10q10k10q10k.net

What changed in Zurn Elkay Water Solutions Corp's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Zurn Elkay Water Solutions Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+250 added−301 removedSource: 10-K (2024-02-06) vs 10-K (2023-02-14)

Top changes in Zurn Elkay Water Solutions Corp's 2023 10-K

250 paragraphs added · 301 removed · 201 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

50 edited+4 added−8 removed63 unchanged
Biggest changeATS GREASEwatch develops, manufactures and markets remote tank monitoring devices, alarms, software and services for various applications and provides technology to enhance and expand our current product offerings and complements our existing product portfolio. • December 11, 2020 - We acquired substantially all of the assets of Hadrian for a total cash purchase price of $101.3 million.
Biggest changeThe cash purchase price (net of final purchase price adjustments) was $12.6 million. • April 16, 2021 - We acquired substantially all of the assets of ATS GREASEwatch, a developer, manufacturer and marketer of remote tank monitoring devices, alarms, software and services for various applications, and the acquisition provides technology to enhance and expand our current product offerings and complements our existing product portfolio.
Zurn Elkay is a leading provider of specification-driven water management solutions to the multi-billion dollar construction market of primarily commercial and institutional buildings and to a lesser extent to the waterworks and residential construction markets.
Zurn Elkay is a leading provider of specification-driven water management solutions to the multi-billion dollar construction market of primarily institutional and commercial buildings and to a lesser extent to the waterworks and residential construction markets.
The demand for our products is primarily driven by new commercial and institutional building construction, the retrofit of existing structures (to make them more energy and water efficient) and, to a lesser extent, new infrastructure and residential construction.
The demand for our products is primarily driven by new institutional and commercial building construction, the retrofit of existing structures (to make them more energy and water efficient) and, to a lesser extent, new infrastructure and residential construction.
The demand for our products is primarily driven by new commercial and institutional building construction, the retrofit of existing structures (to make them more energy and water efficient) and, to a lesser extent, new waterworks and residential construction. Our products are principally specification-driven given their technical design and ability to meet certain performance characteristics.
The demand for our products is primarily driven by new institutional and commercial building construction, the retrofit of existing structures (to make them more energy and water efficient) and, to a lesser extent, new waterworks and residential construction. Our products are principally specification-driven given their technical design and ability to meet certain performance characteristics.
The inclusion of our products with project specifications, combined with our ability to innovate, engineer, and deliver products and systems that save time and money in both installation and over the life of the product for engineers, architects, contractors and builders, and has resulted in growing demand for our products.
The inclusion of our products in project specifications, combined with our ability to innovate, engineer, and deliver products and systems that save time and money in both installation and over the life of the product for engineers, architects, contractors and builders has resulted in growing demand for our products.
We believe the areas in which we compete are primarily tied to growth in commercial and institutional construction, as well as, to a lesser extent, waterworks. We believe these areas have significant long-term growth fundamentals. Historically, the commercial, institutional and waterworks construction sectors have been more stable and less vulnerable to down-cycles than the residential construction industry.
We believe the areas in which we compete are primarily tied to growth in institutional and commercial construction, as well as, to a lesser extent, waterworks and residential. We believe these areas have significant long-term growth fundamentals. Historically, the institutional, commercial, and waterworks construction sectors have been more stable and less vulnerable to down-cycles than the residential construction industry.
Compared with residential construction cycles, downturns in waterworks, commercial and institutional construction have been shorter and less severe, and upturns have lasted longer and had higher peaks in terms of spending as well as units and square footage.
Compared with residential construction cycles, downturns in waterworks, institutional and commercial construction have been shorter and less severe, and upturns have lasted longer and had higher peaks in terms of spending as well as units and square footage.
In addition, we believe water management manufacturers with innovative products, like ours, are able to grow at a faster pace than the broader waterworks, commercial, and institutional construction markets, as well as mitigate cyclical downturns in market growth.
In addition, we believe water management manufacturers with innovative products, like ours, are able to grow at a faster pace than the broader waterworks, institutional, and commercial construction markets, as well as mitigate cyclical downturns in market growth.
In fiscal 2022, we completed the merger with Elkay, a leading manufacturer and distributor of drinking water solutions and commercial and residential sinks. Elkay offers a wide array of sinks recognized for their design, durability and aesthetics. These products are commonly used in residential, hotel and lodging, office, retail, education, healthcare, transportation, recreation and leisure, public and industrial applications.
In fiscal 2022, we completed the merger with Elkay, a leading manufacturer and distributor of drinking water solutions and commercial and residential sinks. Elkay offers a wide array of sinks recognized for their design, durability and aesthetics. These products are commonly used in education, healthcare, hotel and lodging, office, retail, transportation, recreation and leisure, public, industrial, and residential applications.
Customers Our water safety and control, flow systems products, hygienic and environmental, and drinking water products are sold for new construction, remodeling and retrofit applications to customers in commercial, institutional, waterworks and residential end markets and are distributed through independent sales representatives, plumbing wholesalers and industry-specific distributors in the waterworks, foodservice, industrial, janitorial, sanitation and siteworks industries.
Customers Our water safety and control, flow systems, hygienic and environmental, and drinking water products are sold for new construction, remodeling and retrofit applications to customers in institutional, commercial, waterworks and residential end markets and are distributed through independent sales representatives, plumbing wholesalers and industry-specific distributors in the waterworks, foodservice, industrial, janitorial, sanitation and siteworks industries.
This information is used by our customers’ operations and maintenance staff 9 through their facility and automation control systems and cloud-based portals to minimize unplanned system downtime and improve the productivity and safety of their operations. Suppliers and Raw Materials The principal materials used in our manufacturing processes are commodities and components available from numerous sources.
This information is used by our customers’ operations and maintenance staff through their 9 facility and automation control systems and cloud-based portals to minimize unplanned system downtime and improve the productivity and safety of their operations. Suppliers and Raw Materials The principal materials used in our manufacturing processes are commodities and components available from numerous sources.
We make available free of charge, on or through our website, as soon as reasonably practicable after they are electronically filed or furnished to the Securities and Exchange Commission (the "SEC"), our annual and transition reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements on Schedule 14A, as well as amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
We make available free of charge, on or through our website, as soon as reasonably practicable after they are electronically filed or furnished to the Securities and Exchange Commission (the "SEC"), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements on Schedule 14A, as well as amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Overview As previously disclosed, on February 12, 2022, Zurn Water Solutions Corporation ("Zurn") entered into a definitive agreement to combine with Elkay Manufacturing Company (“Elkay”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among Zurn, Elkay, Zebra Merger Sub, Inc., a wholly owned subsidiary of Zurn (“Merger Sub”), and Elkay Interior Systems International, Inc., as representative of the stockholders of Elkay, providing for the merger of Elkay with and into Merger Sub, with Elkay surviving as a wholly owned subsidiary of Zurn (the “Merger”).
As previously disclosed, on February 12, 2022, Zurn Water Solutions Corporation ("Zurn") entered into a definitive agreement to combine with Elkay Manufacturing Company (“Elkay”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among Zurn, Elkay, Zebra Merger Sub, Inc., a wholly owned subsidiary of Zurn (“Merger Sub”), and Elkay Interior Systems International, Inc., as representative of the stockholders of Elkay, providing for the merger of Elkay with and into Merger Sub, with Elkay surviving as a wholly owned subsidiary of Zurn (the “Merger”).
PEX tubing is manufactured from cross-linked polyethylene and is designed for high temperature and pressure fluid distribution piping applications for both potable water and radiant heating systems in the residential and nonresidential construction industries. These systems are engineered to meet stringent NSF and ASTM standards helping water professionals provide safe and efficient building and site water management solutions.
PEX tubing is manufactured from cross-linked polyethylene and is designed for high temperature and 7 pressure fluid distribution piping applications for both potable water and radiant heating systems in the residential and nonresidential construction industries. These systems are engineered to meet stringent NSF and ASTM standards helping water professionals provide safe and efficient building and site water management solutions.
Linear drainage systems are used to capture and direct storm water in a wide variety of institutional, commercial, industrial and transportation infrastructure applications. Our wastewater pre-treatment products include oil and grease interceptors and separators, acid neutralization systems and remote 7 monitoring systems and are marketed under the Zurn® and Green Turtle® brands.
Linear drainage systems are used to capture and direct storm water in a wide variety of institutional, commercial, industrial and transportation infrastructure applications. Our wastewater pre-treatment products include oil and grease interceptors and separators, acid neutralization systems and remote monitoring systems and are marketed under the Zurn® and Green Turtle® brands.
Our product portfolio includes professional grade water safety and control products, flow system products, hygienic and environmental products, and 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.
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.
Our product portfolio includes professional grade water safety and control products, flow system products, hygienic and environmental products, and 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.
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.
These stringent testing and regulatory approval processes are completed principally through the Foundation for Cross-Connection Control and Hydraulic Research at the University of Southern California, the International Association of Plumbing and Mechanical Officials ("IAPMO"), the National Sanitation Foundation ("NSF"), ASTM International ("ASTM"), the Plumbing and Drainage Institute ("PDI"), Underwriters Laboratories ("UL"), Factory Mutual ("FM") and the American Waterworks Association ("AWWA") typically prior to the commercialization of our products.
These stringent testing and regulatory approval processes are completed principally through the Foundation for Cross-Connection Control and Hydraulic Research at the University of Southern California, the International Association of Plumbing and Mechanical Officials ("IAPMO"), the National Sanitation Foundation ("NSF"), the American National Standards Institute ("ANSI"), ASTM International ("ASTM"), the Plumbing and Drainage Institute ("PDI"), Underwriters Laboratories ("UL"), Factory Mutual ("FM") and the American Waterworks Association ("AWWA") typically prior to the commercialization of our products.
The institutional construction end users include education, healthcare, and government segments. The commercial construction end users includes office, warehouse, lodging, retail, dining, and sports arenas segments. The waterworks end users include, municipal water and wastewater and transportation segments.
The institutional construction end users include education, healthcare, and government segments. The commercial construction end users include retail, office, lodging, dining, warehouse, and sports arenas segments. The waterworks end users include municipal water and wastewater and transportation segments.
We serve a broad and diverse array of institutional, commercial and industrial end markets, and to a lesser extent waterworks and residential end markets, with solid fundamental long-term growth characteristics.
We serve a broad and diverse array of institutional and commercial end markets, and to a lesser extent waterworks and residential end markets, with solid fundamental long-term growth characteristics.
Many of our products must meet stringent county, state or municipal-specific regulatory, building, and plumbing code requirements prior to the commercialization of our products (such as IAPMO, NSF, UL, FM, PDI and AWWA). In addition, many of these products must meet detailed specifications set by water management engineers, architects, contractors and builders.
Many of our products must meet stringent county, state or municipal-specific regulatory, building, and plumbing code requirements prior to the commercialization of our products (such as IAPMO, NSF, ANSI, UL, FM, PDI, ASTM, and AWWA). In addition, many of these products must meet detailed specifications set by water management engineers, architects, contractors and builders.
We utilize an extensive sales and marketing network spanning approximately 30 countries, which consists of approximately 1,070 independent sales representatives across 190 sales agencies. Specifically, it has been our experience that, once an architect, engineer, contractor, or owner has specified our product with satisfactory results, that person will generally continue to use our products in future projects.
We utilize an extensive sales and marketing network spanning approximately 30 countries, which consists of approximately 1,055 independent sales representatives across 173 sales agencies. Specifically, it has been our experience that, once an architect, engineer, contractor, or owner has specified our product with satisfactory results, that person will generally continue to use our products in future projects.
