What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-03 · 80 added, 73 removed, 215 unchanged (42% of the section changed)

30 unchanged sentences

We expect the operating environment during fiscal year 2022 to be very challenging as a result of the uncertainty around the depth and duration of the pandemic which has accelerated and may continue to accelerate, inflation, labor availability and global supply chain disruptions.

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 April 2022, Blue Chip Economic Indicators forecasted housing growth of 3% for calendar 2022 as compared with the prior year on continued robust demand for housing and low inventories.

We anticipate healthy demand in the municipal repair and replacement market due to favorable budgets, especially at larger municipalities.

While demand from the new residential construction end market has been at healthy levels during the first half of calendar 2022, especially for lot and land development activity, we anticipate that activity levels will slow for the rest of the year based on higher interest rates leading to a decrease in demand for new residential housing.

In July 2022, Blue Chip Economic Indicators forecasted housing growth of 0.9% for calendar 2022 as compared with the prior year.

We have continued to incur additional costs to address the pandemic as discussed herein, including costs associated with unfavorable manufacturing variances, labor shortages, and additional cleaning, including disinfectants and sanitation materials, for our employees and at our facilities.

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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.

The pandemic also

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

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

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Results of Operations

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Three months ended March 31, 2022

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Three months ended June 30, 2022

Water Flow Solutions Water Management Solutions Corporate Total

14 unchanged sentences

Net income $ 26.5

Three months ended March 31, 2021

Three months ended June 30, 2021

Water Flow Solutions Water Management Solutions Corporate Total

5 unchanged sentences

21.0 22.9 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 21.0 23.1 18.6 62.7

1 unchanged sentence

$ 40.2 $ 21.1 $ (18.6) 42.7

Non-operating expenses:

Loss on early extinguishment of debt 16.7

Pension benefit other than service (0.8)

4 unchanged sentences

Consolidated Analysis

Net sales in the three months ended March 31, 2022 increased $43.0 million or 16.1% to $310.5 million as compared with $267.5 million in the prior period primarily as a result of higher pricing across most of our product lines and increased shipment

In the prior year quarter, net sales benefited as a result of $6.0 million of additional Krausz sales from the elimination of the one-month reporting lag.

Gross profit in the three months ended March 31, 2022 increased $4.4 million to $92.8 million from $88.4 million in the prior year period, primarily as a result of higher pricing across most of our product lines, and increased shipment volumes which were partially offset by higher costs of sales associated with inflation, and unfavorable manufacturing performance.

Gross margin was 29.9% in the three months ended March 31, 2022 as compared with 33.0% in the prior year period.

Selling, general and administrative expenses (“SG&A”) in the three months ended March 31, 2022 increased to $58.0 million from $54.2 million in the prior year period primarily as a result of inflation, higher travel and trade show expenditures, investments in engineering and information technology, and the inclusion of i2O.

SG&A as a percentage of net sales was 18.7% and 20.3% for the three months ended March 31, 2022 and March 31, 2021, respectively.

Strategic reorganization and other charges in the three months ended March 31, 2022 were $0.6 million which primarily consisted of restructuring expenses including costs associated with the closures of our facilities in Aurora, Illinois, and Surrey, British Columbia, Canada.

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.

Interest expense, net declined $1.6 million in the three months ended March 31, 2022 as compared with the prior year period primarily as a result of the refinancing of our 5.5% Senior Unsecured Notes (“5.5% Senior Notes”) with the 4.0% Senior Notes on May 28, 2021.

Net sales in the three months ended June 30, 2022 increased $22.7 million or 7.3% to $333.2 million as compared with $310.5 million in the prior period primarily as a result of higher pricing across most of our product lines, which was partially offset by lower shipment volumes.

Gross profit in the three months ended June 30, 2022 decreased $7.1 million or 6.7% to $98.3 million from $105.4 million in the prior year period, primarily as a result of unfavorable manufacturing performance, higher costs associated with inflation, lower shipment volumes on certain products, and an increase in our warranty obligations which were partially offset by higher pricing across most of our product lines.

