and industrial markets.

Revenues and costs are primarily related to custom engineered-to-order equipment and systems and are accounted for under percentage-of-completion accounting, which precludes us from providing detailed price and volume information.

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The markets in which we participate are capital-intensive and cyclical in nature.

Cyclicality is predominantly driven by customer demand, global economic and geopolitical conditions and anticipated environmental, safety or regulatory changes which affect the manner in which our customers proceed with capital investments.

Cyclicality is predominantly driven by customer demand, global economic and geopolitical conditions and anticipated environmental, safety or regulatory changes that affect the manner in which our customers proceed with capital investments.

Our customers analyze various factors, including the demand and price for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, regulatory actions and environmental concerns.

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Within the industrial sector, specifically oil, gas and petrochemical, the demand for our electrical distribution solutions is very cyclical and closely correlated to the level of capital expenditures of our end-user customers as well as prevailing global economic conditions.

Over the past few years, there has been an increase in capital spending within North America on LNG facilities as the market responds to the increased international demand for LNG.

As a result, the business was awarded a substantial contract in the second quarter of Fiscal 2020 that will support the integrated electrical distribution requirements for a large domestic LNG industrial complex that was substantially completed in Fiscal 2022.

Impact of Global Economic Uncertainty and Commodity Market Volatility on Powell

Various factors resulting in global economic uncertainty have negatively impacted our results over the past two years.

Uncertainty and demand disruptions have resulted in considerable volatility across commodity markets.

Although global oil prices have rebounded, our industrial end markets have responded with modest increases in capital expenditures.

Additionally, we continue to experience supply chain disruptions driven predominately by availability and cost volatility across our raw materials, components and labor force.

All of these factors have contributed to the lower margins realized in Fiscal 2021 and 2022.

As we address disruptions and increased costs, we continue to work with our suppliers of key components and commodities to ensure that we are able to meet our customer commitments.

Additionally, we have adjusted our pricing models with our customers in response to the increased cost environment.

In response to the lower demand and uncertainty across select end markets, we have taken and will continue to take various actions to maintain or reduce costs.

We continue to operate below capacity in some areas and will consistently monitor the macro-economic conditions as we head into our fiscal year ending September 30, 2023.

As discussed further under the heading "Outlook" below, it is difficult to predict the economic impact that this global economic uncertainty, as well as commodity price volatility, may have on our business, results of operations and cash flows going forward.

The North American market is responding to increased international demand for LNG and gas-to-chemical processes utilizing low-cost gas feedstocks.

As a result, the business has been awarded a number of large LNG and petrochemical contracts that have had a positive impact on our backlog.

One element of our strategic focus is to strengthen our project portfolio beyond our core oil, gas and petrochemical end market sectors.

Diversification efforts outside of our core oil, gas and petrochemical end markets have resulted in an increase in backlog across the utility and commercial and other industrial sectors.

Over the past year, these efforts have contributed to a strong backlog of projects coming into Fiscal 2023 and near record levels going into Fiscal 2024.

Various factors resulting in global economic uncertainty negatively impacted our results over the previous two years.

Uncertainty and demand disruptions resulted in considerable volatility across commodity markets.

We experienced supply chain disruptions driven predominantly by availability and cost volatility across our raw materials, components and labor force.

All of these factors contributed to the lower margins realized in Fiscal 2022 relative to prior oil and gas cycles.

Commodity prices have stabilized in Fiscal 2023;

however, we continue to experience supply chain delays for specific engineered components and continue to work with our suppliers in order to meet our customer commitments.

Additionally, we have adjusted our product pricing, delivery schedules and bid validity dates with our customers in response to the increased cost environment and supply chain delays, and as a result our gross margins have been improved in Fiscal 2023.

Results of Operations

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Revenue and Gross Profit

Revenues increased by 13%, or $62.0 million, to $532.6 million in Fiscal 2022.

Revenues increased by 31%, or $166.7 million, to $699.3 million in Fiscal 2023, primarily driven by the increase in project backlog resulting from a recovery of our core oil, gas and petrochemical markets.

