What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-04 compared with 2021-02-04 · 171 added, 77 removed, 125 unchanged (66% of the section changed)

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This report contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements that address activities, events or developments that the Company intends, expects, plans, projects, believes or anticipates will or may occur in the future are forward-looking statements, including, without limitation, statements regarding outlooks, projections, forecasts, trend descriptions, the COVID-19 pandemic, go-to-market strategies, operational excellence, acceleration of new product development, end market performance, net sales performance, adjusted operating income and adjusted EBITDA performance, margins, capital expenditure plans, litigation outcomes, capital allocation and growth strategies, and future warranty charges.

Forward-looking statements are based on certain assumptions and assessments made by the Company in light of the Company’s experience and perception of historical trends, current conditions and expected future developments.

Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, including the extent, duration and severity of the impact of the pandemic on the Company’s operations and results, including effects on the financial health of customers (including collections), the Company and the financial/capital markets, government-mandated facility closures, COVID-19 related facility closures and other manufacturing restrictions, logistical challenges and supply chain interruptions, potential litigation and claims emanating from the COVID-19 pandemic, and health, safety and employee/labor issues in Company facilities around the world;

unexpected or greater than expected increases in costs of raw materials;

Forward-looking statements are based on certain assumptions and assessments made by the Company based on experience and perception of historical trends, current conditions and expected future developments.

Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, including the extent, duration and severity of the impact of the COVID-19 pandemic on the Company’s operations and results, including effects on the financial health of customers (including collections), the financial/capital markets, government-mandated facility closures, COVID-19 related facility closures and other manufacturing restrictions, logistical challenges and supply chain interruptions, potential litigation and claims emanating from the COVID-19 pandemic, and health, safety and employee/labor issues in Company facilities around the world;

unexpected or greater than expected increases in costs of raw materials and purchased components;

regional, national or global political, economic, market and competitive conditions;

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changing regulatory, trade and tariff conditions;

failure to achieve expected cost savings, net sales expectations, profitability expectations and manufacturing efficiencies from our large capital investments in Chattanooga and Kimball, Tennessee and Decatur, Illinois;

failure to achieve expected cost savings, net sales expectations, profitability expectations and manufacturing efficiencies from restructuring and consolidation activities and our large capital investments in Chattanooga and Kimball, Tennessee and Decatur, Illinois;

the failure to integrate and/or realize any of the anticipated benefits of recent acquisitions or divestitures;

and other factors that are described in the section entitled “RISK FACTORS” in Item 1A of the Company’s most recently filed Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q (all of which risks may be amplified by the pandemic).

Forward-looking statements do not guarantee future performance and are only as of the date they are made.

as well as other factors that are described in the section entitled “RISK FACTORS” in Item 1A of the Company’s most recently filed Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q (all of which risks may be amplified by the pandemic).

Forward-looking statements are only as of the date they are made and do not guarantee future performance.

The Company undertakes no duty to update its forward-looking statements except as required by law.

Undue reliance should not be placed on any forward-looking statements.

You are advised to review any further disclosures the Company makes on related subjects in subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the U.S.

You are advised to review any further disclosures the Company makes in subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the U.S.

Securities and Exchange Commission.

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We estimate approximately 60-65% of our 2020 net sales were for repair and replacement directly related to municipal water infrastructure spending, approximately 25-30% were related to residential construction activity and less than 10% were related to natural gas utilities spending.

We expect the operating environment during our fiscal year 2021 to continue to be very challenging due to the uncertainty around the depth and duration of the pandemic.

We anticipate that growth in the residential construction end market will help offset anticipated challenges in the project-related portion of the municipal market.

In January 2021, Blue Chip Economic Indicators forecasted a 7% increase in housing starts for calendar 2021 compared to the prior year primarily due to the low interest rate environment in the United States.

We expect the operating environment during our fiscal year 2021 to continue to be very challenging due to the uncertainty around the depth and duration of the pandemic, which has accelerated and may continue to accelerate inflation and global supply chain disruptions.

We anticipate that growth in the residential construction end market will continue to help offset anticipated challenges in the project-related portion of the municipal market.

In April 2021, Blue Chip Economic Indicators forecasted a 12% increase in housing starts for calendar 2021 compared to the prior year primarily due to the low interest rate environment in the United States.

We have continued to incur additional costs to address the pandemic as discussed herein, 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 are operational and our teams have worked effectively to address the few temporary closures we have experienced.

We expect to continue to incur such costs, which may be significant, as we continue to respond to the pandemic.

All of our facilities are operational and our teams have worked effectively to address the few temporary closures we have experienced due to the pandemic.

The last such closure was in August 2020.

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

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Infrastructure

In December 2018, we completed our acquisition of Krausz Development Ltd.

In December 2018, we completed our acquisition of Krausz Industries Development Ltd.

and subsidiaries (“Krausz”), a manufacturer of pipe couplings, grips and clamps with operations in the United States and Israel.

We include financial results of Krausz in our consolidated financial statements on a one-month lag.

During the three months ended March 31, 2021, we aligned the consolidation of Krausz in the consolidated financial statements which previously included results on a one-month reporting lag.

The impact of the elimination of the reporting lag during the three and six months ended March 31, 2021 resulted in an increase of $6.0 million to net sales and $1.4 million in operating income.

In October 2019, we acquired the noncontrolling interest of our previously existing joint venture operation for a negotiated purchase price of $5.4 million.

The municipal market is the key end market for Technologies.

The businesses in Technologies are project-oriented and depend on customer adoption of their technology-based products and services.

Our Technologies segment is typically project-oriented and depends on our customers’ adoption of our technology-based products and services.

Results of Operations

Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019

Three months ended December 31, 2020

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Three months ended March 31, 2021

Infrastructure Technologies Corporate Total

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34.4 6.7 13.1 54.2

Strategic reorganization and other charges 0.1 — 1.3 1.4

Strategic reorganization and other (credits) charges (0.7) — 1.5 0.8

Total operating expenses 33.7 6.7 14.6 55.0

Operating income (loss) $ 52.6 $ (4.6) $ (14.6) 33.4

Other expenses (income):

Pension benefit other than service (0.8)

Interest expense, net 6.1

Income before income taxes 28.1

Income tax expense 7.2

Net income $ 20.9

Three months ended March 31, 2020

Infrastructure Technologies Corporate Total

(in millions)

Net sales $ 239.9 $ 17.8 $ — $ 257.7

Gross profit 84.1 1.9 — $ 86.0

Operating expenses:

Selling, general and administrative

33.4 6.5 9.4 49.3

Strategic reorganization and other (credits) charges 0.4 — 0.5 0.9

Total operating expenses 33.8 6.5 9.9 50.2

Operating income (loss)

Non-operating expenses:

$ 50.3 $ (4.6) $ (9.9) 35.8

Other expenses (income):

Pension benefit other than service (0.8)

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Net income $ 23.8

Three months ended December 31, 2019 (1)

Consolidated Analysis

Net sales for the three months ended March 31, 2021 increased 3.8 percent or $9.8 million to $267.5 million from $257.7 million in the comparable prior year period.

This increase was primarily a result of $6.0 million of Krausz sales recorded during the three months ended March 31, 2021 by eliminating the one-month reporting lag as well as higher pricing for our products and volume at Technologies.

Gross profit for the three months ended March 31, 2021 increased $2.4 million to $88.4 million from $86.0 million in the prior year period.

Gross profit increased primarily as a result of stronger manufacturing performance, increased pricing and the benefit from the elimination of the Krausz one-month reporting lag.

Partially offsetting the increase in gross profit were higher manufacturing costs due to inflation, $2.4 million in Inventory write-downs as a result of the announced plant closures in Aurora, Illinois and Surrey, British Columbia, Canada and $1.2 million in higher Cost of sales as a result of the pandemic.

Gross margin was 33.0% for the three months ended March 31, 2021 compared to 33.4% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the three months ended March 31, 2021 increased $4.9 million to $54.2 million from $49.3 million in the prior year period primarily as a result of an increase in personnel-related expenses, partially offset by decreased expenditures for travel, trade shows and events as a result of the pandemic.

SG&A as a percentage of net sales was 20.3% and 19.1% in the three months ended March 31, 2021 and 2020, respectively.

Strategic reorganization and other charges for the three months ended March 31, 2021 were $0.8 million, which primarily consisted of termination benefits associated with the announced closures of our facilities in Aurora, Illinois and Surrey, British Columbia, Canada, as well as legal and professional service expenses, partially offset by a one-time settlement gain in connection with an indemnification from a previously owned property.

Strategic reorganization and other charges for the three months ended March 31, 2020 of $0.9 million included charges associated with the closure and consolidation of our Hammond, Indiana facility.

Interest expense, net increased $0.1 million in the three months ended March 31, 2021 compared to the prior year period primarily due to decreasing interest rates on cash balances.

The components of interest expense, net are provided below.

Three months ended

(in millions)

Notes $ 6.2 $ 6.2

Deferred financing costs amortization 0.3 0.3

ABL Agreement 0.2 0.1

Capitalized interest (0.6) (0.5)

Other interest cost 0.1 0.2

Interest income (0.1) (0.3)

Interest expense, net $ 6.1 $ 6.0

The reconciliation between the U.S.

federal statutory income tax rate and the effective income tax rate is presented below.

Three months ended

federal statutory income tax rate 21.0 % 21.0 %

Adjustments to reconcile to the effective tax rate:

State income taxes, net of federal benefit 4.2 4.5

Excess tax (benefits) related to stock-based compensation (0.3) (0.5)

Tax credits (1.1) (1.5)

Global Intangible Low-taxed Income 0.6 (0.2)

Foreign income tax rate differential (0.3) (0.5)

Valuation allowance (0.6) (0.6)

Effective income tax rate 25.6 % 22.2 %

Segment Analysis

Infrastructure

Net sales for the three months ended March 31, 2021 increased 2.9 percent to $246.9 million compared to $239.9 million in the prior year period.

Gross profit for the three months ended March 31, 2021 increased to $86.3 million from $84.1 million in the prior year period primarily due to improved manufacturing performance, increased pricing and the benefit from the elimination of the Krausz one-month reporting lag, which were partially offset by inflation on our Cost of sales, $2.4 million in Inventory write-downs as a result of the announced plant closures of Aurora, Illinois and Surrey, British Columbia, Canada and $1.0 million in higher Cost of sales related to the pandemic.

Gross margin was 35.0% for the three months ended March 31, 2021 and was 35.1% in the prior year period.

SG&A for the three months ended March 31, 2021 increased to $34.4 million from $33.4 million in the prior year period.

This increase was primarily the result of personnel-related expenses, which were partially offset by temporary expense reductions related to the pandemic, including reduced travel, trade shows and events.

SG&A as a percentage of net sales was 13.9% for both the three months ended March 31, 2021 and 2020.

Net sales for the three months ended March 31, 2021 increased to $20.6 million from $17.8 million in the prior year period, primarily due to higher shipment volumes of our metering and leak detection-related products.

Gross profit for the three months ended March 31, 2021 was $2.1 million compared to $1.9 million in the prior year period.

Gross margin percentage was 10.2% and 10.7%, in the three months ended March 31, 2021 and 2020, respectively.

SG&A increased to $6.7 million from $6.5 million in the prior year period primarily due to increased personnel-related expenses.

SG&A as a percentage of net sales was 32.5% and 36.5% for the three months ended March 31, 2021 and 2020, respectively.

SG&A was $13.1 million and $9.4 million in the three months ended March 31, 2021 and 2020, respectively.

This increase was primarily the result of personnel-related expenses.

Six Months Ended March 31, 2021 Compared to Six Months Ended March 31, 2020

Six months ended March 31, 2021

Infrastructure Technologies Corporate Total

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66.4 12.9 24.1 103.4

Strategic reorganization and other charges — — 2.4 2.4

Strategic reorganization and other (credits) charges (0.6) — 2.8 2.2

Total operating expenses 65.8 12.9 26.9 105.6

Operating income (loss) $ 94.2 $ (6.1) $ (26.9) 61.2

Other expenses (income):

Pension benefit other than service (1.6)

Interest expense, net 12.2

Income before income taxes 50.6

Income tax expense 13.0

Net income $ 37.6

Six months ended March 31, 2020

Infrastructure Technologies Corporate Total

(in millions)

Net sales $ 432.2 $ 38.1 $ — $ 470.3

Gross profit 152.1 6.5 — $ 158.6

Operating expenses:

Selling, general and administrative

65.9 12.9 20.4 99.2

Strategic reorganization and other charges 0.4 — 2.9 3.3

Total operating expenses 66.3 12.9 23.3 102.5

Operating income (loss)

$ 85.8 $ (6.4) $ (23.3) 56.1

Other expenses (income):

Pension benefit other than service (1.5)

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Net income $ 34.1

(1) Net sales, gross profit, and SG&A expenses associated with certain products have been reclassified as Technologies segment items to conform to the current period presentation.

Consolidated Analysis

Net sales for the three months ended December 31, 2020 increased 11.7 percent or $24.8 million to $237.4 million from $212.6 million primarily due to increased shipment volumes across most of our product lines and higher pricing.

Gross profit for the three months ended December 31, 2020 increased $5.8 million to $78.4 million from $72.6 million in the prior year period, primarily due to increased shipment volumes and higher pricing, which were offset by $1.5 million of expenses related to the pandemic, including certain unfavorable volume variances treated as period costs, voluntary emergency paid leave for employees and additional sanitation and cleaning fees, and higher costs associated with inflation.

Gross margin was 33.0% for the three months ended December 31, 2020 compared to 34.1% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the three months ended December 31, 2020 decreased to $49.2 million from $49.9 million in the prior year period due primarily to temporary expense reductions related to the pandemic, including reduced travel, trade shows and events.

These benefits were partially offset by increases in other personnel-related expenses.

SG&A as a percentage of net sales was 20.7% and 23.5% in the three months ended December 31, 2020 and 2019, respectively.

Strategic reorganization and other charges in the three months ended December 31, 2020 were $1.4 million, which primarily related to legal and professional service expenses, and were $2.4 million in the prior year period.

Interest expense, net declined $1.3 million in the three months ended December 31, 2020 compared to the prior year period primarily due to a non-cash adjustment to capitalized interest in the prior year.

Net sales for the six months ended March 31, 2021 increased 7.4 percent or $34.6 million to $504.9 million from $470.3 million primarily due to increased shipment volumes across most of our product lines, higher pricing and a result of $6.0 million in Krausz sales recorded during the three months ended March 31, 2021 by eliminating the one-month reporting lag.

Gross profit for the six months ended March 31, 2021 increased $8.2 million to $166.8 million from $158.6 million in the prior year period, primarily due to increased shipment volumes, higher pricing and the benefit from the elimination of the Krausz one-month reporting lag.

These increases were partially offset by inflation and lesser expenditures associated with the pandemic, including voluntary emergency paid leave and other employee costs as well as additional sanitation and cleaning fees, and a $2.4 million inventory write-off associated with the announcement of our plant closures in Aurora, Illinois and Surrey, British Columbia, Canada.

Gross margin was 33.0% for the six months ended March 31, 2021 compared to 33.7% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the six months ended March 31, 2021 increased to $103.4 million from $99.2 million in the prior year period primarily due to increases in personnel-related expenses.

The increase was partially offset by temporary expense reductions related to the pandemic, including reduced travel, trade shows and events.

SG&A as a percentage of net sales was 20.5% and 21.1% in the six months ended March 31, 2021 and 2020, respectively.

Strategic reorganization and other charges for the six months ended March 31, 2021 were $2.2 million, which primarily related to termination benefits associated with our announced plan closures in Aurora, Illinois and Surrey, British Columbia, Canada, as well as, legal and professional service expenses, partially offset by a one-time settlement gain in connection with an indemnification from a previously owned property.

Strategic reorganization and other charges for the six months ended March 31, 2020 were $3.3 million primarily related to previously announced facility closures and legal and professional service expenses.

Interest expense, net declined $1.2 million in the six months ended March 31, 2021 compared to the prior year period primarily due to a non-cash adjustment to capitalized interest in the prior year.

The components of net interest expense are provided below.

Three months ended

Six months ended

(in millions)

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Other interest cost 0.2 0.2

Interest expense 12.5 14.2

Interest income (0.3) (0.8)

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The reconciliation between the U.S.

federal statutory income tax rate and the effective tax rate is presented below.

Three months ended

federal statutory income tax rate and the effective income tax rate is presented below.

Six months ended

federal statutory income tax rate 21.0 % 21.0 %

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Other 1.7 0.4

25.8 % 23.1 %

Walter Energy accrual — (0.3) %

Effective income tax rate 25.7 % 22.5 %

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Infrastructure

Net sales for the three months ended December 31, 2020 increased 12.3 percent to $215.9 million compared to $192.3 million in the prior year period primarily due to higher shipment volumes across most of our product lines as well as higher pricing.

Gross profit for the three months ended December 31, 2020 increased to $73.7 million from $68.0 million in the prior year period primarily due to increased shipment volumes, partially offset by $1.4 million of expenses related to the pandemic, including certain unfavorable volume variances treated as period costs, and higher costs associated with inflation.

Gross margin was 34.1% for the three months ended December 31, 2020 and was 35.4% in the prior year period.

SG&A for the three months ended December 31, 2020 decreased to $32.0 million from $32.5 million in the prior year period.

This decrease was due primarily to temporary expense reductions of $1.4 million related to the pandemic, including reduced travel, trade shows and events, partially offset by increases in other personnel-related expenses.

SG&A as a percentage of net sales was 14.8% and 16.9% for the three months ended December 31, 2020 and 2019, respectively.

Net sales in the three months ended December 31, 2020 increased to $21.5 million from $20.3 million in the prior year period, primarily due to higher shipment volumes of our metering and leak detection-related products.

Gross profit in the three months ended December 31, 2020 was $4.7 million and was $4.6 million in the prior year period.

SG&A decreased to $6.2 million from $6.4 million in the prior year period primarily due to temporary expense reductions related to the pandemic, including reduced travel, trade shows and events.

SG&A as a percentage of net sales was 28.8% and 31.5% for the three months ended December 31, 2020 and 2019, respectively.

SG&A was $11.0 million in each of the three months ended December 31, 2020 and 2019.

Net sales for the six months ended March 31, 2021 increased 7.1 percent to $462.8 million compared to $432.2 million in the prior year period primarily due to higher shipment volumes across most of our product lines, higher pricing and the result of $6.0 million in Krausz sales recorded during the three months ended March 31, 2021 by eliminating the one-month reporting lag.

Gross profit for the six months ended March 31, 2021 increased $7.9 million to $160.0 million from $152.1 million in the prior year period primarily due to increased shipment volumes, higher pricing, improved manufacturing performance and the benefit from the elimination of the Krausz one-month reporting lag.

These increases were partially offset by higher costs associated with inflation, a $2.4 million Inventory write-off associated with the announcement of the closure of our Aurora, Illinois and Surrey, British Columbia, Canada facilities and $2.4 million in expenses related to the pandemic, including voluntary emergency paid leave and other employee costs as well as additional sanitation and cleaning fees.

Gross margin was 34.6% for the six months ended March 31, 2021 and was 35.2% in the prior year period.

SG&A for the six months ended March 31, 2021 increased to $66.4 million from $65.9 million in the prior year period.

This increase was primarily due to increases in personnel-related expenses, partially offset by temporary expense reductions of $2.9 million related to the pandemic, including reduced travel, trade shows and events.

SG&A as a percentage of net sales was 14.3% and 15.2% for the six months ended March 31, 2021 and 2020, respectively.

Net sales for the six months ended March 31, 2021 increased to $42.1 million from $38.1 million in the prior year period, primarily due to higher shipment volumes of our metering and leak detection-related products.

Gross profit for the six months ended March 31, 2021 was $6.8 million and was $6.5 million in the prior year period.

Gross margin percentage was 16.2% and 17.1% in the six months ended March 31, 2021 and 2020, respectively.

SG&A was $12.9 million in both the current and prior year periods.

SG&A as a percentage of net sales was 30.6% and 33.9% for the six months ended March 31, 2021 and 2020, respectively.

SG&A was $24.1 million and $20.4 million in the six months ended March 31, 2021 and 2020, respectively.

The increase was primarily as a result of higher personnel-related expenses.

Liquidity and Capital Resources

We had cash, cash equivalents and restricted cash on hand of $223.0 million at December 31, 2020 and $113.4 million of additional borrowing capacity under our ABL Agreement based on December 31, 2020 data.

We had cash and cash equivalents on hand of $228.2 million at March 31, 2021 and $154.4 million of additional borrowing capacity under our ABL Agreement based on March 31, 2021 data.

Undistributed earnings from our subsidiaries in Canada, China, and Israel are considered to be permanently invested outside the United States.

At December 31, 2020, cash and cash equivalents included $13.1 million, $6.7 million and $21.7 million in Canada, China and Israel, respectively.

We declared a quarterly dividend of $0.055 per share on January 28, 2021, payable on February 22, 2021, which will result in an estimated $8.7 million cash outlay.

We did not repurchase any shares of our outstanding common stock during the three months ended December 31, 2020 and had $145.0 million remaining on our share repurchase authorization.

At March 31, 2021, cash and cash equivalents included $29.7 million, $8.5 million and $7.2 million in Israel, Canada and China, respectively.

We declared a quarterly dividend of $0.0550 per share on April 23, 2021, payable on or about May 20, 2021, which will result in an estimated $8.7 million cash outlay.

We did not repurchase any shares of our outstanding common stock during the three and six months ended March 31, 2021 and had $145.0 million remaining under our share repurchase authorization.

The ABL Agreement and Notes contain customary representations and warranties, covenants and provisions governing an event of default.

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Cash flows from operating activities are categorized below.

Three months ended

Six months ended

(in millions)

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Income tax payments, net (4.2) (5.9)

Cash provided by operating activities $ 34.1 $ (12.4)

Collections from customers were higher during the three months ended December 31, 2020 compared to the prior year period primarily due to net sales growth.

Decreased disbursements, other than interest and income taxes, during the three months ended December 31, 2020 primarily reflect the results of improvements in working capital management.

Cash provided by (used in) operating activities $ 63.2 $ (3.0)

Collections from customers were higher during the six months ended March 31, 2021 compared to the prior year period primarily due to net sales growth.

Decreased disbursements, other than interest and income taxes, during the six months ended March 31, 2021 primarily reflect improvements in working capital management.

Additionally, we disbursed $22.0 million related to the final settlement of the Walter tax matter in the prior year period.

Capital expenditures were $15.6 million in the three months ended December 31, 2020 and were $15.2 million in the prior year period.

Capital expenditures were $31.1 million in the six months ended March 31, 2021 and $37.3 million in the prior year period.

These expenditures were primarily associated with previously announced large capital projects.

For fiscal 2021, we have provided guidance that our capital expenditures are expected to be between $80.0 million and $85.0 million.

We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating expenses, income tax payments, capital expenditures and debt service obligations as they become due through December 31, 2021.

We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated obligations as they become due through March 31, 2022.

We believe that additional borrowings through various financing alternatives remain available if required.

The future effects of the pandemic cannot be predicted with certainty and may increase our borrowing costs and other costs of capital or otherwise adversely affect our financial condition and liquidity, and we cannot guarantee that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward.

ABL Agreement

At December 31, 2020, the ABL Agreement consisted of a revolving credit facility for up to $175.0 million of revolving credit borrowings, swing line loans and letters of credit.

At March 31, 2021, the ABL Agreement consisted of a $175.0 million revolving credit facility that includes up to $25.0 million through swing line loans and may have up to $60.0 million of letters of credit.

The ABL Agreement permits us to increase the size of the credit facility by an additional $150.0 million in certain circumstances subject to adequate borrowing base availability.

We may borrow up to $25.0 million through swing line loans and may have up to $60.0 million of letters of credit outstanding.

In July 2020, the maturity of the ABL Agreement was extended to July 29, 2025 and borrowings under the amended ABL Agreement bear interest at a floating rate equal to LIBOR, plus an applicable margin ranging from 200 to 225 basis points, or a base rate, as defined in the ABL Agreement, plus a margin ranging from 100 to 125 basis points.

At December 31, 2020, the applicable LIBOR-based margin was 200 basis points.

The amended ABL agreement also calls for a commitment fee of 37.5 basis points, annually, on undrawn amounts.

Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR, plus an applicable margin ranging from 200 to 225 basis points, or a base rate, as defined in the ABL Agreement, plus an applicable margin ranging from 100 to 125 basis points.

At March 31, 2021, the applicable rate was LIBOR plus 200 basis points.

The ABL Agreement is subject to mandatory prepayments if total outstanding borrowings under the ABL Agreement are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances.

The borrowing base under the ABL Agreement is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 70% of the value of eligible inventories or (ii) 85% of the net orderly liquidation value of the value of eligible inventories, less certain reserves.

Prepayments can be made at any time with no penalty.

Prepayments may be made at any time with no penalty.

Substantially all of our U.S.

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inventories, accounts receivable, certain cash and other supporting obligations.

Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap under the ABL Agreement.

The ABL Agreement terminates on July 29, 2025 and includes a commitment fee for any unused borrowing capacity of 37.5 basis points per annum.

Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our U.S.

receivables and inventories, certain cash and other supporting obligations.

Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap as defined in the ABL Agreement.

Excess availability based on March 31, 2021 data was $154.4 million, as reduced by $13.8 million of outstanding letters of credit and $1.6 million of accrued fees and expenses.

5.5% Senior Unsecured Notes

On June 12, 2018, we privately issued $450.0 million of Senior Unsecured Notes (“Notes”), which mature in June 2026 and bear interest at 5.5%, paid semi-annually.

On June 12, 2018, we privately issued $450.0 million of Senior Unsecured Notes (“Notes”), which mature in June 2026 and bear interest at 5.5%, payable semi-annually on June 15 and December 15.

Substantially all of our U.S.

subsidiaries guarantee the Notes, which are subordinate to borrowings under the ABL.

Based on quoted market prices, the outstanding Notes had a fair value of $466.3 million at December 31, 2020.

An indenture securing the Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens, pay dividends and certain other restricted payments and make investments.

subsidiaries guarantee the Notes, which are subordinate to borrowings under the ABL Agreement.

Based on quoted market prices, the outstanding Notes had a fair value of $465.8 million at March 31, 2021 and September 30, 2020.

There are no financial maintenance covenants associated with the Indenture.

We believe we were compliant with these covenants at December 31, 2020.

We believe we were in compliance with these covenants at March 31, 2021.

We may redeem some or all of the Notes at any time or from time to time prior to June 15, 2021 at certain “make-whole” redemption prices (as set forth in the Indenture) and on or after June 15, 2021 at specified redemption prices (as set forth in the Indenture).

Additionally, we may redeem up to 40% of the aggregate principal amount of the Notes at any time or from time to time prior to June 15, 2021 with the net proceeds of specified equity offerings at specified redemption prices (as set forth in the Indenture).

Upon a change in control (as defined in the Indenture), we will be required to offer to purchase the Notes at a price equal to 101% of the outstanding principal amount of the Notes.

2 unchanged sentences

Moody’s Standard & Poor’s

December 31, September 30, December 31, September 30,

March 31, September 30, March 31, September 30,

2021 2020 2021 2020

4 unchanged sentences

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured finance” or “special purpose” entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

In addition, at December 31, 2020 we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases.

We do not have any off-balance sheet arrangements, including any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured finance” or “special purpose” entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

In addition, at March 31, 2021 we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases.

Therefore, we were not exposed to any financing, liquidity, market or credit risk that could have arisen had we engaged in such relationships.

We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations.

At December 31, 2020, we had $13.8 million of letters of credit and $42.7 million of surety bonds outstanding.

Our business is seasonal due to the impact of cold weather conditions.

At March 31, 2021, we had $13.8 million of letters of credit and $43.5 million of surety bonds outstanding.

Our business is seasonal as a result of cold weather conditions.

Net sales and operating income have historically been lowest in the three month periods ending December 31 and March 31 when the northern United States and all of Canada generally face weather conditions that restrict significant construction activity.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis