What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-23 compared with 2023-10-31 · 93 added, 128 removed, 109 unchanged (67% of the section changed)

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See Item 1, Note 2, Acquisition, for additional information on the Elkay Merger.

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

Our 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.

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

Our product portfolio includes professional grade water safety and control products, flow systems products, hygienic and environmental products, and filtered 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.

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

We operate in a disciplined way and the Zurn Elkay Business System (“ZEBS”) is our operating philosophy.

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Refer to Item 7, MD&A, of our Annual Report on Form 10-K for the year ended December 31, 2023 for information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management.

Except for the items reported below, management believes that as of September 30, 2023, and during the period from January 1, 2023 through September 30, 2023, there has been no material change to this information.

Except for the items reported below, management believes that as of March 31, 2024, and during the period from January 1, 2024 through March 31, 2024, there has been no material change to this information.

Recent Accounting Pronouncements

See Item 1, Note 1, Basis of Presentation and Significant Accounting Policies regarding recent accounting pronouncements.

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

Divestiture of Asbestos Liabilities and Certain Assets

On December 15, 2023, Zurn Holdings, Inc.

(“Holdings”) sold all of the equity interests of its direct subsidiary Zurn Industries, LLC (“Zurn Industries”), together with Zurn Industries’ direct and indirect subsidiaries that primarily held asbestos liabilities, certain assets and cash, in a stock sale transaction to an unaffiliated buyer (“Sale Transaction”).

As a result of the Sale Transaction, all asbestos obligations and liabilities, related insurance assets and associated deferred taxes, and other assets sold to the buyer, have been removed from the Company’s consolidated balance sheet effective December 15, 2023 and the Company no longer has any obligation with respect to pending and future asbestos claims related to the divested entities.

A loss on the divestiture of asbestos liabilities and certain assets of $11.4 million was recognized in the consolidated statements of operations for the twelve months ended December 31, 2023.

See Item 1, Note 15, Commitments and Contingencies for additional information on this divestiture.

On July 1, 2022, we completed the Elkay Merger for a purchase price (after final purchase price adjustments) of $1,457.8 million.

Elkay, a market leader of drinking water solutions and commercial sinks, complements our existing product portfolio.

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Pursuant to the terms of the merger agreement, we issued 51,564,524 shares of common stock, which represented approximately 29% of outstanding shares immediately following the Merger.

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 we issued at closing as a result of lower working capital and cash balances at closing compared to targets stipulated in the merger agreement.

During the first quarter of 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 we issued at closing as a result of lower working capital and cash balances at closing compared to targets stipulated in the merger agreement.

The shares returned were canceled upon receipt.

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Spin-Off of Process & Motion Control Segment

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

(“Land”), (ii) the shares of Land were distributed to our 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.

During 2022, we 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.

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 Process & Motion Control ("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.

The operating results of PMC are reported as discontinued operations in our condensed consolidated statements of operations for all periods presented.

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

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 $ —

The condensed consolidated statements of cash flows for the period ended March 31, 2024 have not been adjusted to separately disclose cash flows related to the discontinued operations.

The major components of the Income from discontinued operations, net of tax presented in the condensed consolidated statements of operations for the three months ended March 31, 2024 and March 31, 2023, are as follows (in millions):

Three Months Ended

March 31, 2024 March 31, 2023

Income from discontinued operations before income tax — —

Income tax (expense) benefit (0.4) — (0.3) 0.8

Income tax benefit 0.3 0.2

Income from discontinued operations, net of tax $ 0.3 $ 0.2

(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.

See Item 1, Note 4, Discontinued Operations for additional information.

Restructuring and Other Similar Costs

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

Restructuring and Other Similar Charges

During the three months ended March 31, 2024, 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.

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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.

For the three and nine months ended September 30, 2023, restructuring charges totaled $2.2 million and $11.9 million, respectively.

For the three and nine months ended September 30, 2022, restructuring charges totaled $11.7 million and $13.1 million, respectively.

For the three months ended March 31, 2024, restructuring charges totaled $6.3 million.

For the three months ended March 31, 2023, restructuring charges totaled $1.9 million.

Refer to Item 1, Note 3, Restructuring and Other Similar Charges for further information.

