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Item 8. Financial Statements and Supplementary Data

2023-02-14 compared with 2022-02-09 · 436 added, 455 removed, 1131 unchanged (44% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements included in this Form 10-K include the accounts of Zurn Water Solutions Corporation and subsidiaries (collectively, the "Company").

The consolidated financial statements included in this Form 10-K include the accounts of Zurn Elkay Water Solutions Corporation and subsidiaries (collectively, the "Company").

Index to Financial Statements

Zurn Water Solutions Corporation and Subsidiaries

Zurn Elkay Water Solutions Corporation and Subsidiaries

Consolidated Financial Statements

As of December 31, 2021 and 2020 and for the year ended December 31, 2021,

the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020

As of December 31, 2022 and 2021 and for the years ended December 31, 2022 and December 31, 2021,

and the nine-month Transition Period ended December 31, 2020

Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID:

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Zurn Water Solutions Corporation

To the Stockholders and the Board of Directors of Zurn Elkay Water Solutions Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Zurn Water Solutions Corporation and Subsidiaries (the Company) as of December 31, 2021 and December 31, 2020, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for the year ended December 31, 2021, nine months ended December 31, 2020 and the year ended March 31, 2020 and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2021, nine months ended December 31, 2020 and the year ended March 31, 2020, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Zurn Elkay Water Solutions Corporation and Subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for the years ended December 31, 2022 and 2021 and the nine months ended December 31, 2020 and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years ended December 31, 2022 and 2021 and the nine months ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Valuation allowances

Description of the Matter As described in Notes 2 and 17 to the consolidated financial statements, at December 31, 2021, the Company had gross deferred tax assets of $80.3 million, $39.4 million of which relate to net operating losses, capital losses and credit carryforwards, reduced by a $35.1 million valuation allowance.

Deferred tax assets are reduced by a valuation allowance if, based upon the consideration of all positive and negative evidence, the Company determines that it is more-likely-than-not that a portion or all of the deferred tax assets will ultimately not be realized in future tax periods.

Management’s analysis of the realizability of its net operating loss, capital loss and credit carryforward deferred tax assets was significant to our audit because the amounts are material to the financial statements and the related assessment process is complex and involves significant judgments.

Such judgments included anticipated future earnings, the time period over which the temporary differences and carryforwards are anticipated to reverse and evaluation of feasible, prudent tax planning strategies.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the realizability of deferred tax assets.

For example, we tested controls over management’s review of projections of future earnings, the time period over which temporary differences and carryforwards are anticipated to reverse, and management’s identification and evaluation of feasible, prudent tax planning strategies.

To test management’s assessment of the realizability of its deferred tax assets related to net operating losses, capital losses and credit carryforwards, our audit procedures included, among others, evaluation of the assumptions used by the Company to develop tax planning strategies and projections of anticipated future earnings by jurisdiction and testing the completeness and accuracy of the underlying data used in those projections.

We assessed the historical accuracy of management’s projections and compared the projections of future earnings with other forecasted financial information prepared by the Company.

We also evaluated the Company’s considerations related to the reversal of temporary differences.

We involved our tax professionals to assist in the evaluation of tax law relative to the Company’s available tax planning strategies and projections of future taxable income.

Valuation of acquired intangible assets

Description of the Matter As described in Note 3 to the consolidated financial statements, during the year ended December 31, 2022, the Company completed the merger with Elkay Manufacturing Company for a purchase price of $1,462.9 million.

The Company’s accounting for this merger included determining the fair value of the intangible assets acquired, which primarily included customer relationships and trade names.

Auditing the Company's accounting for its merger with Elkay was complex due to the significant estimation uncertainty in the Company’s determination of the fair value of intangible assets of $865.5 million, which principally consisted of customer relationships and the Elkay trade name.

The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business.

The Company used a multi-period excess earnings method, a form of the income approach, to measure the customer relationship assets and the relief from royalty method to value the trade name.

The significant assumptions used to estimate the value of the customer relationship included margin, revenue growth, the discount rate, customer attrition rate and certain other assumptions that form the basis of the forecasted cash flows.

The significant assumptions used to estimate the value of the Elkay trade name included Elkay revenue growth, and a royalty rate.

These significant assumptions are forward looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s accounting for mergers.

For example, our tests included controls over the estimation process supporting the recognition and measurement of customer relationships, and trade names.

We also tested management’s review of the valuation models and significant assumptions used in the valuations.

To test the estimated fair value of the customer relationship and trade name intangible assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by management, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates and we evaluated the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results and certain peer companies.

/s/ Ernst & Young LLP

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February 14, 2023

To the Stockholders and the Board of Directors of Zurn Water Solutions Corporation

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Zurn Elkay Water Solutions Corporation

Opinion on Internal Control over Financial Reporting

We have audited Zurn Water Solutions Corporation and Subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Zurn Water Solutions Corporation and Subsidiaries’ (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and December 31, 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for the year ended December 31, 2021, nine months ended December 31, 2020 and the year ended March 31, 2020 , and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated February 9, 2022 expressed an unqualified opinion thereon.

We have audited Zurn Elkay Water Solutions Corporation and Subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Zurn Elkay Water Solutions Corporation and Subsidiaries’ (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting , management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Elkay Manufacturing Company, which is included in the 2022 consolidated financial statements of the Company and constituted $1,248.7 million and $912.0 million of total and net assets, respectively, as of December 31, 2022 and net sales of $ 264.4 million and a net loss of $ 11.5 million , for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Elkay Manufacturing Company.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and December 31, 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for the years ended December 31, 2022 and 2021, and the nine months ended December 31, 2020 and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated February 14, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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February 14, 2023

Zurn Water Solutions Corporation and Subsidiaries

Zurn Elkay Water Solutions Corporation and Subsidiaries

Consolidated Balance Sheets

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Receivables, net 219.7 144.1

Inventories 184.5 136.1

Inventories, net 366.7 184.5

Income taxes receivable 18.3 33.1

Other current assets 28.0 16.5

Current assets of discontinued operation — 585.9

Total current assets 757.5 474.8

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Other assets 63.9 39.3

Non-current assets of discontinued operation — 1,882.1

Total assets $ 2,864.0 $ 1,077.7

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Other current liabilities 145.9 106.4

Current liabilities of discontinued operation — 200.9

Total current liabilities 289.3 240.4

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Other liabilities 44.4 41.7

Non-current liabilities of discontinued operation — 346.8

Total liabilities 1,249.0 951.3

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Additional paid-in capital 2,853.1 1,436.9

Retained (deficit) earnings ( 1,236.9 ) 116.0

Retained deficit ( 1,164.9 ) ( 1,236.9 )

Accumulated other comprehensive loss ( 75.0 ) ( 74.9 )

Total Zurn stockholders' equity 126.4 1,436.3

Non-controlling interest — 3.0

Total stockholders' equity 1,615.0 126.4

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See notes to consolidated financial statements.

Zurn Water Solutions Corporation and Subsidiaries

Zurn Elkay Water Solutions Corporation and Subsidiaries

Consolidated Statements of Operations

(in Millions, except share and per share amounts)

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Net sales $ 1,281.8 $ 910.9 $ 562.7

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Income from operations 107.1 107.0 81.0

Non-operating (expense) income:

Non-operating expense:

Interest expense, net ( 26.9 ) ( 34.7 ) ( 33.3 )

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Actuarial gain (loss) on pension and postretirement benefit obligations 1.9 1.2 ( 0.3 )

Other expense, net ( 0.7 ) ( 1.9 ) ( 1.2 )

Income from continuing operations before income taxes 52.4 45.5 23.4

Other income (expense), net 1.7 ( 0.7 ) ( 1.9 )

Income before income taxes 83.8 52.4 45.5

Provision for income taxes ( 26.8 ) ( 2.7 ) ( 10.5 )

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Net income $ 61.7 $ 120.9 $ 118.2

Dividends on preferred stock — — ( 14.4 )

Net income attributable to Zurn common stockholders $ 120.9 $ 118.2 $ 165.7

Basic net income per share attributable to Zurn common stockholders:

Basic net income per share:

Continuing operations $ 0.38 $ 0.41 $ 0.29

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Net income $ 0.41 $ 1.00 $ 0.98

Diluted net income per share attributable to Zurn common stockholders:

Diluted net income per share:

Continuing operations $ 0.37 $ 0.40 $ 0.28

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See notes to consolidated financial statements.

Zurn Water Solutions Corporation and Subsidiaries

Zurn Elkay Water Solutions Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(in Millions)

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

Net income attributable to Zurn $ 120.9 $ 118.2 $ 180.1

Other comprehensive income (loss):

Foreign currency translation and other adjustments ( 4.2 ) 37.8 ( 24.5 )

Change in pension and other postretirement defined benefit plans, net of tax 18.4 12.8 ( 3.3 )

Other comprehensive income (loss), net of tax 14.2 50.6 ( 27.8 )

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Net income $ 61.7 $ 120.9 $ 118.2

Other comprehensive income:

Foreign currency translation adjustments ( 4.2 ) ( 4.2 ) 37.8

Change in pension and postretirement defined benefit plans, net of tax 4.1 18.4 12.8

Other comprehensive (loss) income, net of tax ( 0.1 ) 14.2 50.6

Total comprehensive income $ 61.6 $ 135.1 $ 168.8

See notes to consolidated financial statements.

Zurn Water Solutions Corporation and Subsidiaries

Zurn Elkay Water Solutions Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(in Millions)

Stock Preferred

Stock Additional

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Foreign currency translation and other adjustments — — — 37.8 — 37.8

Change in pension and other postretirement defined benefit plans, net of $ 1.5 million income tax expense

Change in pension and other postretirement defined benefit plans, net of $ 3.6 million income tax benefit

— — — 12.8 — 12.8

Total comprehensive income (loss) — — — 180.1 ( 27.8 ) 0.3 152.6

Total comprehensive income — — 118.2 50.6 0.4 169.2

Acquisition of non-controlling interest — ( 0.2 ) — — ( 0.1 ) ( 0.3 )

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Taxes withheld and paid on employees' share-based payment awards — ( 9.4 ) — — — ( 9.4 )

Mandatory conversion of preferred stock to common stock (1) 0.2 — ( 0.2 ) — — — —

Repurchase of common stock (2) — — ( 59.3 ) — — ( 59.3 )

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— — ( 28.8 ) — — ( 28.8 )

Preferred stock dividends ($ 35.78 per share)

— — — ( 14.4 ) — — ( 14.4 )

Balance at March 31, 2020 $ 1.2 $ — $ 1,348.3 $ 85.9 $ ( 124.4 ) $ 2.7 $ 1,313.7

Balance at December 31, 2020 $ 1.2 $ 1,392.9 $ 116.0 $ ( 73.8 ) $ 3.0 $ 1,439.3

Net income $ — $ — $ 120.9 $ — $ — $ 120.9

Foreign currency translation and other adjustments — — — ( 4.2 ) — ( 4.2 )

Change in pension and other postretirement defined benefit plans, net of $ 3.6 million income tax benefit

Change in pension and other postretirement defined benefit plans, net of $ 5.6 million income tax provision

— — — 18.4 — 18.4

Total comprehensive income — — 120.9 14.2 — 135.1

Acquisition of non-controlling interest — — ( 0.2 ) — — ( 0.1 ) ( 0.3 )

Stock-based compensation expense — 51.4 — — — 51.4

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Repurchase of common stock (2) — — ( 0.9 ) — — ( 0.9 )

Dividend received from Spin-Off Transaction — — 486.8 — — 486.8

Distribution of the net assets of the PMC business — — ( 1,923.3 ) ( 15.3 ) ( 3.0 ) ( 1,941.6 )

Common stock dividends ($ 0.30 per share)

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Foreign currency translation and other adjustments — — — ( 4.2 ) — ( 4.2 )

Change in pension and other postretirement defined benefit plans, net of $ 5.6 million income tax provision

Change in pension and other postretirement defined benefit plans, net of $ 2.2 million income tax expense

— — — 4.1 — 4.1

Total comprehensive income — — — 120.9 14.2 — 135.1

Total comprehensive income (loss) — — 61.7 ( 0.1 ) — 61.6

Stock-based compensation expense — 23.2 — — — 23.2

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Repurchase of common stock (2) — — ( 24.7 ) — — ( 24.7 )

Dividend received from Spin-Off Transaction — — — 486.8 — — 486.8

Distribution of the net assets of the PMC business — — — ( 1,923.3 ) ( 15.3 ) ( 3.0 ) ( 1,941.6 )

Proceeds associated with divestiture of discontinued operations — — 35.0 — — 35.0

Elkay Merger (3) 0.5 1,416.5 — — — 1,417.0

Common stock dividends ($ 0.20 per share)

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____________________

(1) See Note 19 Public Offering and Common Stock Repurchases for additional information related to the mandatory conversion of Series A Preferred Stock.

