What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-11-18 compared with 2021-11-19 · 181 added, 102 removed, 185 unchanged (60% of the section changed)

4 unchanged sentences

RISK FACTORS”.

We operate our business through two segments, Infrastructure and Technologies.

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

Under this new structure, we operate our business through two segments, Water Flow Solutions and Water Management Solutions.

We estimate approximately 60% to 65% of the Company’s 2022 net sales were associated with repair and replacement directly related to municipal water infrastructure spending, approximately 25% to 30% were related to residential construction activity and less than 10% were related to natural gas utilities.

In 2021, both Infrastructure and Technologies were impacted by raw material and other cost inflation, supply chain disruptions and labor availability challenges.

We expect the operating environment to continue to be very challenging in 2022, as a result of the uncertainty around the depth and duration of the pandemic.

We may continue to be impacted by raw material and other cost inflation, supply chain disruptions and labor availability challenges.

While we expect that the municipal repair and replacement activity and new residential construction end markets will remain healthy in 2022, we do anticipate that growth will slow down relative to the strong recovery experienced during 2021.

In 2022, we believe that supply chain disruptions could extend overall build cycles for new residential construction, including lot development.

Infrastructure

After experiencing challenges in 2020 resulting from the pandemic, municipal spending in 2021 recovered during the fiscal year as compared with the prior year.

After experiencing challenges in 2020 and 2021 resulting from the pandemic, municipal spending in 2022 recovered during the fiscal year as compared with the prior year.

According to the United States Department of Labor, the trailing twelve-month average consumer price index for water and sewerage rates at September 30, 2022 increased 4.7%.

While the economic effects of the pandemic have impacted revenues for some water utilities in the United States, the economic recovery enabled water utilities to maintain repair and replacement activities.

While uncertainty related to the pandemic continues to impact the operating environment, residential construction activity was very strong in 2021 after recovering in 2020.

The year over year percentage change in housing starts is a key indicator of demand for Infrastructure’s products sold in the residential construction market.

The strength of the residential construction activity during 2021 was reflected in total housing starts in the United States increasing approximately 18%.

In October 2021, Blue Chip Economic Indicators forecasted a 1.3% decrease in housing starts for the calendar year 2022 compared to the calendar year 2021.

The municipal water market is the key end market for Technologies.

As compared with Infrastructure products, Technologies products and services are primarily project-oriented and often depend on customer adoption of our technology-based products and services.

For our fiscal year 2022, we anticipate that consolidated net sales will be 4% to 8% higher than our fiscal year 2021 driven by the benefits of higher pricing and increased shipment volumes, resulting from modest growth in our end markets and our ability to deliver the backlog at Infrastructure and Technologies.

In 2021, we encountered increased material costs as a result of higher raw material prices, particularly brass ingot and scrap steel, as well as higher freight, labor costs and energy expenses.

In 2022, we anticipate that inflation will continue to lead to higher costs.

While the economic effects of the pandemic have impacted revenues for some water utilities in the United States, water utilities were generally able to maintain repair and replacement activities.

We expect the operating environment during fiscal year 2023 to be very challenging as a result of the inflationary environment, labor challenges and potential recession.

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 fiscal 2022, especially for lot and land development activity, we anticipate that activity levels will slow during fiscal 2023 based on higher interest rates leading to a decrease in demand for new residential housing .

In November 2022, Blue Chip Economic Indicators forecasted a 12.3% de crease in housing starts for the calendar year 2023 compared to the calendar year 2022.

For our fiscal year 2023, we anticipate that consolidated net sales will be 6% to 8% higher t han our fiscal year 2022 primarily driven by the benefits of higher pricing.

In 2022, we encountered increased material costs as a result of higher raw material prices, particularly brass ingot and scrap steel, as well as higher purchased parts, freight, labor costs and energy expenses.

In 2023, we anticipate that inflation will continue to increase material and other costs.

