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Item 1. Financial Statements

2022-05-03 compared with 2022-02-04 · 91 added, 73 removed, 544 unchanged (23% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, September 30,

March 31, September 30,

(in millions, except share amounts)

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600,000,000 shares authorized;

156,834,758 and 157,955,433 shares outstanding at December 31, 2021 and September 30, 2021, respectively

156,986,382 and 157,955,433 shares outstanding at March 31, 2022, and September 30, 2021, respectively

Additional paid-in capital 1,307.6 1,342.2

Accumulated deficit ( 600.9 ) ( 643.9 )

Accumulated other comprehensive income (loss) 1.0 ( 5.0 )

Accumulated other comprehensive loss ( 2.2 ) ( 5.0 )

Total stockholders’ equity 706.1 694.9

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended

Three months ended Six months ended

March 31, March 31,

2022 2021 2022 2021

(in millions, except per share amounts)

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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March 31, March 31,

2022 2021 2022 2021

(in millions)

Net income $ 23.6 $ 20.9 $ 43.0 $ 37.6

Other comprehensive income (loss):

Other comprehensive (loss) income:

Pension 0.4 0.6 0.8 1.3

1 unchanged sentence

Foreign currency translation ( 3.6 ) ( 0.5 ) 2.1 4.0

Total comprehensive income 6.0 5.0

Total comprehensive (loss) income, net ( 3.2 ) — 2.8 5.0

Comprehensive income $ 20.4 $ 20.9 $ 45.8 $ 42.6

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

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March 31, March 31,

2022 2021 2022 2021

(in millions)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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(in millions)

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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Six months ended

(in millions)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2021

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2022

Organization and Basis of Presentation

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and subsidiaries (“Krausz”).

During the year ended September 30, 2021, we aligned the consolidation of the financial statements of Krausz in the Company’s consolidated financial statements, eliminating the previous inclusion of Krausz financial statements with a one-month reporting lag.

During the quarter ended March 31, 2021, we aligned the consolidation of the financial statements of Krausz in the Company’s consolidated financial statements, eliminating the previous inclusion of Krausz financial statements with a one-month reporting lag.

In accordance with applicable accounting literature, the elimination of the one-month reporting lag is considered to be a change in accounting principle.

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The consolidated balance sheet at September 30, 2021 included the preliminary estimated fair values of the net assets of i2O.

The Company is still reviewing the impact of taxes and certain other items.

The accounting for this business combination became final during the three months ended March 31, 2022.

The results of i2O’s operations and cash flows subsequent to the acquisition are included in the Company’s consolidated statement of operations and consolidated statement of cash flows, respectively.

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During 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 326 - Current Expected Credit Losses to replace the “incurred loss” impairment approach with an “expected loss” approach, which requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

We have completed historical and forward-looking analyses for receivables and adopted this guidance effective October 1, 2020.

We completed historical and forward-looking analyses for receivables and adopted this guidance effective October 1, 2020.

Upon adoption, there was no material impact to our financial statements.

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We purchased a new facility in Kimball, Tennessee to support and enhance our investment in our Chattanooga, Tennessee large casting foundry and closed our facilities in Hammond, Indiana, Woodland, Washington and Surrey, British Columbia, Canada.

We also announced the closure of our facility in Aurora, Illinois which we expect to complete by the third quarter of fiscal year 2022.

We also announced the closure of our facility in Aurora, Illinois which we expect to complete substantially by the third quarter of fiscal year 2022.

The majority of the activities from these facilities have been, or will be, transferred to our Kimball, Tennessee facility.

Activity in accrued restructuring, reported as part of Other current liabilities, is presented below.

Three months ended

Six months ended

(in millions)

Beginning balance $ 3.1 $ 2.8

Expenses incurred 1.2 0.2

Amounts accrued 1.6 1.0

Amounts paid ( 2.6 ) ( 1.6 )

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Intercompany transactions between us and the VIEs have been eliminated in consolidation.

Wells Fargo’s contribution to the investment fund is consolidated in our financial statements as an Other noncurrent liability as a result of its redemption features.

Direct costs associated with Wells Fargo’s capital contribution have been netted against the recorded proceeds, resulting in a net cash contribution of $ 3.9 million.

Wells Fargo’s contribution to the investment fund is consolidated in our financial statements within Other noncurrent liabilities as a result of its redemption features.

Direct costs associated with Wells Fargo’s capital contribution were netted against the recorded proceeds, resulting in a net cash contribution of $ 3.9 million.

Other direct costs associated with the transaction were capitalized and are being recognized as interest expense over the seven-year tax credit period.

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We have recognized the assets acquired and liabilities assumed at their estimated acquisition date fair values, with the excess of the purchase price over the estimated fair values of the identifiable net assets acquired recorded as goodwill.

The accounting for the business combination is considered to be preliminary.

We are still gathering information related to income taxes and certain other items.

The accounting for the business combination is considered to be final.

The results of i2O are included in our Water Management Solutions segment.

The goodwill below is attributable to the strategic opportunities and synergies that we expect to arise from the acquisition of i2O and the value of its workforce.

The goodwill is nondeductible for income tax purposes.

Goodwill is nondeductible for income tax purposes.

Identified intangible assets consist of customer relationships, non-compete agreements and developed technology with an estimated weighted-average useful life of approximately 12 years and trade names with an indefinite life.

Values of intangible assets were determined using a discounted cash flow method.

The following is a summary of the preliminary estimated fair values of the net assets acquired (in millions):

The following is a summary of the fair values of the net assets acquired (in millions):

Assets, net of cash:

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Disaggregation of Revenue

We disaggregate our revenues from contracts with customers by reportable segment (see Note 10.) and further by geographical region as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

We disaggregate our revenue from contracts with customers by reportable segment (see Note 10.) and further by geographical region as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Geographical region represents the location of the customer.

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Advance payments and billings in excess of revenue are recognized and recorded as deferred revenue, the majority of which we expect to receive within one year and therefore is included within Other current liabilities in the accompanying consolidated balance sheets.

Deferred revenues represent contract liabilities and are recorded when customers remit cash payments in advance of our satisfaction of performance obligations under contractual arrangements.

Deferred revenue represents contract liabilities and are recorded when customers remit cash payments in advance of our satisfaction of performance obligations under contractual arrangements.

Contract liabilities are relieved and revenue is recognized when the performance obligation is satisfied.

Th e table below represents the balances of our customer receivables and deferred revenues.

December 31, September 30,

Th e table below represents the balances of our customer receivables and deferred revenue.

March 31, September 30,

(in millions)

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Receivables, net $ 222.2 $ 212.2

Deferred revenues $ 7.4 $ 5.4

Deferred revenue $ 7.6 $ 5.4

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.

Our performance obligations are satisfied at a point in time for sales of equipment or over time for our software hosting and leak detection monitoring services.

Our performance obligations are satisfied at a point in time for sales of product or over time for our software hosting and leak detection monitoring services.

Performance obligations are supported by customer contracts, which provide frameworks for the nature of the distinct products or services.

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We have elected to use the practical expedient to not adjust the transaction price of a contract for the effects of a significant financing component if, at the inception of the contract, we expect that the period between when we transfer a product or service to a customer and when a customer remits payment will be one year or less.

The revenues recognized at a point in time related to the sale of our products are recognized when the obligations of the terms of our contract are satisfied, which generally occurs upon shipment when control of the product transfers to the customer.

We offer warranties to our customers in the form of assurance-type warranties that provide assurance that the products provided will function as intended and comply with any agreed-upon specifications.

The revenue recognized at a point in time related to the sale of our products is recognized when the obligations of the terms of our contract are satisfied, which generally occurs upon shipment when control of the product transfers to the customer.

We offer warranties that provide assurance that the products provided will function as intended and comply with any agreed-upon specifications.

These cannot be purchased separately.

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

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March 31, March 31,

2022 2021 2022 2021

federal statutory income tax rate 21.0 % 21.0 % 21.0 % 21.0 %

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Effective income tax rate 23.1 % 25.6 % 23.6 % 25.7 %

At December 31, 2021 and September 30, 2021, the gross liabilities for unrecognized income tax benefits were $ 4.6 million and $ 4.8 million, respectively, and are included in Other noncurrent liabilities.

At March 31, 2022 and September 30, 2021, the gross liabilities for unrecognized income tax benefits were $ 4.7 million and $ 4.8 million, respectively, and are included in Other noncurrent liabilities.

Borrowing Arrangements

The components of our long-term debt are as follows:

December 31, September 30,

March 31, September 30,

(in millions)

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ABL Agreement.

Our ABL Agreement consists of a revolving credit facility for up to $ 175.0 million which includes up to $ 25.0 million through swing line loans and may have up to $ 60.0 million of letters of credit.

Our asset-based lending agreement (“ABL Agreement”) consists of a revolving credit facility for up to $ 175.0 million which includes up to $ 25.0 million of 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 range of 200 to 225 basis points, or a base rate, as defined in the ABL Agreement, plus an applicable margin range of from 100 to 125 basis points.

At December 31, 2021 the applicable margin 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.

At March 31, 2022 the applicable margin for LIBOR based loans was 200 basis points and for base rate loans was 100 basis points.

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 inventory or (ii) 85% of the net orderly liquidation value of eligible inventory, less certain reserves.

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

Excess availability based on December 31, 2021 data was $ 133.8 million, as reduced by $ 15.0 million of outstanding letters of credit and $ 1.4 million of accrued fees and expenses.

Excess availability based on March 31, 2022 data was $160.1 million, as reduced by $ 14.7 million of outstanding letters of credit and $ 0.2 million of accrued fees and expenses.

4.0% Senior Unsecured Notes.

On May 28, 2021, we privately issued $ 450.0 million of 4.0% Senior Unsecured Notes (“4.0% Senior Notes”), which mature on June 15, 2029 and bear interest at 4.0 %, paid semi-annually in June and December.

We capitalized $ 5.5 million of financing costs that are being amortized over the term of the 4.0% Senior Notes using the effective interest method.

We capitalized $ 5.5 million of financing costs which are being amortized over the term of the 4.0% Senior Notes using the effective interest method.

Substantially all of our U.S.

subsidiaries guarantee the 4.0% Senior Notes that are subordinate to borrowings under our ABL Agreement.

Based on quoted market prices that are a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $ 456.9 million at December 31, 2021.

Based on quoted market prices that are a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $ 426.0 million at March 31, 2022.

An indenture governing the 4.0% Senior 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 December 31, 2021.

As set forth in the Indenture, we may redeem some or all of the 4.0% Senior Notes at any time or from time to time prior to June 15, 2024 at certain “make-whole” redemption prices and on or after June 15, 2024 at specified redemption prices.

Additionally, we may redeem up to 40% of the aggregate principal amount of the 4.0% Senior 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.

We believe we were in compliance with these covenants at March 31, 2022.

As set forth in the Indenture, we may redeem some or all of the 4.0% Senior Notes at any time prior to June 15, 2024 at certain “make-whole” redemption prices and on or after June 15, 2024 at specified redemption prices.

Additionally, we may redeem up to 40% of the aggregate principal amount of the 4.0% Senior Notes at any time prior to June 15, 2024 with the net proceeds of specified equity offerings at specified redemption prices.

Upon a change of control, we would be required to offer to purchase the 4.0% Senior Notes at a price equal to 101% of the outstanding principal amount of the 4.0% Senior Notes.

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In connection with the acquisition of Singer Valve in 2017, we loaned funds to one of our Canadian subsidiaries.

Although this intercompany loan has no direct effect on our consolidated financial statements, it creates exposure to currency risk for the Canadian subsidiary.

Although this intercompany loan had no direct effect on our consolidated financial statements, it created exposure to currency risk for the Canadian subsidiary.

To reduce this exposure, we entered into a U.S.

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dollar swap with a domestic bank.

