0001439288FALSE2023FY1http://fasb.org/us-gaap/2023#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2023#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2023#PropertyPlantAndEquipmentAndFinanceLeaseRightOfUseAssetAfterAccumulatedDepreciationAndAmortizationhttp://fasb.org/us-gaap/2023#PropertyPlantAndEquipmentAndFinanceLeaseRightOfUseAssetAfterAccumulatedDepreciationAndAmortizationhttp://fasb.org/us-gaap/2023#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#LongTermDebtCurrenthttp://fasb.org/us-gaap/2023#LongTermDebtCurrenthttp://fasb.org/us-gaap/2023#LongTermDebtNoncurrenthttp://fasb.org/us-gaap/2023#LongTermDebtNoncurrent00014392882023-01-012023-12-3100014392882023-06-30iso4217:USD00014392882024-02-01xbrli:shares00014392882023-12-3100014392882022-12-31iso4217:USDxbrli:shares00014392882022-01-012022-12-3100014392882021-01-012021-12-310001439288us-gaap:CommonStockMember2020-12-310001439288us-gaap:AdditionalPaidInCapitalMember2020-12-310001439288us-gaap:RetainedEarningsMember2020-12-310001439288us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001439288us-gaap:NoncontrollingInterestMember2020-12-3100014392882020-12-310001439288us-gaap:RetainedEarningsMember2021-01-012021-12-310001439288us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-12-310001439288us-gaap:AdditionalPaidInCapitalMember2021-01-012021-12-310001439288us-gaap:CommonStockMember2021-01-012021-12-310001439288us-gaap:NoncontrollingInterestMember2021-01-012021-12-310001439288us-gaap:CommonStockMember2021-12-310001439288us-gaap:AdditionalPaidInCapitalMember2021-12-310001439288us-gaap:RetainedEarningsMember2021-12-310001439288us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001439288us-gaap:NoncontrollingInterestMember2021-12-3100014392882021-12-310001439288us-gaap:RetainedEarningsMember2022-01-012022-12-310001439288us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-12-310001439288us-gaap:AdditionalPaidInCapitalMember2022-01-012022-12-310001439288us-gaap:CommonStockMemberzws:ElkayManufacturingCompanyMember2022-01-012022-12-310001439288us-gaap:AdditionalPaidInCapitalMemberzws:ElkayManufacturingCompanyMember2022-01-012022-12-310001439288zws:ElkayManufacturingCompanyMember2022-01-012022-12-310001439288us-gaap:CommonStockMember2022-12-310001439288us-gaap:AdditionalPaidInCapitalMember2022-12-310001439288us-gaap:RetainedEarningsMember2022-12-310001439288us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001439288us-gaap:NoncontrollingInterestMember2022-12-310001439288us-gaap:RetainedEarningsMember2023-01-012023-12-310001439288us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-12-310001439288us-gaap:AdditionalPaidInCapitalMember2023-01-012023-12-310001439288us-gaap:CommonStockMember2023-01-012023-12-310001439288us-gaap:AdditionalPaidInCapitalMemberzws:ElkayManufacturingCompanyMember2023-01-012023-12-310001439288zws:ElkayManufacturingCompanyMember2023-01-012023-12-310001439288us-gaap:CommonStockMember2023-12-310001439288us-gaap:AdditionalPaidInCapitalMember2023-12-310001439288us-gaap:RetainedEarningsMember2023-12-310001439288us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001439288us-gaap:NoncontrollingInterestMember2023-12-310001439288zws:ProcessMotionControlSegmentMemberzws:ProcessMotionControlJointVentureMemberzws:CentaMPHongKongCo.LimitedMember2020-12-31xbrli:pure0001439288zws:ProcessMotionControlSegmentMember2020-04-012020-12-310001439288zws:ProcessMotionControlSegmentMemberzws:CentaMPHongKongCo.LimitedMemberzws:CentaMPHongKongCo.LimitedMember2020-12-31utr:Rate0001439288us-gaap:CustomerConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberzws:LargestCustomerMember2023-01-012023-12-310001439288us-gaap:CustomerConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberzws:LargestCustomerMember2022-01-012022-12-310001439288us-gaap:CustomerConcentrationRiskMemberus-gaap:RevenueFromContractWithCustomerMemberzws:LargestCustomerMember2021-01-012021-12-310001439288srt:MinimumMemberus-gaap:BuildingAndBuildingImprovementsMember2023-12-310001439288srt:MaximumMemberus-gaap:BuildingAndBuildingImprovementsMember2023-12-310001439288srt:MinimumMemberus-gaap:MachineryAndEquipmentMember2023-12-310001439288srt:MaximumMemberus-gaap:MachineryAndEquipmentMember2023-12-310001439288srt:MinimumMemberus-gaap:ComputerEquipmentMember2023-12-310001439288us-gaap:ComputerEquipmentMembersrt:MaximumMember2023-12-310001439288srt:MinimumMemberus-gaap:CustomerRelationshipsMember2023-12-310001439288us-gaap:CustomerRelationshipsMembersrt:MaximumMember2023-12-310001439288srt:MinimumMemberus-gaap:PatentsMember2023-12-310001439288us-gaap:PatentsMembersrt:MaximumMember2023-12-310001439288srt:MinimumMemberus-gaap:TradeNamesMember2023-12-310001439288srt:MaximumMemberus-gaap:TradeNamesMember2023-12-310001439288us-gaap:AccumulatedTranslationAdjustmentMember2020-12-310001439288us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-12-310001439288us-gaap:AccumulatedTranslationAdjustmentMember2021-01-012021-12-310001439288us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-01-012021-12-310001439288us-gaap:AccumulatedTranslationAdjustmentMember2021-12-310001439288us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-12-310001439288us-gaap:AccumulatedTranslationAdjustmentMember2022-01-012022-12-310001439288us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-01-012022-12-310001439288us-gaap:AccumulatedTranslationAdjustmentMember2022-12-310001439288us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-12-310001439288us-gaap:AccumulatedTranslationAdjustmentMember2023-01-012023-12-310001439288us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2023-01-012023-12-310001439288us-gaap:AccumulatedTranslationAdjustmentMember2023-12-310001439288us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2023-12-310001439288us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetPriorServiceCostCreditMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2021-01-012021-12-310001439288zws:AccumulatedDefinedBenefitPlansAdjustmentAttributabletoParentCurtailmentMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2021-01-012021-12-310001439288us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2021-01-012021-12-31zws:segment0001439288country:US2023-01-012023-12-310001439288country:US2022-01-012022-12-310001439288country:US2021-01-012021-12-310001439288country:US2023-12-310001439288country:US2022-12-310001439288country:US2021-12-310001439288country:CA2023-01-012023-12-310001439288country:CA2022-01-012022-12-310001439288country:CA2021-01-012021-12-310001439288country:CA2023-12-310001439288country:CA2022-12-310001439288country:CA2021-12-310001439288zws:OtherGeographicalAreasMember2023-01-012023-12-310001439288zws:OtherGeographicalAreasMember2022-01-012022-12-310001439288zws:OtherGeographicalAreasMember2021-01-012021-12-310001439288zws:OtherGeographicalAreasMember2023-12-310001439288zws:OtherGeographicalAreasMember2022-12-310001439288zws:OtherGeographicalAreasMember2021-12-310001439288zws:ElkayManufacturingCompanyMember2022-07-012022-07-010001439288zws:ElkayManufacturingCompanyMember2022-07-010001439288zws:ElkayManufacturingCompanyMember2023-01-012023-06-300001439288zws:ElkayManufacturingCompanyMember2023-12-31zws:memberzws:director0001439288zws:ElkayManufacturingCompanyMember2023-06-300001439288us-gaap:AcquisitionRelatedCostsMemberzws:ElkayManufacturingCompanyMember2022-01-012022-12-310001439288us-gaap:AcquisitionRelatedCostsMemberzws:ElkayManufacturingCompanyMember2021-01-012021-12-310001439288us-gaap:FairValueAdjustmentToInventoryMemberzws:ElkayManufacturingCompanyMember2022-01-012022-12-310001439288us-gaap:FairValueAdjustmentToInventoryMemberzws:ElkayManufacturingCompanyMember2021-01-012021-12-310001439288zws:ElkayManufacturingCompanyMember2021-01-012021-12-310001439288zws:ElkayManufacturingCompanyMember2022-07-012022-12-310001439288zws:McWaneAssetsAcquisitionMember2021-11-172021-11-170001439288zws:McWaneAssetsAcquisitionMember2022-01-012022-12-310001439288zws:AdvanceTechnologySolutionsLLCMember2021-04-162021-04-160001439288zws:AdvanceTechnologySolutionsLLCMember2021-04-160001439288zws:AdvanceTechnologySolutionsLLCMember2022-01-012022-12-310001439288zws:ProcessMotionControlSegmentMemberus-gaap:DiscontinuedOperationsDisposedOfBySaleMember2022-01-012022-12-310001439288us-gaap:DiscontinuedOperationsDisposedOfBySaleMember2023-01-012023-12-310001439288us-gaap:DiscontinuedOperationsHeldforsaleMember2022-01-012022-12-310001439288us-gaap:DiscontinuedOperationsHeldforsaleMember2021-01-012021-12-310001439288us-gaap:DiscontinuedOperationsDisposedOfBySaleMember2021-01-012021-12-310001439288us-gaap:EmployeeSeveranceMember2023-01-012023-12-310001439288us-gaap:EmployeeSeveranceMember2022-01-012022-12-310001439288us-gaap:EmployeeSeveranceMember2021-01-012021-12-310001439288us-gaap:OtherRestructuringMember2023-01-012023-12-310001439288us-gaap:OtherRestructuringMember2020-04-012020-12-310001439288us-gaap:OtherRestructuringMember2019-04-012020-03-310001439288us-gaap:ContractTerminationMember2023-01-012023-12-310001439288us-gaap:ContractTerminationMember2022-01-012022-12-310001439288us-gaap:ContractTerminationMember2021-01-012021-12-310001439288us-gaap:EmployeeSeveranceMember2011-04-012023-12-310001439288us-gaap:FacilityClosingMember2011-04-012023-12-310001439288us-gaap:ContractTerminationMember2011-04-012023-12-3100014392882011-04-012023-12-310001439288us-gaap:EmployeeSeveranceMember2021-12-310001439288us-gaap:FacilityClosingMember2021-12-310001439288us-gaap:ContractTerminationMember2021-12-310001439288us-gaap:FacilityClosingMember2022-01-012022-12-310001439288us-gaap:EmployeeSeveranceMember2022-12-310001439288us-gaap:FacilityClosingMember2022-12-310001439288us-gaap:ContractTerminationMember2022-12-310001439288us-gaap:FacilityClosingMember2023-01-012023-12-310001439288us-gaap:EmployeeSeveranceMember2023-12-310001439288us-gaap:FacilityClosingMember2023-12-310001439288us-gaap:ContractTerminationMember2023-12-310001439288zws:InstitutionalCustomerMember2023-01-012023-12-310001439288zws:InstitutionalCustomerMember2022-01-012022-12-310001439288zws:InstitutionalCustomerMember2021-01-012021-12-310001439288zws:CommercialCustomerMember2023-01-012023-12-310001439288zws:CommercialCustomerMember2022-01-012022-12-310001439288zws:CommercialCustomerMember2021-01-012021-12-310001439288us-gaap:OtherCustomerMember2023-01-012023-12-310001439288us-gaap:OtherCustomerMember2022-01-012022-12-310001439288us-gaap:OtherCustomerMember2021-01-012021-12-3100014392882024-01-012023-12-310001439288us-gaap:LandMember2023-12-310001439288us-gaap:LandMember2022-12-310001439288us-gaap:BuildingAndBuildingImprovementsMember2023-12-310001439288us-gaap:BuildingAndBuildingImprovementsMember2022-12-310001439288us-gaap:MachineryAndEquipmentMember2023-12-310001439288us-gaap:MachineryAndEquipmentMember2022-12-310001439288us-gaap:ComputerEquipmentMember2023-12-310001439288us-gaap:ComputerEquipmentMember2022-12-310001439288us-gaap:ConstructionInProgressMember2023-12-310001439288us-gaap:ConstructionInProgressMember2022-12-310001439288us-gaap:PatentsMember2023-12-310001439288us-gaap:CustomerRelationshipsMember2023-12-310001439288us-gaap:TradeNamesMember2023-12-310001439288us-gaap:TradeNamesMember2023-12-310001439288us-gaap:PatentsMember2022-12-310001439288us-gaap:CustomerRelationshipsMember2022-12-310001439288us-gaap:TradeNamesMember2022-12-310001439288us-gaap:TradeNamesMember2022-12-310001439288us-gaap:CustomerRelationshipsMember2022-01-012022-12-310001439288us-gaap:TradeNamesMember2022-01-012022-12-310001439288us-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMember2023-12-310001439288us-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMember2022-12-310001439288zws:FinanceLeasesMemberus-gaap:NotesPayableOtherPayablesMember2023-12-310001439288zws:FinanceLeasesMemberus-gaap:NotesPayableOtherPayablesMember2022-12-310001439288us-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMember2021-10-040001439288us-gaap:RevolvingCreditFacilityMemberzws:SeniorSecuredCreditFacilityMember2021-10-040001439288us-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMember2020-12-310001439288us-gaap:RevolvingCreditFacilityMemberzws:SeniorSecuredCreditFacilityMember2020-12-310001439288zws:SeniorSecuredCreditFacilityMember2021-10-042021-10-040001439288us-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMember2021-10-042021-10-040001439288us-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMember2023-10-112023-10-110001439288us-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMember2022-03-312022-03-310001439288us-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMemberzws:SecuredOvernightFinancingRateSOFRMemberzws:VariableRatePeriodOneMember2023-07-012023-07-010001439288us-gaap:MediumTermNotesMemberzws:VariableRatePeriodTwoMemberzws:SeniorSecuredCreditFacilityMemberzws:SecuredOvernightFinancingRateSOFRMember2023-07-012023-07-010001439288zws:VariableRatePeriodThreeMemberus-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMemberzws:SecuredOvernightFinancingRateSOFRMember2023-07-012023-07-010001439288us-gaap:MediumTermNotesMemberzws:LeverageRatioScenarioOneMemberzws:SeniorSecuredCreditFacilityMember2021-10-040001439288us-gaap:MediumTermNotesMemberus-gaap:BaseRateMemberzws:LeverageRatioScenarioOneMemberzws:SeniorSecuredCreditFacilityMember2021-10-042021-10-040001439288us-gaap:MediumTermNotesMemberzws:LeverageRatioScenarioOneMemberzws:SeniorSecuredCreditFacilityMemberzws:SecuredOvernightFinancingRateSOFRMember2021-10-042021-10-040001439288us-gaap:MediumTermNotesMemberzws:LeverageRatioScenarioTwoMemberzws:SeniorSecuredCreditFacilityMember2021-10-042021-10-040001439288us-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMember2023-01-012023-12-310001439288us-gaap:MediumTermNotesMemberzws:SeniorSecuredCreditFacilityMember2022-01-012022-12-310001439288us-gaap:RevolvingCreditFacilityMemberzws:LeverageRatioScenarioOneMemberzws:SeniorSecuredCreditFacilityMember2021-10-040001439288us-gaap:RevolvingCreditFacilityMemberus-gaap:BaseRateMemberzws:LeverageRatioScenarioOneMemberzws:SeniorSecuredCreditFacilityMember2021-10-042021-10-040001439288us-gaap:RevolvingCreditFacilityMemberzws:LeverageRatioScenarioOneMemberzws:SeniorSecuredCreditFacilityMemberzws:SecuredOvernightFinancingRateSOFRMember2021-10-042021-10-040001439288us-gaap:RevolvingCreditFacilityMemberzws:LeverageRatioScenarioTwoMemberzws:SeniorSecuredCreditFacilityMember2021-10-040001439288us-gaap:RevolvingCreditFacilityMemberzws:LeverageRatioScenarioTwoMemberzws:SeniorSecuredCreditFacilityMember2021-10-042021-10-040001439288us-gaap:RevolvingCreditFacilityMemberzws:LeverageRatioScenarioOneMemberzws:SeniorSecuredCreditFacilityMember2021-10-042021-10-040001439288us-gaap:RevolvingCreditFacilityMemberzws:SeniorSecuredCreditFacilityMember2023-12-310001439288us-gaap:RevolvingCreditFacilityMemberzws:SeniorSecuredCreditFacilityMember2022-12-310001439288us-gaap:SeniorNotesMemberzws:SeniorNotesDue2025Member2017-12-070001439288us-gaap:SeniorNotesMemberzws:SeniorNotesDue2025Member2021-10-042021-10-040001439288zws:AccountsReceivableSecuritizationProgramMemberus-gaap:NotesPayableOtherPayablesMember2020-09-250001439288zws:AccountsReceivableSecuritizationProgramMemberus-gaap:NotesPayableOtherPayablesMember2020-12-310001439288us-gaap:TradeNamesMember2023-01-012023-12-310001439288us-gaap:CustomerRelationshipsMember2023-01-012023-12-310001439288us-gaap:EmployeeStockOptionMember2023-01-012023-12-310001439288us-gaap:RestrictedStockUnitsRSUMember2023-01-012023-12-310001439288us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-12-310001439288us-gaap:RestrictedStockUnitsRSUMemberzws:NonemployeeDirectorMember2023-01-012023-12-310001439288us-gaap:PerformanceSharesMember2023-01-012023-12-3100014392882021-10-042021-10-040001439288us-gaap:DiscontinuedOperationsDisposedOfBySaleMember2022-01-012022-12-31zws:grantee0001439288us-gaap:EmployeeStockOptionMember2022-01-012022-12-310001439288us-gaap:EmployeeStockOptionMember2021-01-012021-12-310001439288us-gaap:RestrictedStockUnitsRSUMember2022-12-310001439288us-gaap:RestrictedStockUnitsRSUMember2021-12-310001439288us-gaap:RestrictedStockUnitsRSUMember2020-12-310001439288us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-12-310001439288us-gaap:RestrictedStockUnitsRSUMember2023-12-310001439288us-gaap:PerformanceSharesMember2022-01-012022-12-310001439288us-gaap:PerformanceSharesMember2021-01-012021-12-310001439288srt:MinimumMemberus-gaap:PerformanceSharesMember2023-01-012023-12-310001439288srt:MaximumMemberus-gaap:PerformanceSharesMember2023-01-012023-12-310001439288us-gaap:PerformanceSharesMember2022-12-310001439288us-gaap:PerformanceSharesMember2021-12-310001439288us-gaap:PerformanceSharesMember2020-12-310001439288us-gaap:PerformanceSharesMember2023-12-3100014392882021-10-040001439288us-gaap:PensionPlansDefinedBenefitMember2023-01-012023-12-310001439288us-gaap:PensionPlansDefinedBenefitMember2022-01-012022-12-310001439288us-gaap:PensionPlansDefinedBenefitMember2021-01-012021-12-310001439288us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2023-01-012023-12-310001439288us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2022-01-012022-12-310001439288us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2021-01-012021-12-31zws:provider0001439288us-gaap:PensionPlansDefinedBenefitMember2022-12-310001439288us-gaap:PensionPlansDefinedBenefitMember2021-12-310001439288us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2022-12-310001439288us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2021-12-310001439288us-gaap:PensionPlansDefinedBenefitMember2023-12-310001439288us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2023-12-310001439288zws:QualifiedPensionPlanMemberus-gaap:PensionPlansDefinedBenefitMember2023-01-012023-12-310001439288us-gaap:DefinedBenefitPlanEquitySecuritiesMember2023-01-012023-12-310001439288us-gaap:DefinedBenefitPlanEquitySecuritiesMember2023-12-310001439288us-gaap:DefinedBenefitPlanEquitySecuritiesMember2022-12-310001439288us-gaap:DefinedBenefitPlanDebtSecurityMember2023-01-012023-12-310001439288us-gaap:DefinedBenefitPlanDebtSecurityMember2023-12-310001439288us-gaap:DefinedBenefitPlanDebtSecurityMember2022-12-310001439288zws:DefinedBenefitPlanOtherMember2023-01-012023-12-310001439288zws:DefinedBenefitPlanOtherMember2023-12-310001439288zws:DefinedBenefitPlanOtherMember2022-12-31zws:category0001439288us-gaap:CashAndCashEquivalentsMemberus-gaap:FairValueInputsLevel1Member2023-12-310001439288us-gaap:CashAndCashEquivalentsMemberus-gaap:FairValueInputsLevel2Member2023-12-310001439288us-gaap:CashAndCashEquivalentsMemberus-gaap:FairValueInputsLevel3Member2023-12-310001439288us-gaap:CashAndCashEquivalentsMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2023-12-310001439288us-gaap:CashAndCashEquivalentsMember2023-12-310001439288us-gaap:FairValueInputsLevel1Memberus-gaap:FixedIncomeFundsMember2023-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:FixedIncomeFundsMember2023-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:FixedIncomeFundsMember2023-12-310001439288us-gaap:FixedIncomeFundsMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2023-12-310001439288us-gaap:FixedIncomeFundsMember2023-12-310001439288us-gaap:PrivateEquityFundsDomesticMemberus-gaap:FairValueInputsLevel1Member2023-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:PrivateEquityFundsDomesticMember2023-12-310001439288us-gaap:PrivateEquityFundsDomesticMemberus-gaap:FairValueInputsLevel3Member2023-12-310001439288us-gaap:PrivateEquityFundsDomesticMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2023-12-310001439288us-gaap:PrivateEquityFundsDomesticMember2023-12-310001439288us-gaap:PrivateEquityFundsForeignMemberus-gaap:FairValueInputsLevel1Member2023-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:PrivateEquityFundsForeignMember2023-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:PrivateEquityFundsForeignMember2023-12-310001439288us-gaap:PrivateEquityFundsForeignMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2023-12-310001439288us-gaap:PrivateEquityFundsForeignMember2023-12-310001439288us-gaap:FairValueInputsLevel1Memberus-gaap:BalancedFundsMember2023-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:BalancedFundsMember2023-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:BalancedFundsMember2023-12-310001439288us-gaap:BalancedFundsMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2023-12-310001439288us-gaap:BalancedFundsMember2023-12-310001439288us-gaap:FairValueInputsLevel1Member2023-12-310001439288us-gaap:FairValueInputsLevel2Member2023-12-310001439288us-gaap:FairValueInputsLevel3Member2023-12-310001439288us-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2023-12-310001439288us-gaap:CashAndCashEquivalentsMemberus-gaap:FairValueInputsLevel1Member2022-12-310001439288us-gaap:CashAndCashEquivalentsMemberus-gaap:FairValueInputsLevel2Member2022-12-310001439288us-gaap:CashAndCashEquivalentsMemberus-gaap:FairValueInputsLevel3Member2022-12-310001439288us-gaap:CashAndCashEquivalentsMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2022-12-310001439288us-gaap:CashAndCashEquivalentsMember2022-12-310001439288us-gaap:FairValueInputsLevel1Memberus-gaap:FixedIncomeFundsMember2022-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:FixedIncomeFundsMember2022-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:FixedIncomeFundsMember2022-12-310001439288us-gaap:FixedIncomeFundsMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2022-12-310001439288us-gaap:FixedIncomeFundsMember2022-12-310001439288us-gaap:PrivateEquityFundsDomesticMemberus-gaap:FairValueInputsLevel1Member2022-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:PrivateEquityFundsDomesticMember2022-12-310001439288us-gaap:PrivateEquityFundsDomesticMemberus-gaap:FairValueInputsLevel3Member2022-12-310001439288us-gaap:PrivateEquityFundsDomesticMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2022-12-310001439288us-gaap:PrivateEquityFundsDomesticMember2022-12-310001439288us-gaap:PrivateEquityFundsForeignMemberus-gaap:FairValueInputsLevel1Member2022-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:PrivateEquityFundsForeignMember2022-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:PrivateEquityFundsForeignMember2022-12-310001439288us-gaap:PrivateEquityFundsForeignMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2022-12-310001439288us-gaap:PrivateEquityFundsForeignMember2022-12-310001439288us-gaap:FairValueInputsLevel1Memberus-gaap:BalancedFundsMember2022-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:BalancedFundsMember2022-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:BalancedFundsMember2022-12-310001439288us-gaap:BalancedFundsMemberus-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2022-12-310001439288us-gaap:BalancedFundsMember2022-12-310001439288us-gaap:FairValueInputsLevel1Member2022-12-310001439288us-gaap:FairValueInputsLevel2Member2022-12-310001439288us-gaap:FairValueInputsLevel3Member2022-12-310001439288us-gaap:FairValueMeasuredAtNetAssetValuePerShareMember2022-12-310001439288zws:DefinedContributionSavingsPlanMember2023-01-012023-12-310001439288zws:DefinedContributionSavingsPlanMember2022-01-012022-12-310001439288us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMemberus-gaap:MutualFundMemberus-gaap:FairValueInputsLevel1Member2023-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMemberus-gaap:MutualFundMember2023-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMemberus-gaap:MutualFundMember2023-12-310001439288us-gaap:MutualFundMemberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2023-12-310001439288us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMembersic:Z6311us-gaap:FairValueInputsLevel1Member2023-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMembersic:Z63112023-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMembersic:Z63112023-12-310001439288us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMembersic:Z63112023-12-310001439288us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMemberus-gaap:FairValueInputsLevel1Member2023-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2023-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2023-12-310001439288us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2023-12-310001439288us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMemberus-gaap:MutualFundMemberus-gaap:FairValueInputsLevel1Member2022-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMemberus-gaap:MutualFundMember2022-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMemberus-gaap:MutualFundMember2022-12-310001439288us-gaap:MutualFundMemberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2022-12-310001439288us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMembersic:Z6311us-gaap:FairValueInputsLevel1Member2022-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMembersic:Z63112022-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMembersic:Z63112022-12-310001439288us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMembersic:Z63112022-12-310001439288us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMemberus-gaap:FairValueInputsLevel1Member2022-12-310001439288us-gaap:FairValueInputsLevel2Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2022-12-310001439288us-gaap:FairValueInputsLevel3Memberus-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2022-12-310001439288us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2022-12-310001439288us-gaap:StateAndLocalJurisdictionMember2023-12-310001439288us-gaap:OtherCurrentLiabilitiesMember2023-12-310001439288us-gaap:OtherCurrentLiabilitiesMember2022-12-310001439288us-gaap:OtherCurrentAssetsMember2023-12-310001439288us-gaap:OtherCurrentAssetsMember2022-12-3100014392882023-10-012023-12-31zws:lawsuitzws:claimant0001439288us-gaap:CommonStockMember2015-03-310001439288us-gaap:CommonStockMember2020-01-270001439288us-gaap:CommonStockMember2023-02-080001439288us-gaap:CommonStockMember2023-12-310001439288us-gaap:SubsequentEventMember2024-02-012024-02-010001439288zws:AllowanceforTradeReceivablesandNotesReceivableMember2020-12-310001439288zws:AllowanceforTradeReceivablesandNotesReceivableMember2021-01-012021-12-310001439288zws:AllowanceforTradeReceivablesandNotesReceivableMember2021-12-310001439288us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2020-12-310001439288us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2021-01-012021-12-310001439288us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2021-12-310001439288zws:AllowanceforTradeReceivablesandNotesReceivableMember2022-01-012022-12-310001439288zws:AllowanceforTradeReceivablesandNotesReceivableMember2022-12-310001439288us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2022-01-012022-12-310001439288us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2022-12-310001439288zws:AllowanceforTradeReceivablesandNotesReceivableMember2023-01-012023-12-310001439288zws:AllowanceforTradeReceivablesandNotesReceivableMember2023-12-310001439288us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2023-01-012023-12-310001439288us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2023-12-31