(2) During fiscal 2020, represents a 30 % non-controlling interest in a PMC controlled subsidiary and a 5 % non-controlling interest in another PMC joint venture relationship.

During the Transition Period, the Company acquired the remaining 30 % non-controlling interest associated with the aforementioned PMC joint ventures for a cash purchase price of $ 0.3 million.

From the time of this transaction through the Spin-Off Transaction, non-controlling interest represents a 5 % non-controlling interest in the remaining PMC joint venture relationship.

(1) During the Transition Period, the Company acquired the remaining 30 % non-controlling interest in a PMC controlled subsidiary for a cash purchase price of $ 0.3 million.

From the time of this transaction through the Spin-Off Transaction, non-controlling interest represents a 5 % non-controlling interest in another PMC joint venture relationship.

The Company has no remaining non-controlling interest subsequent to the Spin-Off Transaction.

(3) During the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and fiscal year ended March 31, 2020, the Company repurchased and canceled 22,300 shares, 1.7 million shares and 3.6 million shares of common stock at a total cost of $ 0.9 million, $ 59.3 million and $ 100.7 million at a weighted average price of $ 39.27 , $ 34.97 and $ 27.94 per share, respectively.

See Note 19 Public Offering and Common Stock Repurchases for additional information .

(2) During the years ended December 31, 2022 and 2021 and the nine-month Transition Period ended December 31, 2020, the Company repurchased and canceled 1.1 million shares, 22,300 shares and 1.7 million shares of common stock at a total cost of $ 24.7 million, $ 0.9 million and $ 59.3 million at a weighted average price of $ 23.00 , $ 39.27 and $ 34.97 per share, respectively.

See Note 19 Common Stock Repurchases for additional information.

(3) Refer to Note 3, Acquisitions for additional information regarding the Elkay Merger.

See notes to consolidated financial statements.

Zurn Water Solutions Corporation and Subsidiaries

Zurn Elkay Water Solutions Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in Millions)

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Operating activities

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Amortization of intangible assets 34.0 33.4 27.0

Gain on dispositions of assets ( 10.1 ) ( 1.1 ) ( 0.7 )

Loss (gain) on dispositions of long-lived assets 0.3 ( 10.1 ) ( 1.1 )

Deferred income taxes 0.5 ( 12.1 ) ( 7.0 )

Actuarial loss on pension and postretirement benefit obligations 3.6 1.6 36.6

Other non-cash charges ( 3.6 ) 0.2 4.0

Loss (gain) on extinguishment of debt 20.4 — ( 1.0 )

Other non-cash expenses (income) 4.8 ( 3.6 ) 0.2

Actuarial (gain) loss on pension and postretirement benefit obligations ( 1.9 ) 3.6 1.6

Loss on the extinguishment of debt — 20.4 —

Stock-based compensation expense 25.0 51.4 36.6

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Proceeds from dispositions of long-lived assets 1.3 14.3 7.8

Net proceeds (payments) from divestiture of discontinued operations - VAG 4.2 — ( 1.3 )

Proceeds from insurance claims 9.5 — —

Proceeds associated with divestiture of discontinued operations 35.0 4.2 —

Cash used for investing activities ( 6.6 ) ( 21.9 ) ( 122.5 )

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Payment of debt issuance costs — ( 28.8 ) —

Repurchase of common stock ( 0.9 ) ( 59.3 ) ( 100.7 )

Payment of common stock dividends ( 36.4 ) ( 28.8 ) ( 9.8 )

Payment of preferred stock dividends — — ( 17.4 )

Proceeds from exercise of stock options 2.5 24.9 18.3

Taxes withheld and paid on employees' share-based payment awards ( 0.7 ) ( 32.3 ) ( 9.4 )

Cash (used for) provided by financing activities ( 356.2 ) ( 409.6 ) 114.9

Repurchase of common stock ( 24.7 ) ( 0.9 ) ( 59.3 )

Payment of common stock dividends ( 32.5 ) ( 36.4 ) ( 28.8 )

Cash used for financing activities ( 61.1 ) ( 356.2 ) ( 409.6 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 1.1 ) ( 4.5 ) 18.0

(Decrease) increase in cash, cash equivalents and restricted cash ( 159.0 ) ( 317.8 ) 280.9

Increase (decrease) in cash, cash equivalents and restricted cash 28.2 ( 159.0 ) ( 317.8 )

Cash, cash equivalents and restricted cash at beginning of period (1) 96.6 255.6 573.4

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(1) The Company has combined cash flows from discontinued operations with cash flows from continuing operations within operating, investing and financing categories.

As such cash and cash equivalents and restricted cash include $ 193.3 million and $ 162.9 million of cash and cash equivalents from the discontinued operation that are reflected in current assets of discontinued operation on the consolidated balance sheets as of December 31, 2020 and March 31, 2020 respectively.

As such cash and cash equivalents and restricted cash include $ 193.3 million of cash and cash equivalents from the discontinued operation as of December 31, 2020.

See notes to consolidated financial statements.

Zurn Water Solutions Corporation and Subsidiaries

Zurn Elkay Water Solutions Corporation and Subsidiaries

Notes to Consolidated Financial Statements

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Basis of Presentation and Description of Business

The consolidated financial statements included herein have been prepared by Zurn Water Solutions Corporation ("Zurn" or the "Company"), in accordance with accounting principles generally accepted in the United States ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission.

The consolidated financial statements included herein have been prepared by Zurn Elkay Water Solutions Corporation ("Zurn Elkay" or the "Company"), in accordance with accounting principles generally accepted in the United States ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission.

The consolidated financial statements include the accounts of the Company and its subsidiaries.

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Prior to the Transition Period, the Company’s fiscal year ended on March 31 of each year.

For example, fiscal 2020 represents the period from April 1, 2019, to March 31, 2020.

See Note 12, Comparative Twelve and Nine Month Financial Information for additional information.

See Note 12, Comparative Twelve Month Financial Information for additional information.

On February 12, 2022, Zurn Water Solutions Corporation (“Zurn”) entered into a definitive agreement to combine with Elkay Manufacturing Company (“Elkay”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among Zurn, Elkay, Zebra Merger Sub, Inc., a wholly owned subsidiary of Zurn (“Merger Sub”), and Elkay Interior Systems International, Inc., as representative of the stockholders of Elkay, providing for the merger of Elkay with and into Merger Sub, with Elkay surviving as a wholly owned subsidiary of Zurn (the “Merger”).

On July 1, 2022, the Merger was completed following which the Company changed its name to “Zurn Elkay Water Solutions Corporation” (“Zurn Elkay”, "we", "us", "our", or the “Company”).

Shares of the Company's common stock continue to trade on the New York Stock Exchange under the ticker symbol “ZWS”.

See Note 3, Acquisitions, for additional information.

Spin-Off of Process & Motion Control Segment

As previously disclosed, on October 4, 2021, the Company completed a Reverse Morris Trust tax-free spin-off transaction (the “Spin-off Transaction”) in which (i) substantially all the assets and liabilities of the Company's PMC business were transferred to a newly created subsidiary, Land Newco, Inc.

On October 4, 2021, the Company completed a Reverse Morris Trust tax-free spin-off transaction (the “Spin-Off Transaction”) in which (i) substantially all the assets and liabilities of the Company's PMC business were transferred to a newly created subsidiary, Land Newco, Inc.

(“Land”), (ii) the shares of Land were distributed to the Company's stockholders pro rata, and (iii) Land was merged with a subsidiary of Regal Rexnord Corporation (formerly known as Regal Beloit Corporation), in which the stock of Land was converted into a specified number of shares of Regal Rexnord Corporation in accordance with the exchange ratio.

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As a result of the Spin-Off Transaction, in accordance with the authoritative guidance, the operating results of PMC are reported as discontinued operations in the consolidated statements of operations for all periods presented.

The consolidated statements of cash flows for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 have not been adjusted to separately disclose cash flows related to the discontinued operations.

The consolidated statements of cash flows for the year ended December 31, 2022, the year ended December 31, 2021 and the nine-month Transition Period ended December 31, 2020 have not been adjusted to separately disclose cash flows related to the discontinued operations.

See Note 4, Discontinued Operations for additional information.

1 unchanged sentence

See Note 15 Stock-Based Compensation and Note 16 Retirement Benefits, respectively, for additional information.

Zurn Water Solutions Corporation is a growth-oriented, pure-play water management business that designs, procures, manufactures, and markets what the Company believes to be the broadest sustainable product portfolio of specification-driven water management solutions to improve health, human safety and the environment.

The Company's product portfolio includes professional grade water safety and control, flow systems and hygienic and environmental products for public and private spaces that deliver superior value to building owners, positively impact the environment and human hygiene and reduce product installation time.

The Company's heritage of innovation and specification have allowed Zurn to provide highly-engineered, mission-critical solutions to customers for decades and affords Zurn the privilege of having long-term, valued relationships with market leaders.

The Company operates in a disciplined way and the Zurn Business System (“ZBS”), described below, is its operating philosophy.

Grounded in the spirit of continuous improvement, ZBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of the Company's business.

Zurn Elkay Water Solutions Corporation is a growth-oriented, pure-play water management business that designs, procures, manufactures, and markets what the Company believes to be the broadest sustainable product portfolio of specification-driven water management solutions to improve health, human safety and the environment.

The Company's product portfolio includes professional grade water safety and control products, flow system products, hygienic and environmental products, and drinking water products for public and private spaces that deliver superior value to building owners, positively impact the environment and human hygiene and reduce product installation time.

The Companmy's heritage of innovation and specification has allowed it to provide highly-engineered, mission-critical solutions to customers for decades and affords it the privilege of having long-term, valued relationships with market leaders.

The Company operates in a disciplined way and the Zurn Elkay Business System (“ZEBS”), described below, is its operating philosophy.

Grounded in the spirit of continuous improvement, ZEBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of its business.

Significant Accounting Policies

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Actual results could differ from those estimates.

Reclassifications

As of result of the Spin-Off Transaction certain prior year amounts primarily related to discontinued operations have been reclassified to conform to presentation used for the year ending December 31, 2021.

