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Item 1A. Risk Factors

2022-02-09 compared with 2020-05-12 · 152 added, 188 removed, 134 unchanged (72% of the section changed)

RISK FACTORS.

The risks described below are not the only risks facing Rexnord.

The risks described below are not the only risks facing Zurn.

Additional risks and uncertainties not currently known to us, or those risks we currently view to be immaterial, may also materially and adversely affect our business, financial condition or results of operations.

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Strategic Risks

Strategic risk relates to the Company's business plans and strategies, including the risks associated with:

competitive threats;

the global macro-environment in which we operate;

international uncertainties, including increasing tariffs or other trade protection measures as well as trade wars;

restructuring initiatives;

mergers and acquisitions;

protection of intellectual property;

and other risks, including customer concentration, reliance on independent distributors and retention of key personnel.

Our business and operations, and the operations of our suppliers, business partners and customers, have been, and are expected to continue to be adversely affected by the recent Coronavirus (or COVID-19) outbreak, and may be adversely affected by future outbreaks of infectious diseases.

We face risks related to the recent outbreak of the Coronavirus Disease 2019 (“COVID-19”), which has been declared a pandemic by the World Health Organization as the disease has spread across the globe to many countries in which we do business and is impacting worldwide economic activity.

The full impact of COVID-19 is unknown and rapidly evolving.

Health epidemics or outbreaks of communicable diseases such as COVID-19 could result in widespread or localized health crises that could adversely affect general commercial activity and the economies and financial markets of many countries or localities in which we operate, sell, or purchases good and services.

A public health epidemic, including COVID-19, poses the risk that we or our employees, contractors, suppliers, customers, transportation providers, and other business partners may be prevented or impaired from conducting ordinary course business activities for an indefinite period of time, either at specific branches or on a broader scale, including due to shutdowns necessitated for the health and well-being of our employees, the employees of our business partners, or shutdowns that may be requested or mandated by governmental authorities.

For example, actions taken by various governments and third parties around the world to combat the spread of COVID-19 (including, in some cases, mandatory quarantines and other suspensions of non-essential business operations) have led to disruptions in our manufacturing and distribution operations and supply chains, including temporary reductions or suspensions of operations at certain of our manufacturing and distribution locations around the world.

In addition, our suppliers, business partners and customers are also experiencing similar negative impacts from the COVID-19 pandemic.

There can be no assurance that COVID-19 will not impact our business generally as a result of the virus’ potential impact on delays in supply chain, production and/or our customers.

While each of our operations has prepared customized business continuity plans to address COVID-19 concerns, in an effort to ensure that we are protecting our employees, continuing to operate our business and service our customers’ needs, and mitigating the potential impacts of COVID-19 or other similar epidemics or outbreaks of infectious diseases, there is no guarantee that such plans will anticipate or fully mitigate the various impacts the pandemic or epidemic may have, much of which is still entirely uncertain.

While it is not possible at this time to estimate the scope and severity of the impact that COVID-19 could have on our operations, the continued spread of COVID-19, the measures taken by the governments of countries affected, actions taken to protect employees, actions taken to shutdown or temporarily discontinue operations in certain locations, and the impact of the pandemic on various business activities in affected countries and the economy generally, could adversely affect our financial condition, results of operations and cash flows.

The extent to which COVID-19, or its broader ramifications, impacts our business will depend on the severity, location and duration of the spread of COVID-19, and the actions undertaken by local and world governments and health officials to contain the virus or treat its effects, and the actions undertaken by the leadership and employees of our Company as well as those of our suppliers, customers and other business partners.

Our business and operations, and the operations of our suppliers, business partners and customers, have been, and are expected to continue to be adversely affected by the Covid-19 pandemic, and may be adversely affected by future outbreaks of infectious diseases.

We face risks related to the ongoing and unpredictable Covid-19 pandemic, which continues to impact all countries in which we do business and worldwide economic activity generally.

The pandemic has resulted, and in the future may result in further widespread or localized health crises that adversely affect general commercial activity and the economies and financial markets of the countries and localities in which we operate, sell, and purchases goods and services.

The pandemic, and any similar outbreak of infectious disease, poses the risk that we or our employees, contractors, suppliers, customers, transportation providers, and other business partners may be prevented or impaired from conducting ordinary course business activities for an indefinite period of time, either at specific branches or on a broader scale, including due to shutdowns necessitated for the health and well-being of our employees, the employees of our business partners, or shutdowns that may be requested or mandated by governmental authorities.

In addition, our suppliers, business partners and customers also experienced similar negative impacts from the Covid-19 pandemic.

Global supply chains have been disrupted, causing shortages, which could impact our ability to manufacture or supply our products.

Also, we could in the future experience increased compensation expenses associated with employee recruiting and employee retention to the extent employment opportunities continue to multiply post-pandemic, causing the search for and retention of talent to become more competitive.

This disruption of our employees, distributors, suppliers and customers has historically impacted and may continue to impact our sales and future operating results.

The continued unpredictable ebbing and flowing of new Covid-19 infections worldwide, including new variants, may continue to adversely impact our business, operations, suppliers and customers for the foreseeable future.

Equally unpredictable are the responses of national and local governments and health authorities in affected regions to reduce community spread and protect employees, which may include mandatory shutdowns or limitations on all or certain types of business operations.

The ultimate impact of the pandemic on our business, depends on the severity, location and duration of outbreaks of Covid-19 and its variants, and the actions of government and health official in response to the outbreaks, none of which is predictable at this time.

The markets in which we sell our products are highly competitive;

an inability to effectively compete may adversely affect our financial conditions and results of operations.

We operate in highly competitive markets in both of our platforms.

an inability to effectively compete would adversely affect our business, financial condition and results of operations.

We operate in highly competitive markets.

Some of our competitors have achieved substantially more market penetration in certain of the markets in which we operate.

Some of our competitors are larger and may have greater financial and other resources than we do, and our competitors may adopt more aggressive sales policies and devote greater resources to the development, promotion and sale of their products than we do, all of which could result in a loss of customers and in turn adversely affect our results of operations.

We operate in highly fragmented markets within the Process & Motion Control platform.

As a result, we compete against numerous companies.

Competition in our business lines is based on a number of considerations, including product performance, cost of transportation in the distribution of products, brand reputation, quality of client service and support, product availability and price.

Additionally, some of our larger customers continue to attempt to reduce the number of vendors

from which they purchase in order to increase their efficiency.

If we are not selected to become one of these preferred providers, we may lose access to certain sections of the markets in which we compete.

Our customers increasingly demand a competitively priced broad product range and we must continue to develop our expertise in order to manufacture and market these products successfully.

To remain competitive, we will need to invest continuously in manufacturing, customer service and support, marketing and our distribution networks.

We cannot assure that we will have sufficient resources to continue to make these investments or that we will maintain our competitive position within each of the markets we serve.

Within the Water Management platform, we compete against both large international and national rivals, as well as many regional competitors.

Significant competition in any of the markets in which the Water Management platform operates could result in substantial downward pressure on product pricing and our profit margins, thereby adversely affecting the Water Management platform's financial results.

We compete against both large international and national rivals, as well as many regional competitors.

Significant competition in any of the markets in which we operate could result in substantial downward pressure on product pricing and our profit margins, thereby adversely affecting our financial results.

Furthermore, we cannot provide assurance that we will be able to maintain or increase the current market share of our products successfully in the future.

We may be unable to realize intended benefits from our ongoing Supply Chain Optimization and Footprint Repositioning initiatives, restructuring and divestiture efforts, and as a result our profitability may be hurt or our business otherwise might be adversely affected.

In order to operate more efficiently, control costs and refine our business focus, we undertake from time to time restructuring plans, which can include global facility consolidations, product rationalizations, workforce reductions and other cost reduction initiatives.

We also choose to divest operations that we no longer believe are additive or complementary to our platforms or strategic direction, such as our fiscal 2019 disposition of the VAG business.

These plans are intended to reduce operating costs, to modify our footprint to reflect changes in the markets we serve, to reflect changes in business focus, to strengthen focus on our core business and/or to address overall manufacturing overcapacity, including as a result of acquisitions.

In addition to our announced Supply Chain Optimization and Footprint Repositioning initiatives, we may undertake further restructuring actions, workforce reductions or divestitures in the future as we evaluate our business in connection with the economic slowdown caused by the COVID-19 pandemic.

These types of activities are complex.

If we do not successfully manage our current restructuring activities, or any other restructuring activities or divestitures that we may undertake in the future, expected efficiencies, benefits and cost savings might be delayed or not realized, and our operations and business could be disrupted.

In addition, as a result of such actions, we expect to incur restructuring expenses and other charges (including, for example, potential impairment charges related to fixed assets, goodwill and other intangibles), which may be material, and may exceed our estimates.

Several factors could cause restructuring or divestiture activities to adversely affect our business, financial condition and results of operations.

These include potential disruption of our operations, customer relationships and other aspects of our business.

Employee morale and productivity could also suffer or result in unwanted employee attrition.

These activities require substantial management time and attention and may divert management from other important work or result in a failure to meet operational targets.

Divestitures may also give rise to obligations to buyers or other parties that could have a financial effect after the transaction is completed.

Moreover, we could encounter changes to, or delays in executing, any restructuring or divestiture plans, any of which could cause further disruption and additional unanticipated expense.

If we are unable to effectively manage risks associated with changing technology, product innovation and new product development, manufacturing techniques, distribution channels and business continuity, we may be at a competitive disadvantage.

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Our products are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise.

If we fail to meet these requirements, our business could be at risk.

If we fail to meet these requirements, our business and ability to compete effectively could suffer.

We believe that our customers rigorously evaluate their suppliers on the basis of a number of factors, including product quality, price competitiveness, technical and manufacturing expertise, development and product design capability, new product innovation, reliability and timeliness of delivery, operational flexibility, customer service and overall management.

Our success will depend on our ability to continue to meet our customers' changing specifications with respect to these criteria.

Our ongoing success depends on our

ability to continue to meet our customers' changing specifications with respect to these criteria.

We cannot ensure that we will be able to address technological advances or introduce new products that may be necessary to remain competitive within our businesses.

Further, such new products and technologies may create additional exposure or risk.

We cannot ensure that we can adequately protect any of our own technological developments to produce a sustainable competitive advantage.

We cannot ensure that we can adequately protect our own technological developments to produce a sustainable competitive advantage.

Furthermore, we may be subject to business continuity risk in the event of an unexpected loss of a material facility or operation.

We cannot ensure that we can adequately protect against such a loss.

General economic and financial market weakness, as well as overall challenging market cycles, may adversely affect our financial condition or results of operations.

Economic and financial market weakness, as well as overall challenging market cycles, may particularly impact the industries we serve, and, as a result may adversely affect our financial condition or results of operations.

Our business operations have been adversely affected from time to time by volatility and weaknesses in the global economy and financial markets.

The current economic slowdown caused by the COVID-19 pandemic is expected to adversely

affect our future financial condition, results of operations and cash flows, though we are unable to predict the extent of the impact at this time due to the uncertainty regarding the duration and economic impact of the pandemic.

Weak, challenging or volatile economic conditions in the end markets, businesses or geographic areas in which we sell our products are expected to reduce demand for products and result in a decrease in sales volume, which would have a negative impact on our future results of operations.

While the Covid-19 pandemic has created opportunities in certain areas of our business, the pandemic is expected to continue to adversely affect other areas of our business, though we are unable to predict the extent of the impact due to the uncertainty regarding the duration and severity of the pandemic.

Weak, challenging or volatile economic conditions in the end markets, businesses or geographic areas in which we sell our products typically reduces demand for our products and results in a decrease in sales volume.

Our financial performance depends, in large part, on conditions in the markets that we serve in the U.S.

and the global economy generally.

Some of the industries we serve are highly cyclical, such as the aerospace, energy and industrial equipment industries, and some industries are expected to experience greater COVID-19-related impacts than others.

We have undertaken cost reduction programs as well as diversified our markets to mitigate the effects of economic downturns;

however, such programs may be unsuccessful.