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☒    No   ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes  ☐     No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☒    Accelerated filer  ☐    Non-accelerated filer  ☐    Smaller reporting company  ☐ Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐    

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐   

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No   ☒

As of June 30, 2023, the aggregate market value of the shares of common stock (based upon the $26.89 closing price on the New York Stock Exchange on June 30, 2023, the last trading day of the registrant's second fiscal quarter) held by non-affiliates (excludes shares reported as beneficially owned by then-current directors and executive officers - does not constitute an admission as to affiliate status) was approximately $4.6 billion.

As of February 1, 2024, there were 171,996,144 shares of common stock outstanding.

Part III of this Report on Form 10-K incorporates by reference certain information from the Proxy Statement for the Registrant's annual meeting of stockholders, to be held on or about May 2, 2024, which Proxy Statement will be subsequently filed.

 

Part I
Item 1.						Business			5
Item 1A.						Risk Factors			12
Item 1B.						Unresolved Staff Comments			22
Item 1C.						Cybersecurity			22
Item 2.						Properties			24
Item 3.						Legal Proceedings			24
Item 4.						Mine Safety Disclosure			24
						Information about our Executive Officers			25
Part II
Item 5.						Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			26
Item 6.						[Reserved]			27
Item 7.						Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 7A.						Quantitative and Qualitative Disclosures About Market Risk			39
Item 8.						Financial Statements and Supplementary Data			40
Item 9.						Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			82
Item 9A.						Controls and Procedures			82
Item 9B.						Other Information			82
Item 9C.						Disclosure Regarding Foreign Jurisdictions that Prevent Inspections			82
Part III
Item 10.						Directors, Executive Officers and Corporate Governance			83
Item 11.						Executive Compensation			83
Item 12.						Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			83
Item 13.						Certain Relationships and Related Transactions, and Director Independence			83
Item 14.						Principal Accounting Fees and Services			83
Part IV
Item 15.						Exhibits and Financial Statement Schedules			84
Item 16.						Form 10-K Summary			87

 

This report includes "forward-looking statements" within the meaning of the federal securities laws that involve risks and uncertainties. Forward-looking statements include statements we make concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information and, in particular, appear in Items 1, 1A and 7 of this report. When used in this report, the words "estimates," "expects," "anticipates," "projects," "forecasts," "plans," "believes," "foresees," "seeks," "likely," "may," "might," "will," "should," "goal," "target" or "intends" and variations of these words or similar expressions (or the negative versions of any such words) are intended to identify forward-looking statements. All forward-looking statements are based upon information available to us on the date of this report.

These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this report in the Items identified above. Some of the factors that we believe could affect our results include:

•changes in economic and business conditions, generally and, in particular, changes in institutional and commercial building construction activity and in other cyclical industries;

•increases in cost of our raw materials, including as a result of tariffs, trade wars and other trade protection matters, and our possible inability to increase product prices to offset such increases;

•the costs and uncertainties related to strategic acquisitions or divestitures or the integration of recent and future acquisitions into our business;

•performance, and potential failure, of our information and data security systems, including potential cybersecurity threats and breaches;

•the loss of any significant customer;

•increased competition;

•dependence on independent distributors and independent sales representatives;

•reliance on intellectual property;

•loss of key personnel and a failure to effectively manage human capital resources;

•legislative, regulatory and legal developments involving taxes;

•the costs of compliance and/or the imposition of liabilities under environmental, climate, health and safety laws and regulations;

•impact of weather on the seasonality of the demand for our products;

•impact of climate change on our operations and demand for our products;

•the costs associated with potential product liability claims and other potential litigation;

•changes in technology and manufacturing techniques;

•changes in laws and regulations, or the interpretation or enforcement thereof, including laws and regulations addressing climate change, environmental matters and the transition to a reduced-carbon economy;

•terrorism, conflicts, wars, and other events outside our control;

•changes in pension funding requirements;

•the impact of our indebtedness;

•the effects of an infectious disease outbreak on our business, financial condition, employees, customers, distributors and supply chain, including the impact related to governmental actions; an infectious disease outbreak may, among other impacts, heighten the effects on our business, results of operations and financial condition of the other risk factors identified herein;

•the effect of local, national and international economic, credit and capital market conditions on the economy in general, and on our customers and the industries in which we operate in particular;

•our access to available and reasonable financing on a timely basis;

•work stoppages by unionized employees;

•potential impairment of goodwill and intangible assets; and

•the other factors described in this report, including those discussed in "Risk Factors" in Part I, Item 1A.

There are likely other factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements. All forward-looking statements attributable to us apply only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law.

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. 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 heritage of innovation and specification has allowed us to provide highly-engineered, mission-critical solutions to customers for decades and affords us the privilege of having long-term, valued relationships with market leaders. We operate in a disciplined way and the Zurn Elkay Business System (“ZEBS”), described below, is our operating philosophy. Grounded in the spirit of continuous improvement, ZEBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of our business.

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.

    Our strategy is to build Zurn Elkay around a strategic platform that participates in end markets with sustainable growth characteristics where we are, or have the opportunity to become, the industry leader. We have a track record of acquiring and integrating companies and expect to continue to pursue strategic acquisitions that will broaden our product lines, allow us to move into adjacent markets and expand our geographic presence.

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. With our broad portfolio of products, we believe we have become a market leader in the industry by developing innovative products that meet stringent third-party regulatory, building, and plumbing code requirements and by subsequently achieving specification of our products into projects and applications.

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.

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”). 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”.

Also, as previously disclosed, on October 4, 2021, we completed a Reverse Morris Trust tax-free spin-off transaction (the “Spin-Off Transaction”) in which (i) substantially all the assets and liabilities of our Process & Motion Control business were transferred to a newly created subsidiary, Land Newco, Inc. (“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”.

Prior to the completion of the Spin-Off Transaction our business consisted of two platforms: Process & Motion Control and Water Management. 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.

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. ZEBS is based on the following principles: (1) strategy deployment (a long-term strategic planning process that determines annual improvement priorities and the actions necessary to achieve those priorities); (2) measuring our performance based on customer satisfaction, or the "Voice of the Customer;" (3) involvement of all our associates in the execution of our strategy; and (4) a culture that embraces Kaizen, the Japanese philosophy of continuous improvement and the concepts around 80/20 simplification. We believe applying ZEBS can yield superior growth, quality, delivery and operating costs relative to our competition, resulting in enhanced profitability and ultimately the creation of stockholder value. As we have applied ZEBS over the past several years, we have experienced improvements in growth, productivity, cost reduction and asset efficiency and believe there are opportunities to continue to improve our performance as we continue to apply ZEBS.

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 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 products are marketed and sold under widely recognized brand names, including Zurn®, Elkay®, Wilkins®, Green Turtle®, World Dryer®, StainlessDrains.com™, JUST®, Hadrian®, Wade®, and Halsey Taylor®.

Over the past century, Zurn Elkay has established itself as an innovator and leading designer, manufacturer and distributor of highly engineered products and solutions that control the flow, delivery, treatment and conservation of water as well as human hygiene to and within institutional and commercial buildings and, to a lesser extent, for waterworks and residential applications. 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. 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. They deliver superior value to building owners, positively impact the environment and human health and hygiene and reduce product installation time while meeting the stringent county-specific regulatory, building, and plumbing code requirements. 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. Our products are project-critical and typically represent a low percentage of the overall project cost. We believe these characteristics, coupled with our extensive distribution network, create a high level of end-user loyalty for our products and allow us to achieve specification of our products into projects and applications and to maintain leading market shares in the majority of our product lines.

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. 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. Our distribution model is predicated upon maintaining high product availability near our customers. We believe this model provides us with a competitive advantage as we can meet our customer demand with local inventory at significantly reduced lead times as compared with others in our industry.

We evaluate our competitive position in our markets based on available market data, relevant benchmarks compared to our relative peer group and industry trends. We generally do not participate in segments of our served markets that have been commoditized or in applications that do not require differentiation based on product quality, reliability and innovation. 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. We believe there continues to be long-term growth potential in our markets.

The markets in which we participate are relatively fragmented with competitors across a broad range of industries, sectors, and product lines. Although competition exists across all of our businesses, we do not believe that any one competitor directly competes with us across the breadth of all of our product lines. We believe our served markets are growing long term at relatively strong rates, and that the growing demand for water safety, conservation, hygienic solutions, availability of clean drinking water, and the elimination of plastic water bottles can potentially support market growth above that of overall United States industrial production. We believe that we can continue to grow our platform long term at rates above the growth rate of the overall market and the growth rate of our competition, by focusing our efforts and resources towards end markets that have above-average growth characteristics.

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, 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, institutional, and commercial construction markets, as well as mitigate cyclical downturns in market growth.

The industry's specification-driven end-markets require manufacturers to work closely with building owners, local engineers, architects, contractors and builders to design specific applications on a project-by-project basis that meet specific local performance requirements as well as building owners' needs. As a result, building and maintaining relationships with owners, architects, engineers, contractors and builders, who specify products for use in construction projects, and having flexibility in design and product innovation are critical to compete effectively in these markets. Companies with a strong network of such relationships have a competitive advantage. Specifically, it has been our experience that, once an owner, engineer, contractor, builder, or architect has specified our product with satisfactory results, they often will continue to use our products in future projects.

Our products tend to be project-critical, highly-engineered and high value-add and typically are a low percentage of overall project cost. We believe the combination of these features can create a high level of end-user loyalty, reinforced by our investments in developing innovative new product solutions. Demand for these products is influenced by regulatory, building and plumbing code requirements. 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. Among our leading brands are Zurn®, Elkay®, and Wilkins®.

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. 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. 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. 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.

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. These highly specified and engineered flow control devices protect and control the potable water supply and emergency water supply within a building or site. Designed to meet the stringent requirements of independent test labs, such as the IAPMO, NSF, UL and FM, they are sold into institutional, commercial, and residential new construction and retrofit applications as well as the fire protection, municipal water and wastewater and irrigation end markets.

Water control solutions that protect human health and gravity drainage products that protect the environment are sold under the Zurn® brand and are typically required in the early stages of a construction or retrofit project, when potable water and non-potable water control and drainage systems are installed. Water control products include PEX piping, valves, fittings and installation tools. 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.