Backlog Our backlog of unshipped orders was approximately $42 million and $70 million as of December 31, 2022 and December 31, 2021, respectively. As of December 31, 2022, our backlog is all expected to ship during the year ending December 31, 2023. See Item 1A Risk Factors of this report for more information on the risks associated with backlog.
Backlog Our backlog of unshipped orders was approximately $51 million and $42 million as of December 31, 2023 and December 31, 2022, respectively. As of December 31, 2023, our backlog is all expected to ship during the year ending December 31, 2024. See Item 1A Risk Factors of this report for more information on the risks associated with backlog.
Through continual training and engaging associates and visitors in addressing safety issues, we have reduced our Total Recordable Incident Rate ("TRIR") by 24% when compared to the combined Zurn Elkay rate for calendar year 2021 an d also reduced our Lost Time Incident Rate ("LTIR") by 38% over the same period.
Through continual training and engaging associates and visitors in addressing safety issues, we have reduced our Total Recordable Incident Rate ("TRIR") by 44% when compared to the combined Zurn Elkay rate for calendar year 2022 an d also reduced our Lost Time Incident Rate ("LTIR") by 30% over the same period.
These sources fabricate parts to our specifications using our proprietary designs, which enables us to focus on product engineering, assembly, testing and quality control. By closely monitoring these sources and through extensive product testing, we are able to maintain product quality and be a cost-competitive producer of commercial and institutional products.
These sources fabricate parts to our specifications using our proprietary designs, which enables us to focus on product engineering, assembly, testing and quality control. By closely monitoring these sources and through extensive product testing, we are able to maintain product quality and be cost-competitive.
At 1.21 TRIR and 0.37 LTIR per 100 full-time workers, we are better than best-in-class benchmarks. We are also committed to improving the holistic health and well-being of our associates and have various programs in place to provide information, activities and support for assisting healthy choices.
At 0.68 TRIR and 0.26 LTIR per 100 associates, we are better than best-in-class benchmarks. We are also committed to improving the holistic health and well-being of our associates and have various programs in place to provide information, activities and support for assisting healthy choices.
Drinking Water Products With the Elkay Merger, we added a leading drinking water product line that includes an extensive collection of drinking water delivery products oriented around providing the cleanest, superior tasting water while improving overall water hygiene, accessibility and sustainability.
Among our leading brands are Zurn®, Elkay®, and Wilkins®. Drinking Water Products With the Elkay Merger, we added a leading drinking water product line that includes an extensive collection of filtered drinking water delivery products oriented around providing the cleanest, superior tasting water while improving overall water hygiene, accessibility and sustainability.
In fiscal 2018, we launched our digital strategy for a customer productivity platform based on the integration of innovative Industrial Internet of Things (IIoT) and e-commerce technologies with Zurn Elkay's leading portfolio of products.
Our digital strategy for a customer productivity platform is based on the integration of innovative Industrial Internet of Things (IIoT) and e-commerce technologies with Zurn Elkay's leading portfolio of products.
Following the completion of the Spin-Off Transaction and the Merger with Elkay, Zurn Elkay is 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 Business Zurn Elkay is 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.
The preliminary purchase price includes $1,417.0 million of Zurn's common stock based on Zurn's closing stock price of $27.48 on July 1, 2022, and $45.9 million of net cash payments for the repayment of Elkay's existing term loan and Elkay's transaction related costs outstanding that were in excess of Elkay's cash and cash equivalents balance at the time of closing.
The purchase price included 51,378,504 shares of Zurn's common stock ($1,411.9 million based on Zurn's closing stock price of $27.48 on July 1, 2022), and $45.9 million of net cash payments for the repayment of Elkay's existing term loan and Elkay's transaction related costs outstanding that were in excess of Elkay's cash and cash equivalents balance at the time of closing.
Our innovation is focused on introducing products that provide incremental value to our end customer and help enable our customers achieve their sustainability goals by focusing innovation on products that save water, use less energy, and other sustainable attributes.
Our innovation is focused on introducing products that provide incremental value to our end customer and help enable our customers to achieve their sustainability goals by focusing innovation on products that save water, use less energy, provide clean drinking water, reduce installation time, lower maintenance costs, and other sustainable attributes.
On July 1, 2022, the Merger was completed following which we changed our name to “Zurn Elkay Water Solutions Corporation” (“Zurn Elkay”, "we", "us", "our", or the “Company”). Shares of our common stock continue to trade on the New York Stock Exchange under the ticker symbol “ZWS”.
On July 1, 2022, the Merger was completed following which we changed our name to “Zurn Elkay Water Solutions Corporation”. Shares of our common stock are traded on the New York Stock Exchange under the ticker symbol “ZWS”.
Our phone number is (855) 480-5050. Our website address is www.zurn-elkay.com.
Our phone number is (855) 480-5050. Our website address is www.zurnelkay.com.
Human Capital Management As of December 31, 2022, we had approximately 2,700 employees, of whom approximately 2,000 were employed in the United States. Approximately 190 of our United States employees are represented by labor unions. We are currently party to four collective bargaining agreements in the United States with expiration dates in November 2023, October 2024, and June 2026.
Human Capital Management As of December 31, 2023, we had approximately 2,400 employees, of whom approximately 1,875 were employed in the United States. Approximately 120 of our United States employees are represented by labor unions. We are currently party to three collective bargaining agreements in the United States with expiration dates in October 2024 and November 2026.
We are led by an experienced, high-caliber management team that employs ZEBS as a proven operating philosophy to drive excellence and world-class performance in all aspects of our business, and which includes our "Voice of the Customer" process to promote superior customer satisfaction.
We are led by an experienced, high-caliber management team that employs ZEBS as a proven operating philosophy to drive excellence and world-class performance in all aspects of our business, and which includes our "Voice of the Customer" process to promote superior customer satisfaction. Our physical footprint encompasses 29 principal manufacturing and warehouse facilities located primarily in North America.
Acquisitions Mergers and acquisitions are a critical part of the Zurn Elkay growth strategy. Our strategy is to grow strategically by acquiring leading companies in attractive markets with businesses that we believe will benefit from ZEBS to increase customer satisfaction, revenue growth and operating margins.
Our strategy is to grow strategically by acquiring leading companies in attractive markets with businesses that we believe will benefit from ZEBS to increase customer satisfaction, revenue growth and operating margins.
(“Land”), (ii) the shares of Land were distributed to our stockholders pro rata, and (iii) Land was merged with a subsidiary of Regal Rexnord Corporation (formerly known as Regal Beloit Corporation), in which the stock of Land was converted into shares of Regal Rexnord Corporation.
(“Land”), (ii) the shares of Land were distributed to our stockholders pro rata, and (iii) Land was merged with a subsidiary of Regal Rexnord Corporation (formerly known as Regal Beloit Corporation), in which the stock of Land was converted into shares of Regal Rexnord Corporation. Following completion of the Spin-Off Transaction, we changed our name to “Zurn Water Solutions Corporation”.
Elkay's sinks are sold in various forms, with stainless steel representing the most popular, followed by quartz, fireclay-ceramic, cast iron, and other materials.
Elkay's sinks are sold in various forms, with stainless steel representing the most popular, followed by quartz, fireclay-ceramic, cast iron, and other materials. 8 Acquisitions Mergers and acquisitions are a critical part of the Zurn Elkay growth strategy.
Elkay’s water dispensing and filtration products, predominantly comprised of bottle filling stations, water fountains and water dispensers, are often plumbed directly into building water systems and required to comply with strict applicable codes and standards. Elkay's drinking water solutions are designed to meet or exceed facility needs and specifications of education, healthcare, hospitality, multifamily, municipal, office, retail and commercial facilities.
Elkay’s water dispensing and filtration products, predominantly comprised of filtered bottle filling stations, water fountains and water dispensers, are often plumbed directly into building water systems and required to comply with strict applicable codes and standards.
These highly specified and engineered flow control devices protect and control the potable water supply and emergency water supply within a building or site.
Key valve products include backflow preventers, fire system valves, pressure reducing valves and thermostatic mixing valves. These highly specified and engineered flow control devices protect and control the potable water supply and emergency water supply within a building or site.
Product innovation is crucial in the commercial and institutional plumbing products markets because new products must continually be developed to meet specifications and regulatory demands as well as customer needs. Zurn Elkay's products are known in the industry for such innovation.
Zurn Elkay has approximately 230 active patents in the United States and approximately 90 foreign active patents as of December 31, 2023. Product innovation is crucial in the institutional and commercial plumbing products markets because new products must continually be developed to meet specifications and regulatory demands as well as customer needs.
Following the Spin-Off Transaction, the operating results and financial position of the Process & Motion Control platform are reported as discontinued operations within our consolidated financial statements and we operate as a single Water Management platform.
Following the Spin-Off Transaction, the operating results and financial position of the Process & Motion Control platform are reported as discontinued operations within our consolidated financial statements and we operate as a single Water Management platform. 5 ZEBS 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.
The respective purchase prices for these transactions are stated net of cash acquired and exclude transaction costs. 8 • July 1, 2022 - We completed the merger with Elkay for a preliminary purchase price of $1,462.9 million.
The respective purchase prices for these transactions are stated net of cash acquired and exclude transaction costs. • July 1, 2022 - We completed the merger with Elkay, a market leader of drinking water solutions and commercial sinks which complements the offerings of our existing product portfolio. The purchase price (after final purchase price adjustments) was $1,457.8 million.
Our independent sales representatives work with building owners, engineers, architects, and operators, contractors, and builders, to specify our water safety, quality, flow control and conservation products for their use and with wholesalers to assess and meet the needs of building contractors in construction projects.
Our independent sales representatives work with building owners, engineers, architects, and operators, contractors, and builders, to specify our products for their use and with wholesalers to assess and meet the needs of building contractors in construction projects. They also combine knowledge of our products’ installation methods and delivery availability with local market expertise to provide contractors with value-added service.
Zurn®, Elkay® and Wilkins® benefit from strong brand recognition, which is enhanced by a strong propensity to replace "like-for-like" products. Product Development The majority of our new product development begins with our extensive "Voice of the Customer" operating philosophy. We have a team of approximately 150 engineers and technical employees who are organized by product line.
Product Development The majority of our new product development begins with our extensive "Voice of the Customer" operating philosophy. We have a team of approximately 160 engineers and technical employees who are organized by product line. Each of our product lines has technical staff responsible for product development and application support.
The acquisition leverages our existing expertise in flow systems to expand our market coverage and offer an additional brand of drainage and environmental products. • April 16, 2021 - We acquired substantially all of the assets of ATS GREASEwatch for a cash purchase price of $4.5 million.
The acquisition leveraged our existing expertise in flow systems to expand our market coverage and offer an additional brand of drainage and environmental products.
Following completion of the Spin-Off Transaction, we changed our name to “Zurn Water Solutions Corporation” and the ticker symbol for our shares of common stock trading on the New York Stock Exchange was changed to “ZWS”. Prior to the completion of the Spin-Off Transaction our business consisted of two platforms: Process & Motion Control and Water Management.
Prior to the completion of the Spin-Off Transaction our business consisted of two platforms: Process & Motion Control and Water Management.
Our Business Zurn Elkay designs, procures, manufactures, and markets what we believe is the broadest sustainable product portfolio of specification-driven water management solutions to promote health, provide clean drinking water, conserve and protect natural resources and help keep people safe.