Gross margin was 29.5% in the three months ended June 30, 2022 as compared with 33.9% in the prior year period.

Selling, general and administrative expenses (“SG&A”) in the three months ended June 30, 2022 increased $2.0 million to $60.8 million from $58.8 million in the prior year period primarily as a result of inflation and travel and trade show expenditures, partially offset by foreign exchange gains.

SG&A as a percentage of net sales was 18.2% and 18.9% for the three months ended June 30, 2022 and June 30, 2021, respectively.

Strategic reorganization and other charges in the three months ended June 30, 2022 were $0.6 million which primarily consisted of restructuring expenses including costs associated with the closures of our facilities in Aurora, Illinois, and Surrey, British Columbia, Canada.

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 closures of our facilities in Aurora, Illinois and Surrey, British Columbia, Canada and acquisition transaction costs.

Interest expense, net declined $2.6 million in the three months ended June 30, 2022 as compared with the prior year period primarily as a result of the refinancing of our 5.5% Senior Unsecured Notes (“5.5% Senior Notes”) with the 4.0% Senior Notes in May, 2021.

The components of net interest expense are provided below.

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State income taxes, net of federal benefit 3.3 4.2

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

Tax credits (3.0) (1.7)

1 unchanged sentence

Foreign income tax rate differential (1.7) (0.4)

Valuation allowances (0.3) (0.6)

Nondeductible compensation 0.9 0.6

Basis difference in foreign investment (0.1) 1.2

Other (0.4) 2.6

2 unchanged sentences

Water Flow Solutions

Net sales in the three months ended March 31, 2022 increased 25.0% to $183.9 million as compared with $147.1 million in the prior year period primarily as a result of increased shipment volumes and higher pricing across most of the segment’s product lines.

Gross profit in the three months ended March 31, 2022 increased 15.6% to $57.0 million from $49.3 million in the prior year period primarily as a result of higher pricing and increased shipment volumes, partially offset by higher costs associated with inflation and unfavorable manufacturing performance.

Gross margin was 31.0% in the three months ended March 31, 2022 and 33.5% in the prior year period.

SG&A in the three months ended March 31, 2022 increased to $21.6 million from $19.6 million in the prior year period primarily as a result of investments in engineering and information technology, increased travel and trade show expenditures, and inflation.

SG&A as a percentage of net sales was 11.7% and 13.3% in the three months ended March 31, 2022 and 2021, respectively.

Net sales in the three months ended June 30, 2022 increased $18.9 million or 10.7% to $195.9 million as compared with $177.0 million in the prior year period primarily as a result of higher pricing across most of the segment’s product lines partially offset by lower shipment volumes.

Gross profit in the three months ended June 30, 2022 decreased $0.4 million or 0.7% to $60.8 million from $61.2 million in the prior year period primarily as a result of unfavorable manufacturing performance, and higher costs associated with inflation which were partially offset by higher pricing.

Gross margin was 31.0% in the three months ended June 30, 2022 and 34.6% in the prior year period.

SG&A in the three months ended June 30, 2022 increased $1.7 million to $22.7 million from $21.0 million in the prior year period primarily as a result of investments in engineering and information technology, increased travel and trade show expenditures, and inflation.

SG&A as a percentage of net sales was 11.6% and 11.9% in the three months ended June 30, 2022 and 2021, respectively.

Water Management Solutions

Net sales in the three months ended March 31, 2022 increased 5.1% to $126.6 million as compared with $120.4 million in the prior year period, primarily as a result of higher pricing and increased shipment volumes across most of the segment’s product lines as well as the acquisition of i2O Water.

Net sales in the three months ended March 31, 2021 benefited by $6.0 million as a result of the elimination of the one-month reporting lag for Krausz.

Gross profit in the three months ended March 31, 2022 was $35.8 million as compared with $39.1 million in the prior year period.