We have not designated these swaps as hedges and the changes in their fair value are included in earnings, offsetting the currency gains and losses associated with the intercompany loan.

The values of our currency swap contracts were liabilities of $ 1.2 million and $ 1.1 million at December 31, 2021 and September 30, 2021, respectively, and are included in Other current liabilities.

The currency swap contracts expire in February 2022.

We did not designate these swaps as hedges and the changes in their fair value were included in earnings, offsetting the currency gains and losses associated with the intercompany loan.

The value of our currency swap contracts as of September 30, 2021 was a liability of $ 1.1 million, and was included in Other current liabilities.

The currency swap contracts expired in February 2022.

Retirement Plans

The components of net periodic benefit cost for our pension plans are presented below.

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March 31, March 31,

2022 2021 2022 2021

(in millions)

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2012 Phantom Plan, and Employee stock purchase plan instruments under our 2006 Employee Stock Purchase Plan.

Grants issued during the three months ended December 31, 2021 are as follows:

Grants issued during the six months ended March 31, 2022 are as follows:

Number granted Weighted average grant date fair value per instrument Total grant date fair value

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Employee stock purchase plan instruments 38,069 3.01 0.1

An MRSU award represents a target number of units that may be paid out at the end of a three-year award cycle based on a calculation of our relative total shareholder return (“TSR”) performance as compared with a selected peer group's TSR.

Quarter ended March 31, 2022

Restricted stock units 88,250 13.03 1.1

Employee stock purchase plan instruments 38,512 3.39 0.1

Settlements, in our common shares, will range from zero to two times the number of MRSUs granted, depending on our TSR performance relative to that of the peer group.

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The expected term represents the average period of time the units are expected to be outstanding.

At December 31, 2021, the outstanding Phantom Plan instruments had a fair value of $ 14.40 per instrument and our liability for Phantom Plan instruments was $ 1.9 million and is included within current and noncurrent liabilities.

At March 31, 2022, the outstanding Phantom Plan instruments had a fair value of $ 12.92 per instrument and our liability for Phantom Plan instruments was $ 2.1 million and is included within Other current and Other noncurrent liabilities.

Stock options generally vest ratably over three years on each anniversary date.

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Settlements, in our common shares, will range from zero to two times the number of PRSUs granted, depending on our financial performance relative to the targets.

We issued 240,412 shares of common stock during the three months ended December 31, 2021 to settle PRSUs vested during the period.

Additionally, we issued 130,018 and 141,135 shares of common stock to settle restricted stock units vested and stock options exercised, respectively, during the three months ended December 31, 2021.

Operating income included stock-based compensation expense of $ 2.6 million and $ 2.5 million during the three months ended December 31, 2021 and 2020, respectively.

At December 31, 2021, there was approximately $ 14.5 million of unrecognized compensation expense related to stock-based compensation arrangements and there were 57,627 PRSUs that have been awarded for the 2022 performance period for which performance goal achievement cannot yet be determined.

We excluded 277,344 and 258,522 stock-based compensation instruments from the calculations of diluted earnings per share in the three months ended December 31, 2021 and 2020, respectively, since their inclusion would have been antidilutive.

We did not issue any shares of common stock to settle PRSUs vested during the three months ended March 31, 2022;

however, we issued 240,412 shares of common stock to settle PRSUs vested during the six months ended March 31, 2022.

Additionally, we issued 104,380 and 235,095 shares of common stock to settle restricted stock units vested during the three and six months ended March 31, 2022, respectively.

Finally, we issued no shares of common stock to settle stock options exercised during the three months ended March 31, 2022;

however, we issued 24,153 shares of common stock to settle stock options exercised during the six months ended March 31, 2022.

Operating income included stock-based compensation expense of $ 2.5 million in each of the three months ended March 31, 2022 and 2021.

Operating income included stock-based compensation expense of $5.1 million and $5.0 million during the six months ended March 31, 2022 and 2021, respectively.

At March 31, 2022, there was approximately $ 13.3 million of unrecognized compensation expense related to stock-based compensation arrangements and there were 58,139 PRSUs that have been awarded for the 2022 performance period for which performance goal achievement cannot yet be determined.

We excluded 944,631 and 664,082 stock-based compensation instruments from the calculations of diluted earnings per share in the three months ended March 31, 2022 and 2021, respectively, and 563,299 and 447,086 for the six months ended March 31, 2022 and 2021, respectively, since their inclusion would have been antidilutive.

Supplemental Balance Sheet Information

Selected supplemental asset information is presented below.

December 31, September 30,

March 31, September 30,

(in millions)

Purchased components and raw material $ 137.4 $ 100.9

Work in process 41.5 41.6

Finished goods 42.3 42.2

Work in process, net 46.4 41.6

Finished goods, net 45.4 42.2

Total inventories $ 229.2 $ 184.7

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Selected supplemental liability information is presented below.

December 31, September 30,

March 31, September 30,

(in millions)

3 unchanged sentences

Warranty accrual 5.9 6.7

Deferred revenues 7.4 5.4

Deferred revenue 7.6 5.4

Refund liability 5.2 6.0

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Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis each September 1 st and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

The following table summarizes information concerning our goodwill balance in the three months ended December 31, 2021, in millions.

The following table summarizes information concerning our goodwill balance in the six months ended March 31, 2022, in millions.

Balance at September 30, 2021 $ 115.1

Acquisition purchase price adjustment ( 0.2 )

Acquisition adjustments 0.1

Effects of changes in foreign currency exchange rates 0.6

Balance at December 31, 2021 $ 117.7

Balance at March 31, 2022 $ 115.8

Segment Information

We adopted a new management structure effective October 1, 2021;

We adopted a new management structure effective October 1, 2021 which resulted in a change to our reportable segments.

Prior period information has been recast to conform to the current presentation.

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Su mmarized financial information for our segments is presented below.

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March 31, March 31,

2022 2021 2022 2021

(in millions)

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Corporate 0.5 1.5 2.9 2.8

$ 0.6 $ 0.8 $ 3.0 $ 2.2

Capital expenditures:

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$ 15.0 $ 15.5 $ 26.0 $ 31.1

Water Flow Solutions disaggregated net revenues:

Water Flow Solutions disaggregated net revenue:

Central $ 50.7 $ 38.4 $ 91.2 $ 73.4

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$ 183.9 $ 147.1 $ 338.8 $ 275.9

Water Management Solutions disaggregated net revenues:

Water Management Solutions disaggregated net revenue:

Central $ 34.6 $ 32.3 $ 63.4 $ 59.2

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Current period other comprehensive income 0.7 2.1 $ 2.8

Balance at December 31, 2021 $ ( 21.9 ) $ 22.9 $ 1.0

Balance at March 31, 2022 $ ( 21.5 ) $ 19.3 $ ( 2.2 )

Commitments and Contingencies

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We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable.

Administrative costs related to these matters are expensed as incurred.

Legal costs related to these matters are expensed as incurred.

The effect of the outcome of these matters on our financial statements cannot be predicted with certainty as any such effect depends on the amount and timing of the resolution of such matters.

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Ultimate liability for the site will depend on many factors that have not yet been determined, including the determination of the Environmental Protection Agency’s remediation costs, the number and financial viability of the other PRPs (there are four other PRPs currently) and the determination of the final allocation of the costs among the PRPs.

Since the amounts of such costs cannot be reasonably estimated at this time, no amounts have been accrued for this matter at December 31, 2021.

Since the amounts of such costs cannot be reasonably estimated at this time, no amounts have been accrued for this matter at March 31, 2022.

The COVID-19 Pandemic.

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Subsequent Events

On January 27, 2022 , our Board of Directors declared a dividend of $ 0.058 per share on our common stock, payable on February 21, 2022 to stockholders of record at the close of business on February 10, 2022 .

On April 22, 2022 , our Board of Directors declared a dividend of $ 0.058 per share on our common stock, payable on or about May 20, 2022 to stockholders of record at the close of business on May 10, 2022 .

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 1. Financial Statements