What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-06 compared with 2025-02-05 · 166 added, 72 removed, 157 unchanged (60% of the section changed)

39 unchanged sentences

In October 2023, the Israel-Hamas war caused a temporary shutdown of our facility in Ariel, Israel.

While we reopened the facility in November 2023, the war caused supply chain challenges that continue to hinder our ability to most efficiently manufacture our products produced in Israel.

These supply chain disruptions have adversely impacted, and continue to adversely impact, our ability to efficiently produce and deliver our products from our facility in Ariel, Israel.

Additionally, production at this facility has been adversely impacted by limited labor availability in the region.

We have made investments in recruiting and

training new team members, expanding our suppliers and expediting product shipments to increase production levels and meet customer delivery times.

While we reopened the facility in November 2023, the war caused supply chain disruption and labor availability challenges that hindered, and continue to hinder, our ability to most efficiently manufacture and deliver our products from our facility in Ariel, Israel.

We have made investments in recruiting and training new team members and expanding our suppliers to increase production levels, as well as expediting product shipments and increasing inventory safety stock to meet customer delivery times.

The cybersecurity incident in the first quarter of fiscal 2024 consisted of unauthorized access and deployment of ransomware by a third party to a portion of our internal information system infrastructure.

8 unchanged sentences

In January 2025, we announced the appointment of Ms.

Melissa Rasmussen as Senior Vice President and Chief Financial Officer effective March 4, 2025.

As previously announced, Mr.

Steve Heinrichs will transition from his Chief Financial Officer and Chief Legal Officer roles and remain available to the Company on a consulting basis through September 30, 2025.

For fiscal year 2025, we anticipate that consolidated net sales will increase between 4.2% and 5.7% as compared with fiscal 2024, which does not include any impact as a result of the recently announced tariffs.

The external operating environment remains dynamic as we face uncertainties and challenges emanating from changes in government policies, the interest rate environment, the Israel-Hamas war and unrest in the Middle East, as well as labor inflation and availability.

Melissa Rasmussen as Senior Vice President and Chief Financial Officer effective March 3, 2025 and Mr.

Steven Heinrichs transitioned from his Chief Financial Officer and Chief Legal Officer roles to Senior Advisor and remains available to the Company on a consulting basis through September 30, 2025.

For fiscal year 2025, we anticipate that consolidated net sales will increase between 5.7% and 6.5% as compared with fiscal 2024.

The external operating environment remains uncertain as we face challenges emanating from changes in government policies and possible disruptions to global supply chains, the interest rate and tariff environment, geopolitics, as well as labor and material inflation and availability.

We expect these challenges to continue during the remainder of fiscal 2025.

After our short-cycle channel and customer inventory levels largely normalized during the first quarter of 2024, our orders and shipments reflected a more typical operating environment compared with the high backlog environment we experienced during and after the COVID-19 pandemic.

For the remainder of fiscal 2025, we assume that we will continue to experience a more normalized operating environment leading to normalized seasonality for consolidated net sales.

We continue to anticipate resilient demand in the municipal repair and replacement end market driven by the aging water infrastructure albeit moderated by budgetary and operational pressures on municipalities.

However, we anticipate that new residential construction activity and new lot and land development will be relatively constrained by the increased uncertainty and interest rate environment, depending on the geographic region.

In April 2025, Blue Chip Economic Indicators forecasted relative consistency in housing starts for the calendar year 2025 as compared to calendar year 2024.

After our short-cycle channel and customer inventory levels largely normalized during the first quarter of 2024, our orders and shipments reflected a more typical demand environment compared with the high backlog environment we experienced during and after the COVID-19 pandemic.

For the remainder of fiscal 2025, we assume that we will continue to experience a more normalized demand environment leading to more normalized seasonality for consolidated net sales.

Therefore, we anticipate quarterly consolidated net sales as a percentage of fiscal year 2025 consolidated net sales to be the highest in the third quarter and lowest in the first quarter, with a sequential increase in consolidated net sales in the second quarter as the construction season ramps up for the spring season.

In January 2025, Blue Chip Economic Indicators forecasted a 0.7% increase in housing starts for the calendar year 2025 as compared to the calendar year 2024.