Flow systems products are commonly installed within a building or on a site to manage storm water and wastewater. Specification drainage products within flow systems include point drains (such as roof drains and floor drains), hydrants, fixture carrier systems, and chemical drainage systems that are used to control storm water, and process water and potable water in various institutional, commercial, industrial, civil and irrigation applications. 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. Interceptors are used to separate and capture fats, oils, and greases from wastewater before it is discharged into the municipal wastewater collection system. Our proprietary designs are primarily fabricated from fiberglass reinforced polyester, which we believe is gaining market share from traditional concrete products due to its reliability, service life, ease of service, and lowest cost of ownership. Applications include restaurants and institutional foodservice operations, office buildings, hotels, entertainment venues, schools, grocery and convenience stores, airports, vehicle service garages, and fleet operations and maintenance facilities. Acid neutralization systems are primarily used in schools, hospitals and laboratories.

In fiscal 2021, we acquired substantially all of the assets of Advance Technology Solutions, LLC (d/b/a ATS GREASEwatch) ("ATS GREASEwatch"). ATS 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.

In addition, we expanded our high-quality flow systems portfolio during fiscal 2021 with the acquisition of the Wade Drains ("Wade") product line from McWane, Inc. The acquisition of the Wade product line leverages Zurn Elkay’s existing expertise in flow systems to expand our market coverage and offer an additional brand of drainage and environmental products.

Hygienic and environmental products are typically required in the latter stages of a construction or retrofit project, when interior spaces are being outfitted with fixtures, valves and faucets. Zurn Elkay's hygienic and environmental products include primarily sensor-operated flush valves marketed under the Aquaflush®, AquaSense® and AquaVantage® brand names and heavy-duty commercial faucets marketed under the AquaSpec® brand name. Innovative water conserving fixtures are marketed under the EcoVantage® and Zurn One® brand names. These products are commonly used in schools, hospitals, office buildings, airports, sports facilities, convention centers, shopping malls, restaurants, and industrial production buildings. The Zurn One Systems® integrate valve and/or faucet products with fixtures into complete, easily customizable plumbing systems, and thus provide a valuable time and cost-saving means of delivering institutional and commercial bathroom fixtures. The EcoVantage® fixture systems promote water-efficiency, health and hygiene and assist in achieving compliance with certain water conservation requirements, and generate savings for building owners in new construction and retrofit bathroom fixture installations.

In 2020, we acquired Just Manufacturing Company ("Just Manufacturing") a leading manufacturer of stainless steel sinks and plumbing fixtures primarily used in institutional and commercial end markets. In addition, we acquired substantially all of the assets of Hadrian Manufacturing Inc. and 100% of the stock of Hadrian, Inc. (collectively “Hadrian”) a leading manufacturer of restroom partition systems and lockers primarily used in institutional and commercial end markets. The combination of World Dryer’s eco-friendly hand dryers, Just Manufacturing's stainless steel product portfolio, Hadrian’s partition systems and Zurn Elkay's water-efficient hygienic and environmental products allows us to deliver a bundle of products known as "BrightShield by Zurn" to our customers, what we believe is the most comprehensive hygienic and environmental content to new and existing buildings.

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. 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.

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. In our last three fiscal years, we have completed several acquisitions focused on expanding our product portfolio and presence in the end markets we serve; those acquisitions are further described below. 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. 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. 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. The acquisition leveraged our existing expertise in flow systems to expand our market coverage and offer an additional brand of drainage and environmental products. The 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. The cash purchase price was $4.5 million.

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. 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. 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. 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.

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.

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. Zurn Elkay's products are known in the industry for such innovation. 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.

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. Our secure online portal, plumbSMART™, allows for real-time insights from our Connected Products including wireless monitoring of usage trends, water consumption, possible issues and alerts through digitally-connected product solutions that can be retrofitted to the installed base of our products. This information is used by our customers’ operations and maintenance staff 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.

The principal materials used in our manufacturing processes are commodities and components available from numerous sources. The key materials used in our manufacturing activities include: brass, castings, copper, zinc, stainless steel, forgings, plate steel, high-performance engineered plastic and resin. Our global sourcing strategy is to maintain alternate sources of supply for our important materials and components wherever possible.

Historically, we have been able to successfully source materials, and consequently are not dependent on a single source for any significant raw material or component. As a result, we believe there is a readily available supply of materials in sufficient quantity from a variety of sources to serve both our short-term and long-term requirements. Additionally, we have not experienced any significant shortage of our key materials and have not historically engaged in hedging transactions for commodity supplies. We generally purchase our materials on the open market.

In addition to our domestic manufacturing facilities, we maintain a global network of independent sources that manufacture high quality, lower-cost component parts for our 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.

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.

Demand for our products is primarily driven by institutional and commercial building activity, remodeling and retrofit opportunities, and to a lesser extent, new home starts as well as waterworks expansion. Accordingly, weather has an impact on the seasonality of certain end markets. With the exception of our remodeling and retrofit opportunities, weather is an important variable as it significantly impacts construction. Spring and summer months in the United States and Canada represent the main construction season with increased construction in the institutional, commercial, and waterworks markets, as well as new housing starts. As a result, sales generally decrease slightly in the first and fourth quarters as compared to the second and third quarters of the calendar year.

Our business also depends upon general economic conditions and other market factors beyond our control, and we serve customers in cyclical industries. As a result, our operating results have been, and in the future likely will be, negatively affected during economic downturns. See Item 1A Risk Factors of this report for information on the risks associated with general economic conditions.

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 believe we have a strong relationship with our employees, including those represented by labor unions.

Zurn Elkay strives to attract, retain and develop the talent necessary to meet our goals. Our Human Resources programs are designed to, among other aims, foster diversity and inclusion, develop talent for critical roles and leadership positions, reward and support associates through competitive compensation and benefits, and promote the health and safety of our associates.

Diversity and Inclusion: We are committed to fostering, cultivating and preserving a culture of diversity and inclusion where our associates are engaged and fulfilled. We recognize and value our associates for the unique perspectives they bring to Zurn Elkay – from different ages, ethnic and cultural backgrounds, sexual orientation, gender identity and expression, veteran status and abilities, including individuals who bring diverse opinions, experience and leadership styles to their work at Zurn Elkay. Inclusion is built into our key human resources programs and processes. We believe this collective diversity makes our business stronger.

Training and Talent Development: We are committed to having a workplace that fosters learning, development and innovation. Our leadership team conducts a robust program of employee engagement and we have invested in the personal and professional development of our employees. Each year all employees are trained on various policies and procedures along with matters specific to their respective roles within the organization. We monitor metrics to ensure the health of our company culture and alignment with our values and strategic business priorities.

Each year, we survey our employees to better understand what matters most to them. We also strive to provide competitive compensation and benefits for our associates.

Health and Safety: The safety of our associates is a top priority. To be our best and maintain integrity in everything we do, we strive to provide associates with the right tools and resources. 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 and also reduced our Lost Time Incident Rate ("LTIR") by 30% over the same period. 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.

Our operations and facilities are subject to extensive laws and regulations, including those related to trade taxes, government contracts, pollution and the protection of the environment, health and safety, including those governing, among other things, emissions to air, discharges to water, climate change, the generation, handling, storage, treatment and disposal of hazardous wastes and other materials, and the remediation of contaminated sites. A failure by us to comply with applicable requirements or the permits required for our operations could result in civil or criminal fines, penalties, enforcement actions, third-party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control equipment or remedial actions.

Some environmental laws and regulations impose requirements to investigate and remediate contamination on present and former owners and operators of facilities and sites, and on a potentially responsible party ("PRP") for sites to which such parties may have sent waste for disposal. Such liability can be imposed without regard to fault and, under certain circumstances, may be joint and several, resulting in one PRP being held responsible for the entire obligation. Liability may also include damages to natural resources. On occasion we are involved in such investigations and/or cleanup, and we have been named as a PRP in environmental matters and could be named in future matters.

We do not currently anticipate any significant additional expenditures related to maintaining compliance; however, due to the evolving nature of laws and regulations and changes thereto, there can be no assurance that current expenditures will be adequate or that violations will not occur.

The address of our principal executive office is 511 West Freshwater Way, Milwaukee, Wisconsin 53204. Our phone number is (855) 480-5050. Our website address is www.zurnelkay.com. 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”). Copies of any materials that we file with the SEC can also be obtained free of charge through the SEC's website at www.sec.gov. In addition, our website includes (i) the charters for the Audit Committee, Nominating and Corporate Governance Committee, Compensation Committee, and Environmental, Social and Governance Committee of our Board of Directors; (ii) our Corporate Governance Guidelines; and (iii) our Code of Business Conduct and Ethics. We will also post on our website any amendments to these documents, and information about any waivers granted to directors or executive officers with respect to our Code of Ethics. Our website and the information contained on or connected to that site are not incorporated by reference into this Form 10-K.

The risks described below are not the only risks facing Zurn Elkay. Additional risks and uncertainties not currently known to us, or those risks we currently view to be immaterial, may also materially and adversely affect our business, financial condition or results of operations. In addition, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 for a further discussion of some of the factors that could affect future results. If any of these risks materialize, our business, financial condition, results of operations or cash flows could be materially and adversely affected.

Our business operations may be adversely affected by volatility and weaknesses in the overall economy and financial markets. Weak, challenging or volatile economic conditions in the end markets, businesses or geographic areas in which we sell our products typically reduces demand for our products and results in a decrease in sales volume.

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. 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. 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. A drop or weakness in consumer confidence, prolonged adverse weather conditions, lack of availability or increased cost of credit, tightened credit standards or increased unemployment could materially impact demand for and sales of our products and/or result in downward pressure on product pricing and our profit margins, any or all of which could adversely affect our financial results.

Volatility and disruption of financial markets could limit the ability of our customers to obtain adequate financing to maintain operations and may cause them to terminate existing purchase orders, reduce the volume of products they purchase from us in the future or impact their ability to pay their receivables. Adverse economic and financial market conditions may also cause our suppliers to be unable to meet their commitments to us or may cause suppliers to make changes in the credit terms they extend to us, such as shortening the required payment period for outstanding accounts receivable or reducing or eliminating the amount of trade credit available to us.

We operate in highly competitive markets. Some of our competitors have achieved substantially more market penetration in certain of the markets in which we operate. Some of our competitors are larger and may have greater financial and other resources than we do, and our competitors may adopt more aggressive sales policies and devote greater resources to the development, promotion and sale of their products than we do, all of which could result in a loss of customers and adversely affect our results of operations.

We compete against both large international and national rivals, as well as many regional competitors. Increased competition in any of the markets in which we operate could result in substantial downward pressure on product pricing and our profit margins, thereby adversely affecting our financial results. We cannot provide assurance that we will be able to maintain or increase the current market share of our products successfully in the future.

The successful implementation of our business strategy requires us to continuously evolve our existing products and introduce new products to meet customers' needs in the industries we serve. Our products are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. If we fail to meet these requirements, our business and ability to compete effectively could suffer. We believe our customers rigorously evaluate their suppliers on a number of factors, including product quality, price competitiveness, technical and manufacturing expertise, development and product design capability, new product innovation, reliability and timeliness of delivery, operational flexibility, customer service and overall management. Our ongoing success depends on our ability to continue to meet our customers' changing specifications with respect to these criteria. We cannot ensure that we will be able to address technological advances or introduce new products that may be necessary to remain competitive within our businesses. Further, such new products and technologies may create additional exposure or risk.

We cannot ensure that we can adequately protect our own technological developments to produce a sustainable competitive advantage. Furthermore, we may be subject to business continuity risk in the event of an unexpected loss of a material facility or operation. We cannot ensure adequate insurance protection against such a loss.

To operate more efficiently, control costs and refine our business focus, we periodically undertake restructuring plans, which can include facility consolidations, product rationalizations, workforce reductions and other cost reduction initiatives. We also periodically choose to divest operations or product lines that we no longer believe are additive or complementary to our business or strategic direction. These plans are intended to reduce operating costs, to modify our footprint to reflect changes in the markets we serve, to reflect changes in business focus, to strengthen focus on our core business and/or to address overall manufacturing overcapacity, including as a result of acquisitions. If we do not successfully manage our current restructuring activities, or any other restructuring activities or divestitures that we may undertake in the future, expected efficiencies, benefits and cost savings might be delayed or not realized, and our operations and business could be disrupted.