Index to Financial Statements

2 unchanged sentences

Year ended September 30, 2022

Infrastructure Technologies Corporate Total

Solutions Water

Solutions Corporate Consolidated

(in millions)

4 unchanged sentences

87.1 102.8 48.8 238.7

Strategic reorganization and other charges 0.2 0.4 6.6 7.2

Goodwill impairment 6.8 — — 6.8

Total operating expenses 94.1 103.2 55.4 252.7

Operating income (loss) $ 118.3 $ 48.7 $ (55.4) 111.6

Pension benefit other than service (3.9)

Interest expense, net 16.9

Income before income taxes 98.6

Income tax expense 22.0

Net income $ 76.6

Year ended September 30, 2021

Solutions Water

Solutions Corporate Consolidated

(in millions)

Net sales $ 617.8 $ 493.2 $ — $ 1,111.0

Gross profit $ 202.8 $ 155.7 $ — $ 358.5

Operating expenses:

Selling, general and administrative

81.8 85.8 51.2 218.8

Strategic reorganization and other charges (benefits) 0.1 (0.4) 8.3 8.0

Total operating expenses 81.9 85.4 59.5 226.8

Operating income (loss)

$ 120.9 $ 70.3 $ (59.5) 131.7

Pension benefit other than service (3.3)

Interest expense, net 23.4

Loss on early extinguishment of debt 16.7

Income before income taxes 94.9

Income tax expense 24.5

Net income $ 70.4

Consolidated Analysis

Net sales for 2022 increased $136.4 million, or 12.3%, to $1,247.4 million from $1,111.0 million in the prior year primarily as a result of higher pricing across most of our product lines in addition to increased volumes.

Gross profit increased $5.8 million, or 1.6%, to $364.3 million for 2022 compared with $358.5 million in the prior year.

This increase was primarily a result of higher pricing and increased volumes which were partially offset by higher cost of sales

Index to Financial Statements

associated with inflation, unfavorable manufacturing performance, including labor challenges, and supply chain disruptions.

Gross margin decreased to 29.2% in 2022 as compared with 32.3% in the prior year.

Selling, general and administrative expenses (“SG&A”) increased 9.1% to $238.7 million for 2022 from $218.8 million in the prior year.

The increase in SG&A was primarily a result of higher travel and trade show expenditures, higher costs associated with inflation, investments in research and development as well as information technology, and the inclusion of i2O Water, partially offset by lower incentive compensation in personnel-related expenses and foreign exchange gains.

As a percentage of net sales, SG&A decreased 60 basis points to 19.1% of net sales from 19.7% in the prior year.

Strategic reorganization and other charges for 2022 of $7.2 million primarily consisted of certain transaction-related costs, expenses associated with our ongoing restructuring activities, and the Albertville tragedy.

For the fiscal year 2021, Strategic reorganization and other charges of $8.0 million primarily relate to termination benefits associated with our plant closures in Aurora, Illinois and Surrey, British Columbia, Canada, the Albertville tragedy, and certain transaction-related costs, partially offset by a one-time settlement gain in connection with an indemnification of a previously owned property.

During the year ended September 30, 2022, we incurred a non-cash impairment charge on our goodwill of $6.8 million within the Water Flow Solutions segment.

Interest expense, net declined $6.5 million in 2022 from the prior year primarily as a result of the retirement of our 5.5% Senior Unsecured Notes (“5.5% Senior Notes”), which were replaced with 4.0% Senior Unsecured Notes (“4.0% Senior Notes”) as well as an increase in capitalized interest on our large capital projects, and higher interest income.

(in millions)

5.5% Senior Notes $ — $ 17.6

4.0% Senior Notes 18.0 6.2

Deferred financing costs amortization 1.0 1.1

ABL Agreement 0.9 0.9

Capitalized interest (2.6) (2.3)

Other interest expense 0.3 0.3

Total interest expense 17.6 23.8

Interest income (0.7) (0.4)

Total interest expense, net $ 16.9 $ 23.4

Income tax expense of $22.0 million in 2022 resulted in an effective income tax rate of 22.3%, which was lower than the 25.8% rate in the prior year reflecting benefits from research and development tax credits and lower foreign tax rates.

Segment Analysis

Water Flow Solutions

Net sales for 2022 increased $96.3 million, or 15.6%, to $714.1 million from $617.8 million in the prior year.

Net sales increased primarily as a result of higher pricing and increased volumes across most of the Water Flow Solutions segment’s product lines.

Gross profit for 2022 increased $9.6 million, or 4.7%, to $212.4 million from $202.8 million in the prior year primarily as a result of higher pricing and increased volumes across most product lines except for service brass products, partially offset by higher cost of sales associated with inflation and unfavorable manufacturing performance, primarily at our brass foundry.

