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FORM 10-Q

(Mark one)
☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the quarter ended March 31, 2022

☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission File Number:			001-35475

ZURN WATER SOLUTIONS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware									20-5197013
(State or Other Jurisdiction of Incorporation or Organization)									(I.R.S. Employer Identification No.)
511 W. Freshwater Way									53204
Milwaukee,			Wisconsin						(Zip Code)
(Address of Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class			Trading Symbol(s)			Name of Each Exchange on Which Registered
Common Stock, $.01 par value			ZWS			The New York Stock Exchange

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 is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  ☐    No   ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class						Outstanding at April 22, 2022
Zurn Water Solutions Corporation Common Stock, $0.01 par value per share						125,967,533 shares

 

Part I FINANCIAL INFORMATION
Item 1.			Financial Statements			4
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			29
Item 4.			Controls and Procedures			30
Part II OTHER INFORMATION
Item 1.			Legal Proceedings			31
Item 1A.			Risk Factors			31
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 6.			Exhibits			37
Signatures						38

    Our disclosure and analysis in this report concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in developing and expanding our business and the realization of sales from our backlog, include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements. Although these statements are based upon reasonable assumptions, including projections of orders, sales, operating margins, earnings, cash flows, research and development costs, working capital and capital expenditures, they are subject to risks and uncertainties that are described more fully herein and in our Annual Report on Form 10-K for the year ended December 31, 2021, in Part I, Item 1A, “Risk Factors” and in Part I under the heading "Cautionary Notice Regarding Forward-Looking Statements", as well as in our other filings with the Securities and Exchange Commission. In addition, our previously announced transaction with Elkay Manufacturing Company is subject to various risks, uncertainties and factors including, among others: the inability to complete the transaction; the inability to recognize the anticipated benefits of the proposed transaction, including due to the failure to receive required security holder approvals, or the failure of other closing conditions; and costs related to the proposed transaction. See also Part II, Item 1A, "Risk Factors" herein. Accordingly, we can give no assurance that we will achieve the results anticipated or implied by our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

						(Unaudited)
						March 31, 2022						December 31, 2021
Assets
Current assets:
Cash and cash equivalents						$	73.2					$	96.6
Receivables, net						172.1						144.1
Inventories						224.3						184.5
Income taxes receivable						27.4						33.1
Other current assets						23.1						16.5
Total current assets						520.1						474.8
Property, plant and equipment, net						63.1						64.4
Intangible assets, net						176.9						179.1
Goodwill						255.0						254.1
Insurance for asbestos claims						66.0						66.0
Other assets						37.5						39.3
Total assets						$	1,118.6					$	1,077.7
Liabilities and stockholders' equity
Current liabilities:
Current maturities of debt						$	5.6					$	5.6
Trade payables						113.7						105.1
Compensation and benefits						6.6						22.0
Current portion of pension and postretirement benefit obligations						1.3						1.3
Other current liabilities						87.3						106.4
Total current liabilities						214.5						240.4
Long-term debt						532.9						533.9
Pension and postretirement benefit obligations						56.7						57.3
Deferred income taxes						7.7						3.1
Operating lease liability						7.4						8.9
Reserve for asbestos claims						66.0						66.0
Other liabilities						39.7						41.7
Total liabilities						924.9						951.3
Stockholders' equity:
Common stock, $0.01 par value; 200,000,000 shares authorized; shares issued and outstanding: 125,847,069 at March 31, 2022 and 125,720,068 at December 31, 2021						1.3						1.3
Additional paid-in capital						1,440.8						1,436.9
Retained deficit						(1,175.5)						(1,236.9)
Accumulated other comprehensive loss						(72.9)						(74.9)
Total stockholders' equity						193.7						126.4
Total liabilities and stockholders' equity						$	1,118.6					$	1,077.7

(Unaudited)

						Three Months Ended
						March 31, 2022						March 31, 2021
Net sales						$	239.6					$	205.2
Cost of sales						137.7						116.8
Gross profit						101.9						88.4
Selling, general and administrative expenses						53.9						57.7
Restructuring and other similar charges						1.1						0.6
Amortization of intangible assets						3.0						6.1
Income from operations						43.9						24.0
Non-operating expense:
Interest expense, net						(4.8)						(9.6)
Other income, net						0.3						0.3
Income before income taxes						39.4						14.7
Provision for income taxes						(10.0)						(4.7)
Net income from continuing operations						29.4						10.0
Income from discontinued operations, net of tax						0.8						40.0
Net income attributable to Zurn common stockholders						$	30.2					$	50.0
Basic net income per share:
Continuing operations						$	0.23					$	0.08
Discontinued operations						$	0.01					$	0.33
Net income						$	0.24					$	0.42
Diluted net income per share:
Continuing operations						$	0.23					$	0.08
Discontinued operations						$	0.01					$	0.32
Net income						$	0.24					$	0.40
Weighted-average number of shares outstanding (in thousands):
Basic						126,281						119,808
Effect of dilutive equity awards						2,160						3,829
Diluted						128,441						123,637

(Unaudited)

						Three Months Ended
						March 31, 2022						March 31, 2021
Net income						$	30.2					$	50.0
Other comprehensive income (loss):
Foreign currency translation adjustments						2.0						(1.7)
Change in pension and postretirement defined benefit plans, net of tax						—						(0.1)
Total comprehensive income						$	32.2					$	48.3

(Unaudited)

						Three Months Ended
						March 31, 2022						March 31, 2021
Operating activities
Net income						$	30.2					$	50.0
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation						2.3						14.1
Amortization of intangible assets						3.0						9.4
Deferred income taxes						4.6						(1.3)
Other non-cash expenses						0.5						0.7
Stock-based compensation expense						3.9						14.8
Changes in operating assets and liabilities:
Receivables						(27.7)						(36.9)
Inventories						(39.6)						(19.9)
Other assets						(1.1)						3.1
Accounts payable						8.4						50.7
Accruals and other						(38.4)						(13.4)
Cash (used for) provided by operating activities						(53.9)						71.3
Investing activities
Expenditures for property, plant and equipment						(0.8)						(9.2)
Acquisitions, net of cash acquired						—						0.4
Proceeds from dispositions of long-lived assets						1.3						0.7
Proceeds associated with divestiture of discontinued operations						35.0						—
Cash provided by (used for) investing activities						35.5						(8.1)
Financing activities
Proceeds from borrowings of debt						10.0						—
Repayments of debt						(11.4)						(0.5)
Proceeds from exercise of stock options						0.5						2.8
Taxes withheld and paid on employees' share-based payment awards						(0.5)						—
Repurchase of common stock						—						(0.9)
Payment of common stock dividends						(3.8)						(10.8)
Cash used for financing activities						(5.2)						(9.4)
Effect of exchange rate changes on cash, cash equivalents and restricted cash						0.2						(2.1)
(Decrease) increase in cash, cash equivalents and restricted cash						(23.4)						51.7
Cash, cash equivalents and restricted cash at beginning of period						96.6						255.6
Cash, cash equivalents and restricted cash at end of period						$	73.2					$	307.3

Spin-Off of Process & Motion Control Segment

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” and the ticker symbol for its shares of common stock trading on the New York Stock Exchange was changed to “ZWS”.

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 condensed consolidated statements of operations for all prior periods presented. The condensed consolidated statements of cash flows has not been adjusted to separately disclose cash flows related to the discontinued operations. See Note 4, Discontinued Operations for additional information.

The Company

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate that is expected to be discontinued because of reference rate reform. The amendments in this update provide optional expedients and exceptions for applying GAAP to instruments affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this ASU are effective for all entities as of March 12, 2020, through December 31, 2022. The Company did not modify any material contracts due to reference rate reform during the three

On February 12, 2022, the Company 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 the Company, Elkay, Zebra Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”), and Elkay Interior Systems International, Inc., as representative of the stockholders of Elkay. The Merger Agreement provides that among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Elkay would merge with Merger Sub, with Elkay surviving as a wholly-owned subsidiary of the Company (the “Merger”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), the Company will exchange, for 100% of the outstanding equity of Elkay, up to 52.5 million newly issued shares of the Company's common stock, which on a pro forma basis, assuming closing of the Merger on December 31, 2021 (and assuming no adjustments pursuant to the Merger Agreement), would have represented approximately 29% of the outstanding shares of the Company's common stock on a fully diluted basis as of such date (the “Merger Consideration”).

The Company anticipates the Merger will close will close early in the third quarter of 2022. The closing of the Merger is subject to customary conditions, including, among others, the absence of laws or orders by a governmental authority enjoining or prohibiting the consummation of the transactions contemplated by the Merger Agreement; the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”) (which waiting period expired on March 30, 2022); the required approvals by the respective stockholders of the Company and Elkay; a registration statement having become effective in accordance with the provisions of the Securities Act of 1933, as amended, and not being subject to any stop order suspending the registration statement (registration statement became effective on April 26, 2022); the shares of the Company's common stock to be issued in the Merger being approved for listing on the New York Stock Exchange as of the closing; the accuracy of the parties’ representations and warranties contained in the Merger Agreement (subject to certain materiality qualifications); the parties’ compliance with the covenants and agreements in the Merger Agreement in all material respects; and the absence of any material adverse effect on the Company or Elkay.

On November 17, 2021, the Company completed the acquisition of the Wade Drains business ("Wade Drains") from McWane, Inc. for a preliminary cash purchase price of $13.7 million, excluding transaction costs and net of cash acquired. The preliminary purchase price is subject to customary post-closing adjustments. Wade Drains manufactures a wide range of specified commercial plumbing products for customers across North America and complements the Company's existing flow systems product portfolio.

On April 16, 2021, the Company acquired substantially all of the assets of Advance Technology Solutions, LLC (d/b/a ATS GREASEwatch) ("ATS GREASEwatch") for a cash purchase price of $4.5 million, excluding transaction costs and net of cash acquired. The Company paid $3.8 million to the sellers at closing, with the remaining $0.7 million payable to the sellers upon settlement of certain indemnities within two years of closing, 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.

The acquisitions have been accounted for as business combinations and were recorded by allocating the purchase prices to the fair value of assets acquired and liabilities assumed at the acquisition dates. The excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill. The preliminary purchase price allocations associated with these acquisitions resulted in tax deductible goodwill of $8.8 million, customer relationship intangibles assets of $1.6 million, trade working capital of $9.0 million and $(1.1) million of other net liabilities. The preliminary purchase price allocations will be completed within the one-year period following the acquisition dates.

The Company's results of operations include the acquired operations subsequent to the acquisition dates. Pro-forma results of operations and certain other U.S. GAAP disclosures related to these acquisitions have not been presented because the acquisitions did not significantly impact the Company's condensed consolidated statements of operations or financial position.

3. Restructuring and Other Similar Charges

During the three months ended March 31, 2022, the Company continued to execute various restructuring actions. These initiatives were implemented to drive efficiencies and reduce operating costs while also modifying the Company's

						Three Months Ended
						March 31, 2022						March 31, 2021
Employee termination benefits						$	1.1					$	0.6
Contract termination and other associated costs						—						—
Total restructuring and other similar costs						$	1.1					$	0.6

The following table summarizes the activity in the Company's restructuring accrual for the three months ended March 31, 2022 (in millions):

						Employee termination benefits						Contract termination and other associated costs						Total
Accrued Restructuring Costs, December 31, 2021 (1)						$	2.4					$	—					$	2.4
Charges						1.1						—						$	1.1
Cash payments						(2.2)						—						$	(2.2)
Accrued Restructuring Costs, March 31, 2022 (1)						$	1.3					$	—					$	1.3

____________________

(1)The restructuring accrual is included in other current liabilities in the condensed consolidated balance sheets.

The major components of the Income from discontinued operations, net of tax presented in the condensed consolidated statements of operations for the three months ended March 31, 2022 and March 31, 2021, are as follows (in millions):

						Three Months Ended
						March 31, 2022						March 31, 2021
Net sales						$	—					$	320.9
Cost of sales						—						(201.4)
Selling, general and administrative expenses						—						(61.6)
Amortization of intangible assets						—						(3.3)
Interest expense, net						—						(1.4)
Other expense, net						—						(0.7)
Income from discontinued operations before income tax						—						52.5
Income tax benefit (provision)						0.8						(12.5)
Equity method investment income						—						0.1
Non-controlling interest income						—						0.1
Income from discontinued operations, net of tax						$	0.8					$	40.0

The condensed consolidated statements of cash flows for the three months ended March 31, 2022 and March 31, 2021 have not been adjusted to separately disclose cash flows related to discontinued operations. However, the significant investing and financing cash flows and other significant non-cash operating items associated with the discontinued operations were as follows (in millions):

						Three Months Ended
						March 31, 2022						March 31, 2021
Depreciation						$	—					$	11.9
Amortization of intangible assets						—						3.3
Loss on disposition of assets						—						0.2
Deferred income taxes						—						0.1
Other non-cash charges						—						0.3
Stock-based compensation						—						5.7
Expenditures for property, plant and equipment						—						(8.2)
Proceeds from dispositions of long-lived assets						—						0.7
Proceeds associated with divestiture of discontinued operations						35.0						—
Repayments of debt						—						(0.5)
Proceeds from exercise of stock options						—						2.4

    A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when obligations under the terms of a contract with the customer are satisfied. For the majority of the Company's product sales, revenue is recognized at a point-in-time when control of the product is transferred to the customer, which generally occurs when the product is shipped from the Company's manufacturing facility to the customer. When contracts include multiple products to be delivered to the customer, generally each product is separately priced and is determined to be distinct within the context of the contract. Other than a standard assurance-type warranty that the product will conform to agreed-upon specifications, there are generally no other significant post-shipment obligations. The expected costs associated with standard warranties continues to be recognized as an expense when the products are sold.

When the contract provides the customer the right to return eligible products or when the customer is part of a sales rebate program, the Company reduces revenue at the point of sale using current facts and historical experience by using an estimate for expected product returns and rebates associated with the transaction. The Company adjusts these estimates at the earlier of when the most likely amount of consideration that is expected to be received changes or when the consideration becomes fixed. Accordingly, an increase or decrease to revenue is recognized at that time.

Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue. The Company has elected to recognize the cost for freight and shipping when control of products has transferred to the customer as a

The following tables present the Company's revenue disaggregated by customer type and customer geography (in millions):

						Three Months Ended
Customer Type						March 31, 2022						March 31, 2021
Institutional						$	87.6					$	76.4
Commercial						75.5						64.8
All other						76.5						64.0
Total						$	239.6					$	205.2

						Three Months Ended
Geography						March 31, 2022						March 31, 2021
United States						$	219.6					$	185.7
Canada						15.1						14.5
Rest of world						4.9						5.0
Total						$	239.6					$	205.2

For substantially all of the Company's product sales, the customer is billed 100% of the contract value when the product ships and payment is generally due 30 days from shipment. Certain contracts include longer payment periods; however, the Company has elected to utilize the practical expedient in which the Company will only recognize a financing component to the sale if payment is due more than one year from the date of shipment.

Billings are recorded as accounts receivable when an unconditional right to the contractual consideration exists. Contract assets arise when the Company performs by transferring goods or services to a customer before the customer pays consideration, or before the customer’s payment is due. A contract liability exists when the Company has received consideration or the amount is due from the customer in advance of revenue recognition. Contract liabilities and contract assets as of March 31, 2022 and March 31, 2021 were not material.

    The Company had backlog of $100.8 million as of March 31, 2022, which represents the most likely amount of consideration expected to be received in satisfying the remaining backlog under open contracts. The Company has elected to use the optional exemption provided by ASC 606-10-50-14A for variable consideration, and has not included estimated rebates in the amount of unsatisfied performance obligations. The Company expects to recognize approximately 99% of the backlog in the remaining nine months of the year ending December 31, 2022, and the remaining approximately 1% in 2023 and beyond.

The Company determined that the customer is able to control the product when it is delivered to them; thus, depending on the shipping terms, control will transfer at different points between the Company's manufacturing facility or warehouse and the customer’s location. The Company considers control to have transferred upon shipment or delivery because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset and the customer has significant risks and rewards of ownership of the asset.

The Company provides volume-based rebates and the right to return product to certain customers, which are accrued for based on current facts and historical experience. Rebates are paid either on an annual or quarterly basis. There are no other significant variable consideration elements included in the Company's contracts with customers.

The Company has elected to expense contract costs as incurred if the amortization period is expected to be one year or less. If the amortization period of these costs is expected to be greater than one year, the costs would be subject to

The provision for income taxes for all periods presented is based on an estimated effective income tax rate for the respective fiscal years. The estimated annual effective income tax rate is determined excluding the effect of significant discrete items or items that are reported net of their related tax effects. The tax effect of significant discrete items is reflected in the period in which they occur. The Company's income tax expense is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are generally higher than the U.S. federal statutory rate, state tax rates in the jurisdictions where the Company does business and the Company's ability to utilize various tax credits, capital loss and net operating loss (“NOL”) carryforwards.