Revenue Recognition

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Significant Customers

The Company’s largest customer accounted for 23 %, 24 % and 23 % of consolidated net sales for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively.

No other customers account for more than 10% of consolidated net sales for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 or the fiscal year ended March 31, 2020.

The Company’s largest customer accounted for 22 %, 23 % and 24 % of consolidated net sales for the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, respectively.

No other customers account for more than 10% of consolidated net sales for the year ended December 31, 2022, the year ended December 31, 2021, or the nine-month Transition Period ended December 31, 2020.

Inventories are comprised of material, direct labor and manufacturing overhead, and are stated at the lower of cost or market.

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If actual market conditions are less favorable than those projected by management, adjustments to established inventory reserves may be required.

The total write-down of inventories charged to expense was $ 0.9 million, $ 1.5 million and $ 2.2 million, during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively.

The total write-down of inventories charged to expense was $ 0.8 million, $ 0.9 million and $ 1.5 million, during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, respectively.

Property, Plant and Equipment

16 unchanged sentences

During the fourth quarter of the year ended December 31, 2022, the Company completed its annual goodwill impairment tests and elected to perform a qualitative assessment.

No goodwill impairment charges were recorded during the year ended December 31, 2021, the nine month transition period ended December 31, 2020 and the fiscal year ended March 31, 2020.

No goodwill impairment charges were recorded during the year ended December 31, 2022, the year ended December 31, 2021, or the nine-month Transition Period ended December 31, 2020.

Impairment of Long-Lived Assets

2 unchanged sentences

If impairment is identified, a loss is recorded equal to the excess of the asset's net book value over its fair value, and the cost basis is adjusted accordingly.

The Company recognized no impairment charges of tangible fixed assets during the during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively.

The Company recognized no impairment charges of tangible fixed assets during the during the year ended December 31, 2022, the year ended December 31, 2021, or the nine-month Transition Period ended December 31, 2020, respectively.

Impairments are determined utilizing Level 3 inputs within the Fair Value hierarchy, and the Company reviews and considers input from outside specialists, when appropriate.

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The following table presents changes in the Company’s product warranty liability during each of the periods presented (in millions):

Year Ended December 31, 2021 Nine Month Transition Period Ended December 31, 2020 Year Ended March 31, 2020

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Balance at beginning of period $ 1.3 $ 1.2 $ 1.4

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Significant judgment is required in determining the Company’s worldwide provision for income taxes and recording the related deferred tax assets and liabilities.

In the ordinary course of the Company’s business, there is inherent uncertainty in quantifying the ultimate tax outcome of all of the numerous transactions and required calculations relating to the Company’s tax positions.

Accruals for unrecognized tax benefits are provided for in accordance with the requirements of ASC 740.

In the ordinary course of the Company’s business, there is inherent uncertainty in quantifying the ultimate tax outcome of all the numerous transactions and required calculations relating to the Company’s tax positions.

Accruals for unrecognized tax benefits are provided for in accordance with the requirements of ASC 740, Income Taxes ("ASC 740").

An unrecognized tax benefit represents the difference between the recognition of benefits related to uncertain tax positions for income tax reporting purposes and financial reporting purposes.

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Per Share Data

Basic net income per share from continuing and discontinued operations attributable to Zurn common stockholders is computed by dividing net income from continuing operations and income from discontinued operations attributable to Zurn common stockholders, respectively, by the corresponding weighted average number of common shares outstanding for the period.

Diluted net income per share from continuing and discontinued operations attributable to Zurn common stockholders is computed based on the weighted average number of common shares outstanding, increased by the number of incremental shares that would have been outstanding if the potential dilutive shares were issued through the exercise of outstanding stock options to purchase common shares, except when the effect would be anti-dilutive.

Additionally, following the issuance of the Series A Preferred Stock during the fiscal year ended March 31, 2017, the Company’s diluted net income per share was computed using the "if-converted" method.

During the fiscal year ended March 31, 2020, the Company issued 16.0 million shares of common stock upon the mandatory conversion of the Series A Preferred Stock.

The "if-converted" method is utilized only when such calculation is dilutive to earnings per share using the treasury stock method.

Under the "if-converted" method, diluted net income per share is calculated under the assumption that the shares

of Series A Preferred Stock were converted into shares of the Company’s common stock as of the beginning of the respective period, and therefore no dividends were provided to holders of the Series A Preferred Stock.

The computation for diluted net income per share for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 excludes 0.7 million, 0.5 million and 0.9 million common shares due to their anti-dilutive effects, respectively.

In addition, during the fiscal year ended March 31, 2020, the computation of diluted net income per share does not include shares of preferred stock that are convertible into a weighted average of 10.0 million shares of common stock due to their anti-dilutive effects.

The following table presents the basis for income per share computations (in millions, except share amounts, which are in thousands):

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

Basic net income per share attributable to Zurn common stockholders

Net income from continuing operations $ 49.7 $ 35.0 $ 19.0

Dividends on preferred stock — — 14.4

Net income from continuing operations attributable to Zurn common stockholders 49.7 35.0 4.6

Income from discontinued operations, net of tax 71.2 83.2 161.1

Net income attributable to Zurn common stockholders $ 120.9 $ 118.2 $ 165.7

Weighted-average common shares outstanding, basic 121,493 120,428 111,689

Diluted net income per share attributable to Zurn common stockholders

Net income from continuing operations $ 49.7 $ 35.0 $ 19.0

Dividends on preferred stock (1) — — 14.4

Net income from continuing operations attributable to Zurn common stockholders 49.7 35.0 4.6

Income from discontinued operations, net of tax 71.2 83.2 161.1

Net income attributable to Zurn common stockholders 120.9 118.2 165.7

Dividends on preferred stock (1) — — —

Net income attributable to Zurn common stockholders $ 120.9 $ 118.2 $ 165.7

Weighted-average common shares outstanding, basic 121,493 120,428 111,689

Effect of dilutive equity awards 3,621 2,771 2,576

Weighted-average common shares outstanding, diluted 125,114 123,199 114,265

____________________

(1) The "if-converted" method was anti-dilutive for the fiscal year ended March 31, 2020.

(2) See Note 19, Public Offering and Common Stock Repurchases and Public Offerings for additional information related to the mandatory conversion of Series A Preferred Stock.

Basic net income per share from continuing and discontinued operations is computed by dividing net income from continuing operations and income from discontinued operations, respectively, by the corresponding weighted average number of common shares outstanding for the period.

Diluted net income per share from continuing and discontinued operations is computed based on the weighted average number of common shares outstanding, increased by the number of incremental shares that would have been outstanding if the potential dilutive shares were issued through the exercise of outstanding stock options to purchase common shares, except when the effect would be anti-dilutive.

The computation for diluted net income per share for the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 excludes 0.4 million, 0.7 million and 0.5 million common shares due to their anti-dilutive effects, respectively.

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of tax, for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 are as follows (in millions):

The changes in accumulated other comprehensive loss, net of tax, for the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 are as follows (in millions):

Foreign Currency Translation and Other Pension and Postretirement Plans Total

Balance at March 31, 2020 $ ( 83.8 ) $ ( 40.6 ) $ ( 124.4 )

Other comprehensive loss before reclassifications ( 24.5 ) ( 3.6 ) ( 28.1 )

Amounts reclassified from accumulated other comprehensive loss — 0.3 0.3

Balance at March 31, 2020 $ ( 83.8 ) $ ( 40.6 ) $ ( 124.4 )

Other comprehensive income before reclassifications 37.8 13.0 50.8

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Balance at December 31, 2021 $ ( 70.9 ) $ ( 4.0 ) $ ( 74.9 )

The following table summarizes the amounts reclassified from accumulated other comprehensive loss to net income during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the year ended March 31, 2020 (in millions):

Pension and postretirement plans Year Ended December 31, 2021 Nine Month Transition Period Ended December 31, 2020 Year Ended March 31, 2020 Income Statement Line Item

Other comprehensive (loss) income before reclassifications $ ( 4.2 ) $ 4.1 $ ( 0.1 )

Amounts reclassified from accumulated other comprehensive loss — — —

Balance at December 31, 2022 $ ( 75.1 ) $ 0.1 $ ( 75.0 )

The following table summarizes the amounts reclassified from accumulated other comprehensive loss to net income during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 (in millions):

Pension and postretirement plans Year Ended December 31, 2022 Year Ended December 31, 2021 Nine-Month Transition Period Ended December 31, 2020 Income Statement Line Item

Amortization of prior service credit $ — $ ( 0.2 ) $ ( 0.2 ) Other income (expense), net

Lump sum settlement — — 0.8 Discontinued operations, net of tax

PMC Spin-Off Transaction settlement — 4.8 — Discontinued operations, net of tax

Provision for income taxes ( 1.1 ) — ( 0.2 )

Benefit (provision) for income taxes — ( 1.1 ) —

Total, net of income taxes $ — $ 3.5 $ ( 0.2 )

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Foreign currency translation adjustments are included as a component of accumulated other comprehensive loss.

Currency transaction (gains) losses are included in other expense, net in the consolidated statements of operations and totaled $ 0.4 million, $( 0.4 ) million and $ 0.4 million for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively.

Currency transaction (gains) losses are included in other expense, net in the consolidated statements of operations and totaled $ 1.0 million, $ 0.4 million and $( 0.4 ) million for the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, respectively.

Advertising Costs

Advertising costs are charged to selling, general and administrative expenses on the consolidated statements of operations as incurred and amounted to $ 8.2 million, $ 5.5 million and $ 9.2 million for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively.

Advertising costs are charged to selling, general and administrative expenses on the consolidated statements of operations as incurred and amounted to $ 12.5 million, $ 8.2 million and $ 5.5 million for the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, respectively.

Research, Development and Engineering Costs

Research, development and engineering costs are charged to selling, general and administrative expenses on the consolidated statements of operations as incurred and amounted to $ 14.0 million, $ 9.6 million and $ 13.2 million for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively.

Research, development and engineering costs are charged to selling, general and administrative expenses on the consolidated statements of operations as incurred and amounted to $ 18.4 million, $ 14.0 million and $ 9.6 million for the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, respectively.

Business Segment and Geographic Areas

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Net Sales Long-lived Assets

Year Ended December 31, 2021 Nine Month Transition Period Ended December 31, 2020 Year Ended March 31, 2020 December 31, 2021 December 31, 2020 March 31, 2020

Year Ended December 31, 2022 Year Ended December 31, 2021 Nine-Month Transition Period Ended December 31, 2020 December 31, 2022 December 31, 2021 December 31, 2020

United States $ 1,135.3 $ 792.8 $ 517.3 $ 165.9 $ 51.6 $ 56.3

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Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU No.

In December 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 ("ASU 2022-06").

In 2020, the Board issued Accounting Standards Update No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which is described below.

The Board included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published.

At the time that Update 2020-04 was issued, the UK Financial Conduct Authority (FCA) had established its intent that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021.

As a result, the sunset provision was set for December 31, 2022—12 months after the expected cessation date of all currencies and tenors of LIBOR.

In March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848.

Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, the amendments in this Update defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

The amendments in this ASU are effective for all entities upon issuance of the update.

The Company did not modify any material contracts due to reference rate reform during the year ended December 31, 2022.

The Company will continue to evaluate the impact this guidance will have on its consolidated financial statements for all future transactions affected by reference rate reform during the time permitted.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04").

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The Company did not modify any material contracts due to reference rate reform during the year ended December 31, 2022.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ( "ASU 2019-12" ) .

The FASB issued this update as part of its initiative to reduce complexity in accounting standards.

The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also improve consistent application of other areas by clarifying and amending existing guidance.

The Company adopted this ASU on January 1, 2021, using a retrospective, modified retrospective or prospective basis for certain amendments.

There was no impact to the consolidated financial statements.

Year Ended December 31, 2022

On November 17, 2021, the Company completed the acquisition of the Wade Drains business ("Wade Drains") from McWane, Inc.

for a preliminary cash purchase price of $ 13.7 million, excluding transaction costs and net of cash acquired.

The preliminary purchase price is subject to customary post-closing adjustments.

Wade Drains manufactures a wide range of specified commercial plumbing products for customers across North America and complements the Company's existing flow systems product portfolio.

On July 1, 2022, the Company and Elkay completed the Elkay Merger for a preliminary purchase price of $ 1,462.9 million.

Elkay, a market leader of commercial sinks and drinking water solutions, complements the Company's existing product portfolio.

The preliminary purchase price includes $ 1,417.0 million of Zurn's common stock based on Zurn's closing stock price of $ 27.48 on July 1, 2022, and $ 45.9 million of net cash payments for the repayment of Elkay's term loan and Elkay's transaction related costs outstanding that were in excess of Elkay's cash and cash equivalents at the time of closing.

Pursuant to the terms of the Merger Agreement, the Company issued 51,564,524 shares of its common stock, which represented approximately 29 % of outstanding shares immediately following the Merger.

The total number of shares of the Company's common stock issued at closing was preliminary and subject to change upon finalization of customary post-closing adjustments with respect to cash, indebtedness and working capital.

The Company expects that approximately 186,000 of these shares will be returned to the Company in the first half of calendar year 2023 as a result of lower working capital and cash balances at closing compared to targets stipulated in the Merger Agreement.

The Company incurred transaction-related costs of approximately $ 33.7 million for the twelve months ended December 31, 2022.

These costs were associated with legal and professional services and were recognized as selling, general and administrative expenses in the consolidated statements of operations.

In accordance with the Merger Agreement, the Company increased the size of its Board to eleven members, and appointed two directors designated by Elkay.

As of December 31, 2022, the Board consisted of ten members, including one director designated by Elkay.

Zurn senior management immediately prior to the consummation of the Elkay Merger remained as the executive officers of the Company immediately after the Elkay Merger.

The Company's management determined that the Company is the accounting acquirer in the Elkay Merger based on the facts and circumstances noted within this section and other relevant factors.

As such, the Company applied the acquisition method of accounting to the identifiable assets and liabilities of the Elkay business, which have been measured at estimated fair value as of the date of the business combination.

Elkay’s assets and liabilities were measured at estimated fair value at July 1, 2022, primarily using Level 3 inputs.

Estimates of fair value represent management’s best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates and customer attrition rates and others.

Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates expected as of the Merger date.

See Note 13, Fair Value Measurements, for additional information.

Due to the timing of the business combination and the nature of the net assets acquired, at December 31, 2022, the valuation process to determine the fair values is not complete and further adjustments are expected.

The Company has estimated the preliminary fair value of net assets acquired based on information currently available and will continue to adjust those estimates as additional information becomes available.

As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price allocation adjustments will be recorded during the measurement period, but no later than one year from the date of the Merger.

The Company will reflect measurement period adjustments in the period in which the adjustments are determined.

The preliminary fair value of the assets acquired and liabilities assumed were as follows (in millions):

As Reported September 30, 2022 Measurement Period Adjustments As Reported December 31, 2022

Assets acquired:

Receivables, net $ 92.1 $ — $ 92.1

Inventories 165.9 ( 0.8 ) 165.1

Other current assets 9.9 ( 1.3 ) 8.6

Property, plant and equipment, net 147.1 ( 14.0 ) 133.1

Intangible assets, net 860.5 5.0 865.5

Goodwill 505.0 22.2 527.2

Other assets 73.8 ( 16.9 ) 56.9

Total assets acquired $ 1,854.3 $ ( 5.8 ) $ 1,848.5

Liabilities assumed:

Trade payables $ 30.4 $ — $ 30.4

Compensation and benefits 39.1 0.1 39.2

Current portion of pension and postretirement benefit obligations 17.3 — 17.3

Other current liabilities 30.1 14.8 44.9

Operating lease liability 40.5 ( 16.3 ) 24.2

Pension and postretirement benefit obligations 3.6 — 3.6

Deferred income taxes 222.6 ( 7.1 ) 215.5

Other liabilities 7.8 2.7 10.5

Total liabilities assumed 391.4 ( 5.8 ) 385.6

Total preliminary purchase price $ 1,462.9 $ — $ 1,462.9

Unaudited Pro Forma Information

The following unaudited supplemental pro forma financial information presents the financial results from continuing operations for the year ended December 31, 2022 and 2021 as if the Elkay Merger had occurred on January 1, 2021.

The pro forma financial information includes, where applicable, adjustments for:

(i) additional amortization expense that would have been recognized related to the acquired intangible assets, (ii) additional depreciation expense that would have been recognized related to the acquired property, plant, and equipment, (iii) transaction costs and other one-time non-recurring costs which reduced expenses by $ 33.7 million for the year ended December 31, 2022 and increased expenses by $ 33.7 million for the year ended December 31, 2021, (v) additional cost of sales related to the inventory valuation adjustment which reduced expenses by $ 18.3 million for the year ended December 31, 2022 and increased expenses by $ 18.3 million for the year ended December 31, 2021, and (vi) the estimated income tax effect on the pro forma adjustments.

The pro forma financial information excludes adjustments for estimated cost synergies or other effects of the integration of the Elkay Merger.

The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the Elkay Merger been completed as of the date indicated or the results that may be obtained in the future.

December 31, 2022 December 31, 2021

Net sales $ 1,580.5 $ 1,477.7

Net income (loss) from continuing operations $ 91.1 $ ( 4.2 )

Earnings per share from continuing operations

Basic $ 0.60 $ ( 0.03 )

Assuming dilution $ 0.59 $ ( 0.03 )

For the period from July 1, 2022 through December 31, 2022, Elkay had net sales and a net loss of $ 264.4 million and $ 11.5 million, respectively, which amounts include the impact of purchase accounting adjustments, and are included in the consolidated statements of operations for the period from July 1, 2022 through December 31, 2022.

Year Ended December 31, 2021

On November 17, 2021, the Company completed the acquisition of the Wade Drains business ("Wade") from McWane, Inc.

for a cash purchase price of $ 12.6 million, excluding transaction costs and net of cash acquired.

During the twelve months ended December 31, 2022, the Company received a $ 1.1 million cash payment from the sellers of Wade in connection with finalizing the acquisition date trade working capital, which is included in the total cash purchase price above.

Wade manufactures a wide range of specified commercial plumbing products for customers across North America and complements the Company's existing flow systems product portfolio.

On April 16, 2021, the Company acquired substantially all of the assets of Advance Technology Solutions, LLC (d/b/a ATS GREASEwatch) ("ATS GREASEwatch") for a cash purchase price of $ 4.5 million, excluding transaction costs and net of cash acquired.

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The excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill.

The preliminary purchase price allocations associated with these acquisitions resulted in tax deductible goodwill of $ 8.8 million, customer relationship intangibles assets of $ 1.6 million, trade working capital of $ 9.0 million and $( 1.1 ) million of other net liabilities.

The preliminary purchase price allocations will be completed within the one-year period following the acquisition dates.

The purchase price allocations associated with these acquisitions resulted in tax deductible goodwill of $ 7.5 million, customer relationship intangibles assets of $ 1.6 million, trade working capital of $ 9.0 million and $( 1.1 ) million of other net liabilities.

During the twelve months ended December 31, 2022, the purchase price allocations for Wade were adjusted, resulting in $ 1.3 million decrease to goodwill, primarily related to the aforementioned cash payment received from the sellers of Wade.

The Company's results of operations include the acquired operations subsequent to the acquisition dates.

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GAAP disclosures related to the acquisition have not been presented because they are not significant to the Company's consolidated statements of operations or financial position.

Year Ended March 31, 2020

On January 28, 2020, the Company acquired substantially all of the assets of Just Manufacturing Company ("Just Manufacturing") for a total cash purchase price of $ 59.4 million, excluding transaction costs and net of cash acquired.

Just Manufacturing, based in Franklin Park, Illinois, manufactures stainless steel sinks and plumbing fixtures primarily used in institutional and commercial end markets and complemented the Company's existing product portfolio.

On May 10, 2019, the Company acquired substantially all of the assets of StainlessDrains.com, a manufacturer of stainless steel drains, grates and accessories for industrial and commercial end markets, for a cash purchase price of $ 24.8 million, excluding transaction costs and net of cash acquired.

StainlessDrains.com, headquartered in Greenville, Texas, added complementary product lines to the Company's existing product portfolio.

The Company's results of operations include the acquired operations subsequent to the aforementioned acquisitions dates.

Pro-forma results of operations and certain other U.S.

GAAP disclosures related to these acquisitions have not been presented because they are not significant to the Company's consolidated statements of operations or financial position.

These acquisitions have been accounted for as business combinations and were recorded by allocating the purchase price to the fair value of assets acquired and liabilities assumed at the acquisition date.

The excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill.

The purchase price allocations associated with these acquisitions resulted in tax deductible goodwill of $ 27.3 million, other intangible assets of $ 40.9 million (including tradenames of $ 2.2 million and $ 38.7 million of customer relationships), $ 8.4 million of fixed assets, $ 9.1 million of trade working capital and other net liabilities of $ 1.5 million.

The purchase price allocations for StainlessDrains.com, which were finalized and adjusted during the year ended March 31, 2020, resulted in a reduction of goodwill of $ 1.2 million, related to the refinement of the estimated fair value of intangible assets acquired.

The purchase price allocations for Just Manufacturing were adjusted and finalized during the nine month Transition Period ended December 31, 2020, resulting in $ 0.8 million increase in goodwill related to the refinement of the estimated fair value of the liabilities assumed as of the acquisition date.

Discontinued Operations

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The operating results of PMC are reported as discontinued operations in the consolidated statements of operations for all periods presented, as the Spin-Off Transaction of PMC represented a strategic shift that had a major impact on operations and financial results.

The terms of the Spin-Off Transaction agreement included targeted working capital and cash balances at closing of the Spin-Off Transaction, which are subject to adjustment after determining final working capital and cash balances held by PMC at the Spin-Off Transaction date.

As of the date of this filing, no such adjustments have been made or asserted.

The consolidated statements of cash flows for the year ended December 31, 2022, the year ended December 31, 2021, the nine-month Transition Period ended December 31, 2020 have not been adjusted to separately disclose cash flows related to the discontinued operations.

During the year ended December 31, 2022, the Company received $ 35.0 million from Regal Rexnord Corporation as a result of the final working capital and cash balances at closing exceeding the targets stipulated in the Spin-Off Transaction agreement.

In connection with the Spin-Off Transaction, the Company incurred approximately $ 60 million in separation costs during the year ended December 31, 2021, which are included within earnings from discontinued operations, net of income taxes in the accompanying consolidated statements of operations.

These costs primarily related to professional fees associated with planning the Spin-Off Transaction, as well as Spin-Off Transaction activities within finance, tax, legal and information system functions and certain investment banking fees incurred upon completion of the Spin-Off Transaction.

The major components of the Income from discontinued operations, net of tax presented in the consolidated statements of operations during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 are included in the table below (in millions):

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 (1) December 31, 2020 March 31, 2020

The major components of the Income from discontinued operations, net of tax presented in the consolidated statements of operations during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 are included in the table below (in millions):

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021

December 31, 2020

Net sales $ — $ 973.0 $ 870.4

Cost of sales — 598.6 572.0

Selling, general and administrative expenses 260.2 168.0 236.4

Selling, general and administrative expenses/(income) ( 2.9 ) 260.2 168.0

Restructuring and other similar charges — 1.9 12.9

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Interest expense, net — 4.1 3.3

Gain on extinguishment of debt — — ( 3.0 )

Actuarial loss on pension and postretirement benefit obligations — 4.8 1.3

Other non-operating (income) expenses, net ( 5.6 ) ( 6.4 ) 4.4

Other non-operating income, net — ( 5.6 ) ( 6.4 )

Income from discontinued operations before income tax 2.9 99.1 109.2

Income tax provision ( 28.0 ) ( 25.8 ) ( 49.7 )

Income tax benefit (provision) 1.8 ( 28.0 ) ( 25.8 )

Equity method investment income — 0.3 0.2

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____________________

(1) Results of operations for the year ended December 31, 2022 includes the reversal of certain accruals as a result of costs the Company is obligated to indemnify Regal Rexnord Corporation for being lower than original estimates.

(2) Results of operations during the year ended December 31, 2021 reflect the period from January 1, 2021 through October 4, 2021, the date on which the Spin-Off Transaction of PMC was completed.

The carrying amounts of major classes of assets and liabilities associated with PMC included as part of discontinued operations presented in the consolidated balance sheets as of December 31, 2020 are as follows (in millions):

December 31, 2020

Cash and cash equivalents $ 193.3

Receivables, net 171.2

Inventories 194.0

Other current assets 27.4

Total non-current assets of discontinued operation $ 585.9

Property, plant and equipment, net $ 365.2

Intangible assets, net 324.3

Goodwill 1,125.3

Other assets 67.3

Total non-current assets of discontinued operation $ 1,882.1

Current maturities of debt $ 2.1

Trade payables 88.1

Compensation and benefits 43.9

Current portion of pension and postretirement benefit obligations 1.7

Other current liabilities 65.1

Total current liabilities of discontinued operation $ 200.9

Long-term debt $ 71.2

Pension and postretirement benefit obligations 91.0

Deferred income taxes 111.4

Other liabilities 73.2

Total non-current liabilities of discontinued operation $ 346.8

The consolidated statements of cash flows for the prior periods presented have not been adjusted to separately disclose cash flows related to discontinued operations.

However, the significant investing and financing cash flows and other significant non-cash operating items associated with the discontinued operations were as follows (in millions):

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 (1) December 31, 2020 March 31, 2020

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021

December 31, 2020

Depreciation $ — $ 34.9 $ 33.7

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Actuarial loss on pension and postretirement benefit obligations — 4.8 1.3

Other non-cash charges ( 0.3 ) 1.4 1.7

Gain on extinguishment of debt — — ( 3.0 )

Other non-cash (income) expenses — ( 0.3 ) 1.4

Stock-based compensation — 13.9 13.7

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Proceeds from dispositions of long-lived assets — 14.3 7.2

Net payments from divestiture of discontinued operations 35.0 4.2 —

Repayments of debt — ( 1.6 ) ( 5.4 )

1 unchanged sentence

Taxes withheld and paid on employees' shared-based payment awards — ( 0.5 ) ( 0.4 )

Net payments from divestiture of discontinued operations 4.2 — ( 1.3 )

___________________

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During the year ended March 31, 2019, the Company completed the sale of the VAG business, which was previously included within the Water Management platform.

The operating results of the VAG business are reported as discontinued operations in the consolidated statements of operations for all periods presented, as the sale of VAG represented a strategic shift that had a major impact on operations and financial results.

The sale price was subject to customary working capital and cash balance adjustments, which were finalized in the year ended March 31, 2020.

As a result of these adjustments and other related costs, the Company recognized an additional $ 1.8 million loss on the sale of discontinued operations for the year ended March 31, 2020.

The terms of the sale agreement provided the Company to receive contingent consideration, based on, and subject to, the VAG business attainment of Earn-out EBITDA, as defined in the sale agreement.

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During the year ended December 31, 2022, the Company continued to execute various restructuring actions.

These initiatives were implemented to drive efficiencies and reduce operating costs while also modifying the Company's footprint to reflect changes in the markets it serves, the impact of acquisitions on the Company's overall manufacturing capacity and the refinement of its overall product portfolio.

These initiatives were implemented to drive efficiencies and reduce operating costs while also modifying the Company's footprint to reflect changes in the markets it serves, the impact of acquisitions, including Elkay, on the Company's overall manufacturing capacity and the refinement of its overall product portfolio.

These restructuring actions primarily resulted in workforce reductions, lease termination costs and other facility rationalization costs.

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The Company's restructuring plans are preliminary and the full extent of related expenses are not yet estimable.

The following table summarizes the Company's restructuring and other similar costs incurred during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 (in millions):

Year Ended December 31, 2021 Nine Month Transition Period Ended December 31, 2020 Year Ended March 31, 2020

The following table summarizes the Company's restructuring and other similar costs incurred during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 (in millions):

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Employee termination benefits $ 13.6 $ 3.7 $ 1.8

1 unchanged sentence

Total restructuring and other similar costs $ 15.4 $ 3.7 $ 1.7

Restructuring Costs To-date (Period from April 1, 2011 to December 31, 2021) Restructuring Costs To-date (Period from April 1, 2011 to December 31, 2021)

Restructuring Costs To-date (Period from April 1, 2011 to December 31, 2022)

Employee termination benefits $ 30.4

1 unchanged sentence

Total restructuring and other similar costs $ 39.5

The following table summarizes the activity in the Company's accrual for restructuring and other similar costs for the year ended December 31, 2021, and the nine month Transition Period ended December 31, 2020 (in millions):

The following table summarizes the activity in the Company's accrual for restructuring and other similar costs for the years ended December 31, 2022 and 2021 (in millions):

Employee termination benefits Contract termination and other associated costs Total

Accrued Restructuring Costs, March 31, 2020 (1) $ 0.1 $ 1.1 $ 1.2

Accrued restructuring costs, December 31, 2020 (1)

$ 0.5 $ — $ 0.5

Charges 3.7 — 3.7

1 unchanged sentence

Accrued restructuring costs, December 31, 2021 (1)

$ 2.4 $ — $ 2.4

Elkay opening balance sheet accrual 4.7 — 4.7

Charges 13.6 1.8 15.4

2 unchanged sentences

$ 7.8 $ 1.2 $ 9.0

(1) The restructuring accrual is included in Other current liabilities on the consolidated balance sheets.

____________________

(1) As of December 31, 2022, $ 8.4 million of the restructuring accrual is included in other current liabilities and $ 0.6 million is included in other liabilities in the consolidated balance sheets.

As of December 31, 2021, the restructuring accrual is included in other current liabilities in the consolidated balance sheets.

Revenue Recognition

10 unchanged sentences

The Company has elected to recognize the cost for freight and shipping when control of products has transferred to the customer as a component of cost of sales in the consolidated statements of operations.

The Company classifies shipping and handling fees billed to customers as net sales and the corresponding costs are classified as cost of sales in the consolidated statements of operations.

The Company classifies shipping and handling fees

billed to customers as net sales and the corresponding costs are classified as cost of sales in the consolidated statements of operations.

Revenue by Category

The following tables present our revenue disaggregated by customer type and customer geography (in millions):

Year Ended Nine Month Transition Period Ended Year Ended

Customer Type December 31, 2021 December 31, 2020 March 31, 2020

The Company designs, procures, manufactures, and markets a comprehensive portfolio of water management solutions.

The Company disaggregates its sales by customer type and geographic location, which the Company believes best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows may be impacted differently by certain economic factors.

The following tables present revenue disaggregated by customer type and the geographic region of the end customer (in millions):

Year Ended Nine-Month Transition Period Ended

Customer Type December 31, 2022 December 31, 2021 December 31, 2020

Institutional $ 517.7 $ 334.8 $ 221.6

2 unchanged sentences

Total $ 1,281.8 $ 910.9 $ 562.7

Year Ended Nine Month Transition Period Ended Year Ended

Geography December 31, 2021 December 31, 2020 March 31, 2020

Year Ended Nine-Month Transition Period Ended

Geography December 31, 2022 December 31, 2021 December 31, 2020

United States $ 1,171.8 $ 819.9 $ 512.6

11 unchanged sentences

The Company had backlog of $ 42.1 million and $ 69.9 million as of December 31, 2022, and December 31, 2021, respectively, which represents the most likely amount of consideration expected to be received in satisfying the remaining backlog under open contracts.

The Company has elected to use the optional exemption provided by ASC 606-10-50-14A for variable consideration, and has not included estimated rebates in the amount of unsatisfied performance obligations.

The Company utilizes the optional exemption provided by ASC 606-10-50-14A for variable consideration, and has not included estimated rebates in the amount of unsatisfied performance obligations.

The Company expects to recognize approximately 100 % of the backlog as revenue in the year ending December 31, 2023.

11 unchanged sentences

As of December 31, 2022 and December 31, 2021, the contract assets capitalized are not significant.

During the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020, and the fiscal year ended March 31, 2020, contract asset amortization was not significant and no impairment losses were recognized.

During the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, contract asset amortization was not significant and no impairment losses were recognized.

The major classes of inventories are summarized as follows (in millions):

12 unchanged sentences

Machinery and equipment 120.4 45.2

Hardware and software 17.9 19.7

Computer hardware and software 26.2 17.9

Construction in-progress 9.7 5.8

2 unchanged sentences

Goodwill and Intangible Assets

The changes in the net carrying value of goodwill for the year ended December 31, 2021, and nine month Transition Period ended December 31, 2020, consisted of the following (in millions):

Net carrying amount as of March 31, 2020 $ 200.5

The changes in the net carrying value of goodwill for the years ended December 31, 2022 and 2021 consisted of the following (in millions):

Net carrying amount as of December 31, 2020

Acquisitions (1) 8.8

2 unchanged sentences

Net carrying amount as of December 31, 2021

Acquisitions (1) 8.8

Elkay Merger(1) 527.2

Purchase accounting adjustments (1) ( 1.3 )

Currency translation and other adjustments 0.2

Currency translation adjustments ( 3.0 )

Net carrying amount as of December 31, 2022

1 unchanged sentence

(1) Refer to Note 3, Acquisitions for additional information regarding acquisitions.

Total cumulative goodwill impairment charges as of December 31, 2021 and 2020 was $ 337.1 million and $ 337.1 million, respectively.

Total cumulative goodwill impairment charges as of December 31, 2022 and 2021 was $ 337.1 million.

The gross carrying amount and accumulated amortization for each major class of identifiable intangible assets as of December 31, 2022 and December 31, 2021 consisted of the following (in millions):

15 unchanged sentences

Total intangible assets, net 15 years $ 474.6 $ ( 295.5 ) $ 179.1

Intangible asset amortization expense totaled $ 23.5 million, $ 16.9 million and $ 20.9 million for the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively.

Intangible asset amortization expense totaled $ 34.0 million, $ 23.5 million and $ 16.9 million for the year ended December 31, 2022, the year ended December 31, 2021, the nine-month Transition Period ended December 31, 2020, respectively.

Customer relationships and tradenames acquired during the year ended December 31, 2022 were assigned a weighted-average useful life of 16 years and 20 years, respectively.