We anticipate resilient demand in the municipal repair and replacement end market driven by the aging water infrastructure albeit moderated by budgetary and operational pressures on municipalities.

Additionally, we anticipate that new residential construction activity and new lot and land development will be relatively constrained by the interest rate environment, depending on the geographic region.

For the remainder of fiscal 2025, we anticipate that inflation will continue to modestly impact manufacturing costs, primarily due to wage inflation, as well as raw materials and purchased parts.

Inventory costs for the first six months of 2025 experienced approximately 1.4% inflation.

For the remainder of fiscal 2025, we anticipate that inflation will rise, particularly for purchased parts due to new tariffs enacted after January 2025.

At this time, excluding the impact of tariffs, we expect inflation to modestly impact manufacturing and transportation costs.

We will continue to monitor the market and economic conditions impacting our business and take appropriate actions to address inflationary and other cost pressures, including new tariffs, by implementing price increases, cost containment measures and supplier management measures, among other mitigating actions.

Results of Operations

Three Months Ended December 31, 2024 Compared to Three Months Ended December 31, 2023

Three months ended December 31, 2024

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Three months ended March 31, 2025

Water Flow Solutions Water Management Solutions Corporate Total

8 unchanged sentences

Non-operating expenses:

Pension benefit other than service (0.1)

Interest expense, net 2.3

2 unchanged sentences

Net income $ 51.3

Three months ended December 31, 2023

Three months ended March 31, 2024

Water Flow Solutions Water Management Solutions Corporate Total

10 unchanged sentences

Interest expense, net 3.6

Other expense 1.6

Income before income taxes 58.9

2 unchanged sentences

Consolidated Analysis

Net sales for the three months ended December 31, 2024 were $304.3 million as compared with $256.4 million in the prior year period, an increase of $47.9 million or 18.7%, primarily as a result of increased volumes at Water Flow Solutions and Water Management Solutions, as well as higher pricing across most product lines.

Gross profit for the three months ended December 31, 2024 was $103.0 million as compared with $86.3 million in the prior year period, an increase of $16.7 million or 19.4%, primarily as a result of higher volumes and favorable price/cost.

Offsetting the increase was a $3.3 million write-down of inventory and other assets associated with our legacy brass foundry in Decatur, Illinois, which ceased production in January 2025.

The Israel-Hamas war negatively impacted Gross profit by less than 5%.

As a result, Gross margin was 33.8% in the three months ended December 31, 2024 as compared with 33.7% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the three months ended December 31, 2024 were $53.9 million as compared with $56.9 million in the prior year period, a decrease of $3.0 million or 5.3%, primarily due to lower amortization and favorable foreign exchange impacts, partially offset by approximately 3% inflation, higher third-party fees and personnel-related expense.

SG&A as a percentage of net sales was 17.7% and 22.2% for the three months ended December 31, 2024 and December 31, 2023, respectively.

Strategic reorganization and other charges for the three months ended December 31, 2024 were $1.7 million and consisted of expenses associated with our leadership transition and severance.

Strategic reorganization and other charges for the three months ended December 31, 2023 were $6.6 million and consisted of expenses associated with our leadership transition, cybersecurity incidents and certain transaction-related expenses.

Net interest expense for the three months ended December 31, 2024 was $1.6 million as compared with $3.3 million in the prior year period, a decrease of $1.7 million or 51.5%, primarily due to higher interest income.

Net sales for the three months ended March 31, 2025 were $364.3 million as compared with $353.4 million in the prior year period, an increase of $10.9 million or 3.1%, primarily as a result of higher pricing across most product lines, as well as increased volumes.

Gross profit for the three months ended March 31, 2025 was $128.0 million as compared with $130.4 million in the prior year period, a decrease of $2.4 million or 1.8%, primarily as a result of manufacturing inefficiencies partially offset by higher volumes and favorable price/cost.

Included in the manufacturing inefficiencies was a $0.8 million write-down of other assets associated with our legacy brass foundry in Decatur, Illinois.

Inflation impacted Gross margin by approximately 3%.

