What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-04 · 114 added, 88 removed, 208 unchanged (49% of the section changed)

32 unchanged sentences

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, which has accelerated and may continue to accelerate inflation and global supply chain disruptions.

We expect the operating environment during the remainder of 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.

In July 2021, Blue Chip Economic Indicators forecasted a 16% 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.

8 unchanged sentences

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 impact of the elimination of the reporting lag during the nine months ended June 30, 2021 resulted in an increase of $6.0 million to net sales and $1.4 million in operating income.

In July 2014, Infrastructure acquired a 49% ownership interest in an industrial valve joint venture for $1.7 million.

As a result of substantive control features in the operating agreement, all of the joint venture’s assets, liabilities and results of operations were included in our consolidated financial statements.

Infrastructure acquired the remaining 51% ownership interest in the business in October 2019.

The municipal market is the key end market for Technologies.

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

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

On June 14, 2021, we acquired all the outstanding capital stock of i20 Water Ltd, a provider of pressure management solutions to more than 100 water companies in 45 countries for $19.7 million, net of cash acquired.

i2O Water Ltd is organized under the laws of the United Kingdom.

The purchase agreement provides for customary final adjustments, including a net working capital adjustment, which we expect to occur in 2021.

Results of Operations

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

Three months ended March 31, 2021

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Three months ended June 30, 2021

Infrastructure Technologies Corporate Total

5 unchanged sentences

36.9 7.0 14.9 58.8

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

Strategic reorganization and other charges 0.2 — 3.7 3.9

Total operating expenses 37.1 7.0 18.6 62.7

1 unchanged sentence

Other expenses (income):

Loss on early extinguishment of debt 16.7

Pension benefit other than service (0.8)

3 unchanged sentences

Net income $ 14.4

Three months ended March 31, 2020

Three months ended June 30, 2020

Infrastructure Technologies Corporate Total

5 unchanged sentences

29.7 6.0 11.4 47.1

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

Strategic reorganization and other charges — — 8.6 8.6

Total operating expenses 29.7 6.0 20.0 55.7

8 unchanged sentences

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.

Net sales for the three months ended June 30, 2021 increased $82.0 million or 35.9 percent to $310.5 million from $228.5 million in the comparable prior year period.

This increase was primarily a result of increased shipment volumes at both Infrastructure and Technologies compared to the prior year and higher pricing at Infrastructure.

Gross profit for the three months ended June 30, 2021 increased $29.7 million to $105.4 million from $75.7 million in the prior year period.

Gross profit increased primarily as a result of increased volumes and higher pricing.

Partially offsetting the increase in gross profit were higher manufacturing costs due to inflation.

Gross margin was 33.9% for the three months ended June 30, 2021 and improved 80 basis points compared to 33.1% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the three months ended June 30, 2021 increased $11.7 million to $58.8 million from $47.1 million in the prior year period primarily as a result of new product development and information technology expenses, higher personnel-related expenses including sales commissions associated with higher net sales and orders, incentive compensation and stock-based compensation.

Additionally, travel and entertainment expenses were higher in the current year period, and we benefited from temporary reduction in personnel expenses due to furloughs and temporary pay cuts in the prior year period.

SG&A as a percentage of net sales was 18.9% and 20.6% in the three months ended June 30, 2021 and 2020, respectively.

Strategic reorganization and other charges for the three months ended June 30, 2021 were $3.9 million, which primarily consisted of expenses associated with the Albertville tragedy, as well as termination benefits associated with the previously announced closures of our facilities in Aurora, Illinois and Surrey, British Columbia, Canada and acquisition transaction costs.

Strategic reorganization and other charges for the three months ended June 30, 2020 of $8.6 million included an accrual related to a litigation settlement, facility relocation expenses and senior executive severance costs.

Interest expense, net increased $0.7 million in the three months ended June 30, 2021 compared to the prior year period primarily as a result of the timing of the issuance of the 4.0% Senior Notes and the extinguishment of the 5.5% Senior Notes.

The components of interest expense, net are provided below.

2 unchanged sentences

5.5% Notes $ 5.2 $ 6.2

4.0% Notes 1.7 —

Deferred financing costs amortization 0.3 0.2

10 unchanged sentences

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 (1.7) (1.7)

1 unchanged sentence

Foreign income tax rate differential (0.4) (0.5)

Nondeductible compensation 0.6 1.0

Basis difference in foreign investment 1.2 0.3

Valuation allowance — (0.3)

Reversal of uncertain tax positions — (2.1)

Other 2.6 1.3

Effective income tax rate 28.0 % 23.3 %

1 unchanged sentence

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

Net sales for the three months ended June 30, 2021 increased $77.9 million or 37.2 percent to $287.3 million compared to $209.4 million in the prior year period.

This increase was primarily a result of increased shipment volume and higher pricing across most of our Infrastructure product lines.

Gross profit for the three months ended June 30, 2021 increased to $101.1 million from $73.3 million in the prior year period primarily due to increased volumes and higher pricing, which were partially offset by inflation effecting Cost of sales.

Gross margin was 35.2% for the three months ended June 30, 2021 and was 35.0% in the prior year period.

SG&A for the three months ended June 30, 2021 increased to $36.9 million from $29.7 million in the prior year period.

This increase was primarily the result of higher personnel-related expenses, including sales commissions associated with higher net sales and orders, and incentive compensation, as well as information technology spending.

Additionally, travel and entertainment expenses were higher in the current year period, and we benefited from the temporary reduction in personnel expenses due to furloughs and temporary pay reductions in the prior year period.

SG&A as a percentage of net sales was 12.8% and 14.2%, respectively, for the three months ended June 30, 2021 and 2020.

Net sales for the three months ended June 30, 2021 increased $4.1 million or 21.5% to $23.2 million from $19.1 million in the prior year period, primarily due to increased shipment volumes of our metering products.

Gross profit for the three months ended June 30, 2021 was $4.3 million compared to $2.4 million in the prior year period.

Gross margin percentage was 18.5% and 12.6%, in the three months ended June 30, 2021 and 2020, respectively.

SG&A increased to $7.0 million from $6.0 million in the prior year period primarily due to increased new product development costs.

SG&A as a percentage of net sales was 30.2% and 31.4% for the three months ended June 30, 2021 and 2020, respectively.

SG&A was $14.9 million and $11.4 million in the three months ended June 30, 2021 and 2020, respectively, which was primarily the result of personnel-related expenses including stock-based compensation and incentive compensation.

Additionally, travel and entertainment expenses were higher in the current year period as we benefited from the temporary reduction in personnel expenses due to furloughs and temporary pay cuts in the prior year period.

Nine Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020

Nine months ended June 30, 2021

Infrastructure Technologies Corporate Total

9 unchanged sentences

Other expenses (income):

Loss on early extinguishment of debt 16.7

Pension benefit other than service (2.4)

3 unchanged sentences

Net income $ 52.0

Six months ended March 31, 2020

Nine months ended June 30, 2020

Infrastructure Technologies Corporate Total

17 unchanged sentences

Consolidated Analysis

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.

Net sales for the nine months ended June 30, 2021 increased $116.6 million or 16.7 percent to $815.4 million from $698.8 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 nine months ended June 30, 2021 increased $37.9 million to $272.2 million from $234.3 million in the prior year period, primarily due to increased shipment volumes and higher pricing.

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 recorded during the nine months ended June 30, 2021 associated with the announcement of our plant closures in Aurora, Illinois and Surrey, British Columbia, Canada.

Gross margin was 33.4% for the nine months ended June 30, 2021 compared to 33.5% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the nine months ended June 30, 2021 increased to $162.2 million from $146.3 million in the prior year period primarily due to an increase in personnel-related expenses, including incentive compensation, an increase in sales commissions associated with higher net sales and orders, and stock-based compensation.

Additionally, SG&A increased as a result of inflation and new product development and information technology spending.

SG&A as a percentage of net sales was 19.9% and 20.9% in the nine months ended June 30, 2021 and 2020, respectively.

Strategic reorganization and other charges for the nine months ended June 30, 2021 were $6.1 million, which primarily related to the Albertville tragedy, and 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 nine months ended June 30, 2020 were $11.9 million primarily related to a litigation settlement accrual, previously announced facility closures and legal and professional service expenses.

Interest expense, net declined $0.5 million in the nine months ended June 30, 2021 compared to the prior year period primarily due to an increase in capitalized interest, partially offset by an increase in interest expense as a result of the timing of the redemption of the 5.5% Notes and the issuance of the 4.0% Notes, as well as a decline in interest income.

The components of net interest expense are provided below.

Six months ended

Nine months ended

(in millions)

5.5% Notes $ 17.6 $ 18.6

4.0% Notes 1.7 —

Deferred financing costs amortization 0.8 0.9

7 unchanged sentences

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

Six months ended

Nine months ended

federal statutory income tax rate 21.0 % 21.0 %

5 unchanged sentences

Foreign income tax rate differential (0.4) (0.6)

Nondeductible compensation 0.6 0.6

Basis difference in foreign investment 1.2 —

Valuation allowance 0.7 (0.5)

Reversal of uncertain tax positions — (0.5)

Other 0.5 1.5

2 unchanged sentences

Infrastructure

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.

Net sales for the nine months ended June 30, 2021 increased $108.5 million or 16.9 percent to $750.1 million compared to $641.6 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 nine months ended June 30, 2021 increased $35.7 million to $261.1 million from $225.4 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 $2.9 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.

Gross margin was 34.8% for the nine months ended June 30, 2021 and was 35.1% in the prior year period.

SG&A for the nine months ended June 30, 2021 increased to $103.3 million from $95.6 million in the prior year period.

This increase was primarily a result of an increase in personnel-related expenses, including higher sales commissions as a result of higher net sales and orders, incentive compensation and stock-based compensation.

Additionally, SG&A increased as a result of inflation, information technology spending and new product development.

Partially offsetting these increases was a temporary expense reduction of $2.9 million related to the pandemic, including reduced travel, trade shows and events.

SG&A as a percentage of net sales was 13.8% and 14.9% for the nine months ended June 30, 2021 and 2020, respectively.

Net sales for the nine months ended June 30, 2021 increased $8.1 million or 14.2% to $65.3 million from $57.2 million in the prior year period, primarily due to higher shipment volumes of our metering and leak detection-related products.

Gross profit for the nine months ended June 30, 2021 was $11.1 million compared to $8.9 million in the prior year period.

Gross margin percentage was 17.0% and 15.6% in the nine months ended June 30, 2021 and 2020, respectively.

SG&A was $19.9 million and $18.9 million in the current and prior year periods, respectively.

The increase was primarily as a result of new product development.

SG&A as a percentage of net sales was 30.5% and 33.0% for the nine months ended June 30, 2021 and 2020, respectively.

SG&A was $39.0 million and $31.8 million in the nine months ended June 30, 2021 and 2020, respectively.

The increase was primarily as a result of higher personnel-related expenses including incentive compensation and stock-based compensation expense.

Liquidity and Capital Resources

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.

We had cash and cash equivalents on hand of $228.6 million at June 30, 2021 and $145.1 million of additional borrowing capacity under our ABL Agreement based on June 30, 2021 data.

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

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.

At June 30, 2021, cash and cash equivalents included $31.1 million, $11.7 million and $6.3 million in Israel, Canada and China, respectively.

On July 29, 2021, we declared a quarterly dividend of $0.0550 per share, payable on or about August 20, 2021, which will result in an estimated $8.7 million cash outlay.

We did not repurchase any shares of our outstanding common stock under our share repurchase program during the three and nine months ended June 30, 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.

1 unchanged sentence

Cash flows from operating activities are categorized below.

Six months ended

Nine months ended

(in millions)

4 unchanged sentences

Income tax payments, net (12.6) (5.9)

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.

Cash provided by operating activities $ 123.3 $ 77.8

Collections from customers were higher during the nine months ended June 30, 2021 compared to the prior year period primarily due to net sales growth.

Increased disbursements, other than interest and income taxes, during the nine months ended June 30, 2021 primarily relate to higher costs and expenses associated with increased sales.

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

Capital expenditures were $46.1 million in the nine months ended June 30, 2021 and $51.2 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 $75.0 million and $80.0 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 obligations as they become due through March 31, 2022.

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

1 unchanged sentence

ABL Agreement

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.

At June 30, 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.

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.

At June 30, 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.

9 unchanged sentences

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.

Excess availability based on June 30, 2021 data was $145.1 million, as reduced by $15.0 million of outstanding letters of credit and $1.7 million of accrued fees and expenses.

4.0% 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%, payable semi-annually on June 15 and December 15.

On May 28, 2021, we privately issued $450.0 million of 4.0% Senior Unsecured Notes (“Notes”), which mature in December 2029 and bear interest at 4.0%, paid semi-annually in June and December.

We capitalized $5.5 million of financing costs, which are being amortized over the term of the Notes using the effective interest method.

Proceeds from the Notes, along with cash on hand were used to redeem previously existing 5.5% Notes.

Substantially all of our U.S.

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.

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 make investments.

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

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.

There are no financial maintenance covenants associated with the Indenture.

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

We believe we were in compliance with these covenants at June 30, 2021.

We may redeem some or all of the Notes at any time or from time to time prior to June 15, 2024 at certain “make-whole” redemption prices (as set forth in the Indenture) and on or after June 15, 2024 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

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.

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, 2024 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 would be required to offer to purchase the Notes at a price equal to 101% of the outstanding principal amount of the Notes.

5.5% Senior Unsecured Notes

On June 12, 2018, we privately issued $450.0 million of 5.5% Notes, which were set to mature in 2026 and bore interest at 5.5%, paid semi-annually.

We called the 5.5% Notes effective June 17, 2021 and settled with proceeds from the issuance of the Notes and cash on hand.

As a result, we incurred $16.7 million in loss on extinguishment of debt, comprised of a $12.4 million call premium and a $4.3 million write-off of the remaining deferred debt issuance costs associated with the retirement of the 5.5% Notes.

Our corporate credit rating and the credit rating for our debt are presented below.

1 unchanged sentence

Moody’s Standard & Poor’s

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

June 30, September 30, June 30, September 30,

2021 2020 2021 2020

1 unchanged sentence

ABL Agreement Not rated Not rated Not rated Not rated

Notes Ba3 Ba3 BB BB

4.0% Notes Ba1 N/A BB N/A

5.5% Notes N/A Ba3 N/A BB

Outlook Stable Stable Stable Stable

1 unchanged sentence

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.

In addition, at June 30, 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 March 31, 2021, we had $13.8 million of letters of credit and $43.5 million of surety bonds outstanding.

At June 30, 2021, we had $15.0 million of letters of credit and $36.7 million of surety bonds outstanding.

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

1 unchanged sentence

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