Results of Operations

Three Months Ended September 30, 2023 compared with the Three Months Ended September 30, 2022:

Three Months Ended March 31, 2024 compared with the Three Months Ended March 31, 2023:

(Dollars in Millions)

Three Months Ended

September 30, 2023 September 30, 2022 Change % Change

March 31, 2024 March 31, 2023 Change % Change

Net sales $ 373.8 $ 372.1 $ 1.7 0.5 %

Net sales were $398.4 million and $417.7 million during the three months ended September 30, 2023 and September 30, 2022, respectively, a decrease of 5% year-over-year.

Core sales decreased 5% year over year as a result of lower year-over-year demand associated with products sold into our residential end markets, the planned exit of certain residential sink products as well as timing of shipments in the prior year as we continued working down an elevated backlog during the three months ended September 30, 2022.

Income (loss) from operations

Net sales were $373.8 million and $372.1 million during the three months ended March 31, 2024 and March 31, 2023, respectively.

Core sales were flat year over year as core sales growth across nearly all product categories was offset by the 400 basis point impact from the planned exit of certain residential sink products.

Income from operations

(Dollars in Millions)

Three Months Ended

September 30, 2023 September 30, 2022 Change % Change

Income (loss) from operations $ 60.1 $ (10.1) $ 70.2 (695.0) %

March 31, 2024 March 31, 2023 Change % Change

Income from operations $ 53.2 $ 43.7 $ 9.5 21.7 %

% of net sales 14.2 % 11.7 % 2.5 %

During the three months ended September 30, 2023, income from operations was $60.1 million compared to a loss of $10.1 million during the three months ended September 30, 2022.

Income from operations as a percentage of net sales increased by 1750 basis points year over year due to the benefits resulting from productivity synergies and restructuring actions related to the Elkay Merger, lower material and transportation costs, and lower restructuring charges.

Additionally, income from operations for the three months ended September 30, 2022 included merger costs of $33.7 million and a purchase accounting fair value adjustment of $14.6 million related to the Elkay Merger.

During the three months ended March 31, 2024, income from operations was $53.2 million compared to $43.7 million during the three months ended March 31, 2023.

Income from operations as a percentage of net sales increased by 250 basis points year over year due to the benefits resulting from productivity synergies and restructuring actions related to the Elkay Merger, as well as lower material and transportation costs, partially offset by higher restructuring expense year over year.

Interest expense, net

Interest expense, net was $9.9 million for the three months ended September 30, 2023, compared to $8.0 million for the three months ended September 30, 2022.

The increase in interest expense as compared to the prior year period is primarily a result of higher year-over-year interest rates.

See Item 1, Note 13 Long-Term Debt for more information.

Other income (expense), net

Other expense, net for the three months ended September 30, 2023, was $2.5 million compared to other income of $0.6 million for the three months ended September 30, 2022.

Other income (expense), net consists primarily of foreign currency transaction gains and losses, the non-service cost components associated with our defined benefit plans and other non-operational gains and losses.

The year-over-year change is primarily driven by higher interest cost within the non-service cost components of our defined benefit plans.

Interest expense, net was $8.8 million for the three months ended March 31, 2024, compared to $9.6 million for the three months ended March 31, 2023.

The decrease in interest expense, net as compared to the prior year period is due to interest earned on higher cash balances.

Other expense, net

Other expense, net for the three months ended March 31, 2024, was $1.4 million compared to other expense of $2.4 million for the three months ended March 31, 2023.

Other expense, net consists primarily of foreign currency transaction gains and losses, the non-service cost components associated with our defined benefit plans and other non-operational gains and losses.

The year-over-year change is primarily driven by changes in foreign currency rates.

Provision for income taxes

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.

The income tax provision was $9.0 million for the three months ended March 31, 2024, compared to $9.1 million for the three months ended March 31, 2023.

The effective income tax rate for the three months ended March 31, 2024 was 20.9% versus 28.7% for the three months ended March 31, 2023.

The effective income tax rate for the three months ended March 31, 2024 was slightly below the U.S.

federal statutory rate of 21% primarily as 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, was effectively offset by the recognition of certain previously unrecognized tax benefits due to the lapse of the applicable statutes of limitations and income tax benefits associated with share-based payments.

The effective income tax rate for the three months ended March 31, 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 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.

federal statutory rate, partially offset by the recognition of certain previously unrecognized tax benefits due to the lapse of the applicable statutes of limitations.

On a quarterly basis, we review and analyze our valuation allowances associated with deferred tax assets relating to certain foreign and state net operating loss carryforwards as well as U.S.

federal and state capital loss carryforwards.

