What changed in this filing

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Item 1. Financial Statements

2023-10-31 compared with 2023-07-24 · 148 added, 132 removed, 470 unchanged (37% of the section changed)

3 unchanged sentences

(in Millions, except share amounts)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets:

30 unchanged sentences

shares issued and outstanding:

172,932,582 at June 30, 2023 and 176,876,406 at December 31, 2022

172,623,478 at September 30, 2023 and 176,876,406 at December 31, 2022

Additional paid-in capital 2,850.4 2,853.1

7 unchanged sentences

(in Millions, except share and per share amounts)

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Net sales $ 398.4 $ 417.7 $ 1,173.7 $ 941.5

4 unchanged sentences

Amortization of intangible assets 14.7 14.5 44.0 19.1

Income from operations 54.8 53.5 98.5 97.4

Income (loss) from operations 60.1 ( 10.1 ) 158.6 87.3

Non-operating expense:

1 unchanged sentence

Other income (expense), net ( 2.5 ) 0.6 ( 3.3 ) 0.3

Income before income taxes 46.1 47.7 77.8 87.1

Income (loss) before income taxes 47.7 ( 17.5 ) 125.5 69.6

Provision for income taxes ( 12.5 ) ( 1.6 ) ( 34.8 ) ( 22.9 )

Net income from continuing operations 32.9 36.4 55.5 65.8

Net income (loss) from continuing operations 35.2 ( 19.1 ) 90.7 46.7

Income from discontinued operations, net of tax 6.2 — 8.1 0.8

Net income $ 34.6 $ 36.4 $ 57.4 $ 66.6

Basic net income per share:

Net income (loss) $ 41.4 $ ( 19.1 ) $ 98.8 $ 47.5

Basic net income (loss) per share:

Continuing operations $ 0.20 $ ( 0.11 ) $ 0.52 $ 0.33

Discontinued operations $ 0.04 $ — $ 0.05 $ 0.01

Net income $ 0.20 $ 0.29 $ 0.33 $ 0.53

Diluted net income per share:

Net income (loss) $ 0.24 $ ( 0.11 ) $ 0.57 $ 0.33

Diluted net income (loss) per share:

Continuing operations $ 0.20 $ ( 0.11 ) $ 0.51 $ 0.32

Discontinued operations $ 0.04 $ — $ 0.05 $ 0.01

Net income $ 0.20 $ 0.28 $ 0.32 $ 0.52

Net income (loss) $ 0.24 $ ( 0.11 ) $ 0.56 $ 0.33

Weighted-average number of shares outstanding (in thousands):

6 unchanged sentences

(in Millions)

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Net income $ 34.6 $ 36.4 $ 57.4 $ 66.6

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Net income (loss) $ 41.4 $ ( 19.1 ) $ 98.8 $ 47.5

Other comprehensive income (loss):

1 unchanged sentence

Other comprehensive income (loss), net of tax ( 2.1 ) ( 4.1 ) 1.4 ( 4.1 )

Total comprehensive income $ 38.2 $ 34.4 $ 60.9 $ 66.6

Total comprehensive income (loss) $ 39.3 $ ( 23.2 ) $ 100.2 $ 43.4

See notes to the condensed consolidated financial statements.

2 unchanged sentences

(in Millions)

Six Months Ended

June 30, 2023 June 30, 2022

Nine Months Ended

September 30, 2023 September 30, 2022

Operating activities

Net income $ 98.8 $ 47.5

Adjustments to reconcile net income to cash provided by (used for) operating activities:

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation 22.3 11.8

11 unchanged sentences

Accruals and other ( 1.5 ) ( 50.2 )

Cash provided by (used for) operating activities 92.2 ( 12.0 )

Cash provided by operating activities 195.7 12.6

Investing activities

4 unchanged sentences

Proceeds associated with divestiture of discontinued operations — 35.0

Cash (used for) provided by investing activities ( 1.8 ) 35.4

Cash used for investing activities ( 6.6 ) ( 12.8 )

Financing activities

7 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash 0.7 ( 1.4 )

(Decrease) increase in cash, cash equivalents and restricted cash ( 21.8 ) 13.8

Increase (decrease) in cash, cash equivalents and restricted cash 48.3 ( 24.7 )

Cash, cash equivalents and restricted cash at beginning of period 124.8 96.6

3 unchanged sentences

Notes to Condensed Consolidated Financial Statements

June 30, 2023

September 30, 2023

Basis of Presentation and Significant Accounting Policies

13 unchanged sentences

Reclassifications

Certain prior year amounts have been reclassified to conform to the presentation used for the six months ended June 30, 2023.