Gross margin was 29.7% in 2022, as compared with 32.8% in the prior year.

SG&A in 2022 increased 6.5% to $87.1 million from $81.8 million in the prior year primarily as a result of increased travel and trade show expenditures, higher costs associated with inflation, and investments in research and development and information technology.

SG&A as a percentage of net sales was 12.2% and 13.2% for 2022 and 2021, respecti vely.

During the year ended September 30, 2022, Water Flow Solutions incurred a non-cash goodwill impairment charge of $6.8 million.

Index to Financial Statements

Water Management Solutions

Net sales in 2022 increased 8.1% to $533.3 million from $493.2 million in the prior year primarily as a result of higher pricing across most of the Water Management Solutions segment’s product lines and increased volumes for fire hydrants, natural gas, and repair and installation product lines.

Gross profit in 2022 decreased $3.8 million to $151.9 million from $155.7 million in the prior year.

Gross margin decreased to 28.5% in 2022 from 31.6% in the prior year primarily as a result of higher cost of sales associated with inflation, and unfavorable manufacturing performance, partially offset by higher pricing and increased volumes.

SG&A increased 19.8% to $102.8 million in 2022 from $85.8 million in the prior year primarily as a result of investments in research and development, the inclusion of i2O Water, increased travel and trade show expenditures, and higher costs associated with inflation, partially offset by foreign exchange gains.

SG&A as a percentage of net sales was 19.3% for 2022 and 17.4% in the prior year.

SG&A decreased by $2.4 million from $51.2 million in 2021 to $48.8 million in 2022 as a result of lower personnel-related expenses partially offset by higher costs associated with inflation.

Index to Financial Statements

Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Year ended September 30, 2021

Solutions Water

Solutions Corporate Consolidated

(in millions)

Net sales $ 617.8 $ 493.2 $ — $ 1,111.0

Gross profit $ 202.8 $ 155.7 $ — $ 358.5

Operating expenses:

Selling, general and administrative 81.8 85.8 51.2 218.8

Strategic reorganization and other (benefits) charges 0.1 (0.4) 8.3 8.0

8 unchanged sentences

Year ended September 30, 2020

Infrastructure Technologies Corporate Total

Solutions Water

Solutions Corporate Consolidated

(in millions)

3 unchanged sentences

Selling, general and administrative 75.1 78.8 44.5 198.4

129.1 24.8 44.5 198.4

Strategic reorganization and other charges — 0.7 12.3 13.0

1 unchanged sentence

Operating income (loss) $ 104.9 $ 68.7 $ (56.8) 116.8

$ 186.0 $ (12.4) $ (56.8) 116.8

Pension benefit other than service (3.0)

5 unchanged sentences

Consolidated Analysis

Net sales for 2021 increased 15.2% to $1,111.0 million from $964.1 million in the prior year primarily as a result of higher shipment volume across most of our product lines and higher pricing.

Net sales for 2021 increased 15.2% to $1,111.0 million from $964.1 million in the prior year primarily as a result of higher volume across most of our product lines and higher pricing.

Additionally, net sales benefited as a result of $6.0 million of Krausz sales from the elimination of the one-month reporting lag.

Gross profit increased $30.3 million to $358.5 million for 2021 compared with $328.2 million in the prior year.

This increase was primarily a result of increased shipment volume and higher pricing, partially offset by higher manufacturing costs as a result of inflation, higher labor costs, 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 decreased to 32.3% in 2021 as compared with 34.0% in the prior year.

This increase was primarily a result of increased volume and higher pricing, partially offset by higher manufacturing costs as a result of inflation, higher labor costs, and a $2.4 million inventory write-off associated with the announcement of our plant closures in

Index to Financial Statements

Selling, general and administrative expenses (“SG&A”) increased 10.3% to $218.8 million for 2021 from $198.4 million in the prior year.

Aurora, Illinois and Surrey, British Columbia, Canada.

Gross margin decreased to 32.3% in 2021 as compared with 34.0% in the prior year.

SG&A increased 10.3% to $218.8 million for 2021 from $198.4 million in the prior year.

As a percentage of net sales, SG&A decreased 90 basis points to 19.7% of net sales from 20.6% in the prior year.

The increase in SG&A was primarily a result of increased personnel-related expenses, including incentive compensation, sales commissions associated with higher net sales and orders, and stock-based compensation.