In conjunction with this analysis, we weigh both positive and negative evidence for purposes of determining the proper balances

of such valuation allowances.

In conjunction with this analysis, we weigh both positive and negative evidence for purposes of determining the proper balances of such valuation allowances.

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

Net income (loss)

Net income for the three months ended September 30, 2023, was $41.4 million compared to a net loss of $19.1 million for the three months ended September 30, 2022.

Diluted net income (loss) per share for the three months ended September 30, 2023 and September 30, 2022, was $0.24 and $(0.11), respectively.

Net income for the three months ended March 31, 2024, was $34.3 million compared to net income of $22.8 million for the three months ended March 31, 2023.

Diluted net income per share for the three months ended March 31, 2024 and March 31, 2023, was $0.19 and $0.13, respectively.

The year-over-year change is the result of the factors described above.

Net income from discontinued operations, net of tax, was $6.2 million for the three months ended September 30, 2023 compared to $0.0 million for the three months ended September 30, 2022.

Diluted net income per share from discontinued operations for the three months ended September 30, 2023 and September 30, 2022, was $0.04 and $0.00, respectively.

Nine Months Ended September 30, 2023 compared with the Nine Months Ended September 30, 2022:

(Dollars in Millions)

Nine Months Ended

September 30, 2023 September 30, 2022 Change % Change

Net Sales $ 1,173.7 $ 941.5 $ 232.2 24.7 %

Net sales were $1,173.7 million during the nine months ended September 30, 2023, an increase of 25% year-over-year.

Excluding a 28% increase in sales associated with our combination with Elkay, core sales decreased 3% year over year as a result of lower year-over-year demand associated with products sold into our residential end markets, the planned exit of certain residential sink products as well as timing of shipments in the prior year as we continued working down an elevated backlog during the second and third quarter of 2022.

Income from operations

(Dollars in Millions)

Nine Months Ended

September 30, 2023 September 30, 2022 Change % Change

Income from operations 158.6 87.3 71.3 81.7 %

% of net sales 13.5 % 9.3 % 4.2 %

Income from operations during the nine months ended September 30, 2023 was $158.6 million compared to $87.3 million during the nine months ended September 30, 2022.

Income from operations as a percentage of net sales increased by 420 basis points year over year due to the benefits of productivity synergies and restructuring actions, partially offset by higher non-cash stock-based compensation expense, and incremental depreciation and intangible asset amortization resulting from the Elkay Merger during the nine months ended September 30, 2023.

Additionally, income from operations for the nine months ended September 30, 2022 included merger costs of $33.7 million and a purchase accounting fair value adjustment of $14.6 million related to the Elkay Merger.

Interest expense, net

Interest expense, net was $29.8 million during the nine months ended September 30, 2023, compared to $18.0 million during the nine months ended September 30, 2022.

The increase in interest expense as compared to the prior year period is primarily a result of higher year-over-year interest rates.

See Item 1, Note 13 Long-Term Debt for more information.

Other income (expense), net

Other expense, net during the nine months ended September 30, 2023 was $3.3 million compared to other income of $0.3 million during the nine months ended September 30, 2022.

The year-over-year change is primarily driven by higher interest cost within the non-service cost components of our defined benefit plans and accruals for estimated environmental remediation costs, partially offset by income recognized in connection with an insurance settlement.

Provision for income taxes

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 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.

Net income for the nine months ended September 30, 2023, was $98.8 million compared to $47.5 million for the nine months ended September 30, 2022.

Diluted net income per share for the nine months ended September 30, 2023 and September 30, 2022, was $0.56 and $0.33, respectively.

Net income from discontinued operations, net of tax, was $8.1 million for the nine months ended September 30, 2023 compared to $0.8 million for the nine months ended September 30, 2022.

Diluted net income per share from discontinued operations for the nine months ended September 30, 2023 and September 30, 2022, was $0.05 and $0.01, respectively.

Net income from discontinued operations, net of tax, was $0.3 million for the three months ended March 31, 2024 compared to $0.2 million for the three months ended March 31, 2023.

Diluted net income per share from discontinued operations for both the three months ended March 31, 2024 and March 31, 2023, was $0.00.

Non-GAAP Financial Measures

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Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.

Core sales excludes the impact of acquisitions (such as the Elkay Merger), divestitures and foreign currency translation.

Core sales excludes the impact of acquisitions, divestitures and foreign currency translation.

Management believes that core sales facilitates easier and more meaningful comparisons of our net sales performance with prior and future periods and to our peers.

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Adjusted EBITDA

Adjusted EBITDA is the term we use to describe EBITDA as defined and adjusted in our credit agreement, which is net income, adjusted for the items summarized in the table below.

Adjusted EBITDA is an important measure because, under our credit agreement, our ability to incur certain types of acquisition debt and certain types of subordinated debt, make certain types of acquisitions or asset exchanges, operate our business and make dividends or other distributions, all of which will impact our financial performance, is impacted by our Adjusted EBITDA, as our lenders measure our performance with a net first lien leverage ratio by comparing our senior secured bank indebtedness to our Adjusted EBITDA.

It also is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding non-operational, non-cash or non-recurring losses or gains.

Adjusted EBITDA is an important measure because, under our credit agreement, our ability to incur certain types of acquisition debt and certain types of subordinated debt, make certain types of acquisitions or asset exchanges, operate our business and make dividends or other distributions, all of which will impact our financial performance, is impacted by our Adjusted EBITDA, as our lenders measure our performance with a Net First Lien Leverage Ratio by comparing our senior secured bank indebtedness to our Adjusted EBITDA (see "Covenant Compliance" for additional discussion of this ratio, including a reconciliation to our net income).

"Adjusted EBITDA" is the term we use to describe EBITDA as defined and adjusted in our credit agreement, which is net income, adjusted for the items summarized in the table in the "Covenant Compliance" section.

Adjusted EBITDA is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding non-operational, non-cash or non-recurring losses or gains.

It is also provided to aid investors in understanding our compliance with our debt covenants.

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In particular, our definition of Adjusted EBITDA allows us to add back certain non-cash, non-operating or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies as opposed to short-term results.

In addition, certain of these excluded expenses added back in calculating Adjusted EBITDA can represent the reduction of cash that could be used for other corporate purposes.

Further, although not included in the calculation of Adjusted EBITDA below, the measure may at times allow us to add estimated cost savings and operating synergies related to operational changes ranging from acquisitions or dispositions to restructuring, and/or exclude one-time transition expenditures that we anticipate we will need to incur to realize cost savings before such savings have occurred.

For the nine months ended September 30, 2023, we had net income of $98.8 million and Adjusted EBITDA for the same period of $255.4 million.

The calculation of Adjusted EBITDA under our credit agreement as of September 30, 2023, is presented in the table below.

In addition, certain of these expenses added back in calculating Adjusted EBITDA can represent the reduction of cash that could be used for other corporate purposes.

Further, although not included in the calculation of Adjusted EBITDA in the "Covenant Compliance" section below, the measure may at times allow us to add estimated cost savings and operating synergies related to operational changes ranging from acquisitions or dispositions to restructuring, and/or exclude one-time transition expenditures that we anticipate incurring to realize cost savings before such savings have occurred.

The calculation of Adjusted EBITDA under our credit agreement as of March 31, 2024, is presented in the table in the "Covenant Compliance" section below.

However, the results of such calculation could differ in the future based on the different types of adjustments that may be included in such respective calculations at the time.

For the three months ended March 31, 2024, we reported net income of $34.3 million and Adjusted EBITDA for the same period of $90.0 million.

See "Covenant Compliance" for a reconciliation of Adjusted EBITDA to GAAP net income.

Covenant Compliance

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Events of default include the failure to pay principal and interest when due, a material breach of a representation or warranty, certain non-payments or defaults under other indebtedness, covenant defaults, events of bankruptcy and a change of control.

Certain covenants contained in the credit agreement restrict our ability to take certain actions, such as incurring additional debt or making acquisitions, if we are unable to comply with a maximum total Net First Lien Leverage Ratio (consolidated indebtedness to Adjusted EBITDA) of 5.00 to 1.00 as of the end of each fiscal quarter.

At September 30, 2023, our Net First Lien Leverage Ratio was 1.26 to 1.00.

Certain covenants contained in the credit agreement restrict our ability to take certain actions, such as incurring additional debt or making acquisitions, if we are unable to meet a maximum total Net First Lien Leverage Ratio (consolidated indebtedness to Adjusted EBITDA) of 5.00 to 1.00 as of the end of each fiscal quarter.

As of March 31, 2024, our Net First Lien Leverage Ratio was 1.06 to 1.00.

Failure to comply with these covenants could limit our long-term growth prospects by hindering our ability to borrow under the revolver, to obtain future debt and/or to make acquisitions.

Set forth below is a reconciliation of net income to Adjusted EBITDA for the periods indicated below.

(in millions) Nine months ended

September 30, 2022 Twelve months ended

December 31, 2022 Nine months ended

September 30, 2023 Twelve months ended

September 30, 2023

(in millions) Three months ended

March 31, 2023 Twelve months ended

December 31, 2023 Three months ended

March 31, 2024 Twelve months ended

March 31, 2024

Net income $ 22.8 $ 112.7 $ 34.3 $ 124.2

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Actuarial gain on pension and postretirement benefit obligations — (2.0) — (2.0)

Other expense (income), net (2) (0.3) (1.7) 3.3 1.9

Other expense, net (2) 2.4 7.2 1.4 6.2

Loss on the extinguishment of debt — 0.9 — 0.9

Interest expense 9.6 38.5 8.8 37.7

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Stock-based compensation expense 10.3 40.0 10.0 39.7

Merger costs (4) 33.7 33.7 — —

Last-in first-out ("LIFO") adjustments (4) (6.3) (6.5) (1.3) (1.5)

Acquisition-related fair value adjustment 15.2 18.9 — 3.7

Loss on divestiture of asbestos liabilities and certain assets (5) — 11.4 — 11.4

Other, net (6) — — 0.2 0.2

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Consolidated indebtedness (7) $ 380.1

Total Net First Lien Leverage Ratio (8) 1.26

Net First Lien Leverage Ratio (8) 1.06

__________________________________

(1) Income from discontinued operations, net of tax is not included in Adjusted EBITDA in accordance with the terms of our credit agreement.

(2) Other expense (income), net for the periods indicated, consists primarily of gains and losses from foreign currency transactions, the non-service cost components of net periodic benefit costs associated with our defined benefit plans and other non-operational gains and losses.

(3) Restructuring and other similar charges is comprised of costs associated with workforce reductions, asset impairments, lease termination costs, and other facility rationalization costs.

(2) Other expense, net consists primarily of gains and losses from foreign currency transactions, the non-service cost components of net periodic benefit costs associated with our defined benefit plans and other non-operational gains and losses as defined in our credit agreement.

(3) In accordance with the terms in our credit agreement, restructuring and other similar charges is comprised of costs associated with workforce reductions, asset impairments, lease termination costs, and other facility rationalization costs.

See Item 1, Note 3, Restructuring and Other Similar Charges for more information.

(4) Merger costs is comprised of costs associated with legal and other professional services incurred in connection with completing the Elkay Merger, which are excluded in calculating Adjusted EBITDA as defined in our credit agreement.

(5) LIFO adjustments are excluded in calculating Adjusted EBITDA as defined in our credit agreement.

(6) Other, net consists of gains and losses on the disposition of long-lived assets.

(7) Our credit agreement defines our consolidated indebtedness as the sum of all indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of indebtedness for borrowed money and capitalized lease obligations, less unrestricted cash, which was $152.4 million (as defined by the credit agreement) at September 30, 2023.

(8) Our credit agreement defines the total Net First Lien Leverage Ratio as the ratio of consolidated indebtedness (as described above) to Adjusted EBITDA for the trailing four fiscal quarters.

(4) Last-in first-out (LIFO) inventory adjustments are excluded in calculating Adjusted EBITDA as defined in our credit agreement.

(5) Loss on divestiture of asbestos liabilities and certain assets are excluded in calculating Adjusted EBITDA as defined in our credit agreement.

(6) Other, net consists of gains and losses on the disposition of long-lived assets per the credit agreement.

(7) Our credit agreement defines our consolidated indebtedness as the sum of all indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of indebtedness for borrowed money and capitalized lease obligations, less unrestricted cash, which was $115.3 million (as defined by the credit agreement) at March 31, 2024.

(8) Our credit agreement defines the Net First Lien Leverage Ratio as the ratio of consolidated indebtedness (as described above) to Adjusted EBITDA for the trailing four fiscal quarters.

Liquidity and Capital Resources

Our primary sources of liquidity are available cash and cash equivalents, cash flow from operations, and borrowing availability of up to $200.0 million under our revolving credit facility.

As of September 30, 2023, we had $173.1 million of cash and cash equivalents and $194.2 million of additional borrowing capacity.

As of September 30, 2023, the available borrowings under our credit facility were reduced by $5.8 million due to outstanding letters of credit.

As of December 31, 2022, we had $124.8 million of cash and cash equivalents and approximately $192.5 million of additional borrowing capacity under our revolving credit facility.

Our revolving credit facility is available to fund our working capital requirements, capital expenditures and for other general corporate purposes.

As of March 31, 2024, we had $157.1 million of cash and cash equivalents and $188.8 million of additional borrowing capacity.

As of March 31, 2024, the available borrowings under our credit facility were reduced by $11.2 million due to outstanding letters of credit.

As of December 31, 2023, we had $136.7 million of cash and cash equivalents and $189.0 million of additional borrowing capacity under our revolving credit facility.

As of December 31, 2023, the available borrowings under our credit facility were reduced by $11.0 million due to outstanding letters of credit.

Our revolving credit facility is available to fund our working capital requirements, capital expenditures and other general corporate purposes.

We believe this resource is adequate for our expected short-term and long-term needs.

Cash provided by operating activities was $195.7 million and $12.6 million during the nine months ended September 30, 2023 and 2022, respectively.

The change in year-over-year operating cash flows was primarily the result of a lower use of cash for trade working capital, an increase in net income, and the timing of accrued expenses during the nine months ended September 30, 2023.

Cash used for investing activities was $6.6 million during the nine months ended September 30, 2023 and $12.8 million during the nine months ended September 30, 2022.

Investing activities during the nine months ended September 30, 2023, consisted of $15.9 million of capital expenditures, which were partially offset by the receipt of $9.0 million in connection with an insurance settlement and $0.3 million from the sale of certain long-lived assets.

Investing activities during the nine months ended September 30, 2022, included $4.3 million of capital expenditures and net cash payments of $44.8 million in connection with acquisitions, which was offset by the receipt of $35.0 million from Regal Rexnord Corporation in connection with the final net assets transferred in the PMC Spin-Off Transaction and the receipt of $1.3 million in connection with the sale of certain long-lived assets.

Cash used for financing activities was $141.5 million during the nine months ended September 30, 2023, compared to $23.1 million during the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, we utilized a net $4.7 million of cash for payments on outstanding debt, $100.2 million to repurchase outstanding shares of our common stock and $36.6 million for the payment of common stock dividends.

During the nine months ended September 30, 2022, we utilized a net $4.4 million of cash for payments on outstanding debt and $20.1 million for the payment of common stock dividends, which was partially offset by $1.4 million of proceeds from the exercise of stock options, net of taxes withheld and paid on employees' share-based awards.

As of September 30, 2023, we had $554.2 million of total indebtedness outstanding as follows (in millions):

Net cash provided by operating activities was $53.9 million and $5.0 million during the three months ended March 31, 2024 and 2023, respectively.

The change in year-over-year operating cash flows was primarily the result of a lower use of cash for trade working capital and an increase in net income during the three months ended March 31, 2024.

Cash used for investing activities was $2.1 million during the three months ended March 31, 2024 and $5.2 million during the three months ended March 31, 2023.

Investing activities during the three months ended March 31, 2024, consisted of $3.7 million of capital expenditures, which were partially offset by $1.6 million from the sale of certain long-lived assets.

Investing activities during the three months ended March 31, 2023, consisted of $5.2 million of capital expenditures.

Cash used for financing activities was $30.9 million during the three months ended March 31, 2024, compared to $50.3 million during the three months ended March 31, 2023.

During the three months ended March 31, 2024, we utilized $0.2 million of cash for payments on finance leases, $18.9 million to repurchase outstanding shares of our common stock and $13.9 million for the payment of common stock dividends, which was partially offset by $2.1 million of proceeds from the exercise of stock options.

During the three months ended March 31, 2023, we utilized a net $1.6 million of cash for payments on outstanding debt, $37.0 million to repurchase outstanding shares of our common stock, and $12.3 million for the payment of common stock dividends, which was partially offset by $0.6 million of proceeds from the exercise of stock options.

As of March 31, 2024, we had $495.4 million of total indebtedness outstanding as follows (in millions):

Total Debt at

September 30, 2023

March 31, 2024

Current Maturities of Debt Long-term

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(1) Includes unamortized debt issuance costs of $8.0 million at September 30, 2023.

(1) Includes unamortized original issue discount and debt issuance costs of $6.4 million at March 31, 2024.

See Item 1, Note 13, Long-Term Debt for a description of our outstanding indebtedness.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis