Zurn Elkay Water Solutions Corp

Previous wording

The following discussion of results of operations and financial condition includes periods prior to the acquisitions of the assets of Advance Technology Solutions, LLC (d/b/a ATS GREASEwatch) ("ATS GREASEwatch"), and the assets of Wade Drains ("Wade"), and the acquisition of Elkay in the Elkay merger. Our financial performance includes the ATS GREASEwatch business subsequent to April 16, 2021, the Wade business subsequent to November 17, 2021, and the Elkay business subsequent to July 1, 2022, the respective dates of their acquisitions. Accordingly, the discussion and analysis does not reflect any impact of ATS GREASEwatch, Wade, or Elkay transactions prior to the respective closing dates.

Current wording

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.

Previous wording

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. As a result, the following discussion of results of operations and financial condition is centered on the Zurn business excluding PMC. The consolidated statements of cash flows for the years ended December 31, 2023, 2022, and 2021 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.

Current wording

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. As a result, the following discussion of results of operations and financial condition is centered on the Zurn Elkay Water Solutions business excluding PMC. The consolidated statements of cash flows for the years ended December 31, 2024, 2023, and 2022 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.

Previous wording

Recent Accounting Pronouncements. This section cites to the discussion of new or revised accounting pronouncements and standards in Item 8, Note 2, Significant Accounting Policies of our consolidated financial statements.

Current wording

Recent Accounting Pronouncements. This section cites the discussion of new or revised accounting pronouncements and standards in Item 8, Note 2, Significant Accounting Policies of our consolidated financial statements.

Previous wording

We are a growth-oriented, pure-play water management business that designs, procures, manufactures, and markets what we believe to be the broadest sustainable product portfolio of specification-driven water management solutions to improve health, human safety and the environment. Our product portfolio includes professional grade water safety and control products, flow system products, hygienic and environmental products, and filtered drinking water products for public and private spaces that deliver superior value to building owners, positively impact the environment and human hygiene and reduce product installation time. Zurn Elkay's heritage of innovation and specification has allowed us to provide highly-engineered, mission-critical solutions to customers for decades and affords us the privilege of having long-term, valued relationships with market leaders. We operate in a disciplined way and the Zurn Elkay Business System (“ZEBS”) is our operating philosophy. Grounded in the spirit of continuous improvement, ZEBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of our business.

Current wording

We are a growth-oriented, pure-play water management business that designs, procures, manufactures, and markets what we believe to be the broadest sustainable product portfolio of specification-driven water management solutions to improve health, hydration, human safety and the environment. Our product portfolio includes professional grade water safety and control products, flow systems products, hygienic and environmental products, and filtered drinking water products for public and private spaces that deliver superior value to building owners, positively impact the environment and human hygiene and reduce product installation time. Zurn Elkay's heritage of innovation and specification has allowed us to provide highly-engineered, mission-critical solutions to customers for decades and affords us the privilege of having long-term, valued relationships with market leaders. We operate in a disciplined way and the Zurn Elkay Business System (“ZEBS”) is our operating philosophy. Grounded in the spirit of continuous improvement, ZEBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of our business.

Previous wording

The largest component of our cost of sales is cost of materials, which represented approximately 37% of net sales in the year ended December 31, 2023. We purchase a broad range of materials and components throughout the world in connection with our manufacturing activities. Major raw materials and components include brass, castings, copper, zinc, stainless steel, forgings, plate steel, high-performance engineered plastic and resin. We have a strategic sourcing program that is designed to significantly reduce the number of direct and indirect suppliers we use and to lower the cost of purchased materials.

Current wording

The largest component of our cost of sales is cost of materials, which represented approximately 33% of net sales in the year ended December 31, 2024. We purchase a broad range of materials and components throughout the world in connection with our manufacturing activities. Major raw materials and components include bronze, iron, brass, stainless steel, carbon steel, zinc, and engineered plastics. We have a strategic sourcing program that is designed to significantly reduce the number of direct and indirect suppliers we use and to lower the cost of purchased materials.

Previous wording

Impairment of intangible assets and tangible fixed assets. The carrying value of long-lived assets, including amortizable intangible assets and tangible fixed assets, are evaluated for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment of amortizable intangible assets and tangible fixed assets is generally determined by comparing projected undiscounted cash flows to be generated by the asset, or group of assets, to its carrying value. If impairment is identified, a loss is recorded equal to the excess of the asset's net book value over its fair value, and the cost basis is adjusted. Determination of the fair value requires various estimates including internal cash flow estimates generated from the asset, quoted market prices and appraisals as appropriate to determine fair value. Actual results could vary from these estimates. During the year ended December 31, 2023, the Company recognized $2.5 million of fixed asset impairment charges. The Company recognized no impairment charges during the during the years ended December 31, 2022 or 2021.

Current wording

Impairment of intangible assets and tangible fixed assets. The carrying value of long-lived assets, including amortizable intangible assets and tangible fixed assets, are evaluated for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment of amortizable intangible assets and tangible fixed assets is generally determined by comparing projected undiscounted cash flows to be generated by the asset, or group of assets, to its carrying value. If impairment is identified, a loss is recorded equal to the excess of the asset's net book value over its fair value, and the cost basis is adjusted. Determination of the fair value requires various estimates including internal cash flow estimates generated from the asset, quoted market prices and appraisals as appropriate to determine fair value. 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.

Previous wording

During the fourth quarter of the year ended December 31, 2023, we completed our annual goodwill impairment test and elected to perform a quantitative assessment. No goodwill impairment charges were recorded during the years ended December 31, 2023, 2022, or 2021.

Current wording

During the fourth quarter of the year ended December 31, 2024, we completed our annual goodwill and intangible asset impairment tests and elected to perform a qualitative assessment. No goodwill impairment charges were recorded during the years ended December 31, 2024, 2023, or 2022. During the year ended December 31, 2024, we recorded a $0.6 million impairment charge related to an indefinite-lived tradename no longer used. No intangible asset impairment charges were recorded during the years ended December 31, 2023 or 2022.

Previous wording

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). During the years ended December 31, 2023, 2022, and 2021, we recognized a non-cash actuarial gain from continuing operations of $2.0 million, $1.9 million, and $1.2 million, respectively, in connection with re-measurements of our plans. Net periodic benefit costs recorded on a quarterly basis are primarily comprised of service and interest cost, amortization of unrecognized prior service cost and the expected return on plan assets. See Item 8, Note 15, Retirement Benefits for additional information.

Current wording

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). During the years ended December 31, 2024, 2023, and 2022, we recognized a non-cash actuarial gain from continuing operations of $1.4 million, $2.0 million, and $1.9 million, respectively, in connection with re-measurements of our plans. Net periodic benefit costs recorded on a quarterly basis are primarily comprised of service and interest cost and the expected return on plan assets. See Item 8, Note 15, Retirement Benefits for additional information.

Previous wording

Income taxes. We are subject to income taxes in the United States and numerous foreign jurisdictions. 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 is intended 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 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, the Company does not anticipate being subject to material Top-Up Taxes as various tax jurisdictions begin enacting such legislation. 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.

Current wording

Income taxes. We are subject to income taxes in the United States and numerous foreign jurisdictions. 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. The

Previous wording

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. For those income tax positions where it is more-likely-than-not, based on technical merits, that a tax benefit will be sustained upon the conclusion of an examination, we have recorded the largest amount of tax benefit having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority, assuming that it has full knowledge of all relevant information. For those tax positions which do not meet the more-likely-than-not threshold regarding the ultimate realization of the related tax benefit, no tax benefit has been recorded in the financial statements. In addition, we provide for interest and penalties, as applicable, and record such amounts as a component of the overall income tax provision. As of December 31, 2023 and 2022, our liability for unrecognized tax benefits was $5.6 million and $5.5 million, respectively.

Current wording

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. For those income tax positions where it is more-likely-than-not, based on technical merits, that a tax benefit will be sustained upon the conclusion of an examination, we have recorded the largest amount of tax benefit having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority, assuming that it has full knowledge of all relevant information. For those tax positions which do not meet the more-likely-than-not threshold regarding the ultimate realization of the related tax benefit, no tax benefit has been recorded in the financial statements. In addition, we provide for interest and penalties, as applicable, and record such amounts as a component of the overall income tax provision. As of December 31, 2024 and 2023, our liability for unrecognized tax benefits was $1.8 million and $5.6 million, respectively.

Previous wording

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 continue to maintain a partial valuation allowance against certain U.S. state NOL and tax credit carryforwards. As of December 31, 2023 and 2022, valuation allowances of $12.0 million and $32.2 million, respectively, were recorded against our deferred tax assets. See Item 8 Note 16, Income Taxes for additional information.

Current wording

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. state NOL and tax credit carryforwards. As of December 31, 2024 and 2023, valuation allowances of $9.0 million and $12.0 million, respectively, were recorded against our deferred tax assets. See Item 8, Note 16, Income Taxes for additional information.

Previous wording

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 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.

Current wording

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.

Previous wording

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

Current wording

(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.

Previous wording

(2)Results of operations for the year ended December 31, 2022 includes the reversal of certain accruals as a result of costs we are obligated to indemnify Regal Rexnord Corporation for being lower than original estimates.

Current wording

(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.

Previous wording

We recorded restructuring charges of $15.3 million, $15.4 million and $3.7 million for the years ended December 31, 2023, 2022, and 2021, respectively. See Item 8, Note 5, Restructuring and Other Similar Charges for more information.

Current wording

We recorded restructuring charges of $13.5 million, $15.3 million and $15.4 million for the years ended December 31, 2024, 2023, and 2022, respectively. See Item 8, Note 5, Restructuring and Other Similar Charges for more information.

Previous wording

Income from operations was $191.4 million for the year ended December 31, 2023, or 12.5% of net sales, compared to income from operations of $107.1 million, or 8.4% of net sales, for the year ended December 31, 2022. Income from operations as a percentage of net sales increased by 410 basis points year over year due to the benefits of productivity synergies and restructuring actions as well as lower material and transportation costs, partially offset by the loss on divestiture of asbestos liabilities and certain assets (see Item 8, Note 17, Commitments and Contingencies), higher non-cash stock-based compensation and incremental depreciation and intangible asset amortization resulting from the Elkay Merger. Additionally, income from operations for the year ended December 31, 2022 included merger costs of $33.7 million and a purchase accounting fair value adjustment of $18.9 million related to the Elkay Merger.

Current wording

Income from operations was $244.6 million for the year ended December 31, 2024, or 15.6% of net sales, compared to income from operations of $191.4 million, or 12.5% of net sales, for the year ended December 31, 2023. 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.

Previous wording

Interest expense, net was $38.5 million for the year ended December 31, 2023 compared to $26.9 million for the year ended December 31, 2022. The increase in interest expense as compared to the prior year period is primarily a result of higher year-over-year interest rates, partially offset by a decrease in interest expense as a result of a voluntary prepayment on the Term Loan of $60.0 million. See Item 8, Note 11, Long-Term Debt for more information.

Current wording

Interest expense, net was $33.1 million for the year ended December 31, 2024 compared to $38.5 million for the year ended December 31, 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 voluntary prepayment on the Term Loan of $60.0 million. See Item 8, Note 11, Long-Term Debt for more information.

Previous wording

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. There was no loss on the extinguishment of debt recognized for the year ended December 31, 2022. See Item 8, Note 11, Long-Term Debt for more information.

Current wording

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.

Previous wording

Actuarial gain on pension and other postretirement benefit obligations for the year ended December 31, 2023, was $2.0 million compared to a gain of $1.9 million for the year ended December 31, 2022. 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. These gains were partially offset by a decrease in the discount rate from the prior measurement. The non-cash actuarial gain recognized for the year ended December 31, 2022, was primarily due to a year over year increase in discount rates assumptions utilized in performing the annual remeasurement of our defined benefit plans, partially offset by unfavorable asset performance. See Item 8, Note 15, Retirement Benefits for more information.

Current wording

Actuarial gain on pension and other postretirement benefit obligations for the year ended December 31, 2024, was $1.4 million compared to a gain of $2.0 million for the year ended December 31, 2023. 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 15, Retirement Benefits for more information.

Previous wording

Other expense, net for the year ended December 31, 2023, was $7.2 million compared to other income, net of $1.7 million for the year ended December 31, 2022. Other income (expense), net consists primarily of foreign currency transaction gains and losses, the non-service cost components associated with our defined benefit plans and other non-operational gains and losses. The year-over-year change is primarily driven by higher interest cost within the non-service cost components of our defined benefit plans and lower expected return on plan assets.

Current wording

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.

Previous wording

The income tax provision for the year ended December 31, 2023 was $42.6 million, or an effective tax rate of 29.0%. The effective income tax rate for the year ended December 31, 2023 was above the U.S. federal statutory rate of 21% primarily due to the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, the accrual of various state income taxes, 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. The income tax provision for the year ended December 31, 2022 was $26.8 million, or an effective tax rate of 32.0%. The effective income tax rate for the year ended December 31, 2022 was above the U.S. federal statutory rate of 21% primarily due to non-deductible transaction costs associated with the Elkay Merger, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, the accrual of various state income taxes and the accrual of foreign income taxes, which are generally above the U.S. federal statutory rate, partially offset by the recognition of income tax benefits associated with share-based payments and the reduction in the valuation allowance associated with certain state NOL carryforwards.

Current wording

The income tax provision for the year ended December 31, 2024 was $48.1 million, or an effective tax rate of 23.2%. 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 and the accrual of foreign income taxes, which are generally above the U.S. federal statutory rate, partially offset by the recognition of income tax benefits associated with share-based payments and the recognition of certain previously unrecognized tax benefits due to the lapse of the applicable statutes of limitations. The income tax provision for the year ended December 31, 2023 was $42.6 million, or an effective tax rate of 29.0%. The effective income tax rate for the year ended December 31, 2023 was above the U.S. federal statutory rate of 21% primarily due to the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, the accrual of various state income taxes, 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.

Previous wording

Our net income from continuing operations for the year ended December 31, 2023, was $104.2 million, compared to net income from continuing operations of $57.0 million for the year ended December 31, 2022, as a result of the factors described above. Diluted net income per share from continuing operations was $0.59 for the year ended December 31, 2023, as compared to $0.37 per share for the year ended December 31, 2022.

Current wording

Our net income from continuing operations for the year ended December 31, 2024, was $158.9 million, compared to net income from continuing operations of $104.2 million for the year ended December 31, 2023, as a result of the factors described above. Diluted net income per share from continuing operations was $0.91 per share for the year ended December 31, 2024, as compared to $0.59 per share for the year ended December 31, 2023.

Previous wording

Net income for the year ended December 31, 2023, was $112.7 million compared to $61.7 million for the year ended December 31, 2022. Diluted net income per share was $0.64 for the year ended December 31, 2023, compared to $0.40 for the year ended December 31, 2022. Income from discontinued operations, net of tax, was $8.5 million for the year ended December 31, 2023 compared to $4.7 million for the year ended December 31, 2022. The year-over-year change in net income is primarily the result of the factors described above.

Current wording

Net income for the year ended December 31, 2024, was $160.2 million compared to $112.7 million for the year ended December 31, 2023. Diluted net income per share was $0.92 per share for the year ended December 31, 2024, compared to $0.64 per share for the year ended December 31, 2023. Income from discontinued operations, net of tax, was $1.3 million for the year ended December 31, 2024 compared to $8.5 million for the year ended December 31, 2023. The year-over-year change in net income is primarily the result of the factors described above.

Previous wording

Core sales excludes the impact of acquisitions (such as the Elkay merger), divestitures (such as PMC) and foreign currency translation. Management believes that core sales facilitates easier and more meaningful comparisons of our net sales performance with prior and future periods and to our peers. We exclude the effect of acquisitions and divestitures because the nature, size and number of acquisitions and divestitures can vary dramatically from period to period and between us and our peers, and can also obscure underlying business trends and make comparisons of long-term performance difficult. We exclude the effect of foreign currency translation from this measure because the volatility of currency translation is not under management's control.

Current wording

Core sales excludes the impact of mergers and acquisitions, divestitures and foreign currency translation. Management believes that core sales facilitates easier and more meaningful comparisons of our net sales performance with prior and future periods and to our peers. We exclude the effect of mergers and acquisitions and divestitures because the nature, size and number of mergers and acquisitions and divestitures can vary dramatically from period to period and between us and our peers, and can also obscure underlying business trends and make comparisons of long-term performance difficult. We exclude the effect of foreign currency translation from this measure because the volatility of currency translation is not under management's control.

Previous wording

The calculation of Adjusted EBITDA under our credit agreement as of December 31, 2023, 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. We reported net income in the year ended December 31, 2023, of $112.7 million and Adjusted EBITDA for the same period of $339.5 million. See "Covenant Compliance" for a reconciliation of Adjusted EBITDA to GAAP net income.

Current wording

The calculation of Adjusted EBITDA under our credit agreement as of December 31, 2024, is presented in the table in the Covenant Compliance section below. However, the results of such calculation could differ in the future based on the different types of adjustments that may be included in such respective calculations at the time. We reported net income in the year ended December 31, 2024, of $160.2 million and Adjusted EBITDA for the same period of $390.4 million. See "Covenant Compliance" for a reconciliation of Adjusted EBITDA to GAAP net income.

Previous wording

Our credit agreement, which governs our senior secured credit facilities, contains, among other provisions, restrictive covenants regarding indebtedness, payments and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and the maintenance of certain financial ratios. Payment of borrowings under the credit agreement may be accelerated if there is an event of default. Events of default include the failure to pay principal and interest when due, a material breach of a representation or warranty, certain non-payments or defaults under other indebtedness, covenant defaults, events of bankruptcy and a change of control. Certain covenants contained in the credit agreement restrict our ability to take certain actions, such as incurring additional debt or making acquisitions, if we are unable to meet a maximum Net First Lien Leverage Ratio (consolidated indebtedness to Adjusted EBITDA) of 5.0 to 1.0 as of the end of each fiscal quarter. As of December 31, 2023, our Net First Lien Leverage Ratio was 1.2 to 1.0. 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.

Current wording

Our credit agreement, which governs our senior secured credit facilities, contains, among other provisions, restrictive covenants regarding indebtedness, payments and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and the maintenance of certain financial ratios. Payment of borrowings under the credit agreement may be accelerated if there is an event of default. Events of default include the failure to pay principal and interest when due, a material breach of a representation or warranty, certain non-payments or defaults under other indebtedness, covenant defaults, events of bankruptcy and a change of control. Certain covenants contained in the credit agreement restrict our ability to take certain actions, such as incurring additional debt or making acquisitions, if we are unable to meet a maximum Net First Lien Leverage Ratio (consolidated indebtedness to Adjusted EBITDA) of 5.0 to 1.0 as of the end of each fiscal quarter. As of December 31, 2024, our Net First Lien Leverage Ratio was 0.86 to 1.0. 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.

Previous wording

(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 $91.9 million (as defined by the credit agreement) at December 31, 2023.

Current wording

(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 $159.2 million (as defined by the credit agreement) at December 31, 2024.

Previous wording

As of December 31, 2023, we had $136.7 million of cash and cash equivalents and $189.0 million of additional borrowing capacity under our revolving credit facility. As of December 31, 2023, the available borrowings under our credit facility were reduced by $11.0 million due to outstanding letters of credit. As of December 31, 2022, we had $124.8 million of cash and cash equivalents and $192.5 million of additional borrowing capacity. As of December 31, 2022, the available borrowings under our credit facility were reduced by $7.5 million, due to outstanding letters of credit.

Current wording

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

Previous wording

The consolidated statements of cash flows for the year ended December 31, 2023, December 31, 2022, and December 31, 2021 have not been adjusted to separately disclose cash flows related to the discontinued operations. Cash flows for the year ended December 31, 2021 only includes the cash flows associated with our PMC platform for the period from January 1, 2021 to October 4, 2021, the date the Spin-Off Transaction was completed. Refer to Item 8, Note 4 Discontinued Operations for further information.

Current wording

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. Refer to Item 8, Note 4, Discontinued Operations for further information.

Previous wording

Net cash provided by operating activities in the year ended December 31, 2023, was $253.9 million compared to $97.0 million in the year ended December 31, 2022 due to higher net income as a result of a full year of Elkay sales, lower use of cash for trade working capital as well as benefits generated from ongoing productivity actions.

Current wording

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.

Previous wording

Cash used for investing activities was $4.6 million in the year ended December 31, 2023 compared to $6.6 million in the year ended December 31, 2022. Investing activities in 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 for the year ended December 31, 2022, included $7.6 million of capital expenditures and net cash payments of $44.8 million in connection with acquisitions, which were partially offset by the receipt of $35.0 million from Regal Rexnord Corporation in connection with the final net assets transferred in the PMC Spin-Off Transaction, the receipt of $9.5 million in connection with an insurance settlement and $1.3 million from the sale of certain long-lived assets.

Current wording

Cash used for investing activities was $20.2 million in the year ended December 31, 2024 compared to $4.6 million in the year ended December 31, 2023. 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.

Previous wording

Cash used for financing activities was $239.2 million in the year ended December 31, 2023 compared to cash used for financing activities of $61.1 million in the year ended December 31, 2022. 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, 2022 included $32.5 million of cash for the payment of dividends on our common stock, $24.7 million of cash for repurchases of our common stock, $5.7 million of net cash payments on outstanding debt, which were partially offset by $1.8 million of net cash proceeds associated with stock option exercises.

Current wording

Cash used for financing activities was $207.5 million in the year ended December 31, 2024 compared to $239.2 million in the year ended December 31, 2023. 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.

Previous wording

As of December 31, 2023 we had $495.3 million of total indebtedness outstanding as follows (in millions):

Current wording

As of December 31, 2024 we had $495.6 million of total indebtedness outstanding as follows (in millions):

Previous wording

(1)Includes unamortized original issue discount and debt issuance costs of $6.8 million at December 31, 2023.

Current wording

(1)Includes unamortized original issue discount and debt issuance costs of $5.4 million at December 31, 2024.

Previous wording

Approximately 11% of our sales originated outside of the United States in the year ended December 31, 2023. Revenues and expenses denominated in foreign currencies are translated into USD at the end of the fiscal period using the average exchange rates in effect during the period. Fluctuations in currency exchange rates also impact the USD amount of our stockholders' equity. The assets and liabilities of our non-U.S. subsidiaries are translated into USD at the exchange rates in effect at the end of the fiscal periods. As of December 31, 2023, stockholders' equity increased by $3.6 million from December 31, 2022 as a result of foreign currency translation adjustments. If the USD strengthened by 10% as of December 31, 2023, the result would have decreased stockholders' equity by approximately $11.7 million.

Current wording

Approximately 11% of our sales originated outside of the United States in the year ended December 31, 2024. Revenues and expenses denominated in foreign currencies are translated into USD at the end of the fiscal period using the average exchange rates in effect during the period. Fluctuations in currency exchange rates also impact the USD amount of our stockholders' equity. The assets and liabilities of our non-U.S. 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. If the USD strengthened by 10% as of December 31, 2024, the result would have decreased stockholders' equity by approximately $11.5 million.

Previous wording

Our indebtedness under the senior secured credit facilities bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates. As of December 31, 2023, our outstanding borrowings under the term loan facility were $473.6 million (net of $6.8 million unamortized debt issuance costs) and bore a weighted-average effective interest rate of 7.47%, determined as Term SOFR (subject to a 0.5% floor), plus a Term SOFR adjustment of 0.115%, plus an applicable margin of 2.00%. During the year ended December 31, 2023, the weighted-average interest rate was 7.09%.

Current wording

Our indebtedness under the senior secured credit facilities bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates. As of December 31, 2024, our outstanding borrowings under the term loan facility were $475.0 million (net of $5.4 million unamortized debt issuance costs) and bore a weighted-average effective interest rate of 6.42%, determined as Term SOFR (subject to a 0.5% floor), plus a Term SOFR adjustment of 0.115%, plus an applicable margin of 2.00%. During the year ended December 31, 2024, the weighted-average interest rate was 7.28%.