Gross margin declined to 28.3% in the three months ended March 31, 2022 as compared with 32.5% in the prior year period primarily as a result of unfavorable manufacturing performance, and higher cost of sales associated with inflation, which were only partially offset by higher pricing and increased shipment volumes.

SG&A increased to $24.0 million from $21.5 million in the prior year period primarily as a result of investments in engineering and information technology, the inclusion of i2O Water, inflation, and increased travel and trade show expenditures.

SG&A as a percentage of net sales was 19.0% and 17.9% in the three months ended March 31, 2022 and 2021, respectively.

SG&A decreased to $12.4 million in the three months ended March 31, 2022 as compared with $13.1 million in the three months ended March 31, 2021 primarily as a result of decreased personnel-related expenses and outside services.

Six Months Ended March 31, 2022 Compared to Six Months Ended March 31, 2021

Six months ended March 31, 2022

Net sales in the three months ended June 30, 2022 increased $3.8 million or 2.8% to $137.3 million as compared with $133.5 million in the prior year period, primarily as a result of higher pricing across most of the segment’s product lines and the acquisition of i2O Water partially offset by decreased shipment volumes.

Gross profit in the three months ended June 30, 2022 was $37.5 million as compared with $44.2 million in the prior year period.

Gross margin declined to 27.3% in the three months ended June 30, 2022 as compared with 33.1% in the prior year period primarily as a result of unfavorable manufacturing performance, higher cost of sales associated with inflation and lower shipment volumes which were only partially offset by higher pricing.

Additionally, we recorded a $4.5 million warranty charge.

SG&A increased $2.6 million to $25.5 million from $22.9 million in the prior year period primarily as a result of investments in engineering and information technology, the inclusion of i2O Water, inflation, and increased travel and trade show expenditures partially offset by foreign exchange gains.

SG&A as a percentage of net sales was 18.6% and 17.2% in the three months ended June 30, 2022 and 2021, respectively.

SG&A decreased $2.3 million to $12.6 million in the three months ended June 30, 2022 as compared with $14.9 million in the three months ended June 30, 2021 primarily as a result of decreased personnel-related expenses and outside services.

Nine Months Ended June 30, 2022 Compared to Nine Months Ended June 30, 2021

Nine months ended June 30, 2022

Water Flow Solutions Water Management Solutions Corporate Total

14 unchanged sentences

Net income $ 69.5

Six months ended March 31, 2021

Nine months ended June 30, 2021

Water Flow Solutions Water Management Solutions Corporate Total

9 unchanged sentences

$ 93.0 $ 56.4 $ (45.5) 103.9

Non-operating expenses:

Loss on early extinguishment of debt 16.7

Pension benefit other than service (2.4)

4 unchanged sentences

Consolidated Analysis

Net sales in the six months ended March 31, 2022 increased $77.9 million or 15.4% to $582.8 million as compared with $504.9 million in the prior period primarily as a result of increased shipment volumes and higher pricing across most of our product lines.

Net sales in the six months ended March 31, 2021 benefited by $6.0 million as a result of the elimination of the one-month reporting lag for Krausz.

Gross profit in the six months ended March 31, 2022 increased $13.6 million to $180.4 million from $166.8 million in the prior year period, primarily as a result of higher pricing and increased shipment volumes which were partially offset by higher costs of sales associated with inflation, unfavorable manufacturing performance including labor challenges, and supply chain disruptions.

Gross margin was 31.0% in the six months ended March 31, 2022 as compared with 33.0% in the prior year period.

SG&A in the six months ended March 31, 2022 increased to $114.3 million from $103.4 million in the prior year period primarily as a result of higher travel and trade show expenditures, inflation, investments in engineering and information technology and the inclusion of i2O Water.

SG&A as a percentage of net sales was 19.6% and 20.5% for the six months ended March 31, 2022 and 2021, respectively.

Strategic reorganization and other charges in the six months ended March 31, 2022 were $3.0 million which primarily consisted of expenses associated with the Albertville tragedy, and our ongoing restructuring activities.