Additional increases were a result of inflation, new product development and information technology spending.

Additional SG&A increases were a result of inflation, new product development and information technology spending.

Fiscal year 2020 SG&A included pandemic-driven benefits from temporarily reduced travel, trade show and event spending as well as temporary employee furloughs and temporary salary reductions.

Strategic reorganization and other charges for 2021 primarily relate to termination benefits associated with our plant closures in Aurora, Illinois and Surrey, British Columbia, Canada, the June 2021 mass shooting tragedy at our Albertville facility, and certain transaction-related costs, partially offset by a one-time settlement gain in connection with an indemnification of a previously owned property.

In 2020, Strategic reorganization and other charges primarily relate to a legal settlement, facility closure costs, transaction costs associated with the acquisition of Krausz, and personnel matters.

Interest expense, net declined $2.1 million in 2021 from the prior year primarily as a result of the retirement of our 5.5% Senior Unsecured Notes (“5.5% Senior Notes”), which were replaced with 4.0% Senior Unsecured Notes (“4.0% Senior Notes”) as well as an increase in capitalized interest on our large capital projects, partially offset by lower interest income.

Strategic reorganization and other charges of $8.0 million for 2021 primarily related to termination benefits associated with our plant closures in Aurora, Illinois and Surrey, British Columbia, Canada, the Albertville tragedy, and certain transaction-related costs, partially offset by a one-time settlement gain in connection with an indemnification of a previously owned property.

In 2020, Strategic reorganization and other charges of $13.0 million primarily related to a legal settlement, facility closure costs, transaction costs associated with the acquisition of Krausz, and personnel matters.

Interest expense, net declined $2.1 million in 2021 from the prior year primarily as a result of an increase in capitalized interest on our large capital projects and the retirement of our 5.5% Senior Unsecured Notes (“5.5% Senior Notes”), which were replaced with 4.0% Senior Unsecured Notes (“4.0% Senior Notes”), partially offset by lower interest income.

(in millions)

8 unchanged sentences

Total interest expense, net $ 23.4 $ 25.5

Income tax expense of $24.5 million in 2021 included an effective income tax rate of 25.8%, which was higher than the 23.5% rate in the prior year.

Income tax expense of $24.5 million in 2021 yielded an effective income tax rate of 25.8%, which was higher than the 23.5% rate in the prior year.

Segment Analysis

Infrastructure

Water Flow Solutions

Net sales for 2021 increased $85.6 million, or 16.1%, to $617.8 million from $532.2 million in the prior year.

Net sales increased primarily as a result of increased shipment volume, favorable pricing and $6.0 million in Krausz net sales as a result of the elimination of the one-month reporting lag.

We believe the increased shipment volume was a result of strong demand driven by residential construction and municipal repair and replacement activity.

Gross profit for 2021 increased $29.3 million, or 9.3%, to $345.0 million from $315.7 million in the prior year primarily as a result of increased shipment volume, higher sales pricing and the benefit of the elimination of the Krausz one-month reporting lag.

These increases were partially offset by higher material and other costs associated with inflation, specifically related to brass ingot, scrap steel and purchased parts, 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 expenses.

Net sales increased primarily as a result of increased volume, and favorable pricing.

The increased volume was a result of strong demand dri ven by both residential construction and municipal repair and replacement activity.

Gross profit for 2021 increased $22.8 million, or 12.7%, to $202.8 million from $180.0 million in the prior year primarily as a result of increased volume.

These increases were partially offset by higher material and other costs associated with inflation, specifically related to brass ingot, scrap steel and purchased parts, 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 certain expenses related to the pandemic, including voluntary emergency paid leave and other employee costs as well as additional sanitation and cleaning expenses.

Gross margin was 32.8% in 2021, a 100 basis point decrease compared with 33.8% in the prior year.

SG&A in 2021 increased 9.2% to $141.0 million from $129.1 million in the prior year primarily as a result of increased personnel-related costs including higher sales commissions associated with higher net sales and orders, inflation, information technology spending, and new product development.

SG&A in 2021 increased $6.7 million, or 8.9% to $81.8 million from $75.1 million in the prior year primarily as a result of increased personnel-related costs including higher sales commissions associated with higher net sales and orders, inflation, information technology spending, and new product development.

Fiscal year 2020 SG&A included pandemic-driven benefits resulting from temporarily reduced travel, trade show and event spending as well as temporary employee furloughs and temporary salary reductions.

1 unchanged sentence

Index to Financial Statements

Net sales in 2021 increased to $89.0 million from $80.5 million in the prior year primarily as a result of higher shipment volumes and the acquisition of i2O.

Gross profit in 2021 increased $1.0 million to $13.5 million from $12.5 million in the prior year as a result of higher shipment volumes, partially offset by inflation and inventory adjustments.

Water Management Solutions

Net sales in 2021 increased 14.2% to $493.2 million from $431.9 million in the prior year primarily as a result of higher volumes , $6.0 million in Krausz net sales as a result of the elimination of the one-month reporting lag, and the acquisition of i2O.

Gross profit in 2021 increased $7.5 million to $155.7 million from $148.2 million in the prior year as a result of higher volum es partially offset by higher inflation.

Gross margin decreased to 31.6% in 2021 from 34.3% in the prior year.

SG&A increased to $26.6 million in 2021 from $24.8 million in the prior year primarily as a result of personnel-related expenses.

SG&A increased to $85.8 million in 2021 from $78.8 million in the prior year primarily as a result of personnel-related expenses and information technology spending.

2 unchanged sentences

Fiscal year 2020 SG&A included pandemic-driven benefits resulting from temporary reductions in travel, trade show and event spending as well as temporary employee furloughs and temporary salary reductions.

Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Management’s Discussion and Analysis comparing the results for the year ended September 30, 2020 to the results for the year ended September 30, 2019 can be found in our Form 10-K for the year ended September 30, 2020.

Financial Condition

Cash and cash equivalents were $146.5 million at September 30, 2022 and $227.5 million at September 30, 2021.

Cash and cash equivalents increased during 2021 as a result of $156.7 million in cash provided by operating activities, partially offset by capital expenditures of $62.7 million, dividend payments of $34.8 million, the $19.7 million acquisition of i2O, $12.4 million in debt repayments, net, and $10.0 million in share repurchases.

Cash and cash equivalents decreased during 2022 as a result of capital expenditures of $54.7 million, dividend payments of $36.5 million, $35.0 million in share repurchases, and $6.4 million in effect of currency exchange rate changes on cash, partially offset by $52.3 million in cash provided by operating activities.

Receivables, net were $228.0 million at September 30, 2022 and $212.2 million at September 30, 2021.

1 unchanged sentence

Inventories, net were $278.7 million at September 30, 2022 and $184.7 million at September 30, 2021.

Inventories increased during 2021 as a result of increased volume and inflationary costs.

Inventories increased during 2022 as a result of increased volume, inflationary costs, and inventory management due to supply chain issues.

Property, plant and equipment, net was $301.6 million at September 30, 2022 and $283.4 million at September 30, 2021.

Property, plant and equipment increased primarily as a result of our previously-announced capital expansion projects in Kimball, Tennessee and Decatur, Illinois.

Capital expenditures, including software development costs capitalized and capitalized interest, were $62.7 million in 2021.

Depreciation expense was $31.4 million in 2021 compared to $29.6 million in 2020 as a result of generally higher level of capital expenditures over the last three years.

Capital expenditures were $54.7 million in 2022.

Depreciation expense was $32.0 million in 2022 compared with $31.4 million in 2021 as a result of generally higher level of capital expenditures over the last three years.

Intangible assets were $361.2 million at September 30, 2022 and $392.5 million at September 30, 2021.

Finite-lived intangible assets, net totaling $88.5 million at September 30, 2022, are amortized over their estimated useful lives.

Amortization expense was $28.2 million in both 2021 and 2020.

We expect amortization expense for these assets to range between approximately $27 million and $29 million in each of the next three years with a decrease to approximately $6 million in fiscal 2025 and approximately $5 million in fiscal 2026.

Amortization expense was $28.5 million in 2022 and $28.2 million in 2021.

We expect amortization expense for these assets to be approximately $28 million and $27 million in the next two years with a decrease to approximately $8 million in fiscal 2025, approximately $6 million in fiscal 2026 and approximately $5 million in fiscal 2027.

Indefinite-lived intangible assets, $272.7 million at September 30, 2022, are not amortized but are tested for possible impairment at least annually.

Accounts payable and other current liabilities were $240.2 million at September 30, 2022 and $219.1 million at September 30, 2021.

Payables increased during 2021 as a result of increased production volume and the impact of higher material costs.

Other current liabilities increased during 2021 primarily as a result of personnel-related expenses, including incentive compensation and sales commissions, as well as customer rebates and income taxes.

Total outstanding debt was $446.9 million at September 30, 2021 and $447.6 million at September 30, 2020.

Accounts payable increased during 2022 as a result of increased production volume and the impact of higher inventory costs.

Other current liabilities decreased during 2022 primarily as a result of lower personnel-related expenses, including incentive compensation and sales commissions, as well as customer rebates and income taxes.

Total outstanding debt was $446.9 million as of September 30, 2022 and September 30, 2021.

Deferred income taxes were net liabilities of $86.3 million at September 30, 2022 and $94.8 million at September 30, 2021, primarily related to intangible assets.

The $1.5 million decrease in the net liability was primarily the result of an increase in deferred tax assets related to increased inventory reserves partially offset by an increase in deferred tax liabilities related to

The $8.5 million decrease in the net liability was primarily a result of reductions in intangible assets.

Index to Financial Statements

bonus depreciation for plant, property and equipment and the cost basis difference of a foreign subsidiary, net of reductions in deferred tax liabilities related to intangible assets.

Liquidity and Capital Resources

We had cash and cash equivalents of $227.5 million at September 30, 2021 and approximately $158.7 million of additional borrowing capacity under our ABL Agreement based on September 30, 2021 data.

We had cash and cash equivalents of $146.5 million at September 30, 2022 and approximately $160.7 million of additional borrowing capacity under our asset-based lending arrangement (the “ABL”) based on September 30, 2022 data.

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

At September 30, 2022, cash and cash equivalents included $40.5 million, $18.9 million, and $5.2 million in Israel, Canada and China, respectively.

Net cash provided by operating activities was $156.7 million for 2021 compared with $140.3 million for 2020 primarily as a result of the Walter tax matter which was paid in 2020 and did not recur in 2021.

We declared a quarterly dividend of $0.061 per share on October 21, 2022, payable on or about November 21, 2022 to holders of record as of November 10, 2022, which will result in an estimated $9.5 million cash outlay.

We repurchased $35.0 million of our outstanding common stock during the fiscal year ended September 30, 2022 and had $100.0 million remaining under our share repurchase authorization as of September 30, 2022.

The ABL 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 fiscal year ended September 30, 2022 as compared with the prior year period primarily as a result of net sales growth.

Inventory purchases increased during the fiscal year ended September 30, 2022 as compared with the fiscal year ended September 30, 2021 as a result of inflation, increased sales, and inventory management due to supply chain factors.

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 $54.7 million for 2022 compared with $62.7 million for 2021.

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

We estimate 2023 capital expenditures will be between $70.0 million and $80.0 million.

We expect our capital expenditures will be elevated over the next several years as we invest more in our machinery, equipment and facilities for product introductions, enhanced productivity and maintenance.

Additionally, in fiscal year 2021, we completed construction of our large casting foundry in Chattanooga, Tennessee, initiated the construction of a new brass foundry in Decatur, Illinois that will replace our existing foundry in Decatur, and are building out our facility in Kimball, Tennessee to leverage our large casting foundry, consolidate other plants and to insource various parts and components.

Income tax payments were higher during 2021 compared with the prior year primarily as a result of the Walter tax matter, which was expensed in 2019 and was deducted for tax purposes in 2020.

This did not recur in 2021.

Income tax payments were higher during 2022 compared with the prior year primarily as a result of the timing of certain federal and state extension payments.

We expect the effective tax rate in 2023 to be between 23% and 25%.

In 2015, we announced the authorization of a stock repurchase program for up to $50.0 million of our common stock.

Our stock repurchase program allows us to repurchase up to $250.0 million of our common stock, of which we had remaining authorization of $100.0 million as of September 30, 2022.

The program does not commit us to any particular timing or quantity of purchases, and we may suspend or discontinue the program at any time.

In 2017, we announced an increase in the authorization of this program to $250.0 million.

We acquired 2,654,254 and 651,271 shares of our common stock in 2022 and 2021, respectively.

At September 30, 2021, we had remaining authorization of $135.0 million to repurchase shares of our common stock.

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

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

We anticipate our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating needs, capital expenditures and debt service obligations as they become due through September 30, 2022.

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

As of September 30, 2022, we had $14.1 million of letters of credit and $31.1 million of surety bonds outstan ding.

We anticipate our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating needs, income tax payments, capital expenditures and debt service obligations as they become due through September 30, 2023.

However, our ability to make these payments will depend largely on our future operating performance, which may be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.

ABL Agreement

At September 30, 2021, our asset-based lending agreement (“ABL Agreement”) consisted of a $175.0 million revolving credit facility that includes up to $25.0 million of swing line loans and allows for 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 the London Inter Bank Offered Rate (“LIBOR”) plus an applicable margin of 200 to 225 basis points, or a base rate, as defined in the ABL Agreement, plus an applicable margin of 100 to 125 basis points.

At September 30, 2021, the LIBOR-based applicable margin was 200 basis points.

Our ABL, as amended, is provided by a consortium of banking institutions and consists of a revolving credit facility that $175.0 million in borrowing that expires in July 29, 2025.

Included in the ABL is the ability to borrow up to $25.0 million of swing line loans and up to $60.0 million of letters of credit.

The ABL 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 bear interest at a floating rate equal to the London Inter Bank Offered Rate (“LIBOR”) plus an applicable margin range of 200 to 225 basis points, or a base rate, as defined in the ABL, plus an applicable margin of 100 to 125 basis points.

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

Index to Financial Statements

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

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

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

The borrowing base under the ABL 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.

Prepayments can be made at any time without penalty.

Substantially all of our United States subsidiaries are borrowers under the ABL Agreement and are jointly and severally liable for any outstanding borrowings.

Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our United States inventory, accounts receivable, certain cash and other supporting obligations.

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

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.

Substantially all of our United States subsidiaries are borrowers under the ABL and are jointly and severally liable for any outstanding borrowings.

Our obligations under the ABL are secured by a first-priority perfected lien on all of our United States inventory, accounts receivable, certain cash balances and other supporting obligations.

The ABL includes a commitment fee for any unused borrowing capacity of 37.5 basis points per annum.

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.

Excess availability based on September 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

On May 28, 2021, we privately issued $450.0 million of 4.0% Senior Unsecured Notes (“4.0% Senior Notes”), which mature in June 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 4.0% Senior Notes using the effective interest rate method.

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, which are being amortized over the term of the 4.0% Senior Notes using the effective interest method.

Proceeds from the 4.0% Senior Notes, along with cash on hand were used to redeem previously existing 5.5% Senior Notes.

Substantially all of our United States subsidiaries guarantee the 4.0% Senior Notes, which are subordinate to borrowings under our ABL Agreement.

Substantially all of our U.S.

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

Based on quoted market prices the outstanding 4.0% Senior Notes had a fair value of $382.1 million at September 30, 2022.

An indenture securing 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 September 30, 2022.

There are no financial maintenance covenants associated with the Indenture.

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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ABL Agreement Not rated Not rated Not rated Not rated

4.0% Senior Notes Ba1 N/A BB N/A

5.5% Senior Notes N/A Ba3 N/A BB

4.0% Senior Notes Ba1 Ba1 BB BB

Outlook Stable Stable Stable Stable

Index to Financial Statements

Effect of Inflation

We experience changing price levels primarily related to purchased components and raw materials.

Infrastructure experienced a 33% increase in the average cost per ton of scrap steel and a 35% increase in the average cost of brass ingot in 2021 compared to 2020.

Technologies was also unfavorably affected by the 35% increase in the average cost of brass ingot.

During the fiscal year 2022, we experienced a 40% increase in the average cost per ton of scrap steel and a 20% increase in the average cost of brass as compared to 2021.

We anticipate inflation in raw and other material costs in 2023, which may have an adverse effect on our margins to the extent we are unable to pass on such higher costs to our customers.

Index to Financial Statements

Material Cash Requirements

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

As of September 30, 2021, 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) operating and finance lease obligations that total $34.9 million in cash payments through 2033 and $2.3 million thereafter through 2026, respectively, and (iii) purchase obligations for raw materials and other parts within our Infrastructure segment of approximately $122.9 million which we will incur during 2022.

As of September 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 $18.0 million in 2023 annually through 2029;

(ii) cumulative cash obligations of $32.6 million for operating leases through 2033 and $1.7 million for finance leases through 2026;

and (iii) purchase obligations for raw materials and other purchased parts of approximately $155.1 million which we will incur during 2023.

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

Our water infrastructure business depends on construction activity.

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

Generally speaking, for Infrastructure, approximately 45% of a fiscal year’s net sales occurs in the first half of the fiscal year with 55% occurring in the second half of the fiscal year, though this pattern was disrupted by the pandemic in 2020.

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

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

See “Item 1A.

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We recognize deferred tax liabilities and deferred tax assets for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Deferred tax liabilities and assets are determined based on the

Index to Financial Statements

differences between the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect for the years in which the differences are expected to reverse.

Deferred tax liabilities and assets are determined based on the differences between the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect for the years in which the differences are expected to reverse.

A valuation allowance is provided to offset any net deferred tax assets when, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Our tax balances are based on our expectations of future operating performance, reversal of taxable temporary differences, tax planning strategies, interpretation of the tax regulations currently enacted and rulings in numerous tax jurisdictions.

Our deferred tax liabilities and assets are based on our expectations of future operating performance, reversal of taxable temporary differences, tax planning strategies, interpretation of the tax regulations currently enacted and rulings in numerous tax jurisdictions.

Index to Financial Statements

We only record tax benefits for positions that we believe are more likely than not of being sustained under audit examination based solely on the technical merits of the associated tax position.

1 unchanged sentence

Accounting for the Impairment of Goodwill and Indefinite-lived Intangible Assets

We test indefinite-lived intangible assets and goodwill for impairment annually or more frequently if events or circumstances indicate possible impairment.

We test goodwill and indefinite-lived intangible assets for impairment annually or more frequently if events or circumstances indicate possible impairment.

We performed this annual impairment testing at September 1, 2022 , using standard valuation methodologies and rates that we considered reasonable and appropriate.

We evaluated goodwill for impairment using a quantitative analysis.

We performed this annual impairment testing at September 1, and concluded that our goodwill was not impaired.

This analysis is dependent on management’s best estimates of future operating results, including forecasted revenues, earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins and the selection of reasonable discount rates.

We also consider the guideline public company method when estimating the fair value of our reporting units.

We tested the indefinite-lived intangible assets for impairment using a “royalty savings method,” which is a variation of the discounted cash flow method.

We evaluate goodwill for impairment using a quantitative analysis.

The carrying value of the reporting unit, including goodwill, is compared with the estimated fair value of the reporting unit utilizing a combination of the income and market approaches.

The income approach, which is a level 3 fair value measurement, is based on projected debt-free cash flow which is discounted to the present value using discount rates that consider the timing and risk of the cash flows.

The market approach is based on the guideline public company method, which uses market multiples to value our reporting units.

We weight the income and market approaches in a manner considering the risks of the underlying cash flows.

This income approach is dependent on management’s best estimates of future operating results, including forecasted revenues, earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins and the selection of discount rates.

There are inherent uncertainties related to the assumptions used and to management's application of these assumptions.

We test our trade name indefinite-lived intangible assets for impairment using a “royalty savings method,” which is a variation of the discounted cash flow method.

This method estimates a fair value by calculating an estimated discounted future cash flow stream from the hypothetical licensing of the indefinite-lived intangible assets.

1 unchanged sentence

This analysis is dependent on management’s best estimates of future operating results and the selection of reasonable discount rates and hypothetical royalty rates.

We performed this annual impairment testing at September 1, and concluded that our indefinite-lived intangible assets were not impaired.

Significantly different projected operating results could result in different conclusions regarding impairment.

Other long-lived assets, including finite-lived intangible assets, are amortized over their respective estimated useful lives and reviewed for impairment if events or circumstances indicate possible impairment.

Warranty Costs

We performed our annual impairment testing at September 1, 2022.

As a result of this quantitative testing, we recognized a $6.8 million goodwill impairment charge for a reporting unit within our Water Flow Solutions segment as the carrying value exceeded its fair value.

Our determination of the estimated fair value was based on a combination of the discounted cash flow method and the guideline public company method.

Our testing indicated no other impairment.

Warranty Cost

We accrue for warranty expenses that can include customer costs of repair and/or replacement, including labor, materials, equipment, freight and reasonable overhead costs.

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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 7. Management’s Discussion and Analysis