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Item 7. Management’s Discussion and Analysis

2026-02-09 compared with 2025-02-10 · 55 added, 59 removed, 311 unchanged (27% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of results of operations and financial condition includes periods prior to the acquisition of Elkay.

Our financial performance includes the Elkay business subsequent to July 1, 2022, the date of the acquisition.

Accordingly, the discussion and analysis does not reflect any impact of the Elkay transaction prior to the closing date.

We completed the spin-off of our Process & Motion Control platform ("PMC") on October 4, 2021 in the Spin-Off Transaction, and, accordingly, the results of operations and financial condition associated with PMC have been reclassified to discontinued operations for all periods presented.

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The consolidated statements of cash flows for the years ended December 31, 2025, 2024, and 2023 have not been adjusted to separately disclose cash flows related to the discontinued operations.

See Item 8, Note 4, Discontinued Operations for additional information on cash flows associated with the discontinued operations.

See Item 8, Note 3, Discontinued Operations for additional information on discontinued operations.

This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" in Item 1A of this report.

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Actual results could vary from these estimates.

During the years ended December 31, 2024 and December 31, 2023, the Company recognized $7.4 million and $2.5 million of fixed asset impairment charges, respectively.

The Company recognized no impairment charges during the during the year ended December 31, 2022.

During the years ended December 31, 2025, 2024, and 2023, the Company recognized $2.0 million, $7.4 million, and $2.5 million of fixed asset impairment charges, respectively.

Goodwill, trademarks and certain tradenames have indefinite lives and are not amortized.

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Retirement benefits.

We have significant pension and post-retirement benefit income and expense and assets/liabilities that are developed from actuarial valuations.

We have pension and post-retirement benefit income and expense and assets/liabilities that are developed from actuarial valuations.

These valuations include key assumptions regarding discount rates, expected return on plan assets, mortality rates, compensation increases, and the current health care cost trend rate.

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Changes in the related pension and post-retirement benefit income/costs or assets/liabilities may occur in the future due to changes in the assumptions and changes in asset values.

As described in Note 14 to the consolidated financial statements, the Company’s Board of Directors approved a resolution to terminate the Company’s U.S.

defined benefit pension plan (the “Pension Plan”) with the full freeze of benefit accruals under the Pension Plan effective March 31, 2025 and the termination of the Pension Plan effective April 1, 2025.

The Company remeasures the pension assets and obligations at the end of each year or more frequently upon any required remeasurement event.

The amounts are measured using actuarial valuations, which are dependent, in part, on the selection of certain actuarial assumptions.

Measuring the pension obligations was complex and required the involvement of specialists as a result of the complex nature of the actuarial assumptions, such as discount rates and mortality rates used in the Company’s accounting of the U.S.

defined benefit pension plan termination and the related remeasurement process.

These assumptions had a significant effect on the projected benefit obligation used to calculate to pension settlement gain.

We recognize the net actuarial gains or losses in excess of unrecognized gain or loss exceeding 10 percent of the greater of the market-related value of plan assets or the plan's projected benefit obligation at re-measurement (the "corridor") in our consolidated statements of operations during the fourth quarter of each fiscal year (or upon any re-measurement date).

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

In October 2021, more than 130 countries agreed to implement Pillar 2, a plan introduced by the Organization for Economic Co-operation and Development (“OECD”) providing for a global minimum tax rate of 15% (calculated on a country-by-country basis) for those companies having consolidated revenue of at least €750 million.

The implementation of the Pillar 2 global minimum tax rules has begun to apply for tax years beginning in 2024.

The main purpose of such rules is to minimize tax base erosion and profit shifting from higher tax jurisdictions to lower tax jurisdictions by multi-national companies.

On February 1, 2023, the Financial Accounting Standards Board (“FASB”) indicated that they view the minimum tax (“Top-Up Tax”) imposed under Pillar 2 as an alternative minimum tax, and as such, it should be recognized in the period incurred versus recognizing or adjusting deferred tax assets and liabilities.

On February 2, 2023, the OECD issued various administrative guidance including transitional safe harbor rules available in conjunction with the implementation of the Pillar 2 global minimum tax.

Based upon the current OECD rules and administrative guidance, as well as the related legislation of those countries which has been enacted to date, the Company does not anticipate being subject to material Top-Up Taxes.

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.

In October 2021, the Organization for Economic Co-operation and Development (“OECD”) issued rules for a new global minimum tax (“Pillar 2”) which included the introduction of a 15% global minimum tax (“Top-Up Tax”) that applies to tax years beginning in 2024.

Based upon the current OECD rules and administrative guidance, as well as the related legislation

of those countries in which we do business, the Company does not anticipate being subject to material Top-Up Taxes.

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

On July 4, 2025, the U.S.

enacted the One Big Beautiful Bill Act (“OBBBA”).

OBBBA incorporates changes that extend several provisions of the Tax Cuts and Jobs Act (“TCJA”) of 2017 that were set to expire on December 31, 2025, including immediate expensing of domestic research and development expenses, 100% bonus depreciation, 100% depreciation of qualified production property, and reinstatement of utilizing EBITDA for the interest deduction limitation.

These changes are effective for the Company’s fiscal year ending December 31, 2025.

The Company is continuing to monitor these business tax provisions for further guidance from the U.S.

Treasury and the Internal Revenue Service.

We assess our income tax positions and record tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates.

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As of December 31, 2025 and 2024, our liability for unrecognized tax benefits was $0.6 million and $1.8 million, respectively.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, net operating losses (“NOL’s”), tax credit and other carryforwards.

We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences.

As a result of this review, we established a full valuation allowance against U.S.

federal and state capital loss carryforwards, as well as certain foreign NOL carryforwards and related deferred tax assets, and continues to maintain a partial valuation allowance against certain U.S.

federal and state capital loss carryforwards, as well as certain foreign NOL carryforwards and related deferred tax assets, and continue to maintain a partial valuation allowance against certain U.S.

state NOL and tax credit carryforwards.

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Overview of Recent Developments

Pension Plan Termination & Settlement

On January 30, 2025, the Company's Board of Directors approved a resolution to terminate the Company's U.S.

defined benefit pension plan (the "Pension Plan") with the full freeze of benefit accruals under the Pension Plan effective March 31, 2025 and the termination of the Pension Plan effective April 1, 2025.

The Pension Plan freeze resulted in a curtailment gain of $0.7 million in the first quarter of 2025.

Pension Plan participants were provided the opportunity to receive their full accrued benefits from the Pension Plan assets by either electing immediate lump sum distributions or annuity contracts with a qualifying third-party annuity provider.

During the quarter ended September 30, 2025, the Company entered into an agreement to purchase annuities from a third-party annuity provider and contributed $4.3 million to fund the liquidation of the Pension Plan.

As a result, Pension Plan liabilities were settled and the Pension Plan was exited during the quarter ended September 30, 2025, resulting in a pre-tax settlement gain of $10.0 million from accumulated other comprehensive loss to other income (expense), net in the consolidated statements of operations.

Divestiture of Asbestos Liabilities and Certain Assets

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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 8, Note 17, Commitments and Contingencies for more information.

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 filtered drinking water solutions and commercial sinks, complements our existing product portfolio.

The purchase price includes $1,411.9 million of our common stock based on the closing stock price of $27.48 per share on July 1, 2022, and $45.9 million of net cash payments for the repayment of Elkay's term loan and Elkay's transaction related costs outstanding that were in excess of Elkay's cash and cash equivalents at the time of closing.

Pursuant to the terms of the merger agreement, we issued 51,564,524 shares of our 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 purchase price adjustments and the adjusted purchase price is reflected in the purchase price amounts above, following the return of 186,020 of the shares issued at closing to us as a result of lower working capital and cash balances at closing compared to targets stipulated in the merger agreement.

The shares returned to us were canceled upon receipt.

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

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

See Item 8, Note 3, Acquisitions for more information.

Discontinued Operations

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

During the year ended December 31, 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.

The consolidated statements of cash flows for the years ended December 31, 2025, 2024, and 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 consolidated statements of operations during the years ended December 31, 2025, 2024, and 2023 are included in the table below (in millions):

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_________________

(1) Selling, general and administrative income for the years ended December 31, 2024 and 2023 include the release of certain accruals as a result of costs the Company will no longer incur related to the Spin-Off Transaction.

(2) Results of operations for the year ended December 31, 2022 include the release of certain accruals as a result of costs we are obligated to under indemnification being lower than original estimates.

(1) Selling, general and administrative income for the years ended December 31, 2025, 2024, and 2023 includes the release of certain accruals as a result of costs the Company will no longer incur related to the Spin-Off Transaction.

See Item 8, Note 3, Discontinued Operations for more information.

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Net sales were $1,695.9 million for the year ended December 31, 2025, a 8.3% increase year over year.

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

Core sales grew of 8% year over year, including growth in all product categories.

Income from operations

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Income from operations was $278.9 million for the year ended December 31, 2025, or 16.4% of net sales, compared to income from operations of $244.6 million, or 15.6% of net sales, for the year ended December 31, 2024.

Income from operations as a percentage of net sales increased by 310 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 costs.

The prior year also included a $11.4 million loss on divestiture of asbestos liabilities and certain assets.

See Item 8, Note 17, Commitments and Contingencies for more information.

Income from operations as a percentage of net sales increased by 80 basis points year over year as a result of the favorable impact of year-over-year sales growth (inclusive of price realization) and productivity savings being offset primarily by the adjustment to state inventories at Last-In, First-Out ("LIFO") cost.

Interest expense, net

Interest expense, net was $28.6 million for the year ended December 31, 2025 compared to $33.1 million for the year ended December 31, 2024.

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 voluntary prepayment on the Term Loan of $60.0 million.

See Item 8, Note 11, Long-Term Debt for more information.

Loss on extinguishment of debt

There was no loss on the extinguishment of debt recognized for the year ended December 31, 2024.

During the year ended December 31, 2023, we recognized a $0.9 million loss on the extinguishment of debt in connection with the write off of a portion of the unamortized debt issuance costs due to a $60.0 million Term Loan voluntary prepayment.

See Item 8, Note 11, Long-Term Debt for more information.

The decrease in interest expense, net as compared to the prior year period is primarily due to lower interest rates.

Actuar ial gain on pension and other postretirement benefit obligations

Actuarial gain on pension and other postretirement benefit obligations for the year ended December 31, 2025, was $0.5 million compared to a gain of $1.4 million for the year ended December 31, 2024.

The non-cash actuarial gain recognized for the year ended December 31, 2025 was primarily due to demographic and claims gains experienced during 2025 that were reflected in certain other post-retirement benefit plans.

The non-cash actuarial gain recognized for the year ended December 31, 2024, was primarily due to a combination of discount rate increases coupled with demographic and claims gains experienced during 2024 that were reflected in the other post-retirement benefit plans.

These gains were partially offset by an increase in the medical cost growth assumption from the prior measurement.

The non-cash actuarial gain recognized for the year ended December 31, 2023, was primarily due to demographic gains experienced during 2023 that were reflected in other postretirement benefits plans.

In addition, the post 65 medical provider options changed resulting in much lower premiums for the plans.

Those gains were partially offset by a decrease in the discount rate from the prior measurement.

See Item 8, Note 14, Retirement Benefits for more information.

Other income (expense), net

Other expense, net for the year ended December 31, 2024, was $5.9 million compared to other expense, net of $7.2 million for the year ended December 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 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, foreign currency gains and lower defined benefit plan costs in the current year.

Other income (expense), net for the year ended December 31, 2025, was $5.5 million compared to other income (expense), net of $(5.9) million for the year ended December 31, 2024.

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 the gain resulting from the settlement and termination of our U.S.

defined benefit pension plan in the current year.

Provision for income taxes

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The effective income tax rate for the year ended December 31, 2025 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.

above the U.S.

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

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The effective income tax rate for the year ended December 31, 2024 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, the nondeductible loss on divestiture of asbestos liabilities and certain assets 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.

Net income from continuing operations

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Actuarial gain on pension and other postretirement benefit obligations (0.5)

Other expense, net (2) 5.9

Other (income) expense, net (2) (5.5)

Interest expense, net 28.6

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Stock-based compensation expense 40.6

Last-In, First-Out ("LIFO") adjustments (4) 20.4

Other, net (5) 4.0

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(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, 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.

(2) Other (income) 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, lease termination costs, and other facility rationalization costs.

See Item 8, Note 4, Restructuring and Other Similar Charges for more information.

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

(4) Last-In, First-Out ("LIFO") adjustments are excluded in calculating Adjusted EBITDA as defined in our credit agreement.

(5) Other, net consists of gains and losses on the disposition of long-lived assets in accordance with the terms of our credit agreement.

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As of December 31, 2025, the available borrowings under our credit facility were reduced by $10.1 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.

As of December 31, 2024, we had $198.0 million of cash and cash equivalents and $188.7 million of additional borrowing capacity under our revolving credit facility.

As of December 31, 2024, the available borrowings under our credit facility were reduced by $11.3 million, due to outstanding letters of credit.

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

The consolidated statements of cash flows for the year ended December 31, 2024, December 31, 2023, and December 31, 2022 have not been adjusted to separately disclose cash flows related to the discontinued operations.

The consolidated statements of cash flows for the years ended December 31, 2025, 2024, and 2023 have not been adjusted to separately disclose cash flows related to the discontinued operations.

Refer to Item 8, Note 3, Discontinued Operations for further information.

Year Ended December 31, 2025 Compared with the Year Ended December 31, 2024

Net cash provided by operating activities in the year ended December 31, 2024, was $293.5 million compared to $253.9 million in the year ended December 31, 2023 due to higher net income, lower use of cash for trade working capital as well as benefits generated from ongoing productivity actions.

Net cash provided by operating activities in the year ended December 31, 2025, was $346.5 million compared to $293.5 million in the year ended December 31, 2024 due to higher net income and lower use of cash for accruals, partially offset by cash used for trade working capital.

Cash used for investing activities was $29.9 million in the year ended December 31, 2025 compared to $20.2 million in the year ended December 31, 2024.

Investing activities in the year ended December 31, 2024, included $21.8 million of capital expenditures, which were partially offset by the receipt of $1.6 million from the sale of certain long-lived assets.

Investing activities for the year ended December 31, 2023, included $21.3 million of capital expenditures, which were partially offset by the receipt of $9.0 million in connection with an insurance settlement and $7.7 million from the sale of certain long-lived assets.

Investing activities in the year ended December 31, 2025, included $29.9 million of capital expenditures.

Investing activities for the year ended December 31, 2024, included $21.8 million of capital expenditures, which were partially offset by the receipt of $1.6 million from the sale of certain long-lived assets.

Cash used for financing activities was $217.3 million in the year ended December 31, 2025 compared to $207.5 million in the year ended December 31, 2024.

Financing activities in the year ended December 31, 2024 included $56.6 million of cash for the payment of dividends on our common stock, $150.2 million of cash for repurchases of our common stock, $0.8 million of net cash payments on outstanding debt, and $8.6 million of cash used for the payment of withholding taxes on employees' share-based payment awards, which were partially offset by $8.7 million of net cash proceeds associated with stock option exercises and Employee Stock Purchase Plan ("ESPP") contributions.

Financing activities in the year ended December 31, 2023 included $50.4 million of cash for the payment of dividends on our common stock, $125.1 million of cash for repurchases of our common stock, $64.9 million of net cash payments on outstanding debt, and $3.1 million of cash used for the payment of withholding taxes on employees' share-based payment awards, which were partially offset by $4.3 million of net cash proceeds associated with stock option exercises.

Financing activities in the year ended December 31, 2025 included $63.9 million of cash for the payment of dividends on our common stock, $159.9 million of cash for repurchases of our common stock, $0.8 million of net cash payments on outstanding debt, and $0.6 million of cash used for the payment of withholding taxes on employees' share-based payment awards, which were offset by $7.9 million of net cash proceeds associated with stock option exercises and Employee Stock Purchase Plan ("ESPP") contributions.

Financing activities in the year ended December 31, 2024 included $56.6 million of cash for the payment of dividends on our common stock, $150.2 million of cash for repurchases of our common stock, $0.8 million of net cash payments on outstanding debt, and $8.6 million of cash used for the payment of withholding taxes on employees' share-based payment awards, which were offset by $8.7 million of net cash proceeds associated with stock option exercises and ESPP contributions.

As of December 31, 2025 we had $496.5 million of total indebtedness outstanding as follows (in millions):

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subsidiaries are translated into USD at the exchange rates in effect at the end of the fiscal periods.

As of December 31, 2024, stockholders' equity decreased by $10.0 million from December 31, 2023 as a result of foreign currency translation adjustments.

As of December 31, 2025, stockholders' equity increased by $4.9 million from December 31, 2024 as a result of foreign currency translation adjustments.

If the USD strengthened by 10% as of December 31, 2025, the result would have decreased stockholders' equity by approximately $13.1 million.

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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-K

Item 7. Management’s Discussion and Analysis