Customer relationships acquired during the year ended December 31, 2021 were assigned a weighted-average useful life of 10 years.

Tradenames, and customer relationships acquired during the nine month Transition Period ended December 31, 2020 were assigned a weighted-average useful life of 5 years and 18 years, respectively.

The Company expects to recognize amortization expense on the intangible assets subject to amortization of $ 7.9 million in 2022, $ 6.5 million in 2023, $ 6.5 million in 2024, $ 6.4 million in 2025, and $ 6.3 million in 2026.

The Company expects to recognize amortization expense on intangible assets subject to amortization of $ 58.7 million in 2023, $ 58.7 million in 2024, $ 58.6 million in 2025, $ 58.5 million in 2026, and $ 58.5 million in 2027.

Other Current Liabilities

1 unchanged sentence

December 31, 2022 December 31, 2021

Sales rebates $ 38.6 $ 28.0

Commissions $ 9.0 $ 8.1

Restructuring and other similar charges (1) 2.4 0.5

Current portion of operating lease liability (1) 9.4 6.1

Income taxes payable 2.3 2.1

Legal and environmental 2.3 3.0

Product warranty (2) 4.2 1.3

Restructuring and other similar charges (3) 8.4 2.4

Risk management (4) 16.3 11.3

Legal and environmental 3.0 1.1

Sales rebates 56.0 38.6

Tax indemnities 19.0 21.9

Taxes, other than income taxes 2.5 1.8

Taxes payable on behalf of PMC 21.9 —

Income taxes payable 2.1 2.4

Interest payable — 1.3

Current portion of operating lease liability (4) 6.1 5.7

Other 16.5 9.8

1 unchanged sentence

___________________

(1) See more information related to the restructuring obligations balance within Note 5, Restructuring and Other Similar Charges.

(1) See more information related to leases within Note 14, Leases.

(2) See more information related to the product warranty obligations balance within Note 2, Significant Accounting Policies.

(3) See more information related to the restructuring obligations balance within Note 5, Restructuring and Other Similar Charges.

(4) Includes projected liabilities related to losses arising from automobile, general and product liability claims.

(4) See more information related to leases within Note 14, Leases.

Long-Term Debt

2 unchanged sentences

Term loan (1) $ 535.3 $ 539.2

4.875 % Senior Notes due 2025 (2)

Finance leases and other subsidiary debt (3) 0.3 0.5

Finance leases (2) 0.6 0.3

Total 535.9 539.5

3 unchanged sentences

(1) Includes unamortized debt issuance costs of $ 9.2 million and $ 10.8 million at December 31, 2022 and December 31, 2021, respectively.

(2) Includes unamortized debt issuance costs of $ 0.0 million and $ 3.7 million at December 31, 2021 and December 31, 2020, respectively.

(2) See more information related to finance leases within Note 14 , Leases.

1 unchanged sentence

On October 4, 2021, ZBS Global, Inc.

(“Holdings”), Zurn Holdings, Inc., Zurn LLC (together, the “Borrowers”), the lenders from time to time party thereto, and Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders (in such capacity, the “Administrative Agent”) entered into a Fourth Amended and Restated First Lien Credit Agreement (the “Credit Agreement”).

(“Holdings”), Zurn Holdings, Inc., Zurn LLC (together, the “Original Borrowers”), the lenders from time to time party thereto, and Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders (in such capacity, the “Administrative Agent”) entered into a Fourth Amended and Restated First Lien Credit Agreement as amended by that certain Amendment No.

1 to Fourth Amended and Restated First Lien Credit Agreement dated as of July 1, 2022 (the "Amendment") (as so amended, the “Credit Agreement”).

Pursuant to the Amendment, Elkay joined the Credit Agreement as a borrower (Elkay and the Original Borrowers, collectively, the "Borrowers").

The Credit Agreement is funded by a syndicate of banks and other financial institutions and provides for (i) a $ 550.0 million term loan facility (the “Term Loan”) and (ii) a $ 200.0 million revolving credit facility (the “Revolving Credit Facility”).

The obligations under the Credit Agreement and related documents are secured by liens on substantially all of the assets of Holdings, the Borrowers, and certain subsidiaries of the Borrowers pursuant to a Third Amended and Restated Guarantee and Collateral Agreement, dated as of October 4, 2021, among Holdings, the Borrowers, the subsidiaries of the Borrowers party thereto, and the Administrative Agent, and certain other collateral documents.

1 dated as of July 1, 2022, executed by Elkay and its domestic subsidiaries, and certain other collateral documents.

The Credit Agreement contains representations, warranties, covenants and events of default, including, without limitation, a financial covenant under which the Borrowers are, if certain conditions are met, obligated to maintain on a consolidated basis, as of the end of each fiscal quarter, a certain maximum Net First Lien Leverage Ratio (as defined in the Credit Agreement).

2 unchanged sentences

At December 31, 2020, the Prior Credit Agreement was funded by a syndicate of banks and other financial institutions and provided for (i) a $ 625.0 million term loan facility (the “Prior Term Loan”) and (ii) a $ 264.0 million revolving credit facility (the “Prior Revolving Credit Facility”).

In connection with the amendment of the Credit Agreement, the Company recognized a $ 20.4 million loss on the extinguishment of debt, comprised of refinancing-related costs incurred and a non-cash write-off of debt issuance costs associated with the previous debt outstanding.

In connection with the 2021 amendment of the Credit Agreement, the Company recognized a $ 20.4 million loss in the prior year on the extinguishment of debt, comprised of refinancing-related costs incurred and a non-cash write-off of debt issuance costs associated with the previous debt outstanding.

The Credit Agreement provided for the issuance of a term loan facility in an aggregate principal amount of $ 550.0 million.

The proceeds of the Term Loan were, together with the Land Newco Dividend and cash on hand, used to (i) repay in full the aggregate principal amount outstanding of the Prior Term Loan, together with accrued interest thereon, (ii) redeem the $ 500 million of outstanding principal amount of the Notes, as described below, and (iii) pay related fees and expenses.

The proceeds of the Term Loan were, together with the dividend received by the Company in connection with the Spin-Off Transaction and cash on hand, used to (i) repay in full the aggregate principal amount outstanding of the Prior Term Loan, together with accrued interest thereon, (ii) redeem the $ 500 million of outstanding principal amount of the Notes, as described below, and (iii) pay related fees and expenses.

The Term Loan has a maturity date of October 4, 2028.

1 unchanged sentence

The Term Loan bears interest at the Borrowers’ option, by reference to a base rate or a rate based on LIBOR, in either case, plus an applicable margin determined quarterly based on the Borrowers’ Net First Lien Leverage Ratio as of the last day of each fiscal quarter.

If the Net First Lien Leverage Ratio is greater than 1.80 to 1.00, the applicable margin shall equal 1.25 %

in the case of base rate borrowings and 2.25 % in the case of LIBOR borrowings.

In the event the Borrowers’ Net First Lien Leverage Ratio is less than or equal to 1.80 to 1.0, the applicable margin on both base rate and LIBOR borrowings would decrease by 0.25 %.

The Borrowers’ Net First Lien Leverage Ratio was 2.35 to 1.0 as of December 31, 2021.

Certain prepayments of the Term Loan occurring on or prior to April 4, 2022 are subject to a 1.00 % prepayment penalty.

At December 31, 2021 and December 31, 2020, the borrowings under the Term Loan and Prior Term Loan had weighted-average effective interest rates of 2.75 % and 1.89 %, respectively.

During the year ended December 31, 2021 and the nine months ended December 31, 2020, the borrowings under the Term Loan and Prior Term Loan had weighted-average effective interest rates of 2.07 % and 2.02 %, respectively.

If the Net First Lien Leverage Ratio is greater than 1.80 to 1.00, the applicable margin shall equal 1.25 % in the case of base rate borrowings and 2.25 % in the case of LIBOR borrowings.

In the event the Borrowers’ Net First Lien Leverage Ratio is less than or equal to 1.80 to 1.00, the applicable margin on both base rate and LIBOR borrowings would

decrease by 0.25 %.

The Borrowers’ Net First Lien Leverage Ratio was 1.46 to 1.00 as of December 31, 2022 and therefore the applicable rate is 2.00 %.

At December 31, 2022 and December 31, 2021, the borrowings under the Term Loan had weighted-average effective interest rates of 6.39 % and 2.75 %, respectively.

During the year ended December 31, 2022 and December 31, 2021, the borrowings under the Term Loan had weighted-average effective interest rates of 4.00 % and 2.07 %, respectively.

Revolving Credit Facility

5 unchanged sentences

The Borrowers are also required to pay a quarterly commitment fee on the average daily unused portion of the Revolving Credit Facility for each fiscal quarter and fees in connection with the issuance of letters of credit.

If the Net First Lien Leverage Ratio is greater than 2.00 to 1.00, the commitment fee shall equal 0.50 %, and if the Company's Net First Lien Leverage Ratio is less than or equal to 2.00 to 1.00, the commitment fee shall equal 0.375 %

At December 31, 2021 and December 31, 2020, the amounts borrowed under the Revolving Credit Facility and Prior Revolving Credit Facility were zero , respectively.

As of December 31, 2021 and December 31, 2020, $ 6.1 million and $ 3.0 million of the Revolving Credit Facility and Prior Revolving Credit Facility, as applicable, were considered utilized in connection with outstanding letters of credit, respectively.

If the Net First Lien Leverage Ratio is greater than 2.00 to 1.00, the commitment fee is 0.50 %, and if the Company's Net First Lien Leverage Ratio is less than or equal to 2.00 to 1.00, the commitment fee is 0.375 %.

At December 31, 2022 and December 31, 2021, there were no amounts borrowed under the Revolving Credit Facility.

As of December 31, 2022 and December 31, 2021, $ 7.5 million and $ 6.1 million of the Revolving Credit Facility was considered utilized in connection with outstanding letters of credit, respectively.

4.875 % Senior Notes due 2025

6 unchanged sentences

The Notes paid interest semi-annually on June 15 and December 15.

The Notes were not registered under the Securities Act of 1933 or any state securities laws.

Debt issuance costs associated with the Notes were being amortized over the life of the Notes as interest expense using the effective interest method.

4 unchanged sentences

On May 17, 2021, the Company terminated the Securitization.

Other Subsidiary Debt

At December 31, 2021 and 2020, various wholly owned subsidiaries had additional debt of $ 0.3 million and $ 0.5 million, respectively, comprised primarily of finance lease obligations.

Finance Leases

At December 31, 2022 and 2021, the Company had finance lease obligations of $ 0.6 million and $ 0.3 million, respectively.

For more information related to finance leases, see Note 14, Leases.

Future Debt Maturities

Future maturities of debt and financing lease obligations as of December 31, 2021, excluding the unamortized debt issuance costs of $ 10.8 million, were as follows (in millions):

Future maturities of debt and finance lease obligations as of December 31, 2022, excluding the unamortized debt issuance costs of $ 9.2 million, were as follows (in millions):

Years ending December 31:

Thereafter 517.0

Cash interest paid for the year ended December 31, 2021, the nine months ended December 31, 2020 and the fiscal year ended March 31, 2020 was $ 34.7 million, $ 39.8 million and $ 54.9 million, respectively.

Comparative Twelve and Nine Month Financial Information

Cash interest paid for the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 was $ 24.3 million, $ 34.7 million and $ 39.8 million, respectively.

Comparative Twelve Month Financial Information (Unaudited)

As discussed in Note 1, Basis of Presentation and Description of Business, this Form 10-K includes financial information for the Transition Period.

Consolidated Statements of Operations and Cash Flows for the twelve months ended December 31, 2021 and 2020 and nine months ended December 31, 2020 and 2019 are summarized below.

All data for the twelve months ended December 31, 2020 and nine months ended December 31, 2019, are derived from the Company's unaudited condensed consolidated financial statements.

Consolidated Statements of Operations and Cash Flows for the years ended December 31, 2022, 2021 and 2020 are summarized below.

All data for the year ended December 31, 2020 is derived from the Company's unaudited consolidated financial statements.

Consolidated Statements of Operations

(in millions)

Year Ended Nine Months Ended

December 31, 2021 December 31, 2020 December 31, 2020 December 31, 2019

(Unaudited) (Unaudited)

December 31, 2022 December 31, 2021 December 31, 2020

Net sales $ 1,281.8 $ 910.9 $ 746.1

5 unchanged sentences

Income from operations 107.1 107.0 107.7

Non-operating (expense) income:

Non-operating expense:

Interest expense, net ( 26.9 ) ( 34.7 ) ( 45.9 )

1 unchanged sentence

Actuarial gain (loss) on pension and postretirement benefit obligations 1.9 1.2 ( 21.2 )

Other expense, net ( 0.7 ) ( 2.5 ) ( 1.9 ) ( 0.6 )

Income from continuing operations before income taxes 52.4 38.1 45.5 30.8

Other income (expense), net 1.7 ( 0.7 ) ( 2.5 )

Income before income taxes 83.8 52.4 38.1

Provision for income taxes ( 26.8 ) ( 2.7 ) ( 9.5 )

2 unchanged sentences

Net income $ 61.7 $ 120.9 $ 146.7

Dividends on preferred stock — — — ( 14.4 )

Net income attributable to Zurn common stockholders $ 120.9 $ 146.7 $ 118.2 $ 137.2

Basic net income per share attributable to Zurn common stockholders:

Basic net income per share:

Continuing operations $ 0.38 $ 0.41 $ 0.24

1 unchanged sentence

Net income $ 0.41 $ 1.00 $ 1.21

Diluted net income per share attributable to Zurn common stockholders:

Diluted net income per share:

Continuing operations $ 0.37 $ 0.40 $ 0.23

7 unchanged sentences

(in millions)

Year Ended Nine Months Ended

December 31, 2021 December 31, 2020 December 31, 2020 December 31, 2019

(Unaudited) (Unaudited)

December 31, 2022 December 31, 2021 December 31, 2020

Operating activities

3 unchanged sentences

Amortization of intangible assets 34.0 33.4 36.1

Gain on dispositions of property, plant and equipment ( 10.1 ) ( 1.8 ) ( 1.1 ) —

Loss (gain) on dispositions of long-lived assets 0.3 ( 10.1 ) ( 1.8 )

Deferred income taxes 0.5 ( 12.1 ) ( 14.7 )

Actuarial loss on pension and postretirement benefit obligations 3.6 37.4 1.6 0.8

Other non-cash charges ( 3.6 ) 3.5 0.2 0.7

Gain on extinguishment of debt 20.4 — — ( 1.0 )

Other non-cash expenses (income) 4.8 ( 3.6 ) 3.5

Actuarial (gain) loss on pension and postretirement benefit obligations ( 1.9 ) 3.6 37.4

Loss on the extinguishment of debt — 20.4 —

Stock-based compensation expense 25.0 51.4 44.8

10 unchanged sentences

Proceeds from dispositions of long-lived assets 1.3 14.3 9.0

Net proceeds (payment) from divestiture of discontinued operations - VAG 4.2 — — ( 1.3 )

Proceeds from insurance claims 9.5 — —

Proceeds associated with divestiture of discontinued operations 35.0 4.2 —

Cash used for investing activities ( 6.6 ) ( 21.9 ) ( 196.6 )

5 unchanged sentences

Payment of debt issuance costs — ( 28.8 ) —

Repurchase of common stock ( 0.9 ) ( 140.0 ) ( 59.3 ) ( 20.0 )

Payment of common stock dividends ( 36.4 ) ( 38.6 ) ( 28.8 ) —

Payment of preferred stock dividends — — — ( 17.4 )

Proceeds from exercise of stock options 2.5 24.9 37.5

Taxes withheld and paid on employees' share-based payment awards ( 0.7 ) ( 32.3 ) ( 9.4 )

Repurchase of common stock ( 24.7 ) ( 0.9 ) ( 140.0 )

Payment of common stock dividends ( 32.5 ) ( 36.4 ) ( 38.6 )

Cash used for financing activities ( 61.1 ) ( 356.2 ) ( 156.2 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 1.1 ) ( 4.5 ) 11.2

Decrease in cash, cash equivalents and restricted cash ( 159.0 ) ( 21.4 ) ( 317.8 ) ( 15.5 )

Increase (decrease) in cash, cash equivalents and restricted cash 28.2 ( 159.0 ) ( 21.4 )

Cash, cash equivalents and restricted cash at beginning of period (1) 96.6 255.6 277.0

1 unchanged sentence

____________________

(1) The Company has combined cash flows from discontinued operations with cash flows from continuing operations within operating, investing and financing categories.

As such cash and cash equivalents and restricted cash include $ 193.3 million and $ 136.4 million of cash and cash equivalents from the discontinued operation as of December 31, 2020 and December 31, 2019, respectively.

As such cash and cash equivalents and restricted cash include $ 193.3 million of cash and cash equivalents from the discontinued operation as of December 31, 2020.

Fair Value Measurements

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

ASC 820, Fair Value Measuremen t ("ASC 820"), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

ASC 820 also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques.

Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed assumptions about the assumptions a market participant would use.

Observable inputs (highest level) reflect market data obtained from independent sources,

while unobservable inputs (lowest level) reflect internally developed assumptions about the assumptions a market participant would use.

In accordance with ASC 820, fair value measurements are classified under the following hierarchy:

12 unchanged sentences

The fair value is based on quoted market prices for the same issues.

Long-lived Assets and Intangible Assets

Long-lived assets (which include property, plant and equipment and real estate) may be measured at fair value if such assets are held-for-sale or when there is a determination that the asset is impaired.

Intangible assets (which include patents, tradenames, customer relationships, and non-compete agreements) also may be measured at fair value when there is a determination that the asset is impaired.

The determination of fair value for these assets is based on the best information available that resides within Level 3 of the fair value hierarchy, including internal cash flow estimates discounted at an appropriate interest rate, quoted market prices when available, market prices for similar assets and independent appraisals, as appropriate.

For real estate, cash flow estimates are based on current market estimates that reflect current and projected lease profiles and available industry information about expected trends in rental, occupancy and capitalization rates.

Acquisition Method of Accounting

The methods used to determine the fair value of significant identifiable assets and liabilities included in the allocation of the preliminary Elkay purchase price are discussed below.

Inventories - Acquired inventory was comprised of finished goods, work in process and raw materials.

The fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort.

The fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort.

The fair value of raw materials and supplies was determined based on replacement cost which approximates historical carrying value.

Property, Plant and Equipment - The preliminary fair value of property, plant, and equipment was determined based on assumptions that market participants would use in pricing an asset.

Leases, including Right-Of-Use ("ROU") Assets and Lease Liabilities - Lease liabilities were measured as of the acquisition date at the present value of future minimum lease payments over the remaining lease term and the incremental borrowing rate of the Company as if the acquired leases were new leases as of the acquisition date.

ROU assets recorded are equal to the amount of the lease liability at the acquisition date adjusted for any off-market terms of the lease.

The remaining lease term was based on the remaining term at the acquisition date plus any renewal or extension options that the Company is reasonably certain will be exercised.

Identifiable Intangible Assets - The fair value estimates of the identifiable intangible assets are based upon assumptions that market participants would use in pricing an asset.

The preliminary fair value and weighted average useful life of the identifiable intangible assets are as follows (in millions):

Fair Value Weighted Average Useful Life

Trade name (1) $ 145.3 20

Customer relationships (2) 720.2 16

Fair value of intangible assets acquired $ 865.5

____________________

(1) The Elkay trade name was valued using the relief from royalty method, which considers both the market approach and the income approach.

(2) The fair value of customer relationships was valued using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from Elkay's existing customer base.

Deferred Income Tax Assets and Liabilities - The acquisition was structured as a merger and therefore, the Company assumed the historical tax basis of the Elkay business’s assets and liabilities.

The deferred income tax assets and liabilities include the expected future federal, state, and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax bases.

Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates at the effective date of the acquisition in the jurisdictions in which legal title of the underlying asset or liability resides.

Other Assets Acquired and Liabilities Assumed (excluding Goodwill) - The Company utilized the carrying values, net of allowances, to value accounts receivable and accounts payable as well as other current assets and liabilities as it was determined that carrying values represented the fair value of those items at the acquisition date.

Goodwill - The excess of the consideration for the acquisition over the fair value of net assets acquired was recorded as goodwill.

The goodwill is attributable to expected synergies and expanded market opportunities from combining the Company’s operations with those of Elkay.

The goodwill created in the acquisition is not expected to be deductible for tax purposes.

The Company determines if a contract is (or contains) a lease at inception by evaluating whether the contract conveys the right to control the use of an identified asset.

23 unchanged sentences

The components of lease expense reported in the consolidated statements of operations are as follows (in millions):

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Operating lease expenses (1) $ 9.8 $ 6.1 $ 4.2

19 unchanged sentences

The weighted-average remaining lease terms and discount rates for leases are as follows:

Year Ended Nine Month Transition Period Ended Year Ended

Lease Term and Discount Rate December 31, 2021 December 31, 2020 March 31, 2020

Year Ended Nine-Month Transition Period Ended

Lease Term and Discount Rate December 31, 2022 December 31, 2021 December 31, 2020

Weighted-average remaining lease terms (years):

5 unchanged sentences

Cash paid for amounts included in the measurement of lease liabilities are as follows (in millions):

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Operating cash flows from operating leases $ 9.8 $ 6.4 $ 4.2

2 unchanged sentences

ROU assets obtained in exchange for lease liabilities are as follows (in millions):

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Operating leases $ 38.9 $ 1.9 $ 2.8

3 unchanged sentences

Compensation cost is recognized over the requisite service period, generally as the awards vest.

The Zurn Water Solutions Corporation Performance Incentive Plan, which was last approved by stockholders in fiscal 2020 (the "Plan"), is utilized to provide performance incentives to the Company's officers, employees, directors and certain others by permitting grants of equity awards (for common stock), as well as performance-based cash awards, to such persons, to encourage them to maximize Zurn's performance and create value for Zurn's stockholders.

The Zurn Elkay Water Solutions Corporation Performance Incentive Plan, which was last approved by stockholders in fiscal 2022 (the "Plan"), is utilized to provide performance incentives to the Company's officers, employees, directors and certain others by permitting grants of equity awards (for common stock), as well as performance-based cash awards, to such persons, to encourage them to maximize Zurn Elkay's performance and create value for Zurn Elkay's stockholders.

To date, equity awards consisting of stock options, Restricted Stock Units ("RSUs") and Performance Stock Units ("PSUs") have been issued under the Plan.

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Options and RSUs granted during the Transition Period vested in two equal installments, with the first installment vesting on the first anniversary of the grant date and the second installment vesting on December 31, 2021.

During the year ended December 31, 2021, RSUs were granted to certain employees that vest ratably over 2 years.

During the years ended December 31, 2022 and 2021, RSUs were granted to certain employees that vest ratably over 2 years.

RSUs granted to nonemployee directors vest immediately, but shares are not issued until six months after the director's cessation of service.

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Stock options and RSU's continue to vest in accordance with their original vesting period.

The vesting of PSU's granted prior to the beginning of 2021 was accelerated and all outstanding awards became fully vested and were released at the time of the Spin-Off Transaction based on performance achieved through, and as of the Spin-Off

Transaction date.

The vesting of PSU's granted prior to the beginning of 2021 was accelerated and all outstanding awards became fully vested

and were released at the time of the Spin-Off Transaction based on performance achieved through, and as of the Spin-Off Transaction date.

PSUs granted during 2021 continue to vest in accordance with their original vesting period.

These adjustments to the Company’s share-based compensation awards were deemed to be a modification of the awards and resulted in approximately $ 4.9 million expense, of which $ 4.5 million was recognized during the year ended December 31, 2021.

These adjustments to the Company’s share-based compensation awards were deemed to be a modification of the awards and resulted in approximately $ 4.9 million of incremental expense, of which $ 0.2 million and $ 4.5 million was recognized during the years ended December 31, 2022 and 2021, respectively.

The remaining $ 0.2 million will be recognized over the 24 months following the completion of the Spin-Off Transaction.

On the date of the Spin-Off Transaction, the modification affected 124 grantees.

Stock options and RSUs outstanding that were held by employees who transferred to Regal Rexnord Corporation in connection with the Spin-Off Transaction were canceled and replaced by awards issued by Regal Rexnord Corporation.

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Except for the conversion of awards, the material terms of the awards held by employees who transferred to Regal Rexnord Corporation remained unchanged.

During the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, the Company recorded $ 37.5 million, $ 22.9 million and $ 19.5 million of stock-based compensation expense from continuing operations, respectively (the related tax benefit on these amounts was $ 9.2 million for the year ended December 31, 2021, $ 5.3 million for the nine month Transition Period ended December 31, 2020 and $ 4.8 million for the fiscal year ended March 31, 2020).

During the year ended December 31, 2021, nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, the Company also recorded $ 18.6 million, $ 0.4 million and $ 5.1 million, respectively, of an excess tax benefit related to stock options exercised during each period.

During the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, the Company recorded $ 25.0 million, $ 37.5 million and $ 22.9 million of stock-based compensation expense from continuing operations, respectively (the related tax benefit on these amounts subject to the 162(m) compensation limitations was $ 5.9 million for the year ended December 31, 2022, $ 9.2 million for the year ended December 31, 2021 and $ 5.3 million for the nine-month Transition Period ended December 31, 2020).

During the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, the Company also recorded $ 0.9 million, $ 18.6 million and $ 0.4 million, respectively, of an excess tax benefit related to stock options exercised during each period.

As of December 31, 2022, there was $ 31.2 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted under the Plan.

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The fair value of each option granted under the Plan was estimated on the date of grant using the Black-Scholes valuation model that uses the following weighted-average assumptions:

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Expected option term (in years) 6.5 6.5 6.5

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Treasury yield curve in effect at the date of grant.

The weighted-average grant date fair value of options granted under the Plan during the year ended December 31, 2021, nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 was $ 13.54 , $ 7.69 and $ 9.50 , respectively.

The total fair value of options vested during the year ended December 31, 2021, nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 was $ 3.6 million, $ 4.6 million and $ 10.2 million, respectively.

A summary of stock option activity during the year ended December 31, 2021, nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 is as follows:

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

The weighted-average grant date fair value of options granted under the Plan during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 was $ 9.79 , $ 13.54 and $ 7.69 , respectively.

The total fair value of options vested during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 was $ 0.9 million, $ 3.6 million and $ 4.6 million, respectively.

A summary of stock option activity during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 is as follows:

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Shares Weighted Avg.

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______________________

(1) The total intrinsic value of options exercised during the year ended December 31, 2021, nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 was $ 90.4 million, $ 19.9 million and $ 35.1 million, respectively.

(2) The weighted average remaining contractual life of options outstanding was 5.1 years at December 31, 2021, 5.6 years at December 31, 2020 and 5.4 years at March 31, 2020.

(1) The total intrinsic value of options exercised during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 was $ 3.8 million, $ 90.4 million and $ 19.9 million, respectively.

(2) The weighted average remaining contractual life of options outstanding was 4.4 years at December 31, 2022, 5.1 years at December 31, 2021 and 5.6 years at December 31, 2020.

The aggregate intrinsic value of options outstanding at December 31, 2022 was $ 22.2 million.

(3) The weighted average remaining contractual life of options exercisable was 4.6 years at December 31, 2021, 5.3 years at December 31, 2020 and 4.9 years at March 31, 2020.

(3) The weighted average remaining contractual life of options exercisable was 3.9 years at December 31, 2022, 4.6 years at December 31, 2021 and 5.3 years at December 31, 2020.

The aggregate intrinsic value of options exercisable at December 31, 2022 was $ 22.2 million.

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Granted 103,454 28.68

Spin-off Transaction conversion 72,976 17.70

Vested ( 97,203 ) 27.27

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Restricted Stock Units

During the year ended December 31, 2021, nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 the Company granted RSUs to certain of its officers, directors, and employees.

During the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 the Company granted RSUs to certain of its officers, directors, and employees.

The fair value of each award is determined based on the Company's closing stock price on the date of grant.

A summary of RSU activity during the year ended December 31, 2021, nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 is as follows:

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

A summary of RSU activity during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 is as follows:

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Units Weighted Avg.

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Granted 370,244 28.80 483,067 38.56 430,646 25.56

Spin-off conversion Transaction 227,058 16.54 — — — —

Spin-Off Transaction conversion — — 227,058 16.54 — —

Vested ( 166,318 ) 18.37 ( 501,902 ) 22.49 ( 287,696 ) 26.90

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Performance Stock Units

During the year ended December 31, 2021, nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, the Company granted PSU's to certain of its officers and employees.

The PSUs granted during the nine month Transition Period ended December 31, 2020, had a 21 month performance period (April 1, 2020, to December 31, 2021) while the PSUs granted during the years ended December 31, 2021 and March 31, 2020 have a three-year performance period, and are earned and vest, subject to continued employment, based on performance relative to metrics determined by the Compensation Committee.

The number of performance share awards earned, which can range between 0 % and 200 % of the target awards granted depending on the Company's actual performance during the respective performance period, will be satisfied with Zurn common stock.

A summary of PSU activity during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020 is as follows:

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

During the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, the Company granted PSUs to certain of its officers and employees.

The PSUs granted during the

nine-month Transition Period ended December 31, 2020, had a 21 month performance period (April 1, 2020, to December 31, 2021) while the PSUs granted during the years ended December 31, 2022 and December 31, 2021 have a three-year performance period, and are earned and vest, subject to continued employment, based on performance relative to metrics determined by the Compensation Committee.

A summary of PSU activity during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 is as follows:

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Units Weighted Avg.

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During the nine-month Transition Period ended December 31, 2020, PSUs were granted with vesting based on goals related to free cash flow conversion.

During the year ended December 31, 2021 and the fiscal year ended March 31, 2020, PSUs were granted with vesting based on goals related to free cash flow conversion and return on invested capital.

During the year ended December 31, 2022 and the year ended December 31, 2021, PSUs were granted with vesting based on goals related to free cash flow conversion and return on invested capital.

The fair value of the portion of PSUs with vesting based on free cash flow conversion and return on invested capital is determined based on the Company's closing stock price on the date of grant.

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Other postretirement benefits consist of retiree medical plans that cover a portion of employees in the United States that meet certain age and service requirements.

Net periodic benefit costs recorded on a quarterly basis are primarily comprised of service and interest cost, amortization of unrecognized prior service cost and the expected return on plan assets.

The service cost component of net periodic benefit cost is presented within Cost of sales and Selling, general and administrative expenses in the statements of operations while the other components of net periodic benefit cost are presented within Other expense (income), net.

Net periodic benefit costs are primarily comprised of service and interest cost, amortization of unrecognized prior service cost and the expected return on plan assets.

Amounts disclosed within this note include amounts attributable to the Company's discontinued operations, unless otherwise noted.

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The corridor is 10% of the greater of the projected benefit obligation or the fair value of the plan assets.

In connection with this accounting policy, the Company recognized non-cash actuarial gain (loss) of $ 1.2 million, $( 0.3 ) million, and $( 20.9 ) million within the consolidated statements of operations from continuing operations, during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively.

These amounts are recorded within Actuarial (loss) gain on pension and postretirement benefit obligations in the consolidated statements of operations.

In addition, the Company recognized non-cash actuarial losses associated PMC plans of $ 4.8 million, $ 1.3 million and $ 15.7 million during the year ended December 31, 2021, the nine month Transition Period ended December 31, 2020 and the fiscal year ended March 31, 2020, respectively, which is recorded in income from discontinued operations, net of tax in the consolidated statements of operations.

In connection with this accounting policy, the Company recognized non-cash actuarial gain (loss) of $ 1.9 million, $ 1.2 million, and $( 0.3 ) million within the consolidated statements of operations from continuing operations, during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, respectively.

These amounts are recorded within Actuarial gain (loss) on pension and postretirement benefit obligations in the consolidated statements of operations.

In addition, the Company recognized non-cash actuarial losses associated with PMC plans of $ 4.8 million and $ 1.3 million during the year ended December 31, 2021 and the nine-month Transition Period ended December 31, 2020, respectively, which is recorded in income from discontinued operations, net of tax in the consolidated statements of operations.

On October 4, 2021, the Company completed the Spin-Off Transaction of the PMC business.

In accordance with the terms of the Spin-Off Transaction agreements, the net assets associated with the PMC business included in the Spin-Off Transaction included unfunded pension and post retirement benefit obligations of $ 80.4 million.

The transfer of these obligations affiliated with certain defined benefit plans was accounted for as a settlement in accordance with the authoritative guidance, which required the Company to perform an interim remeasurement of certain plans.

The transfer of these

obligations affiliated with certain defined benefit plans was accounted for as a settlement in accordance with the authoritative guidance, which required the Company to perform an interim remeasurement of certain plans.

In connection with the remeasurement, the Company recognized pre-tax non-cash actuarial losses of $ 4.8 million, which is recognized within income from discontinued operations, net of tax.

During the fiscal year ended March 31, 2019, the Company offered participants in a PMC defined benefit plan the opportunity to receive a lump sum settlement as part of the termination process for that plan.

During the fiscal year ended March 31, 2020, the obligations associated with the individuals that did not accept the lump sum settlement offer were transferred to an insurance company through the purchase of an annuity.

The Company's cash contribution to purchase the annuity contract was $ 3.9 million.

Following the purchase of the annuity contract, the Company has no remaining obligations to participants of this plan.

The termination of this plan resulted in the recognition of $ 0.8 million non-cash pre-tax losses within discontinued operations during the fiscal year ended March 31, 2020.

The components of net periodic benefit cost reported in the consolidated statements of operations are as follows (in millions):

Year Ended Nine Month Transition Period Ended Year Ended

December 31, 2021 December 31, 2020 March 31, 2020

Year Ended Nine-Month Transition Period Ended

December 31, 2022 December 31, 2021 December 31, 2020

Pension Benefits:

3 unchanged sentences

Benefit cost associated with special events:

Settlement — — 0.8

PMC Spin-Off — 5.7 —

2 unchanged sentences

What changed 10-K

Item 8. Financial Statements and Supplementary Data