The Company regularly reviews its deferred tax assets for recoverability and valuation allowances are established based on historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences, as deemed appropriate. In addition, all other available positive and negative evidence is taken into consideration for purposes of determining the proper balances of such valuation allowances. As a result of this review, the Company continues to maintain a full valuation allowance against U.S. federal and state capital loss carryforwards and a partial valuation allowance against certain foreign NOL carryforwards and other related foreign deferred tax assets, as well as certain U.S. state NOL carryforwards. Future changes to the balances of these valuation allowances, as a result of this continued review and analysis by the Company, could result in a material impact to the financial statements for such period of change.

The income tax provision was $10.0 million for the three months ended March 31, 2022, compared to $4.7 million for the three months ended March 31, 2021. The effective income tax rate for the three months ended March 31, 2022, was 25.4% versus 32.0% for the three months ended March 31, 2021. The effective income tax rate for the three months ended March 31, 2022 was above the U.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above the U.S. federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code and the accrual of various state income taxes, partially offset by the recognition of certain previously unrecognized tax benefits due to the lapse of the applicable statutes of limitations and income tax benefits associated with share-based payments. The effective income tax rate for the three months ended March 31, 2021 was above the U.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above the U.S. federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, and the accrual of various state income taxes, partially offset by the recognition of income tax benefits associated with foreign-derived intangible income (“FDII”).

The Company’s total liability for net unrecognized tax benefits as of March 31, 2022 and December 31, 2021 was $4.9 million and $5.9 million, respectively. The Company recognizes accrued interest and penalties related to unrecognized income tax benefits in income tax expense. As of March 31, 2022 and December 31, 2021, the total amount of gross, unrecognized income tax benefits included accrued interest and penalties of $0.3 million and $0.5 million, respectively. The Company recognized $(0.1) million and $0.0 million of net interest and penalties as income tax expense (benefit) during the three months ended March 31, 2022 and March 31, 2021, respectively.

The Company conducts business in multiple locations within and outside the U.S. Consequently, the Company is subject to periodic income tax examinations by domestic and foreign income tax authorities. Currently, the Company is undergoing routine, periodic income tax examinations in foreign jurisdictions. During the nine month Transition Period ended December 31, 2020, the Internal Revenue Service (the “IRS”) completed an income tax examination of the Company’s U.S. consolidated federal income tax returns for the tax years ended March 31, 2016 and 2017. The Company paid approximately $1.5 million upon the conclusion of such examination, all of which was previously accrued in the Company’s financial statements. In accordance with the terms of the VAG sale agreement, the Company is required to indemnify the purchaser for any future income tax liabilities associated with all open tax years ending prior to, and including, the short period ended on the date of the Company's sale of VAG. VAG was notified by the German tax authorities of its intention to conduct an income tax examination of the VAG German entities’ corporate income and trade tax returns for the tax years ended March 31, 2014 through 2019. Similarly, in accordance with the Spin-Off Transaction, the Company is required to indemnify Regal Rexnord

7. Earnings per Share

The computation for diluted net income per share for the three months ended March 31, 2022 and March 31, 2021, excludes 0.2 million and 0.2 million common shares due to their anti-dilutive effects, respectively.

8. Stockholders' Equity

Stockholders' equity consists of the following (in millions):

			Common stock (1)												Additional paid-in capital						Retained earnings						Accumulated other comprehensive loss												Non-controlling interest (2)						Total stockholders’ equity
Balance at December 31, 2020			$	1.2											$	1,392.9					$	116.0					$	(73.8)											$	3.0					$	1,439.3
Total comprehensive income (loss)			—												—						50.0						(1.8)												0.1						48.3
Stock-based compensation expense			—												14.2						—						—												—						14.2
Proceeds from exercise of stock options			—												2.8						—						—												—						2.8
Repurchase of common stock			—												—						(0.9)						—												—						(0.9)
Common stock dividends ($0.09 per share)			—												—						(10.8)						—												—						(10.8)
Balance at March 31, 2021			$	1.2											$	1,409.9					$	154.3					$	(75.6)											$	3.1					$	1,492.9

			Common stock (1)												Additional paid-in capital						Retained deficit						Accumulated other comprehensive loss												Non-controlling interest						Total stockholders’ equity
Balance at December 31, 2021			$	1.3											$	1,436.9					$	(1,236.9)					$	(74.9)											$	—					$	126.4
Total comprehensive income			—												—						30.2						2.0												—						32.2
Stock-based compensation expense			—												3.9						—						—												—						3.9
Proceeds from exercise of stock options			—												0.5						—						—												—						0.5
Taxes withheld and paid on employees' share-based payment awards			—												(0.5)						—						—												—						(0.5)
Proceeds associated with divestiture of discontinued operations			—												—						35.0						—												—						35.0
Common stock dividends ($0.03 per share)			—												—						(3.8)						—												—						(3.8)
Balance at March 31, 2022			$	1.3											$	1,440.8					$	(1,175.5)					$	(72.9)											$	—					$	193.7

(1)During the three months ended March 31, 2022 and March 31, 2021, the Company issued 127,001 and 189,629 shares of common stock upon the exercise of stock options, vesting of restricted stock units, and for other common stock awards, respectively.

(2)Non-controlling interest through the Spin-Off Transaction represents a 5% non-controlling interest in a PMC joint venture relationship. The Company has no remaining non-controlling interest subsequent to the Spin-Off Transaction.

Prior year amounts disclosed within this note include amounts attributable to the Company's discontinued operations, unless otherwise noted. Refer to Note 4 Discontinued Operations for further detail.

Share Repurchase Program

    During fiscal 2015, the Company's Board of Directors approved a common stock repurchase program (the "Repurchase Program") authorizing the repurchase of up to $200.0 million of the Company's common stock from time to time on the open market or in privately negotiated transactions. On January 27, 2020, the Company's Board of Directors approved increasing the remaining share repurchase authority under the Repurchase Program to $300.0 million. The Repurchase Program does not require the Company 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 have been expended or until it is modified or terminated by the Board. The Company did not repurchase any shares during the three months ended March 31, 2022. During the three months ended March 31, 2021, the Company repurchased 22,300 shares of common stock at a total cost of $0.9 million at a weighted average price of $39.27 per share. The repurchased shares were canceled by the Company upon receipt. A total of approximately $162.8 million of the existing authority remained under the Repurchase Program at March 31, 2022.

												Foreign Currency Translation and Other						Pension and Postretirement Plans						Total
Balance at December 31, 2021												$	(70.9)					$	(4.0)					$	(74.9)
Other comprehensive loss before reclassifications												2.0						—						2.0
Amounts reclassified from accumulated other comprehensive loss												—						—						—
Net current period other comprehensive income												2.0						—						2.0
Balance at March 31, 2022												$	(68.9)					$	(4.0)					$	(72.9)

The following table summarizes the amounts reclassified from accumulated other comprehensive loss to net income during the three months ended March 31, 2022 and March 31, 2021 (in millions):

						Three Months Ended
						March 31, 2022						March 31, 2021																		Income Statement Line
Pension and other postretirement plans
Amortization of prior service credit						$	—					$	(0.1)																	Other income, net
Provision for income taxes						—						—
Total net of tax						$	—					$	(0.1)

The major classes of inventories are summarized as follows (in millions):

						March 31, 2022						December 31, 2021
Finished goods						$	200.8					$	169.1
Work in progress						4.4						5.1
Raw materials						20.6						14.6
Inventories at First-in, First-Out ("FIFO") cost						225.8						188.8
Adjustment to state inventories at Last-in, First-Out ("LIFO") cost						(1.5)						(4.3)
						$	224.3					$	184.5

Net carrying amount as of December 31, 2021						$	254.1
Currency translation adjustments						0.9
Net carrying amount as of March 31, 2022						$	255.0

												March 31, 2022
						Weighted Average Useful Life						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Intangible assets subject to amortization:
Patents						9 years						$	25.1					$	(22.4)					$	2.7
Customer relationships (including distribution network)						15 years						351.7						(271.8)						79.9
Tradenames						12 years						11.5						(4.3)						7.2
Intangible assets not subject to amortization - trademarks and tradenames												87.1						—						87.1
Total intangible assets, net						15 years						$	475.4					$	(298.5)					$	176.9
												December 31, 2021
						Weighted Average Useful Life						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Intangible assets subject to amortization:
Patents						9 years						$	24.9					$	(22.4)					$	2.5
Customer relationships (including distribution network)						15 years						351.1						(269.1)						82.0
Tradenames						13 years						11.5						(4.0)						7.5
Intangible assets not subject to amortization - trademarks and tradenames												87.1						—						87.1
Total intangible assets, net						15 years						$	474.6					$	(295.5)					$	179.1

Other current liabilities are summarized as follows (in millions):

						March 31, 2022						December 31, 2021
Commissions						$	8.5					$	8.1
Current portion of operating lease liability						6.2						6.1
Income taxes payable						1.9						2.1
Legal and environmental						3.0						3.0
Product warranty (1)						1.3						1.3
Restructuring and other similar charges (2)						1.3						2.4
Risk management (3)						11.0						11.3
Sales rebates						23.5						38.6
Taxes payable on behalf of PMC						21.9						21.9
Taxes, other than income taxes						1.6						1.8
Other						7.1						9.8
						$	87.3					$	106.4

(1)See more information related to the product warranty obligations within Note 15, Commitments and Contingencies.

(2)See more information related to the restructuring obligations within Note 3, Restructuring and Other Similar Charges.

(3)     Includes projected liabilities related to losses arising from automobile, general and product liability claims.

13. Long-Term Debt

Long-term debt is summarized as follows (in millions):

						March 31, 2022						December 31, 2021
Term loan (1)						$	538.2					$	539.2
Finance leases and other subsidiary debt (2)						0.3						0.3
Total						538.5						539.5
Less current maturities						5.6						5.6
Long-term debt						$	532.9					533.9

(1)Includes unamortized debt issuance costs of $10.4 million and $10.8 million at March 31, 2022 and December 31, 2021, respectively.

(2)Refer to Note 14, Leases, to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 for further information regarding leases.

The obligations under the Credit Agreement and related documents are secured by liens on substantially all of the assets of Holdings, the Borrowers, and certain subsidiaries of the Borrowers pursuant to a Third Amended and Restated Guarantee and Collateral Agreement, dated as of October 4, 2021, among Holdings, the Borrowers, the subsidiaries of the Borrowers party thereto, and the Administrative Agent, and certain other collateral documents.

The Credit Agreement contains representations, warranties, covenants and events of default, including, without limitation, a financial covenant under which the Borrowers are, if certain conditions are met, obligated to maintain on a consolidated basis, as of the end of each fiscal quarter, a certain maximum Net First Lien Leverage Ratio (as defined in the Credit Agreement). As of March 31, 2022, the Borrowers were in compliance with all applicable covenants under the Credit Agreement.

Term Debt

The Term Loan has a maturity date of October 4, 2028. Commencing on March 31, 2022, the Borrowers are required to make quarterly payments of principal in an amount equal to $1.4 million on each quarter until the maturity date.

The Term Loan bears interest at the Borrowers’ option, by reference to a base rate or a rate based on LIBOR, in either case, plus an applicable margin determined quarterly based on the Borrowers’ Net First Lien Leverage Ratio as of the last day of each fiscal quarter. If the Net First Lien Leverage Ratio is greater than 1.80 to 1.00, the applicable margin shall equal 1.25% in the case of base rate borrowings and 2.25% in the case of LIBOR borrowings. In the event the Borrowers’ Net First Lien Leverage Ratio is less than or equal to 1.80 to 1.0, the applicable margin on both base rate and LIBOR borrowings would decrease by 0.25%. The Borrowers’ Net First Lien Leverage Ratio was 2.36 to 1.0 as of March 31, 2022. Certain prepayments of the Term Loan occurring on or prior to April 4, 2022 are subject to a 1.00% prepayment penalty.

At March 31, 2022 and for the three months ended, the borrowings under the Term Loan had weighted-average effective interest rates of 2.75% and 2.75%, respectively.

Revolving Credit Facility

The Credit Agreement includes a $200.0 million revolving credit facility that has a maturity date of October 2, 2026. Borrowings under the Revolving Credit Facility bear interest at the Borrowers’ option, by reference to a base rate or a rate based on LIBOR, in either case, plus an applicable margin determined quarterly based on the Borrowers’ Net First Lien Leverage Ratio as of the last day of each fiscal quarter. If the Net First Lien Leverage Ratio is greater than 2.00 to 1.00, the applicable margin shall equal 1.00% in the case of base rate borrowings and 2.00% in the case of LIBOR borrowings. In the event the Borrowers' Net First Lien Leverage Ratio is less than or equal to 2.00 to 1.00, the applicable margin on both base rate and LIBOR borrowings would decrease by 0.25%. The Borrowers’ Net First Lien Leverage Ratio was 2.36 to 1.0 as of March 31, 2022. The Borrowers are also required to pay a quarterly commitment fee on the average daily unused portion of the

At March 31, 2022 and December 31, 2021, there were no amounts borrowed under the Revolving Credit Facility. As of March 31, 2022 and December 31, 2021, $6.1 million and $6.1 million of the Revolving Credit Facility were considered utilized in connection with outstanding letters of credit, respectively.

At March 31, 2022 and December 31, 2021, various wholly owned subsidiaries had additional debt of $0.3 million and $0.3 million, respectively, comprised primarily of finance lease obligations. See Note 14, Leases in the audited consolidated financial statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2021 for further information regarding leases.

14. Fair Value Measurements

•Level 1 - Quoted prices for identical instruments in active markets.

•Level 2 - Quoted prices for similar instruments; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable.

•Level 3 - Model-derived valuations in which one or more inputs or value-drivers are both significant to the fair value measurement and unobservable.

    The Company has a nonqualified deferred compensation plan where assets are invested in mutual funds and corporate-owned life insurance contracts held in a rabbi trust, which is restricted for payments to participants of the plan. The Company has elected to use the fair value option for the mutual funds, which are measured using quoted prices of identical instruments in active markets categorized as Level 1. Corporate-owned life insurance contracts are recorded at cash surrender value, which is provided by a third party and reflects the net asset value of the underlying publicly traded mutual funds categorized as Level 2. The deferred compensation plan assets are classified within other assets on the condensed consolidated balance sheets. Deferred compensation plan liabilities are measured at fair value based on quoted prices of identical instruments to the investment vehicles selected by the participants categorized as Level 1. Deferred compensation plan liabilities are classified within other liabilities on the condensed consolidated balance sheets.

						Fair Value as of March 31, 2022
						Level 1						Level 2						Level 3						Total
Deferred compensation plan assets						$	1.8					$	13.2					$	—					$	15.0
Deferred compensation plan liabilities						15.9						—						—						15.9
						Fair Value as of December 31, 2021
						Level 1						Level 2						Level 3						Total
Deferred compensation plan assets						$	0.9					$	14.4					$	—					$	15.3
Deferred compensation plan liabilities						16.3						—						—						16.3

There were no transfers of assets between levels at March 31, 2022 and December 31, 2021, respectively.

Long-lived Assets and Intangible Assets

    Long-lived assets (which include property, plant and equipment and real estate) may be measured at fair value if such assets are held-for-sale or when there is a determination that the asset is impaired. Intangible assets (which include patents, tradenames, customer relationships, and non-compete agreements) also may be measured at fair value when there is a determination that the asset is impaired. The determination of fair value for these assets is based on the best information available that resides within Level 3 of the fair value hierarchy, including internal cash flow estimates discounted at an appropriate interest rate, quoted market prices when available, market prices for similar assets and independent appraisals, as appropriate. For real estate, cash flow estimates are based on current market estimates that reflect current and projected lease profiles and available industry information about expected trends in rental, occupancy and capitalization rates.

15. Commitments and Contingencies

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 (in millions):

						Three Months Ended
						March 31, 2022						March 31, 2021
Balance at beginning of period						$	1.3					$	1.2
Charged to operations						0.2						0.6
Claims settled						(0.2)						(0.3)
Balance at end of period						$	1.3					$	1.5

16. Retirement Benefits

The components of net periodic benefit cost are as follows (in millions):

						Three Months Ended
						March 31, 2022						March 31, 2021
Pension Benefits:
Service cost						$	—					$	0.1
Interest cost						2.1						3.7
Expected return on plan assets						(2.4)						(4.9)
Net periodic benefit cost						$	(0.3)					$	(1.1)
Other Postretirement Benefits:
Interest cost						$	0.1					$	0.1
Amortization:
Prior service credit						—						(0.1)
Net periodic benefit cost						$	0.1					$	—

See Note 16, Retirement Benefits, to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 for further information regarding retirement benefits.

17. Stock-Based Compensation

    The Zurn Water Solutions Corporation Performance Incentive Plan (the "Plan") is utilized to provide performance incentives to the Company's officers, employees, directors and certain others by permitting grants of equity awards (for common stock), as well as performance-based cash awards, to such persons to encourage them to maximize Zurn's performance and create value for Zurn's stockholders. For the three months ended March 31, 2022 and March 31, 2021, the Company recognized $3.9 million and $9.1 million of stock-based compensation expense, respectively.

During the three months ended March 31, 2022, the Company granted the following restricted stock units, performance stock units and common stock to directors, executive officers, and certain other employees:

Award Type						Number of Awards						Weighted Average Grant-Date Fair Value
Restricted stock units						7,406						$	33.17
Performance stock units						5,244						$	33.37
Common stock						13,796						$	35.50

    See Note 15, Stock-Based Compensation, to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, for further information regarding stock-based compensation.

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the audited consolidated financial statements and notes thereto, along with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), in our Annual Report on Form 10-K for the year ended December 31, 2021.

Elkay Merger

On February 12, 2022, we 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. The Merger Agreement provides that among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Elkay would merge with Merger Sub, with Elkay surviving as a wholly-owned subsidiary of Zurn (the “Merger”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), we will exchange, for 100% of the outstanding equity of Elkay, up to 52.5 million newly issued shares of our common stock, which on a pro forma basis, assuming closing of the Merger on December 31, 2021 (and assuming no adjustments pursuant to the Merger Agreement), would have represented approximately 29% of the outstanding shares of the Company's common stock on a fully diluted basis as of such date (the “Merger Consideration”).

We anticipate the Merger will close early in the third quarter of 2022. The closing of the Merger is subject to customary conditions, including, among others, the absence of laws or orders by a governmental authority enjoining or prohibiting the consummation of the transactions contemplated by the Merger Agreement; the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”) (which waiting period expired on March 30, 2022); the required approvals by the respective stockholders of Zurn and Elkay; a registration statement having become effective in accordance with the provisions of the Securities Act of 1933, as amended, and not being subject to any stop order suspending the registration statement (registration statement became effective on April 26, 2022); the shares of our common stock to be issued in the Merger being approved for listing on the New York Stock Exchange as of the closing; the accuracy of the parties’ representations and warranties contained in the Merger Agreement (subject to certain materiality qualifications); the parties’ compliance with the covenants and agreements in the Merger Agreement in all material respects; and the absence of any material adverse effect on Zurn or Elkay.

Acquisitions

On November 17, 2021, we completed the acquisition of the Wade Drains business ("Wade Drains") from McWane, Inc. for a preliminary cash purchase price of $13.7 million, excluding transaction costs and net of cash acquired. The preliminary purchase price is subject to customary post-closing adjustments. Wade Drains manufactures a wide range of specified commercial plumbing products for customers across North America and complements the Company's existing flow systems product portfolio.

On April 16, 2021, we acquired substantially all of the assets of Advance Technology Solutions, LLC (d/b/a ATS GREASEwatch) ("ATS GREASEwatch") for a total cash purchase price of $4.5 million. ATS GREASEwatch, headquartered in Saginaw, Michigan, 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 within our existing Water Management platform.

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 ("PMC") 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 a specified number of shares of Regal Rexnord Corporation in accordance with the exchange ratio. Following completion of the Spin-Off Transaction, our name was changed to “Zurn Water Solutions Corporation” and the ticker symbol for our shares of common stock trading on the New York Stock Exchange was changed to “ZWS”. During the three months ended March 31, 2022, we received $35.0 million from Regal Rexnord Corporation as a result of the final working capital and cash balances at closing exceeded the targets stipulated within the Spin-Off Transaction agreement.

The operating results of PMC are reported as discontinued operations in our condensed consolidated statements of operations for all periods presented. The condensed consolidated statements of cash flows for the period ended March 31, 2021 have not been adjusted to separately disclose cash flows related to the discontinued operations. See Item 1, Note 4, Discontinued Operations for additional information on cash flows associated with the discontinued operations.

The major components of the Income from discontinued operations, net of tax presented in the condensed consolidated statements of operations for the three months ended March 31, 2022 and March 31, 2021, are as follows (in millions):

			Three Months Ended
			March 31, 2022						March 31, 2021
Net sales			$	—					$	320.9
Cost of sales			—						(201.4)
Selling, general and administrative expenses			—						(61.6)
Amortization of intangible assets			—						(3.3)
Interest expense, net			—						(1.4)
Actuarial loss on pension and postretirement benefit obligations			—						—
Other expense, net			—						(0.7)
Income from discontinued operations before income tax			—						52.5
Income tax benefit (provision)			0.8						(12.5)
Equity method investment income			—						0.1
Non-controlling interest income			—						0.1
Income from discontinued operations, net of tax			$	0.8					$	40.0

(Dollars in Millions)

			Three Months Ended
			March 31, 2022						March 31, 2021						Change						% Change
Net Sales			$	239.6					$	205.2					$	34.4					16.8		%

Net sales were $239.6 million during the three months ended March 31, 2022, an increase of 17% year over year. Excluding a 2% increase to net sales resulting from our prior-year acquisition, core sales increased 15% year over year as all of our product categories contributed to the sales growth.

(Dollars in Millions)

			Three Months Ended
			March 31, 2022						March 31, 2021						Change						% Change
Income from operations			$	43.9					$	24.0					$	19.9					82.9		%
% of net sales			18.3		%				11.7		%				6.6		%

Income from operations was $43.9 million during the three months ended March 31, 2022, or 18.3% of net sales. Income from operations as a percentage of net sales increased by 660 basis points primarily as a result of the favorable impact of year-over-year sales growth (inclusive of price realization), productivity savings, lower non-cash stock-based compensation expense, lower intangible asset amortization and the year-over-year change in the adjustment to state inventories at last-in-first-out cost, all of which was partially offset by the year-over-year increases in material and transportation costs, as well as incremental growth and productivity investments.

The income tax provision was $10.0 million for the three months ended March 31, 2022, compared to $4.7 million for the three months ended March 31, 2021. The effective income tax rate for the three months ended March 31, 2022 was 25.4% versus 32.0% for the three months ended March 31, 2021. The effective income tax rate for the three months ended March 31, 2022 was above the U.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above the U.S. federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code and the accrual of various state income taxes, partially offset by the recognition of certain previously unrecognized tax benefits due to the lapse of the applicable statutes of limitations and income tax benefits associated with share-based payments. The effective income tax rate for the three months ended March 31, 2021 was above the U.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above the U.S. federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, and the accrual of various state income taxes, partially offset by the recognition of income tax benefits associated with foreign-derived intangible income (“FDII”).

On a quarterly basis, we review and analyze our valuation allowances associated with deferred tax assets relating to certain foreign and state net operating loss carryforwards as well as U.S. federal and state capital loss carryforwards. In conjunction with this analysis, we weigh both positive and negative evidence for purposes of determining the proper balances of such valuation allowances. Future changes to the balances of these valuation allowances, as a result of our continued review and analysis, could result in a material impact to the financial statements for such period of change.

    Set forth below is a reconciliation of net income attributable to Zurn common stockholders to Adjusted EBITDA for the periods indicated below.

(in millions)			Three months ended March 31, 2021						Twelve months ended December 31, 2021						Three months ended March 31, 2022						Twelve months ended March 31, 2022
Net income attributable to Zurn common stockholders			$	50.0					$	120.9					$	30.2					$	101.1
Income from discontinued operations, net of tax (1)			$	(40.0)					(71.2)						(0.8)						(32.0)
Provision for income taxes			4.7						2.7						10.0						8.0
Actuarial gain on pension and postretirement benefit obligations			—						(1.2)						—						(1.2)
Other (income) expense, net (2)			(0.3)						0.7						(0.3)						0.7
Loss on the extinguishment of debt			—						20.4						—						20.4
Interest expense			9.6						34.7						4.8						29.9
Depreciation and amortization			8.3						32.7						5.3						29.7
EBITDA			32.3						139.7						49.2						156.6
Adjustments to EBITDA
Restructuring and other similar charges (3)			0.6						3.7						1.1						4.2
Stock-based compensation expense			9.1						37.5						3.9						32.3
LIFO expense (income) (4)			1.7						14.1						(2.8)						9.6
Acquisition-related fair value adjustment			0.6						0.8						0.3						0.5
Other, net (5)			—						—						0.3						0.3
Subtotal of adjustments to EBITDA			12.0						56.1						2.8						46.9
Adjusted EBITDA			$	44.3					$	195.8					$	52.0					$	203.5
Pro forma adjustment for acquisitions (6)																					0.8
Pro forma Adjusted EBITDA																					204.3
Consolidated indebtedness (7)																					$	481.2
Total net leverage ratio (8)																					2.36

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

(2)Other (income) expense, net for the periods indicated, consists primarily of gains and losses from foreign currency transactions and the non-service cost components of net periodic benefit costs associated with our defined benefit plans.

(3)Restructuring and other similar charges is comprised of costs associated with workforce reductions, lease termination costs, and other facility rationalization costs.  See Item 1, Note 3, 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)Other, net consists of gains and losses on the disposition of long-lived assets.

(6)Represents a pro forma adjustment to include Adjusted EBITDA related to the acquisition of Wade Drains, which was permitted by our credit agreement. The pro forma adjustment includes the period from April 1, 2021, through the date of the Wade Drains acquisition. See Item 1, Note 2, Acquisitions for more information.

(7)Our credit agreement defines our consolidated indebtedness as the sum of all indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of indebtedness for borrowed money and capitalized lease obligations, less unrestricted cash, which was $57.3 million (as defined by the credit agreement) at March 31, 2022.

(8)Our credit agreement defines the total net leverage ratio as the ratio of consolidated indebtedness (as described above) to Adjusted EBITDA for the trailing four fiscal quarters.

Our revolving credit facility is available to fund our working capital requirements, capital expenditures and for other general corporate purposes. We believe this resource is adequate for expected needs.

Cash (used for) provided by operating activities was $(53.9) million and $71.3 million during the three months ended March 31, 2022 and 2021, respectively. The change in year over year operating cash flows was primarily the result of higher trade working capital and the impact of timing of payments on accounts payable and accrued expenses during the three months ended March 31, 2022.

    As of March 31, 2022, we had $538.5 million of total indebtedness outstanding as follows (in millions):

						Total Debt at March 31, 2022						Current Maturities of Debt						Long-term Portion
Term loan (1)						$	538.2					$	5.5					$	532.7
Finance leases and other subsidiary debt						0.3						0.1						0.2
Total						$	538.5					$	5.6					$	532.9

(1)Includes unamortized debt issuance costs of $10.4 million at March 31, 2022.

See Item 1, Note 13, Long-Term Debt for a description of our outstanding indebtedness.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4.    CONTROLS AND PROCEDURES

ITEM  1.    LEGAL PROCEEDINGS