ITEM 1. BUSINESS. Overview Zurn Elkay Water Solutions Corporation ("Zurn Elkay", "we", "us", "our", or the "Company") is 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.
They also combine knowledge of our products’ installation methods and delivery availability with local market expertise to provide contractors with value-added service. We use approximately 1,070 independent sales representatives, along with a network of regional distribution centers and third-party warehouses, to provide our customers with same-day service and quick response times.
We use approximately 1,055 independent sales representatives, along with a network of regional distribution centers and third-party warehouses, to provide our customers with same-day service and quick response times. Zurn®, Elkay®, JUST®, Hadrian®, and Wilkins® benefit from strong brand recognition, which is enhanced by a strong propensity to replace "like-for-like" products.
Among our leading brands are Zurn®, Elkay®, and Wilkins®. Water Safety and Control Products Our water safety and control products are sold under the Zurn® and Wilkins® brand names and encompass a wide range of valve and water distribution control products. Key valve products include backflow preventers, fire system valves, pressure reducing valves and thermostatic mixing valves.
Elkay's drinking water solutions are designed to meet or exceed facility needs and specifications of education, healthcare, hospitality, multifamily, municipal, office, retail and commercial facilities. Water Safety and Control Products Our water safety and control products are sold under the Zurn® and Wilkins® brand names and encompass a wide range of valve and water distribution control products.
Removed
Our physical footprint encompasses 40 principal manufacturing and warehouse facilities located primarily in North America. 5 ZEBS 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.
Added
Our drinking water products are sold under the Elkay® and Halsey Taylor® brand names and filtered units include water filters certified by NSF and ANSI to reduce the level of contaminants in water, including lead and certain per- and polyfluoroalkyl substances ("PFAS") chemicals.
Removed
The total number of shares of our common stock issued at closing was preliminary and subject to change upon finalization of customary post-closing adjustments with respect to cash, indebtedness and working capital.
Added
The number of shares issued in connection with the merger represented approximately 29% of outstanding shares immediately following the Merger. • November 17, 2021 - We expanded our high-quality flow systems portfolio with the acquisition of the Wade product line, which includes a wide range of specified commercial flow systems products for customers across North America.
Removed
We expect that approximately 186,000 of these shares will be returned to us in the first half of calendar year 2023 as a result of lower working capital and cash balances at closing compared to targets stipulated in the Merger Agreement.
Added
The Company’s largest customer accounted for 20%, 22% and 23% of consolidated net sales for the years ended December 31, 2023, 2022, and 2021, respectively. No other customers account for more than 10% of consolidated net sales for the years ended December 31, 2023, the 2022, or 2021.
Removed
Elkay is a market leader of drinking water solutions and commercial sinks which complements the offerings of our existing product portfolio. • November 17, 2021 - We expanded our high-quality flow systems portfolio with the acquisition of the Wade product line from McWane, Inc. for a cash purchase price of $12.6 million.
Added
Zurn Elkay's products are known in the industry for such innovation.
Removed
During the twelve months ended December 31, 2022, we received a $1.1 million cash payment from the sellers of Wade in connection with finalizing the acquisition date trade working capital, which is included in the total cash purchase price above. Founded in 1865, Wade manufactures a wide range of specified commercial flow systems products for customers across North America.
Removed
Hadrian manufactures washroom partitions and lockers primarily used in institutional and commercial end markets and complements our existing product portfolio. • January 28, 2020 - We acquired substantially all of the assets of Just Manufacturing for a cash purchase price of $59.4 million.
Removed
Just Manufacturing manufactures stainless steel sinks and plumbing fixtures primarily used in institutional and commercial end markets and complements the offerings of our existing product portfolio.
Removed
Each of our product lines has technical staff responsible for product development and application support. Zurn Elkay has approximately 160 active patents in the United States and approximately 70 foreign active patents as of December 31, 2022.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

42 edited+14 added−15 removed110 unchanged
Biggest changeOur credit agreement contains various covenants that limit or prohibit our ability (subject to certain exceptions), among other things, to: • incur or guarantee additional indebtedness; • pay dividends on our capital stock or redeem, repurchase, retire or make distributions in respect of our capital stock or subordinated indebtedness or make other restricted payments; • make certain loans, acquisitions, capital expenditures or investments; • sell certain assets, including stock of our subsidiaries; • enter into sale and leaseback transactions; • create or incur liens; • consolidate, merge, sell, transfer or otherwise dispose of all or substantially all of our assets; and • enter into certain transactions with our affiliates. 17 These agreements contain covenants that restrict our ability to take certain actions, such as incurring additional debt, if we are unable to meet defined specified financial ratios, which could result in limiting our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions.
Biggest changeOur credit agreement contains various covenants that limit or prohibit our ability (subject to certain exceptions), among other things, to: • incur or guarantee additional indebtedness; • pay dividends on our common stock or redeem, repurchase, retire or make distributions in respect of our common stock or subordinated indebtedness or make other restricted payments; • make certain loans, acquisitions, capital expenditures or investments; • sell certain assets, including stock of our subsidiaries; • enter into sale and leaseback transactions; • create or incur liens; • consolidate, merge, sell, transfer or otherwise dispose of all or substantially all of our assets; and • enter into certain transactions with our affiliates.
Any sustained weakness in demand or downturn or uncertainty in the economy, could materially reduce our net sales and profitability. For example, sales to the construction industry are driven by trends in commercial, institutional, and residential construction, housing starts and trends in residential repair and remodeling.
Any sustained weakness in demand or downturn or uncertainty in the economy, could materially reduce our net sales and profitability. For example, sales to the construction industry are driven by trends in institutional, commercial, and residential construction, housing starts and trends in residential repair and remodeling.
Our indebtedness could also have other important consequences with respect to our ability to manage and grow our business successfully, including the following: • it may limit our ability to borrow money for our working capital, capital expenditures, strategic initiatives, acquisitions or other purposes; • it may make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under our credit agreement and our other indebtedness; • a portion of our cash flow from operations will be dedicated to the repayment of our indebtedness and so will not be available for other purposes; • it may limit our flexibility in planning for, or reacting to, changes in our operations or business, or in taking advantage of strategic opportunities; • at times we may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage; • it may make us more vulnerable to downturns in our business or the economy; 16 • it may restrict us from making strategic acquisitions or divestitures, introducing new technologies or exploiting business opportunities; and • along with the financial and other restrictive covenants in the documents governing our indebtedness, among other things, may limit our ability to borrow additional funds, make acquisitions or capital expenditures, acquire or dispose of assets or take certain of the actions mentioned above, or adversely impact our ability to implement our capital allocation strategy (which includes paying dividends on our common stock), any of which could restrict our operations and business plans.
Our indebtedness could also have other important consequences with respect to our ability to manage and grow our 16 business successfully, including the following: • it may limit our ability to borrow money for our working capital, capital expenditures, strategic initiatives, acquisitions or other purposes; • it may make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under our credit agreement and our other indebtedness; • a portion of our cash flow from operations will be dedicated to the repayment of our indebtedness and so will not be available for other purposes; • it may limit our flexibility in planning for, or reacting to, changes in our operations or business, or in taking advantage of strategic opportunities; • at times we may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage; • it may make us more vulnerable to downturns in our business or the economy; • it may restrict us from making strategic acquisitions or divestitures, introducing new technologies or exploiting business opportunities; and • along with the financial and other restrictive covenants in the documents governing our indebtedness, among other things, may limit our ability to borrow additional funds, make acquisitions or capital expenditures, acquire or dispose of assets or take certain of the actions mentioned above, or adversely impact our ability to implement our capital allocation strategy (which includes paying dividends on our common stock), any of which could restrict our operations and business plans.
The existence and potential or actual exercise of such rights could adversely impact the market price of our Common Stock. ITEM 1B. UNRESOLVED STAFF COMMENTS. None. 21
The existence and potential or actual exercise of such rights could adversely impact the market price of our Common Stock. 21 ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
We may also face 19 liability for alleged personal injury or property damage due to exposure to hazardous substances used or disposed of by us, contained within our current or former products, or present in the soil or groundwater at our current or former facilities. We could incur significant costs in connection with such liabilities.
We may also face liability for alleged personal injury or property damage due to exposure to hazardous substances used or disposed of by us, contained within our current or former products, or present in the soil or groundwater at our current or former facilities. We could incur significant costs in connection with such liabilities.
Potential difficulties that may be encountered in the integration process which may result in Zurn Elkay performing differently than expected include, among others: • the inability to successfully integrate Elkay in a manner that permits the achievement of full revenue, expected cash flows and cost savings anticipated from the Merger; • not realizing anticipated synergies; • integrating personnel from Elkay and the loss of key employees; • potential unknown liabilities and unforeseen expenses; • integrating relationships with customers, vendors and business partners; • performance shortfalls as a result of the diversion of management’s attention caused by completing the Merger and integrating Elkay’s operations; and • the disruption of, or the loss of momentum in, our ongoing business or inconsistencies in standards, controls, procedures and policies.
Potential difficulties that may be encountered as we continue the integration process which may result in Zurn Elkay performing differently than expected include, among others: • the inability to successfully integrate Elkay in a manner that permits the achievement of full revenue, expected cash flows and cost savings anticipated from the Merger; • not realizing anticipated synergies; • integrating personnel from Elkay and the loss of key employees; • potential unknown liabilities and unforeseen expenses; • integrating relationships with customers, vendors and business partners; • performance shortfalls as a result of the diversion of management’s attention caused by completing the Merger and integrating Elkay’s operations; and • the disruption of, or the loss of momentum in, our ongoing business or inconsistencies in standards, controls, procedures and policies.
In addition, if we are unable to continue to purchase our required quantities of raw materials on commercially reasonable terms, or at all, or if we are unable to maintain or enter into new purchase contracts for our larger commodities, our business operations could be disrupted and our profitability could be adversely impacted.
In addition, if we are unable to continue to purchase our required quantities of raw materials on commercially reasonable terms, or at all, or if we are unable to maintain or 14 enter into new purchase contracts for our larger commodities, our business operations could be disrupted and our profitability could be adversely impacted.
The impact of climate change may materially and adversely affect the cost, production and financial performance of our operations. Further, any impacts to our business and financial condition as a result of climate change are likely to occur over an extended period of time and are therefore difficult to quantify with any degree of specificity.
The impacts of climate change may materially and adversely affect the cost, production and financial performance of our operations. Further, any impacts to our business and financial condition as a result of climate change are likely to occur over an extended period of time and are therefore difficult to quantify with any degree of specificity.
For example, extreme weather events may result in adverse physical effects on portions of our 15 infrastructure, which could disrupt our supply chain and ultimately our business operations. In addition, disruption of transportation and distribution systems could result in reduced operational efficiency and customer service interruption.
For example, extreme weather events may result in adverse physical effects on portions of our infrastructure, which could disrupt our supply chain and ultimately our business operations. In addition, disruption of transportation and distribution systems could result in reduced operational efficiency and customer service interruption.
Our reported financial condition and results of operations for periods after completion of the Merger reflect Elkay’s balances and results after completion of the Merger but have not been restated retroactively to reflect the 20 historical financial position or results of operations of Elkay and its subsidiaries for periods prior to the Merger.
Our reported financial condition and results of operations for periods after completion of the Merger reflect Elkay’s balances and results but have not been restated retroactively to reflect the historical financial position or results of operations of Elkay and its subsidiaries for periods prior to the Merger.
Consumer confidence, employment rates, weather conditions, interest rates, credit standards and availability of consumer credit and income levels play a significant role in driving demand in commercial and residential construction, repair and remodeling sectors.
Consumer confidence, employment rates, weather conditions, interest rates, credit standards and availability of consumer credit and income levels play a significant role in driving demand in institutional, commercial and residential construction, repair and remodeling sectors.
Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome.
Litigation and product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome.
The ongoing updates to our Enterprise Resource Planning ("ERP") systems, as well as failures of our data security and information technology infrastructure or cyber security breaches, could cause substantial business interruptions and adversely affect our business. Utilizing a phased approach, we continue to update our ERP systems across our Zurn Elkay operations.
The ongoing updates to our Enterprise Resource Planning ("ERP") systems, as well as failures of our data security and information technology infrastructure or cybersecurity breaches, could cause substantial business interruptions and adversely affect our business. Utilizing a phased approach, we continue to update our ERP systems across our Zurn Elkay operations.
Our financial performance depends, in large part, on conditions in the markets that we serve in the U.S. and, to a lessor extent, the global economy generally. Some of the end markets we serve are highly cyclical, and some at times have experienced greater cyclicality than others.
Our financial performance depends, in large part, on conditions in the markets that we serve in the U.S. and, to a lesser extent, the global economy generally. Some of the end markets we serve are highly cyclical, and some at times have experienced greater cyclicality than others.
To the extent the value of goodwill or intangibles, if any, becomes impaired in the future, we may be required to incur material non-cash charges relating to such impairment. Our operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the impairment.
To the extent the value of goodwill or intangibles becomes impaired in the future, we may be required to incur material non-cash charges relating to such impairment. Our operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the impairment.
The physical impact of climate change on our operations are highly uncertain and could differ amongst the geographic regions of relevant markets and areas of operation. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures.
The physical impacts of climate change on our operations are highly uncertain and could differ amongst the geographic regions of relevant markets and areas of operation. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures.
Under the acquisition method of accounting, the total purchase price was allocated to Elkay’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of completion of the Merger. The excess of the purchase price over those fair values, if any, was recorded as goodwill.
Under the acquisition method of accounting, the total purchase price was allocated to Elkay’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of completion of the Merger. The excess of the purchase price over those fair values was recorded as goodwill.
The ultimate impact of an infectious disease outbreak on our business, depends on the severity, location and duration of outbreaks, and the actions of government and health official in response to the outbreaks, none of which is predictable at this time.
The ultimate impact of an infectious disease outbreak on our business, depends on the severity, location and duration of outbreaks, and the actions of government and health officials in response to the outbreaks, none of which is predictable at this time.
In addition, we may be subject to product liability claims if the use of our products, or the exposure to our products or their raw materials, is alleged to have resulted in injury or other adverse effects.
We may be subject to product liability and other claims if the use of our products, or the exposure to our products or their raw materials, is alleged to have resulted in injury or other adverse effects.
These sales may adversely affect the trading price of our Common Stock. Certain of these stockholders, who received Zurn Elkay shares in the Merger aggregating approximately 22% of our outstanding common stock as of December 31, 2022, agreed not to sell or transfer their shares, subject to certain exceptions, prior to December 31, 2023.
These sales may adversely affect the trading price of our Common Stock. Certain of these stockholders, who received Zurn Elkay shares in the Merger aggregating approximately 23% of our outstanding common stock as of December 31, 2023, agreed not to sell or transfer their shares, subject to certain exceptions, prior to December 31, 2023.
In addition, our business depends on the strong brand reputation we have developed; if this reputation is damaged as a result of a product liability claim, it may be difficult to maintain our pricing positions and market share with respect to our products.
In addition, our business depends on the strong brand reputation we have developed; if this reputation is damaged as a result of litigation or product liability claims, it may be difficult to maintain our pricing positions and market share with respect to our products.
Therefore, an unsuccessful product liability defense could have a material adverse effect on our business, financial condition, results of operations or cash flows. See Item 8, Note 18, Commitments and Contingencies for additional details.
Therefore, an unsuccessful litigation matter or product liability defense could have a material adverse effect on our business, financial condition, results of operations or cash flows. See Item 8, Note 17, Commitments and Contingencies for additional details.
See Item 8, Note 18, Commitments and Contingencies for additional information. Certain subsidiaries are subject to litigation, including numerous asbestos and product liability claims, which could adversely affect our business, reputation, financial condition, results of operations or cash flows.
See Item 8, Note 17, Commitments and Contingencies for additional information. Certain subsidiaries are subject to litigation, including product liability and other claims, which could adversely affect our business, reputation, financial condition, results of operations or cash flows.
An inability to effectively integrate acquisitions, mergers or other business combinations could adversely affect our business, financial condition, results of operations or cash flows. Acquisitions, mergers and other business combinations are part of our growth strategy, and we have completed several in the last few years.
An inability to effectively integrate acquisitions, mergers or other business combinations could adversely affect our business, financial condition, results of operations or cash flows. Additionally, dispositions or liabilities retained in connection with dispositions could negatively affect us. Acquisitions, mergers and other business combinations are part of our growth strategy, and we have completed several in the last few years.
Climate change may impact rainfall and water availability in many areas in unpredictable and different ways, which may change the way building owners and municipalities manage drinking, waste and storm water and may lead to new or modified regulations that may impact the market for our products.
The long-term effect of climate change could decrease demand for certain of our products. 15 Climate change may impact rainfall and water availability in many areas in unpredictable and different ways, which may change the way building owners and municipalities manage drinking, waste and storm water and may lead to new or modified regulations that may impact the market for our products.
Termination of one or more of our relationships with any of our key independent distributors and / or a substantial number of independent representatives, or an increase in their sales of our competitors’ products could have a material adverse effect on our business, financial condition, results of operations or cash flows.
We rely on independent distributors and independent sales representatives. Termination of one or more of our relationships with any of our key independent distributors and / or a substantial number of independent representatives could have a material adverse effect on our business, financial condition, results of operations or cash flows.
As of December 31, 2022, our goodwill and intangible assets totaled $777.0 million and $1,009.7 million, respectively, and represent a substantial portion of our assets. These assets result from our acquisitions, representing the excess of cost over the fair value of the tangible net assets we have acquired.
As of December 31, 2023, our goodwill and intangible assets totaled $796.0 million and $952.4 million, respectively, and represent a substantial portion of our assets. These assets result from our acquisitions, representing the excess of cost over the fair value of the tangible net assets we have acquired.
We depend on 1,070 independent sales representatives and approximately 75 third-party warehouses to distribute our products. In fiscal 2022, our three largest independent distributors generated approximately 35% of our consolidated net sales with the largest accounting for 22% of consolidated net sales.
We depend on 1,055 independent sales representatives and approximately 70 third-party warehouses to distribute our products. In fiscal 2023, our three largest independent distributors generated approximately 33% of our consolidated net sales with the largest accounting for 20% of consolidated net sales.
While we have taken steps to maintain and enhance our cyber security by implementing additional security technologies, internal controls, network and data center resiliency, redundancy and recovery processes, upgrading our remote work environment and by obtaining insurance coverage, these measures may be inadequate.
While we have taken steps to maintain and enhance our cybersecurity by implementing additional security technologies, internal controls, network and data center resiliency, redundancy and disaster recovery processes and backup systems, upgrading our remote work environment and by obtaining insurance coverage, these measures may be inadequate and our technology systems could be vulnerable to disability, failures or unauthorized access.
We cannot ensure that we will be able to complete any future acquisition, successfully integrate any acquired business or operations, or accomplish our strategic objectives as a result of any such acquisition.
We also sell or divest businesses, products and technologies from time to time. We cannot ensure that we will be able to complete any future acquisition or divestiture, successfully integrate any acquired business or operations, or accomplish our strategic objectives as a result of any such acquisition or divestiture.
If these updates are ineffective, we could incur substantial business interruptions, including the inability to perform routine business transactions, which could have a material adverse effect on our financial performance.
If these updates are ineffective, we could incur substantial business interruptions, including the inability to perform routine business transactions, which could have a material adverse effect on our financial performance. Further, these updates may not result in the benefits we intend or be timely implemented.
Defaults by any of the customers that have placed significant orders with us, whether because of bankruptcy, illiquidity, operational problems or otherwise, could have a significant adverse effect on our net sales, profitability and cash flow.
Defaults by any of the customers that have placed significant orders with us, whether because of bankruptcy, illiquidity, operational problems or otherwise, could have a significant adverse effect on our net sales, profitability and cash flow. As of December 31, 2023, all of our backlog was scheduled to ship during the year ending December 31, 2024.
For more information about our indebtedness, see Item 8, Note 11, Long-Term Debt. The agreements governing our financing arrangements impose certain operating and financial restrictions, which could have a material adverse effect on our business, financial condition, results of operations or cash flows.
The agreements governing our financing arrangements impose certain operating and financial restrictions, which could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Under relevant agreements governing the Spin-Off Transaction, we are prohibited from taking certain actions during the two-year period following the closing that could cause aspects of the Spin-Off Transaction to fail to qualify for their intended tax treatment.
As a result of the Spin-Off Transaction, we are subject to certain limitations on Company actions for two years, including certain business combinations, that might otherwise be advantageous. 20 Under relevant agreements governing the Spin-Off Transaction, we are prohibited from taking certain actions during the two-year period following the closing that could cause aspects of the Spin-Off Transaction to fail to qualify for their intended tax treatment.
As a leveraged company, our ability to generate sufficient cash flow from operations to make scheduled payments on our debt will depend on a range of economic, competitive and business factors, many of which are outside our control.
In addition, changing or increasing interest rates, including the rates under our debt agreements, could adversely affect our business or financial condition. As a leveraged company, our ability to generate sufficient cash flow from operations to make scheduled payments on our debt will depend on a range of economic, competitive and business factors, many of which are outside our control.
See Item 7A, Quantitative and Qualitative Disclosures About Market Risk for additional information on our debt that is subject to the LIBOR rate. Also, in spite of the limitations in our credit agreement, we may still incur significantly more debt, which could intensify the risks described above on our business, results and financial condition.
Also, in spite of the limitations in our credit agreement, we may still incur significantly more debt, which could intensify the risks described above on our business, results and financial condition. For more information about our indebtedness, see Item 8, Note 11, Long-Term Debt.
In addition, at times a large percentage of our workforce may be working remotely in response to outbreaks of infectious disease, which may heighten these risks.
Like other companies, we have experienced, and will continue to experience, these types of threats; however, to date, we have not experienced a material threat or incident. In addition, at times a large percentage of our workforce may be working remotely in response to outbreaks of infectious disease, which may heighten these risks.
There have been significant and increasing instances of data and security breaches, malicious interference with technology systems and industrial espionage involving companies in numerous industries, including cloud providers, and cyber security threats are becoming more complex. Like other companies, we have experienced these types of threats; however, to date, we have not experienced a material threat or incident.
We are subject to laws and rules issued by different agencies concerning safeguarding and maintaining the confidentiality of this information. There have been significant and increasing instances of data and security breaches, malicious interference with technology systems and industrial espionage involving companies in numerous industries, including cloud providers, and cybersecurity threats are becoming more complex.
Refer to Risks Related to the Merger with Elkay section below for additional considerations. The loss or financial instability of any significant customer or customers accounting for our backlog could adversely affect our business, financial condition, results of operations or cash flows.
The loss or financial instability of any significant customer or customers accounting for our backlog could adversely affect 13 our business, financial condition, results of operations or cash flows. A substantial part of our business is concentrated with a few customers, and we have certain customers that are significant to our business.
A substantial part of our business is concentrated with a few customers, and we have certain customers that are significant to our business. During the year ended December 31, 2022, our top five customers accounted for approximately 40% of our consolidated net sales, with one customer accounting for 22% of consolidated net sales.
During the year ended December 31, 2023, our top five customers accounted for approximately 39% of our consolidated net sales, with one customer accounting for 20% of consolidated net sales.
Further, these updates may not result in the benefits we intend or be timely implemented. 14 In addition, we depend heavily on information technology infrastructure to manage our business objectives and operations, support our customers’ requirements and protect sensitive information.
In addition, we depend heavily on information technology infrastructure to manage our business objectives and operations, support our customers’ requirements and protect sensitive information. In the regular course of our business, we also handle a range of sensitive security and customer information.
We may incur significant costs for environmental compliance and/or to address liabilities under environmental laws and regulations, and our reputation may be adversely affected.
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. 19 We may incur significant costs for environmental compliance and/or to address liabilities under environmental laws and regulations, and our reputation may be adversely affected.
Removed
As of December 31, 2022, all of our backlog was scheduled to ship during the year ending December 31, 2023. 13 We rely on independent distributors and independent sales representatives.
Added
Refer to Risks Related to the Merger with Elkay section below for additional considerations. If dispositions are not completed in a timely manner, there may be a negative effect on our cash flows and/or our ability to execute our strategy. In addition, we may not realize some or all of the anticipated benefits of our dispositions.
Removed
The long-term effect of climate change could decrease demand for certain of our products.
Added
From time to time, we have sold or divested businesses, products and technologies. With respect to some of these former businesses, we may contractually agree to indemnify the counterparties against, or otherwise retain, certain liabilities, including, certain lawsuits, tax liabilities, product liability claims, and environmental matters.
Removed
Furthermore, a substantial portion of our indebtedness, including the senior secured credit facilities, bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates, including the London Interbank Offered Rate ("LIBOR").
Added
Even without ongoing contractual indemnification obligations, we could be exposed to liabilities arising out of the businesses for certain activities prior to the divestitures. In addition, certain of the counterparties to those divestitures and/or the divested businesses have agreed to indemnify us or assume certain liabilities relating to those divestitures.
Removed
The United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer persuade or compel panel banks to submit the rates required to calculate LIBOR.
Added
However, there can be no assurance that the indemnity or assumption of liability by the counterparties or divested businesses will be sufficient to protect us against the full amount of these liabilities, or that a counterparty or divested business will be able to fully satisfy its obligations.
Removed
On March 5, 2021, ICE Benchmark Administration (“IBA”) confirmed it would cease publication of 1 Week and 2 Month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, but it would not cease publication of Overnight, 1, 3, 6 and 12 Month USD LIBOR settings until immediately following the LIBOR publication on June 30, 2023.
Added
Third parties also could seek to hold us responsible for any of the liabilities that a counterparty or divested business agreed to assume. Even if we ultimately succeed in recovering any amounts for which we were initially held liable, we may be temporarily required to bear these losses ourselves.
Removed
The extended cessation date for most USD LIBOR tenors will allow for more time for existing legacy USD LIBOR contracts to mature and provide additional time to continue to prepare for the transition from LIBOR.
Added
We recently amended our credit facilities to switch from eurodollar loans based on LIBOR to term Secured Overnight Financing Rate (“SOFR”) loans. SOFR is a relatively new reference rate, and its composition and characteristics are not the same as LIBOR. It is not possible to predict what effect the change to SOFR may have on our interest rates.
Removed
The Alternative Reference Rates Committee (“ARCC”), which was convened by the Board of Governors of the Federal Reserve and the Federal Reserve Bank of New York, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended alternative rate for USD LIBOR. The composition and characteristics of SOFR are not the same as those of LIBOR.
Added
As indicated above, SOFR is a relatively new reference rate. Any failure of SOFR to gain market acceptance could cause the SOFR to be modified or discontinued. Our current credit facilities provide a mechanism for determining an alternative rate of interest upon the occurrence of certain events related to the discontinuance of SOFR.
Removed
SOFR is a broad U.S. Treasury repurchase agreement market financing rate that represents overnight secured funding transactions. This means that SOFR is fundamentally different from LIBOR in two key respects. First, SOFR is a secured rate, while LIBOR is an unsecured rate. Second, SOFR is an overnight rate, while LIBOR represents interbank funding over different maturities.
Added
The change to SOFR or transition to other alternative rates, whether in connection with borrowings under the current credit facilities, or borrowings under replacement facilities or lines of credit, could expose our future borrowings to less favorable rates.
Removed
As a result, there can be no assurance that SOFR or any alternative reference rate will perform in the same way as LIBOR would have at any time, including, without limitation, as a result of changes in interest and yield rates in the market, market volatility or global or regional economic, financial, political, regulatory, judicial or other events.
Added
If the change to SOFR, or other alternative rates, results in increased alternative interest rates or if our lenders have increased costs due to such phase out or changes, then our debt that uses benchmark rates could be affected and, in turn, our cash flows and interest expense could be adversely impacted.
Removed
The agreement governing our senior secured credit facilities provides that if LIBOR becomes unavailable, or the Financial Conduct Authority determines that LIBOR is not a representative index, then SOFR will automatically replace LIBOR for all purposes of such agreement.
Added
These agreements contain covenants that restrict our ability to take certain actions, such as incurring additional debt, if 17 we are unable to meet defined specified financial ratios, which could result in limiting our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions.
Removed
Although the consequences of these developments cannot be predicted at this time, should LIBOR, SOFR, or any other alternative reference rate no longer be available, the rates under our variable rate indebtedness could increase and access to capital could be limited. Additionally, we may continue to be subject to risk on outstanding instruments which rely on LIBOR.
Added
Moreover, in recent years, the Organization for Economic Co-operation and Development (“OECD”) and member countries have been focused on taxation issues relating to multi-national companies.
Removed
For example, if a contract or instrument is not transitioned to a new reference rate and LIBOR ceases to exist, we may experience increased interest rate risk. In addition, we may be dependent on third parties to upgrade their systems, software, and other critical functions to assist in our orderly transition from LIBOR.
Added
In October 2021, more than 130 countries agreed to implement Pillar 2, a plan introduced by the 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; with any shortfall of the 15% minimum tax resulting in a related tax assessment ("Top-Up Tax").
Removed
Certain subsidiaries are co-defendants in various lawsuits in a number of U.S. jurisdictions alleging personal injury as a result of exposure to asbestos that was used in certain components of our products. The uncertainties of litigation and the uncertainties related to insurance and indemnification coverage make it difficult to accurately predict the ultimate financial effect of these claims.
Added
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.
Removed
If our insurance or indemnification coverage is not adequate to cover our potential financial exposure, our insurers dispute their obligations to provider coverage or the actual number or value of asbestos-related claims differs materially from our existing estimates, we could incur material costs that could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Added
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.
Removed
As a result of the Spin-Off Transaction, we are subject to certain limitations on Company actions for two years, including certain business combinations, that might otherwise be advantageous.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed0 unchanged
Biggest changeAs of December 31, 2022, we had 40 principal manufacturing and warehouse facilities as set forth below: Total Square Feet Location Number of Facilities Owned Leased USA Arizona 1 — 46,100 California 3 157,500 315,300 Georgia 6 — 309,500 Illinois 6 590,500 578,800 North Carolina 4 392,200 28,200 Mississippi 1 — 140,400 Ohio 2 87,500 — Pennsylvania 4 119,000 100,000 Texas 4 175,000 143,700 Utah 2 — 137,900 Virginia 1 253,400 — International Canada 4 72,600 195,600 Mexico 1 106,100 United Arab Emirates 1 — 6,000 We believe our principal manufacturing and warehouse facilities are suitable for our operations and provide sufficient capacity for our current and future anticipated needs.
Biggest changeAs of December 31, 2023, we had 29 principal manufacturing and warehouse facilities as set forth below: Total Square Feet Location Number of Facilities Owned Leased USA Arizona 1 — 46,100 California 3 157,500 315,300 Georgia 1 — 262,600 Illinois 5 590,500 421,300 North Carolina 5 392,200 413,200 Ohio 1 42,500 — Pennsylvania 3 119,000 99,300 South Carolina 1 — 125,000 Texas 3 175,000 115,700 International Canada 4 72,600 195,600 Mexico 1 106,100 — United Arab Emirates 1 — 6,000 We believe our principal manufacturing and warehouse facilities are suitable for our operations and provide sufficient capacity for our current and future anticipated needs.
ITEM 3. LEGAL PROCEEDINGS. Information with respect to our legal proceedings is contained in Item 8, Note 18, Commitments and Contingencies.
ITEM 3. LEGAL PROCEEDINGS. Information with respect to our legal proceedings is contained in Item 8, Note 17, Commitments and Contingencies.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

7 edited+2 added−1 removed1 unchanged
Biggest changeAdams joined us in 2004 as Vice President, Treasurer and Controller; he has also served as Senior Vice President and Chief Financial Officer and as President of the Water Management platform. Mark W. Peterson became our Senior Vice President and Chief Financial Officer in 2011. Mr.
Biggest changeAdams joined us in 2004, and has served in various roles of increasing responsibility, including President and Chief Financial Officer. Mark W. Peterson became our Senior Vice President and Chief Financial Officer in 2011. Mr. Peterson previously served as Vice President and Controller of Zurn Elkay and as a divisional CFO. Mr. Peterson is a certified public accountant.
ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. * * * 22 Information about our Executive Officers The following table sets forth information concerning our executive officers as of the date of this report: Name Age Position(s) In Current Position(s) since Todd A. Adams 52 Chairman of the Board and Chief Executive Officer 2020 Mark W.
ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. * * * 24 Information about our Executive Officers The following table sets forth information concerning our executive officers as of the date of this report: Name Age Position(s) In Current Position(s) since Todd A. Adams 53 Chairman of the Board and Chief Executive Officer 2020 Mark W.
Craig G. Wehr became Chief Operating Officer of Zurn Elkay in 2022. Mr. Wehr previously served in various positions with Zurn Elkay since 1993, including as President of Zurn and Vice President / General Manager of Zurn Specification Drain Operations. 23 PART II
Wehr served as Chief Operating Officer of Zurn Elkay since 2022. Mr. Wehr previously served in various positions with Zurn Elkay since 1993, including as President of Zurn and Vice President / General Manager of Zurn Specification Drain Operations. 25 PART II
Chhabra was a sector President and Regional Executive - India from 2016 to 2018 after having joined Zurn Elkay in 2014 as President & Regional Executive for India and the Middle East. Prior to joining Zurn Elkay, Mr.
Sudhanshu Chhabra became Vice President, Zurn Elkay Business Systems in 2018. Mr. Chhabra was a sector President and Regional Executive - India from 2016 to 2018 after having joined Zurn Elkay in 2014 as President & Regional Executive for India and the Middle East. Prior to joining Zurn Elkay, Mr.
Wehr 58 Chief Operating Officer 2022 Information about the business experience of our executive officers during at least the past five fiscal years is as follows: Todd A. Adams became our Chairman of the Board in 2020 and Chief Executive Officer in 2009. Mr.
Wehr 59 Executive Advisor 2024 Information about the business experience of our executive officers during at least the past five fiscal years is as follows: Todd A. Adams became our Chairman of the Board in 2020 and Chief Executive Officer in 2009. Mr.
Peterson 51 Senior Vice President and Chief Financial Officer 2011 Sudhanshu Chhabra 56 Vice President - Zurn Elkay Business Systems 2018 Jeffrey J. LaValle 44 Vice President, General Counsel and Secretary 2022 Michael D. Troutman 56 Chief Information Officer 2007 Craig G.
Peterson 52 Senior Vice President and Chief Financial Officer 2011 Sudhanshu Chhabra 57 Vice President, Zurn Elkay Business Systems 2018 Jeffrey J. LaValle 45 Vice President, General Counsel and Secretary 2022 Jeffrey A. Schoon 42 President 2024 Michael D. Troutman 57 Chief Information Officer 2007 Craig G.
LaValle was a partner at Quarles & Brady LLP, an AmLaw 200 full-service law firm. Michael D. Troutman became Zurn Elkay's Chief Information Officer at Zurn Elkay in 2007 and an executive officer in 2017. Before joining Zurn Elkay, he was with AT&T, Lucent, and Agere Systems in various senior information technology positions implementing global industry leading solutions and processes.
Troutman became Zurn Elkay's Chief Information Officer at Zurn Elkay in 2007 and an executive officer in 2017. Before joining Zurn Elkay, he was with AT&T, Lucent, and Agere Systems in various senior information technology positions implementing global industry leading solutions and processes. Craig G. Wehr was named Executive Advisor in 2024. Mr.
Removed
Peterson previously served as Vice President and Controller of Zurn Elkay and as a divisional CFO. Mr. Peterson is a certified public accountant. Sudhanshu Chhabra became Vice President – Zurn Elkay Business Systems in 2018. Mr.
Added
LaValle was a partner at Quarles & Brady LLP, a national full-service law firm. Jeffrey A. Schoon became President of Zurn Elkay in 2024. Mr.
Added
Schoon previously served as Executive Vice President of Zurn Elkay since 2022, and previously served in various roles with our former Process & Motion Control business since 2010 (including as an employee of Regal Rexnord Corporation during portions of 2021 and 2022), and as Vice President General Manager of the Energy Division. Michael D.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+0 added−0 removed3 unchanged
Biggest changeWe believe the number of beneficial owners of our common stock exceeds 25,000. Dividend Policy On February 3, 2022 and May 5, 2022 our Board of Directors declared a quarterly cash dividend on our common stock of $0.03 per share.
Biggest changeA substantially greater number of holders of Zurn Elkay common stock are beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions. Dividend Policy On February 1, 2023, May 4, 2023, and July 20, 2023 our Board of Directors declared a quarterly cash dividend on our common stock of $0.07 per share.
The graph assumes the value of the investment in our common stock and each index was $100 on March 31, 2017, and that all dividends were reinvested.
The graph assumes the value of the investment in our common stock and each index was $100 on March 31, 2019, and that all dividends were reinvested.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Shares of our common stock trade on the New York Stock Exchange under the ticker symbol “ZWS”. As of February 10, 2023, there were 33 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Shares of our common stock trade on the New York Stock Exchange under the ticker symbol “ZWS”. As of February 1, 2024, there were 27 holders of record of our common stock.
On January 27, 2020, our Board of Directors approved increasing the remaining share repurchase authority under the Repurchase Program to $300.0 million.
On January 27, 2020, our Board of Directors approved increasing the remaining share repurchase authority under the Repurchase Program to $300.0 million. On February 8, 2023, the Company's Board of Directors approved increasing the remaining share repurchase authority under the Repurchase Program to $500.0 million.
On July 21, 2022, October 20, 2022, and February 1, 2023 our Board of Directors declared a quarterly cash dividend on our common stock of $0.07 per share.
On October 19, 2023 and February 1, 2024 our Board of Directors declared a quarterly cash dividend on our common stock of $0.08 per share.
ISSUER PURCHASES OF EQUITY SECURITIES Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Approximate Dollar Value that may yet be Purchased Under the Plans or Programs (1) Period October 1 - October 31, 2022 — $ — — $ 162,792,403 November 1 - November 30, 2022 343,773 $ 23.52 343,773 $ 154,700,973 December 1 - December 31, 2022 727,065 $ 22.76 727,065 $ 138,141,819 Total/Average 1,070,838 $ 23.00 1,070,838 (1) See explanation of the Repurchase Program above. 24 Performance Graph Set forth below is a line graph comparing the cumulative total shareholder return of our common stock with the Standard & Poor's (the "S&P") 500 Index and the S&P 1500 Industrials Index for the year ended December 31, 2022, the year ended December 31, 2021, the Transition Period ended December 31, 2020, and our preceding four full fiscal years.
ISSUER PURCHASES OF EQUITY SECURITIES Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Approximate Dollar Value that may yet be Purchased Under the Plans or Programs (1) Period October 1 - October 31, 2023 — $ — — $ 415,473,453 November 1 - November 30, 2023 315,939 $ 29.13 315,939 $ 406,264,702 December 1 - December 31, 2023 532,867 $ 29.65 532,867 $ 390,456,946 Total/Average 848,806 $ 29.45 848,806 (1) See explanation of the Repurchase Program above. 26 Performance Graph Set forth below is a line graph comparing the cumulative total shareholder return of our common stock with the Standard & Poor's (the "S&P") 500 Index and the S&P 1500 Industrials Index for the years ended December 31, 2023, December 31, 2022, December 31, 2021, the nine-month transition period ended December 31, 2020, and our preceding full fiscal year.
The shareholder return shown on the graph below is not necessarily indicative of future performance and the indices included do not necessarily reflect management's opinion that such indices are an appropriate measure of the relative performance of Zurn Elkay's stock. 3/31/2017 3/31/2018 3/31/2019 3/31/2020 12/31/2020 12/31/2021 12/31/2022 Zurn Elkay Water Solutions Corporation (1) $ 100.00 $ 128.60 $ 108.93 $ 98.22 $ 171.10 $ 320.86 $ 186.43 S&P 500 Index $ 100.00 $ 111.77 $ 119.96 $ 109.39 $ 158.97 $ 201.72 $ 162.50 S&P 1500 Industrials Index $ 100.00 $ 112.22 $ 113.24 $ 89.46 $ 136.18 $ 164.21 $ 151.19 (1) Zurn Elkay Water Solutions Corporation historical prices were adjusted to reflect the impact of the Spin-Off Transaction that was completed on October 4, 2021.
The shareholder return shown on the graph below is not necessarily indicative of future performance and the indices included do not necessarily reflect management's opinion that such indices are an appropriate measure of the relative performance of Zurn Elkay's stock. 3/31/2019 3/31/2020 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Zurn Elkay Water Solutions Corporation (1) $ 100.00 $ 90.00 $ 159.00 $ 305.00 $ 179.00 $ 251.00 S&P 500 Index $ 100.00 $ 93.00 $ 137.00 $ 176.00 $ 144.00 $ 182.00 S&P 1500 Industrials Index $ 100.00 $ 80.00 $ 124.00 $ 152.00 $ 142.00 $ 171.00 (1) Zurn Elkay Water Solutions Corporation historical prices were adjusted to reflect the impact of the Spin-Off Transaction that was completed on October 4, 2021.
During the three and twelve months ended December 31, 2022, we repurchased approximately $24.7 million of our common stock. The remaining repurchase authority under the Repurchase Program at December 31, 2022 was $138.1 million. Effective February 8, 2023, the Board approved an increase in the remaining share repurchase authority under the Repurchase Program to $500.0 million.
During the three and twelve months ended December 31, 2023, we repurchased approximately $25.0 million and $125.0 million, respectively, of our common stock. The remaining repurchase authority under the Repurchase Program at December 31, 2023 was $390.5 million.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

91 edited+29 added−76 removed40 unchanged
Biggest changeDuring 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. 30 The major components of the Income from discontinued operations, net of tax presented in the consolidated statements of operations during the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 are included in the table below (in millions): Year Ended (1) Year Ended (2) Nine-Month Transition Period Ended December 31, 2022 December 31, 2021 December 31, 2020 Net sales $ — $ 973.0 $ 870.4 Cost of sales — 598.6 572.0 Selling, general and administrative expenses (2.9) 260.2 168.0 Restructuring and other similar charges — 1.9 12.9 Amortization of intangible assets — 9.9 10.1 Interest expense, net — 4.1 3.3 Actuarial loss on pension and postretirement benefit obligations — 4.8 1.3 Other non-operating income, net — (5.6) (6.4) Income from discontinued operations before income tax 2.9 99.1 109.2 Income tax (provision) benefit 1.8 (28.0) (25.8) Equity method investment income — 0.3 0.2 Non-controlling interest income — (0.2) (0.4) Income from discontinued operations, net of tax $ 4.7 $ 71.2 $ 83.2 ____________________ (1) 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.
Biggest changeThe major components of the Income from discontinued operations, net of tax presented in the consolidated statements of operations during the years ended December 31, 2023, 2022, and 2021 are included in the table below (in millions): Year Ended (1) Year Ended (2) Year Ended (3) December 31, 2023 December 31, 2022 December 31, 2021 Net sales $ — $ — $ 973.0 Cost of sales — — 598.6 Selling, general and administrative expenses (income) (8.4) (2.9) 260.2 Restructuring and other similar charges — — 1.9 Amortization of intangible assets — — 9.9 Interest expense, net — — 4.1 Actuarial loss on pension and other postretirement benefit obligations — — 4.8 Other non-operating income, net — — (5.6) Income from discontinued operations before income tax 8.4 2.9 99.1 Income tax (provision) benefit 0.1 1.8 (28.0) Equity method investment income — — 0.3 Non-controlling interest income — — (0.2) Income from discontinued operations, net of tax $ 8.5 $ 4.7 $ 71.2 ____________________ (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.
Cost of sales includes all costs of manufacturing required to bring a product to a ready for sale condition. Such costs include direct and indirect materials, direct and indirect labor costs, including fringe benefits, supplies, utilities, depreciation, freight and shipping, insurance, pension and postretirement benefits, information technology costs and other manufacturing related costs.
Cost of sales includes all costs of manufacturing required to bring a product to a ready for sale condition. Such costs include direct and indirect materials, direct and indirect labor costs, including fringe benefits, supplies, utilities, depreciation, freight and shipping, insurance, pension and other postretirement benefits, information technology costs and other manufacturing related costs.
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.
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.
The obligation for postretirement benefits other than pension also is actuarially determined and is affected by assumptions including the discount rate and expected future increase in per capita costs of covered postretirement health care benefits.
The obligation for other postretirement benefits other than pension also is actuarially determined and is affected by assumptions including the discount rate and expected future increase in per capita costs of covered other postretirement health care benefits.
Investing activities in 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.
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.
Major raw materials and components include brass, castings, copper, zinc, 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. Selling, general and administrative expenses.
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. Selling, general and administrative expenses.
During the year ended December 31, 2021, we received a $4.2 million cash payment as a result of the VAG business performance in its fiscal year ended March 31, 2021, which represented the final period of the earn-out, which was recorded in income from discontinued operations, net of tax in our condensed consolidated statements of operations.
During the year ended December 31, 2021, we received a $4.2 million cash payment as a result of the VAG business performance in its fiscal year ended March 31, 2021, which represented the final period of the earn-out, which was recorded in income from discontinued operations, net of tax in our consolidated statements of operations.
Our product portfolio includes professional grade water safety and control products, flow system products, hygienic and environmental products, and 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.
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.
In conducting the annual impairment test for goodwill, we have the option to first assess qualitative factors to determine whether it is more likely than not (> 50% likelihood) the fair value of any reporting unit is less than its carrying amount.
In conducting the annual impairment test for goodwill, we have the option to first assess qualitative factors to determine whether it is more likely than not (greater than 50% likelihood) the fair value of any reporting unit is less than its carrying amount.
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 state tax credit carryforwards, and continue to maintain a partial valuation allowance against certain foreign NOL carryforwards and other related deferred tax assets, as well as certain U.S. state NOL carryforwards.
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, 2022, we had $124.8 million of cash and cash equivalents and $192.5 million of additional borrowing capacity under our revolving credit facility. As of December 31, 2022, the available borrowings under our credit facility were reduced by $7.5 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.
Selling, general and administrative expenses primarily includes sales and marketing, finance and administration, engineering and technical services and warehousing. Our major cost elements include salary and wages, fringe benefits, insurance, depreciation, advertising, travel and information technology costs.
Selling, general and administrative expenses primarily include sales and marketing, finance and administration, engineering and technical services and warehousing. Our major cost elements include salary and wages, fringe benefits, insurance, depreciation, advertising, travel and information technology costs.
(9) Our credit agreement defines the Net First Lien Leverage Ratio as the ratio of consolidated indebtedness (as described above) to Adjusted EBITDA for the trailing four fiscal quarters. Liquidity and Capital Resources Our primary sources of liquidity are available cash and cash equivalents, cash flow from operations, and borrowing availability under our $200.0 million revolving credit facility.
(7) Our credit agreement defines the Net First Lien Leverage Ratio as the ratio of consolidated indebtedness (as described above) to Adjusted EBITDA for the trailing four fiscal quarters. Liquidity and Capital Resources Our primary sources of liquidity are available cash and cash equivalents, cash flow from operations, and borrowing availability under our $200.0 million revolving credit facility.
We have significant 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 and the current health care cost trend rate. We consider current market conditions in selecting these assumptions.
We have significant 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. We consider current market conditions in selecting these assumptions.
Provision for income taxes The income tax provision for the year ended December 31, 2022 was $26.8 million, or an effective tax rate of 32.0%.
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 acquisition costs associated with the Merger, the accrual of foreign income taxes, which are generally above the U.S. federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code and the accrual of various state income taxes, 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.
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.
Adjusted EBITDA Adjusted EBITDA (as described below in "Covenant Compliance") is an important measure because, under our credit agreement, our ability to incur certain types of acquisition debt and certain types of subordinated debt, make certain types of acquisitions or asset exchanges, operate our business and make dividends or other distributions, all of which will impact our financial performance, is impacted by our Adjusted EBITDA, as our lenders measure our performance with a net first lien leverage ratio by comparing our senior secured bank indebtedness to our Adjusted EBITDA (see "Covenant Compliance" for additional discussion of this ratio, including a reconciliation to our net income).
Adjusted EBITDA Adjusted EBITDA is an important measure because, under our credit agreement, our ability to incur certain types of acquisition debt and certain types of subordinated debt, make certain types of acquisitions or asset exchanges, operate our business and make dividends or other distributions, all of which will impact our financial performance, is impacted by our Adjusted EBITDA, as our lenders measure our performance with a Net First Lien Leverage Ratio by comparing our senior secured bank indebtedness to our Adjusted EBITDA (see "Covenant Compliance" for additional discussion of this ratio, including a reconciliation to our net income).
Approximately 11% of our sales originated outside of the United States in the year ended December 31, 2022. 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.
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.
(2) Results of operations during the year ended December 31, 2021 reflect the period from January 1, 2021 through October 4, 2021, the date on which the Spin-Off Transaction of PMC was completed. During the fiscal year ended March 31, 2019, we completed the sale of our VAG business, which was previously included in our Water Management platform.
(3) Results of operations during the year ended December 31, 2021 reflect the period from January 1, 2021 through October 4, 2021, the date on which the Spin-Off Transaction of PMC was completed. During the fiscal year ended March 31, 2019, we completed the sale of our VAG business, which was previously included in our Water Management platform.
In conducting a qualitative assessment, we use a discounted cash flow methodology based on future business projections and a market value approach (guideline public company comparables). We perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
In conducting a quantitative assessment, we use a discounted cash flow methodology based on future business projections and a market value approach (guideline public company comparables). We perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
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 16, Retirement Benefits for additional information.
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.
The preliminary purchase price includes $1,417.0 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.
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.
As of December 31, 2022 and 2021, our liability for unrecognized tax benefits was $5.5 million and $5.9 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.
As of December 31, 2023 and 2022, our liability for unrecognized tax benefits was $5.6 million and $5.5 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.
The largest component of our cost of sales is cost of materials, which represented approximately 35% of net sales in the year ended December 31, 2022. We purchase a broad range of materials and components throughout the world in connection with our manufacturing activities.
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.
If the USD strengthened by 10% as of December 31, 2022, the result would have decreased stockholders' equity by approximately $11.2 million. As of December 31, 2022, we had not entered into foreign currency forward contracts.
If the USD strengthened by 10% as of December 31, 2023, the result would have decreased stockholders' equity by approximately $11.7 million. As of December 31, 2023, we had not entered into foreign currency forward contracts.
Further, although not included in the calculation of Adjusted EBITDA below, the measure may at times allow us to add estimated cost savings and operating synergies related to operational changes ranging from acquisitions or dispositions to restructuring, and/or exclude one-time transition expenditures that we anticipate we will need to incur to realize cost savings before such savings have occurred.
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 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.
(8) 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 $97.6 million (as defined by the credit agreement) at December 31, 2022.
(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.
See Item 8, Note 4, Discontinued Operations for more information. Restructuring and Other Similar Costs During the year ended December 31, 2022, we continued to execute various restructuring actions.
See Item 8, Note 4, Discontinued Operations for more information. Restructuring and Other Similar Charges During the year ended December 31, 2023, we continued to execute various restructuring actions.
We believe the following accounting policies are the most critical to us in that they are important to our financial statements and they require difficult, subjective and/or complex judgments in the preparation of our consolidated financial statements. For additional information, see Item 8, Note 2, Significant Accounting Policies, to our consolidated financial statements. 27 Revenue recognition.
We believe the following accounting policies are the most critical to us in that they are important to our financial statements and they require difficult, subjective and/or complex judgments in the preparation of our consolidated financial statements. For additional information, see Item 8, Note 2, Significant Accounting Policies, to our consolidated financial statements. Purchase accounting and business combinations.
Actuarial gain on pension and postretirement benefit obligations Actuarial gain on pension and postretirement benefit obligations for the year ended December 31, 2022, was $1.9 million compared to a gain of $1.2 million for the year ended December 31, 2021.
Actuarial gain on pension and other postretirement benefit obligations 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.
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.
(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.
The effective income tax rate for the year ended December 31, 2020 was above the U.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above the U.S. federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code and the accrual of various state income taxes, partially offset by the recognition of income tax benefits associated with share-based payments.
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.
Cash used for financing activities was $61.1 million in the year ended December 31, 2022 compared to cash used for financing activities of $356.2 million in the year ended December 31, 2021.
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.
As of December 31, 2022 and 2021, valuation allowances of $32.2 million and $35.1 million, respectively, were recorded against our deferred tax assets. See Item 8 Note 17, Income Taxes for additional information. 29 Commitments and Contingencies. We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters.
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. Commitments and Contingencies. We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters.
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.
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.
During the year ended December 31, 2022, the weighted-average interest rate was 4.00%. Our net income is affected by changes in market interest rates on our variable-rate obligations. As discussed above, our term loan facilities bear interest at LIBOR (subject to a 0.5% floor) plus an applicable margin.
During the year ended December 31, 2023, the weighted-average interest rate was 7.09%. Our net income is affected by changes in market interest rates on our variable-rate obligations. As discussed above, our term loan facilities bear interest at Term SOFR (subject to a 0.5% floor), plus a Term SOFR adjustment plus an applicable margin.
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, 2022, stockholders' equity decreased by $4.2 million from December 31, 2021 as a result of foreign currency translation adjustments.
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.
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 of 5.0 to 1.0 as of the end of each fiscal quarter (the ratio was 1.5 to 1.0 at December 31, 2022).
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.
Net income from continuing operations Our net income from continuing operations for the year ended December 31, 2022, was $57.0 million, compared to net income from continuing operations of $49.7 million for the year ended December 31, 2021, as a result of the factors described above.
Net income from continuing operations 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.
In particular, our definition of Adjusted EBITDA allows us to add back certain non-cash, non-operating or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies as opposed to short-term results.
In particular, our definition of Adjusted EBITDA allows us to add back certain non-cash, non-operating or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies as opposed to short-term results. 35 In addition, certain of these expenses added back in calculating Adjusted EBITDA can represent the reduction of cash that could be used for other corporate purposes.
Therefore, a 100 basis point increase in LIBOR above where it closed as of December 31, 2022 would increase the annual interest expense under our term loan facility by approximately $5.5 million.
Therefore, a 100 basis point increase in Term SOFR above where it closed as of December 31, 2023 would increase the annual interest expense under our term loan facility by approximately $4.9 million.
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.
Discontinued Operations 31 During the year ended December 31, 2021, we completed the spin-off of our PMC platform. 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 fourth quarter of the year ended December 31, 2022, we completed our annual goodwill impairment test and elected to perform a qualitative assessment. No goodwill impairment charges were recorded during the year ended December 31, 2022, the year ended December 31, 2021, or the nine-month Transition Period ended December 31, 2020. Retirement benefits.
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. Retirement benefits.
Diluted net income per share from continuing operations was $0.37 for the year ended December 31, 2022, as compared to $0.40 per share for the year ended December 31, 2021. Net income Net income for the year ended December 31, 2022, was $61.7 million compared to $120.9 million for the year ended December 31, 2021.
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. Net income 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.
Cash used for investing activities was $6.6 million in the year ended December 31, 2022 compared to $21.9 million in the year ended December 31, 2021.
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.
See Item 8, Note 16 Retirement Benefits for more information. 32 Other income (expense), net Other income, net for the year ended December 31, 2022, was $1.7 million compared to other expense, net of $0.7 million for the year ended December 31, 2021.
See Item 8, Note 15, Retirement Benefits for more information. 33 Other income (expense), net 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.
We reported net income in the year ended December 31, 2022, of $61.7 million and Adjusted EBITDA for the same period of $264.6 million. See "Covenant Compliance" for a reconciliation of Adjusted EBITDA to GAAP net income.
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.
Indebtedness As of December 31, 2022 we had $535.9 million of total indebtedness outstanding as follows (in millions): Total Debt at December 31, 2022 Current Maturities of Long-Term Debt Long-term Portion Term loan (1) $ 535.3 $ 5.5 $ 529.8 Finance leases 0.6 0.2 0.4 Total $ 535.9 $ 5.7 $ 530.2 ____________________ (1) Includes unamortized original issue discount and debt issuance costs of $9.2 million at December 31, 2022.
Indebtedness As of December 31, 2023 we had $495.3 million of total indebtedness outstanding as follows (in millions): Total Debt at December 31, 2023 Current Maturities of Long-Term Debt Long-term Portion Term loan (1) $ 473.6 $ — $ 473.6 Finance leases 21.7 0.9 20.8 Total $ 495.3 $ 0.9 $ 494.4 ____________________ (1) Includes unamortized original issue discount and debt issuance costs of $6.8 million at December 31, 2023.
This section provides an analysis of our cash flows and year-to-year comparisons for our years ended December 31, 2022, 2021, and 2020, as well as a discussion of our indebtedness and its potential effects on our liquidity. Tabular Disclosure of Contractual Obligations .
Liquidity and Capital Resources . This section provides an analysis of our cash flows and year-to-year comparisons for our years ended December 31, 2023 and 2022, as well as a discussion of our indebtedness and its potential effects on our liquidity.
Diluted net income per share was $0.40 for the year ended December 31, 2022, compared to $0.97 for the year ended December 31, 2021. Income from discontinued operations, net of tax, was $4.7 million for the year ended December 31, 2022 compared to $71.2 million for the year ended December 31, 2021.
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.
Income from operations (Dollars in Millions) Year Ended December 31, 2022 December 31, 2021 Change % Change Income from operations $ 107.1 $ 107.0 $ 0.1 0.1 % % of net sales 8.4 % 11.7 % (3.3) % Income from operations was $107.1 million for the year ended December 31, 2022, or 8.4% of net sales, compared to income from operations of $107.0 million, or 11.7% of net sales for the year ended December 31, 2021.
Income from operations (Dollars in Millions) Year Ended December 31, 2023 December 31, 2022 Change % Change Income from operations $ 191.4 $ 107.1 $ 84.3 78.7 % % of net sales 12.5 % 8.4 % 4.1 % 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.
See Item 8, Note 5, Restructuring and Other Similar Costs for more information. 31 Results of Operations Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021 Net sales (Dollars in Millions) Year Ended December 31, 2022 December 31, 2021 Change % Change Net sales $ 1,281.8 $ 910.9 $ 370.9 40.7 % Net sales were $1,281.8 million for the year ended December 31, 2022, a 40.7% increase year over year.
See Item 8, Note 5, Restructuring and Other Similar Charges for more information. 32 Results of Operations Year Ended December 31, 2023 Compared with the Year Ended December 31, 2022 Net sales (Dollars in Millions) Year Ended December 31, 2023 December 31, 2022 Change % Change Net sales $ 1,530.5 $ 1,281.8 $ 248.7 19.4 % Net sales were $1,530.5 million for the year ended December 31, 2023, a 19.4% increase year over year.
During the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020, we recognized non-cash actuarial gain (loss) from continuing operations of $1.9 million, $1.2 million, and $(0.3) million, respectively, in connection with re-measurements of our plans.
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.
This section provides an explanation of certain financial measures we use that are not in accordance with U.S. generally accepted accounting principles ("GAAP"). Covenant Compliance . This section provides a discussion of certain restrictive covenants in our credit agreement. Liquidity and Capital Resources .
Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2022 Form 10-K . Non-GAAP Financial Measures . This section provides an explanation of certain financial measures we use that are not in accordance with U.S. generally accepted accounting principles ("GAAP"). Covenant Compliance . This section provides a discussion of certain restrictive covenants in our credit agreement.
Overview of Recent Developments Elkay Merger On July 1, 2022, we completed the Elkay Merger for a preliminary purchase price of $1,462.9 million. Elkay, a market leader of drinking water solutions and commercial sinks, complements our existing product portfolio.
Elkay Merger 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.
In addition, cash flows for the year ended December 31, 2020 include our continuing operations and discontinued operations for the entire period, while 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.
Cash flows 37 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.
The year-over-year change in net income is primarily the result of the factors described above. 35 Non-GAAP Financial Measures Non-GAAP financial measures are intended to supplement and not replace financial measures prepared in accordance with GAAP.
The year-over-year change in net income is primarily the result of the factors described above. 34 Non-GAAP Financial Measures Non-GAAP financial measures are intended to supplement and not replace financial measures prepared in accordance with GAAP. The following non-GAAP financial measures are utilized by management in comparing our operating performance on a consistent basis.
As of December 31, 2022, our outstanding borrowings under the term loan facility were $535.3 million (net of $9.2 million unamortized debt issuance costs) and bore an effective interest rate of 6.39%, determined as London Interbank Offered Rate ("LIBOR") (subject to a 0.5% floor) plus an applicable margin of 2.00%.
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%.
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 28 value. Actual results could vary from these estimates.
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.
Company Overview We are a growth-oriented, pure-play water management business that designs, procures, manufactures, and markets what we believe is the broadest sustainable product portfolio of specification-driven water management solutions to improve health, human safety and the environment.
This section discusses our exposure to potential losses arising from adverse changes in interest rates and foreign exchange rates. 28 Company Overview 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.
As a result, during the measurement period, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset recorded to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in our consolidated statements of operations.
Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in our consolidated statements of operations. 29 Impairment of intangible assets and tangible fixed assets.
We expect to continue executing similar initiatives to optimize our operating margin and manufacturing footprint. As such, we expect further expenses related to workforce reductions, potential impairment of assets, lease termination costs, and other facility rationalization costs.
We expect to continue executing similar initiatives to optimize our operating margin and manufacturing footprint. As such, we expect further expenses related to workforce reductions, potential impairment of assets, lease termination costs, and other facility rationalization costs. 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.
Our financial performance includes the Hadrian business subsequent to December 11, 2020, 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.
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.
The income tax provision for the year ended December 31, 2021 was $2.7 million, or an effective tax rate of 5.2%.
Provision for income taxes The income tax provision for the year ended December 31, 2023 was $42.6 million, or an effective tax rate of 29.0%.
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. 36 "Adjusted EBITDA" is the term we use to describe EBITDA as defined and adjusted in our credit agreement, which is net income, adjusted for the items summarized in the table below.
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. 36 Set forth below is a reconciliation of net income to Adjusted EBITDA for the year ended December 31, 2023.
(in millions) Year Ended December 31, 2022 Net income $ 61.7 Income from discontinued operations, net of tax (1) (4.7) Provision for income taxes 26.8 Actuarial gain on pension and postretirement benefit obligations (1.9) Other income, net (2) (1.7) Interest expense, net 26.9 Depreciation and amortization 54.5 EBITDA 161.6 Adjustments to EBITDA Restructuring and other similar charges (3) 15.4 Stock-based compensation expense 25.0 Merger costs (4) 33.7 LIFO expense (5) 9.7 Acquisition-related fair value adjustment 18.9 Other, net (6) 0.3 Subtotal of adjustments to EBITDA 103.0 Adjusted EBITDA 264.6 Pro forma adjustment for acquisitions (7) 36.2 Pro forma Adjusted EBITDA 300.8 Consolidated indebtedness (8) $ 438.3 Net First Lien Leverage Ratio (9) 1.46 ____________________ (1) Income from discontinued operations, net of tax is not included in Adjusted EBITDA in accordance with the terms of our credit agreement.
(in millions) Year Ended December 31, 2023 Net income $ 112.7 Income from discontinued operations, net of tax (1) (8.5) Provision for income taxes 42.6 Actuarial gain on pension and other postretirement benefit obligations (2.0) Other expense, net (2) 7.2 Loss on the extinguishment of debt 0.9 Interest expense, net 38.5 Depreciation and amortization 87.9 EBITDA 279.3 Adjustments to EBITDA Restructuring and other similar charges (3) 15.3 Stock-based compensation expense 40.0 LIFO gain (4) (6.5) Loss on divestiture of asbestos liabilities and certain assets (5) 11.4 Subtotal of adjustments to EBITDA 60.2 Adjusted EBITDA 339.5 Consolidated indebtedness (6) $ 403.4 Net First Lien Leverage Ratio (7) 1.19 ____________________ (1) Income from discontinued operations, net of tax is not included in Adjusted EBITDA in accordance with the terms of our credit agreement.
Fiscal years prior to and including fiscal year 2020 ended on March 31 of each calendar year. 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. Actual results may differ materially from those contained in any forward-looking statements.
See Item 8, Note 4, Discontinued Operations for additional information on cash flows associated with the 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. Actual results may differ materially from those contained in any forward-looking statements.
The consolidated statements of cash flows for the year ended December 31, 2022, the year ended December 31, 2021, and the nine-month Transition Period ended December 31, 2020 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.
Cash Flows 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.
Core sales Core sales excludes the impact of acquisitions (such as the Elkay and Wade Drains acquisitions), 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.
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.
However, the goodwill and intangible assets are tested annually for impairment, and may be tested more frequently if any triggering events occur that would reduce the recoverability of the asset.
The Company recognized no impairment charges during the during the years ended December 31, 2022 or 2021. Goodwill, trademarks and certain tradenames have indefinite lives and are not amortized. However, the goodwill and intangible assets are tested annually for impairment, and may be tested more frequently if any triggering events occur that would reduce the recoverability of the asset.
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. 37 Set forth below is a reconciliation of net income to Adjusted EBITDA for the year ended December 31, 2022.
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.
These costs were associated with legal and professional services and were recognized as selling, general and administrative expenses in our consolidated statements of operations. See Item 8, Note 3, Acquisitions for more information. Discontinued Operations During the year ended December 31, 2021, we completed the spin-off of our PMC platform.
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.
In providing analysis of the results of our operations, we have provided a comparison of our year ended December 31, 2022 to the year ended December 31, 2021, along with a comparison of the year ended December 31, 2021 to the year ended December 31, 2020. Non-GAAP Financial Measures .
In providing analysis of the results of our operations, we have provided a comparison of our year ended December 31, 2023 to the year ended December 31, 2022. A discussion of the financial performance for the year ended December 31, 2022 compared to December 31, 2021 can be found within "Item 7.
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.
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.
Cash used for financing activities during the year ended December 31, 2021 also included $24.9 million of cash proceeds associated with stock option exercises, more than offset by $32.3 million of cash used for the payment of withholding taxes on employees' share-based payment awards.
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.
As of December 31, 2021, the available borrowings under our credit facility were reduced by $6.1 million, due to outstanding letters of credit. 38 Our revolving credit facility is available to fund our working capital requirements, capital expenditures and other general corporate purposes. We believe this resource is adequate for expected needs.
Our revolving credit facility is available to fund our working capital requirements, capital expenditures and other general corporate purposes. We believe this resource is adequate for expected short-term and long-term needs.
Pursuant to the Merger Agreement, we issued 51,564,524 shares of our common stock, which represented approximately 29% of our outstanding common shares immediately following the Merger. The total number of shares of our common stock issued at closing was preliminary and subject to change upon finalization of customary post-closing adjustments with respect to cash, indebtedness and working capital.
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.
(Hadrian Inc. and Hadrian Manufacturing Inc. are collectively referred to as "Hadrian"), 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.
ITEM 7. 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 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.
Significant judgment is required in determining our worldwide provision for income taxes and recording the related deferred tax assets and liabilities. 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.
Significant judgment is required in determining our worldwide provision for income taxes and recording the related deferred tax assets and liabilities.
See Item 8, Note 5, Restructuring and Other Similar Charges for more information. (4) Merger costs is comprised of costs associated with legal and other professional services incurred in connection with completing the merger with Elkay, which are excluded in calculating Adjusted EBITDA 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 5, Restructuring and Other Similar Charges for more information.

… 116 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information with respect to the Company's market risk is contained under the caption "Quantitative and Qualitative Disclosures About Market Risk" in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. 41
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information with respect to the Company's market risk is contained under the caption "Quantitative and Qualitative Disclosures About Market Risk" in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. 39

Other ZWS 10-K year-over-year comparisons