Some of the industries we serve are highly cyclical, and some industries have experienced, and are expected to experience, greater pandemic-related impacts than others.

Any sustained weakness in demand or downturn or uncertainty in the economy generally, would materially reduce our net sales and profitability.

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Consumer confidence, employment rates, weather conditions, mortgage rates, credit standards and availability of consumer credit and income levels play a significant role in driving demand in commercial and residential construction, repair and remodeling sector.

A drop or weakness in consumer confidence, prolonged adverse weather conditions, lack of availability or increased cost of credit, credit standards or unemployment could delay a recovery of commercial and residential construction levels and have a material adverse effect on our business, financial condition, results of operations or cash flows.

This may express itself in substantial downward pressure on product pricing and our profit margins, thereby adversely affecting our financial results.

Additionally, some of our products are used in the energy, mining and cement and aggregates markets.

Reductions and volatility in the prices of petroleum-related products and certain other mined raw materials costs have historically adversely affected the energy and mining industries, reducing their capital investments and the demand for certain of our products.

Some customers may defer or cancel anticipated expenditures, projects or expansions until such time as these projects will be profitable based on the underlying cost of commodities compared to the cost of the project.

Weakness in those markets may also affect pricing of our products that are sold for use in those markets.

A drop or weakness in consumer confidence, prolonged adverse weather conditions, lack of availability or increased cost of credit, tightened credit standards or increased unemployment could materially impact demand for and sales of our products and/or result in downward pressure on product pricing and our profit margins, any or all of which could adversely affect our financial results.

Volatility and disruption of financial markets, including as a result of the Covid-19 pandemic, could limit the ability of our customers to obtain adequate financing to maintain operations and may cause them to terminate existing purchase orders, reduce the volume of products they purchase from us in the future or impact their ability to pay their receivables.

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An inability to effectively integrate acquisitions could adversely affect our business, financial condition, results of operations or cash flows.

Acquisitions are part of our growth strategy.

We cannot ensure that we will be able to complete any such acquisition, that we will be able to successfully integrate any acquired business or operations, or that we will be able to accomplish our strategic objectives as a result of any such acquisition.

Nor can we ensure that our acquisition strategies will be successfully received by customers or achieve their intended benefits.

Acquisitions are part of our growth strategy, and we have completed several in the last few years.

We cannot ensure that we will be able to complete any future acquisition, that we will be able to successfully integrate any acquired business or operations, or that we will be able to accomplish our strategic objectives as a result of any such acquisition.

Acquisitions are often undertaken to improve the operating results of either or both of the acquirer and the acquired company and we cannot ensure that we will be successful in this regard.

We cannot provide any assurance that we will be able to fully realize the intended benefits from our acquisitions.

We have encountered, and may encounter, various risks in acquiring other companies including the possible inability to integrate an acquired business into our operations, potential failure to realize anticipated benefits, diversion of management's attention, issues in customer transitions, potential inadequacies of indemnities and other contractual remedies and unanticipated problems, risks or liabilities, including environmental, some or all of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our international operations are subject to uncertainties, which could adversely affect our business, financial condition, results of operations or cash flows.

Our business remains subject to certain risks associated with doing business internationally.

A significant portion of our sales are international;

approximately 29% of our total net sales in fiscal 2020 originated outside of the U.S.

Additionally, we have significant manufacturing operations outside of the U.S.

Accordingly, our future results could be harmed by a variety of factors relating to global operations, including:

• tariff increases, import duties, trade wars or other retaliatory or trade protection measures instituted by the U.S.

or other countries;

• fluctuations in currency exchange rates, particularly fluctuations in the Euro against the U.S.

• foreign exchange controls;

• compliance with export controls, import and export licensing requirements, and other trade compliance regulations;

• changes in tax laws;

• interest rates;

• differences in business practices in various countries;

• changes and differences in regulatory requirements in countries in which we operate or make sales;

• differing labor regulations, practices and standards;

• significant natural disasters, terrorist activities, the ongoing impact of the COVID-19 pandemic, other outbreaks of infectious diseases and other events or factors impacting local economies and/or infrastructure.

• restrictions on our ability to own or operate subsidiaries, make investments, move operations or acquire new businesses in these jurisdictions;

• requirements relating to withholding taxes on remittances and other payments by subsidiaries;

• restrictions under U.S.

tax laws and other laws on our ability to repatriate dividends from our foreign subsidiaries;

• exposure to liabilities under anti-corruption laws in various countries, including the U.S.

Foreign Corrupt Practices Act of 1977 ("FCPA").

As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations.

However, any of these factors could have a material adverse effect on our international operations and, consequently, our business, financial condition, results of operations or cash flows.

Acquisitions involve risks, including the possible inability to integrate an acquired business into our operations, potential failure to realize anticipated benefits, diversion of management's attention, issues in customer transitions, potential inadequacies of indemnities and other contractual remedies and unanticipated problems, risks or liabilities, including environmental, some or all of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

The loss or financial instability of any significant customer or customers accounting for our backlog could adversely affect our business, financial condition, results of operations or cash flows.

A substantial part of our business is concentrated with a few customers, and we have certain customers that are significant to our business.

During fiscal 2020, our top 5 customers accounted for approximately 25.8% of our consolidated net sales, our largest customer accounted for less than 10% of consolidated net sales for the year ended March 31, 2020.

During the year ending December 31, 2021, our top five customers accounted for approximately 41% of our consolidated net sales, with one customer accounting for 23% of consolidated net sales.

The loss of one or more of these customers or other major customers, or a deterioration in our relationship with any of them could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our contracted backlog is comprised of future orders for our products from a broad number of customers.

Defaults by any of the customers that have placed significant orders with us could have a significant adverse effect on our net sales, profitability and cash flow.

Our customers may in the future default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons deriving from the general economic environment or circumstances affecting those customers in particular.

We believe that these risks are heightened due to the global economic impact of the COVID-19 pandemic.

If a customer defaults on its obligations to us, it could have a material adverse effect on our backlog, business, financial condition, results of operations or cash flows.

As of March 31, 2020, approximately 11% of our backlog was scheduled to ship beyond March 31, 2021.

We rely on independent distributors.

Termination of one or more of our relationships with any of our key independent distributors or an increase in the distributors’ sales of our competitors’ products could have a material adverse effect on our business, financial condition, results of operations or cash flows.

In addition to our own direct sales force, we depend on the services of independent distributors to sell our Process & Motion Control products and provide service and aftermarket support to our OEMs and end users.

We rely on an extensive distribution network, with nearly 2,600 distributor locations nationwide;

however, for fiscal 2020, approximately 20% of our Process & Motion Control net sales were generated through sales to three of our key independent distributors, the largest of which accounted for 13% of Process & Motion Control net sales.

Within Water Management, we depend on 1,200 independent sales representatives and approximately 60 third-party warehouses to distribute our products;

however, for fiscal 2020, our three key independent distributors generated approximately 40% of our Water Management net sales with the largest accounting for 25% of Water Management net sales.

The loss of one of our key distributors or of a substantial number of our other distributors or an increase in the distributors' sales of our competitors' products to our customers could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Defaults by any of the customers that have placed significant orders with us, whether because of bankruptcy, illiquidity, operational problems or otherwise, could have a significant adverse effect on our net sales, profitability and cash flow.

We believe the risk

of customer default is heightened due to the global economic impact of the Covid-19 pandemic although to date we have not experienced a material increase in such defaults due to the pandemic.

As of December 31, 2021, all of our backlog was scheduled to ship during the year ending December 31, 2022.

We rely on independent distributors and independent sales representatives.

Termination of one or more of our relationships with any of our key independent distributors and / or a substantial number of independent representatives, or an increase in their sales of our competitors’ products could have a material adverse effect on our business, financial condition, results of operations or cash flows.

We depend on 1,600 independent sales representatives and approximately 60 third-party warehouses to distribute our products.

In fiscal 2021, our three largest independent distributors generated approximately 35% of our consolidated net sales with the largest accounting for 23% of consolidated net sales.

The loss of one of our key distributors or of a substantial number of our other distributors or independent sales representatives, or an increase in the distributors' sales of competitors' products to our customers could have a material adverse effect on our business, financial condition, results of operations or cash flows.

The inability to adequately protect intellectual property, or defend against infringement claims brought against us, could adversely affect our business.

We attempt to protect our intellectual property through a combination of patent, trademark, copyright and trade secret protection, as well as third-party nondisclosure and assignment agreements.

We cannot assure that any of our applications for protection of our intellectual property rights will be approved and maintained or that our competitors will not infringe or

successfully challenge our intellectual property rights.

We also rely on unpatented proprietary technology.

We cannot assure that any of our applications for protection of our intellectual property rights will be approved and successfully maintained or that our competitors will not infringe or successfully challenge our intellectual property rights.

We also rely on unpatented proprietary technology and trade secrets.

It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology.

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We cannot assure that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure.

If we are unable to maintain the proprietary nature of our technologies, our ability to sustain margins on some or all of our products may be affected, which could have a material adverse effect on our business, reputation, financial condition, results of operations or cash flows.

In addition, in the ordinary course of our operations, from time to time we pursue and are pursued in potential litigation relating to the protection of certain intellectual property rights, including some of our more profitable products.

In addition, in the ordinary course of our operations, from time to time we seek to enforce our intellectual property rights through litigation or are subject to third party litigation claiming infringement, including in respect of some of our more profitable products.

An adverse ruling or other unfavorable outcome in any such litigation could have a material adverse effect on our business, reputation, financial condition, results of operations or cash flows.

Terrorism, conflicts, wars and weather events may materially and adversely affect our business, financial condition and results of operations.

As a global company with a large international footprint, we are subject to increased risk of damage or disruption to us, our employees, facilities, partners, suppliers, distributors, resellers or customers due to acts of terrorism, political conflicts, wars and weather events, in multiple locations around the world.

In order to operate more efficiently, control costs and refine our business focus, we undertake from time to time restructuring plans, which can include facility consolidations, product rationalizations, workforce reductions and other cost reduction initiatives.

From time to time, we also choose to divest operations that we no longer believe are additive or complementary to our business or strategic direction.

Several factors could cause restructuring or divestiture activities to adversely affect our business, financial condition and results of operations.

These include potential disruption of our operations, customer relationships and other aspects of our business.

Employee morale and productivity could also suffer and may result in unwanted employee attrition.

These activities require substantial management time and attention and may divert management from other important work or result in a failure to meet operational targets.

Divestitures may also give rise to obligations to buyers or other parties that could have a financial effect after the transaction is completed.

Moreover, we could make changes to, or experience delays in executing, any restructuring or divestiture plans, any of which could cause further disruption and additional unanticipated expense.

Terrorism, conflicts, wars and weather events, as well as other events outside of our control may materially and adversely affect our business, financial condition and results of operations.

We are subject to risk of damage or disruption to us, our employees, facilities, partners, suppliers, distributors, resellers or customers due to acts of terrorism, political conflicts, wars and weather events, as well as other events outside of our control, such as civil unrest in areas where we have operations.

In addition to the issues created by significant weather events, the potential for future attacks, the national and international responses to attacks or perceived threats to national security, and other actual or potential actions, conflicts or wars have created, and will continue to create, economic and political uncertainties.

In addition, as a global company with headquarters and significant operations located in the U.S., actions against or by the U.S.

In addition, actions against or by the U.S.

may particularly impact our business or employees.

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Operational Risks

Operational risk relates to risks arising from innovation, systems, processes, and external or internal events that affect the operation of our businesses.

It includes product life cycle and execution;

information management and data protection and security, including cyber security;

supply chain and business disruption;

and other risks, including human resources and employee relations.

Increases in the cost or availability of raw materials, including as a result of tariffs or other trade protection measures, could adversely affect our business, financial condition, results of operations or cash flows.

Increases in the cost, and/or the availability, of raw materials, including as a result of tariffs or other trade protection measures, could adversely affect our business, financial condition, results of operations or cash flows.

Our manufacturing processes depend on third parties for raw materials, in particular bar steel, brass, castings, copper, forgings, high-performance engineered plastic, plate steel, resin, sheet steel and zinc, as well as petroleum and other carbon-based fuel products.