Domestic revenues increased by 38%, or $153.0 million, to $557.9 million in Fiscal 2023.

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Our international revenues include both revenues generated from our international facilities as well as revenues from export projects generated at our domestic facilities.

Revenue from our core oil and gas markets (excluding petrochemical) increased by 15%, or $27.5 million, to $215.2 million while petrochemical revenue increased by 13%, or $7.6 million, to $66.5 million in Fiscal 2022, primarily due to increased market activity.

Revenue from our utility end markets increased by 10%, or $11.1 million, to $122.4 million and traction market revenue decreased by 24%, or $14.2 million, to $44.9 million in Fiscal 2022.

Revenue from our core oil and gas markets (excluding petrochemical) increased by 27%, or $57.9 million, to $273.1 million in Fiscal 2023, and petrochemical revenue increased by 42%, or $27.6 million, to $94.2 million in Fiscal 2023.

Revenue from our utility end markets increased by 29%, or $36.0 million, to $158.4 million in Fiscal 2023.

Commercial and other industrial market revenue increased by 84%, or $47.5 million, to $104.0 million driven by an increase in traditionally non-core markets such as data centers, university projects and other miscellaneous applications.

Revenue from all other markets combined increased by $14.5 million to $41.5 million in Fiscal 2023.

These increases in revenue were driven by improved market conditions and our strategic effort to diversify our business.

Revenue from our traction market decreased by 37%, or $16.8 million, to $28.1 million in Fiscal 2023.

Gross profit increased by 74%, or $62.5 million, to $147.6 million in Fiscal 2023.

Despite the increase in revenues, gross profit as a percentage of revenues remained flat to the prior fiscal year at 16% in Fiscal 2022 due to increased costs impacting older projects in our backlog that were subject to inflationary pressures on raw materials and components, with little or no recourse from the customer to reprice the project.

On more recent projects in the backlog, we were able to successfully pass the inflationary impact to the customer in the form of increased pricing.

Additionally, favorable project execution, volume leverage and product mix, including fast track service and replacement projects across our service division, all helped to offset the negative inflationary pressure carried by the older projects in the backlog.

Additionally, gross profit from our international operations improved over the prior year driven by favorable project execution and increased volume.

Throughout the second half of Fiscal 2022, gross margins benefited from favorable close out gains and associated productivity on select projects.

Additionally, revenue and gross profit increased by $2.5 million resulting from the settlement of a claim for cost overruns from prior years related to a U.S.

based municipal transit project.

Gross profit as a percentage of revenues increased to 21% in Fiscal 2023 as compared to 16% in the prior year.

This increase in gross profit was favorably impacted by the higher volume levels across the manufacturing facilities driving key factory efficiencies, strong project execution as well as, effectively managing product pricing that corresponds to current cost levels.

Additionally, project cancellations contributed $4.3 million to gross profit in Fiscal 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 11%, or $8.0 million, to $78.8 million in Fiscal 2023, primarily due to increased variable performance-based compensation.

Selling, general and administrative expenses, as a percentage of revenues, decreased to 13% in Fiscal 2022, compared to 14% in Fiscal 2021, primarily due to the ability to leverage our cost structure with the increase in revenues.

Selling, general and administrative expenses, as a percentage of revenues, decreased to 11% in Fiscal 2023, compared to 13% in Fiscal 2022, based upon leveraging our cost structure on the increase in revenues.

During Fiscal 2022 we recorded other income of $2.3 million related to a gain on the sale of a small, non-core, industrial valve repair and servicing business within our Canadian operations as well as the sale of an excess parcel of land in the U.S.

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Income Tax Provision (Benefit)

We recorded an income tax benefit of $3.9 million in Fiscal 2022, resulting in an effective tax rate of negative 40%, compared to an income tax provision of $0.5 million in Fiscal 2021 at an effective tax rate of 42%.

In Fiscal 2022, the tax benefit primarily resulted from the release of the valuation allowance previously recorded against the Canadian net deferred tax assets in the amount of $5.9 million and the estimated Research and Development Tax Credit (R&D Tax Credit).

We recorded an income tax provision of $14.4 million in Fiscal 2023, resulting in an effective tax rate of 21%, compared to an income tax benefit of $3.9 million in Fiscal 2022 at an effective tax rate of negative 40%.

In Fiscal 2023, the effective tax rate approximated the U.S.

federal statutory rate.

The favorable impacts of the estimated Research and Development Tax Credit (R&D Tax Credit) and the release of the valuation allowance previously recorded against the U.K.

net deferred tax assets in the amount of $1.9 million were offset by state income tax expense, certain non-deductible items and the tax impact of U.S.

global intangible income.

The tax benefit was partially offset by certain non-deductible items, the tax expense related to the gain on the disposition of a small, non-core division of our Canadian operations and the tax impact of U.S.

global intangible income.

In Fiscal 2021, the effective tax rate was negatively impacted by our inability to recognize a tax benefit related to losses incurred in various jurisdictions outside of the United States as well as the establishment of a valuation allowance against the deferred tax assets in Mexico.

The estimated R&D Tax Credit as well as the utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation allowance provided a tax benefit for Fiscal 2021.

In Fiscal 2023, we recorded net income of $54.5 million, or $4.50 per diluted share, compared to net income of $13.7 million, or $1.15 per diluted share in Fiscal 2022.

This increase in net income is primarily due to the increase in bookings which led to an increase in revenues, the release of a Canadian valuation allowance recorded against net deferred tax assets, the gain on the sale of a non-core business within our Canadian operations and the settlement of a claim from a project completed in prior years.

The order backlog at September 30, 2022 was $592.2 million, a 43% increase from $414.9 million at September 30, 2021.

Bookings, net of cancellations and scope reductions, increased by 78% in Fiscal 2022 to $718.6 million, compared to $403.9 million in Fiscal 2021.

The large year-over-year increase was due to strength across our utility, petrochemical, and commercial and other industrial end markets.

As noted in "Overview" above, the markets in which we participate are capital-intensive and generally cyclical in nature.

A significant portion of our revenues has historically been from the oil, gas and petrochemical markets.

Oil and gas commodity price levels have been volatile over the last several years, and our customers have in certain cases, delayed or cancelled some of their major capital investment projects due to price volatility and changes in return expectations.

Recently we have seen increased global demand for cleaner-burning fuels;

however, the uncertainty in oil prices and the global economic impacts from COVID-19, including supply chain disruptions and associated inflationary pressures, as well as other geopolitical events may have a negative impact on our business going forward, as discussed in more detail below.

Specific to the energy industry focus on transitioning to natural gas and cleaner-burning fuels, the business was awarded a substantial contract in Fiscal 2020 that will support the integrated electrical distribution requirements for a large domestic industrial complex and was substantially completed in Fiscal 2022.

We continue to experience increased demand from markets outside our core oil, gas and petrochemical end markets, as we increase focus on diversification of our project portfolio.

Our operating results are impacted by factors such as the timing of new order awards, customer approval of final engineering and design specifications and delays in customer construction schedules, all of which contribute to short-term earnings variability and the timing of project execution.

Our operating results also have been, and may continue to be, impacted by the timing and resolution of change orders, project close-out and resolution of potential contract claims and liquidated damages, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers.

Disruption in the global supply chain has negatively impacted our business and operating results as well due to the reduction in availability and uncertainty in the timing of the receipt of certain key component parts and commodities.

These factors may result in periods of underutilization of our resources and facilities, which may negatively impact our ability to cover our fixed costs or inhibit our ability to deliver completed products on time.

Additionally, the increases in commodity and component costs from projects awarded in prior years and increased labor costs may have a negative impact on our operating results in the

event that we are not able to pass these cost increases to our customers.

Prior to Fiscal 2022, we experienced periods of lower commercial activity driven in large part from the uncertainty resulting from the COVID-19 pandemic, as discussed in "Overview" above.

Considering the long cycle nature of our business, we are exposed to cyclical conditions in our business.

We will continue to remain focused on the variables that impact our markets as well as cost management, labor and supply chain challenges.

We will also continue to adjust to the global conditions in order to maintain competitive cost and technological advantages in the markets that we serve.

The consequences of a prolonged economic decline could include, but are not limited to, a reduction in commercial and industrial activity.

The Company cannot reasonably estimate the duration or severity of these global economic challenges, or the extent to which the resulting disruptions may materially impact our business, results of operations or cash flows.

We will take prudent measures to maintain our strong liquidity and cash position, which may include reducing our capital expenditures and research and development costs, as well as reducing or eliminating future dividend payments.

This increase in net income is primarily due to the increase in bookings which led to an increase in revenues coupled with increased project margins.

The order backlog at September 30, 2023 was $1.3 billion, a 118% increase from $592.2 million at September 30, 2022.

This increase in backlog is driven primarily from our oil and gas markets, including LNG, petrochemical, utility and commercial and other industrial markets.

Bookings, net of cancellations and scope reductions, increased by 94% in Fiscal 2023 to $1.4 billion, compared to $718.6 million in Fiscal 2022, primarily driven by continued strength from our core oil, gas and petrochemical markets, including several large LNG and petrochemical projects.

Recently we have seen a cyclical recovery across our core oil, gas and petrochemical markets combined with increased global demand for cleaner-burning fuels as well as related processes utilizing lower cost gas feedstocks.

Our order activity in most of our core markets has been strong and includes multiple large LNG and petrochemical projects.

This elevated project activity has increased our backlog to approximately $1.3 billion.

Diversification efforts outside of our core oil, gas and petrochemical end markets have also been a positive catalyst, helping to drive the increase in backlog.

This strong backlog of projects, which incorporates pricing and productivity initiatives in response to persistent inflationary pressures, should continue to support an increasing level of revenue into Fiscal 2024.

Approximately $648 million of the backlog is expected to be recognized as revenue within the next twelve months.

We do not anticipate our backlog will continue to grow at the same pace as we have recognized in the last twelve months, which included several large LNG and petrochemical projects booked throughout Fiscal 2023.

Our operating results are impacted by several factors such as the timing of new order awards, project backlog, changes in project cost estimates, customer approval of final engineering specifications and delays in customer construction schedules, all of which contribute to short-term earnings variability and the timing of project execution.

Our operating results also have been, and may continue to be, impacted by the timing and resolution of change orders and the resolution of potential contract claims and liquidated damages, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers.

Disruptions in the global supply chain have, in the past, negatively impacted our business and operating results due to the limited availability resulting in uncertainty in the timing of the receipt of key component parts and commodities.

We continue to remain focused on the variables that impact our markets as well as cost management, labor availability and supply chain challenges.

Liquidity and Capital Resources

As of September 30, 2023, current assets exceeded current liabilities by 1.6 times.

Cash, cash equivalents and short-term investments decreased to $116.5 million at September 30, 2022, compared to $134.0 million at September 30, 2021.

This decrease in cash was primarily driven by the timing of contract billing milestones which increased accounts receivable and the strategic increase in inventory from the advance purchase of certain raw materials and component parts in response to uncertainty from the global supply challenges.

We believe that our strong working capital position, available borrowings under our credit facility and available cash should be sufficient to finance future operating activities, capital improvements and research and development initiatives for the foreseeable future.

We have a credit agreement with Bank of America, N.A.

Revolver) which is a $75.0 million revolving credit facility available for both borrowings and letters of credit and expires September 27, 2024.

Revolver states that up to $30 million may be deducted from the amount of letters of credit outstanding (not to be less than zero) when calculating the consolidated funded indebtedness which is a component of the consolidated net leverage ratio.

Additionally, we have the option to cash collateralize all or a portion of the letters of credit outstanding, which would favorably impact the consolidated funded indebtedness calculation and the consolidated net leverage ratio.

On October 1, 2021, our industrial development revenue bonds matured and as a result we had no long-term debt at September 30, 2022.

Cash, cash equivalents and short-term investments increased to $279.0 million at September 30, 2023, compared to $116.5 million at September 30, 2022.

The increase in cash, cash equivalents and short-term investments was primarily driven by the increased project volume and favorable timing of contract billing milestones on some of our large projects.

We typically allocate a significant percentage of the progress billing to the early stages of the contract.

These favorable billing milestones along with our increase in project backlog are the primary drivers for the increase at September 30, 2023.

We believe that our strong working capital position, available borrowings under our credit facility and available cash and cash equivalents should be sufficient to support our future operating activities, capital improvements and research and development initiatives for the foreseeable future.

On March 31, 2023, we entered into a second amendment (the Second Amendment) to our credit agreement with Bank of America, N.A.

(as amended, the U.S.

The Second Amendment increased the revolving credit facility, which is available for both borrowings and letters of credit from $75.0 million to $125.0 million.

As amended by the Second Amendment, the U.S.

Revolver states the lesser of $50 million or 50% of available cash may be deducted from the amount of letters of credit outstanding (not to be less than zero) when calculating the consolidated funded indebtedness, which is a component of the consolidated net leverage ratio.

We have the option to cash collateralize all or a portion of the letters of credit outstanding, which would favorably impact the consolidated funded indebtedness calculation and the consolidated net leverage ratio.

As of September 30, 2023, there were no amounts borrowed under the U.S.

Revolver, and letters of credit outstanding were $89.1 million.

As of September 30, 2022, $38.3 million was available for the issuance of letters of credit and borrowing under the U.S.

We are required to maintain certain financial covenants, the most significant of which are a consolidated net leverage ratio of less than 3.0 to 1.0 and a consolidated interest coverage ratio of greater than 3.0 to 1.0.

There was $35.9 million available for the issuance of letters of credit and borrowings under the U.S.

Revolver as of September 30, 2023.

We are required to maintain certain financial covenants, the most significant of which are a

consolidated net leverage ratio of less than 3.0 to 1.0 and a consolidated interest coverage ratio of greater than 3.0 to 1.0.

Our most restrictive covenant, the consolidated net leverage ratio, is the ratio of earnings before interest, taxes, depreciation, amortization and stock-based compensation (EBITDAS) to funded indebtedness, which includes letters of credit.

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For further information regarding our debt, see Notes G and H of Notes to Consolidated Financial Statements.

On October 4, 2023, we entered into a third amendment to the U.S.

Revolver (the Third Amendment) with Bank of America, N.A., and Texas Capital Bank has agreed to join as an additional lender under the U.S.

The Third Amendment increased the amount of the revolving line of credit from $125.0 million to $150.0 million and extended the expiry date to October 4, 2028.

For further information regarding the Third Amendment, see Note G to Consolidated Financial Statements.

Approximately $57.4 million of our cash, cash equivalents and short-term investments at September 30, 2023 was held outside of the U.S.

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Operating Activities

Operating activities used net cash of $3.6 million in Fiscal 2022 and $30.5 million in Fiscal 2021.

Operating activities provided net cash of $182.6 million during Fiscal 2023 and used net cash of $3.6 million during Fiscal 2022.

Cash flow from operations is primarily influenced by the timing of milestone payments from our customers, project volume and the associated working capital requirements, as well as payment terms with our suppliers.

This decrease in cash flows used in operations was primarily due to the timing of contract billing milestones and an increase in accounts payable and accrued liabilities, although offset by the increase in accounts receivable and inventory safety stock levels to mitigate global supply chain risks.

This increase in operating cash flow was primarily due to the increase in project volume and the favorable timing of contract billing milestones, although partially offset by the increases in accounts receivable and inventory.

Inventory has increased to support our increased backlog and stock levels to help mitigate global supply chain risks.

Investing Activities

Investing activities provided $6.5 million of cash during Fiscal 2022 compared to $2.5 million of cash used in Fiscal 2021.

The increase in cash provided by investing activities in Fiscal 2022 was primarily due to proceeds of $4.3 million received from the sale of a small, non-core division of our Canadian operations.

Investing activities used $26.6 million of cash during Fiscal 2023 compared to $6.5 million of cash provided in Fiscal 2022.

The increase in cash used in investing activities during Fiscal 2023 was primarily due to the timing of cash used to purchase short-term investments.

Financing Activities

Net cash used in financing activities was $13.3 million in Fiscal 2022 and $13.2 million during the same period in Fiscal 2021, which primarily consisted of approximately $12.2 million and $12.1 million of dividends paid in the respective years.

Net cash used in financing activities was $13.1 million during Fiscal 2023 compared to $13.3 million during Fiscal 2022, which primarily consisted of approximately $12.4 million and $12.2 million of dividends paid in the respective years.

Other Commercial Commitments

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We are subject to inflation, which can cause increases in our costs of labor, indirect expenses and raw materials, primarily copper, aluminum and steel.

Fixed-price contracts can limit our ability to pass these increases to our customers, thus negatively impacting our earnings.

Inflation in commodity prices and general indirect expenses had a negative impact on our financial results in Fiscal 2022.

Additionally, inflation related specifically to commodity and labor prices may potentially impact our operations in future years.

Fixed-price contracts can limit our ability to pass these increases to our customers, thus negatively impacting our earnings and operations in future quarters and years.

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S.

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S.

GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.

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These products may be sold separately as an engineered solution, but are typically integrated into custom-built enclosures which we also build.

These enclosures are referred to as power control room

substations (PCRs®), custom-engineered modules or electrical houses (E-Houses).

Some contracts may also include the installation and the commissioning of these enclosures.

These enclosures are referred to as power control room substations (PCRs®), custom-engineered modules or electrical houses (E-Houses).

Some contracts may also include the installation and commissioning of these enclosures.

Revenue from these contracts is generally recognized over time utilizing the cost-to-cost method.

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Contract costs include all direct materials, labor and indirect costs related to contract performance, which may include indirect labor, supplies, tools, repairs and depreciation costs.

Contract Estimates

Actual revenues and project costs may vary from previous estimates due to changes in a variety of factors.

The cost estimation process is based upon the professional knowledge and experience of our engineers, project managers and financial professionals.

Factors that are considered in estimating the work to be completed and ultimate contract recovery include the availability and productivity of labor, the nature and complexity of the work to be performed, the availability of materials, and the effect of any delays on our project performance.

We periodically review our job performance, job conditions, estimated profitability and final contract settlements, including our estimate of total costs and make revisions to costs and income in the period in which the revisions are probable and reasonably estimable.

We bear the risk of cost overruns in most of our contracts, which may result in reduced profits.

Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

See Note E of Notes to Consolidated Financial Statements for disclosures related to changes in contract estimates.

Performance Obligations

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If we determine during the evaluation of the contract that there are multiple performance obligations, we allocate the transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

Contract Estimates

Actual revenues and project costs may vary from previous estimates due to changes in a variety of factors.

The cost estimation process is based on the professional knowledge and experience of our engineers, project managers and financial professionals.

We bear the risk of cost overruns in most of our contracts, which may result in reduced profits.

Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed

estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

See Note E of Notes to Consolidated Financial Statements for disclosures related to changes in contract estimates.

Variable Consideration

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Future events and unanticipated changes to assumptions could require a provision for impairment in a future period.

The effect of any impairment would be reflected in income (loss) from operations in the Consolidated Statements of Operations.

The effect of any impairment would be reflected in operating income in the Consolidated Statements of Operations.

In addition, we estimate the useful lives of our long-lived assets and other intangibles, and periodically review these estimates to determine whether these lives are appropriate.

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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 7. Management’s Discussion and Analysis