What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-29 compared with 2024-07-30 · 73 added, 75 removed, 161 unchanged (48% of the section changed)

14 unchanged sentences

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 June 30, 2024, and during the period from January 1, 2024 through June 30, 2024, there has been no material change to this information.

Except for the items reported below, management believes that as of September 30, 2024, and during the period from January 1, 2024 through September 30, 2024, there has been no material change to this information.

Recent Accounting Pronouncements

19 unchanged sentences

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 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

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

Three Months Ended Nine Months Ended

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

Selling, general and administrative income (1) $ — $ 6.6 $ 0.7 $ 8.4

Income from discontinued operations before income tax — 6.6 0.7 8.4

1 unchanged sentence

Income from discontinued operations, net of tax $ — $ 6.2 $ 1.0 $ 8.1

(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.

(1) Selling, general and administrative income includes 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 Charges

During the three and six months ended June 30, 2024, the Company continued to execute various restructuring actions.

During the three and nine months ended September 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.

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

Management expects to continue executing similar initiatives to optimize the Company's 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.

For the three and six months ended June 30, 2024, restructuring charges totaled $0.7 million and $7.0 million, respectively.

For the three and six months ended June 30, 2023, restructuring charges totaled $7.8 million and $9.7 million, respectively.

For the three and nine months ended September 30, 2024, restructuring charges totaled $2.7 million and $9.7 million, respectively.

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

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

Results of Operations

Three Months Ended June 30, 2024 compared with the Three Months Ended June 30, 2023:

Three Months Ended September 30, 2024 compared with the Three Months Ended September 30, 2023:

(Dollars in Millions)

Three Months Ended

June 30, 2024 June 30, 2023 Change % Change

September 30, 2024 September 30, 2023 Change % Change

Net sales $ 410.0 $ 398.4 $ 11.6 2.9 %

Net sales were $412.0 million and $403.2 million during the three months ended June 30, 2024 and June 30, 2023, respectively, an increase of 2% year over year.

Core sales growth of 2%, including growth across multiple product categories, was offset by a 100 basis point impact from the planned exit of certain residential sink products.

Net sales were $410.0 million and $398.4 million during the three months ended September 30, 2024 and September 30, 2023, respectively, an increase of 3% year over year.

Core sales growth of 3%, including growth in all product categories, was offset by a 100 basis point impact from the planned exit of certain residential sink products.

Income from operations

1 unchanged sentence

Three Months Ended

June 30, 2024 June 30, 2023 Change % Change

September 30, 2024 September 30, 2023 Change % Change

Income from operations $ 70.2 $ 60.1 $ 10.1 16.8 %

% of net sales 17.1 % 15.1 % 2.0 %

During the three months ended June 30, 2024, income from operations was $71.9 million compared to $54.8 million during the three months ended June 30, 2023.

Income from operations as a percentage of net sales increased by 390 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 costs and restructuring expense year over year.

During the three months ended September 30, 2024, income from operations was $70.2 million compared to $60.1 million during the three months ended September 30, 2023.

Income from operations as a percentage of net sales increased by 200 basis points year over year due to the benefits from delivering the synergies related to the Elkay Merger, as well as lower material costs.

Interest expense, net

Interest expense, net was $8.5 million for the three months ended June 30, 2024, compared to $10.3 million for the three months ended June 30, 2023.

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

Other income (expense), net

Other income (expense), net for the three months ended June 30, 2024 and 2023, was $(1.6) million and $1.6 million, respectively.

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 income recognized in connection with an insurance settlement in the prior year, partly offset by accruals for estimated environmental remediation costs in the prior year.

Interest expense, net was $8.3 million for the three months ended September 30, 2024, compared to $9.9 million for the three months ended September 30, 2023.

The decrease in interest expense, net as compared to the prior year period is due to interest earned on higher cash balances and reduced interest expense due to the prior year prepayment of $60 million.

Other expense, net

Other expense, net for the three months ended September 30, 2024 and 2023, was $1.5 million and $2.5 million, respectively.

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 lower defined benefit plan costs in the current year and increased accruals for estimated environmental remediation costs in the prior year.

Provision for income taxes

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.

The income tax provision was $16.9 million for the three months ended September 30, 2024, compared to $12.5 million for the three months ended September 30, 2023.

The effective income tax rate for the three months ended September 30, 2024 was 28.0% versus 26.2% for the three months ended September 30, 2023.

The effective income tax rate for the three months ended September 30, 2024 and 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.

4 unchanged sentences

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 for the three months ended June 30, 2024, was $46.0 million compared to net income of $34.6 million for the three months ended June 30, 2023.

Diluted net income per share for the three months ended June 30, 2024 and June 30, 2023, was $0.27 and $0.20, respectively.

Net income for the three months ended September 30, 2024, was $43.5 million compared to net income of $41.4 million for the three months ended September 30, 2023.

Diluted net income per share for the three months ended September 30, 2024 and September 30, 2023, was $0.25 and $0.24, respectively.

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

Net income from discontinued operations, net of tax, was $0.7 million for the three months ended June 30, 2024 compared to $1.7 million for the three months ended June 30, 2023.

Diluted net income per share from discontinued operations for the three months ended June 30, 2024 and June 30, 2023, was $0.01 and $0.01, respectively.

Six Months Ended June 30, 2024 compared with the Six Months Ended June 30, 2023:

Net loss from discontinued operations, net of tax, was $0.0 million for the three months ended September 30, 2024 compared to net income from discontinued operations, net of tax, of $6.2 million for the three months ended September 30, 2023.

Diluted net income per share from discontinued operations for the three months ended September 30, 2024 and September 30, 2023, was $0.00 and $0.04, respectively.

Nine Months Ended September 30, 2024 compared with the Nine Months Ended September 30, 2023:

(Dollars in Millions)

Six Months Ended

June 30, 2024 June 30, 2023 Change % Change

Nine Months Ended

September 30, 2024 September 30, 2023 Change % Change

Net sales $ 1,195.8 $ 1,173.7 $ 22.1 1.9 %

Net sales were $785.8 million during the six months ended June 30, 2024, an increase of 1% year-over-year.

The 1% core sales growth across nearly all product categories was offset by the 200 basis point impact from the planned exit of certain residential sink products.

Net sales were $1,195.8 million during the nine months ended September 30, 2024, an increase of 2% year-over-year.

The 2% core sales growth across nearly all product categories was offset by t he 200 basis point im pact from the planned exit of certain residential sink products.

Income from operations

(Dollars in Millions)

Six Months Ended

June 30, 2024 June 30, 2023 Change % Change

Nine Months Ended

September 30, 2024 September 30, 2023 Change % Change

Income from operations 195.3 158.6 36.7 23.1 %

% of net sales 16.3 % 13.5 % 2.8 %

Income from operations during the six months ended June 30, 2024 was $125.1 million compared to $98.5 million during the six months ended June 30, 2023.

Income from operations as a percentage of net sales increased by 320 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, restructuring costs and non-cash stock-based compensation expense.

Income from operations during the nine months ended September 30, 2024 was $195.3 million compared to $158.6 million during the nine months ended September 30, 2023.

Income from operations as a percentage of net sales increased by 280 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 restructuring costs .

Interest expense, net

Interest expense, net was $17.3 million during the six months ended June 30, 2024, compared to $19.9 million during the six months ended June 30, 2023.

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

Other income (expense), net

Other expense, net during the six months ended June 30, 2024 was $3.0 million compared to $0.8 million during the six months ended June 30, 2023.

Interest expense, net was $25.6 million during the nine months ended September 30, 2024, compared to $29.8 million during the nine months ended September 30, 2023.

The decrease in interest e xpense, net as compared to the prior year period is due to interest earned on higher cash balances and reduced interest expense due to the prior year prepayment of $60 million .

Other expense, net

Other expense, net during the nine months ended September 30, 2024 was $4.5 million compared to $3.3 million during the nine months ended September 30, 2023.

The year-over-year change is primarily driven by income recognized in connection with an insurance settlement in the prior year, partly offset by accruals for estimated environmental remediation costs in the prior year and lower defined benefit plan costs in the current year.

Provision for income taxes

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.

The income tax provision was $42.4 million for the nine months ended September 30, 2024, compared to $34.8 million for the nine months ended September 30, 2023.

The effective income tax rate for the nine months ended September 30, 2024 was 25.7% versus 27.7% for the nine months ended September 30, 2023.

The effective income tax rate for the nine months ended September 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.

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.

Net income for the six months ended June 30, 2024, was $80.3 million compared to $57.4 million for the six months ended June 30, 2023.

Diluted net income per share for the six months ended June 30, 2024 and June 30, 2023, was $0.46 and $0.32, respectively.

Net income from discontinued operations, net of tax, was $1.0 million for the six months ended June 30, 2024 compared to $1.9 million for the six months ended June 30, 2023.

Diluted net income per share from discontinued operations for the six months ended June 30, 2024 and June 30, 2023, was $0.01 and $0.01, respectively.

Net income for the nine months ended September 30, 2024, was $123.8 million compared to $98.8 million for the nine months ended September 30, 2023.

Diluted net income per share for the nine months ended September 30, 2024 and September 30, 2023, was $0.71 and $0.56, respectively.

Net income from discontinued operations, net of tax, was $1.0 million for the nine months ended September 30, 2024 compared to $8.1 million for the nine months ended September 30, 2023.

Diluted net income per share from discontinued operations for the nine months ended September 30, 2024 and September 30, 2023, was $0.01 and $0.05, respectively.

Non-GAAP Financial Measures

33 unchanged sentences

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 mergers, 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 June 30, 2024, is presented in the table in the "Covenant Compliance" section below.

The calculation of Adjusted EBITDA under our credit agreement as of September 30, 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 six months ended June 30, 2024, we reported net income of $80.3 million and Adjusted EBITDA for the same period of $194.3 million.

For the nine months ended September 30, 2024, we reported net income of $123.8 million and Adjusted EBITDA for the same period of $299.3 million.

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

4 unchanged sentences

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 June 30, 2024, our Net First Lien Leverage Ratio was 0.98 to 1.00.

As of September 30, 2024, our Net First Lien Leverage Ratio was 0.89 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) Six months ended

June 30, 2023 Twelve months ended

December 31, 2023 Six months ended

June 30, 2024 Twelve months ended

June 30, 2024

(in millions) Nine months ended September 30, 2023 Twelve months ended

December 31, 2023 Nine months ended September 30, 2024 Twelve months ended

September 30, 2024

Net income $ 98.8 $ 112.7 $ 123.8 $ 137.7

25 unchanged sentences

(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 $129.3 million (as defined by the credit agreement) at June 30, 2024.

(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 $155.1 million (as defined by the credit agreement) at September 30, 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.

1 unchanged sentence

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 June 30, 2024, we had $162.7 million of cash and cash equivalents and $189.0 million of additional borrowing capacity.

As of June 30, 2024, the available borrowings under our credit facility were reduced by $11.0 million due to outstanding letters of credit.

As of September 30, 2024, we had $187.9 million of cash and cash equivalents and $188.7 million of additional borrowing capacity under our revolving credit facility.

As of September 30, 2024, the available borrowings under our credit facility were reduced by $11.3 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.

2 unchanged sentences

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

Net cash provided by operating activities was $139.0 million and $92.2 million during the six months ended June 30, 2024 and 2023, respectively.

The change in year-over-year operating cash flows was primarily the result of an increase in net income, a lower use of cash for trade working capital, and the timing of accrued expenses during the six months ended June 30, 2024.

Cash used for investing activities was $7.0 million during the six months ended June 30, 2024 and $1.8 million during the six months ended June 30, 2023.

Investing activities during the six months ended June 30, 2024, consisted of $8.6 million of capital expenditures, which were partially offset by $1.6 million from the sale of certain long-lived assets.

Investing activities during the six months ended June 30, 2023, consisted of $11.1 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.

Cash used for financing activities was $104.2 million during the six months ended June 30, 2024, compared to $113.5 million during the six months ended June 30, 2023.

During the six months ended June 30, 2024, we utilized $0.4 million of cash for payments on finance leases, $79.9 million to repurchase outstanding shares of our common stock, and $27.7 million for the payment of common stock dividends, which was partially offset by $3.8 million of proceeds from the exercise of stock options.

During the six months ended June 30, 2023, we utilized a net $3.1 million of cash for payments on outstanding debt, $87.1 million to repurchase outstanding shares of our common stock, and $24.5 million for the payment of common stock dividends, which was partially offset by $1.2 million of proceeds from the exercise of stock options.

As of June 30, 2024, we had $495.5 million of total indebtedness outstanding as follows (in millions):

Net cash provided by operating activities was $229.9 million and $195.7 million during the nine months ended September 30, 2024 and 2023, respectively.

Cash used for investing activities was $11.1 million during the nine months ended September 30, 2024 and $6.6 million during the nine months ended September 30, 2023.

Investing activities during the nine months ended September 30, 2024, consisted of $12.7 million of capital expenditures, which were partially offset by $1.6 million from the sale of certain long-lived assets.

Investing activities during the 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.

Cash used for financing activities was $165.8 million during the nine months ended September 30, 2024, compared to $141.5 million during the nine months ended September 30, 2023.

During the nine months ended September 30, 2024, we utilized $0.6 million of cash for payments on finance leases, $129.9 million to repurchase outstanding shares of our common stock, and $41.3 million for the payment of common stock dividends, which was partially offset by $6.0 million of proceeds from the exercise of stock options and ESPP contributions, net of taxes withheld and paid on employees' share-based awards.

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.

As of September 30, 2024, we had $495.6 million of total indebtedness outstanding as follows (in millions):

Total Debt at

June 30, 2024

September 30, 2024

Current Maturities of Debt Long-term

3 unchanged sentences

___________________________________________

(1) Includes unamortized original issue discount and debt issuance costs of $6.1 million at June 30, 2024.

(1) Includes unamortized original issue discount and debt issuance costs of $5.7 million at September 30, 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