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or other countries, inefficiencies in the event of a need to change our suppliers, and delays in the delivery of and potential unavailability of our raw materials.

Also, trade wars could impact the cost or availability of goods or materials, both imported and domestic, or adversely affect demand for our products.

Also, trade wars or outbreaks of infectious diseases, such as the Covid-19 pandemic, could impact the cost or availability of goods or materials, both imported and domestic, or adversely affect demand for our products.

Any such price fluctuations or delays, if material, could harm our profitability or operations.

In addition, the loss of a substantial number of suppliers could result in material cost increases or reduce our production capacity.

We do not typically enter into hedge transactions to reduce our exposure to purchase price risks and cannot ensure that we would be successful in recouping these increases if these risks were to materialize.

In addition, if we are unable to continue to purchase our required quantities of raw materials on commercially reasonable terms, or at all, or if we are unable to maintain or enter into our purchasing contracts for our larger commodities, our business operations could be disrupted and our profitability could be impacted in a material adverse manner.

The ongoing updates to our Enterprise Resource Planning ("ERP") systems, as well as failures of our data security and information technology infrastructure and cyber security, could cause substantial business interruptions and/or adversely affect our business.

Utilizing a phased approach, we continue to update our ERP systems across both our Process & Motion Control and Water Management platforms.

If these updates are unsuccessful, we could incur substantial business interruptions, including the

inability to perform routine business transactions, which could have a material adverse effect on our financial performance.

In addition to suppliers we also rely on third party shippers to assist in transportation of our product throughout the supply chain.

Availability of transportation and the associated cost increases could have an impact on our profitability or operations.

We do not typically enter into hedge transactions to reduce our exposure to purchase price risks and cannot ensure that we would be successful in recouping any increases if these risks were to materialize.

In addition, if we are unable to continue to purchase our required quantities of raw materials on commercially reasonable terms, or at all, or if we are unable to maintain or enter into new purchase contracts for our larger commodities, our business operations could be disrupted and our profitability could be materially impacted.

The ongoing updates to our Enterprise Resource Planning ("ERP") systems, as well as failures of our data security and information technology infrastructure or cyber security breaches, could cause substantial business interruptions and/or adversely affect our business.

Utilizing a phased approach, we continue to update our ERP systems across our Zurn operations.

If these updates are ineffective, we could incur substantial business interruptions, including the inability to perform routine business transactions, which could have a material adverse effect on our financial performance.

Further, these updates may not result in the benefits we intend or be implemented on a timely basis.

In addition, we depend heavily on information technology infrastructure to manage our business objectives and operations, including our DiRXN digital productivity platform, support our customers’ requirements and protect sensitive information.

In addition, we depend heavily on information technology infrastructure to manage our business objectives and operations, support our customers’ requirements and protect sensitive information.

There have been significant and increasing instances of data and security breaches, malicious interference with technology systems and industrial espionage involving companies in numerous industries, including cloud providers, and cyber security threats are becoming more complex.

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however, to date, we have not experienced a material threat or incident.

In addition, we currently have a large percentage of our workforce working remotely due to governmental order related to the COVID-19 pandemic, which may heighten these risks.

While we have taken steps to maintain and enhance adequate cyber security and address these risks and uncertainties by implementing additional security technologies, internal controls, network and data center resiliency, redundancy and recovery processes and by obtaining insurance coverage, these measures may be inadequate.

As a result, any inability by us to successfully manage our information systems, or respond effectively to any attack on or interference with our systems, including matters related to system and data security, privacy, reliability, compliance, performance and access, problems related to our systems caused by natural disasters, security breaches or malicious attacks, and any inability of these systems to fulfill their intended business purpose, could impede our ability to record or process orders, manufacture and ship in a timely manner, account for and collect receivables, protect sensitive data of the Company, our customers, our employees, our suppliers and other business partners, comply with our third party obligations of confidentiality and care, or otherwise carry on business in the normal course.

Any such events could require significant costly remediation beyond levels covered by insurance and could cause us to lose customers and/or revenue, require us to incur significant expense to remediate, including as a result of legal or regulatory claims or proceedings, or damage our reputation, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

In addition, at times a large percentage of our workforce may be working remotely in response to the Covid-19 pandemic, which may heighten these risks.

While we have taken steps to maintain and enhance our cyber security by implementing additional security technologies, internal controls, network and data center resiliency, redundancy and recovery processes, upgrading our remote work environment and by obtaining insurance coverage, these measures may be inadequate.

and care, or otherwise carry on business in the normal course.

Any such events could require costly remediation beyond levels covered by insurance and could cause us to lose customers and/or revenue, including as a result of legal or regulatory claims or proceedings, or damage our reputation, any of which could have a material adverse effect on our business and operating results.

We are also subject to an increasing number of evolving data privacy and security laws and regulations that impose requirements on us.

We collect, store, access and otherwise process certain confidential or sensitive data, including proprietary business information, personal data or other information that is subject to privacy and security laws, regulations and/or customer-imposed controls.

We collect, store, access and otherwise process various types of confidential or sensitive data, including proprietary business information, personal data and other information that is subject to privacy and security laws, regulations and/or customer-imposed controls.

Failure to comply with such laws and regulations could result in the imposition of fines, penalties and other costs.

For example, the European Union’s implementation of the General Data Protection Regulation in 2018, the European Union’s pending ePrivacy Regulation and California’s implementation of its Consumer Privacy Act of 2018 and Connected Device Privacy Act of 2018 all could disrupt our ability to sell products or use and transfer data because such activities may not be in compliance with applicable law in certain jurisdictions.

Our inability to attract and retain key personnel may adversely affect our business.

Our success depends on our ability to recruit, retain and develop highly-skilled management and key personnel.

Competition for these individuals in our industry is intense and we may not be able to successfully recruit, train or retain qualified personnel, or to effectively implement successions to existing personnel.

For example California’s implementation of its Consumer Privacy Act of 2018 and Connected Device Privacy Act of 2018 all could disrupt our ability to sell products or use and transfer data because such activities may not be in compliance with applicable law in certain jurisdictions.

Our inability to attract and retain key personnel, as well as challenges with respect to the management of human capital resources, in a highly competitive industry may adversely affect our business.

Our ongoing success depends on our ability to recruit, retain and develop highly skilled management and key personnel, as well as our ability to effectively manage human capital resources.

Competition for talented and skilled individuals in our industry is intense and we may not be able to successfully recruit, train or retain qualified personnel, or to effectively implement successions for existing personnel.

If we fail to retain and recruit the necessary personnel or arrange for successors to key personnel, our business could materially suffer.

Weather could adversely affect the demand for products in our Water Management platform and decrease our net sales.

Demand for our Water Management products is primarily driven by commercial construction activity, remodeling and retrofit opportunities, and to a lesser extent, new home starts.

Increased frequency of weather events could disrupt construction activity and adversely affect the demand for our products.

Demand for our products is primarily driven by commercial construction activity, remodeling and retrofit opportunities, and to a lesser extent, new home starts.

Weather is an important variable affecting financial performance as it significantly impacts construction activity.

Adverse weather conditions, such as prolonged periods of cold or rain, blizzards, hurricanes and other severe weather patterns, could delay or halt construction and remodeling activity, which could have a negative effect on our business.

For example, an unusually severe winter can lead to reduced construction activity and magnify the seasonal decline in our Water Management net sales and earnings during the winter months.

In addition, a prolonged winter season can delay construction and remodeling plans and hamper the typical seasonal increase in net sales and earnings during the spring months.

Disruptions caused by labor disputes or organized labor activities could adversely affect our business or financial results.

As of March 31, 2020, we had approximately 6,800 employees.

Our primary risk resides with approximately 1,200 of our employees that reside in Europe, where trade union membership is common.

Although we believe that our relations with our employees are strong, if our unionized workers were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations, which could interfere with our ability to deliver products on a timely basis and could have other negative effects, such as decreased productivity and increased labor costs.

In addition, if a greater percentage of our workforce becomes unionized as a result of legal or regulatory changes which may make union organizing easier, or otherwise, our costs could increase and our efficiency be affected in a material adverse manner, negatively impacting our business and financial results.

Further, many of our direct and indirect customers and their suppliers, and organizations responsible for shipping our products, have unionized workforces and their businesses may be impacted by

strikes, work stoppages or slowdowns, any of which, in turn, could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Adverse weather conditions, such as prolonged periods of cold or rain, blizzards, hurricanes and other severe weather patterns, the frequency of which might be affected by climate change, could delay or halt construction and remodeling activity, which could have a negative effect on our business.

For example, an unusually severe or prolonged winter can lead to reduced or delayed construction activity which could magnify the seasonal decline in our net sales and earnings during the winter months and hamper the typical seasonal increase in net sales and earnings during the spring months.

The long-term effects of climate change could decrease demand for certain of our products.

Climate change may impact rainfall and water availability in many areas in unpredictable and different ways, which may change the way building owners and municipalities manage drinking, waste and storm water and may lead to new or modified regulations that may impact the market for our products.

In certain areas, these changes could lead to a reduction in demand for certain of our water management products, although it also could increase demand for other of our water management products.

The overall effect of this could be to reduce our sales and addressable market and/or alter our product sales mix in ways that reduce our margins, either of which could adversely impact our results of operations.

The potential physical impacts of climate change may materially adversely affect our business and financial condition.

The potential physical impacts of climate change on our operations are highly uncertain and would be particular to the geographic circumstances in our relevant markets and areas of operation.

These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures.

The impacts of climate change may materially and adversely impact the cost, production and financial performance of our operations.

Further, any impacts to our business and financial condition as a result of climate change are likely to occur over an extended period of time and are therefore difficult to quantify with any degree of specificity.

For example, extreme weather events may result in adverse physical effects on portions of our infrastructure, which could disrupt our supply chain and ultimately our business operations.

In addition, disruption of transportation and distribution systems could result in reduced operational efficiency and customer service interruption.

Climate related events have the potential to disrupt our business, including the business of our suppliers, and may cause us to experience higher attrition, losses and additional costs to resume operations.

Financial Risks

Financial risk relates to our ability to meet our financial obligations.

It includes our highly leveraged capital structure, compliance with covenants related to our credit agreement and our 4.875% Senior Notes due 2025 (the "Notes"), limits on access to liquidity and restrictive credit-related agreements.

Our debt levels could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, inhibit us from making beneficial acquisitions, adversely impact our ability to implement our capital allocation strategy and prevent us from making debt service payments.

Although we reduced our long-term debt in recent years, we are still a highly leveraged company.

Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt will depend on a range of economic, competitive and business factors, many of which are outside our control.

As a leveraged company, our ability to generate sufficient cash flow from operations to make scheduled payments on our debt will depend on a range of economic, competitive and business factors, many of which are outside our control.

Our business may not generate sufficient cash flow from operations to meet our debt service and other obligations, and currently anticipated cost savings and operating improvements may not be realized on schedule, or at all.

If we are unable to meet our expenses and debt service and other obligations, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets or raise equity.

If we are unable to meet our expenses and debt service and other obligations, we may need to refinance all or a portion of our indebtedness on or before

maturity, sell assets or raise equity.

We may not be able to refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity.

Our inability to generate sufficient cash flow to satisfy our debt obligations or to refinance our obligations on commercially reasonable terms would have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our substantial indebtedness could also have other important consequences with respect to our ability to manage and grow our business successfully, including the following:

Our indebtedness could also have other important consequences with respect to our ability to manage and grow our business successfully, including the following:

• it may limit our ability to borrow money for our working capital, capital expenditures, strategic initiatives, acquisitions or other purposes;

• it may make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under our credit agreement, the indenture governing our Notes (the "Indenture") and our other indebtedness;

• a substantial portion of our cash flow from operations will be dedicated to the repayment of our indebtedness and so will not be available for other purposes;

• a portion of our cash flow from operations will be dedicated to the repayment of our indebtedness and so will not be available for other purposes;

• it may limit our flexibility in planning for, or reacting to, changes in our operations or business, or in taking advantage of strategic opportunities;

• we are and will continue to be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;

• at times we may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;

• it may make us more vulnerable to downturns in our business or the economy;

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• along with the financial and other restrictive covenants in the documents governing our indebtedness, among other things, may limit our ability to borrow additional funds, make acquisitions or capital expenditures, acquire or dispose of assets or take certain of the actions mentioned above, or adversely impact our ability to implement our capital allocation strategy (which includes paying dividends on our common stock), any of which could restrict our operations and business plans.

Furthermore, a substantial portion of our indebtedness, including the senior secured credit facilities and borrowings outstanding under our accounts receivable securitization facility, bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates, including the London Interbank Offered Rate ("LIBOR").

In addition, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer persuade or compel panel banks to submit the rates required to calculate LIBOR, and it is unclear whether the banks currently reporting information used to set LIBOR will stop doing so after 2021.

Although the consequences of these developments cannot be predicted at this time, should LIBOR or an alternative index no longer be available, the rates under our variable rate indebtedness could increase and access to capital could be limited.

During fiscal 2020, the agreement governing our senior security credit facility was amended to provide that if LIBOR becomes unavailable, we would work with our banks to establish an alternate rate of interest that gives due consideration to the then-prevailing market convention for determining interest rates for syndicated loans in the United States.

Furthermore, a substantial portion of our indebtedness, including the senior secured credit facilities, bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates, including the London Interbank Offered Rate ("LIBOR").

The United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer persuade or compel panel banks to submit the rates required to calculate LIBOR.

On March 5, 2021, ICE Benchmark Administration (“IBA”) confirmed it would cease publication of 1 Week and 2 Month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, but it would not cease publication of Overnight, 1, 3, 6 and 12 Month USD LIBOR settings until immediately following the LIBOR publication on June 30, 2023.

The extended cessation date for most USD LIBOR tenors will allow for more time for existing legacy USD LIBOR contracts to mature and provide additional time to continue to prepare for the transition from LIBOR.

The Alternative Reference Rates Committee (“ARCC”), which was convened by the Board of Governors of the Federal Reserve and the Federal Reserve Bank of New York, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended alternative rate for USD LIBOR.

The composition and characteristics of SOFR are not the same as those of LIBOR.

SOFR is a broad U.S.

Treasury repurchase agreement market financing rate that represents overnight secured funding transactions.

This means that SOFR is fundamentally different from LIBOR in two key respects.

First, SOFR is a secured rate, while LIBOR is an unsecured rate.

Second, SOFR is an overnight rate, while LIBOR represents interbank funding over different maturities.

As a result, there can be no assurance that SOFR or any alternative reference rate will perform in the same way as LIBOR would have at any time, including, without limitation, as a result of changes in interest and yield rates in the market, market volatility or global or regional economic, financial, political, regulatory, judicial or other events.

The agreement governing our senior secured credit facilities provides that if LIBOR becomes unavailable, or the Financial Conduct Authority determines that LIBOR is not a representative index, then SOFR will automatically replace LIBOR for all purposes of such agreement.

Although the consequences of these developments cannot be predicted at this time, should LIBOR, SOFR, or any other alternative reference rate no longer be available, the rates under our variable rate indebtedness could increase and access to capital could be limited.

Additionally, we may continue to be subject to risk on outstanding instruments which rely on LIBOR.

For example, if a contract or instrument is not transitioned to a new reference rate and LIBOR ceases to exist, we may experience increased interest rate risk.

In addition, we may be dependent on third parties to upgrade their systems, software, and other critical functions to assist in our orderly transition from LIBOR.

See Item 7A, Quantitative and Qualitative Disclosures About Market Risk for additional information on our debt that is subject to the LIBOR rate.

Also, in spite of the limitations in our credit agreement and/or the Indenture, we may still incur significantly more debt, which could intensify the risks described above on our business, results and financial condition.

Also, in spite of the limitations in our credit agreement, we may still incur significantly more debt, which could intensify the risks described above on our business, results and financial condition.

For more information about our indebtedness, see Item 8, Note 11, Long-Term Debt.

The agreements governing our financing arrangements impose certain operating and financial restrictions, which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our credit agreement and the Indenture contain various covenants that limit or prohibit our ability (subject to certain exceptions), among other things, to:

Our credit agreement contains various covenants that limit or prohibit our ability (subject to certain exceptions), among other things, to:

• incur or guarantee additional indebtedness;

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For more information, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.

The restrictions contained in the credit agreement and/or the Indenture could:

The restrictions contained in the credit agreement could:

• limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our activities or business plans;

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• limit our access to the cash generated by our subsidiaries.

Upon the occurrence of an event of default under the credit agreement and/or the Indenture, the lenders or the noteholders could elect to declare all amounts outstanding under the senior secured credit facilities and/or the Notes to be immediately due and payable and terminate all commitments to extend further credit.

Upon the occurrence of an event of default under the credit agreement, the lenders could elect to declare all amounts outstanding under the senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit.

If we were unable to repay those amounts, the lenders under the senior secured credit facilities could proceed against the collateral granted to them to secure the senior secured credit facilities on a first- priority lien basis.

If the lenders under the senior secured credit facilities or the noteholders accelerate the repayment of borrowings, such acceleration could have a material adverse effect on our business, financial condition, results of operations or cash flows.

If the lenders under the senior secured credit facilities accelerate the repayment of borrowings, such acceleration could have a material adverse effect on our business, financial condition, results of operations or cash flows.

For a more detailed description of the limitations on our ability to incur additional indebtedness, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.

Our goodwill and intangible assets are valued at an amount that is high relative to our total assets and in excess of our stockholders equity.

As of March 31, 2020, our goodwill and intangible assets totaled $1,321.9 million and $514.2 million, respectively, and represent a substantial portion of our assets.

As of December 31, 2021, our goodwill and intangible assets totaled $254.1 million and $179.1 million, respectively, and represent a substantial portion of our assets.

These assets result from our acquisitions, representing the excess of cost over the fair value of the tangible net assets we have acquired.

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Legal and Compliance Risks

Legal and compliance risk relates to risks arising from conformity with external policies and procedures, government and regulatory compliance, and ongoing environment and legal proceedings.

These include customer driven policies, government and regulatory requirements and environmental health and safety litigation.

These types of risks may impose additional cost on us or cause us to have to change our business models or practices.

Our failure to comply with government regulations and requirements, third-party certification requirements and policies and standards driven by our customers or other constituencies, including those related to social responsibility, could adversely affect our reputation, business and results of operations.

In addition to complying with laws and applicable government regulations and requirements, prevailing industry standards, competitive pressures and/or our customers may require us to comply with further quality, social responsibility, or other business policies or standards, before customers and prospective customers commence, or continue, doing business with us.

In addition to complying with laws and applicable government regulations and requirements, prevailing industry standards, competitive pressures and/or our customers may require us to comply with further quality, social responsibility, climate-related or other business policies or standards, before customers and prospective customers commence, or continue, doing business with us.

These expectations, policies and standards may be more restrictive than current laws and regulations as well as our own pre-existing policies;

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In addition, if we fail to comply, or if our compliance increases our costs and/or restricts our ability to do business as compared to our competitors that do not adhere to such standards, we could experience an adverse effect on our customer relationships, reputation, operations, cost structure and/or profitability.

Regulatory and legislative developments related to climate change, may materially adversely affect our business and financial condition.

A number of governmental bodies have introduced or are contemplating legislative and regulatory changes in response to various climate change interest groups and the potential impact of climate change.

Legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, and other costs to comply with such regulations.

Any future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations.

Given the political significance and uncertainty around the impact of climate change and how it should be addressed, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete.

Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us could harm our reputation.

Any of the foregoing could result in a material adverse effect on our business and financial condition.

We are subject to changes in legislative, regulatory and legal developments involving taxes.

We are subject to U.S.

federal and state, and other countries' and jurisdictions', income, payroll, property, sales and use, value added, fuel and other types of taxes.

federal and state, and foreign, income, payroll, property, sales and use, value-added, fuel and other types of taxes.

Changes in tax rates, enactment of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities may require significant judgment in determining the appropriate provision and related accruals for these taxes;

and as a result, such changes could result in substantially higher taxes and, therefore, could have a significant adverse effect on our results or operations, financial conditions and liquidity.

Currently, a significant amount of our revenue is generated from customers located outside of the United States, and a large portion of our assets and employees are located outside of the U.S.

The U.S., the EU and member states along with numerous other countries have recently engaged in (and many continue to engage in) establishing fundamental changes to tax laws affecting the taxation of multinational corporations.

On December 22, 2017, the U.S.

government enacted the Tax Cuts and Jobs Act ("U.S.

Tax Reform").

Tax Reform incorporated broad and complex changes to the U.S.

tax code and there have been some initial regulatory and administrative developments with respect to U.S.

however, we expect to continue to see future regulatory, administrative or legislative guidance in this area.

The full extent of the impact remains uncertain at this time, and our current interpretations of, and assumptions regarding, U.S.

Tax Reform are subject to additional regulatory or administrative developments, including any additional regulations or other guidance promulgated by the U.S.

Internal Revenue Service ("IRS").

As a result, U.S.

Tax Reform, including any regulations or other guidance promulgated by the IRS, and other tax laws or developments in the U.S.

or other countries could have significant effects on us, some of which may be adverse and could materially and adversely impact our financial condition, results of operations and cash flows, and have a negative impact on our ability to compete in the global marketplace.

We may incur significant costs for environmental compliance and/or to address liabilities under environmental laws and regulations, and our reputation may be adversely affected.

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See Item 8, Note 18, Commitments and Contingencies for additional details.

Risks Related to the Spin-Off Transaction

If the Spin-Off Transaction does not qualify as a tax-free reorganization and distribution for purposes of U.S.

federal income taxes, we may be subject to substantial additional taxes.

In connection with the Spin-Off Transaction, we obtained a tax opinion and a private letter ruling from the IRS (“IRS Ruling”) as to certain aspects relevant to treatment of the various steps of the transaction as tax-free to us and our shareholders for U.S.

federal income tax purposes.

The tax opinion and IRS Ruling are based on certain factual representations and assumptions and covenants of the parties to the transaction.

If any of the factual representations and assumptions are materially false or incorrect, or one or more of the relevant covenants are breached, the validity of the tax opinion and IRS Ruling could be impaired.

Furthermore, a tax opinion only represents counsel’s best legal judgment, and is not binding on the IRS or the courts, which may disagree with the opinion.

If the IRS determines that some or all of the transactions comprising the Spin-Off Transaction are taxable to us, we and our shareholders at the time of the transaction could be subject to significant additional U.S federal and state income taxes.

In certain circumstances, we would be entitled to indemnity from Regal for all or a portion of such additional tax, but there is no assurance that Regal would have the ability to satisfy any such indemnity obligation.

As a result of the Spin-Off Transaction, we are subject to certain limitations on Company actions for two years, including certain business combinations, that might otherwise be advantageous.

Under relevant agreements governing the Spin-Off Transaction, we are prohibited from taking certain actions during the two-year period following the closing that could cause aspects of the Spin-Off Transaction to fail to qualify for their intended tax treatment.

If we breach or are deemed to have breached these restrictions, the tax-free treatment of some or all of the Spin-Off Transaction could be impaired, and we could be subject to substantial additional U.S.

federal and state income taxes.

These restrictions might interfere with our current business and prevent us from taking advantage of opportunities that might be advantageous.

The Spin-Off Transaction may not achieve the intended benefits and may expose us to potential risks and liabilities.

We undertook the Spin-Off Transaction because, among other things, we believed that the transaction could provide more value to Zurn and Zurn stockholders than other potential strategic options for the Company or our Process and Motion Control business, including a sale of the entire company.

We may not benefit as expected from the increased focus on our core Zurn business, strategic programs and objectives made possible by the transaction.

In addition, the value realized in the transaction may be reduced by potential liabilities related to post-closing adjustments and indemnities, which could adversely affect our results of operations.

UNRESOLVED STAFF COMMENTS.

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