What changed in this filing

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Item 1A. Risk Factors

2022-09-08 compared with 2021-09-02 · 40 added, 41 removed, 117 unchanged (41% of the section changed)

The Company’s business involves risk.

The Company’s business involves various risk factors.

The following information about these risks should be considered carefully together with other information contained in this report.

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Additional risks not currently known, deemed immaterial or that could apply to any issuer may also result in adverse results for the Company’s business.

As a global company, the Company is subject to currency fluctuations and any significant movement between the U.S.

dollar and the euro, in particular, could have an adverse effect on its profitability.

As a global company, the Company is subject to currency fluctuations and a significant movement between the U.S.

dollar and the euro exchange rate, in particular, could have an adverse effect on its profitability.

Although the Company’s financial results are reported in U.S.

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dollar against the euro and the other currencies in which it generates revenues and incurs expenses.

Significant long-term fluctuations in relative currency values, in particular a significant change in the relative values of the U.S.

dollar or euro, could have an adverse effect on the Company’s profitability and financial condition.

While the long-term impacts of the United Kingdom’s exit from the European Union (commonly known as “Brexit”) remain uncertain, any resulting unfavorable currency impact to the euro could have an adverse effect on the Company’s profitability and financial condition.

Significant long-term fluctuations in relative currency values, in particular a significant change in the exchange rate between the U.S.

dollar and the euro, could have an adverse effect on the Company’s profitability and financial condition.

The Company continues to be adversely affected by the economic disruptions caused by the global coronavirus pandemic.

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This outbreak contributed to shelter-in-place policies, unexpected factory closures, supply chain disruptions, and market volatility causing substantial declines in market capitalization, and occurring in the midst of an already challenging economic environment in some of our markets, most notably the oil and gas market. 

As a result of the outbreak, starting in March 2020 and intermittently through June 30, 2021, the Company suspended or reduced its operations, in whole or in part, in many of its locations.

As a result of the outbreak, starting in March 2020 and intermittently through June 30, 2022, the Company suspended or reduced its operations, in whole or in part, in several of its locations.

The Company’s businesses operate in market segments impacted by COVID-19. 

Operating during a global pandemic has exposed the Company to a number of material risks, including diminished demand for our products and our customers’

products, suspensions in the operations of our and our suppliers' manufacturing facilities, maintenance of appropriate labor levels, our ability to ship products to our customers, interruptions in our supply chains and distribution systems, access to capital and potential increases to the cost of capital, collection of trade receivables in accordance with their terms and potential further impairment of long-lived assets;

products, suspensions in the operations of our and our suppliers’

manufacturing facilities, maintenance of appropriate labor levels, our ability to ship products to our customers, interruptions in our supply chains and distribution systems, access to capital and potential increases to the cost of capital, collection of trade receivables in accordance with their terms and potential further impairment of long-lived assets;

all of which, in the aggregate, have had an adverse effect on the Company’s business, financial condition, results of operations and cash flows.

The depth and duration of the pandemic remains unknown. 

The severity and duration of the pandemic remains unknown. 

Management continues to actively monitor the global situation and its effect on financial condition, liquidity, operations, suppliers, industry and workforce. 

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Many of the Company ’

s product markets are cyclical in nature or are otherwise sensitive to volatile or variable factors.

s product markets are cyclical in nature or are otherwise sensitive to volatile or unpredictable factors.

A downturn or weakness in overall economic activity or fluctuations in those other factors could have a material adverse effect on the Company ’

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To date, the Company has been successful with offsetting the effects of increased commodity costs through cost reduction programs and pricing actions.

However, if material prices were to continue to increase at a rate that could not be recouped through product pricing, it could potentially have an adverse effect on the Company’s future profitability.

However, if material prices were to continue to increase at a rate that could not be recouped through product pricing or cost reductions, it could potentially have an adverse effect on the Company’s future profitability.

The Company anticipates that additional tariffs or trade restrictions resulting from “trade wars”

could result in an increase in its cost of sales and there can be no assurance that the Company will be able to pass any of the increases in raw material costs directly resulting from the tariff to its customers.

could result in an increase in its cost of sales and there can be no assurance that the Company would be able to pass any of the increases in raw material costs directly resulting from additional tariffs to its customers.

Given that it procures many of the raw materials that it uses to create its products directly or indirectly from outside of the United States, the imposition of tariffs and other potential changes in U.S.

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s business would be adversely affected.

Although there were no customers that accounted for 10% or more of consolidated net sales in fiscal 2021, deterioration of a business relationship with one or more of the Company’s significant customers would cause its sales and profitability to be adversely affected. Although the Company’s accounts receivable are dispersed among a large customer base, a significant change in the liquidity or financial position of any one of its largest customers could have a material adverse impact on the collectability of its accounts receivable and future operating results.

Although there was only one customer that accounted for 10% or more of consolidated net sales in fiscal 2022, deterioration of a business relationship with one or more of the Company’s significant customers would cause its sales and profitability to be adversely affected.

Although the Company’s accounts receivable are dispersed among a large customer base, a significant change in the liquidity or financial position of any one of its largest customers could have a material adverse impact on the collectability of its accounts receivable and future operating results.

The termination of relationships with the Company ’

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As a manufacturer of highly engineered products, the performance, reliability and productivity of the Company’s products are some of its competitive advantages.

While the Company prides itself on putting in place procedures to ensure the quality and performance of its products and suppliers, a significant quality or product issue, whether due to design, performance, manufacturing or supplier quality issue, could lead to warranty actions, scrapping of raw materials, finished goods or returned products, the deterioration in a customer relationship, or other action that could adversely affect warranty and quality costs, future sales and profitability.

While the Company prides itself on implementing procedures to ensure the quality and performance of its products and suppliers, a significant quality or product issue, whether due to design, performance, manufacturing or supplier quality issue, could lead to warranty actions, scrapping of raw materials, finished goods or returned products, the deterioration in a customer relationship, or other action that could adversely affect warranty and quality costs, future sales and profitability.

The Company faces risks associated with its international sales and operations that could adversely affect its business, results of operations or financial condition.

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A material disruption at the Company ’

s manufacturing facility in Racine, Wisconsin could adversely affect its ability to generate sales and meet customer demand.

The majority of the Company’s manufacturing, based on fiscal 2021 sales, came from its facility in Racine, Wisconsin.

If operations at this facility were to be disrupted as a result of significant equipment failures, natural disasters, power outages, fires, explosions, adverse weather conditions, labor force disruptions or other reasons, the Company’s business and results of operations could be adversely affected.

s manufacturing facility in Racine, Wisconsin could adversely affect its ability to generate sales and meet customer demand.

The majority of the Company’s manufacturing, based on fiscal 2022 sales, came from its facility in Racine, Wisconsin.

If operations at this facility were to be disrupted as a result of significant equipment failures, natural disasters, power outages, fires, explosions, adverse weather conditions, labor force disruptions or other reasons, the Company’s business and results of operations could be adversely affected.

Interruptions in production would increase costs and reduce sales.

Any interruption in production capability could require the Company to make substantial capital expenditures to remedy the situation, which could negatively affect its profitability and financial condition.

The Company maintains property damage insurance which it believes to be adequate to provide for reconstruction of its facilities and equipment, as well as business interruption insurance to mitigate losses resulting from any production interruption or shutdown caused by an insured loss.

The Company maintains property damage insurance which it believes is adequate to reconstruct its facilities and equipment, as well as business interruption insurance to mitigate losses resulting from any production interruption or shutdown caused by an insured loss.

However, any recovery under this insurance policy may not offset the lost sales or increased costs that may be experienced during the disruption of operations.

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If this were to occur, future sales levels and costs of doing business, and therefore profitability, could be adversely affected.

The Company entered into a new credit agreement in June 2018 and significantly increased its indebtedness.

The ability to service the requirements of the new debt depends on the ability to generate cash and/or refinance its indebtedness as it becomes due, and depends on many factors, some of which are beyond the Company ’

The Company entered into a new credit agreement on June 29, 2018.

The Company’s ability to make payments on its indebtedness, including those under the new credit agreement, and to fund planned capital expenditures, research and development efforts and other corporate expenses depends on the Company’s future operating performance and on economic, financial, competitive, legislative, regulatory and other factors.

The ability to service the requirements of debt depends on the ability to generate cash and/or refinance its indebtedness as it becomes due, and depends on many factors, some of which are beyond the Company ’

The Company entered into a credit agreement on June 29, 2018.

The Company’s ability to make payments on its indebtedness, including those under the credit agreement, and to fund planned capital expenditures, research and development efforts and other corporate expenses depends on the Company’s future operating performance and on economic, financial, competitive, legislative, regulatory and other factors.

Many of these factors are beyond its control.

The Company cannot assure that its business will generate sufficient cash flow from operations, or operating improvements will be realized or that future borrowings will be available to it in an amount sufficient to enable it to repay its indebtedness or to fund its other operating requirements.

The Company cannot be certain that its business will generate sufficient cash flow from operations, or operating improvements will be realized or that future borrowings will be available to it in an amount sufficient to enable it to repay its indebtedness or to fund its other operating requirements.

Significant delays in its planned capital expenditures may materially and adversely affect the Company’s future revenue prospects.

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s business and financial condition.

The Company’s five-year revolving credit facility entered into on June 29, 2018 is secured by certain personal property assets such as accounts receivable, inventory, and machinery and equipment. 

Under this agreement, the Company’s borrowing capacity is based on the eligible balances of these assets and it is required to maintain sufficient borrowing base at all times to secure its outstanding borrowings. 

The Company is also required to comply with a minimum Debt to EBITDA ratio and/or a minimum EBITDA. 

Based on results through the quarter ended December 25, 2020, the Company was not in compliance with its minimum EBITDA financial covenant, and as a result has entered into a forbearance agreement with its senior lender.

The forbearance period ends on the earlier of September 30, 2021, or the date on which an event of default occurs. While the Company has been able to collaborate closely with its senior lender and has successfully negotiated reasonable terms with its bank during cyclical market periods, there can be no assurance that the Company will be able to continue doing so, or achieve the planned results in future periods especially due to the significant uncertainties flowing from the current economic environment.

If the Company is not able to achieve these objectives and to meet the required financial covenants under the agreements, the Company may require further forbearance from its senior lender or be required to arrange alternative financing. Failure to obtain relief from financial covenant violations or to obtain alternative financing, if necessary, would have a material adverse impact on the Company.

The Company’s three-year revolving credit facility expiring June 2025 is secured by certain personal property assets such as accounts receivable, inventory, and machinery and equipment. 

Under this agreement, the Company’s borrowing capacity is based on the eligible balances of these assets and it is required to maintain sufficient asset levels at all times to secure its outstanding borrowings. 

The Company is also required to comply with a total funded debt to EBITDA ratio, a minimum fixed charge coverage ratio, and a minimum tangible net worth. 

If the Company does not meet these financial covenants as specified under the agreement, the Company may require forbearance or relief from its financial covenant violations from its senior lender or be required to arrange alternative financing. Failure to obtain relief from financial covenant violations or to obtain alternative financing, if necessary, would have a material adverse impact on the Company.

As of June 30, 2022, the Company had a borrowing capacity that exceeded its outstanding loan balance (see Note G, Debt, of the notes to the consolidated financial statements).

Based on its annual financial plan, the Company believes that it will generate sufficient cash flow levels throughout fiscal 2022 in order to maintain compliance with this borrowing base and meet the minimum Debt to EBITDA ratio by December, 31, 2021, the first measurement date after the forbearance period.  

Based on its annual financial plan, the Company believes that it will generate sufficient cash flow levels throughout fiscal 2023 to meet the required financial covenants under the agreements.

However, as with all forward-looking information, there can be no assurance that the Company will achieve the planned results in future periods.

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s rules and any resulting adverse audit findings of non-compliance can result in the repayment of a portion or all of the PPP loan.

On April 17, 2020 the Company received proceeds of $8.2 million from a loan under the PPP of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which it has used to retain current employees, maintain payroll and make lease and utility payments. 

The Company has accounted for the full proceeds as a loan. 

It obtained formal forgiveness of the full amount of the loan on June 16, 2021, and has accounted for the forgiveness as income from extinguishment of loan in its statement of operations for the year ended June 30, 2021. 

While the loan has been formally forgiven, under the terms of the PPP Loan, the Company remains subject to an audit by the Small Business Administration ("SBA") for a period of six years after forgiveness. 

