Zurn Elkay Water Solutions (ZWS) - 2025 Q1 - Quarterly Report

Private Securities Litigation Reform Act Safe Harbor Statement The report contains forward-looking statements subject to risks and uncertainties, with no obligation for public updates unless legally required - The report contains forward-looking statements, identified by words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," which are predictive and depend on future events. These statements are based on reasonable assumptions but are subject to risks and uncertainties detailed in the Annual Report on Form 10-K and other SEC filings. The company does not undertake to publicly update or revise any forward-looking statements, except as required by law[10] Part I Financial Information This section presents the company's unaudited condensed consolidated financial statements and management's analysis for the quarter Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements and detailed explanatory notes for the quarter Condensed Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity, as of March 31, 2025 Condensed Consolidated Balance Sheets | Metric | March 31, 2025 (Millions) | December 31, 2024 (Millions) | Change (Millions) | | :-------------------------- | :-------------------------- | :--------------------------- | :---------------- | | Total assets | $2,608.3 | $2,648.5 | $(40.2) | | Total liabilities | $1,060.3 | $1,061.7 | $(1.4) | | Total stockholders' equity | $1,548.0 | $1,586.8 | $(38.8) | | Cash and cash equivalents | $144.7 | $198.0 | $(53.3) | | Receivables, net | $242.8 | $202.2 | $40.6 | | Inventories, net | $280.6 | $272.6 | $8.0 | Condensed Consolidated Statements of Operations This section outlines the company's financial performance, including net sales, gross profit, and net income for Q1 2025 and 2024 Condensed Consolidated Statements of Operations | Metric | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | Change (Millions) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :---------------- | :------- | | Net sales | $388.8 | $373.8 | $15.0 | 4.0% | | Cost of sales | $207.8 | $203.7 | $4.1 | 2.0% | | Gross profit | $181.0 | $170.1 | $10.9 | 6.4% | | Income from operations | $63.4 | $53.2 | $10.2 | 19.2% | | Net income from continuing operations | $41.0 | $34.0 | $7.0 | 20.6% | | Net income | $43.6 | $34.3 | $9.3 | 27.1% | | Basic net income per share | $0.26 | $0.20 | $0.06 | 30.0% | | Diluted net income per share | $0.26 | $0.19 | $0.07 | 36.8% | Condensed Consolidated Statements of Comprehensive Income This section details total comprehensive income, including net income and other comprehensive loss, for Q1 2025 and 2024 Condensed Consolidated Statements of Comprehensive Income | Metric | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | Change (Millions) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Net income | $43.6 | $34.3 | $9.3 | | Other comprehensive loss | $(0.2) | $(2.5) | $2.3 | | Total comprehensive income | $43.4 | $31.8 | $11.6 | Condensed Consolidated Statements of Cash Flows This section presents cash flows from operating, investing, and financing activities for Q1 2025 and 2024 Condensed Consolidated Statements of Cash Flows | Metric | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | Change (Millions) | | :------------------------------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Cash provided by operating activities | $42.9 | $53.9 | $(11.0) | | Cash used for investing activities | $(4.3) | $(2.1) | $(2.2) | | Cash used for financing activities | $(92.1) | $(30.9) | $(61.2) | | (Decrease) increase in cash, cash equivalents and restricted cash | $(53.3) | $20.4 | $(73.7) | | Cash, cash equivalents and restricted cash at end of period | $144.7 | $157.1 | $(12.4) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Basis of Presentation and Significant Accounting Policies This note describes the company's business, operating philosophy, and significant accounting policies, including recent pronouncements - Zurn Elkay is a growth-oriented, pure-play water management business that designs, procures, manufactures, and markets sustainable, specification-driven water management solutions. The Zurn Elkay Business System (ZEBS) is its operating philosophy, focused on continuous improvement for customer satisfaction and financial results[26] - The FASB issued ASU 2023-09 (Income Taxes) effective for fiscal years beginning after December 15, 2024, and ASU 2024-03 (Expense Disaggregation) effective for fiscal years beginning after December 15, 2026. The Company is evaluating the impact of these new accounting pronouncements[27][28] Note 2. Restructuring and Other Similar Charges This note details restructuring actions and charges aimed at improving efficiencies and reducing operating costs - The Company continued various restructuring actions during Q1 2025 to drive efficiencies, reduce operating costs, and modify its footprint, primarily through workforce reductions, lease termination costs, and other facility rationalization costs[29] Restructuring Charges | Restructuring Charges | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | Change (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Employee termination benefits | $0.5 | $0.2 | $0.3 | | Contract termination and other associated costs | $1.2 | $6.1 | $(4.9) | | Total restructuring and other similar charges | $1.7 | $6.3 | $(4.6) | Note 3. Discontinued Operations This note explains the PMC business spin-off and its reporting as discontinued operations - The Process & Motion Control (PMC) business was spun off in October 2021 via a Reverse Morris Trust transaction, and its operating results are reported as discontinued operations for all periods presented[32] Discontinued Operations (Net of Tax) | Discontinued Operations (Net of Tax) | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | | :----------------------------------- | :------------------------------------- | :------------------------------------- | | Selling, general and administrative income | $(2.6) | $0.0 | | Income from discontinued operations before income tax | $2.6 | $0.0 | | Income tax benefit | $0.0 | $0.3 | | Income from discontinued operations, net of tax | $2.6 | $0.3 | Note 4. Revenue Recognition This note outlines revenue recognition policies, including details on customer type, geography, and backlog - Revenue for the majority of product sales is recognized at a point-in-time when control of the product is transferred to the customer, generally upon shipment from the Company's manufacturing facility[34] Revenue by Customer Type | Revenue by Customer Type | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | Change (Millions) | | :----------------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Institutional | $191.4 | $178.3 | $13.1 | | Commercial | $108.9 | $106.8 | $2.1 | | All other | $88.5 | $88.7 | $(0.2) | | Total | $388.8 | $373.8 | $15.0 | Revenue by Geography | Revenue by Geography | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | Change (Millions) | | :------------------- | :------------------------------------- | :------------------------------------- | :---------------- | | United States | $357.5 | $341.2 | $16.3 | | Canada | $20.1 | $21.1 | $(1.0) | | Rest of world | $11.2 | $11.5 | $(0.3) | | Total | $388.8 | $373.8 | $15.0 | - The Company had a backlog of $72.3 million as of March 31, 2025, with approximately 100% expected to be recognized in the remaining nine months of the year ending December 31, 2025[40] Note 5. Income Taxes This note details the provision for income taxes and the effective income tax rate, explaining key drivers Income Tax Metric | Income Tax Metric | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | | :---------------- | :------------------------------------- | :------------------------------------- | | Provision for income taxes | $15.1 | $9.0 | | Effective income tax rate | 26.9% | 20.9% | - The effective income tax rate for Q1 2025 was 26.9%, up from 20.9% in Q1 2024, primarily due to additional income taxes associated with compensation deduction limitations, state income taxes, and foreign income taxes, partially offset by share-based payment benefits[46] Note 6. Earnings per Share This note details basic and diluted net income per share calculations, including anti-dilutive share effects - Diluted net income per share increased to $0.26 for the three months ended March 31, 2025, from $0.19 for the same period in 2024[16] - The computation for diluted net income per share excluded 0.2 million and 0.5 million shares for Q1 2025 and Q1 2024, respectively, due to their anti-dilutive effects[50] Note 7. Stockholders' Equity This note provides an overview of changes in stockholders' equity, including share repurchases Stockholders' Equity | Stockholders' Equity (Millions) | December 31, 2024 | March 31, 2025 | Change | | :------------------------------ | :---------------- | :------------- | :----- | | Total stockholders' equity | $1,586.8 | $1,548.0 | $(38.8) | | Retained deficit | $(1,168.7) | $(1,203.1) | $(34.4) | | Additional paid-in capital | $2,828.2 | $2,824.0 | $(4.2) | - During the three months ended March 31, 2025, the Company repurchased 2,272,022 shares of common stock at a total cost of $77.4 million, at an average price of $34.07 per share. Approximately $162.8 million of repurchase authority remained at March 31, 2025[53] Note 8. Accumulated Other Comprehensive Loss This note details the components and changes in accumulated other comprehensive loss for the period Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss (Millions) | December 31, 2024 | March 31, 2025 | | :-------------------------------------------- | :---------------- | :------------- | | Balance at beginning of period | $(74.4) | $(74.4) | | Other comprehensive loss before reclassifications | N/A | $(0.2) | | Net current period other comprehensive loss | N/A | $(0.2) | | Balance at end of period | $(74.4) | $(74.6) | Note 9. Inventories This note provides a breakdown of inventory components: finished goods, work in progress, and raw materials Inventories | Inventories (Millions) | March 31, 2025 | December 31, 2024 | Change | | :--------------------- | :------------- | :---------------- | :----- | | Finished goods | $232.7 | $228.7 | $4.0 | | Work in progress | $11.9 | $12.1 | $(0.2) | | Raw materials | $48.7 | $44.8 | $3.9 | | Total inventories, net | $280.6 | $272.6 | $8.0 | Note 10. Goodwill and Intangible Assets This note details goodwill and intangible assets, including amortization expense and future expectations Goodwill and Intangible Assets | Asset Type (Millions) | December 31, 2024 | March 31, 2025 | Change | | :-------------------- | :---------------- | :------------- | :----- | | Goodwill | $794.2 | $794.4 | $0.2 | | Intangible assets, net | $891.6 | $877.2 | $(14.4) | - Intangible asset amortization expense totaled $14.7 million for both the three months ended March 31, 2025, and March 31, 2024[58] - The Company expects to recognize amortization expense on intangible assets subject to amortization of $58.6 million in the year ending December 31, 2025[59] Note 11. Other Current Liabilities This note breaks down other current liabilities, including sales rebates, commissions, and restructuring charges Other Current Liabilities | Other Current Liabilities (Millions) | March 31, 2025 | December 31, 2024 | Change | | :--------------------------------- | :------------- | :---------------- | :----- | | Sales rebates | $57.9 | $73.2 | $(15.3) | | Commissions | $12.0 | $9.2 | $2.8 | | Restructuring and other similar charges | $0.7 | $1.2 | $(0.5) | | Total other current liabilities | $124.3 | $136.2 | $(11.9) | Note 12. Long-Term Debt This note details long-term debt, including term loans, finance leases, and debt covenant compliance Long-Term Debt | Long-Term Debt (Millions) | March 31, 2025 | December 31, 2024 | Change | | :------------------------ | :------------- | :---------------- | :----- | | Term loan | $475.4 | $475.0 | $0.4 | | Finance leases | $20.4 | $20.6 | $(0.2) | | Total long-term debt | $495.0 | $494.8 | $0.2 | - The Company's Net First Lien Leverage Ratio was 0.98 to 1.00 as of March 31, 2025, indicating compliance with all applicable covenants under the Credit Agreement[65][69] - The Term Loan had weighted-average effective interest rates of 6.40% for the three months ended March 31, 2025. The $200.0 million revolving credit facility had no amounts borrowed as of March 31, 2025, with $11.1 million utilized for outstanding letters of credit[70][73] Note 13. Fair Value Measurements This note explains fair value measurement hierarchy and valuation of deferred compensation plan assets and liabilities - The Company classifies fair value measurements into a hierarchy (Level 1, 2, 3) based on the observability of inputs. Deferred compensation plan assets and liabilities are measured at fair value, primarily using Level 1 and Level 2 inputs[76][77] Fair Value | Fair Value (Millions) | March 31, 2025 (Total) | December 31, 2024 (Total) | | :-------------------- | :--------------------- | :------------------------ | | Deferred compensation plan assets | $17.0 | $16.3 | | Deferred compensation plan liabilities | $19.3 | $18.9 | - The fair value of long-term debt was approximately $500.8 million as of March 31, 2025, based on quoted market prices[79] Note 14. Commitments and Contingencies This note outlines the company's product warranty liabilities and ongoing legal actions and claims Product Warranty Liability | Product Warranty Liability (Millions) | 3 Months Ended Mar 31, 2025 | 3 Months Ended Mar 31, 2024 | | :---------------------------------- | :-------------------------- | :-------------------------- | | Balance at beginning of period | $4.9 | $4.7 | | Charged to operations | $0.9 | $0.4 | | Claims settled | $(0.6) | $(0.4) | | Balance at end of period | $5.2 | $4.7 | - The Company's subsidiaries are involved in various unresolved legal actions and claims in the ordinary course of business, but management believes the eventual outcome will not have a material adverse effect on the financial position, results of operations, or cash flows[82] Note 15. Retirement Benefits This note details pension and other postretirement benefits, including a U.S. defined benefit plan termination Net Periodic (Income) Cost | Net Periodic (Income) Cost (Millions) | 3 Months Ended Mar 31, 2025 | 3 Months Ended Mar 31, 2024 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Pension Benefits | $(0.2) | $0.9 | | Other Postretirement Benefits | $0.1 | $0.1 | - The Company's Board of Directors approved the termination of the U.S. defined benefit pension plan, effective April 1, 2025, which resulted in a curtailment gain of $0.7 million in the first quarter of 2025[85] Note 16. Stock-Based Compensation This note details stock-based compensation expense and equity awards, including the Employee Stock Purchase Plan - Stock-based compensation expense was $10.5 million for the three months ended March 31, 2025, compared to $10.0 million for the same period in 2024[87] - During Q1 2025, the Company granted 66,540 stock options, 180,356 restricted stock units, 386,168 performance stock units, and 78,143 common stock awards[88] - The Employee Stock Purchase Plan (ESPP) was approved in May 2024, with 2,000,000 shares available. In Q1 2025, 27,295 shares were issued under the ESPP, and $0.2 million of stock-based compensation expense was recognized[89][90] Note 17. Business Segment Information This note explains the company's single reportable segment management and evaluation, detailing segment profit - The Company manages and evaluates its operations on a consolidated basis as one reportable operating segment due to similarities in its products, processes, customer base, and distribution methods[92] - The Chief Operating Decision Maker (CEO) assesses the Company's performance and makes capital allocation decisions based on Net income from continuing operations[93] Segment Profit | Segment Profit (Millions) | 3 Months Ended Mar 31, 2025 | 3 Months Ended Mar 31, 2024 | | :------------------------ | :-------------------------- | :-------------------------- | | Net sales | $388.8 | $373.8 | | Cost of sales | $207.8 | $203.7 | | Selling, general and administrative expenses | $101.2 | $95.9 | | Other segment items | $38.8 | $40.2 | | Segment profit (Net income from continuing operations) | $41.0 | $34.0 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial condition, results, liquidity, and debt covenant compliance General This section introduces Zurn Elkay's water management business focus and operating philosophy - Zurn Elkay Water Solutions Corporation is a growth-oriented, pure-play water management business focused on sustainable, specification-driven solutions to improve health, hydration, human safety, and the environment[97] - The Zurn Elkay Business System (ZEBS) is the company's operating philosophy, grounded in continuous improvement to drive superior customer satisfaction and financial results[97] Critical Accounting Estimates This section confirms no material changes to critical accounting estimates since the prior annual report - As of March 31, 2025, there have been no material changes to the critical accounting estimates reported in the Annual Report on Form 10-K for the year ended December 31, 2024[99] Recent Accounting Pronouncements This section refers to Note 1 for details on recent accounting pronouncements and their impact - Refer to Note 1, Basis of Presentation and Significant Accounting Policies, for information regarding recent accounting pronouncements (ASU 2023-09 and ASU 2024-03) and their potential impact[100] Discontinued Operations This section discusses the spin-off of the PMC business and its reporting as discontinued operations - The Process & Motion Control (PMC) business was spun off in October 2021, and its operating results are reported as discontinued operations in the condensed consolidated statements of operations[101] Discontinued Operations (Net of Tax) | Discontinued Operations (Net of Tax) | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | | :----------------------------------- | :------------------------------------- | :------------------------------------- | | Net income from discontinued operations, net of tax | $2.6 | $0.3 | Restructuring and Other Similar Charges This section highlights the decrease in restructuring charges due to ongoing efficiency initiatives - Restructuring charges decreased to $1.7 million in Q1 2025 from $6.3 million in Q1 2024, as the company continues initiatives to drive efficiencies and optimize its operating margin and manufacturing footprint[104] Results of Operations This section analyzes the company's financial performance, including net sales, operating income, and net income Net sales This section details the 4% net sales increase, driven by core sales growth, offset by foreign currency Net sales | Metric | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | Change (Millions) | % Change | | :------- | :------------------------------------- | :------------------------------------- | :---------------- | :------- | | Net sales | $388.8 | $373.8 | $15.0 | 4.0% | - Core sales improved 5% year-over-year, driven by volume growth across all product categories, while foreign currency exchange rates reduced net sales by 1%[105] Income from operations This section explains the 19.2% operating income increase due to productivity and lower restructuring charges Income from operations | Metric | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | Change (Millions) | % Change | | :-------------------- | :------------------------------------- | :------------------------------------- | :---------------- | :------- | | Income from operations | $63.4 | $53.2 | $10.2 | 19.2% | | % of net sales | 16.3% | 14.2% | 2.1% | N/A | - The increase in operating income and margin (210 basis points) was due to benefits from productivity initiatives, continuous improvement activities, lower restructuring charges, and carryover benefits of synergy actions[106] Interest expense, net This section attributes the decrease in net interest expense to reduced interest rates Interest expense, net | Metric | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | Change (Millions) | | :------------------ | :------------------------------------- | :------------------------------------- | :---------------- | | Interest expense, net | $7.3 | $8.8 | $(1.5) | - The decrease in interest expense, net, was primarily due to reduced interest rates in the current year[107] Other expense, net This section explains the change in other expense, net, primarily due to lower defined benefit plan costs Other expense, net | Metric | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | | :--------------- | :------------------------------------- | :------------------------------------- | | Other expense, net | $0.0 | $1.4 | - The year-over-year change in other expense, net, was primarily driven by lower defined benefit plan costs, including a $0.7 million curtailment gain from the U.S. pension plan freeze and a higher expected return on plan assets[108] Provision for income taxes This section details the increase in the effective income tax rate due to various tax adjustments Provision for income taxes | Metric | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | | :----------------------- | :------------------------------------- | :------------------------------------- | | Income tax provision | $15.1 | $9.0 | | Effective income tax rate | 26.9% | 20.9% | - The effective income tax rate for Q1 2025 was 26.9%, up from 20.9% in Q1 2024, primarily due to compensation deduction limitations, state income taxes, and foreign income taxes, partially offset by share-based payment benefits[109] Net income This section summarizes the overall increase in net income and diluted net income per share Net income | Metric | 3 Months Ended Mar 31, 2025 (Millions) | 3 Months Ended Mar 31, 2024 (Millions) | Change (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Net income | $43.6 | $34.3 | $9.3 | | Diluted net income per share | $0.26 | $0.19 | $0.07 | | Net income from discontinued operations, net of tax | $2.6 | $0.3 | $2.3 | Non-GAAP Financial Measures This section defines and explains non-GAAP financial measures like Core sales, EBITDA, and Adjusted EBITDA Core sales This section defines Core sales as a non-GAAP measure for comparing net sales performance - Core sales is a non-GAAP measure that excludes the impact of mergers, acquisitions, divestitures, and foreign currency translation to facilitate easier and more meaningful comparisons