In addition, as a result of such actions, we expect to incur restructuring expenses and other charges (including, for example, potential impairment charges related to fixed assets, goodwill and other intangibles), which may be material, and may exceed our estimates. Several factors could cause restructuring or divestiture activities to adversely affect our business, financial condition and results of operations. These include potential disruption of our operations, customer relationships and other aspects of our business. Employee morale and productivity could also suffer and may result in unwanted employee attrition. These activities require substantial management time and attention and may divert management from other important work or result in a failure to meet operational targets. Divestitures may also result in obligations to buyers or other parties that could have a financial effect after the transaction is completed. Moreover, we could make changes to, or experience delays in executing, any restructuring or divestiture plans, any of which could cause further disruption and additional unanticipated expense.

Acquisitions, mergers and other business combinations are part of our growth strategy, and we have completed several in the last few years. 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.

Acquisitions are often undertaken to improve the operating results of either or both of the acquirer and the acquired company and we cannot ensure that we will be successful in this regard. We cannot provide any assurance that we will be able to fully realize the intended benefits from our acquisitions. Acquisitions involve risks, including the possible inability to integrate an acquired business into our operations, potential failure to realize anticipated benefits, diversion of management's attention, issues in customer transitions, potential inadequacies of indemnities and other contractual remedies and unanticipated problems, risks or liabilities, including environmental, some or all of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

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.

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. 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. 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. 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.

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, 2023, our top five customers accounted for approximately 39% of our consolidated net sales, with one customer accounting for 20% of consolidated net sales. The loss of one or more of these customers or other major customers, or a deterioration in our relationship with any of them could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our contracted backlog is comprised of future orders for our products from a broad number of customers. 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.

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.

The loss of one of our key distributors or of a substantial number of our other distributors or independent sales representatives, or an increase in the distributors' sales of competitors' products to our customers could have a material adverse effect on our business, financial condition, results of operations or cash flows.

We attempt to protect our intellectual property through a combination of patent, trademark, copyright and trade secret protection, as well as third-party nondisclosure and assignment agreements. We cannot assure that any of our applications for protection of our intellectual property rights will be approved and successfully maintained or that our competitors will not infringe or successfully challenge our intellectual property rights. We also rely on unpatented proprietary technology and trade secrets. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants and advisors to enter into confidentiality agreements. We cannot assure that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure. If we are unable to maintain the proprietary nature of our technologies, our ability to sustain margins on some or all of our products may be affected, which could have a material adverse effect on our business.

In addition, in the ordinary course of our operations, we periodically seek to enforce our intellectual property rights through litigation or are subject to third party litigation claiming infringement, including in respect of some of our more profitable products. An adverse ruling or other unfavorable outcome in any such litigation could have a material adverse effect on our business, reputation, financial condition, results of operations or cash flows.

Our manufacturing processes depend on third parties for raw materials, in particular bar steel, brass, castings, copper, forgings, high-performance engineered plastic, plate steel, resin, sheet steel and zinc, as well as petroleum and other carbon-based fuel products. While we strive to maintain alternative sources for most raw materials, our business is subject to the risk of price fluctuations, including as a result of, or in reaction to, tariffs, import duties, or other trade protection measures instituted by the U.S. or other countries, inefficiencies in the event of a need to change our suppliers, and delays in the delivery of and potential unavailability of our raw materials. Also, trade wars or outbreaks of infectious diseases, could impact the cost or availability of goods or materials, both imported and domestic, or adversely affect demand for our products. Any such price fluctuations or delays, if material, could harm our profitability or operations. In addition, the loss of a substantial number of suppliers could result in material cost increases or reduce our production capacity. In addition to suppliers, we also rely on third party shippers to assist in transportation of our product throughout the supply chain. Reduced availability of transportation and the associated cost increases could adversely impact our profitability or operations.

We do not typically enter into hedge transactions to reduce our exposure to purchase price risks and cannot ensure that we would be successful in recouping any increases if these risks were to materialize. 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.

Utilizing a phased approach, we continue to update our ERP systems across our Zurn Elkay operations. 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.

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 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. 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. 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. As a result, any inability by us to successfully manage our information systems, or respond effectively to any attack on or interference with our systems, including matters related to system and data security, privacy, reliability, compliance, performance and access, problems related to our systems caused by natural disasters, security breaches or malicious attacks, and any inability of these systems to fulfill their intended business purpose, could impede our ability to record or process orders, manufacture and ship in a timely manner, account for and collect receivables, protect sensitive data of the Company, our customers, our employees, our suppliers and other business partners, comply with our third party obligations of confidentiality and care, or otherwise carry on business in the normal course. Any such events could require costly remediation beyond levels covered by insurance and could cause us to lose customers and/or revenue, including as a result of legal or regulatory claims or proceedings, or damage our reputation, any of which could have a material adverse effect on our business and operating results.

We are also subject to an increasing number of evolving data privacy and security laws and regulations that impose requirements on us. We collect, store, access and otherwise process various types of confidential or sensitive data, including proprietary business information, personal data and other information that is subject to privacy and security laws, regulations and/or customer-imposed controls. Failure to comply with such laws and regulations could result in the imposition of fines, penalties and other costs.

Our ongoing success depends on our ability to recruit, retain and develop highly skilled management and key personnel, as well as our ability to effectively manage human capital resources. Competition for talented and skilled individuals in our industry is intense and we may not be able to successfully recruit, train or retain qualified personnel, or to effectively implement successions for existing personnel. If we fail to retain and recruit the necessary personnel or arrange for successors to key personnel, our business could materially suffer.

Demand for our products is primarily driven by commercial construction activity, remodeling and retrofit opportunities, and to a lesser extent, new home starts. Weather is an important variable affecting financial performance as it significantly impacts construction activity. Adverse weather conditions, such as prolonged periods of cold or rain, blizzards, hurricanes and other severe weather patterns, the frequency of which might be affected by climate change, could delay or halt construction and remodeling activity, which could have a negative effect on our business. For example, an unusually severe or prolonged winter can lead to reduced or delayed construction activity which could magnify the seasonal decline in our net sales and earnings during the winter months and hamper the typical seasonal increase in net sales and earnings during the spring months.

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. In certain areas, these changes could lead to a reduction in demand for certain of our products, although it also could increase demand for other of our products. The overall effect of this could be to reduce our sales and addressable market and/or alter our product sales mix in ways that reduce our margins, either of which could adversely impact our results of operations.

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. 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 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. Climate related events have the potential to disrupt our business, including the business of our suppliers, and may cause us to experience higher attrition, losses and additional costs to resume operations.

Future outbreaks of infectious diseases, including further developments in the COVID pandemic, may result in widespread or localized health crises that adversely affect general commercial activity and the economies and financial markets of the countries and localities in which we operate, sell, and purchases goods and services. Any outbreak of infectious disease poses the risk that we or our employees, contractors, suppliers, customers, transportation providers, and other business partners may be prevented or impaired from conducting ordinary course business activities for an indefinite period of time, either at specific branches or on a broader scale, including due to shutdowns necessitated for the health and well-being of our employees, the employees of our business partners, or shutdowns that may be requested or mandated by governmental authorities. In addition, our suppliers, business partners and customers may also experience similar negative impacts from an outbreak of infectious disease. Global supply chains may be disrupted, causing shortages, which could impact our ability to manufacture or supply our products. Also, we could in the future experience increased compensation expenses associated with employee recruiting and employee retention to the extent employment opportunities multiply post-pandemic, causing the search for and retention of talent to become more competitive. This disruption of our employees, distributors, suppliers and customers may impact our sales and future operating results.

The unpredictable ebbing and flowing of new infectious diseases worldwide may continue to adversely impact our business, operations, suppliers and customers for the foreseeable future. Equally unpredictable are the responses of national and local governments and health authorities in affected regions to reduce community spread and protect employees, which may include mandatory shutdowns or limitations on all or certain types of business operations. 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.

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. Our business may not generate sufficient cash flow from operations to meet our debt service and other obligations, and currently anticipated cost savings and operating improvements may not be realized on schedule, or at all. If we are unable to meet our expenses and debt service and other obligations, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets or raise equity. We may not be able to refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity. Our inability to generate sufficient cash flow to satisfy our debt obligations or to refinance our obligations on commercially reasonable terms would have a material adverse effect on our business, financial condition, results of operations and cash flows.

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;

•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.

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.

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. 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. 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.

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.

Our 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.

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.

Failure to comply with certain covenants in these agreements could result in a default. For more information, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.

The restrictions contained in the credit agreement could:

•limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our activities or business plans;

•restrict our ability to repurchase shares of our common stock and/or adversely impact our ability to implement capital allocation strategy;

•adversely affect our ability to finance our operations, to enter into strategic acquisitions, to fund investments or other capital needs or to engage in other business activities that would be in our interest; and

•limit our access to the cash generated by our subsidiaries.

Upon the occurrence of an event of default under the credit agreement, the lenders could elect to declare all amounts outstanding under the senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the senior secured credit facilities could proceed against the collateral granted to them to secure the senior secured credit facilities on a first-priority lien basis. If the lenders under the senior secured credit facilities accelerate the repayment of borrowings, such acceleration could have a material adverse effect on our business, financial condition, results of operations or cash flows. For a more detailed description of the limitations on our ability to incur additional indebtedness, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.

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 assess at least annually whether there has been impairment in the value of our goodwill and indefinite-lived intangible assets. Significant negative industry or economic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes to the use of our assets, changes in the structure of our business, divestitures, market capitalization declines, or increases in associated discount rates may impair our goodwill and other intangible assets. Any determination requiring the impairment of goodwill or intangible assets would negatively affect our results of operations, particularly in the period in which we record any related charges, and financial condition.

The funded status of the defined benefit pension plans depends on such factors as asset returns, market interest rates, legislative changes and funding regulations. If the returns on the assets of any of our plans were to decline in future periods, if market interest rates were to decline, if the Pension Benefit Guaranty Corporation ("PBGC") were to require additional contributions to any such plans as a result of acquisitions or if other actuarial assumptions were to be modified, our future required cash contributions and pension costs to such plans could increase. Any such increases could have a material and adverse effect on our business, financial condition, results of operations or cash flows.

The need to make contributions, which may be substantial, to such plans may reduce the cash available to meet our other obligations, including our obligations under our borrowing arrangements or to meet the needs of our business. In addition, the PBGC may terminate our U.S. defined benefit pension plans under limited circumstances, including in the event the PBGC concludes that the risk may increase unreasonably if such plans continue. In the event one of our U.S. defined benefit pension plans is terminated for any reason while it is underfunded, we could be required to make an immediate payment to the PBGC of all or a substantial portion of such plan's underfunding, as calculated by the PBGC based on its own assumptions (which might result in a larger obligation than that based on the assumptions we have used to fund such plan), and the PBGC could place a lien on material amounts of our assets.

In addition to complying with laws and applicable government regulations and requirements, prevailing industry standards, competitive pressures and/or our customers may require us to comply with further quality, social responsibility, climate-related or other business policies or standards, before customers and prospective customers commence, or continue, doing business with us. These expectations, policies and standards may be more restrictive than current laws and regulations as well as our own pre-existing policies; they may be customer-driven, established by the industry sectors in which we operate or imposed by third-party organizations or other constituencies.

Our compliance with these policies, standards and third party certification requirements could be costly and could in some cases require us to change the way in which we operate. In addition, if we fail to comply, or if our compliance increases our costs and/or restricts our ability to do business as compared to our competitors that do not adhere to such standards, we could experience an adverse effect on our customer relationships, reputation, operations, cost structure and/or profitability.

Numerous governmental bodies have introduced or are contemplating legislative and regulatory changes in response to various climate change interest groups and the impact of climate change. Legislation and increased regulation relating to climate change and the transition to a low carbon economy could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, and other costs to comply with such regulations. Any future climate change related regulations could also negatively impact our ability to compete with companies situated in areas not subject to such requirements. Given the political significance and uncertainty around the impact of climate change and how it should be addressed, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about impacts on climate change by us could harm our reputation. Any of the foregoing could result in a material adverse effect on our business and financial condition.

We are subject to U.S. federal and state, and foreign, income, payroll, property, sales and use, value-added, fuel and other types of taxes. Changes in tax rates, enactment of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities may require significant judgment in determining the appropriate provision and related accruals for these taxes; and as a result, such changes could result in substantially higher taxes and, therefore, could have a significant adverse effect on our results or operations, financial conditions and liquidity.

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. 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"). The implementation of the Pillar 2 global minimum tax rules is intended to apply for tax years beginning in 2024. The main purpose of such rules is to minimize tax base erosion and profit shifting from higher tax jurisdictions to lower tax jurisdictions by multi-national companies. On February 2, 2023, the OECD issued various administrative guidance including transitional safe harbor rules available in conjunction with the implementation of the Pillar 2 global minimum tax. Based upon the current OECD rules and administrative guidance, the Company does not anticipate being subject to material Top-Up Taxes as various tax jurisdictions begin enacting such legislation. The Company is continuing to monitor the potential impact of the Pillar 2 proposals and developments on our consolidated financial statements and related disclosures, including eligibility for any transitional safe harbor rules.