Strategic reorganization and other charges in the six months ended March 31, 2021 were $2.2 million and primarily related to restructuring activities, and legal and professional service expenses, partially offset by a one-time settlement gain in connection with an indemnification of a previously owned property.

Interest expense, net declined $3.4 million in the six months ended March 31, 2022 as compared with the prior year period primarily as a result of the refinancing of our 5.5% Senior Notes with the 4.0% Senior Notes on May 28, 2021.

Net sales in the nine months ended June 30, 2022 increased $100.6 million or 12.3% to $916.0 million as compared with $815.4 million in the prior period primarily as a result of higher pricing across most of our product lines and increased shipment volumes.

Net sales in the nine months ended June 30, 2021 benefited by $6.0 million as a result of the elimination of the one-month reporting lag for Krausz.

Gross profit in the nine months ended June 30, 2022 increased $6.5 million to $278.7 million from $272.2 million in the prior year period, primarily as a result of higher pricing and increased shipment volumes which were partially offset by higher costs of sales associated with inflation, unfavorable manufacturing performance including labor challenges, supply chain disruptions, and an increase in our warranty obligations.

Gross margin was 30.4% in the nine months ended June 30, 2022 as compared with 33.4% in the prior year period.

SG&A in the nine months ended June 30, 2022 increased $12.9 million to $175.1 million from $162.2 million in the prior year period primarily as a result of higher travel and trade show expenditures, higher costs associated with inflation, investments in engineering and information technology and the inclusion of i2O Water, partially offset by foreign exchange gains.

SG&A as a percentage of net sales was 19.1% and 19.9% for the nine months ended June 30, 2022 and 2021, respectively.

Strategic reorganization and other charges in the nine months ended June 30, 2022 were $3.6 million which primarily consisted of expenses associated with the Albertville tragedy, and our ongoing restructuring activities.

Strategic reorganization and other charges in the nine months ended June 30, 2021 were $6.1 million, which primarily related to the Albertville tragedy, and termination benefits associated with our 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 of a previously owned property.

Interest expense, net declined $6.0 million in the nine months ended June 30, 2022 as compared with the prior year period primarily as a result of the refinancing of our 5.5% Senior Notes with the 4.0% Senior Notes on May 28, 2021.

The components of net interest expense are provided below.

Six months ended

Nine months ended

(in millions)

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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 (1.7) (0.4)

Nondeductible compensation 0.9 0.6

Basis difference in foreign investment (0.1) 1.2

Valuation allowances 0.3 0.7

3 unchanged sentences

Water Flow Solutions

Net sales in the six months ended March 31, 2022 increased 22.8% to $338.8 million as compared with $275.9 million in the prior year period primarily as a result of increased shipment volumes and higher pricing across most of the segment’s product lines.

Gross profit in the six months ended March 31, 2022 increased 19.6% to $109.1 million from $91.2 million in the prior year period primarily as a result of higher pricing and increased shipment volumes, partially offset by higher costs associated with inflation and unfavorable manufacturing performance.

Gross margin was 32.2% in the six months ended March 31, 2022 and 33.1% in the prior year period.

SG&A in the six months ended March 31, 2022 increased to $42.4 million from $38.3 million in the prior year period primarily as a result of increased travel and trade show expenditures, inflation, and investments in engineering and information technology.

SG&A as a percentage of net sales was 12.5% and 13.9% in the six months ended March 31, 2022 and 2021, respectively.

Net sales in the nine months ended June 30, 2022 increased $81.8 million or 18.1% to $534.7 million as compared with $452.9 million in the prior year period primarily as a result of higher pricing across most of the segment’s product lines and increased shipment volumes.

Gross profit in the nine months ended June 30, 2022 increased $17.5 million or 11.5% to $169.9 million from $152.4 million in the prior year period primarily as a result of higher pricing and increased shipment volumes, partially offset by higher costs associated with inflation and unfavorable manufacturing performance.

Gross margin was 31.8% in the nine months ended June 30, 2022 and 33.6% in the prior year period.

