What changed in this filing

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Item 1. Financial Statements

2024-07-30 compared with 2024-04-23 · 127 added, 92 removed, 479 unchanged (31% of the section changed)

3 unchanged sentences

(in Millions, except share amounts)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Current assets:

28 unchanged sentences

shares issued and outstanding:

172,868,217 at March 31, 2024 and 172,262,163 at December 31, 2023

171,097,696 at June 30, 2024 and 172,262,163 at December 31, 2023

Additional paid-in capital 2,842.5 2,847.0

7 unchanged sentences

(in Millions, except share and per share amounts)

Three Months Ended

March 31, 2024 March 31, 2023

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Net sales $ 412.0 $ 403.2 $ 785.8 $ 775.3

7 unchanged sentences

Interest expense, net ( 8.5 ) ( 10.3 ) ( 17.3 ) ( 19.9 )

Other expense, net ( 1.4 ) ( 2.4 )

Other income (expense), net ( 1.6 ) 1.6 ( 3.0 ) ( 0.8 )

Income before income taxes 61.8 46.1 104.8 77.8

5 unchanged sentences

Continuing operations $ 0.26 $ 0.19 $ 0.46 $ 0.32

Discontinued operations $ 0.01 $ 0.01 $ 0.01 $ 0.01

Net income $ 0.27 $ 0.20 $ 0.47 $ 0.33

1 unchanged sentence

Continuing operations $ 0.26 $ 0.19 $ 0.45 $ 0.31

Discontinued operations $ 0.01 $ 0.01 $ 0.01 $ 0.01

Net income $ 0.27 $ 0.20 $ 0.46 $ 0.32

7 unchanged sentences

(in Millions)

Three Months Ended

March 31, 2024 March 31, 2023

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Net income $ 46.0 $ 34.6 $ 80.3 $ 57.4

Other comprehensive loss:

Other comprehensive income (loss):

Foreign currency translation adjustments ( 1.5 ) 3.6 ( 4.0 ) 3.5

Other comprehensive loss, net of tax ( 2.5 ) ( 0.1 )

Other comprehensive income (loss), net of tax ( 1.5 ) 3.6 ( 4.0 ) 3.5

Total comprehensive income $ 44.5 $ 38.2 $ 76.3 $ 60.9

3 unchanged sentences

(in Millions)

Three Months Ended

March 31, 2024 March 31, 2023

Six Months Ended

June 30, 2024 June 30, 2023

Operating activities

18 unchanged sentences

Proceeds from dispositions of long-lived assets 1.6 0.3

Proceeds from insurance claims — 9.0

Cash used for investing activities ( 7.0 ) ( 1.8 )

13 unchanged sentences

Notes to Condensed Consolidated Financial Statements

March 31, 2024

June 30, 2024

Basis of Presentation and Significant Accounting Policies

9 unchanged sentences

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 Note 15, Commitments and Contingencies, for additional information on the Sale Transaction.

On July 1, 2022, Zurn Water Solutions Corporation ("Zurn") completed its combination with Elkay Manufacturing Company (“Elkay”) through the Merger of Elkay with and into a newly created subsidiary of the Company, with Elkay surviving as a wholly owned subsidiary of Zurn Elkay (the “Merger” or "Elkay Transaction").

7 unchanged sentences

Reclassifications

Certain prior year amounts have been reclassified to conform to the presentation used for the three months ended March 31, 2024.

Certain prior year amounts have been reclassified to conform to the presentation used for the six months ended June 30, 2024.

Recent Accounting Pronouncements

9 unchanged sentences

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 March 31, 2024, the Board of Directors consisted of ten members, including one director designated by Elkay.

As of June 30, 2024, 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.

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.

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

The excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill, which is not deductible for tax purposes.

26 unchanged sentences

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.

During the three and six months ended June 30, 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 mergers and 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.

2 unchanged sentences

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 months ended March 31, 2024 and March 31, 2023, (in millions):

Three Months Ended

March 31, 2024 March 31, 2023

The following table summarizes the Company's restructuring and other similar charges during the three and six months ended June 30, 2024 and June 30, 2023, (in millions):

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Employee termination benefits $ 0.2 $ 2.0 $ 0.4 $ 2.9

1 unchanged sentence

Total restructuring and other similar charges $ 0.7 $ 7.8 $ 7.0 $ 9.7

The following table summarizes the activity in the Company's restructuring accrual for the three months ended March 31, 2024 (in millions):

The following table summarizes the activity in the Company's restructuring accrual for the six months ended June 30, 2024 (in millions):

Employee termination benefits Contract termination and other associated costs Total

3 unchanged sentences

Non-cash charges (2) — ( 5.2 ) ( 5.2 )

Accrued restructuring costs, March 31, 2024 (1) $ 0.3 $ 0.8 $ 1.1

Accrued restructuring costs, June 30, 2024 (1) $ — $ 0.3 $ 0.3

____________________

(1) As of March 31, 2024 and December 31, 2023, the restructuring accrual is included in other current liabilities in the condensed consolidated balance sheets.

(1) As of June 30, 2024 and December 31, 2023, the restructuring accrual is included in other current liabilities in the condensed consolidated balance sheets.

(2) Non-cash charges consist primarily of asset impairments based on Level 3 inputs.

3 unchanged sentences

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 condensed consolidated statements of cash flows for the three months ended March 31, 2024 and March 31, 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 months ended March 31, 2024 and March 31, 2023, are as follows (in millions):

Three Months Ended

March 31, 2024 March 31, 2023

The condensed consolidated statements of cash flows for the six months ended June 30, 2024 and June 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 six months ended June 30, 2024 and June 30, 2023, are as follows (in millions):

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Selling, general and administrative (expenses)/income (1) $ 0.7 $ 1.8 $ 0.7 $ 1.8

Income from discontinued operations before income tax 0.7 1.8 0.7 1.8

Income tax benefit 0.3 0.2

Income tax (expense) benefit — ( 0.1 ) 0.3 0.1

Income from discontinued operations, net of tax $ 0.7 $ 1.7 $ 1.0 $ 1.9

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

Revenue Recognition

6 unchanged sentences

When the contract provides the customer the right to return eligible products or when the customer is part of a sales rebate program, the Company reduces revenue at the point of sale using current facts and historical experience by using an estimate for expected product returns and rebates associated with the transaction.

The Company adjusts these estimates at the earlier of when the most likely amount of consideration that is expected to be received changes or when the consideration becomes fixed.

The Company adjusts these estimates at the

earlier of when the most likely amount of consideration that is expected to be received changes or when the consideration becomes fixed.

Accordingly, an increase or decrease to revenue is recognized at that time.

6 unchanged sentences

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

Three Months Ended

Customer Type March 31, 2024 March 31, 2023

Three Months Ended Six Months Ended

Customer Type June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Institutional $ 196.1 $ 178.4 $ 374.4 $ 351.7

2 unchanged sentences

Total $ 412.0 $ 403.2 $ 785.8 $ 775.3

Three Months Ended

Geography March 31, 2024 March 31, 2023

Three Months Ended Six Months Ended

Geography June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

United States $ 378.3 $ 371.6 $ 719.5 $ 716.1

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 March 31, 2024 and December 31, 2023 were not material.

The Company had backlog of $ 50.4 million as of March 31, 2024, 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 June 30, 2024 and December 31, 2023 were not material.

The Company had backlog of $ 59.6 million as of June 30, 2024, which represents the most likely amount of consideration expected to be received in satisfying the remaining backlog under open contracts.

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 99 % of the backlog in the remaining nine months of the year ending December 31, 2024, and the remaining approximately 1 % in 2025 and beyond.

The Company expects to recognize approximately 99 % of the backlog in the remaining six months of the year ending December 31, 2024, and the remaining approximately 1 % in 2025 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 March 31, 2024 and December 31, 2023, the contract assets capitalized, as well as amortization recognized in the three months ended March 31, 2024 and March 31, 2023, are not significant and no impairment losses were recognized.

As of June 30, 2024 and December 31, 2023, the contract assets capitalized, as well as amortization recognized in the three and six months ended June 30, 2024 and June 30, 2023, are not significant and no impairment losses were recognized.

Allowance for Credit Losses

14 unchanged sentences

The Company is continuing to monitor the potential impact of the Pillar 2 proposals and developments on our consolidated financial statements and related disclosures, including eligibility for any transitional safe harbor rules.

As of March 31, 2024, the Company has determined that no accrual is currently required for Top-Up Taxes.

As of June 30, 2024, the Company has determined that no accrual is currently required for Top-Up Taxes.

The Company regularly reviews its deferred tax assets for recoverability and valuation allowances are established based on historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences, as deemed appropriate.

4 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 $ 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.

The income tax provision was $ 16.5 million for the three months ended June 30, 2024, compared to $ 13.2 million for the three months ended June 30, 2023.

The effective income tax rate for the three months ended June 30, 2024 was 26.7 % versus 28.6 % for the three months ended June 30, 2023.

The effective income tax rate for the three months ended June 30, 2024 and the three months ended June 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 certain previously unrecognized tax benefits due to the lapse of the applicable statutes of limitations.

The Company’s total liability for net unrecognized tax benefits as of March 31, 2024 and December 31, 2023 was $ 3.5 million and $ 5.6 million, respectively.

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

The income tax provision was $ 25.5 million for the six months ended June 30, 2024, compared to $ 22.3 million for the six months ended June 30, 2023.

The effective income tax rate for the six months ended June 30, 2024 was 24.3 % versus 28.7 % for the six months ended June 30, 2023.

The effective income tax rate for the six months ended June 30, 2024 was above the U.S.

federal statutory rate, partially 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 six months ended June 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, 2024 and December 31, 2023 was $ 3.6 million and $ 5.6 million, respectively.

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

As of March 31, 2024 and December 31, 2023, the total amount of unrecognized tax benefits includes gross accrued interest and penalties of $ 0.7 million and $ 1.1 million, respectively.

The Company recognized $( 0.3 ) million and $ 0.1 million of net interest and penalties as income tax (benefit) expense during the three months ended March 31, 2024 and March 31, 2023, respectively.

As of June 30, 2024 and December 31, 2023, the total amount of unrecognized tax benefits includes gross accrued interest and penalties of $ 0.8 million and $ 1.1 million, respectively.

The Company recognized $( 0.2 ) million and $ 0.2 million of net interest and penalties as income tax (benefit) expense during the six months ended June 30, 2024 and June 30, 2023, respectively.

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

11 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 months ended March 31, 2024 and March 31, 2023 excludes 0.5 million and 1.2 million shares due to their anti-dilutive effects, respectively.

The computation for diluted net income per share for the three and six months ended June 30, 2024 excludes 0.5 million and 0.3 million shares due to their anti-dilutive effects, respectively.

The computation for diluted net income per share for the three and six months ended June 30, 2023 excludes 0.4 million shares and 0.4 million shares due to their anti-dilutive effects, respectively.

Stockholders' Equity

11 unchanged sentences

Balance at March 31, 2023 $ 1.8 $ 2,851.9 $ ( 1,179.1 ) $ ( 75.1 ) $ 1,599.5

Total comprehensive income — — 34.6 3.6 38.2

Stock-based compensation expense — 10.2 — — 10.2

Proceeds from exercise of stock options — 0.6 — — 0.6

Repurchase of common stock ( 0.1 ) — ( 50.8 ) — ( 50.9 )

Common stock dividends ($ 0.07 per share)

— ( 9.0 ) — — ( 9.0 )

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

Common stock (1) Additional

11 unchanged sentences

Balance at March 31, 2024 $ 1.7 $ 2,845.2 $ ( 1,162.8 ) $ ( 70.2 ) $ 1,613.9

Total comprehensive income — — 46.0 ( 1.5 ) 44.5

Stock-based compensation expense — 9.4 — — 9.4

Proceeds from exercise of stock options — 1.7 — — 1.7

Repurchase of common stock — — ( 61.3 ) — ( 61.3 )

Common stock dividends ($ 0.08 per share)

— ( 13.8 ) — — ( 13.8 )

(1) During the three months ended March 31, 2024 and March 31, 2023, the Company issued 1,226,898 and 156,319 shares of common stock, upon the exercise of stock options, vesting of restricted stock units and performance stock units, and for other common stock issuances, respectively.

(2) During the three months ended March 31, 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 June 30, 2024 $ 1.7 $ 2,842.5 $ ( 1,178.1 ) $ ( 71.7 ) $ 1,594.4

____________________

(1) During the three and six months ended June 30, 2024, the Company issued 171,495 and 1,398,393 shares of common stock, upon the exercise of stock options, vesting of restricted stock units and performance stock units, and for other common stock issuances, respectively.

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.

(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.

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 of Directors.

During the three months ended March 31, 2024, the Company repurchased 620,844 shares of common stock at a total cost of $ 18.9 million at a weighted average price of $ 30.41 per share.

During the three months ended March 31, 2023, the Company repurchased 1,682,756 shares of common stock at a total cost of $ 37.0 million at a weighted average price of $ 21.99 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 June 30, 2024, the Company repurchased 1,942,016 shares of common stock at a total cost of $ 61.0 million at a weighted average price of $ 31.38 per share.

During the six months ended June 30, 2024, the Company repurchased 2,562,860 shares of common stock at a total cost of $ 79.9 million at a weighted average price of $ 31.15 per share.

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.

The repurchased shares were canceled by the Company upon receipt.

Approximately $ 371.6 million of the existing authority remained under the Repurchase Program at March 31, 2024.

Approximately $ 310.6 million of the existing authority remained under the Repurchase Program at June 30, 2024.

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2024, are as follows (in millions):

The changes in accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2024, are as follows (in millions):

Foreign Currency Translation and Other Pension and Postretirement Plans Total

2 unchanged sentences

Net current period other comprehensive income ( 4.0 ) — ( 4.0 )

Balance at March 31, 2024 $ ( 74.0 ) $ 3.8 $ ( 70.2 )

There were no amounts reclassified from accumulated other comprehensive loss to net income during the three months ended March 31, 2024 and 2023.

Balance at June 30, 2024 $ ( 75.5 ) $ 3.8 $ ( 71.7 )

There were no amounts reclassified from accumulated other comprehensive loss to net income during the three and six months ended June 30, 2024 and 2023.

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Finished goods $ 226.2 $ 224.8

5 unchanged sentences

Goodwill and Intangible Assets

The changes in the net carrying value of goodwill for the three months ended March 31, 2024, are presented below (in millions):

The changes in the net carrying value of goodwill for the six months ended June 30, 2024, are presented below (in millions):

Net carrying amount as of December 31, 2023 $ 796.0

Currency translation adjustments ( 0.9 )

Net carrying amount as of March 31, 2024 $ 794.3

The gross carrying amount and accumulated amortization for each major class of identifiable intangible assets as of March 31, 2024 and December 31, 2023 are as follows (in millions):

March 31, 2024

Net carrying amount as of June 30, 2024 $ 795.1

The gross carrying amount and accumulated amortization for each major class of identifiable intangible assets as of June 30, 2024 and December 31, 2023 are as follows (in millions):

June 30, 2024

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

13 unchanged sentences

Total intangible assets, net 16 years $ 1,340.7 $ ( 388.3 ) $ 952.4

Intangible asset amortization expense totaled $ 14.7 million and $ 14.7 million for the three months ended March 31, 2024 and March 31, 2023, 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, 2024 (inclusive of the $ 14.7 million of amortization expense recognized in the three months ended March 31, 2024), $ 58.7 million in 2025, $ 58.5 million in 2026, $ 58.5 million in 2027, $ 58.5 million in 2028 and $ 58.5 million in 2029.

Intangible asset amortization expense totaled $ 14.8 million and $ 14.6 million for the three months ended June 30, 2024 and June 30, 2023, respectively.

Intangible asset amortization expense totaled $ 29.5 million and $ 29.3 million for the six months ended June 30, 2024 and June 30, 2023, respectively.

The Company expects to recognize amortization expense on the intangible assets subject to amortization of $ 59.1 million in the year ending December 31, 2024 (inclusive of the $ 29.5 million of amortization expense recognized in the six months ended June 30, 2024), $ 58.7 million in 2025, $ 58.5 million in 2026, $ 58.5 million in 2027, $ 58.5 million in 2028 and $ 58.5 million in 2029.

Other Current Liabilities

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Commissions $ 10.8 $ 8.6

16 unchanged sentences

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Term loan (1) $ 474.3 $ 473.6

4 unchanged sentences

____________________

(1) Includes unamortized debt issuance costs of $ 6.4 million and $ 6.8 million at March 31, 2024 and December 31, 2023, respectively.

(1) Includes unamortized debt issuance costs of $ 6.1 million and $ 6.8 million at June 30, 2024 and December 31, 2023, respectively.

Senior Secured Credit Facility

7 unchanged sentences

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 March 31, 2024, the Borrowers were in compliance with all applicable covenants under the Credit Agreement.

As of June 30, 2024, 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.

7 unchanged sentences

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 1.06 to 1.00 as of March 31, 2024, and therefore the applicable margin is 2.00 %.

The Borrowers’ Net First Lien Leverage Ratio was 0.98 to 1.00 as of June 30, 2024, and therefore the applicable margin is 2.00 %.

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 as illustrated above.

At March 31, 2024 and for the three months then ended, the borrowings under the Term Loan had weighted-average effective interest rates of 7.41 % and 7.45 %, respectively.

At June 30, 2024 and for the six months then ended, the borrowings under the Term Loan had weighted-average effective interest rates of 7.44 % and 7.45 %, respectively.

Revolving Credit Facility

3 unchanged sentences

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 1.06 to 1.00 as of March 31, 2024.

The Borrowers’ Net First Lien Leverage Ratio was 0.98 to 1.00 as of June 30, 2024.

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.

1 unchanged sentence

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 as illustrated above.

At March 31, 2024 and December 31, 2023, there were no amounts borrowed under the Revolving Credit Facility.

As of March 31, 2024 and December 31, 2023, $ 11.2 million and $ 11.0 million of the Revolving Credit Facility was considered utilized in connection with outstanding letters of credit, respectively.

At June 30, 2024 and December 31, 2023, there were no amounts borrowed under the Revolving Credit Facility.

As of each of June 30, 2024 and December 31, 2023, $ 11.0 million of the Revolving Credit Facility was considered utilized in connection with outstanding letters of credit.

Finance Leases

At March 31, 2024 and December 31, 2023, the Company had finance lease obligations of $ 21.5 million and $ 21.7 million, respectively.

At June 30, 2024 and December 31, 2023, the Company had finance lease obligations of $ 21.2 million and $ 21.7 million, respectively.

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

17 unchanged sentences

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 March 31, 2024 and December 31, 2023 (in millions):

Fair Value as of March 31, 2024

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, 2024 and December 31, 2023 (in millions):

Fair Value as of June 30, 2024

Level 1 Level 2 Level 3 Total

5 unchanged sentences

Deferred compensation plan liabilities 14.7 — — 14.7

There were no transfers of assets between levels at March 31, 2024 and December 31, 2023, respectively.

There were no transfers of assets between levels at June 30, 2024 and December 31, 2023, respectively.

Fair Value of Non-Derivative Financial Instruments

The carrying amounts of cash, receivables, payables and accrued liabilities approximated fair value at March 31, 2024 and December 31, 2023, due to the short-term nature of those instruments.

The fair value of long-term debt as of March 31, 2024 and December 31, 2023, was approximately $ 503.7 million and $ 503.9 million, respectively.

The carrying amounts of cash, receivables, payables and accrued liabilities approximated fair value at June 30, 2024 and December 31, 2023, due to the short-term nature of those instruments.

The fair value of long-term debt as of June 30, 2024 and December 31, 2023, was approximately $ 504.0 million and $ 503.9 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):

Three Months Ended

March 31, 2024 March 31, 2023

Six Months Ended

June 30, 2024 June 30, 2023

Balance at beginning of period $ 4.7 $ 4.2

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Retirement Benefits

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

Three Months Ended

March 31, 2024 March 31, 2023

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

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Pension Benefits:

Service cost $ 0.1 $ — $ 0.1 $ —

Interest cost $ 2.8 $ 3.0 $ 5.6 $ 6.0

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Net periodic cost $ 0.1 $ 0.1 $ 0.2 $ 0.3

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 service cost component of net periodic cost (benefit) 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 three months ended March 31, 2024, the Company did not make any contributions to its U.S.

During the six months ended June 30, 2024, the Company did not make any contributions to its U.S.

qualified pension plan trusts.

During the three months ended March 31, 2023, the Company made contributions of $ 0.1 million to its U.S.

During the six months ended June 30, 2023, the Company made contributions of $ 0.1 million 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 March 31, 2024 and March 31, 2023, the Company recognized $ 10.0 million and $ 10.3 million of stock-based compensation expense, respectively.

During the three months ended March 31, 2024, 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 June 30, 2024 and June 30, 2023, the Company recognized $ 9.4 million and $ 10.2 million of stock-based compensation expense, respectively.

For the six months ended June 30, 2024 and June 30, 2023, the Company recognized $ 19.4 million and $ 20.5 million of stock-based compensation expense, respectively.

During the six months ended June 30, 2024, 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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See Note 14, Stock-Based Compensation, to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, for further information regarding stock-based compensation.

Subsequent Events

On July 25, 2024, 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 September 6, 2024, to stockholders of record as of August 20, 2024.

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