The audit is intended to confirm the Company’s eligibility for the loan and the appropriateness of the loan obtained.

On April 17, 2020 the Company received proceeds of $8.2 million from a loan under the PPP of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which it has used to retain employees, maintain payroll and make lease and utility payments. 

The Company accounted for the full proceeds as a loan. 

It obtained formal forgiveness of the full amount of the loan on June 16, 2021, and accounted for the forgiveness as income from extinguishment of loan in its statement of operations for the year ended June 30, 2021. 

While the loan has been formally forgiven, under the terms of the PPP Loan, the Company remains subject to an audit by the Small Business Administration (“SBA”) for a period of six years after forgiveness. 

The audit is intended to confirm the Company’s eligibility for the PPP loan and the appropriateness of the PPP loan forgiveness.

The Company is aware of the requirements of the PPP Loan and believes it is within the eligibility threshold and has used the loan proceeds in accordance with PPP loan forgiveness requirements.

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As part of the acquisition of Veth Propulsion in July 2018, the Company acquired goodwill and intangible assets in the form of customer relationships, technology and knowhow and tradenames.

In fiscal 2020, due to its assessment of the adverse economic consequences of the COVID-19 outbreak and the negative trends in its markets as explained in Note D, Intangible Assets, the Company recorded significant impairment charges in the amount of $27.6 million, writing off all the goodwill in its books, as well as writing down some intangibles and other assets.

In fiscal 2020, due to its assessment of the adverse economic consequences of the COVID-19 outbreak and the negative trends in its markets as explained in Note D, Intangible Assets, the Company recorded significant impairment charges, writing off all the goodwill in its books, as well as writing down some intangibles and other assets.

In fiscal 2017 and 2016, when the Company’s markets were significantly adversely affected by the global oil and gas decline, it recorded significant impairment charges related to two of its prior acquisitions.

Any deterioration in the industries or businesses of the Company may trigger future impairment charges, which may have a material adverse effect to the Company’s financial results.

Any deterioration in the industries or businesses of the Company may trigger future non-cash impairment charges, which may have a material adverse effect to the Company’s financial results.

The Company may experience negative or unforeseen tax consequences.

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Such changes could result in material non-cash expenses in the period in which the changes are made and could have a material adverse impact on the Company’s results of operations and financial condition.

In fiscal 2021, the Company recorded a 100% allowance on its domestic deferred tax assets, amounting to $24.4 million.

In fiscal 2021, the Company recorded a 100% allowance on its domestic deferred tax assets, totaling $24.4 million.

In fiscal 2022, the allowance totaled $23.1 million.

Taxing authority challenges and changes to tax laws may lead to tax payments exceeding current reserves.

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The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in December 2017.

The new law made numerous changes to U.S.

The Tax Act made numerous changes to U.S.

federal corporate tax law that the Company expects will impact its effective tax rate in future periods.

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The final impact of the Tax Act may differ from the Company’s current estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for U.S.

federal income taxes or related interpretations in response to the Tax Act or any updates or changes to estimates the Company has utilized to calculate the impact.

federal income taxes or related interpretations in response to the Tax Act or any updates or changes to estimates the Company utilized to calculate the impact.

Future changes in tax law in the United States or the various jurisdictions in which the Company operates and income tax holidays could have a material impact on the Company’s effective tax rate, foreign rate differential, future income tax expense and cash flows.

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Any such breach or operational failure would compromise the Company’s networks and/or that of its partners and the information stored there could be accessed, publicly disclosed, lost or stolen.

Any such access, disclosure or other loss of information could result in legal claims or proceedings and/or regulatory fines or penalties, including, among others, under the European Union’s newly enacted General Data Privacy Regulation, disrupt the Company’s operations, damage its reputation and/or cause a loss of confidence in the Company’s products and services, which could adversely affect its business, financial condition and results of operations.

Any such access, disclosure or other loss of information could result in legal claims or proceedings and/or regulatory fines or penalties, including, among others, under the European Union’s General Data Privacy Regulation, disrupt the Company’s operations, damage its reputation and/or cause a loss of confidence in the Company’s products and services, which could adversely affect its business, financial condition and results of operations.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors