HWKN Hawkins Inc - 10-K

ITEM 1A. RISK FACTORS

You should carefully consider the following material factors regarding risks relating to an investment in our securities and when reading the information, including the financial information, contained in this Annual Report on Form 10-K. Shareholders are cautioned that these and other factors may affect future performance and cause actual results to differ materially from those that may be anticipated.

COMPETITIVE AND REPUTATIONAL RISKS

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

We operate in a highly competitive industry and compete with producers, manufacturers, distributors and sales agents offering products equivalent to substantially all of the products we offer. Competition is based on several key criteria, including product price, product performance, product quality, product availability and security of supply, breadth of product offerings, geographic reach, responsiveness of product development in cooperation with customers, technical expertise, timeliness of delivery, and customer service. Many of our competitors are larger than we are and may have greater financial resources, more product offerings and a broader geographic reach. As a result, these competitors may be able to offer a broader array of products to a larger geographic area and may be better able than us to withstand changes in conditions within our industry, changes in the prices and availability of raw materials and changes in general economic conditions as well as be able to introduce innovative products that reduce demand for, or the profit from, our products. Additionally, competitors’ pricing decisions could compel us to decrease our prices, which could adversely affect our margins and profitability. Our ability to maintain or increase our profitability would be dependent upon our ability to offset competitive decreases in the prices and margins of our products by improving production efficiency, investing in infrastructure to reduce freight costs, identifying and selling higher margin products, providing higher levels of technical expertise and customer service, and improving existing products through innovation and research and development. If we are unable to maintain our profitability or competitive position, we could lose market share to our competitors and experience reduced profitability.

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

The repackaging, blending, mixing and distribution of products by us, including chemical products and products used in food or food ingredients or with medical, pharmaceutical, agricultural or dietary supplement applications, involve an inherent risk of exposure to product liability claims, product recalls, product seizures and related adverse publicity, including, without limitation, claims for exposure to our products, spills or release of our products, personal injuries, food-related claims and property damage or environmental claims. A product liability claim, judgment or recall against our customers could also result in substantial and unexpected expenditures for us, affect consumer confidence in our products and divert management’s attention from other responsibilities. Although we maintain product liability insurance, there can be no assurance that the type or level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all. A product recall or a partially or completely uninsured judgment against us could have a material adverse effect on our business, financial condition and results of operations.

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

Our products are used for a broad range of applications by our customers. Changes in our customers’ product needs or processes, or reductions in demand for their end products, may enable or require our customers to reduce or eliminate consumption of the products that we provide. Customers may also find alternative materials or processes that no longer require our products. Consequently, it is important that we develop new products to replace the sales of products that mature and decline in use. There can be no assurance that we will be able to develop any new products in a timely or cost-effective manner.

Our products provide important performance attributes to our customers’ products. If our products fail to meet the customers’ requirements, comply with applicable laws or regulations, perform in a manner consistent with the customers’ expectations, or have the required useful life, a customer could seek replacement of the product or damages for costs incurred as a result of the product failure. A successful claim or series of claims against us could have a material adverse effect on our financial condition and results of operations and could result in a loss of one or more customers. Reductions in demand for our products could adversely affect our sales and financial results and result in facility closures.

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

Purchasing decisions made by consumers of products that contain our ingredients may be affected by adverse publicity or negative public perception regarding particular ingredients or products, such as fluoride, other chemicals used in food, or industries in general, such as the dietary supplement industry. This negative public perception may include publicity regarding the risks, efficacy, legality or quality of particular ingredients or products in general or of other companies or our products or ingredients specifically. Negative public perception may also arise from regulatory investigations, regardless of whether those investigations involve us, or negative statements made to the public. We are highly dependent upon consumers’ perception of the safety and quality of products that contain our ingredients as well as similar products distributed by other companies. Thus, the mere assertion that such products may be harmful could have a material adverse effect on us, regardless of whether these reports are scientifically supported. Publicity related to dietary supplements or food ingredients may also result in increased regulatory scrutiny of our industry. Adverse publicity may have a material adverse effect on our business, financial condition, results of operations and cash flows.

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

Information technology system failures, network disruptions and breaches of data security due to internal or external factors including phishing or cyber-attacks could disrupt our operations by causing delays or cancellation of customer orders, impede the manufacture or shipment of products or cause standard business processes to become ineffective, resulting in the unintentional disclosure of information, damage to our reputation, additional expenses or loss of sales. While we have taken steps to address these concerns by implementing network security and internal control measures, including employee training, comprehensive monitoring of our networks and systems, maintenance of backup and protective systems and disaster recovery and incident response plans, our employees, systems, networks, products, facilities and services remain vulnerable to phishing attacks and cyber-assault, and, as such, there can be no assurance that a system failure, network disruption or data security breach will not have a material adverse effect on our business, financial condition, operating results or cash flows.

RISKS RELATED TO OUR INDUSTRY

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

We experience regular and recurring fluctuations in the pricing of our raw materials. Those fluctuations can be significant and occur rapidly. The cyclicality of commodity markets, such as the market for caustic soda, primarily results from changes in the balance between supply and demand and the level of general economic activity. In addition, tariffs imposed by the United States or other countries could substantially impact the price or supply of raw materials. These fluctuations may negatively impact the margins we can realize.

The prices we pay for our principal chemical raw materials generally lag the market prices of the underlying raw material. The cost of inventory we have on hand, particularly inventories of our bulk commodity chemicals where we have significant volumes stored at our facilities, generally will lag the current market pricing of such inventory. The pricing within our supply contracts generally adjusts quarterly or monthly. While we attempt to maintain competitive pricing and stable margin dollars, the potential variance in our cost of inventory from the current market pricing can cause significant volatility in our margins realized. We do not engage in futures or other derivatives contracts to hedge against fluctuations in future prices. We may enter into sales contracts where the selling prices for our products are fixed for a period of time, exposing us to volatility in raw materials prices that we acquire on a spot market or short-term contractual basis. We attempt to pass commodity pricing changes to our customers, but we may be unable to or be delayed in doing so. Our inability to pass through price increases or any limitation or delay in our passing through price increases could adversely affect our profit margins.

We are also dependent upon the availability of our raw materials. In the event that raw materials are in short supply or unavailable, raw material suppliers may extend lead times, delay shipments or limit or cut off supplies. As a result, we may not be able to supply or manufacture products for some or all of our customers. Constraints on the supply or delivery of critical raw materials could disrupt our operations and adversely affect the performance of our businesses.

Demand for our products is affected by general economic conditions and by the cyclical nature of many of the industries we serve, which could cause significant fluctuations in our sales volumes and results.

Demand for our products is affected by general economic conditions. A decline in general economic or business conditions in the industries served by our customers, whether caused by inflation, monetary policy, import or export restrictions or delays, tariffs, or otherwise, could have a material adverse effect on our businesses. Although we sell to areas traditionally considered non-cyclical, such as water treatment, food products and health and nutritional ingredients, many of our customers are in businesses that are cyclical in nature, such as the industrial manufacturing and energy industries which include the ethanol and agriculture industries. Downturns in these industries could adversely affect our sales and our financial results by affecting demand for and pricing of our products.

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

Our business is subject to hazards common to chemical manufacturing, blending, storage, handling and transportation, including explosions, fires, severe weather, natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, traffic accidents involving our delivery vehicles, derailments, chemical spills, discharges or releases of toxic or hazardous substances or gases and other risks. These hazards could cause personal injury and loss of life, severe damage to or destruction of property and equipment, and environmental contamination. In addition, the occurrence of material operating problems or the absence of personnel due to pandemics or other disasters at any of our facilities, due to any of these hazards, may make it impossible for us to make sales to our customers and may result in a negative public or political reaction. Many of our facilities are near significant residential populations, which increases the risk of negative public or political reaction should an environmental issue occur and could lead to adverse land use or other regulatory actions that could limit our ability to grow or operate our business in those locations. Accordingly, these hazards and their consequences could have a material adverse effect on our operations as a whole, including our results of operations and cash flows, both during and after the period of operational difficulties.

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

We are subject to federal, state and local environmental regulations regarding the ownership of real property and the operations conducted on real property. Under various federal, state and local laws, ordinances and regulations, we may own or operate real property or may have arranged for the disposal or treatment of hazardous or toxic substances at a property and, therefore, may become liable for the costs of removal or remediation of certain hazardous substances released on or in our property or disposed of by us, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and claims for injuries to persons and property). Such liability may be imposed whether or not we knew of, or were responsible for, the presence of these hazardous or toxic substances. Further, future changes in environmental laws or regulations may require additional investment in capital equipment or the implementation of additional compliance programs in the future. The cost of investigation, remediation or removal of such substances may be substantial.

In the conduct of our operations, we have handled and do handle materials that are considered hazardous, toxic or volatile under federal, state and local laws. The potential for the accidental release of such products cannot be completely eliminated. In addition, we operate or own facilities located on or near real property that was formerly owned and operated by others. These properties may have been used in ways that involved hazardous materials. Contaminants may migrate from, within or through any such property, which may give rise to claims against us. Third parties who are responsible for contamination may not have funds, or may not make funds available when needed, to pay remediation costs imposed upon us jointly with them under environmental laws and regulations.

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

Our Water Treatment segment has historically experienced higher sales during April to September, primarily due to a seasonal increase in chemicals used by municipal water treatment facilities and pools. Our agricultural product sales within our Food and Health Sciences Group are also seasonal, primarily corresponding with the planting season. Demand in both of these areas is also affected by weather conditions, as either higher or lower than normal precipitation or temperatures may affect water usage and the timing and the amount of consumption of our products. In addition, demand for our agricultural products is also impacted by crop prices. We cannot assure you that seasonality or fluctuating weather conditions or crop prices will not have a material adverse effect on our results of operations.

OPERATIONAL RISKS

Disruptions within our supply chain have negatively impacted, and could continue to negatively impact, our production, financial condition and results of operations.

We have been, and could continue to be, adversely affected by disruptions within our supply chain and transportation network. The raw materials we need are transported by truck, rail, or barge or ship by third-party providers. The costs of transporting our products or necessary raw materials could be negatively affected by factors outside of our control, including rail service interruptions or rate or fuel surcharge increases, extreme weather events, tariffs, charges placed on incoming vessels or railcars, rising fuel costs and capacity constraints. Unprecedented congestion in ocean shipping has adversely impacted the reliability of our imported raw materials, and transport driver shortages have caused extended lead times for domestic shipments. In addition, rail shipments can be unreliable, with significant delays in service and increased costs. The impacts of high-profile derailments could further degrade service levels and cause railroads to increase costs, especially for shipments of our hazardous products. Significant delays or increased costs relating to transportation could materially affect our financial condition and results of operations.

Similar supply chain issues have impacted and could continue to impact both our suppliers and our customers. The supply of our necessary raw materials could be interrupted due to shortages of raw materials, effects of economic, political or financial market conditions on a supplier's operations, labor disputes or weather conditions affecting products or shipments, transportation disruptions, natural disasters, outbreaks of disease, information system disruptions or other reasons beyond our control. Similar disruptions at our customers could reduce demand for our products, reducing our sales and profitability. Product shortages or delays in deliveries, along with other factors such as price inflation and higher transportation and fuel costs, have also resulted in price increases from our suppliers. We may be unable to pass these price increases on to our customers, which could erode our profit margins. These supply chain constraints, increased product costs and inflationary pressures could continue or escalate in the future, which would have an adverse impact on our business and results of operations.

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

Although we maintain a number of owned trucks and trailers, we rely heavily upon transportation provided by third parties (including common carriers, barge companies, rail companies and trans-ocean cargo companies) to deliver products to us and to our customers. Our access to third-party transportation is not guaranteed, and we may be unable to transport our products in a timely manner, or at all, or at economically attractive rates. Disruptions in transportation are common, are often out of our control, and can happen suddenly and without warning. Bulk chlorine, a critical product we repackage and use to make bleach, can only be feasibly shipped to us by rail. Rail companies, however, have been imposing increasing limitations on shipments of toxic inhalation hazards like chlorine. These limitations include increased charges and insurance requirements and rail tariffs that transfer liability for shipments in transit to the rail shipper. Any of these limitations may increase our costs or negatively impact our ability to receive products, such as chlorine, by rail. Other rail limitations, such as limitations in rail capacity, availability of railcars, workforce shortages, threats of strikes, derailments, embargoes and adverse weather conditions have disrupted or delayed rail shipments in the past and could do so in the future. Barge shipments are delayed or impossible under certain circumstances, including during times of high or low water levels, when waterways are frozen and when locks and dams are inoperable. The availability and reliability of truck transportation have been negatively impacted by a number of factors, including limited availability of qualified drivers and equipment, limitations on drivers’ hours of service and failures of critical infrastructure, such as bridges and rail lines. The volumes handled by, and operating challenges at, ocean ports have at times been volatile and can delay the receipt of goods or cause the cost of shipping goods to be more expensive. Our failure to ship or receive products in a timely and efficient manner could have a material adverse effect on our financial condition and results of operations.

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

Because of the specialized and technical nature of our businesses, our future performance is dependent on the continued service of, and on our ability to attract and retain, qualified management, scientific, technical and support personnel. The unanticipated departure of key members of our management team could have an adverse impact on our business.

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

As part of our business growth strategy, we have acquired businesses and may pursue acquisitions in the future. Our ability to pursue this strategy will be limited by our ability to identify appropriate acquisition candidates and our financial resources, including available cash and borrowing capacity. In addition, we may seek to divest of businesses that are underperforming or not core to our future business. The expense incurred in consummating transactions, the time it takes to integrate an acquisition or our failure to integrate businesses successfully could result in unanticipated expenses and losses. Furthermore, we may not be able to realize the anticipated benefits from acquisitions.

The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations. The risks associated with the integration of acquisitions include potential disruption of our ongoing businesses and distraction of management, unforeseen claims, liabilities, adjustments, charges and write-offs, difficulty in conforming the acquired business’ standards, processes, procedures and controls with our operations, and challenges arising from the increased scope, geographic diversity and complexity of the expanded operations.

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

Natural disasters have the potential of interrupting our operations and damaging our properties, which could adversely affect our businesses. Flooding of the Mississippi River has temporarily shifted the Company’s terminal operations out of its buildings four times since the spring of 2010. We can give no assurance that flooding or other natural disasters will not recur or that there will not be material damage or interruption to our operations in the future from such disasters.

Chemical-related assets may be at greater risk of future terrorist attacks than other possible targets in the United States. With the expiration of the federal law that imposed site security requirements, various states have started to explore their own security requirements, which may not be uniform and compliance with such varied regulations may increase our overhead expenses. Federal regulations have also been adopted to increase the security of the transportation of hazardous chemicals in the United States. We ship and receive materials that are classified as hazardous and we believe we have met these requirements, but additional federal and local regulations that limit the distribution of hazardous materials are being considered. Bans on movement of hazardous materials through certain cities or via certain modes of transportation could adversely affect the efficiency of our logistical operations. Broader restrictions on hazardous material movements could lead to additional investment and could change where and what products we provide.

The occurrence of extraordinary events, including future terrorist attacks, wars, global health developments and pandemics, or escalation of hostilities, cannot be predicted, but their occurrence can be expected to negatively affect the economy in general, and specifically the markets for our products. The resulting damage from a direct attack on our assets, or assets used by us, could include loss of life and property damage. In addition, available insurance coverage may not be sufficient to cover all of the damage incurred or, if available, may be prohibitively expensive.

Our businesses could experience substantial effects from tariffs or changes in international trade policies that could adversely affect our results of operations.

New or increased tariffs or other trade barriers imposed by governments, including the United States, could dramatically increase costs and delivery times within our supply chain. Certain of our business lines, such as our health and nutrition products, are dependent upon the import of key raw materials from a wide variety of international sources. In addition, many domestic suppliers rely on imported raw materials or parts for their production. Tariffs or other trade barriers could adversely affect our ability to source and import raw materials effectively, the cost of import and domestic products and our relative position compared to competitors that may not be adversely impacted to the same extent, whether due to exclusive domestic sources or alignment with favorable jurisdictions. Our domestic suppliers, who may not be directly impacted by tariffs or other trade barriers, may also opportunistically increase prices or experience shortages in supply as competitors seek to switch to domestic suppliers. Additionally, uncertainty inspired by the threat of changes in international trade policy could delay or reduce demand for our products. We are unable to accurately predict the duration and extent to which tariffs may impact our businesses.

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

We lease the land where our three main terminals are located and where another significant manufacturing plant is located. These leases, including all renewal periods, have expiration dates from 2029 to 2044, one of which renews annually. The failure to secure extended lease terms on any one of these facilities may have a material adverse impact on our business, as they are where a portion of our chemicals are manufactured and where the majority of our bulk chemicals are stored. While we can make no assurances, based on historical experience and anticipated future needs, we intend to extend these leases and believe that we will be able to renew our leases as the renewal periods expire. If we are unable to renew three of our leases (two relate to terminals and one to manufacturing) any property remaining on the land becomes the property of the lessor, and the lessor has the option to either maintain the property or remove the property at our expense. The fourth lease provides that we turn any property remaining on the land over to the lessor for them to maintain or remove at their expense. The cost to relocate our operations could have a material adverse effect on our results of operations and financial condition.

LEGAL AND REGULATORY RISKS

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

We are subject to numerous federal, state and local environmental, health, safety and land use laws and regulations in the jurisdictions in which we operate, including the management, storage, transportation and disposal of chemicals and wastes; product regulation; air water and soil contamination; land use, fire code and zoning; and the investigation and cleanup of any spills or releases that may result from our management, handling, storage, sale, or transportation of chemicals and other products. The nature of our business exposes us to risks of liability under these laws and regulations. Ongoing compliance with such laws and regulations is an important consideration for us and we invest substantial capital and incur significant operating costs in our compliance efforts. In addition, societal concerns regarding the safety of chemicals in commerce and their potential impact on the environment have resulted in a growing trend towards increasing levels of product safety and environmental protection regulations and restrictions on the locations and operations of chemical facilities. These concerns have led to, and could continue to result in, more stringent regulatory intervention by governmental authorities. In addition, these concerns could influence public perceptions, impact the commercial viability of the products we sell and increase the costs to comply with increasingly complex regulations, which could have a negative impact on our business, financial condition and results of operations.

In addition, we operate a fleet of approximately 400 commercial vehicles with power units, primarily in our Water Treatment segment, which are highly regulated, including by the DOT. The DOT governs transportation matters including authorization to engage in motor carrier service, including the necessary permits to conduct our businesses, equipment operation, and safety. We are audited periodically by the DOT to ensure that we are in compliance with various safety, hazardous materials, hours-of-service, and other rules and regulations. If we were found to be out of compliance, the DOT could severely restrict or otherwise impact our operations, which could have a material adverse effect on our operations as a whole, including our results of operations and cash flows.

If we violate applicable laws or regulations, in addition to being required to correct such violations, we could be held liable in administrative, civil or criminal proceedings for substantial fines and other sanctions that could disrupt, limit or halt our operations, which could have a material adverse effect on our operations as a whole, including our results of operations and cash flows. Liabilities associated with the investigation and cleanup of releases of hazardous substances, as well as personal injury, property damages or natural resource damages arising out of such releases of hazardous substances, may be imposed in many situations without regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally (so that a responsible party may be held liable for more than its share of the losses involved, or even the entire loss). Such liabilities can be difficult to identify and the extent of any such liabilities can be difficult to predict. We use, and in the past have used, hazardous substances at many of our facilities, and have generated, and continue to generate, hazardous wastes at a number of our facilities. We have in the past been, and may in the future be, subject to claims relating to exposure to hazardous materials and the associated liabilities may be material.

Many of our products, particularly our food, pharmaceutical and health and nutrition products are subject to government regulation, both in the United States and abroad, which could increase our costs significantly and limit or prevent the sale of such products.

The manufacture, packaging, labeling, advertising, promotion, distribution and sale of many of our products, but our food, pharmaceutical, pesticide and health and nutrition products in particular, are subject to regulation by numerous national and local governmental agencies in the United States and other countries. The primary regulatory bodies in the United States are the Food and Drug Administration (the “FDA”), the Environmental Protection Agency, the United States Department of Agriculture and the Federal Trade Commission, and we are also subject to similar regulators in other countries. Recently, various of these regulatory bodies have announced significant changes to regulations, including changes in enforcement activities, as well as statements about attempts to prohibit the use of certain chemicals in food and drinking water, such as fluoride. Failure to comply with these requirements may result in various types of penalties or fines. These include injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. Individual states also regulate our products. A state may interpret claims or products presumptively valid under federal law as illegal under that state’s regulations. Approvals or licensing may be conditioned on reformulation of products or may be unavailable with respect to certain products or product ingredients. Any of these government agencies, as well as legislative bodies, can change existing regulations, or impose new ones, or could take aggressive measures, causing or contributing to a variety of negative consequences, which may include one or more of the following:

•    stopping the sale of products,

•    reducing the markets or marketability of products,

• requirements for the reformulation of certain or all products to meet new standards,

•    the recall or discontinuance of certain or all products,

•    additional record-keeping requirements,

•    expanded documentation of the properties of certain or all products,

•    expanded or different labeling,

•    adverse event tracking and reporting, and

•    additional scientific substantiation.

In particular, the FDA’s current GMPs describe policies and procedures designed to ensure that nutraceuticals, pharmaceuticals and dietary supplements are produced in a quality manner, do not contain contaminants or impurities, and are accurately labeled and cover the manufacturing, packaging, labeling and storing of products, with requirements for quality control, design and construction of manufacturing plants, testing of ingredients and final products, record keeping, and complaints processes. Those who manufacture, package or store dietary supplements must comply with current GMPs. If we or our suppliers fail to comply with current GMPs, the FDA may take enforcement action against us or our suppliers.

Any or all of the potential negative consequences described above could have a material adverse effect on us or substantially increase the cost of doing business in these areas. There can be no assurance that the regulatory environment in which we operate will not change or that such regulatory environment, or any specific action taken against us, will not result in a material adverse effect on us.

FINANCIAL RISKS

The insurance that we maintain may not fully cover all potential exposures.

We maintain lines of commercial insurance, such as property, general liability and casualty insurance, but such insurance may not cover all risks associated with the hazards of our businesses and is subject to limitations, including deductibles and limits on the liabilities covered. We may incur losses beyond the limits or outside the coverage of our insurance policies, including liabilities for environmental remediation and product liability. In addition, from time to time, various types of insurance for companies in the chemical, food or health and nutrition products industries have not been available on commercially acceptable terms or, in some cases, have not been available at all. In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain.

Failure to comply with the covenants under our credit facility may have a material adverse effect.

We are party to a second amended and restated credit agreement, as amended (the “Credit Agreement”), with U.S. Bank National Association ("U.S. Bank") and other lenders (collectively, the “Lenders”), which includes secured revolving credit facilities (the “Revolving Loan Facility”) totaling $400.0 million. At March 29, 2026, we had $244 million outstanding under the Revolving Loan Facility.

We may make payments on the Revolving Loan Facility from time to time. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make payments on our credit facilities, we could be in default when the facilities become due in 2030. We are also required to comply with several financial covenants under the Credit Agreement. Our ability to comply with these financial covenants may be affected by events beyond our control, which could result in a default under the Credit Agreement; such default may have a material adverse effect on our business, financial condition, operating results or cash flows.

The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict our ability to incur additional indebtedness, dispose of significant assets, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions, grant liens on its assets or rate management transactions, subject to certain limitations. These restrictions may adversely affect our business.

Impairment to the carrying value of our goodwill or other intangible assets could adversely affect our financial condition and consolidated results of operations.

Goodwill represents the excess of the cost of acquired businesses over the fair value of identifiable tangible net assets and identifiable intangible assets purchased. Goodwill is tested at least annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. A significant amount of judgment is involved in determining if an indication of impairment exists. Factors may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in the business climate; unanticipated competition; and slower growth rates. An adverse change in these factors may have a significant impact on the recoverability of the net assets recorded, and any resulting impairment charge in the future could have a material adverse effect on our financial condition and consolidated results of operations.

We evaluate the useful lives of our intangible assets to determine if they are definite- or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), and the expected lives of other related groups of assets.

We cannot accurately predict the amount and timing of any impairment of goodwill and other intangible assets. Should the value of these assets become impaired, there could be a material adverse effect on our financial condition and consolidated results of operations.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition and results of operations for fiscal 2026, 2025, and 2024. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Overview

We derive substantially all of our revenues from the sale of water treatment, specialty ingredients, and chemistry products to our customers in a wide variety of industries. We believe that we create value for our customers through superb service and support, quality products, personalized applications and trustworthy, creative employees

Financial Overview

Highlights of fiscal 2026 include:

• Sales of $1,083.7 million, an increase of $109.3 million, or 11% from fiscal 2025;

• Gross profit of $245.1 million, an increase of $19.5 million, or 9% from fiscal 2025;

• Operating cash flow of $144.3 million, an increase of $33.2 million, or 30% from fiscal 2025; and

• Diluted earnings per share (EPS) of $3.91, a decrease of $0.12, or 3%, from fiscal 2025;

• Pro forma diluted EPS of $3.95, an increase of $0.32, or 9%, from fiscal 2025.

We focus on total profitability dollars when evaluating our financial results as opposed to profitability as a percentage of sales, as sales dollars tend to fluctuate as raw material prices rise and fall, particularly in our Water Treatment and Industrial Solutions segments. The costs for certain of our raw materials can rise or fall rapidly, causing fluctuations in gross profit as a percentage of sales.

We use the last in, first out (“LIFO”) method of valuing the majority of our inventory, which causes the most recent product costs to be recognized in our consolidated statements of income. The LIFO inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current chemical raw material prices.

We disclose the sales of our bulk commodity products as a percentage of total sales dollars for our Water Treatment and Industrial Solutions segments. Our definition of bulk commodity products includes products that we do not modify in any way, but receive, store, and ship from our facilities, or direct ship to our customers in large quantities. We disclose the percentage of our overall sales that consist of sales of bulk commodity products as these products are generally distributed and we do not add significant value to these products in comparison to our non-bulk products. Sales of these products are generally highly competitive and price sensitive. As a result, bulk commodity products generally have our lowest margins.

Factors Affecting Comparability of Results

Business Acquisitions

We completed the following acquisitions in fiscal 2026. The results of operations since the date of each acquisition and the assets, including goodwill associated with these acquisitions, are included in our Water Treatment segment with the exception of the MakWood lactate business, which is included in our Food & Health Sciences segment. Certain acquisitions discussed below are not included in Note 2 to our Consolidated Financial Statements as they were not deemed to be material enough to warrant disclosure.

• On December 3, 2025, we acquired substantially all the assets and assumed certain liabilities of Redbird Chemical, Inc. (“Redbird”) for $4.6 million. Redbird distributed chemicals to its customers in eastern Texas within both the water treatment and industrial markets.

• On August 29, 2025, we acquired substantially all the assets and assumed certain liabilities of StillWaters Technology, Inc. ("StillWaters") for $4.3 million. StillWaters distributed water treatment chemicals and equipment for its customers in Alabama.

• On July 2, 2025, we acquired the lactate business of MakWood, Inc. for $1.9 million. We had previously been party to a Distribution Agreement with MakWood for certain lactate products under the Mak Lak trade name. This acquisition agreement terminated the Distribution Agreement, and resulted in our acquisition of the lactate distribution business, including the customer list and associated brand name.

• On July 1, 2025, we acquired substantially all the assets and assumed certain liabilities of PhillTech, LLC ("PhillTech") for $5.0 million. Located in Courtland, AL, PhillTech manufactured and distributed coagulants and corrosion control products for its water treatment customers.

• On June 13, 2025, we acquired substantially all the assets and assumed certain liabilities of Hendrickson Enterprises, LLC and Polymer Technologies, LLC (collectively, "Hendrickson") for approximately $1.5 million. Hendrickson distributed water treatment chemicals and equipment to its customers via direct shipments from suppliers.

• On April 25, 2025, we acquired substantially all of the assets and assumed certain liabilities of WaterSurplus, Inc. ("WaterSurplus") and related entities for approximately $149.9 million paid at closing, with an additional amount payable as an earnout of up to $53.7 million based on cumulative gross profit for the first five years. WaterSurplus is located in Rockford, IL and delivers sustainable water treatment solutions to customers throughout the United States.

The aggregate annual revenue of these six businesses acquired in fiscal 2026 totaled approximately $48 million, as determined using the applicable twelve-month period preceding each respective acquisition date.

Change in Reporting Segments

Effective beginning with the first quarter of fiscal 2026, we realigned our reporting segments to better reflect how we manage our operations and allocate resources. We believe this realignment better reflects the value our company provides to our customers and our evolution from a bulk commodity distributor into a specialty ingredients company. We now organize and manage our business by the following three segments, each of which meets the definition of reportable segments under ASC 280-10, Segment Reporting: Water Treatment, Food and Health Sciences, and Industrial Solutions. These segments are defined primarily by product and type of customer. Information presented in this annual report has been recast to align with the new segments. Additional information regarding these new segments is set forth in Note 15 to our Consolidated Financial Statements.

Results of Operations

The following table sets forth certain items from our statement of income as a percentage of sales for fiscal 2026 and 2025:

Fiscal 2026

Fiscal 2025

Sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Operating income

Interest expense, net

Other income

Income before income taxes

Income tax provision

Net income

Fiscal 2026 Compared to Fiscal 2025

Sales

Sales were $1,083.7 million for fiscal 2026, an increase of $109.3 million, or 11%, from sales of $974.4 million for fiscal 2025. The year-over-year increase was driven by sales growth in our Water Treatment and Industrial Solutions segments, which grew 22% and 7%, respectively , while sales in our Food and Health Sciences segment declined slightly.

Water Treatment Segment.   Water Treatment segment sales increased $96.8 million, or 22%, to $543.3 million for fiscal 2026, as compared to $446.5 million for fiscal 2025. Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in both fiscal 2026 and fiscal 2025. Sales increased as a result of $83.3 million of added sales from acquired businesses as well as increased sales volumes and pricing on certain of our products in our legacy business.

Food and Health Sciences Segment. Food and Health Sciences segment sales decreased $1.9 million, or 1%, to $320.7 million for fiscal 2026, as compared to $322.6 million for fiscal 2025. Sales of our agricultural products increased $6.8 million, which was more than offset by declines in some of our other product lines resulting from lower selling prices, primarily driven by competitive pricing pressures.

Industrial Solutions Segment.   Industrial Solutions segment sales increased $14.3 million, or 7%, to $219.7 million for fiscal 2026, as compared to $205.4 million for fiscal 2025. Sales of bulk commodity products in the Industrial Solutions segment were approximately 21% of sales dollars in fiscal 2026 and 23% of sales dollars in fiscal 2025. Sales increased primarily as a result of increased sales volumes of certain of our manufactured, blended and repackaged products.

Gross Profit

Gross profit increased $19.5 million, or 9%, to $245.1 million, or 23% of sales, for fiscal 2026, from $225.5 million, or 23% of sales, for fiscal 2025. During fiscal 2026, the LIFO reserve increased, and gross profits decreased, by $1.5 million, primarily due to rising raw material costs. In fiscal 2025, the LIFO reserve decreased, and gross profits increased, by $1.6 million, primarily due to lower prices year-over-year on certain products. Gross profit increased due to increased sales volumes, partially offset by the unfavorable year-over-year impact of the increased LIFO reserve.

Water Treatment Segment.   Gross profit for the Water Treatment segment increased $23.1 million, or 19%, to $145.0 million, or 27% of sales, for fiscal 2026, from $121.8 million, or 27% of sales, for fiscal 2025. Gross profit increased primarily as a result of the addition of sales from our acquired businesses.

Food and Health Sciences Segment. Gross profit for our Food and Health Sciences segment decreased $4.6 million, or 6%, to $67.3 million, or 21% of sales, for fiscal 2026, from $71.9 million, or 22% of sales, for fiscal 2025. Gross profit decreased as a result of lower selling prices, primarily as a result of competitive pricing pressures.

Industrial Solutions Segment.   Gross profit for the Industrial Solutions segment increased $1.0 million, or 3%, to $32.8 million, or 15% of sales, for fiscal 2026, from $31.8 million, or 15% of sales, for fiscal 2025. Gross profit increased as a result of the increase in sales.

Selling, General and Administrative Expenses

SG&A expenses increased $17.4 million, or 16% to $123.8 million, or 11% of sales, for fiscal 2026, from $106.4 million, or 11% of sales, for fiscal 2025. Expenses increased largely due to $19.3 million in added costs from the acquired business in our Water Treatment segment, including amortization of intangibles of $8.9 million, as well as increased variable costs. This was partially offset by a reduction of $8.1 million to the Water Solutions earnout.

Operating Income

Operating income increased $2.1 million, or 2%, to $121.3 million, or 11% of sales, for fiscal 2026, as compared to $119.2 million, or 12% of sales, for fiscal 2025, due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense was $13.5 million for fiscal 2026, an increase of $8.1 million from interest expense of $5.4 million for fiscal 2025. Interest expense increased due to higher outstanding borrowings in the current year, primarily to fund current year acquisitions.

Income Tax Provision

Our effective tax rate was approximately 25% for fiscal 2026 and 26% for fiscal 2025. The current year decrease in the effective tax rate was primarily driven by favorable tax provision adjustments recorded. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.

Fiscal 2025 Compared to Fiscal 2024

Sales

Sales were $974.4 million for fiscal 2025, an increase of $55.2 million, or 6%, from sales of $919.2 million for fiscal 2024. The year-over-year increase was driven by sales growth in our Water Treatment segment, while sales in our Food and Health Sciences and Industrial Solutions segments declined year over year.

Water Treatment Segment.   Water Treatment segment sales increased $83.2 million, or 23%, to $446.5 million for fiscal 2025, as compared to $363.3 million for fiscal 2024. Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in both fiscal 2025 and fiscal 2024. Sales increased as a result of $72.1 million of added sales from acquired businesses as well as increased sales volumes in our legacy business.

Food and Health Sciences Segment. Food and Health Sciences segment sales decreased $12.0 million, or 4%, to $322.6 million for fiscal 2025, as compared to $334.6 million for fiscal 2024. Sales of our Food products decreased $11.1 million due to decreased selling prices driven by competitive pricing pressures.

Industrial Solutions Segment.   Industrial Solutions segment sales decreased $15.9 million, or 7%, to $205.4 million for fiscal 2025, as compared to $221.3 million for fiscal 2024. Sales decreased primarily as a result of decreased selling prices.

Gross Profit

Gross profit increased $31.9 million, or 16%, to $225.5 million, or 23% of sales, for fiscal 2025, from $193.6 million, or 21% of sales, for fiscal 2024. During fiscal 2025, the LIFO reserve decreased, and gross profits increased, by $1.6 million, primarily due to lower prices year-over-year on certain products. In fiscal 2024, the LIFO reserve decreased, and gross profits increased, by $15.4 million. Included as a reduction to gross profit in the prior year was a $7.7 million charge to operating expense for an environmental liability related to perchlorinated biphenyls (PCBs) discovered in the soil at our Rosemount, MN, facility.

Water Treatment Segment.   Gross profit for the Water Treatment segment increased $22.8 million, or 23%, to $121.8 million, or 27% of sales, for fiscal 2025, from $99.1 million, or 27% of sales, for fiscal 2024. Gross profit increased as a result of increased sales.

Food and Health Sciences Segment. Gross profit for our Food and Health Sciences segment increased $4.0 million, or 6%, to $71.9 million, or 22% of sales, for fiscal 2025, from $67.9 million, or 20% of sales, for fiscal 2024. Gross profit increased as a result of the $3.3 million environmental liability recorded in fiscal 2024.

Industrial Solutions Segment.   Gross profit for the Industrial Solutions segment increased $5.1 million, or 19%, to $31.8 million, or 15% of sales, for fiscal 2025, from $26.7 million, or 12% of sales, for fiscal 2024. Gross profit increased as a result of the $4.4 million environmental liability recorded in fiscal 2024.

Selling, General and Administrative Expenses

SG&A expenses increased $16.8 million, or 19% to $106.4 million, or 11% of sales, for fiscal 2025, from $89.6 million, or 10% of sales, for fiscal 2024. Expenses increased largely due to $10.4 million in added costs from the acquired business in our Water Treatment segment, including amortization of intangibles of $4.2 million, as well as increased variable costs.

Operating Income

Operating income increased $15.2 million, or 15%, to $119.2 million, or 12% of sales, for fiscal 2025, as compared to $104.0 million, or 11% of sales, for fiscal 2024, due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense was $5.4 million for fiscal 2025, an increase of $1.2 million from interest expense of $4.3 million for fiscal 2024. Interest expense increased due to higher outstanding borrowings in fiscal 2025, primarily to fund acquisitions.

Income Tax Provision

Our effective tax rate was approximately 26% for both fiscal 2025 and fiscal 2024. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.

Selected Quarterly Financial Data

Selected financial data for our fiscal quarters is shown below. No changes have been made to previously reported information.

(In thousands, except per share data)

Fiscal 2026

First

Second

Third

Fourth

Total

Sales

Gross profit

Selling, general, and administrative expenses

Operating income

Net income

Basic earnings per share

Diluted earnings per share

Fiscal 2025

First

Second

Third

Fourth

Total

Sales

Gross profit

Selling, general, and administrative expenses

Operating income

Net income

Basic earnings per share

Diluted earnings per share

Earnings per share may not equal the face of the Consolidated Statements of Income due to rounding.

Liquidity and Capital Resources

Cash provided by operating activities in fiscal 2026 was $144.3 million compared to $111.1 million in fiscal 2025. The increase in cash provided by operating activities in fiscal 2026 as compared to fiscal 2025 was primarily driven by favorable year-over-year changes in inventories and trade receivables compared to the same period a year ago. Due to the nature of our operations, which includes purchases of large quantities of bulk chemicals, the timing of purchases can result in significant changes in working capital investment and resulting cash flow.

Cash used in investing activities was $224.1 million in fiscal 2026 compared to $128.0 million in fiscal 2025. Capital expenditures for property, plant and equipment were $58.2 million in fiscal 2026 and $41.1 million in fiscal 2025. The increase in capital expenditures was primarily driven by real estate purchases and expansion of existing facilities. In fiscal 2026, we incurred acquisition spending of $167.1 million, including the acquisition of WaterSurplus for $149.9 million paid at closing, compared to $87.4 million of acquisition spending in fiscal 2025.

Cash provided by financing activities was $78.6 million in fiscal 2026 compared to $14.8 million in fiscal 2025. Cash provided by financing activities included net debt borrowings of $95.0 million in fiscal 2026 and net debt borrowings of $50.0 million in fiscal 2025. We paid out cash dividends of $15.7 million in fiscal 2026 and $14.6 million in fiscal 2025. In fiscal 2026, we did not repurchase shares under our board-authorized share repurchase program, and in fiscal 2025, we used $20.7 million to repurchase shares under the program.

Our cash balance was $3.9 million at March 29, 2026, a decrease of $1.2 million as compared with March 30, 2025. Cash flows generated by operations during fiscal 2026 were offset by the cash expended for acquisitions, capital expenditures, repayments of debt, and dividend payments in fiscal 2026. We intentionally maintain a relatively low level of cash and use excess cash to reduce outstanding debt, which we believe represents a more efficient use of capital by lowering interest expense, improving cash flow, and strengthening our balance sheet, while continuing to maintain sufficient liquidity to meet our operational and contractual needs.

We are party to a second amended and restated credit agreement with U.S. Bank National Association (“U.S. Bank”) as administrative agent, sole lead arranger and sole book runner, and the other lenders from time to time party thereto (collectively, the “Lenders”), dated as of March 31, 2022 (as amended, restated or modified from time to time, the “Credit Agreement”). A Joinder, Consent and Second Amendment, dated April 25, 2025 increased the revolving commitment under the Credit Agreement to provide us with senior secured revolving credit facilities (the “Revolving Loan Facility”) totaling $400.0 million. A Third Amendment, dated October 15, 2025, modified terms to increase the permitted qualified receivables transactions to $10.0 million from $5.0 million, as defined in the Credit Agreement. The Revolving Loan Facility includes a $10.0 million letter of credit subfacility and $25.0 million swingline subfacility. The Revolving Loan Facility has a five-year maturity date, maturing on April 25, 2030. The Revolving Loan Facility is secured by substantially all of our personal property assets and those of our subsidiaries. We may use the amount available under the Revolving Loan Facility for working capital, capital expenditures, share repurchases, restricted payments and acquisitions permitted under the Credit Agreement, and other general corporate purposes. At March 29, 2026, we had $244 million outstanding under the Revolving Loan Facility.

Borrowings under the Revolving Loan Facility bear interest at a rate per annum equal to one of the following, plus, in both cases, an applicable margin based upon our leverage ratio: (a) Term SOFR for an interest period of one, three or six months as selected by us, reset at the end of the selected interest period, or (b) a base rate determined by reference to the highest of (1) U. S. Bank’s prime rate, (2) the Federal Funds Effective Rate plus 0.5%, or (3) one-month Term SOFR for U.S. dollars plus 1.0%. The Term SOFR margin is between 1.0% and 1.85%, depending on our leverage ratio. The base rate margin is between 0.00% and 0.85%, depending on our leverage ratio. At March 29, 2026, the effective interest rate on our borrowings was 4.4%.

In addition to paying interest on the outstanding principal under the Revolving Loan Facility, we are required to pay a commitment fee on the unutilized commitments thereunder. The commitment fee is between 0.15% and 0.25%, depending on our leverage ratio.

Debt issuance costs paid to the Lenders are being amortized as interest expense over the term of the Credit Agreement. As of March 29, 2026, the unamortized balance of these costs was $0.8 million, and is included within other assets on our consolidated balance sheet.

The Credit Agreement requires that we maintain (a) a minimum fixed charge coverage ratio of 1.15 to 1.00 and (b) a maximum total cash flow leverage ratio of 3.5 to 1.0, subject to an election by us to increase the maximum total cash flow leverage ratio to 4.0 to 1.0 after certain Permitted Acquisitions subject to limitations set forth in the Credit Agreement. The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict our ability to incur additional indebtedness, dispose of significant assets, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions, grant liens on our assets or enter into rate management transactions, subject to certain limitations.

We are permitted to make distributions, pay dividends and repurchase shares so long as no default or event of default exists or would exist as a result thereof. We were in compliance with all covenants of the Credit Agreement as of March 29, 2026 and expect to remain in compliance with all covenants for the next 12 months.

The Credit Agreement contains customary events of default including failure to make payments under the Revolving Loan Facility, failure to comply with covenants in the Credit Agreement and other loan documents, cross default to other material indebtedness, our failure to pay or discharge material judgments, bankruptcy, and change of control of the Company. The occurrence of an event of default would permit the lenders to terminate their commitments and accelerate loans under the Credit Facility.

We have in place an interest rate swap agreement to manage the risk associated with a portion of our variable-rate long-term debt. We do not utilize derivative instruments for speculative purposes. The interest rate swap involves the exchange of fixed-rate and variable-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated. The notional amount of the swap agreement is $60 million, and it will terminate on May 1, 2027.

As part of our growth strategy, we have acquired businesses and may pursue acquisitions or other strategic relationships in the future that we believe will complement or expand our existing businesses or increase our customer base. We believe we could borrow additional funds under our current or new credit facilities or sell equity for strategic reasons or to further strengthen our financial position. We believe that our existing cash and cash equivalents, together with cash generated from operations and available borrowings under our existing Credit Agreement, will be sufficient to meet our working capital expenditure requirements for at least the next 12 months.

Material Cash Requirements

The following table provides aggregate information about our contractual payment obligations and the periods in which payments are due:

Payments Due by Fiscal Period

Contractual Obligation

More than

5  Years

Total

(In thousands)

Senior secured revolver (1)

Interest payments (2)

Operating lease obligations (3)

Pension withdrawal liability (4)

Earnout liability (5)

(1)    Represents the balance outstanding as of March 29, 2026, and assumes such amount remains outstanding until its maturity date, as periodic payments are not required under the terms of our Credit Agreement. However, it is our intention to pay down our debt with available excess cash flow. See Note 8 to our consolidated Financial Statements for further information.

(2)    Represents interest payments and commitment fees payable on outstanding balances under our revolver, net of the expected receivable from our interest rate swap agreement, and assumes interest rates remain unchanged from the rate as of March 29, 2026.

(3)    As reported under ASC Topic 842.

(4)    This relates to our withdrawal from a multiemployer pension plan. Payments on this obligation will continue through 2034.

(5)     Represents the fair value of the earnout liabilities recorded in conjunction with the Water Solutions and WaterSurplus acquisitions based upon achieving certain targets payable 3 years and 5 years after acquisition, respectively.

In addition to the above contractual obligations, in the ordinary course of business we have routine cash requirements related to capital expenditures for new trucks, facility improvements and expansions, safety equipment and other additions of property, plant and equipment. Our capital expenditures in fiscal 2026 were $58.2 million and in fiscal 2025 were $41.1 million. We anticipate total capital expenditures to be approximately $55 million for fiscal 2027.

Critical Accounting Estimates

In preparing the financial statements, we follow U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an ongoing basis. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. We have determined the following is a critical accounting estimate material to our consolidated financial position, results of operations or cash flow.

Acquisition accounting. Our accounting for acquisitions requires significant judgment, and involves assumptions that are subject to a high degree of uncertainty and could materially affect our financial position and results of operations. For each acquisition, we allocate the fair value of the consideration transferred to the tangible assets acquired, identifiable intangible assets, and liabilities assumed. Determining these fair values requires management to make assumptions as of the acquisition date, including assumptions related to the future revenues and cash flows, discount rates, growth rates, and the estimated useful lives of acquired intangible assets. These estimates are inherently subjective and are based on information available at the time of the acquisition, including internal forecasts, available industry and market data, and long-term growth assumptions. The valuation of intangible assets is primarily based on discounted cash flow models. Changes in key assumptions used in these models, particularly projected cash flows or discounted rates, could result in materially different fair value estimates and may affect recorded asset balances, future amortization expense or impairment charges. Management establishes these assumptions at the time of acquisition and revises them if circumstances warrant. While we believe our assumptions are reasonable, actual results may differ from estimates due to changes in operating performance or market conditions. Any future acquisitions could involve assumptions that differ from those used in prior transactions. See Note 2, Acquisitions included in Part II, Item 8 of this Form 10-K for further discussion of business combination accounting valuation methodology and assumptions.

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