What changed in this filing

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Item 4. Controls and Procedures

2024-10-30 compared with 2024-07-26 · 28 added, 14 removed, 27 unchanged (61% of the section changed)

3 unchanged sentences

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based upon this evaluation, our chief executive officer and our chief financial officer concluded the disclosure controls and procedures were not effective as of June 28, 2024, the end of the period covered by this Quarterly Report on Form 10-Q, due to material weaknesses in internal control over financial reporting described below.

Based upon this evaluation, our chief executive officer and our chief financial officer concluded the disclosure controls and procedures were not effective as of September 27, 2024, the end of the period covered by this Quarterly Report on Form 10-Q, due to material weaknesses in internal control over financial reporting described below.

Material Weaknesses in Internal Control Over Financial Reporting

As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2023, the Company identified the following material weaknesses in our internal control over financial reporting that continue to exist as of June 28, 2024.

The Company did not design and maintain effective controls relating to the:

11 unchanged sentences

(e) The Company did not design and maintain effective controls related to the review of cash flow forecasts used in the valuation of certain assets and liabilities acquired in a business combination.

Specifically, the control activities related to

the review of the inputs and assumptions utilized to develop the cash flow forecasts used in the valuation of acquired intangible assets and contingent earn-out liabilities were not designed at an appropriate level of precision.

Specifically, the control activities related to the review of the inputs and assumptions utilized to develop the cash flow forecasts used in the valuation of acquired intangible assets and contingent earn-out liabilities were not designed at an appropriate level of precision.

The material weaknesses described above did not result in any changes to previously released annual or interim financial results.

1 unchanged sentence

Based on additional procedures and post-closing review, management concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented, in conformity with accounting principles generally accepted in the United States.

Remediation Plan

Remediation Plan and Progress

Management has been executing and remains committed to implementing measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively.

The following remediation actions are currently being implemented and are in progress:

• engaging an external advisor to assist with evaluating and documenting the design and operating effectiveness of internal controls and assist with the remediation of deficiencies, as necessary;

• hiring additional personnel to identify and analyze risks of material misstatement, develop internal control activities to support the achievement of the Company’s internal control objectives, and monitor the effective performance of those control objectives;

• designing and implementing effective controls for certain operating subsidiaries not yet migrated to our primary ERP system, including controls over program changes and user access including segregation of duties;

• designing and implementing effective controls over valuation of inventories and inventories costing;

• designing and implementing effective controls over data used within the operation of controls;

• designing and implementing effective controls over the review of cash flow forecasts utilized in the valuation of acquired intangible assets and contingent earn-out liabilities in a business combination to ensure the accuracy of inputs and assumptions applied in the forecasting process.

In response to all material weaknesses, management has taken the following actions:

• engaged an external advisor to assist with evaluating and documenting the design and operating effectiveness of internal controls and to assist with the remediation of deficiencies, as necessary;

• hired additional IT, accounting, and finance personnel to support our remediation efforts, including a Vice President of Internal Audit, as well as third-party resources with relevant expertise to augment our internal resources;

• formalized roles and responsibilities within the organization to establish ownership of workstreams to identify and analyze risks of material misstatement, develop internal control activities to support the achievement of the Company’s internal control objectives, and monitor the effective performance of those control objectives;

• performed an entity-wide risk assessment of information technology systems and business processes by operating subsidiary;

• assessed the specific training needs for newly hired and existing personnel and developed and delivered training programs designed to support our internal controls.

In response to the material weakness “(a)” management has taken the following actions:

• in process of designing and implementing change management and user access review controls for relevant information technology systems at certain Fluid Solutions operating subsidiaries not yet migrated to our primary ERP system.

Management also continues to design and implement user access controls to ensure appropriate segregation of duties that adequately restrict user access to our financial applications and data to appropriate company personnel.

In response to the material weakness “(b)” management has taken the following actions:

• in process of completing a segregation of duties assessment to identify key conflicts, establishing policies and procedures to maintain effective segregation of duties, and identifying mitigating factors for any key conflicts identified for certain other international operating subsidiaries in the Products segment which have not been migrated to the Company’s primary ERP system and

• in process of identifying and evaluating the effectiveness of key IT dependencies, including automated application controls for certain other international operating subsidiaries in the Products segment which have not been migrated to the Company’s primary ERP system.

In response to the material weakness “(c)” management has taken the following actions:

• designed and implemented controls over valuation of inventories, including review and assessment of the methodology for the valuation of inventories, including the write down of inventory to its estimated market value less costs to sell and

• designed and implemented controls over validation and approval of inventory costing, including capitalizing variances from standard costs.

In response to the material weakness “(d)” management has taken the following actions:

• established ongoing education and training of control owners on how to assess the accuracy and completeness of relevant data used within the operation of controls, including the adequate levels of evidence and documentation required to support such procedures

• designed and implemented an additional control to validate the accuracy of certain data used within the operation of controls and

• ensured the design of all business process controls include a control activity to assess the completeness and accuracy of the data used in the operation of controls and to ensure adequate levels of evidence and documentation to support assessment of data used within the operation of controls.

In response to the material weakness “(e)” management has taken the following actions:

• designed and implemented effective controls over the review of cash flow forecasts utilized in the valuation of contingent earn-out liabilities including review of the inputs and assumptions utilized to develop the cash flow forecasts at an appropriate level of precision and

• designed controls that stand ready to operate in a future business combination to review the inputs and assumptions utilized to develop the cash flow forecasts in the valuation of intangible assets at an appropriate level of precision.

As we continue to evaluate and work to improve our internal control over financial reporting, we may decide to take additional measures to address the material weaknesses or modify the remediation plans described above.

We believe that these actions will remediate the material weaknesses, however the material weaknesses will not be considered remediated until the applicable controls have operated for a sufficient period of time, and management has concluded, through testing, that these controls are designed and operating effectively.

We believe that these actions will remediate the material weaknesses, however the material weaknesses will not be considered remediated until we conclude all measures necessary to remediate the material weaknesses have been designed, implemented, and the applicable controls have operated for a sufficient period of time, and management has concluded, through testing, that these controls are designed and operating effectively.

While Management believes that the aforementioned plans will remediate the material weaknesses, there is no assurance on the exact timing of the completion of the remediation.

1 unchanged sentence

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the fiscal second quarter ended June 28, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other than the remediation measures described above, there were no changes in internal control over financial reporting during the quarter ended September 27, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

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-Q

Item 4. Controls and Procedures