What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-28 compared with 2026-04-21 · 99 added, 56 removed, 134 unchanged (54% of the section changed)

7 unchanged sentences

Recent Developments

Acquisition of Intellihot

On July 21, 2026, we acquired 100% of the stock of Intellihot, Inc.

("Intellihot") for a total preliminary cash purchase price of approximately $108.5 million, excluding transaction costs and net of cash acquired.

Intellihot, based in Vernon Hills, Illinois, is a leader in tankless water heater solutions serving the healthcare, education, hospitality and commercial end markets.

As disclosed in Part I, Item 1A, "Risk Factors", of our Annual Report on Form 10-K for the year ended December 31, 2025, the Company’s business is subject to risks related to, among other factors, tariffs and other trade protection measures put in place by the United States or other countries.

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On February 20, 2026, the U.S.

Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were not authorized by the statute.

The Company is the importer of record for certain raw materials and products that were previously subject to such tariffs under IEEPA.

Significant uncertainty remains regarding how and when any amounts may be recovered.

We are evaluating the ruling and potential actions available to us.

Because the process, timing, and amount of any recovery are uncertain, we have not recorded any potential benefit from a refund at this time.

Supreme Court ruled that reciprocal tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were not authorized by the statute.

The Company is the importer of record for certain raw materials and products that were previously subject to such reciprocal tariffs under IEEPA.

During the three and six months ended June 30, 2026, the Company received refunds of approximately $47.6 million related to previously paid IEEPA reciprocal tariffs on certain raw materials and products.

The Company continues to evaluate additional recovery opportunities associated with reciprocal tariffs previously paid under IEEPA.

While amounts have been received, uncertainty remains regarding the process, timing, and total amount of any additional recoveries, including the resolution of administrative procedures and any further legal developments.

Accordingly, the Company has not recorded any additional potential benefit from refunds beyond amounts received at this time.

Critical Accounting Estimates

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Refer to Item 7, MD&A, of our Annual Report on Form 10-K for the year ended December 31, 2025 for information with respect to our critical accounting estimates 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 March 31, 2026, and during the period from January 1, 2026 through March 31, 2026, there has been no material change to this information.

Except for the items reported below, management believes that as of June 30, 2026, and during the period from January 1, 2026 through June 30, 2026, there has been no material change to this information.

Recent Accounting Pronouncements

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During the year ended December 31, 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 third quarter of 2025, resulting in a pre-tax settlement gain of $10.0 million from accumulated other comprehensive loss to other income, net in the condensed consolidated statements of operations.

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

See Item 1, Note 15, Retirement Benefits for additional information.

Discontinued Operations

During the year ended December 31, 2021, the Company completed the Spin-Off Transaction (the “Spin-Off Transaction”) of the Company's Process & Motion Control ("PMC") business.

During the year ended December 31, 2021, the Company completed a Reverse Morris Trust tax-free spin-off transaction (the “Spin-Off Transaction”) of the Company's Process & Motion Control ("PMC") business.

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

The condensed consolidated statements of cash flows for the three months ended March 31, 2026 and March 31, 2025 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, 2026 and March 31, 2025, are as follows (in millions):

Three Months Ended

March 31, 2026 March 31, 2025

The condensed consolidated statements of cash flows for the six months ended June 30, 2026 and June 30, 2025 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, 2026 and June 30, 2025, are as follows (in millions):

Three Months Ended Six Months Ended

June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Selling, general and administrative income (1) $ (0.3) $ — $ (0.3) $ (2.6)

Income from discontinued operations before income tax 0.3 — 0.3 2.6

Income tax benefit 0.5 0.4 0.5 0.4

Income from discontinued operations, net of tax $ 0.8 $ 0.4 $ 0.8 $ 3.0

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Restructuring and Other Similar Charges

During the three months ended March 31, 2026, the Company continued to execute various restructuring actions.

During the three and six months ended June 30, 2026, 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 on the Company's overall manufacturing capacity and the refinement of its overall product portfolio.

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

For the three months ended March 31, 2026 and March 31, 2025, restructuring charges totaled $0.9 million and $1.7 million, respectively.

For the three and six months ended June 30, 2026, restructuring charges totaled $1.8 million and $2.7 million, respectively.

For the three and six months ended June 30, 2025, restructuring charges totaled $1.9 million and $3.6 million, respectively.

Refer to Item 1, Note 2, Restructuring and Other Similar Charges for further information.

Results of Operations

Three Months Ended March 31, 2026 compared with the Three Months Ended March 31, 2025:

Three Months Ended June 30, 2026 compared with the Three Months Ended June 30, 2025:

(Dollars in Millions)

Three Months Ended

March 31, 2026 March 31, 2025 Change % Change

June 30, 2026 June 30, 2025 Change % Change

Net sales $ 491.0 $ 444.5 $ 46.5 10.5 %

Net sales were $433.0 million and $388.8 million during the three months ended March 31, 2026 and March 31, 2025, respectively, an increase of 11% year over year.

Core sales improved 11% year over year, including growth in nearly all product categories.

Net sales were $491.0 million and $444.5 million during the three months ended June 30, 2026 and June 30, 2025, respectively, an increase of 10% year over year.

Core sales improved 10% year over year, including growth in all product categories.

Income from operations

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Three Months Ended

March 31, 2026 March 31, 2025 Change % Change

June 30, 2026 June 30, 2025 Change % Change

Income from operations $ 152.3 $ 77.6 $ 74.7 96.3 %

% of net sales 31.0 % 17.5 % 13.5 %

During the three months ended March 31, 2026, income from operations was $82.1 million compared to $63.4 million during the three months ended March 31, 2025.

Income from operations as a percentage of net sales increased by 270 basis points year over year as a result of the favorable impact of year-over-year sales growth (inclusive of price realization) and Zurn Elkay Business System led productivity initiatives.

During the three months ended June 30, 2026, income from operations was $152.3 million compared to $77.6 million during the three months ended June 30, 2025.

During the quarter ended June 30, 2026, the Company received a $47.6 million IEEPA reciprocal tariff refund.

Excluding this item, income from operations increased by $27.1 million, an increase of 380 basis points year over year as a result of the favorable impact of year-over-year sales growth (inclusive of price realization) and Zurn Elkay Business System led productivity initiatives.

Interest expense, net

Interest expense, net was $6.2 million for the three months ended March 31, 2026, compared to $7.3 million for the three months ended March 31, 2025.

The decrease in interest expense, net as compared to the prior year period is primarily due to reduced interest expense in the current year as a result of lower interest rates and interest earned on higher cash balances.

Other income, net

Other income, net for the three months ended March 31, 2026 and March 31, 2025, was $1.0 million and $0.0 million, respectively.

Other income, net consists primarily of foreign currency transaction gains and losses, the non-service cost components associated with our defined benefit and postretirement 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 as a result of refunds recognized in connection with the U.S.

pension plan termination, partially offset by the write off of $0.4 million of unamortized deferred financing costs .

Interest expense, net was $6.1 million for the three months ended June 30, 2026, compared to $7.7 million for the three months ended June 30, 2025.

The decrease in interest expense, net as compared to the prior year period is a result of lower interest rates and interest earned on higher cash balances.

Other income (expense), net

Other income (expense), net for the three months ended June 30, 2026 and June 30, 2025, was $3.9 million and $(2.0) 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 and postretirement plans and other non-operational gains and losses.

The year-over-year change is primarily driven by a $4.4 million purchase price adjustment related to a 2023 divestiture of certain legal entities .

Provision for income taxes

The income tax provision was $18.0 million for the three months ended March 31, 2026, compared to $15.1 million for the three months ended March 31, 2025.

The effective income tax rate for the three months ended March 31, 2026 was 23.4% versus 26.9% for the three months ended March 31, 2025.

The effective income tax rate for the three months ended March 31, 2026 and March 31, 2025 was above the U.S.

The income tax provision was $37.6 million for the three months ended June 30, 2026, compared to $17.8 million for the three months ended June 30, 2025.

The effective income tax rate for the three months ended June 30, 2026 was 25.0% versus 26.2% for the three months ended June 30, 2025.

The effective income tax rate for the three months ended June 30, 2026 and June 30, 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.

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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 March 31, 2026, was $58.9 million compared to net income of $43.6 million for the three months ended March 31, 2025.

Diluted net income per share for the three months ended March 31, 2026 and March 31, 2025, was $0.35 and $0.26, respectively.

Net income for the three months ended June 30, 2026, was $113.3 million compared to net income of $50.5 million for the three months ended June 30, 2025.

Diluted net income per share for the three months ended June 30, 2026 and June 30, 2025, was $0.67 and $0.29, respectively.

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

Net income from discontinued operations, net of tax, was $0.0 million for the three months ended March 31, 2026 compared to net income from discontinued operations, net of tax, of $2.6 million for the three months ended March 31, 2025.

Diluted net income per share from discontinued operations for the three months ended March 31, 2026 and March 31, 2025, was $0.00 and $0.02, respectively.

Net income from discontinued operations, net of tax, was $0.8 million for the three months ended June 30, 2026 compared to net income from discontinued operations, net of tax, of $0.4 million for the three months ended June 30, 2025.

Diluted net income per share from discontinued operations for the three months ended June 30, 2026 and June 30, 2025, was $0.00 and $0.00, respectively.

Six Months Ended June 30, 2026 compared with the Six Months Ended June 30, 2025:

(Dollars in Millions)

Six Months Ended

June 30, 2026 June 30, 2025 Change % Change

Net sales $ 924.0 $ 833.3 $ 90.7 10.9 %

Net sales were $924.0 million and $833.3 million during the six months ended June 30, 2026 and June 30, 2025, respectively, an increase of 11% year-over-year.

Core sales improved 11% year over year, including growth in all product categories.

Income from operations

(Dollars in Millions)

Six Months Ended

June 30, 2026 June 30, 2025 Change % Change

Income from operations 234.4 141.0 93.4 66.2 %

% of net sales 25.4 % 16.9 % 8.5 %

Income from operations during the six months ended June 30, 2026 was $234.4 million compared to $141.0 million during the six months ended June 30, 2025.

During the six months ended June 30, 2026, the Company received a $47.6 million IEEPA reciprocal tariff refund.

Excluding this item, income from operations increased by $45.8 million, an increase of 330 basis points year over year as a result of the favorable impact of year-over-year sales growth (inclusive of price realization) and Zurn Elkay Business System led productivity initiatives.

Interest expense, net

Interest expense, net was $12.3 million during the six months ended June 30, 2026, compared to $15.0 million during the six months ended June 30, 2025.

The decrease in interest expense, net as compared to the prior year period is a result of lower interest rates and interest earned on higher cash balances.

Other income (expense), net

Other income (expense), net during the six months ended June 30, 2026 was $4.9 million compared to $(2.0) million during the six months ended June 30, 2025.

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 a $4.4 million purchase price adjustment related to a 2023 divestiture of certain legal entities and foreign currency transaction gains, partially offset by the write off of $0.4 million of unamortized deferred financing costs.

Provision for income taxes

The income tax provision was $55.6 million for the six months ended June 30, 2026, compared to $32.9 million for the six months ended June 30, 2025.

The effective income tax rate for the six months ended June 30, 2026 was 24.5% versus 26.5% for the six months ended June 30, 2025.

The effective income tax rate for the six months ended June 30, 2026 and June 30, 2025 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, 2026, was $172.2 million compared to $94.1 million for the six months ended June 30, 2025.

Diluted net income per share for the six months ended June 30, 2026 and June 30, 2025, was $1.02 and $0.55, respectively.

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

Net income from discontinued operations, net of tax, was $0.8 million for the six months ended June 30, 2026 compared to $3.0 million for the six months ended June 30, 2025.

Diluted net income per share from discontinued operations for the six months ended June 30, 2026 and June 30, 2025, was $0.00 and $0.02, respectively.

Non-GAAP Financial Measures

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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 March 31, 2026, is presented in the table in the "Covenant Compliance" section below.

The calculation of Adjusted EBITDA under our credit agreement as of June 30, 2026, is presented in the table in the "Covenant Compliance" section below.

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

For the three months ended March 31, 2026, we reported net income of $58.9 million and Adjusted EBITDA for the same period of $116.0 million.

For the six months ended June 30, 2026, we reported net income of $172.2 million and Adjusted EBITDA for the same period of $252.0 million.

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

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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 Leverage Ratio (consolidated indebtedness to Adjusted EBITDA) of 4.00 to 1.00 as of the end of each fiscal quarter.

As of March 31, 2026, our Total Net Leverage Ratio was 0.57 to 1.00.

As of June 30, 2026, our Total Net Leverage Ratio was 0.36 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) Three months ended March 31, 2025 Twelve months ended December 31, 2025 Three months ended March 31, 2026 Twelve months ended March 31, 2026

(in millions) Six months ended June 30, 2025 Twelve months ended December 31, 2025 Six months ended June 30, 2026 Twelve months ended June 30, 2026

Net income $ 94.1 $ 198.0 $ 172.2 $ 276.1

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

Other income, net (2) — (5.5) (1.0) (6.5)

Other (income) expense, net (2) 2.0 (5.5) (4.9) (12.4)

Interest expense, net 15.0 28.6 12.3 25.9

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Last-In, First-Out ("LIFO") adjustments (4) 7.0 20.4 (1.4) 12.0

Tariff refunds (5) — — (47.6) (47.6)

Other, net (6) — 4.0 0.7 4.7

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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 income, net consists primarily of gains and losses from foreign currency transactions, the non-service cost components associated with our defined benefit and postretirement 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 associated with our defined benefit and postretirement plans and other non-operational gains and losses as defined in our credit agreement.

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

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

(5) Tariff refunds related to non-recurring IEEPA reciprocal tariffs are excluded in calculating Adjusted EBITDA as defined in our credit agreement.

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

(6) 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 $234.4 million (as defined by the credit agreement) at March 31, 2026.

(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 $326.9 million (as defined by the credit agreement) at June 30, 2026.

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

Liquidity and Capital Resources

On February 19, 2026, the Company increased our revolving credit facility commitment from $200.0 million to $550.0 million and further extended the maturity date to February 19, 2031.

On February 19, 2026, we increased our revolving credit facility commitment from $200.0 million to $550.0 million and further extended the maturity date to February 19, 2031.

Refer to Item 1, Note 12, Long-Term Debt for further information.

Our primary sources of liquidity are available cash and cash equivalents, cash flow from operations, and borrowing availability of up to $550.0 million under our revolving credit facility.

As of March 31, 2026, we had $273.5 million of cash and cash equivalents and $540.1 million of additional borrowing capacity under our revolving credit facility.

As of March 31, 2026, the available borrowings under our credit facility were reduced by $9.9 million due to outstanding letters of credit.

As of June 30, 2026, we had $365.0 million of cash and cash equivalents and $540.3 million of additional borrowing capacity under our revolving credit facility.

As of June 30, 2026, the available borrowings under our credit facility were reduced by $9.7 million due to outstanding letters of credit.

As of December 31, 2025, we had $300.5 million of cash and cash equivalents and $189.9 million of additional borrowing capacity under our revolving credit facility.

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

Net cash provided by operating activities was $46.1 million and $42.9 million during the three months ended March 31, 2026 and March 31, 2025, respectively.

The change in year-over-year operating cash flows was primarily the result of an increase in net income and timing of other assets partially offset by higher use of cash for trade working capital during the three months ended March 31, 2026.

Cash used for investing activities was $3.4 million during the three months ended March 31, 2026 and $4.3 million during the three months ended March 31, 2025.

Investing activities during the three months ended March 31, 2026, consisted of $3.4 million of capital expenditures.

Investing activities during the three months ended March 31, 2025, consisted of $4.3 million of capital expenditures.

Cash used for financing activities was $69.2 million during the three months ended March 31, 2026, compared to $92.1 million during the three months ended March 31, 2025.

During the three months ended March 31, 2026, we utilized $0.3 million of cash for payments on finance leases, $50.0 million to repurchase outstanding shares of our common stock, $18.4 million for the payment of common stock dividends, and $3.0 million for payment of debt issuance costs, which was partially offset by $2.5 million of proceeds from the exercise of stock options and ESPP contributions.

During the three months ended March 31, 2025, we utilized $0.2 million of cash for payments on finance leases, $77.4 million to repurchase outstanding shares of our common stock, and $15.2 million for the payment of common stock dividends, which was partially offset by $0.7 million of proceeds from the exercise of stock options and ESPP contributions, net of taxes withheld and paid on employees' share-based awards.

As of March 31, 2026, we had $499.0 million of total indebtedness outstanding as follows (in millions):

Net cash provided by operating activities was $208.4 million and $153.5 million during the six months ended June 30, 2026 and June 30, 2025, respectively.

The change in year-over-year operating cash flows was primarily the result of an increase in net income, inclusive of $47.6 million IEEPA reciprocal tariff refund, partially offset by cash used for trade working capital in support of higher sales volume during the six months ended June 30, 2026.

Cash used for investing activities was $6.3 million during the six months ended June 30, 2026 and $13.3 million during the six months ended June 30, 2025.

Investing activities during the six months ended June 30, 2026, consisted of $6.3 million of capital expenditures.

Investing activities during the six months ended June 30, 2025, consisted of $13.3 million of capital expenditures.

Cash used for financing activities was $136.5 million during the six months ended June 30, 2026, compared to $138.7 million during the six months ended June 30, 2025.

During the six months ended June 30, 2026, we utilized $0.6 million of cash for payments on finance leases, $99.6 million to repurchase outstanding shares of our common stock, $36.8 million for the payment of common stock dividends, and $3.0 million for payment of debt issuance costs, which was partially offset by $3.5 million of proceeds from the exercise of stock options and ESPP contributions.

During the six months ended June 30, 2025, we utilized $0.4 million of cash for payments on finance leases, $109.9 million to repurchase outstanding shares of our common stock, and $30.3 million for the payment of common stock dividends, which was partially offset by $1.9 million of proceeds from the exercise of stock options and ESPP contributions, net of taxes withheld and paid on employees' share-based awards.

As of June 30, 2026, we had $499.1 million of total indebtedness outstanding as follows (in millions):

Total Debt at

March 31, 2026

June 30, 2026

Current Maturities of Debt Long-term

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Total $ 499.1 $ 1.4 $ 497.7

(1) Includes unamortized original issue discount and debt issuance costs of $3.6 million at March 31, 2026.

(1) Includes unamortized original issue discount and debt issuance costs of $3.3 million at June 30, 2026.

See Item 1, Note 12, 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