Certain prior year amounts have been reclassified to conform to the presentation used for the nine months ended September 30, 2023.

On July 1, 2022, the Company completed the Elkay Merger for a purchase price of $ 1,457.8 million.

2 unchanged sentences

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.

During the six months ended June 30, 2023, the purchase price was adjusted and is reflected in the purchase price amounts above, following the return of 186,020 of the shares issued at closing to the Company as a result of lower working capital and cash balances at closing compared to targets stipulated in the merger agreement.

During the six months ended June 30, 2023, we completed the final price adjustments and the adjusted purchase price is reflected in the purchase price amounts above, following the return of 186,020 of the shares issued at closing to the Company as a result of lower working capital and cash balances at closing compared to targets stipulated in the merger agreement.

The shares returned to the Company were canceled upon receipt.

In accordance with the merger agreement, at closing the Company increased the size of its Board of Directors to eleven members and appointed two directors designated by Elkay.

As of June 30, 2023, the Board of Directors consisted of ten members, including one director designated by Elkay.

As of September 30, 2023, the Board of Directors 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.

7 unchanged sentences

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

September 30, 2022 Measurement Period Adjustments As Reported

June 30, 2023

20 unchanged sentences

Unaudited Pro Forma Information

The following unaudited supplemental pro forma financial information presents the financial results from continuing operations for the six months ended June 30, 2022 as if the Elkay Merger had occurred on January 1, 2022.

The following unaudited supplemental pro forma financial information presents the financial results from continuing operations for the nine months ended September 30, 2022 as if the Elkay Merger had occurred on January 1, 2022.

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) removing Elkay Merger-Related costs recognized by Elkay during the six months ended June 30, 2022 as these costs will not affect the combined operations, and (iv) the estimated income tax effect on the pro forma adjustments.

(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) removing Elkay Merger-Related costs recognized by Elkay during the nine months ended September 30, 2022 as these costs will not affect the combined operations, and (iv) 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.

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

Net sales $ 1,240.2

3 unchanged sentences

Restructuring and Other Similar Charges

During the three and six months ended June 30, 2023, the Company continued to execute various restructuring actions.

During the three and nine months ended September 30, 2023, 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, including Elkay, on the Company's overall manufacturing capacity and the refinement of its overall product portfolio.

1 unchanged sentence

Management expects to continue executing similar initiatives to optimize its operating margin and manufacturing footprint.

As such, the Company expects further expenses related to workforce reductions, potential impairment or accelerated depreciation of assets, lease termination costs and other

facility rationalization costs.

As such, the Company expects further expenses related to workforce reductions, potential impairment or accelerated depreciation of assets, lease termination costs and other facility rationalization costs.

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 charges during the three and six months ended June 30, 2023 and June 30, 2022, (in millions):

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

The following table summarizes the Company's restructuring and other similar charges during the three and nine months ended September 30, 2023 and September 30, 2022, (in millions):

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Employee termination benefits $ 0.5 $ 10.5 $ 3.4 $ 11.8

1 unchanged sentence

Total restructuring and other similar costs $ 2.2 $ 11.7 $ 11.9 $ 13.1

The following table summarizes the activity in the Company's restructuring accrual for the six months ended June 30, 2023 (in millions):

The following table summarizes the activity in the Company's restructuring accrual for the nine months ended September 30, 2023 (in millions):

Employee termination benefits Contract termination and other associated costs Total

3 unchanged sentences

Non-cash charges (2) — ( 2.5 ) ( 2.5 )

Accrued Restructuring Costs, June 30, 2023 (1) $ 3.2 $ 0.4 $ 3.6

Accrued Restructuring Costs, September 30, 2023 (1) $ 2.0 $ 0.2 $ 2.2

____________________

(1) As of June 30, 2023, the restructuring accrual is included in other current liabilities in the condensed consolidated balance sheets.

(1) As of September 30, 2023, the restructuring accrual is included in other current liabilities in the condensed consolidated balance sheets.

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 condensed consolidated balance sheets.

4 unchanged sentences

The operating results of PMC are reported as discontinued operations in the condensed 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 condensed consolidated statements of cash flows for the six months ended June 30, 2023 and June 30, 2022 have not been adjusted to separately disclose cash flows related to the discontinued operations.

The condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and September 30, 2022 have not been adjusted to separately disclose cash flows related to the discontinued operations.

During 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.

The major components of the Income from discontinued operations, net of tax presented in the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and June 30, 2022, are as follows (in millions):

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

The major components of the Income from discontinued operations, net of tax presented in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and September 30, 2022, are as follows (in millions):

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Selling, general and administrative expenses (1) $ 6.6 $ — $ 8.4 $ —

3 unchanged sentences

(1) Selling, general and administrative expenses include the reversal of certain accruals as a result of costs the Company will no longer incur related to the Spin-Off Transaction.

The condensed consolidated statements of cash flows for the six months ended June 30, 2023 and June 30, 2022 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):

Six Months Ended

June 30, 2023 June 30, 2022

Nine Months Ended

September 30, 2023 September 30, 2022

Proceeds associated with divestiture of discontinued operations $ — $ 35.0

16 unchanged sentences

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

Three Months Ended Six Months Ended

Customer Type June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Three Months Ended Nine Months Ended

Customer Type September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Institutional $ 179.8 $ 169.8 $ 531.6 $ 366.2

2 unchanged sentences

Total $ 398.4 $ 417.7 $ 1,173.7 $ 941.5

Three Months Ended Six Months Ended

Geography June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Three Months Ended Nine Months Ended

Geography September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

United States $ 366.6 $ 383.6 $ 1,082.6 $ 860.7

9 unchanged sentences

A contract liability exists when the Company has received consideration or the amount is due from the customer in advance of revenue recognition.

Contract liabilities and contract assets as of June 30, 2023 and December 31, 2022 were not material.

The Company had backlog of $ 53.6 million as of June 30, 2023, which represents the most likely amount of consideration expected to be received in satisfying the remaining backlog under open contracts.

Contract liabilities and contract assets as of September 30, 2023 and December 31, 2022 were not material.

The Company had backlog of $ 45.8 million as of September 30, 2023, 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 expects to recognize approximately 98 % of the backlog in the remaining six months of the year ending December 31, 2023, and the remaining approximately 2 % in 2024 and beyond.

The Company expects to recognize approximately 95 % of the backlog in the remaining three months of the year ending December 31, 2023, and the remaining approximately 5 % in 2024 and beyond.

Timing of Performance Obligations Satisfied at a Point in Time

9 unchanged sentences

If the amortization period of these costs is expected to be greater than one year, the costs would be subject to capitalization.

As of June 30, 2023 and December 31, 2022, the contract assets capitalized, as well as amortization recognized in the three and six months ended June 30, 2023 and June 30, 2022, are not significant and no impairment losses were recognized.

As of September 30, 2023 and December 31, 2022, the contract assets capitalized, as well as amortization recognized in the three and nine months ended September 30, 2023 and September 30, 2022, are not significant and no impairment losses were recognized.

Allowance for Credit Losses

13 unchanged sentences

Future changes to the balances of these valuation allowances, as a result of this continued review and analysis by the Company, could impact the financial statements for such period of change.

The income tax provision was $ 13.2 million for the three months ended June 30, 2023, compared to $ 11.3 million for the three months ended June 30, 2022.

The effective income tax rate for the three months ended June 30, 2023 was 28.6 % versus 23.7 % for the three months ended June 30, 2022.

The effective income tax rate for the three months ended June 30, 2023 and the three months ended June 30, 2022 was above the U.S.

The income tax provision was $ 12.5 million for the three months ended September 30, 2023, compared to $ 1.6 million for the three months ended September 30, 2022.

The effective income tax rate for the three months ended September 30, 2023 was 26.2 % versus ( 9.1 )% for the three months ended September 30, 2022.

The effective income tax rate for the three months ended September 30, 2023 was above the U.S.

federal statutory rate of 21% primarily due to the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, the accrual of various state income taxes and the accrual of foreign income taxes, which are generally above the U.S.

federal statutory rate, partially offset by the recognition of income tax benefits associated with share-based payments.

The income tax provision was $ 22.3 million for the six months ended June 30, 2023, compared to $ 21.3 million for the six months ended June 30, 2022.

The effective income tax rate for the six months ended June 30, 2023 was 28.7 % versus 24.5 % for the six months ended June 30, 2022.

The effective income tax rate for the six months ended June 30, 2023 and the six months ended June 30, 2022 was above the U.S.

The income tax provision recognized on the loss from operations for the three months ended September 30, 2022 was primarily due to non-deductible transactions costs associated with the Merger, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, the accrual of various state income taxes and the accrual of foreign income taxes, which are generally above the U.S.

federal statutory rate, partially offset by the reduction in the valuation allowance associated with certain state NOL carryforwards.

The income tax provision was $ 34.8 million for the nine months ended September 30, 2023, compared to $ 22.9 million for the nine months ended September 30, 2022.

The effective income tax rate for the nine months ended September 30, 2023 was 27.7 % versus 32.9 % for the nine months ended September 30, 2022.

