What changed in this filing

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Item 1A. Risk Factors

2022-11-18 compared with 2021-11-19 · 47 added, 50 removed, 298 unchanged (25% of the section changed)

4 unchanged sentences

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

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

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

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

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

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

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

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

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

We have in the past and may in the future be unable to raise the prices of our products sufficiently to keep up with the rate of inflation, which would reduce our profit margins and cash flows.

Some state and local governments may place significant restrictions on the use of water by their constituents and/or increase their water conservation efforts.

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

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

Adverse conditions or sustained uncertainty regarding the residential construction market have had and may in the future have an adverse effect on our sales, profitability and cash flows, including the risk that one or more of our distributors and/or end use customers decide to delay purchasing, or determine not to purchase, our products or services.

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

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The strong market positions of our primary competitors may also slow the adoption of our products.

Similarly, the adoption of our pressure monitoring, leak detection and pipe condition assessment products and services depends on the willingness of our customers to invest in new product and service offerings, and the pace of adoption may be slower than we expect.

If the market for our technology-enabled products and services develops more slowly than we expect or these products and services fail to gain market acceptance, our opportunity to grow these businesses will be limited.

Similarly, the adoption of our pressure monitoring, leak detection and pipe condition assessment products and services depends on the willingness of our customers to invest in new product and service offering s, and the pace of adoption may be slower than we expe ct.

The markets for our technology-enabled products and services have developed more slowly than we expected and may continue to do so.

If these products and services fail to gain market acceptance, our opportunity to grow these businesses will be limited.

Index to Financial Statements

1 unchanged sentence

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

The success of our new products and systems, such as our recently launched smart hydrant and Sentryx software platform, will depend on our ability to manage the risks associated with their introduction, including the risk that new products and systems may have quality or other defects or deficiencies in their early stages that result in their failure to satisfy performance or reliability requirements.

The success of our new products and systems, such as our smart hydrant and Sentryx ™ software platform, will depend on our ability to manage the risks associated with their introduction, including the risk that new products and systems may have quality or other defects or deficiencies in their early stages that result in their failure to satisfy performance or reliability requirements.

Our success will depend in part on our ability to manage these risks, including costs associated with manufacturing, installation, maintenance and warranties.

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

We also expect to make significant progress in fiscal 2022 on the construction of our new brass manufacturing facility in Decatur, Illinois, which we expect to be completed in 2023.

We made significant progress in fiscal 2022 on the construction of our new brass manufacturing facility in Decatur, Illinois, which we expect to substantially complete in 2023.

To a large degree, capital efficiency reflects how well we manage key risks.

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

In fiscal 2019, we relocated our research and development activities from our Middleborough, Massachusetts facility to Atlanta, Georgia, which consolidated our resources and should accelerate product innovation through creation of a research and development center of excellence for software and electronics in Atlanta.

Between November 2019 and March 2021, we announced the purchase and closure of several facilities.

We purchased a new facility in Kimball, Tennessee, to support and enhance our investment in our Chattanooga, Tennessee large casting foundry.

As a result of this reorganization, we closed our facilities in Hammond, Indiana and Woodland, Washington.

We also announced the planned closures of our facilities in Aurora, Illinois and Surrey, British Columbia, Canada.

Most of the activities from these plants will be transferred to our Kimball, Tennessee facility.

We expect to substantially complete these facility closures by the third quarter of our fiscal year 2022 and expect to incur total expenses related to this restructuring of approximately $14.0 million.

Between November 2019 and September 2022, we transitioned all, or substantially all, operations from our facilities in Hammond, Indiana;

Aurora, Illinois;

Woodland, Washington;

and Surrey, British Columbia, Canada;

to our Kimball, Tennessee facility.

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

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A part of our growth strategy depends on us expanding internationally.

Although sales outside of the United States and Canada account for a relatively small percentage of our total net sales, we expect to increase our level of business activity outside of the United States and Canada, as illustrated by our December 2018 acquisition of Krausz Industries, which is based in Israel, and our acquisition in June 2021 of i2O Water Ltd, which is based in Southampton, United Kingdom.

Although sales outside of the United States and Canada account for a relatively small percentage of our total net sales, we expect to increase our level of business activity outside of the United States and Canada, as illustrated by our December 2018 acquisition of Krausz Industries, that is based in Israel, and our acquisition in June 2021 of i2O Water Ltd, that is based in Southampton, United Kingdom.

Some countries that present potential good business opportunities also face political and economic instability and vulnerability to infrastructure and other disruptions.

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

Our business, financial condition and results of operations may be adversely impacted by the effects of inflation.

Inflation has the potential to adversely affect our business, financial condition and results of operations by increasing our overall cost structure, including purchased parts, commodity and raw material costs.

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

Other inflationary pressures could affect wages, the cost and availability of components and raw materials and other inputs and our ability to meet customer demand.

Inflation may further exacerbate other risk factors, including supply chain disruptions, risks related to international operations and the recruitment and retention of qualified employees .

Index to Financial Statements

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

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

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We may experience difficulties implementing upgrades to our enterprise resource planning system.

We continue to be engaged in a multi-year implementation of upgrades to our enterprise resource planning system (“ERP”) and other systems.

We may experience difficulties implementing upgrades to our software systems.

We engage in implementations and upgrades to our software systems, including to our Enterprise Resource Planning (“ERP”) system.

The ERP is designed to accurately maintain the company’s books and records and provide information important to the operation of the business to the Company’s management team.

These upgrades will require significant investment of human and financial resources.

In implementing the ERP upgrade, we may experience significant delays, increased costs and other difficulties.

Any significant disruption or deficiency in the design and implementation of the ERP upgrades could adversely affect our ability to process orders, ship product, send invoices and track payments, fulfill contractual obligations or otherwise operate our business.

While we have invested significant resources in planning and project management, significant implementation issues may arise.

Any software implementation or upgrade requires significant investment of human and financial resources and we may experience significant delays, increased costs and other difficulties.

Any significant disruption or deficiency in the design and implementation of our software systems, including our ERP, could adversely affect our ability to process orders, ship product, send invoices and track payments, fulfill contractual obligations or otherwise operate our business.

While we invest significant resources in planning and project management, significant issues may arise.

Normal operations at our key manufacturing facilities may be interrupted.

Some of our key products, including fire hydrants and iron gate valves, are manufactured at a single facility or few manufacturing facilities, that depend on critical pieces of heavy equipment that cannot be moved economically to other locations.

Some of our key products, including fire hydrants, iron gate valves, service brass products, and repair products are manufactured at a single facility or few manufacturing facilities, that depend on critical pieces of heavy equipment that cannot be moved economically to other locations.

We are therefore limited in our ability to shift production among locations.

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We rely on a combination of patent protection, copyright and trademark laws, trade secrets protection, employee and third-party confidentiality agreements as well as technical measures to protect our intellectual property rights.

The measures that we take to protect our intellectual property rights may not adequately deter infringement, misappropriation or independent development of our technology, and they may not prevent an unauthorized party from obtaining or using information or intellectual property that we regard as proprietary or keep others from using brand names similar to our own.

The methods we employ to protect our intellectual property rights may not adequately deter infringement, misappropriation or independent development of our technology, and they may not prevent an unauthorized party from obtaining or using information or intellectual property that we regard as proprietary or keep others from using brand names similar to our own.

The disclosure, misappropriation or infringement of our intellectual property could harm our competitive position.

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Products under patent protection potentially generate significantly higher revenue and earnings than those not protected by patents.

If we fail to successfully enforce our intellectual property rights or register new patents, our competitive position could suffer, which could adversely affect our business, financial condition, results of operations and cash flows.

If we fail to successfully enforce our intellectual

Index to Financial Statements

property rights or register new patents, our competitive position could suffer, which could adversely affect our business, financial condition, results of operations and cash flows.

If we do not successfully maintain our information and technology networks, including the security of those networks, our operations could be disrupted and unanticipated increases in costs and/or decreases in revenues could result.

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Additionally, we may not have adequately anticipated or precluded such cybersecurity threats through our product design or development.

These products, services and solutions inevitably contain vulnerabilities or critical security defects which may not been remedied and cannot be disclosed without compromising security.

We may also make prioritization decisions in determining which vulnerabilities or security

These products, services and

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defects to fix, and the timing of these fixes, which could result in compromised security.

solutions inevitably contain vulnerabilities or critical security defects which may not been remedied and cannot be disclosed without compromising security.

We may also make prioritization decisions in determining which vulnerabilities or security defects to fix, and the timing of these fixes, which could result in compromised security.

These vulnerabilities and security defects could expose us or our customers to a risk of loss, disclosure, or misuse of information/data;

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The impacts of climate change and legal or regulatory initiatives to address climate change could have a long-term adverse impact on our business and results of operations.

If we fail to achieve or improperly report on our progress toward achieving our goals and commitments to reduce our carbon footprint or in environmental and sustainability programs and initiatives, the results could have an adverse impact on our business and results of operations.

If we fail to achieve or improperly report on our

Index to Financial Statements

progress toward achieving our goals and commitments to reduce our carbon footprint or in environmental and sustainability programs and initiatives, the results could have an adverse impact on our business and results of operations.

