What changed in this filing

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Item 1A. Risk Factors

2020-11-19 compared with 2019-11-20 · 86 added, 85 removed, 243 unchanged (41% of the section changed)

Our end markets are subject to risks relating to general economic cycles and conditions, which affect demand for our products and services and may adversely affect our financial results.

Our primary end markets are repair and replacement of water infrastructure, driven by municipal spending, and new water infrastructure installation driven by new residential construction.

Sustained uncertainty about any of these end markets could cause our distributors and end use customers to delay purchasing, or determine not to purchase, our products or services.

General economic and other factors, including interest rates, inflation, unemployment levels, energy costs, the state of the credit markets (including municipal bonds, mortgages, home equity loans and consumer credit) and other factors beyond our control, could adversely affect our sales, profitability and cash flows.

For example, increases in interest rates can significantly increase the costs of the projects in which our products are utilized — such as water and wastewater infrastructure upgrade, repair and replacement projects — and lead to such projects being reduced, delayed and/or rescheduled, which could result in a decrease in our revenues and earnings and adversely affect our financial condition.

In addition, higher interest rates are often accompanied by inflation.

In an inflationary environment, we may be unable to raise the prices of our products sufficiently to keep up with the rate of inflation, which would reduce our profit margins.

Risks related to our industries

A significant portion of our business depends on spending for water and wastewater infrastructure construction activity.

A significant portion of our business depends on local, state and federal spending on water and wastewater infrastructure upgrade, repair and replacement.

Our primary end markets are repair and replacement of water infrastructure, driven by municipal spending and new water infrastructure installation driven by new residential construction.

As a result, a significant portion of our business depends on local, state and federal spending on water and wastewater infrastructure upgrade, repair and replacement.

Funds for water and wastewater infrastructure repair and replacement typically come from local taxes, water fees and water rates.

State and local governments and private water entities that do not adequately budget for capital expenditures when setting tax rates, water rates and water fees, as applicable, may be unable to pay for water infrastructure repair and replacement if they do not have access to other funding sources.

Governments and private water entities may have limited abilities to increase taxes, water fees or water rates, as applicable.

It is not unusual for water and wastewater projects to be delayed and rescheduled for a number of reasons, including changes in project priorities, increasing interest rates and inflation (as discussed above) and difficulties in complying with environmental and other governmental regulations.

State and local governments and private water entities that do not adequately budget for expenditures when setting tax rates, water rates and water fees, as applicable, may be unable to pay for water infrastructure repair and replacement if they do not have access to other funding sources.

In addition, reductions or delays in federal spending related to water or wastewater infrastructure could adversely affect state or local projects and may adversely affect our financial results.

Governments and private water entities may have limited abilities to increase taxes, water fees or water rates, as applicable.

It is not unusual for water and wastewater projects to be delayed and rescheduled for a number of reasons, including changes in project priorities, increasing interest rates and inflation and difficulties in complying with environmental and other governmental regulations.

For example, changes in interest rates and credit markets (including municipal bonds, mortgages, home equity loans and consumer credit) can significantly increase the costs of the projects in which our products are utilized — such as new residential construction and water and wastewater infrastructure upgrade, repair and replacement projects — and lead to such projects being reduced, delayed and/or rescheduled, which could result in a decrease in our revenues and earnings and adversely affect our financial condition.

In addition, higher interest rates are often accompanied by inflation.

In an inflationary environment, we may be unable to raise the prices of our products sufficiently to keep up with the rate of inflation, which would reduce our profit margins.

Some state and local governments have placed or may place significant restrictions on the use of water by their constituents.

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This market depends on a variety of factors beyond our control, including household formation, consumer confidence, interest rates, inflation and the availability of mortgage financing, as well as the mix between single and multifamily construction, availability of construction labor and ultimately the extent to which new construction leads to the development of raw land.

Adverse conditions or sustained uncertainty regarding the residential construction market could adversely affect our sales, profitability and cash flows.

Adverse conditions or sustained uncertainty regarding the residential construction market could adversely affect our sales, profitability and cash flows, including the risk that one or more of our distributors and/or end use customers decide to delay purchasing, or determine not to purchase, our products or services.

Our business depends on a small group of key customers for a significant portion of our sales.

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We may fail to align our operations with successful distributors in any given market.

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Distributors in our industry have experienced consolidation in recent years.

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Pricing and profit margin pressure or the loss of any one of our key distributors in any market could adversely affect our operating results.

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Technologies primarily sells directly to end users.

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Any of these potential developments could adversely affect our prices and demand for our products and services.

The long-term success of our newer products and services, such as smart metering, leak detection and pipe condition assessment, depends on market acceptance.

The long-term success of our newer systems and solutions, including the related products, software and services, such as smart metering, leak detection and pipe condition assessment, depends on market acceptance.

Technologies’ smart metering and leak detection and pipe condition assessment products and services have much less market history than many of Infrastructure’s products.

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Risks related to our business strategy

We may not be able to adequately manage the risks associated with the introduction and deployment of new products and systems, including increased warranty costs.

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This includes spending on capital projects, such as developing or acquiring strategic businesses, technologies and product lines with the potential to strengthen our industry position, enhancing our existing set of product and service offerings, or entering new markets, as well as periodically returning value to our stockholders through share repurchases and dividends.

For example, we are nearing completion of our large valve manufacturing expansion in Chattanooga, Tennessee and recently made an additional investment in a facility in Kimball, Tennessee to further expand our capabilities in the area and allow us to insource more products and operations.

For example, we have completed the construction of our large valve manufacturing expansion in Chattanooga, Tennessee and made an additional investment in a facility in Kimball, Tennessee to further expand our capabilities in the area and allow us to insource more products and operations.

We also expect to make significant progress in fiscal 2021 on the construction of our new brass manufacturing facility in Decatur, Illinois, which we expect to be completed in 2022.

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We may not realize the expected benefits from our strategic reorganization plans.

During the quarter ended September 30, 2017, we announced our strategic reorganization plan designed to accelerate our product innovation and revenue growth.

In particular, we reconfigured our divisional structure around products, with five business teams that have line and cross-functional responsibility for managing distinct product portfolios.

We believe the new organizational structure will be better aligned with business needs and generate greater efficiencies.

Activities under the plan were initiated in the fourth quarter of 2017 and essentially completed in 2018.

We incurred approximately $8.8 million in restructuring charges associated with the reorganization.

We do not expect to incur additional material charges related to this reorganization.

During October 2018, we announced the move of our Middleborough, Massachusetts facility to Atlanta, which will allow us to consolidate our resources and accelerate product innovation through creation of a research and development center of excellence for software and electronics in Atlanta, Georgia.

As a result of this reorganization, we expect annual cost savings of approximately $1.5 million, which takes into account the hiring and alignment of new engineering talent.

We incurred approximately $4.3 million in charges related to this reorganization in fiscal 2019, of which approximately $0.7 million was accrued at September 30, 2019.

During November 2019, we announced the purchase of a new facility in Kimball, Tennessee, which will allow us to support and enhance our investment in our Chattanooga large casting foundry.

As a result of this reorganization, we announced the subsequent closures of our facilities in Hammond, Indiana and Woodland, Washington.

We have incurred $2.5 million in charges related to this reorganization in fiscal 2020.

We cannot guarantee that the activities under the restructuring and reorganization activities will result in the desired efficiencies and estimated cost savings.

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Our business strategy includes developing, acquiring and investing in companies and technologies that broaden our product portfolio or complement our existing business, which could be unsuccessful or consume significant resources and adversely affect our operating results.

We will continue to evaluate the development or acquisition of strategic businesses, technologies and product lines with the potential to strengthen our industry position, enhance our existing set of product and service offerings, or enter new markets.

As part of our long-term business strategy, we will continue to evaluate the development or acquisition of strategic businesses, technologies and product lines with the potential to strengthen our industry position, enhance and expand our existing set of product and service offerings, or enter new markets.

We may be unable to identify or successfully complete suitable acquisitions in the future and completed acquisitions may not be successful.

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Acquisitions and technology investments may involve significant cash expenditures, debt incurrence, operating losses and expenses that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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• Dilution of interests of holders of our common shares through the issuance of equity securities or equity-linked securities;

Inability to achieve expected synergies.

Any acquisitions or investments may ultimately harm our business or financial condition, as they may not be successful and may ultimately result in impairment charges.

• Inability to achieve expected synergies or the achievement of such synergies taking longer than expected to realize, including increases in revenue, enhanced efficiencies, or increased market share, or the benefits may ultimately be smaller than we expected.

Any acquisitions or investments may ultimately harm our business or financial condition, as they may not be successful and may ultimately have an adverse effect on our operating results or financial condition and/or result in impairment charges.

Potential international business opportunities may expose us to additional risks, including currency exchange fluctuations.

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Foreign Corrupt Practices Act and similar non-U.S.

anti-corruption laws generally prohibit companies and

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their intermediaries from making improper payments or providing anything of value to improperly influence foreign government officials and certain others for the purpose of obtaining or retaining business, or obtaining an unfair advantage.

anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence foreign government officials and certain others for the purpose of obtaining or retaining business, or obtaining an unfair advantage.

Violations of these laws and regulations could result in criminal and civil sanctions, disrupt our business and adversely affect our brands, international expansion efforts, business and operating results.

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We earn revenues and incur expenses in foreign currencies as part of our operations outside of the United States.

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operations increases through both organic and inorganic growth.

If significant tariffs or other restrictions continue to be placed on foreign imports by the United States and related counter-measures are taken by impacted foreign countries, our revenue and results of operations may be harmed.

The Trump Administration has signaled that it may continue to alter trade agreements and terms between China and the United States, including limiting trade with China and/or imposing additional tariffs on imports from China.

In March 2018, President Trump imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports and announced additional tariffs on goods imported from China specifically, as well as certain other countries.

The materials subject to these tariffs to date can impact our raw material costs as well.

However, if further tariffs are imposed on a broader range of imports, or if further retaliatory trade measures are taken by China or other countries in response to additional tariffs, we may be required to raise our prices, which may result in the loss of customers and harm our operating performance.

Risks related to our operations

Our reliance on vendors for certain products, some of which are single-source or limited source suppliers, could harm our business by adversely affecting product availability, reliability or cost.

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A disruption in our supply chain or other factors impacting the distribution of our products could adversely affect our business.

A disruption within our logistics or supply chain network at any of the freight companies that deliver us components for our manufacturing operations in the United States or ship our fully-assembled products to our customers could adversely affect our business and result in lost sales or harm to our reputation.

A disruption within our logistics or supply chain network at any of the freight companies that deliver components for our manufacturing operations in the United States or ship our fully-assembled products to our customers could adversely affect our business and result in lost sales or harm to our reputation.

Our supply chain is dependent on third party ocean-going container ships, rail, barge and trucking systems and, therefore, disruption in these logistics services because of weather-related problems, strikes, bankruptcies or other events could adversely affect our financial performance and financial condition, negatively impacting sales, profitability and cash flows.

Seasonal demand for certain of our products and services may adversely affect our financial results.

Sales of some of our products, including iron gate valves and fire hydrants, are seasonal, with lower sales in our first and second fiscal quarters when weather conditions throughout most of North America tend to be cold resulting in lower levels of construction activity.

This seasonality in demand has resulted in fluctuations in our sales and operating results.

To satisfy demand during expected peak periods, we may incur costs associated with building inventory in off-peak periods, and our projections as to future needs may not be accurate.

Because many of our expenses are fixed, seasonal trends can cause reductions in our profitability and profit margins and deterioration of our financial condition during periods affected by lower production or sales activity.

Transportation costs are relatively high for most of our products.

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High transportation costs could make our products less competitive compared to similar or alternative products offered by competitors.

Our high fixed costs may make it more difficult for us to respond to economic cycles.

A significant portion of our cost structure is fixed, including manufacturing overhead, capital equipment and research and development costs.

In a prolonged economic downturn, these fixed costs may cause our gross margins to erode and earnings to decline.

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• Labor disputes;

• Cyberattacks and events.

The occurrence of any of these events may impair our production capabilities and adversely affect our sales, profitability and cash flows.

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Breaches of our facilities, network, or data security could disrupt the security of our systems and business applications, impair our ability to provide services to our customers and protect the privacy of their data, result in product development delays, compromise confidential or technical business information harming our reputation, result in theft or misuse of our intellectual property or other assets, require us to allocate more resources to improved technologies, or otherwise adversely affect our business.

We may be affected by new governmental legislation and regulations relating to carbon dioxide emissions.

Many of our manufacturing plants use significant amounts of electricity generated by burning fossil fuels, which releases carbon dioxide.

Several state courts and administrative agencies are considering the scope and scale of carbon dioxide emission regulation under various laws pertaining to the environment, energy use and development and greenhouse gas emissions.

In addition, several states are considering various carbon dioxide registration and reduction programs.

The final details and scope of these various legislative, regulatory and policy measures are unclear and their potential impact is still uncertain, so we cannot fully predict the impact on our business.

The potential impacts of climate change on our operations are highly uncertain.

Although the financial impact of these potential changes is not reasonably estimable at this time, our operations in certain locations and those of our customers and suppliers could potentially be adversely affected, which could adversely affect our sales, profitability and cash flows.

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of the Notes to Consolidated Financial Statements.

We may have substantial additional liability for federal income tax allegedly owed by Walter Energy.

We were a member of the Walter Energy, Inc.

(“Walter Energy”) federal tax consolidated group, through December 14, 2006, at which time the company was spun-off from Walter Industries.

Until our spin-off from Walter Energy, we joined in the filing of the Walter Energy consolidated federal income tax return for each taxable year during which we were a member of the consolidated group.

As a result, we are jointly and severally liable for the federal income tax liability, if any, of the consolidated group for each of those years.

Accordingly, we could be liable in the event any such federal income tax liability is incurred, and not discharged, by any other member of the Walter Energy tax consolidated group for any period during which we were included in the Walter Energy tax consolidated group.

In July 2015, Walter Energy filed for bankruptcy protection under Chapter 11 of the U.S.

Bankruptcy Code in the Northern District of Alabama (“Walter Bankruptcy Case”).

On February 2, 2017, the Walter Bankruptcy Case was converted to a liquidation proceeding under Chapter 7 of the U.S.

Bankruptcy Code, pursuant to which Walter Energy is now in the process of being wound down and liquidated.

The IRS had alleged that Walter Energy owed substantial amounts (the “Walter Tax Liability”) for prior taxable periods in which we were a member of the Walter Energy tax consolidated group (specifically, 1983-1994, 2000-2002 and 2005).

On January 11, 2016, the IRS filed a proof of claim in the Walter Bankruptcy Case, alleging that Walter Energy owed taxes, interest and penalties for the years 1983-1994, 2000-2002 and 2005 in an aggregate amount of $554.3 million ( $229.1 million of which

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the IRS claimed was entitled to priority status in the Walter Bankruptcy Case).

The IRS asserted that its claim was based on an alleged settlement of Walter Energy’s tax liability for years 1983 through 1994, which Walter Energy disputed.

In the proof of claim, the IRS included an alternative calculation in an aggregate amount of $860.4 million , which it asserted would be appropriate in the event the alleged settlement were determined to be non-binding ( $535.3 million of which the IRS claimed was entitled to priority status in the Walter Bankruptcy Case).

The IRS had indicated its intent to pursue collection of amounts included in the proofs of claim from former members of the Walter Energy tax consolidated group.

We have been working constructively with the parties involved in this matter in an effort to reach a consensual resolution with respect to the Walter Tax Liability.

On November 5, 2019, we acknowledged and agreed to be bound by a settlement agreement between the bankruptcy trustee in the Walter Bankruptcy Case and the Internal Revenue Service to resolve the Walter Tax Liability.

On November 18, 2019, the settlement agreement was approved by the U.S.

Bankruptcy Court in the Northern District of Alabama, which is responsible for the Walter Bankruptcy Case.

The approval was made over the objection of a third party and is subject to appeal and/or a motion for reconsideration, the outcome of which cannot be predicted.

Should the approval order become effective, under the terms of the settlement agreement, we would contribute approximately $22 million to the settlement, plus interest through the payment date, with another former Walter Energy subsidiary agreeing to contribute approximately $17 million to the settlement.

No assurances as to the timing or outcome of any appeal or motion to reconsider the approval order can be made;

however, we expect our liabilities with respect to the Walter Tax Liability will be fully resolved should the order become effective and we make the required contribution.

We rely on successors to Tyco to indemnify us for certain liabilities and they may become financially unable or fail to comply with the terms of the indemnity.

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Should any Tyco Indemnitor become financially unable or fail to comply with the terms of the indemnity, we may be responsible for such obligations or liabilities.

We depend on qualified personnel and, if we are unable to retain or hire executive officers, key employees and

skilled personnel, we may not be able to achieve our strategic objectives and our business may be adversely

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Risks related to our human capital

We depend on qualified personnel and, if we are unable to retain or hire executive officers, key employees and skilled personnel, we may not be able to achieve our strategic objectives and our business may be adversely affected.

Our ability to expand or maintain our business depends on our ability to hire, train and retain employees with the skills necessary to understand and adapt to the continuously developing needs of our customers.

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We may increase contributions to our pension plans to avoid or reduce these higher costs.

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Significant adverse changes in credit and capital markets or changes in investments could result in discount rates or actual rates of return on plan assets being materially lower than projected and require us to increase pension contributions in future years to meet funding level requirements.

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If increased funding requirements are particularly significant and sustained, our overall liquidity could be materially reduced, which could cause us, among other things, to reduce investments and capital expenditures, or restructure or refinance our debt.

Risks related to our international operations

Any failure to satisfy international trade laws and regulations or to otherwise comply with changes or other trade developments may adversely affect us.

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Any improper actions could subject us to civil or criminal penalties, including material monetary fines, or other adverse actions, including denial of import or export privileges, and could harm our reputation and our business prospects.

Our high fixed costs may make it more difficult for us to respond to economic cycles.

A significant portion of our cost structure is fixed, including manufacturing overhead, capital equipment and research and development costs.

In a prolonged economic downturn, these fixed costs may cause our gross margins to erode and earnings to decline.

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The materials subject to these tariffs to date can impact our raw material costs as well.

However, if further tariffs are imposed on a broader range of imports, or if further retaliatory trade measures are taken by China or other countries in response to additional tariffs, we may be required to raise our prices or incur additional expenses, which may result in the loss of customers and harm our operating performance.

The prices of our purchased components and raw materials can be volatile.

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Our competitors may secure more reliable sources of purchased components and raw materials or they may obtain these supplies on more favorable terms than we do, which could give them a cost advantage.

Seasonal demand for certain of our products and services may adversely affect our financial results.

This seasonality in demand has resulted in fluctuations in our sales and operating results.

To satisfy demand during expected peak periods, we may incur costs associated with building inventory in off-peak periods, and our projections as to future needs may not be accurate.

Other risks related to our business

The negative impact of the COVID-19 pandemic on our operations may increase

The outbreak of COVID-19 is impacting cities, states and countries around the world and is temporarily changing the way we live and work.

The pandemic has also caused a shift in how we manage our business, think about work and how our work gets done.

Businesses as well as federal, state and local governments have implemented significant measures to attempt to mitigate this public health crisis and may continue to take additional actions.

Although we cannot determine the ultimate severity or duration of the pandemic at this time, the pandemic is having meaningful adverse impacts on our financial condition and results of operations as discussed in PART II, “Item 7.

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

As the impact of the pandemic continues, we may continue to experience additional plant closures, limitations in the ways we operate within our facilities, illness or quarantine of our employees, supply chain disruptions, transportation delays, cost increases, more extensive travel restrictions, closures or disruptions of businesses and facilities, or social, economic, political or labor instability in the affected areas.

These same factors may continue to impact our suppliers, customers and distributors and the severity of such impacts could increase.

We have implemented significant changes to the way we work in an attempt to enhance and secure the health and safety of our workforce and the communities in which they operate.

However, the health implications of the pandemic are extensive and the extent, duration and severity of the pandemic are highly uncertain.

It is also uncertain whether the measures we have taken — and additional measures we may undertake in the future — and the actions taken by governmental agencies will be successful.

Accordingly, should there be unexpected health implications for our employees, communities or others, we could face litigation or other claims and we could suffer damage to our reputation, brand and operations, which could adversely affect our business.

We have incurred additional costs to address the pandemic as discussed in PART II, “Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,”, including costs associated with unfavorable volume variances, voluntary emergency paid leave, additional cleaning, disinfectants and sanitation materials for our employees and at our facilities.

We expect to continue to incur such costs, which may be significant, as we continue to implement operational changes in response to this pandemic.

All of our facilities were operational and able to fill orders on November 17, 2020, and our teams have worked effectively to address the few temporary closures we have experienced.

The pandemic has also caused supply chain disruption that has resulted in higher costs in the manufacture of our products.

We expect these conditions to persist for the near term and may worsen until the pandemic abates.

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We may be affected by new governmental legislation and regulations relating to carbon dioxide emissions.

Many of our manufacturing plants use significant amounts of electricity generated by burning fossil fuels, which releases carbon dioxide.

In addition, several states are considering various carbon dioxide registration and reduction programs.

The potential impacts of climate change on our operations are highly uncertain.

We may not be able to efficiently integrate future acquisitions.

We expect to continue making acquisitions as part of our long-term business strategy.

These acquisitions and other transactions and arrangements involve significant challenges and risks, including that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that we have difficulty integrating and retaining new employees, business systems, and technology, or that they distract management from our other businesses.

The success of these transactions and arrangements will depend in part on our ability to leverage them to enhance our existing products and services or develop compelling new ones.

It may take longer than expected to realize the full benefits from these transactions and arrangements, such as increased revenue, enhanced efficiencies, or increased market share, or the benefits may ultimately be smaller than we expected.

These events could adversely affect our operating results or financial condition.

Continued disruptions in our markets and the global economy may cause us to have to assess impairments of our assets and cause us to incur and record non-cash impairment charges.

Further, our management is focused on mitigating the impact of the pandemic on our operations, which has required, and will continue to require, a large investment of time and resources across our business and may delay other strategic initiatives and large capital projects that are important to the business.

Additionally, many of our employees are working remotely.

An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.

The extent to which the pandemic impacts us will depend on a number of factors and developments that we are not able to predict or control, including, among others:

the severity of the virus;

the duration of the outbreak;

governmental, business and other actions (which could include limits on funding for our products or services);

the health of and the effect on our workforce;

and the potential effects on our internal controls including those over financial reporting and information technology as a result of changes in working environments such as shelter-in-place and similar orders that are applicable to our employees, including management.

In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted.

We also cannot predict the impact that the pandemic will have on third parties with which we do business, and each of their financial conditions, including their viability and ability to pay for our products and services;

however, any material effect on these parties could adversely impact us.

The extent of the impact of the pandemic on our operations and financial results depends on future developments and is highly uncertain.

The situation is changing rapidly and future impacts may materialize that are not yet known.

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

What changed 10-K

Item 1A. Risk Factors