The effective income tax rate for the nine months ended September 30, 2023 was above the U.S.

federal statutory rate, partially offset by the recognition of income tax benefits associated with share-based payments.

The Company’s total liability for net unrecognized tax benefits as of June 30, 2023 and December 31, 2022 was $ 5.4 million and $ 5.5 million, respectively.

The effective income tax rate for the nine months ended September 30, 2022 was above the U.S.

federal statutory rate of 21% primarily due to non-deductible transactions costs associated with the Merger, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, the accrual of various state income taxes and the accrual of foreign income taxes, which are generally above the U.S.

federal statutory rate, partially offset by the recognition of income tax benefits associated with share-based payments and the reduction in the valuation allowance associated with certain state NOL carryforwards.

The Company’s total liability for net unrecognized tax benefits as of September 30, 2023 and December 31, 2022 was $ 5.5 million.

The Company recognizes accrued interest and penalties related to unrecognized income tax benefits in income tax expense.

As of June 30, 2023 and December 31, 2022, the total amount of unrecognized tax benefits includes gross accrued interest and penalties of $ 0.9 million and $ 0.7 million, respectively.

The Company recognized $ 0.2 million and $ 0.0 million of net interest and penalties as income tax expense during the six months ended June 30, 2023 and June 30, 2022, respectively.

As of September 30, 2023 and December 31, 2022, the total amount of unrecognized tax benefits includes gross accrued interest and penalties of $ 1.0 million and $ 0.7 million, respectively.

The Company recognized $ 0.3 million and $ 0.0 million of net interest and penalties as income tax expense during the nine months ended September 30, 2023 and September 30, 2022, respectively.

The Company conducts business in multiple locations within and outside the U.S.

Consequently, the Company is subject to periodic income tax examinations by domestic and foreign income tax authorities.

Currently, the Company is undergoing routine, periodic income tax examinations in foreign jurisdictions.

In accordance with the terms of the sale agreement relating to a group of certain previously owned legal entities (the parent of which was VAG Holding GbmH, “VAG”), the Company is required to indemnify the purchaser for any future income tax liabilities associated with all open tax years ending prior to, and including, the short period ended on the date of the Company's sale of VAG.

1 unchanged sentence

Similarly, in accordance with the Spin-Off Transaction, the Company is required to indemnify Regal Rexnord Corporation for any future income tax liabilities associated with PMC entities relating to all open tax years ending prior to, and including, the short period ended on the date of the Spin-Off.

There are currently a number of ongoing income tax examinations being conducted by the applicable tax authorities in various foreign tax jurisdictions with respect to certain PMC entities.

There are currently a number of ongoing tax examinations being conducted by the applicable tax authorities in Germany with respect to certain PMC entities.

It appears reasonably possible that the amounts of unrecognized income tax benefits and indemnification liabilities could change in the next twelve months upon conclusion of the current ongoing examinations;

5 unchanged sentences

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 three and six months ended June 30, 2023 excludes 0.4 million shares due to their anti-dilutive effects.

The computation for diluted net income per share for the three and six months ended June 30, 2022 excludes 0.2 million shares due to their anti-dilutive effects.

The computation for diluted net income per share for the three and nine months ended September 30, 2023 excludes 0.3 million shares due to their anti-dilutive effects.

The computation for diluted net income per share for the three and nine months ended September 30, 2022 excludes 2.3 million and 0.8 million shares due to their anti-dilutive effects, respectively.

Stockholders' Equity

16 unchanged sentences

Balance at June 30, 2022 $ 1.3 $ 1,438.3 $ ( 1,135.3 ) $ ( 74.9 ) $ 229.4

Total comprehensive loss — — ( 19.1 ) ( 4.1 ) ( 23.2 )

Stock-based compensation expense — 7.8 — — 7.8

Proceeds from exercise of stock options — 0.1 — — 0.1

Elkay Merger (2) 0.5 1,416.5 — — 1,417.0

Common stock dividends ($ 0.07 per share)

— ( 12.5 ) — — ( 12.5 )

Balance at September 30, 2022 $ 1.8 $ 2,850.2 $ ( 1,154.4 ) $ ( 79.0 ) $ 1,618.6

Common stock (1) Additional

20 unchanged sentences

Balance at June 30, 2023 $ 1.7 $ 2,853.7 $ ( 1,195.3 ) $ ( 71.5 ) $ 1,588.6

Total comprehensive income (loss) — — 41.4 ( 2.1 ) 39.3

Stock-based compensation expense — 10.0 — — 10.0

Proceeds from exercise of stock options — 0.7 — — 0.7

Taxes withheld and paid on employees' share-based payment awards — ( 1.9 ) — — ( 1.9 )

Repurchase of common stock — — ( 13.0 ) — ( 13.0 )

Common stock dividends ($ 0.07 per share)

— ( 12.1 ) — — ( 12.1 )

(1) During the three and six months ended June 30, 2023, the Company issued 170,917 and 327,236 shares of common stock upon the exercise of stock options, vesting of restricted stock units, and for other common stock issuances, respectively.

During the three and six months ended June 30, 2022, the Company issued 335,177 and 462,178 shares of common stock upon the exercise of stock options, vesting of restricted stock units, and for other common stock issuances, respectively.

(2) During the six months ended June 30, 2023, 186,020 of the shares issued at closing of the Elkay Merger were returned to the Company as a result of lower working capital and cash balances at closing compared to targets stipulated in the Merger Agreement.

Balance at September 30, 2023 $ 1.7 $ 2,850.4 $ ( 1,166.9 ) $ ( 73.6 ) $ 1,611.6

____________________

(1) During the three and nine months ended September 30, 2023, the Company issued 135,502 and 462,738 shares of common stock, respectively, upon the exercise of stock options, vesting of restricted stock units, and for other common stock issuances.

During the three and nine months ended September 30, 2022, the Company issued 51,577,307 and 52,039,485 shares of common stock, respectively, upon the exercise of stock options, vesting of restricted stock units, the Elkay Merger, and for other common stock issuances.

(2) During the nine months ended September 30, 2023, 186,020 of the shares issued at closing of the Elkay Merger were returned to the Company as a result of lower working capital and cash balances at closing compared to targets stipulated in the Merger Agreement.

The shares returned to the Company were canceled upon receipt.

5 unchanged sentences

The Repurchase Program does not require the Company to acquire any particular amount of common stock and does not specify the timing of purchases or the prices to be paid;

however, the program will continue until the maximum

amount of dollars authorized have been expended or until it is modified or terminated by the Board.

During the three months ended June 30, 2023, the Company repurchased 2,307,113 shares of common stock at a total cost of $ 50.1 million at a weighted average price of $ 21.67 per share.

During the six months ended June 30, 2023, the Company repurchased 3,989,869 shares of common stock at a total cost of $ 87.1 million at a weighted average price of $ 21.81 per share.

however, the program will continue until the maximum amount of dollars authorized have been expended or until it is modified or terminated by the Board of Directors.

During the three months ended September 30, 2023, the Company repurchased 444,606 shares of common stock at a total cost of $ 13.0 million at a weighted average price of $ 29.24 per share.

During the nine months ended September 30, 2023, the Company repurchased 4,434,475 shares of common stock at a total cost of $ 100.1 million at a weighted average price of $ 22.55 per share.

The repurchased shares were canceled by the Company upon receipt.

During the three and six months ended June 30, 2022, the Company did no t repurchase any shares of common stock.

Approximately $ 428.5 million of the existing authority remained under the Repurchase Program at June 30, 2023.

During the three and nine months ended September 30, 2022, the Company did no t repurchase any shares of common stock.

Approximately $ 415.5 million of the existing authority remained under the Repurchase Program at September 30, 2023.

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2023, are as follows (in millions):

The changes in accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2023, are as follows (in millions):

Foreign Currency Translation and Other Pension and Postretirement Plans Total

2 unchanged sentences

Net current period other comprehensive income 1.4 — 1.4

Balance at June 30, 2023 $ ( 71.6 ) $ 0.1 $ ( 71.5 )

There were no amounts reclassified from accumulated other comprehensive loss to net income during the three and six months ended June 30, 2023 and 2022.

Balance at September 30, 2023 $ ( 73.7 ) $ 0.1 $ ( 73.6 )

There were no amounts reclassified from accumulated other comprehensive loss to net income during the three and nine months ended September 30, 2023 and 2022.

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Finished goods $ 221.4 $ 285.9

5 unchanged sentences

Goodwill and Intangible Assets

The changes in the net carrying value of goodwill for the six months ended June 30, 2023, are presented below (in millions):

The changes in the net carrying value of goodwill for the nine months ended September 30, 2023, are presented below (in millions):

Net carrying amount as of December 31, 2022 $ 777.0

1 unchanged sentence

Purchase accounting adjustments (1) 19.0

Net carrying amount as of June 30, 2023 $ 795.9

(1) Refer to Note 2, Acquisition for additional information regarding the acquisition and purchase accounting adjustments.

The gross carrying amount and accumulated amortization for each major class of identifiable intangible assets as of June 30, 2023 and December 31, 2022 are as follows (in millions):

June 30, 2023

Net carrying amount as of September 30, 2023 $ 795.3

(1) Refer to Note 2, Acquisition for additional information regarding the acquisition.

The gross carrying amount and accumulated amortization for each major class of identifiable intangible assets as of September 30, 2023 and December 31, 2022 are as follows (in millions):

September 30, 2023

Weighted Average Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Amount

13 unchanged sentences

Total intangible assets, net 16 years $ 1,338.9 $ ( 329.2 ) $ 1,009.7

Intangible asset amortization expense totaled $ 14.6 million and $ 1.6 million for the three months ended June 30, 2023 and June 30, 2022, respectively.

Intangible asset amortization expense totaled $ 29.3 million and $ 4.6 million for the six months ended June 30, 2023 and June 30, 2022, respectively.

The Company expects to recognize amortization expense on the intangible assets subject to amortization of $ 58.8 million in the year ending December 31, 2023 (inclusive of the $ 29.3 million of amortization expense recognized in the six months ended June 30, 2023), $ 58.8 million in 2024, $ 58.7 million in 2025, $ 58.6 million in 2026, $ 58.5 million in 2027 and $ 58.5 million in 2028.

Intangible asset amortization expense totaled $ 14.7 million and $ 14.5 million for the three months ended September 30, 2023 and September 30, 2022, respectively.

Intangible asset amortization expense totaled $ 44.0 million and $ 19.1 million for the nine months ended September 30, 2023 and September 30, 2022, respectively.

The Company expects to recognize amortization expense on the intangible assets subject to amortization of $ 58.7 million in the year ending December 31, 2023 (inclusive of the $ 44.0 million of amortization expense recognized in the nine months ended September 30, 2023), $ 58.7 million in 2024, $ 58.7 million in 2025, $ 58.5 million in 2026, $ 58.5 million in 2027 and $ 58.5 million in 2028.

Other Current Liabilities

Other current liabilities are summarized as follows (in millions):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Commissions $ 11.3 $ 9.0

16 unchanged sentences

Long-term debt is summarized as follows (in millions):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Term loan (1) $ 532.4 $ 535.3

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(1) Includes unamortized debt issuance costs of $ 8.4 million and $ 9.2 million at June 30, 2023 and December 31, 2022, respectively.

(1) Includes unamortized debt issuance costs of $ 8.0 million and $ 9.2 million at September 30, 2023 and December 31, 2022, respectively.

Senior Secured Credit Facility

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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).

As of June 30, 2023, the Borrowers were in compliance with all applicable covenants under the Credit Agreement.

Credit Agreement).

As of September 30, 2023, the Borrowers were in compliance with all applicable covenants under the Credit Agreement.

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

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

The Borrowers are required to make quarterly payments of principal in an amount equal to $ 1.4 million on each quarter until the maturity date.

Prior to July 1, 2023, the Term Loan bore 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 was 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 was 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 1.54 to 1.00 as of June 30, 2023, and therefore the applicable margin is 2.00 %.

At June 30, 2023 and for the six months then ended, the borrowings under the Term Loan had weighted-average effective interest rates of 7.22 % and 6.78 %, respectively.

Effective July 1, 2023, the secured overnight financing rate ("SOFR") replaced LIBOR, and accordingly, beginning July 1, 2023 the Term Loan will bear interest by reference to a base rate or a rate based on Term SOFR, plus a Term SOFR adjustment of 0.115 %, 0.262 %, or 0.428 % for interest periods of one month, three months, and six months, respectively, plus

an applicable margin based on the Borrowers' Net First Lien Leverage Ratio as of the last day of each fiscal quarter as illustrated above.

The Borrowers are required to make quarterly payments of principal in an amount equal to $ 1.4 million each quarter until the maturity date.

For purposes of the Term Loan, effective July 1, 2023, the secured overnight financing rate ("SOFR") replaced LIBOR, and accordingly, beginning July 1, 2023 the Term Loan bears interest at the Borrowers' option, by reference to a base rate or a rate based on Term SOFR, plus a Term SOFR adjustment of 0.115 %, 0.262 %, or 0.428 % for interest periods of one month, three months, and six months, respectively, plus an applicable margin 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 SOFR 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 SOFR borrowings would decrease by 0.25 %.

The Borrowers’ Net First Lien Leverage Ratio was 1.26 to 1.00 as of September 30, 2023, and therefore the applicable margin is 2.00 %.

At September 30, 2023 and for the nine months then ended, the borrowings under the Term Loan had weighted-average effective interest rates of 7.43 % and 6.97 %, respectively.

On October 11, 2023 the Company made a voluntary principal repayment of the Term Loan in the amount of $ 60.0 million.

Revolving Credit Facility

The Credit Agreement includes a $ 200.0 million revolving credit facility that has a maturity date of October 2, 2026.

Prior to July 1, 2023, borrowings under the Revolving Credit Facility bore 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 was greater than 2.00 to 1.00, the applicable margin shall equal 1.00 % in the case of base rate borrowings and 2.00 % in the case of LIBOR borrowings.

In the event the Borrowers' Net First Lien Leverage Ratio was less than or equal to 2.00 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 1.54 to 1.00 as of June 30, 2023.

Similar to the Term Loan, effective July 1, 2023, the SOFR replaced LIBOR, and accordingly, beginning July 1, 2023 the Revolving Credit Facility bears interest by reference to a base rate or a rate based on Term SOFR, plus a Term SOFR adjustment of 0.115 %, 0.262 %, or 0.428 % for interest periods of one month, three months, and six months, respectively, plus an applicable margin 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 2.00 to 1.00, the applicable margin shall equal 1.00 % in the case of base rate borrowings and 2.00 % in the case of SOFR borrowings.

In the event the Borrowers' Net First Lien Leverage Ratio is less than or equal to 2.00 to 1.00, the applicable margin on both base rate and SOFR borrowings would decrease by 0.25 %.

The Borrowers’ Net First Lien Leverage Ratio was 1.26 to 1.00 as of September 30, 2023.

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 June 30, 2023 and December 31, 2022, there were no amounts borrowed under the Revolving Credit Facility.

As of June 30, 2023 and December 31, 2022, $ 5.8 million and $ 7.5 million of the Revolving Credit Facility was considered utilized in connection with outstanding letters of credit, respectively.

Effective July 1, 2023, the SOFR replaced LIBOR, and accordingly, beginning July 1, 2023 the Revolving Credit Facility will bear interest by reference to a base rate or a rate based on Term SOFR, plus a Term SOFR adjustment of 0.115 %, 0.262 %, or 0.428 % for interest periods of one month, three months, and six months, respectively, plus an applicable margin based on the Borrowers' Net First Lien Leverage Ratio as of the last day of each fiscal quarter as illustrated above.

At September 30, 2023 and December 31, 2022, there were no amounts borrowed under the Revolving Credit Facility.

As of September 30, 2023 and December 31, 2022, $ 5.8 million and $ 7.5 million of the Revolving Credit Facility was considered utilized in connection with outstanding letters of credit, respectively.

Finance Leases

At June 30, 2023 and December 31, 2022, the Company had finance lease obligations of $ 22.0 million and $ 0.6 million, respectively.

At September 30, 2023 and December 31, 2022, the Company had finance lease obligations of $ 21.8 million and $ 0.6 million, respectively.

Fair Value Measurements

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The deferred compensation plan assets are classified within other assets on the condensed consolidated balance sheets.

Deferred compensation plan liabilities are measured at fair value based on quoted prices of identical instruments to the investment

vehicles selected by the participants categorized as Level 1.

Deferred compensation plan liabilities are measured at fair value based on quoted prices of identical instruments to the investment vehicles selected by the participants categorized as Level 1.

Deferred compensation plan liabilities are classified within other liabilities on the condensed consolidated balance sheets.

The following table provides a summary of the Company's assets and liabilities that were recognized at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 (in millions):

Fair Value as of June 30, 2023

The following table provides a summary of the Company's assets and liabilities that were recognized at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 (in millions):

Fair Value as of September 30, 2023

Level 1 Level 2 Level 3 Total

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Deferred compensation plan liabilities 12.1 — — 12.1

There were no transfers of assets between levels at June 30, 2023 and December 31, 2022, respectively.

There were no transfers of assets between levels at September 30, 2023 and December 31, 2022, respectively.

Fair Value of Non-Derivative Financial Instruments

The carrying amounts of cash, receivables, payables and accrued liabilities approximated fair value at June 30, 2023 and December 31, 2022, due to the short-term nature of those instruments.

The fair value of long-term debt as of June 30, 2023 and December 31, 2022, was approximately $ 562.4 million and $ 543.1 million, respectively.

The carrying amounts of cash, receivables, payables and accrued liabilities approximated fair value at September 30, 2023 and December 31, 2022, due to the short-term nature of those instruments.

The fair value of long-term debt as of September 30, 2023 and December 31, 2022, was approximately $ 562.2 million and $ 543.1 million, respectively.

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

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The following table presents changes in the Company’s product warranty liability (in millions):

Six Months Ended

June 30, 2023 June 30, 2022

Nine Months Ended

September 30, 2023 September 30, 2022

Balance at beginning of period $ 4.2 $ 1.3

Acquired obligations — 3.4

Charged to operations 2.0 2.8

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Certain Company subsidiaries are subject to asbestos litigation.

As of June 30, 2023, Zurn and numerous other unrelated companies were defendants in approximately 6,000 asbestos related lawsuits representing approximately 7,500 claims.

As of September 30, 2023, Zurn and numerous other unrelated companies were defendants in approximately 6,000 asbestos related lawsuits representing approximately 7,500 claims.

Plaintiffs' claims allege personal injuries caused by exposure to asbestos used primarily in industrial boilers formerly manufactured by a segment of Zurn.

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These claims are being handled pursuant to a defense strategy funded by insurers.

As of June 30, 2023, the Company estimates the potential liability for the asbestos-related claims described above, as well as the claims expected to be filed in the next ten years , to be approximately $ 79.0 million, of which Zurn expects approximately $ 58.0 million to be paid in the next ten years on such claims, with the balance of the estimated liability being paid in subsequent years.

As of September 30, 2023, the Company estimates the potential liability for the asbestos-related claims described above, as well as the claims expected to be filed in the next ten years , to be approximately $ 79.0 million, of which Zurn expects approximately $ 58.0 million to be paid in the next ten years on such claims, with the balance of the estimated liability being paid in subsequent years.

The $ 79.0 million was developed based on actuarial studies and represents the projected indemnity payout for current and future claims.

There are inherent uncertainties involved in estimating the number of future asbestos

claims, future settlement costs, and the effectiveness of defense strategies and settlement initiatives.

There are inherent uncertainties involved in estimating the number of future asbestos claims, future settlement costs, and the effectiveness of defense strategies and settlement initiatives.

As a result, actual liability could differ from the estimate described herein and could be substantial.

The liability for the asbestos-related claims is recorded in reserve for asbestos claims within the condensed consolidated balance sheets.

Management estimates that the available insurance to cover this ten year estimated potential asbestos liability as of June 30, 2023 is $ 72.1 million.

Management estimates that the available insurance to cover this ten year estimated potential asbestos liability as of September 30, 2023 is $ 72.1 million.

The Company recorded a receivable from its insurance carriers, which corresponds to the amount of this potential asbestos liability that is covered by available insurance and is currently determined to be probable of recovery.

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The components of net periodic (benefit) cost are as follows (in millions):

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Pension Benefits:

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Net periodic cost $ 0.2 $ 0.1 $ 0.5 $ 0.2

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

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

The Company recognizes the net actuarial gains or losses in excess of the corridor in operating results during the final quarter of each fiscal year (or upon any required re-measurement event).

During the six months ended June 30, 2023 and June 30, 2022, the Company made contributions of $ 0.1 million and $ 0.7 million, respectively, to its U.S.

During the nine months ended September 30, 2023 and September 30, 2022, the Company made contributions of $ 0.2 million and $ 1.0 million, respectively, to its U.S.

qualified pension plan trusts.

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The Zurn Elkay Water Solutions Corporation Performance Incentive Plan (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 the Company's performance and create value for the Company's stockholders.

For the three months ended June 30, 2023 and June 30, 2022, the Company recognized $ 10.2 million and $ 3.8 million of stock-based compensation expense, respectively.

For the six months ended June 30, 2023 and June 30, 2022, the Company recognized $ 20.5 million and $ 7.7 million of stock-based compensation expense, respectively.

During the six months ended June 30, 2023, the Company granted the following stock options, restricted stock units, performance stock units and common stock to directors, executive officers, and certain other employees:

For the three months ended September 30, 2023 and September 30, 2022, the Company recognized $ 10.0 million and $ 7.8 million of stock-based compensation expense, respectively.

For the nine months ended September 30, 2023 and September 30, 2022, the Company recognized $ 30.5 million and $ 15.5 million of stock-based compensation expense, respectively.

During the nine months ended September 30, 2023, the Company granted the following stock options, restricted stock units, performance stock units and common stock to directors, executive officers, and certain other employees:

Award Type Number of Awards Weighted Average Grant-Date Fair Value

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Subsequent Events

On July 20, 2023, the Company's Board of Directors declared a quarterly cash dividend on the Company's common stock of $ 0.07 per-share to be paid on September 7, 2023, to stockholders of record as of August 18, 2023.

On October 19, 2023, the Company's Board of Directors declared a quarterly cash dividend on the Company's common stock of $ 0.08 per-share to be paid on December 7, 2023, to stockholders of record as of November 20, 2023.

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

What changed 10-Q

Item 1. Financial Statements