As a result, Gross margin was 35.1% in the three months ended March 31, 2025 as compared with 36.9% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the three months ended March 31, 2025 were $55.7 million as compared with $63.7 million in the prior year period, a decrease of $8.0 million or 12.6%, primarily due to lower amortization, incentive and travel expenses as well as favorable foreign exchange impacts, partially offset by approximately 3% inflation.

SG&A as a percentage of net sales was 15.3% and 18.0% for the three months ended March 31, 2025 and March 31, 2024, respectively.

Strategic reorganization and other charges for the three months ended March 31, 2025 were $2.4 million and consisted of expenses associated with our leadership transition, non-cash asset impairment and certain transaction-related expenses.

Strategic reorganization and other charges for the three months ended March 31, 2024 were $3.2 million and consisted of expenses associated with our leadership transition, severance and certain transaction-related expenses.

Net interest expense for the three months ended March 31, 2025 was $2.3 million as compared with $3.6 million in the prior year period, a decrease of $1.3 million or 36.1%, primarily due to higher interest income.

The components of net interest expense are as shown below:

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Uncertain tax positions 0.3 0.5

Other 0.3 1.6

Effective income tax rate 24.2 % 24.8 %

Segment Analysis

Water Flow Solutions

Net sales for the three months ended March 31, 2025 were $216.2 million as compared with $205.8 million in the prior year period, an increase of $10.4 million or 5.1%, primarily as a result of higher volumes of iron gate and specialty valves as well as higher pricing across most product lines, partially offset by lower volumes of service brass products.

Gross profit for the three months ended March 31, 2025 was $77.0 million as compared with $77.2 million in the prior year period, a decrease of $0.2 million or 0.3%.

This decrease was primarily a result of manufacturing inefficiencies, including a $0.8 million write-down of other assets related to our legacy brass foundry in Decatur, Illinois, partially offset by higher volumes and favorable price/cost.

Inflation impacted Gross profit by approximately 4%.

Gross margin was 35.6% in the three months ended March 31, 2025 and 37.5% in the prior year period.

SG&A for the three months ended March 31, 2025 was $21.9 million as compared with $24.6 million in the prior year period, a decrease of $2.7 million or 11.0%, primarily as a result of lower amortization, travel and incentive expenses, partially offset by higher personnel-related expenses and inflation of approximately 3%.

SG&A as a percentage of net sales was 10.1% and 12.0% in the three months ended March 31, 2025 and 2024, respectively.

Water Management Solutions

Net sales for the three months ended March 31, 2025 were $148.1 million as compared with $147.6 million in the prior year period, an increase of $0.5 million or 0.3%, primarily as a result of higher pricing across most product lines, partially offset by lower volumes primarily in natural gas distribution products.

Gross profit for the three months ended March 31, 2025 was $51.0 million as compared with $53.2 million in the prior year period, a decrease of $2.2 million or 4.1%.

The decrease was primarily a result of manufacturing inefficiencies partially offset by favorable price/cost.

Inflation impacted Gross profit by approximately 2%.

Gross margin was 34.4% in the three months ended March 31, 2025 as compared with 36.0% in the prior year period.

SG&A for the three months ended March 31, 2025 was $19.6 million as compared with $24.2 million in the prior year period, a decrease of $4.6 million or 19.0%, primarily due to lower amortization, favorable foreign exchange impacts and lower travel expenses, partially offset by approximately 4% inflation.

SG&A as a percentage of net sales was 13.2% and 16.4% in the three months ended March 31, 2025 and 2024, respectively.

SG&A for the three months ended March 31, 2025 was $14.2 million as compared with $14.9 million in the prior year period, a decrease of $0.7 million or 4.7%, primarily as a result of lower compensation as well as consulting and professional fees partially offset by approximately 3% inflation.

Six months ended March 31, 2025 Compared to Six months ended March 31, 2024

Six months ended March 31, 2025

Water Flow Solutions Water Management Solutions Corporate Total

(in millions)

Net sales $ 390.8 $ 277.8 $ — $ 668.6

Gross profit $ 132.1 $ 98.9 $ — $ 231.0

Operating expenses:

Selling, general and administrative 41.7 39.9 28.0 109.6

Strategic reorganization and other charges 1.0 0.4 2.7 4.1

Total operating expenses 42.7 40.3 30.7 113.7

Operating income (loss) $ 89.4 $ 58.6 $ (30.7) 117.3

Non-operating expenses:

Pension benefit other than service (0.1)

Interest expense, net 3.9

Income before income taxes 113.5

Income tax expense 26.9

Net income $ 86.6

Six months ended March 31, 2024

Water Flow Solutions Water Management Solutions Corporate Total

(in millions)

Net sales $ 347.1 $ 262.7 $ — $ 609.8

Gross profit $ 123.8 $ 92.9 $ — $ 216.7

Operating expenses:

Selling, general and administrative 43.8 48.8 28.0 120.6

Strategic reorganization and other charges 0.2 — 9.6 9.8

Total operating expenses 44.0 48.8 37.6 130.4

Operating income (loss) $ 79.8 $ 44.1 $ (37.6) 86.3

Non-operating expenses:

Pension expense other than service 2.0

Interest expense, net 6.9

Other expense 1.6

Income before income taxes 75.8

Income tax expense 17.2

Net income $ 58.6

Consolidated Analysis

Net sales for the six months ended March 31, 2025 were $668.6 million as compared with $609.8 million in the prior year period, an increase of $58.8 million or 9.6%, primarily as a result of increased volumes as well as higher pricing across most product lines.

Gross profit for the six months ended March 31, 2025 was $231.0 million as compared with $216.7 million in the prior year period, an increase of $14.3 million or 6.6%, primarily as a result of higher volumes and favorable price/cost which more than offset the impact of manufacturing inefficiencies.

Included in the manufacturing inefficiencies was a $4.1 million write-down of

inventory and other assets associated with our legacy brass foundry in Decatur, Illinois.

Inflation negatively impacted Gross profit by approximately 4%.

As a result, Gross margin was 34.5% in the six months ended March 31, 2025 as compared with 35.5% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the six months ended March 31, 2025 were $109.6 million as compared with $120.6 million in the prior year period, a decrease of $11.0 million or 9.1%, primarily due to lower amortization, favorable foreign exchange impacts as well as reduced travel and incentive expenses, partially offset by approximately 3% inflation and higher personnel-related expense as well as consulting and professional fees.

SG&A as a percentage of net sales was 16.4% and 19.8% for the six months ended March 31, 2025 and March 31, 2024, respectively.

Strategic reorganization and other charges for the six months ended March 31, 2025 were $4.1 million and consisted of expenses associated with our leadership transition, non-cash asset impairment and certain transaction-related costs.

Strategic reorganization and other charges for the six months ended March 31, 2024 were $9.8 million and consisted of expenses associated with our leadership transition, severance, certain transaction-related costs, as well as cybersecurity incidents expense.

Net interest expense for the six months ended March 31, 2025 was $3.9 million as compared with $6.9 million in the prior year period, a decrease of $3.0 million or 43.5%, primarily due to higher interest income.

The components of net interest expense are as shown below:

Six months ended

(in millions)

4.0% Senior Notes $ 9.0 $ 9.0

Deferred financing costs amortization 0.5 0.5

ABL Agreement 0.4 0.5

Capitalized interest (0.2) (0.1)

Other interest expense 0.4 0.3

Total interest expense 10.1 10.2

Interest income (6.2) (3.3)

Interest expense, net $ 3.9 $ 6.9

The reconciliation between the U.S.

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

Six months ended

federal statutory income tax rate 21.0 % 21.0 %

Adjustments to reconcile to the effective tax rate:

State income taxes, net of federal benefit 3.9 3.4

Excess tax (benefit) deficit related to stock-based compensation (2.0) 0.1

Tax credits (1.6) (2.1)

Global Intangible Low-Taxed Income 0.3 0.2

Foreign income tax rate differential (0.4) (0.8)

Nondeductible compensation 1.4 1.0

Uncertain tax positions 0.5 (1.6)

Valuation allowances 0.1 —

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Water Flow Solutions

Net sales for the three months ended December 31, 2024 were $174.6 million as compared with $141.3 million in the prior year period, an increase of $33.3 million or 23.6%, primarily as a result of higher volumes predominately in iron gate valves and specialty valves as well as higher pricing across most product lines.

Gross profit for the three months ended December 31, 2024 was $55.1 million as compared with $46.6 million in the prior year period, an increase of $8.5 million or 18.2%.

This increase was primarily a result of higher volumes and favorable price/cost, partially offset by the $3.3 million write-down of inventory and other assets associated with our legacy brass foundry in Decatur, Illinois, which ceased production in January 2025.

Gross margin was 31.6% in the three months ended December 31, 2024 and 33.0% in the prior year period.

SG&A for the three months ended December 31, 2024 was $19.8 million as compared with $19.2 million in the prior year period, an increase of $0.6 million or 3.1%, primarily as a result of higher personnel-related expense, including commissions, third-party fees, and inflation of approximately 3%, partially offset by lower amortization.

SG&A as a percentage of net sales was 11.3% and 13.6% in the three months ended December 31, 2024 and 2023, respectively.

Net sales for the six months ended March 31, 2025 were $390.8 million as compared with $347.1 million in the prior year period, an increase of $43.7 million or 12.6%, primarily as a result of higher volumes as well as higher pricing across most product lines.

Gross profit for the six months ended March 31, 2025 was $132.1 million as compared with $123.8 million in the prior year period, an increase of $8.3 million or 6.7%.

This increase was primarily a result of higher volumes across most product lines and favorable price/cost, partially offset by manufacturing inefficiencies, including a $4.1 million write-down of inventory and other assets associated with our legacy brass foundry in Decatur, Illinois.

Inflation impacted Gross profit by approximately 5%.

Gross margin was 33.8% in the six months ended March 31, 2025 and 35.7% in the prior year period.

SG&A for the six months ended March 31, 2025 was $41.7 million as compared with $43.8 million in the prior year period, a decrease of $2.1 million or 4.8%, primarily as a result of lower amortization and travel expenses partially offset by higher personnel-related expense, inflation of approximately 3%, as well as consulting and professional fees.

SG&A as a percentage of net sales was 10.7% and 12.6% in the six months ended March 31, 2025 and 2024, respectively.

Water Management Solutions

Net sales for the three months ended December 31, 2024 were $129.7 million as compared with $115.1 million in the prior year period, an increase of $14.6 million or 12.7%, primarily as a result of higher volumes of hydrants as well as higher pricing across most product lines.

Gross profit for the three months ended December 31, 2024 was $47.9 million as compared with $39.7 million in the prior year period, an increase of $8.2 million or 20.7%.

The increase was primarily driven by higher volumes in hydrants, and favorable price/cost partially offset by impacts of the Israel-Hamas war.

Gross margin was 36.9% in the three months ended December 31, 2024 as compared with 34.5% in the prior year period.

SG&A for the three months ended December 31, 2024 was $20.3 million as compared with $24.6 million in the prior year period, a decrease of $4.3 million or 17.5%, primarily due to lower amortization, favorable foreign exchange impacts, and lower personnel-related expense, partially offset by higher commissions.

The decrease was partially offset by higher third-party fees and approximately 3% inflation.

SG&A as a percentage of net sales was 15.7% and 21.4% in the three months ended December 31, 2024 and 2023, respectively.

SG&A for the three months ended December 31, 2024 was $13.8 million as compared with $13.1 million in the prior year period, an increase of $0.7 million or 5.3%, primarily as a result of approximately 3% inflation and higher third-party fees partially offset by lower personnel-related expense.

Net sales for the six months ended March 31, 2025 were $277.8 million as compared with $262.7 million in the prior year period, an increase of $15.1 million or 5.7%, primarily as a result of higher volumes and higher pricing across most product lines.

Gross profit for the six months ended March 31, 2025 was $98.9 million as compared with $92.9 million in the prior year period, an increase of $6.0 million or 6.5%.

The increase was primarily driven by higher volume across most product lines and favorable price/cost, partially offset by manufacturing inefficiencies.

Inflation impacted Gross profit by approximately 2%.

Gross margin was 35.6% in the six months ended March 31, 2025 as compared with 35.4% in the prior year period.

SG&A for the six months ended March 31, 2025 was $39.9 million as compared with $48.8 million in the prior year period, a decrease of $8.9 million or 18.2%, primarily due to lower amortization, favorable foreign exchange impacts, lower bad debt and personnel-related expenses.

The decrease was partially offset by approximately 3% inflation as well as higher consulting and professional fees.

SG&A as a percentage of net sales was 14.4% and 18.6% in the six months ended March 31, 2025 and 2024, respectively.

SG&A for the six months ended March 31, 2025 and 2024 was $28.0 million.

Inflation of 3% and higher insurance expense were offset by decreases in incentives, favorable foreign exchange impacts and lower consulting and professional fees.

Liquidity and Capital Resources

We had cash and cash equivalents on hand of $338.2 million at December 31, 2024 and $163.0 million of additional borrowing capacity under our ABL based on December 31, 2024 data.

At December 31, 2024, cash and cash equivalents included $73.3 million, $12.0 million and $11.6 million in Israel, Canada and China, respectively.

We declared a quarterly dividend of $0.067 per share on January 23, 2025, payable on or about February 21, 2025 to stockholders of record as of February 10, 2025, which will result in an estimated $10.5 million cash outlay.

We did not repurchase any of our outstanding common stock during the three months ended December 31, 2024 under our publicly announced share repurchase program, and as of December 31, 2024, we had $80.0 million remaining under our share repurchase authorization.

We had cash and cash equivalents on hand of $329.2 million at March 31, 2025 and $163.0 million of additional borrowing capacity under our ABL based on March 31, 2025 data.

At March 31, 2025, cash and cash equivalents included $72.3 million, $7.5 million and $6.5 million in Israel, Canada and China, respectively.

We declared a quarterly dividend of $0.067 per share on April 30, 2025, payable on or about May 21, 2025 to stockholders of record as of May 12, 2025, which will result in an estimated $10.5 million cash outlay.

We repurchased $5.0 million of our outstanding common stock during the six months ended March 31, 2025 under our publicly announced share repurchase program, and as of March 31, 2025, we had $75.0 million remaining under our share repurchase authorization.

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

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

Net cash provided by operating activities was $54.1 million during the three months ended December 31, 2024 as compared with net cash provided by operating activities of $67.9 million in the prior year period.

The decrease in net operating cash flow was primarily driven by changes in working capital, including Other current liabilities such as incentive compensation, partially offset by higher Net income compared with the prior year period.

Capital expenditures were $11.9 million in the three months ended December 31, 2024 as compared with $5.7 million in the prior year period.

Capital expenditures increased primarily as a result of timing and higher expenditures associated with our foundries as compared with the prior year period.

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

Net cash provided by operating activities was $68.4 million during the six months ended March 31, 2025 as compared with net cash provided by operating activities of $62.2 million in the prior year period.

The increase in net operating cash flow was primarily driven by higher net income partially offset by changes in working capital, including decreases in Other current liabilities such as incentive compensation.

Capital expenditures were $21.1 million in the six months ended March 31, 2025 as compared with $15.8 million in the prior year period.

Capital expenditures increased primarily as a result of timing and higher expenditures associated with our foundries, including replacement of aged lost foam equipment, and cybersecurity infrastructure improvements as compared with the prior year period.

For the fiscal year 2025, we have provided guidance that our capital expenditures are expected to be between $45.0 million and $50.0 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 needs, income tax payments, capital expenditures and debt service obligations as they become due through the next twelve months from the date of this filing.

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

3 unchanged sentences

Borrowings under the ABL bear interest at a floating rate equal to SOFR plus an adjustment of 10 basis points and an applicable margin range of 150 to 175 basis points, or a base rate (as defined in the ABL) plus an applicable margin range of 50 to 75 basis points.

At December 31, 2024, the applicable margin was 150 basis points for SOFR-based loans and 50 basis points for base rate loans.

At March 31, 2025, the applicable margin was 150 basis points for SOFR-based loans and 50 basis points for base rate loans.

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.

1 unchanged sentence

Prepayments can be made at any time without penalty.

The ABL allows for payments such as cash dividends on our common stock up to certain thresholds.

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

The ABL allows cash dividend payments on the Company’s common stock of approximately $56.4 million in fiscal 2025, with such amount increasing 10% annually as set out in the ABL.

Additionally, cash dividend payments in excess of such limits, repurchases of common stock and certain other Restricted Payments (as defined in the ABL) are permitted if (i) Pro Forma Availability (as defined in the ABL) is (i) greater than or equal to the greater of 17.5% of the Loan Cap (as defined in the ABL) and $30.6 million for each day during the 30-day period prior to such Restricted Payment, or (ii) Pro Forma Availability is greater than 12.5% but less than 17.5% of the Loan Cap and $21.9 million for each day during the 30-day period prior to such Restricted Payment and the fixed charge coverage ratio of the most recently ended Measurement Period (as defined in the ABL) is at least 1 to 1.

Substantially all of our United States (“U.S.”) subsidiaries are borrowers under the ABL and are jointly and severally liable for outstanding borrowings.

Our obligations under the ABL are secured by a first-priority perfected lien on all of our U.S.

inventory, accounts receivable, certain cash balances and other supporting assets.

The ABL includes a commitment fee for any unused borrowing capacity of 37.5 basis points per annum when the unused capacity is above 50% of the credit commitments, with a step down to 25.0 basis points per annum when unused capacity is less than or equal to 50% of the credit commitments.

At December 31, 2024, the commitment fee was 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).

Excess availability based on December 31, 2024 data was $163.0 million, as reduced by $11.8 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.

At March 31, 2025, the commitment fee was 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.

Excess availability based on March 31, 2025 data was $163.0 million, as reduced by $11.8 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.

4.0% Senior Unsecured Notes

2 unchanged sentences

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

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

Based on quoted market prices, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $416.8 million at December 31, 2024.

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, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $419.4 million at March 31, 2025.

An indenture governing the 4.0% Senior Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens.

There are no financial maintenance covenants associated with the Indenture.

We believe we were in compliance with these covenants at December 31, 2024.

We believe we were in compliance with these covenants at March 31, 2025.

We may redeem some or all of the 4.0% Senior Notes at any time after June 15, 2024, at specified redemption prices.

2 unchanged sentences

Moody’s Standard & Poor’s

December 31, September 30, December 31, September 30,

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

2025 2024 2025 2024

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

As of December 31, 2024, we had (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include annual cash interest payments of $18.0 million in 2025 through 2029, (ii) cumulative cash obligations of $34.3 million for operating leases through 2034 and $2.8 million for finance leases through 2030, and (iii) purchase obligations for raw materials and other purchased parts of approximately $103.6 million which we expect to incur during the next 12 months and $3.0 million beyond June 30, 2025.

Additionally, we expect to invest to strengthen our systems, cybersecurity training, policies,

programs, response plans and other similar measures.

As of March 31, 2025, we had (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include

annual cash interest payments of $18.0 million in 2025 through 2029, (ii) cumulative cash obligations of $32.8 million for operating leases through 2034 and $3.8 million for finance leases through 2030, and (iii) purchase obligations for raw materials and other purchased parts of approximately $110.9 million which we expect to incur during the next 12 months and $2.1 million beyond March 31, 2026.

Additionally, we expect to invest to strengthen our systems, cybersecurity training, policies, programs, response plans and other similar measures.

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

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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 December 31, 2024, we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases.

In addition, at March 31, 2025, 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 December 31, 2024, we had $11.8 million of letters of credit and $11.5 million of surety bonds outstanding.

At March 31, 2025, we had $11.8 million of letters of credit and $12.4 million of surety bonds outstanding.

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 most of Canada generally face weather conditions that restrict significant construction and other field crew activity.

Therefore, the results of operations for the three months ended December 31, 2024 are not necessarily indicative of operating results that may be achieved for any other interim period or the full year.

Net sales and operating income historically have been lowest in the three-month periods ending December 31 and March 31 when the northern U.S.

and most of Canada generally face weather conditions that restrict significant construction and other field crew activity.

Therefore, the results of operations for the three months ended March 31, 2025 are not necessarily indicative of operating results that may be achieved for any other interim period or the full year.

Critical Accounting Estimates

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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-Q

Item 2. Management’s Discussion and Analysis