SG&A in the nine months ended June 30, 2022 increased $5.8 million to $65.1 million from $59.3 million in the prior year period primarily as a result of increased travel and trade show expenditures, higher costs associated with inflation, and investments in engineering and information technology.

SG&A as a percentage of net sales was 12.2% and 13.1% in the nine months ended June 30, 2022 and 2021, respectively.

Water Management Solutions

Net sales in the six months ended March 31, 2022 increased 6.6% to $244.0 million as compared with $229.0 million in the prior year period, primarily as a result of higher pricing across most of the segment’s product lines and increased shipment volumes.

Net sales in the six months ended March 31, 2021 benefited by $6.0 million as a result of the elimination of the one-month reporting lag for Krausz.

Gross profit in the six months ended March 31, 2022 was $71.3 million as compared with $75.6 million in the prior year period.

Gross margin decreased to 29.2% in the six months ended March 31, 2022 as compared with 33.0% in the prior year period primarily as a result of higher cost of sales associated with inflation and unfavorable manufacturing performance which were partially offset by higher pricing and increased shipment volumes.

SG&A increased to $48.0 million from $41.0 million in the prior year period primarily as a result of investments in engineering, the inclusion of i2O Water, inflation, and increased travel and trade show expenditures.

SG&A as a percentage of net sales was 19.7% and 17.9% in the six months ended March 31, 2022 and 2021, respectively.

SG&A decreased to $23.9 million in the six months ended March 31, 2022 as compared with $24.1 million in the six months ended March 31, 2021 primarily as a result of lower personnel-related expenses partially offset by inflation.

Net sales in the nine months ended June 30, 2022 increased $18.8 million or 5.2% to $381.3 million as compared with $362.5 million in the prior year period, primarily as a result of higher pricing across most of the segment’s product lines and increased shipment volumes.

Net sales in the nine months ended June 30, 2021 benefited by $6.0 million as a result of the elimination of the one-month reporting lag for Krausz.

Gross profit in the nine months ended June 30, 2022 decreased $11.0 million or 9.2% to $108.8 million as compared with $119.8 million in the prior year period.

Gross margin decreased to 28.5% in the nine months ended June 30, 2022 as compared with 33.0% in the prior year period primarily as a result of higher cost of sales associated with inflation, unfavorable manufacturing performance and a $4.5 million warranty charge which were partially offset by higher pricing and increased shipment volumes.

SG&A increased $9.6 million to $73.5 million from $63.9 million in the prior year period primarily as a result of investments in engineering, the inclusion of i2O Water, inflation, and increased travel and trade show expenditures, partially offset by foreign exchange gains.

SG&A as a percentage of net sales was 19.3% and 17.6% in the nine months ended June 30, 2022 and 2021, respectively.

SG&A decreased $2.5 million to $36.5 million in the nine months ended June 30, 2022 as compared with $39.0 million in the nine months ended June 30, 2021 primarily as a result of lower personnel-related expenses partially offset by higher costs associated with inflation.

Liquidity and Capital Resources

We had cash and cash equivalents on hand of $164.1 million at March 31, 2022 and $160.1 million of additional borrowing capacity under our ABL Agreement based on March 31, 2022 data.

We had cash and cash equivalents on hand of $154.9 million at June 30, 2022 and $160.7 million of additional borrowing capacity under our ABL Agreement based on June 30, 2022 data.

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

At March 31, 2022, cash and cash equivalents included $43.1 million, $11.3 million, and $4.6 million in Israel, Canada, and China, respectively.

We declared a quarterly dividend of $0.058 per share on April 22, 2022, payable on or about May 20, 2022 to holders of record as of May 10, 2022, which will result in an estimated $9.2 million cash outlay.

We repurchased $20.0 million of our outstanding common stock during the six months ended March 31, 2022 and had $115.0 million remaining of our share repurchase authorization.

At June 30, 2022, cash and cash equivalents included $42.1 million, $13.7 million, and $6.3 million in Israel, Canada, and China, respectively.

We declared a quarterly dividend of $0.058 per share on July 27, 2022, payable on or about August 22, 2022 to holders of record as of August 10, 2022, which will result in an estimated $9.1 million cash outlay.

We repurchased $25.0 million of our outstanding common stock during the nine months ended June 30, 2022 and had $110.0 million remaining of our share repurchase authorization.

The ABL Agreement and 4.0% Senior Notes contain customary representations and warranties, covenants and provisions governing an event of default.

The covenants restrict our ability to engage in certain specified activities, including but not limited to the payment of dividends and the redemption of our common stock.

Collections from customers were higher during the six months ended March 31, 2022 as compared with the prior year period primarily as a result of net sales growth between the periods.

Inventory purchases increased during the six months ended March 31, 2022 as compared with the six months ended March 31, 2021 as a result of inflation, increased sales volume and supply change management.

Collections from customers were higher during the nine months ended June 30, 2022 as compared with the prior year period primarily as a result of net sales growth between the periods.

Inventory purchases increased during the nine months ended June 30, 2022 as compared with the nine months ended June 30, 2021 as a result of inflation, increased sales volume and supply change management.

Other current liabilities and other noncurrent liabilities decreased as a result of employee incentive payouts, income tax payments, the repayment of the CARES Act employer payroll tax deferral and the payment of customer rebates.

Capital expenditures were $26.0 million in the six months ended March 31, 2022 as compared with $31.1 million in the prior year period.

Capital expenditures were $36.7 million in the nine months ended June 30, 2022 as compared with $46.1 million in the prior year period.

Capital expenditures decreased primarily as a result of lower expenditures associated with the new Decatur foundry as compared with the prior year period.

For fiscal year 2022, we have provided guidance that our capital expenditures are expected to be between $50.0 million and $55.0 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 March 31, 2023.

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

1 unchanged sentence

ABL Agreement

At March 31, 2022, the ABL Agreement consisted of a $175.0 million revolving credit facility which includes up to $25.0 million of swing line loans and may have up to $60.0 million of letters of credit.

At June 30, 2022, the ABL Agreement consisted of a $175.0 million revolving credit facility 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 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, 2022, the applicable margin for LIBOR was 200 basis points and for base rate loans was 100 basis points.

At June 30, 2022, the applicable margin for LIBOR was 200 basis points and for base rate loans was 100 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.

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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 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.

Excess availability based on June 30, 2022 data was $160.7 million, as reduced by $14.1 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.

4.0% Senior Unsecured Notes

4 unchanged sentences

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

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

Based on quoted market prices the outstanding 4.0% Senior Notes had a fair value of $392.8 million at June 30, 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 March 31, 2022.

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

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Moody’s Standard & Poor’s

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

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

2022 2021 2022 2021

5 unchanged sentences

We enter into a variety of contractual obligations as part of our normal operations in addition to capital expenditures.

As of March 31, 2022, we have (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include cash interest payments of $18.9 million in 2022 and $18.0 million annually thereafter through 2029, (ii) cash obligations of $35.7 million for operating leases through 2033 and $2.2 million for finance leases through 2026, and (iii) purchase obligations for raw materials and other parts of approximately $148.2 million which we expect to incur during the next 12 months.

As of June 30, 2022, we have (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include cash interest payments of $18.9 million in 2022 and $18.0 million annually thereafter through 2029, (ii) cash obligations of $33.5 million for operating leases through 2033 and $1.9 million for finance leases through 2026, and (iii) purchase obligations for raw materials and other parts of approximately $163.1 million which we expect to incur during the next 12 months.

We expect to fund these cash requirements from cash on hand and cash generated from operations.

1 unchanged sentence

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 March 31, 2022 we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases.

In addition, at June 30, 2022 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, 2022, we had $14.7 million of letters of credit and $34.0 million of surety bonds outstanding.

At June 30, 2022, we had $14.1 million of letters of credit and $33.1 million of surety bonds outstanding.

Our business is seasonal as a result of the impact 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