Our operations and facilities worldwide are subject to extensive laws and regulations related to pollution and the protection of the environment, health and safety, including those governing, among other things, emissions to air, discharges to water, the generation, handling, storage, treatment and disposal of hazardous wastes and other materials, and the remediation of contaminated sites. A failure by us to comply with applicable requirements or the permits required for our operations could result in civil or criminal fines, penalties, enforcement actions, third-party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control equipment or remedial actions, as well as cause damage to our reputation.

Some environmental laws and regulations impose requirements to investigate and remediate contamination on present and former owners and operators of facilities and sites, and on potentially responsible parties ("PRPs") for sites to which such parties may have sent waste for disposal. Such liability can be imposed without regard to fault and, under certain circumstances, may be joint and several, resulting in one PRP being held responsible for the entire obligation. Liability may also include damages to natural resources. On occasion we are involved in such investigations and/or cleanup, and also have been or could be named as a PRP in environmental matters.

The discovery of additional contamination, including at acquired facilities, the imposition of more stringent environmental, health and safety laws and regulations, including cleanup requirements, disputes with our insurers or the insolvency of other responsible parties could require us to incur significant capital expenditures or operating costs materially in excess of our accruals. Future investigations we undertake may lead to discoveries of contamination that must be remediated, and decisions to close facilities may trigger remediation requirements that are not currently applicable. 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. See Item 8, Note 17, Commitments and Contingencies for additional information.

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. We currently maintain product liability insurance coverage but we cannot assure that we will be able to obtain such insurance on commercially reasonable terms in the future, if at all, or that any such insurance will provide adequate coverage against claims. 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. 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 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.

In connection with the Spin-Off Transaction, we obtained a tax opinion and a private letter ruling from the IRS (“IRS Ruling”) as to certain aspects relevant to treatment of the various steps of the transaction as tax-free to us and our shareholders for U.S. federal income tax purposes. The tax opinion and IRS Ruling are based on certain factual representations and assumptions and covenants of the parties to the transaction. If any of the factual representations and assumptions are materially false or incorrect, or one or more of the relevant covenants are breached, the validity of the tax opinion and IRS Ruling could be impaired. Furthermore, a tax opinion only represents counsel’s best legal judgment, and is not binding on the IRS or the courts, which may disagree with the opinion.

If the IRS determines that some or all of the transactions comprising the Spin-Off Transaction are taxable to us, we and our shareholders at the time of the transaction could be subject to significant additional U.S federal and state income taxes. In certain circumstances, we would be entitled to indemnity from Regal Rexnord Corporation for all or a portion of such additional tax, but there is no assurance that Regal Rexnord Corporation would have the ability to satisfy any such indemnity obligation.

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. If we breach or are deemed to have breached these restrictions, the tax-free treatment of some or all of the Spin-Off Transaction could be impaired, and we could be subject to substantial additional U.S. federal and state income taxes. These restrictions might interfere with our current business and prevent us from taking advantage of opportunities that might be advantageous.

We account for the Merger as an acquisition of a business in accordance with GAAP. Under the acquisition method of accounting, the assets and liabilities of Elkay and its subsidiaries have been recorded, as of the completion of the Merger, at their respective fair values. 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. 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. 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 success of the Merger depends, in part, on our ability to realize the anticipated benefits and cost savings from adding Elkay’s businesses, and we cannot assure successful integration or realization of the anticipated benefits of the Merger. 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.

Following the Merger, the size of our business has increased significantly. Our future success will depend, in part, on our ability to manage this expanded business, resulting in risks and uncertainties, including the need to efficiently and timely integrate the operations and business of Elkay, to combine systems and management controls, and to integrate relationships with customers, vendors and business partners.

The former Elkay stockholders may wish to dispose of some or all of the Zurn Elkay Common Stock that they received in the Merger. 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 connection with the Merger, the Company and certain stockholders of Elkay entered into a Registration Rights Agreement, pursuant to which such stockholders have a right to demand registration of one public offering within the first three years after the closing of the Merger, subject to certain minimum and maximum thresholds and other customary conditions. The existence and potential or actual exercise of such rights could adversely impact the market price of our Common Stock.

None.

Zurn Elkay’s management and Board recognize the importance of robust oversight of cybersecurity risk, information security, and technology risk in maintaining the trust and confidence of our customers, partners, employees, and stockholders. The Audit Committee, on behalf of the Board, oversees the Company’s material financial and other risk exposures, including risks related to cybersecurity. Our Board has extensive cybersecurity experience, including two members of the Audit Committee who have received a certificate in cybersecurity oversight from the Carnegie Mellon University Software Engineering Institute. Cybersecurity risk also is monitored, assessed and managed as part of the Company’s integrated Enterprise Risk Management program on an ongoing basis. A cybersecurity governance council, comprised of executive leaders, meets at least quarterly to review the Company’s cybersecurity program and its effectiveness. This cybersecurity governance council receives updates and reports from the Company’s global cybersecurity team (discussed below) on the cybersecurity program and its effectiveness relating to the prevention, detection, mitigation and remediation of cybersecurity incidents. The Chief Information Officer (CIO) provides periodic updates to the Audit Committee on any material initiatives and key updates on the cybersecurity program and its effectiveness, including any material threats. The CIO also provides an annual update regarding information security to the full Board. The CIO has more than 35 years of information technology experience, including approximately 17 years serving as a CIO.

To assess, identify and manage material risks from cybersecurity threats and to prevent, detect and respond to cybersecurity threats, including threats associated with the use of third-party service providers, the Company has a robust cybersecurity program. The Company’s global cybersecurity team, overseen by the CIO, implements policies and procedures and uses a balanced approach to validate the effectiveness of the program, leveraging third party expert security resources, information technology resources, executive business leadership, internal and external audit, third-party vendors and other IT and business partners. The program uses a combination of standards and best practices from the National Institute of Standards and Technology, Center of Internet Security, third-party vendor partners, and other industry forums. Annually, the program is assessed both internally and externally, including a thorough industry benchmarking, maturity assessments, best practice reviews, and risk assessments, with control validation occurring monthly internally (focused on core critical controls), quarterly (focused on vulnerabilities/cyber-incident simulations) and annually (focused on a review of best practices) via third-party vendors and partners, and annually via external third parties, including the conduct of internal/external penetration tests and tabletop exercises. Third-party service providers are assessed initially based on security questionnaires and the access of third-party service providers is audited annually and/or with any change in circumstances. Third-party service providers are also monitored through a combination of security information and event management technology and managed detection response services. The CIO provides key results and findings from these assessments to the cybersecurity governance council and Audit Committee. The Company has a robust incident response plan intended to help provide timely remediation to cybersecurity incidents and also to help provide notice of any material incidents to the appropriate internal and external entities.

To help associates acquire the knowledge to support the protection of our environment, the Company provides comprehensive annual security awareness training, periodic information updates, and regular testing/training programs. In addition, the Company annually purchases a cybersecurity insurance policy.

The Company depends heavily on information technology infrastructure to manage our business objectives and operations, support our customers’ requirements and protect sensitive information. To date, the Company has not experienced a cybersecurity threat or cybersecurity incident that has materially affected the Company, including our business strategy, results of operations or financial condition. While the Company has a robust cybersecurity program in place and has taken steps to maintain and enhance its cybersecurity, a material security breach could impede the Company’s ability to carry on business in the normal course.

As we have previously described in Item 1A, Risk Factors, 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. 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. 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. As a result, any inability by us to successfully manage our information systems, or respond effectively to any attack on or interference with our systems, including matters related to system and data security, privacy, reliability, compliance, performance and access, problems related to our systems caused by natural disasters, security breaches or malicious attacks, and any inability of these systems to fulfill their intended business purpose, could impede our ability to record or process orders, manufacture and ship in a timely manner, account for and collect receivables, protect sensitive data of the Company, our customers, our employees, our suppliers and other business partners, comply with our third party obligations of confidentiality and care, or otherwise carry on business in the normal course.

Any such events could require costly remediation beyond levels covered by insurance and could cause us to lose customers and/or revenue, including as a result of legal or regulatory claims or proceedings, or damage our reputation, any of which could have a material adverse effect on our business and operating results. We are also subject to an increasing number of evolving data privacy and security laws and regulations that impose requirements on us. We collect, store, access and otherwise process various types of confidential or sensitive data, including proprietary business information, personal data and other information that is subject to privacy and security laws, regulations and/or customer-imposed controls. Failure to comply with such laws and regulations could result in the imposition of fines, penalties and other costs.

As of December 31, 2023, we had 29 principal manufacturing and warehouse facilities as set forth below: 

We believe our principal manufacturing and warehouse facilities are suitable for our operations and provide sufficient capacity for our current and future anticipated needs.

Information with respect to our legal proceedings is contained in Item 8, Note 17, Commitments and Contingencies.

The following table sets forth information concerning our executive officers as of the date of this report:

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. Adams 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.

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. Chhabra served in various positions with Danaher Corporation, a diversified manufacturer, most recently as President – Asia, Gilbarco Veeder-Root Inc. and as Managing Director – India, Gilbarco Veeder-Root Inc.

Jeffrey J. LaValle became our Vice President, General Counsel and Secretary in 2022. Mr. LaValle previously served as our Assistant General Counsel since 2013. Prior to joining Zurn Elkay, Mr. 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. 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. 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. 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.

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. A 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.

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. 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. The decision whether to continue to pay dividends in the future will be made by our Board of Directors in light of conditions then existing, including factors such as our results of operations, financial condition and requirements, business conditions and covenants under any applicable borrowing agreements and other contractual arrangements.

In fiscal 2015, our Board of Directors approved a stock repurchase program (the "Repurchase Program") authorizing the repurchase of up to $200.0 million of our common stock from time to time on the open market or in privately negotiated transactions. 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. The Repurchase Program does not require us to acquire any particular amount of common stock and does not specify the timing of purchases or the prices to be paid; however, the program will continue until the maximum amount of dollars authorized has been expended or until it is modified or terminated by the Board. 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.

(1)See explanation of the Repurchase Program above.

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 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. 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.

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. 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.

We completed the spin-off of our Process & Motion Control platform ("PMC") on October 4, 2021 in the Spin-Off Transaction, and, accordingly, the results of operations and financial condition associated with PMC have been reclassified to discontinued operations for all periods presented. As a result, the following discussion of results of operations and financial condition is centered on the Zurn business excluding PMC. The consolidated statements of cash flows for the years ended December 31, 2023, 2022, and 2021 have not been adjusted to separately disclose cash flows related to the discontinued operations. See Item 8, Note 4, Discontinued Operations for additional information on cash flows associated with the discontinued operations.

The information contained in this section is provided as a supplement to the consolidated financial statements and the related notes included elsewhere in this report to help provide an understanding of our financial condition, changes in our financial condition and results of our operations. This section is organized as follows:

Company Overview. This section provides a general description of our business.

Financial Statement Presentation. This section provides a brief description of certain items and accounting policies that appear in our financial statements and general factors that impact these items.

Critical Accounting Estimates. This section discusses the accounting policies and estimates that we consider to be important to our financial condition and results of operations and that require significant judgment and estimates by management in their application.

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

Overview of Recent Developments. This section provides a description of the recent events impacting our results of operations.

Results of Operations. This section provides an analysis of our results of operations. 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. 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.

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. A discussion of cash flows for the year ended December 31, 2022 compared to December 31, 2021 can be found within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2022 Form 10-K.

Contractual Obligations. This section provides a discussion of our commitments as of December 31, 2023.

Quantitative and Qualitative Disclosures about Market Risk. This section discusses our exposure to potential losses arising from adverse changes in interest rates and foreign exchange rates.

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

Refer to Item 1, Business for additional information.

The following paragraphs provide a brief description of certain items and accounting policies that appear in our financial statements and general factors that impact these items.

Net sales. Net sales represent gross sales less deductions taken for sales returns and allowances and incentive rebate programs.

Cost of sales. 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.

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

Selling, general and administrative expenses. 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.

The methods, estimates and judgments we use in applying our critical accounting policies have a significant impact on the results we report in our consolidated financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. Within the context of these critical accounting policies, we are not currently aware of any reasonably likely event that would result in materially different amounts being reported.

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. Assets acquired and the liabilities assumed as part of a business combination are recognized separately from goodwill at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. We review and consider input from outside specialists, if and when appropriate to develop discount rates, and use estimates and assumptions about the future performance of the business to accurately value assets acquired and liabilities assumed at the acquisition date. We may refine these estimates during the measurement period, which may be up to one year from the acquisition date. 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.

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

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. 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. If a qualitative assessment determines an impairment is more likely than not, we are required to perform a quantitative impairment test. Otherwise, no further analysis is required. Alternatively, we may elect to proceed directly to the quantitative impairment test. 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. If the carrying amount exceeds the fair value of the reporting unit, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value up to the amount of the recorded goodwill.

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

We recognize the net actuarial gains or losses in excess of unrecognized gain or loss exceeding 10 percent of the greater of the market-related value of plan assets or the plan's projected benefit obligation at re-measurement (the "corridor") in our consolidated statements of operations during the fourth quarter of each fiscal year (or upon any re-measurement date). During the years ended December 31, 2023, 2022, and 2021, we recognized a non-cash actuarial gain from continuing operations of $2.0 million, $1.9 million, and $1.2 million, respectively, in connection with re-measurements of our plans. Net periodic benefit costs recorded on a quarterly basis are primarily comprised of service and interest cost, amortization of unrecognized prior service cost and the expected return on plan assets. See Item 8, Note 15, Retirement Benefits for additional information.

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. Changes in the discount rate and differences between actual and assumed per capita health care costs may affect the recorded amount of the expense in future periods.

Income taxes. We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related deferred tax assets and liabilities. In October 2021, more than 130 countries agreed to implement Pillar 2, a plan introduced by the Organization for Economic Co-operation and Development (“OECD”) providing for a global minimum tax rate of 15% (calculated on a country-by-country basis) for those companies having consolidated revenue of at least €750 million. The implementation of the Pillar 2 global minimum tax rules is intended to apply for tax years beginning in 2024. The main purpose of such rules is to minimize tax base erosion and profit shifting from higher tax jurisdictions to lower tax jurisdictions by multi-national companies. On February 1, 2023, the Financial Accounting Standards Board indicated that they view the minimum tax (“Top-Up Tax”) imposed under Pillar 2 as an alternative minimum tax, and as such, it should be recognized in the period incurred versus recognizing or adjusting deferred tax assets and liabilities. On February 2, 2023, the OECD issued various administrative guidance including transitional safe harbor rules available in conjunction with the implementation of the Pillar 2 global minimum tax. Based upon the current OECD rules and administrative guidance, the Company does not anticipate being subject to material Top-Up Taxes as various tax jurisdictions begin enacting such legislation. The Company is continuing to monitor the potential impact of the Pillar 2 proposals and developments on our consolidated financial statements and related disclosures, including eligibility for any transitional safe harbor rules.

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

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, net operating losses (“NOL’s”), tax credit and other carryforwards. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. As a result of this review, we established a full valuation allowance against U.S. federal and state capital loss carryforwards, as well as certain foreign NOL carryforwards and related deferred tax assets, and continue to maintain a partial valuation allowance against certain U.S. state NOL and tax credit carryforwards. As of December 31, 2023 and 2022, valuation allowances of $12.0 million and $32.2 million, respectively, were recorded against our deferred tax assets. See Item 8 Note 16, Income Taxes for additional information.

Commitments and Contingencies. We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. We determine the amount of accruals needed, if any, for each individual issue based on our professional knowledge and experience and discussions with legal counsel. The required accruals may change in the future due to new developments in each matter, the ultimate resolution of each matter or changes in approach, such as change in strategy. See Item 8 Note 17, Commitments and Contingencies for additional information.

See Item 8, Note 2, Significant Accounting Policies regarding recent accounting pronouncements.

On December 15, 2023, Zurn Holdings, Inc. (“Holdings”) sold all of the equity interests of its direct subsidiary Zurn Industries, LLC (“Zurn Industries”), together with Zurn Industries’ direct and indirect subsidiaries that primarily held asbestos liabilities, certain assets and cash, in a stock sale transaction to an unaffiliated buyer (“Sale Transaction”). As a result of the Sale Transaction, all asbestos obligations and liabilities, related insurance assets and associated deferred taxes, and other assets sold to the buyer, have been removed from the Company’s consolidated balance sheet effective December 15, 2023 and the Company no longer has any obligation with respect to pending and future asbestos claims related to the divested entities. A loss on the divestiture of asbestos liabilities and certain assets of $11.4 million was recognized in the consolidated statements of operations for the twelve months ended December 31, 2023.

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

On July 1, 2022, we completed the Elkay Merger for a purchase price (after final purchase price adjustments) of $1,457.8 million. Elkay, a market leader of filtered drinking water solutions and commercial sinks, complements our existing product portfolio. The purchase price includes $1,411.9 million of our common stock based on the closing stock price of $27.48 on July 1, 2022, and $45.9 million of net cash payments for the repayment of Elkay's term loan and Elkay's transaction related costs outstanding that were in excess of Elkay's cash and cash equivalents at the time of closing. Pursuant to the terms of the merger agreement, we issued 51,564,524 shares of our common stock, which represented approximately 29% of outstanding shares immediately following the Merger. During the six months ended June 30, 2023, we completed the final purchase price adjustments and the adjusted purchase price is reflected in the purchase price amounts above, following the return of 186,020 of the shares issued at closing to us as a result of lower working capital and cash balances at closing compared to targets stipulated in the merger agreement. The shares returned to us were canceled upon receipt. We incurred transaction-related costs of approximately $33.7 million for the twelve months ended December 31, 2022. These costs were associated with legal and professional services and were recognized as selling, general and administrative expenses in the consolidated statements of operations.

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

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 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.

____________________

(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.

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

(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. The sale agreement provided for contingent consideration based on Earn-out EBITDA, as defined in the sale agreement. 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.

See Item 8, Note 4, Discontinued Operations for more information.

During the year ended December 31, 2023, we continued to execute various restructuring actions. These initiatives were intended to drive efficiencies and reduce operating costs while also modifying our footprint to reflect changes in the markets we serve, the impact of acquisitions on our overall manufacturing capacity and the refinement of our overall product portfolio. These restructuring actions primarily resulted in workforce reductions, 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. See Item 8, Note 5, Restructuring and Other Similar Charges for more information.

Net sales were $1,530.5 million for the year ended December 31, 2023, a 19.4% increase year over year. Excluding a 20% increase in sales associated with the Elkay merger, core sales decreased 1% year over year as a result of a 400 basis point impact from the planned exit of certain residential sink products, lower year-over-year demand associated with products sold into our residential end markets, as well as timing of shipments in the prior year as we worked down an elevated backlog.

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

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

During the year ended December 31, 2023, we recognized a $0.9 million loss on the extinguishment of debt in connection with the write off of a portion of the unamortized debt issuance costs due to a $60.0 million Term Loan voluntary prepayment. There was no loss on the extinguishment of debt recognized for the year ended December 31, 2022. See Item 8, Note 11, Long-Term Debt for more information.

Actuarial gain on pension and other postretirement benefit obligations for the year ended December 31, 2023, was $2.0 million compared to a gain of $1.9 million for the year ended December 31, 2022. The non-cash actuarial gain recognized for the year ended December 31, 2023, was primarily due to demographic gains experienced during 2023 that were reflected in other postretirement benefits plans. In addition, the post 65 medical provider options changed resulting in much lower premiums for the plans. These gains were partially offset by a decrease in the discount rate from the prior measurement. The non-cash actuarial gain recognized for the year ended December 31, 2022, was primarily due to a year over year increase in discount rates assumptions utilized in performing the annual remeasurement of our defined benefit plans, partially offset by unfavorable asset performance. See Item 8, Note 15, Retirement Benefits for more information.

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

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

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

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

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. We believe that these financial measures are appropriate to enhance an overall understanding of our underlying operating performance trends compared to historical and prospective periods and our peers. Management also believes that these measures are useful to investors in their analysis of our results of operations and provide improved comparability between fiscal periods as well as insight into the compliance with our debt covenants. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.

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

EBITDA represents earnings before interest and other debt related activities, taxes, depreciation and amortization. EBITDA is presented because it is an important supplemental measure of performance and it is frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA is also presented and compared by analysts and investors in evaluating our ability to meet debt service obligations. Other companies in our industry may calculate EBITDA differently. EBITDA is not a measurement of financial performance under U.S. GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of operating performance or any other measures of performance derived in accordance with U.S. GAAP. Because EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business.

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). "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 in the Covenant Compliance section. Adjusted EBITDA is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding non-operational, non-cash or non-recurring losses or gains. It is also provided to aid investors in understanding our compliance with our debt covenants. Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted EBITDA varies from others in our industry. This measure should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA does not reflect: (a) our capital expenditures, future requirements for capital expenditures or contractual commitments; (b) changes in, or cash requirements for, our working capital needs; (c) the significant interest expenses, or the cash requirements necessary to service interest or principal payments, on our debt; (d) tax payments that represent a reduction in cash available to us; (e) any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; or (f) the impact of earnings or charges resulting from matters that we and the lenders under our credit agreement may not consider indicative of our ongoing operations. 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 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. 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.

The calculation of Adjusted EBITDA under our credit agreement as of December 31, 2023, is presented in the table in the Covenant Compliance section below. However, the results of such calculation could differ in the future based on the different types of adjustments that may be included in such respective calculations at the time. We reported net income in the year ended December 31, 2023, of $112.7 million and Adjusted EBITDA for the same period of $339.5 million. See "Covenant Compliance" for a reconciliation of Adjusted EBITDA to GAAP net income.

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

Set forth below is a reconciliation of net income to Adjusted EBITDA for the year ended December 31, 2023.

____________________

(1)Income from discontinued operations, net of tax is not included in Adjusted EBITDA in accordance with the terms of our credit agreement.

(2)Other expense, net consists primarily of gains and losses from foreign currency transactions, the non-service cost components of net periodic benefit costs associated with our defined benefit plans and other non-operational gains and losses as defined in our credit agreement.

(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.

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

(5)Loss on divestiture of asbestos liabilities and certain assets are excluded in calculating Adjusted EBITDA as defined in our credit agreement.

(6)Our credit agreement defines our consolidated indebtedness as the sum of all indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of indebtedness for borrowed money and capitalized lease obligations, less unrestricted cash, which was $91.9 million (as defined by the credit agreement) at December 31, 2023.

(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.

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.

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

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.

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

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

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

Cash used for investing activities was $4.6 million in the year ended December 31, 2023 compared to $6.6 million in the year ended December 31, 2022. Investing activities in the year ended December 31, 2023, included $21.3 million of capital expenditures, which were partially offset by the receipt of $9.0 million in connection with an insurance settlement and $7.7 million from the sale of certain long-lived assets. Investing activities for the year ended December 31, 2022, included $7.6 million of capital expenditures and net cash payments of $44.8 million in connection with acquisitions, which were partially offset by the receipt of $35.0 million from Regal Rexnord Corporation in connection with the final net assets transferred in the PMC Spin-Off Transaction, the receipt of $9.5 million in connection with an insurance settlement and $1.3 million from the sale of certain long-lived assets.

Cash used for financing activities was $239.2 million in the year ended December 31, 2023 compared to cash used for financing activities of $61.1 million in the year ended December 31, 2022. Financing activities in the year ended December 31, 2023 included $50.4 million of cash for the payment of dividends on our common stock, $125.1 million of cash for repurchases of our common stock, $64.9 million of net cash payments on outstanding debt, and $3.1 million of cash used for the payment of withholding taxes on employees' share-based payment awards, which were partially offset by $4.3 million of net cash proceeds associated with stock option exercises. Financing activities in the year ended December 31, 2022 included $32.5 million of cash for the payment of dividends on our common stock, $24.7 million of cash for repurchases of our common stock, $5.7 million of net cash payments on outstanding debt, which were partially offset by $1.8 million of net cash proceeds associated with stock option exercises.

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

____________________

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

See Item 8, Note 11, Long-Term Debt for a description of our outstanding indebtedness.

We do not have any off-balance sheet or non-consolidated special-purpose entities.

Our primary material cash requirements include the payment of interest and principal on our outstanding term loans and finance lease obligations, purchase commitments, operating lease obligations, and pension and other post-retirement plans.

The timing of principal payments associated with our term loan and finance lease obligations are disclosed in Item 8, Note 11, Long-Term Debt. We pay interest monthly based on prevailing interest rates at the time and the balance outstanding on our term loans and finance lease obligations.

Our operating lease obligations are primarily for real estate leases and automobile leases. See Item 8, Note 13, Leases for future minimum lease payments associated with our lease portfolio.

We have long-term obligations related to our deferred compensation, pension and other post-retirement plans that are summarized in Item 8, Note 15, Retirement Benefits.

As part of our global sourcing strategy, we have entered into agreements with key suppliers that require the supplier to maintain minimum levels of inventory to support certain products for which we require a short lead time to fulfill customer demand. We have the ability to notify the supplier that they no longer need to maintain the minimum level of inventory should we discontinue manufacturing a product during the contract period; however, we must purchase the remaining minimum inventory levels the supplier was required to maintain within a defined period of time.

We believe our cash flows from operations and existing borrowing capacity should be sufficient to satisfy our material cash requirements over the short-term and the long-term.

We are exposed to market risk during the normal course of business from changes in foreign currency exchange rates and interest rates. The exposure to these risks is managed through a combination of normal operating and financing activities and at times derivative financial instruments in the form of foreign currency forward contracts to cover certain known foreign currency transactional risks. We also have historically entered into interest rate derivatives to manage interest rate fluctuations.

Our exposure to foreign currency exchange rates relates primarily to our operations in Canada. For our operations in Canada, exchange rates impact the U.S. Dollar ("USD") value of our reported earnings, our investments in the subsidiaries and the intercompany transactions with the subsidiaries.

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

As of December 31, 2023, we had not entered into foreign currency forward contracts.

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

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. 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.

ITEM 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.

The consolidated financial statements included in this Form 10-K include the accounts of Zurn Elkay Water Solutions Corporation and subsidiaries (collectively, the "Company").

We have audited the accompanying consolidated balance sheets of Zurn Elkay Water Solutions Corporation and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 6, 2024 expressed an unqualified opinion thereon.

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

We have served as the Company’s auditor since 2002.

We have audited Zurn Elkay Water Solutions Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Zurn Elkay Water Solutions Corporation and subsidiaries’ (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and December 31, 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated February 6, 2024 expressed an unqualified opinion thereon.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

						December 31, 2023						December 31, 2022
Assets
Current assets:
Cash and cash equivalents						$	136.7					$	124.8
Receivables, net						210.2						219.7
Inventories, net						277.6						366.7
Income taxes receivable						17.0						18.3
Other current assets						26.3						28.0
Total current assets						667.8						757.5
Property, plant and equipment, net						180.3						183.8
Intangible assets, net						952.4						1,009.7
Goodwill						796.0						777.0
Insurance for asbestos claims						—						72.1
Other assets						70.5						63.9
Total assets						$	2,667.0					$	2,864.0
Liabilities and stockholders' equity
Current liabilities:
Current maturities of debt						$	0.9					$	5.7
Trade payables						56.4						116.9
Compensation and benefits						30.5						19.2
Current portion of pension and other postretirement benefit obligations						1.3						1.6
Other current liabilities						131.8						145.9
Total current liabilities						220.9						289.3
Long-term debt						494.4						530.2
Pension and other postretirement benefit obligations						36.6						50.5
Deferred income taxes						210.0						221.4
Operating lease liability						37.3						34.2
Reserve for asbestos claims						—						79.0
Other liabilities						65.0						44.4
Total liabilities						1,064.2						1,249.0
Stockholders' equity:
Common stock, $0.01 par value; 200,000,000 shares authorized; shares issued and outstanding: 172,262,163 at December 31, 2023 and 176,876,406 at December 31, 2022						1.7						1.8
Additional paid-in capital						2,847.0						2,853.1
Retained deficit						(1,178.2)						(1,164.9)
Accumulated other comprehensive loss						(67.7)						(75.0)
Total stockholders' equity						1,602.8						1,615.0
Total liabilities and stockholders' equity						$	2,667.0					$	2,864.0

____________________

(1)    During the transition period ended December 31, 2020, the Company acquired the remaining 30% non-controlling interest in a PMC controlled subsidiary for a cash purchase price of $0.3 million. From the time of this transaction through the Spin-Off Transaction, non-controlling interest represents a 5% non-controlling interest in another PMC joint venture relationship. The Company has no remaining non-controlling interest subsequent to the Spin-Off Transaction.

(2) During the years ended December 31, 2023, 2022, and 2021, the Company repurchased and canceled 5.3 million shares, 1.1 million shares and 22.3 thousand shares of common stock at a total cost of $125.0 million, $24.7 million and $0.9 million at a weighted average price of $23.66, $23.00 and $39.27 per share, respectively. For the year ended December 31, 2023, the Company recognized $1.0 million in excise tax on the repurchases. See Note 18 Common Stock Repurchases for additional information.

(3)    Refer to Note 3, Acquisitions for additional information regarding the Elkay Merger.

____________________

(1)    The Company has combined cash flows from discontinued operations with cash flows from continuing operations within operating, investing and financing categories.

The consolidated financial statements included herein have been prepared by Zurn Elkay Water Solutions Corporation ("Zurn Elkay" or the "Company"), in accordance with accounting principles generally accepted in the United States ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the consolidated financial statements include all adjustments necessary for a fair presentation of the financial position and the results of operations for the periods presented.

On December 15, 2023, Zurn Holdings, Inc. (“Holdings”) sold all of the equity interests of its direct subsidiary Zurn Industries, LLC (“Zurn Industries”), together with Zurn Industries’ direct and indirect subsidiaries that primarily held asbestos liabilities, certain assets and cash, in a stock sale transaction to an unaffiliated buyer (“Sale Transaction”). As a result of the Sale Transaction, all asbestos obligations and liabilities, related insurance assets and associated deferred taxes, and other assets sold to the buyer, have been removed from the Company’s consolidated balance sheet effective December 15, 2023 and the Company no longer has any obligation with respect to pending and future asbestos claims related to the divested entities. A loss on the divestiture of asbestos liabilities and certain assets of $11.4 million was recognized in the consolidated statements of operations for the twelve months ended December 31, 2023. See Note 17, Commitments and Contingencies for additional information.

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”). On July 1, 2022, the Merger was completed following which the Company changed its name to “Zurn Elkay Water Solutions Corporation”. Shares of the Company's common stock are traded on the New York Stock Exchange under the ticker symbol “ZWS”. See Note 3, Acquisitions for additional information.

On October 4, 2021, the Company completed a Reverse Morris Trust tax-free spin-off transaction (the “Spin-Off Transaction”) in which (i) substantially all the assets and liabilities of the Company's PMC business were transferred to a newly created subsidiary, Land Newco, Inc. (“Land”), (ii) the shares of Land were distributed to the Company's 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 a specified number of shares of Regal Rexnord Corporation in accordance with the exchange ratio. Following completion of the Spin-Off Transaction, the Company's name was changed to “Zurn Water Solutions Corporation”.

As a result of the Spin-Off Transaction, in accordance with the authoritative guidance, the operating results of PMC are reported as discontinued operations in the consolidated statements of operations for all periods presented. 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. See Note 4, Discontinued Operations for additional information.

In connection with the Spin-Off Transaction, the Company separated certain defined benefit pension and other post-employment benefit plans, and adjusted its employee share-based compensation awards. See Note 14, Stock-Based Compensation and Note 15, Retirement Benefits, respectively, for additional information.

Zurn Elkay is a growth-oriented, pure-play water management business that designs, procures, manufactures, and markets what the Company believes to be the broadest sustainable product portfolio of specification-driven water management solutions to improve health, human safety and the environment. The Company's 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. The Company's heritage of innovation and specification has allowed it to provide highly-engineered, mission-critical solutions to customers for decades and affords it the privilege of having long-term, valued relationships with market leaders.

The Company operates in a disciplined way and the Zurn Elkay Business System (“ZEBS”) is its operating philosophy. Grounded in the spirit of continuous improvement, ZEBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of its business.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

See Note 6, Revenue Recognition for the Company's policy for recognizing revenue under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606") as well as the various other disclosures required by ASC 606.

The Company determines if an arrangement is a lease, or contains a lease, at the inception of the arrangement and determines whether it is an operating or financing lease. Operating and financing leases result in the Company recording a right-of-use ("ROU") asset, current lease liability, and long-term lease liability on its balance sheet. Lease expense for operating leases and amortization expense for finance leases is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and are instead recognized on a straight-line basis over the lease term. See Note 13, Leases, for additional discussion about the Company's policy for accounting for leases and other required disclosures.

The Company accounts for stock-based compensation in accordance with ASC 718, Accounting for Stock Compensation ("ASC 718"). ASC 718 requires compensation costs related to stock-based payment transactions to be recognized in the financial statements. Generally, compensation cost is measured based on the grant-date fair value of the equity instruments issued. Compensation cost is recognized over the requisite service period, generally as the awards vest. See further discussion of the Company’s equity plans in Note 14, Stock-Based Compensation.

The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.

Receivables are stated net of allowances for doubtful accounts of $3.1 million at December 31, 2023, and $1.4 million at December 31, 2022. The Company assesses the collectability of customer receivables based on the credit worthiness of a customer as determined by credit checks and analysis, as well as the customer’s payment history. In determining the allowance for doubtful accounts, the Company also considers various factors including the aging of customer accounts and historical write-offs. In addition, the Company monitors other risk factors, including forward-looking information when establishing adequate allowances for doubtful accounts, which reflects the current estimate of credit losses expected to be incurred over the life of the receivables. Generally, advance payment is not required. Allowances for doubtful accounts established are recorded within selling, general and administrative expenses within the consolidated statements of operations.

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.

Inventories are comprised of material, direct labor and manufacturing overhead, and are stated at the lower of cost or market. Market is determined based on estimated net realizable values. The percentage of the Company’s total inventories valued using the "last-in, first-out" (LIFO) method was 92% and 89% at December 31, 2023 and 2022, respectively. All remaining inventories are valued using the "first-in, first-out" (FIFO) method.

In some cases, the Company has determined a certain portion of inventories are excess or obsolete. In those cases, the Company writes down the value of those inventories to their net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, adjustments to established inventory reserves may be required. The total write-down of inventories charged to expense was $3.4 million, $0.8 million and $0.9 million, during the years ended December 31, 2023, 2022, and 2021, respectively.

Property, plant and equipment are initially stated at cost. Depreciation is provided using the straight-line method over 10 to 30 years for buildings and improvements, 5 to 10 years for machinery and equipment and 3 to 5 years for computer hardware and software. Where appropriate, the depreciable lives of certain assets may be adjusted to reflect a change in the use of those assets, or depreciation may be accelerated in the case of an eventual asset disposal.

Intangible assets consist of acquired trademarks and tradenames, customer relationships (including distribution network) and patents. The customer relationships, patents, and certain tradenames are being amortized using the straight-line method over their estimated useful lives of 7 to 20 years, 3 to 10 years and 5 to 20 years, respectively. Where appropriate, the lives of certain intangible assets may be adjusted to reflect a change in the use of those assets, or amortization may be accelerated in the case of a known intangible asset discontinuation.

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. In conducting the annual impairment test for goodwill, the Company has 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. If a qualitative assessment determines an impairment is more likely than not, the Company is required to perform a quantitative impairment test. Otherwise, no further analysis is required. Alternatively, the Company may elect to proceed directly to the quantitative impairment test. In conducting a quantitative assessment, the Company utilizes a discounted cash flow methodology based on future business projections and a market value approach (guideline public company comparables). The Company performs the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount exceeds the fair value of the reporting unit, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value up to the amount of the recorded goodwill.

During the fourth quarter of the year ended December 31, 2023, the Company completed its annual goodwill impairment tests and performed a quantitative assessment. No goodwill impairment charges were recorded during the years ended December 31, 2023, 2022, or 2021.

The carrying value of long-lived assets, including amortizable intangible assets and tangible fixed assets, are evaluated for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment of amortizable intangible assets and tangible fixed assets is generally determined by comparing projected undiscounted cash flows to be generated by the asset, or group of assets, to its carrying value. If impairment is identified, a loss is recorded equal to the excess of the asset's net book value over its fair value, and the cost basis is adjusted accordingly. During the year ended December 31, 2023, the Company recognized $2.5 million of fixed asset impairment charges. The Company recognized no impairment charges of tangible fixed assets during the during the years ended December 31, 2022 or 2021. Impairments are determined utilizing Level 3 inputs within the Fair Value hierarchy, and the Company reviews and considers input from outside specialists, when appropriate. Actual results could vary from these estimates. Refer to Note 12, Fair Value Measurements for additional information.

The Company offers warranties on the sales of certain of its products and records an accrual for estimated future claims. Such accruals are based upon historical experience and management’s estimate of the level of future claims. The following table presents changes in the Company’s product warranty liability during each of the periods presented (in millions):

			Year Ended
			December 31, 2023						December 31, 2022						December 31, 2021
Balance at beginning of period			$	4.2					$	1.3					$	1.2
Acquired obligations			—						3.5						0.3
Charged to operations			2.4						1.6						1.1
Claims settled			(1.9)						(2.2)						(1.3)
Balance at end of period			$	4.7					$	4.2					$	1.3