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

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• Our reputation within the labor market.

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We also compete with many other industries and businesses for most of our hourly production employees.

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Further, changes in market compensation rates may adversely affect our labor costs.

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Our expenditures for pension obligations could be materially higher than we have predicted.

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Our operations require substantial amounts of purchased components and raw materials, such as scrap steel, sand, resin, brass ingot and steel pipe.

The cost and availability of these materials are subject to economic forces largely beyond our control, including North American and international demand, foreign currency exchange rates, freight costs, tariffs and commodity speculation and other external factors beyond our control, such as the COVID-19 pandemic or other supply chain challenges.

Temporary industry-wide shortages of raw materials have occurred in fiscal 2021, which have led to increased raw material price volatility which may continue into fiscal 2022.

We may not be able to pass on the entire cost of price increases, or at all, for purchased components and raw materials to our customers or offset fully the effects of these higher costs through productivity improvements.

In particular, when purchased

The cost and availability of these materials are subject to economic forces largely beyond our control, including North American and international demand, inflation, foreign currency exchange rates, freight costs, tariffs, commodity speculation and other external factors beyond our control, such as the COVID-19 pandemic or other supply chain

Index to Financial Statements

component or raw material prices increase rapidly or to significantly higher than normal levels, we may not be able to pass cost increases through to our customers on a timely basis, if at all, which would reduce our profitability and cash flows.

Inflation in raw material costs has occurred in fiscal 2022, which has led to increased raw material price volatility and costs, which we expect to continue into fiscal 2023.

In particular, when purchased component or raw material prices increase rapidly or to significantly higher than normal levels, we may not be able to pass cost increases through to our customers on a timely basis, if at all, which would reduce our profitability and cash flows.

In addition, if purchased components or raw materials are not available or not available on commercially reasonable terms, our sales, profitability and cash flows would be reduced.

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

The COVID-19 pandemic continues to have meaningful adverse impacts on our financial condition and results of operations as discussed in PART II, “Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.” As the impact of the pandemic continues, we may continue to experience additional plant closures, limitations in the ways we operate within our facilities, illness or quarantine of our employees, supply chain disruptions, transportation delays, cost increases, more extensive travel restrictions, closures or disruptions of businesses and facilities, or social, economic, political or labor instability in the affected areas.

The COVID-19 pandemic has had, and continues to have, meaningful adverse impacts on our financial condition and results of operations as discussed in PART II, “Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.” We may from time-to-time experience plant closures, limitations in the ways we operate within our facilities, illness or quarantine of our employees, supply chain disruptions, transportation delays, cost increases, more extensive travel restrictions, closures or disruptions of businesses and facilities, or social, economic, political or labor instability in the affected areas.

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

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

We are unable to estimate the impact of measures we have taken thus far, additional measures we may undertake in the future and the actions taken, or that will be taken, by governmental agencies.

We are unable to estimate the impact of measures we may undertake in the future and the actions taken, or that will be taken, by governmental agencies.

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

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

The Vaccine/Test Mandate, if implemented as initially enacted, will require us to ensure that all of our employees in the United States are fully vaccinated or, if not, are tested for COVID-19 on a weekly basis, which could be difficult and costly.

As ordered via a stay by the U.S.

Court of Appeals for the Fifth Circuit, OSHA suspended the implementation of the Vaccine/Test Mandate so the outcome and timing of the implementation of the Vaccine/Test Mandate is presently unclear.

We intend to implement the Vaccine/Test Mandate by the deadline set forth by the standard once the stay and suspension of the implementation of the Vaccine/Test Mandate are removed.

Further, additional vaccine and testing mandates may be announced in jurisdictions in which we operate our business, and there could be potential conflict with actions by certain states that are in

Index to Financial Statements

conflict with the Vaccine/Test Mandate, the impacts of which remain uncertain.

With ongoing health, supply chain, shipping, employment and other pandemic-related shortages of materials and workers, it is possible that the Vaccine/Test Mandate could result in labor disruptions, employee attrition and difficulty securing future labor needs as well as have impacts on the broader employment market and supply chain, which could have an adverse effect on our revenues, costs, financial condition and results of operations and subject us to various employee claims as well as other related legal liability.

The pandemic may also impact third parties with which we do business, and each of their financial conditions, including their viability and ability to pay for our products and services;

which could adversely impact us.

The pandemic may also impact third parties with which we do business, and each of their financial conditions, including their viability and ability to pay for our products and services, which could adversely impact us.

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

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

The situation is ever

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changing and future impacts may materialize that are not yet known.

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

What changed 10-K

Item 1A. Risk Factors