Zurn Elkay Water Solutions (ZWS) - 2019 Q3 - Quarterly Report

Part I: Financial Information Presents the company's unaudited condensed consolidated financial statements and management's discussion for the current fiscal periods Item 1. Financial Statements Presents unaudited condensed consolidated financial statements and detailed notes for the quarter and six months ended September 30, 2019 Condensed Consolidated Balance Sheets Presents the company's financial position, showing changes in assets, liabilities, and equity between reporting periods Condensed Consolidated Balance Sheet Highlights (in Millions) | Account | September 30, 2019 (Millions) | March 31, 2019 (Millions) | | :--- | :--- | :--- | | Total Current Assets | $1,013.5 | $982.9 | | Total Assets | $3,311.0 | $3,259.7 | | Total Current Liabilities | $344.8 | $397.0 | | Total Liabilities | $1,989.6 | $2,028.7 | | Total Stockholders' Equity | $1,321.4 | $1,231.0 | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and profitability for the quarter and six months ended September 30, 2019 Key Operating Results (in Millions, except per share data) | Metric | Q2 2020 (ended Sep 30, '19) (Millions) | Q2 2019 (ended Sep 30, '18) (Millions) | Six Months 2020 (ended Sep 30, '19) (Millions) | Six Months 2019 (ended Sep 30, '18) (Millions) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $521.3 | $524.8 | $1,029.6 | $1,028.4 | | Gross Profit | $208.2 | $203.2 | $409.8 | $398.7 | | Income from Operations | $88.5 | $81.4 | $168.7 | $153.5 | | Net Income from Continuing Operations | $56.7 | $46.2 | $105.2 | $88.4 | | Diluted EPS (Continuing Operations) | $0.46 | $0.37 | $0.85 | $0.71 | Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the six months ended September 30, 2019 Cash Flow Summary for Six Months Ended (in Millions) | Cash Flow Activity | September 30, 2019 (Millions) | September 30, 2018 (Millions) | | :--- | :--- | :--- | | Cash provided by operating activities | $86.3 | $75.1 | | Cash used for investing activities | $(37.6) | $(16.1) | | Cash used for financing activities | $(15.8) | $(27.7) | | Increase in cash and cash equivalents | $27.3 | $21.1 | Notes to Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies, significant transactions, and financial details supporting the consolidated statements - The company adopted the new lease accounting standard ASC 842 on April 1, 2019, recognizing right-of-use (ROU) assets of $70.8 million and lease liabilities of $73.0 million[34][36] - On May 10, 2019, the company acquired StainlessDrains.com for a cash purchase price of $24.8 million to complement its Water Management platform[39] - Restructuring charges for the six months ended September 30, 2019, totaled $5.3 million, primarily related to workforce reductions and facility rationalization[48] - The sale of the VAG business was finalized, resulting in an additional loss from discontinued operations of $1.8 million during the six months ended September 30, 2019[50] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on the company's financial condition, operational results, liquidity, and capital resources Results of Operations Analyzes the company's consolidated and segment-level sales, operating income, and margins for the current fiscal periods Q2 FY2020 vs Q2 FY2019 Segment Performance (in Millions) | Segment | Q2 2020 Net Sales (Millions) | % Change | Q2 2020 Operating Income (Millions) | % Change | | :--- | :--- | :--- | :--- | :--- | | Process & Motion Control | $337.0 | (3.4)% | $58.3 | 3.4% | | Water Management | $184.3 | 4.7% | $43.7 | 5.8% | | Consolidated | $521.3 | (0.7)% | $88.5 | 8.7% | - Process & Motion Control's core sales decreased 2% in Q2, as growth in aerospace was more than offset by softer demand in industrial process end markets and product line simplification[171] - Water Management's core sales increased 4% in Q2, driven by higher demand in North American building construction markets[172] Liquidity and Capital Resources Assesses the company's cash position, borrowing capacity, and cash flow generation from operating activities - As of September 30, 2019, the company had $319.8 million of cash and cash equivalents[217] - Total additional borrowing capacity was $351.7 million, comprising $258.6 million under the revolving credit facility and $93.1 million under the accounts receivable securitization program[217] - Net cash provided by operating activities increased to $86.3 million in the first six months of fiscal 2020 from $75.1 million in the same period of fiscal 2019[218] Covenant Compliance and Non-GAAP Measures Discusses adherence to debt covenants and provides reconciliation of non-GAAP financial metrics like Adjusted EBITDA Adjusted EBITDA Reconciliation (Trailing Twelve Months ended Sep 30, 2019, in Millions) | Metric | Amount (Millions) | | :--- | :--- | | Net income attributable to Rexnord common stockholders | $152.5 | | Interest expense, net | $63.4 | | Income tax provision | $56.0 | | Depreciation and amortization | $86.5 | | EBITDA | $380.1 | | Adjustments (Restructuring, Stock Comp, etc.) | $72.1 | | Pro forma adjustment for acquisitions | $5.2 | | Pro forma Adjusted EBITDA | $457.4 | - The company's total net leverage ratio was 2.2 to 1.0 as of September 30, 2019, well within the covenant requirement of 6.75 to 1.0[204][215] Item 3. Quantitative and Qualitative Disclosures About Market Risk Identifies the company's exposure to market risks, primarily foreign currency and interest rate fluctuations, and their management - The company's primary market risks are foreign currency exchange rates and interest rates[224] - There have been no material changes in market risk exposure since the fiscal year-end 2019 Form 10-K[224] Item 4. Controls and Procedures Confirms the effectiveness of the company's disclosure controls and internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[226] - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[228] Part II: Other Information Covers various other disclosures including legal proceedings, equity sales, and required exhibits Item 1. Legal Proceedings Details ongoing legal actions and assessments of their potential impact on the company's financial position - The company is involved in various legal proceedings related to product liability, commercial, employment, and environmental matters, including asbestos claims[115][231] - Management believes the eventual outcome of these unresolved legal actions will not have a material adverse effect on the company's financial position, results of operations, or cash flows[115] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports on any unregistered sales of equity securities and the status of the company's stock repurchase program - No shares were repurchased during the second quarter of fiscal 2020[232] - Approximately $160.0 million remained available for repurchase under the existing program as of September 30, 2019[232] Item 6. Exhibits Lists all documents and certifications filed as exhibits to the Form 10-Q - Exhibits filed include certifications from the CEO and CFO under Section 302 and Section 1350 of the Sarbanes-Oxley Act[233] Signatures Confirms the official signing and submission of the quarterly report by authorized personnel - The report was signed on October 29, 2019, by Mark W. Peterson, Senior Vice President and Chief Financial Officer[237]