of net sales performance[113] EBITDA This section defines EBITDA as a supplemental performance measure for evaluating debt service ability - EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a supplemental measure of performance used by analysts and investors to evaluate companies and their ability to meet debt service obligations[114] - EBITDA is not a GAAP measurement and should not be considered an alternative to cash flow from operating activities or net income[114] Adjusted EBITDA This section explains Adjusted EBITDA's importance for credit agreement compliance and financial flexibility - Adjusted EBITDA is a critical measure under the company's credit agreement, impacting its ability to incur debt, make acquisitions, and distribute dividends, as lenders use it to calculate the Net First Lien Leverage Ratio[115] - Adjusted EBITDA for the three months ended March 31, 2025, was $98.0 million, compared to GAAP net income of $43.6 million[118] Covenant Compliance This section details the company's compliance with credit agreement covenants, specifically the Net First Lien Leverage Ratio - The company's credit agreement contains restrictive covenants, including a maximum Net First Lien Leverage Ratio of 5.00 to 1.00[119] Covenant Compliance Metrics | Metric | 3 Months Ended Mar 31, 2025 (Millions) | 12 Months Ended Mar 31, 2025 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | | Net income | $43.6 | $169.5 | | EBITDA | $86.1 | $344.2 | | Adjusted EBITDA | $98.0 | $398.4 | | Consolidated indebtedness | N/A | $388.5 | | Net First Lien Leverage Ratio | N/A | 0.98 to 1.00 | - As of March 31, 2025, the Net First Lien Leverage Ratio was 0.98 to 1.00, indicating compliance with all applicable covenants under the credit agreement[119][121] Liquidity and Capital Resources This section discusses the company's primary liquidity sources and their adequacy for short-term and long-term needs - The primary sources of liquidity are available cash and cash equivalents, cash flow from operations, and borrowing availability of up to $200.0 million under the revolving credit facility[124] Liquidity and Capital Resources | Metric (Millions) | March 31, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $144.7 | $198.0 | $(53.3) | | Additional borrowing capacity (revolving credit facility) | $188.9 | $188.7 | $0.2 | - The company believes its liquidity resources are adequate for its expected short-term and long-term needs[126] Cash Flows This section analyzes cash flows from operating, investing, and financing activities, highlighting key changes Cash Flow Activity | Cash Flow Activity (Millions) | 3 Months Ended Mar 31, 2025 | 3 Months Ended Mar 31, 2024 | Change | | :---------------------------- | :-------------------------- | :-------------------------- | :----- | | Operating activities | $42.9 | $53.9 | $(11.0) | | Investing activities | $(4.3) | $(2.1) | $(2.2) | | Financing activities | $(92.1) | $(30.9) | $(61.2) | - The decrease in operating cash flow was primarily due to higher use of cash for trade working capital, partially offset by an increase in net income[127] - Cash used for financing activities significantly increased due to $77.4 million in common stock repurchases and $15.2 million for common stock dividends[129] Indebtedness This section provides a summary of the company's outstanding long-term debt, including term loans and finance leases Indebtedness | Indebtedness (Millions) | March 31, 2025 | | :---------------------- | :------------- | | Term loan | $475.4 | | Finance leases | $20.4 | | Total indebtedness outstanding | $495.8 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency and interest rate fluctuations through operations and derivatives - The company is exposed to market risk from changes in foreign currency exchange rates and interest rates[132] - These risks are managed through normal operating and financing activities, and at times, derivative financial instruments like foreign currency forward contracts and interest rate derivatives[132] Item 4. Controls and Procedures Management confirmed effective disclosure controls and procedures as of March 31, 2025, with no material changes - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were adequate and effective as of March 31, 2025[135] - There have been no changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the last fiscal quarter[137] Part II Other Information This section covers legal proceedings, equity sales, other information, and exhibits filed with Form 10-Q Item 1. Legal Proceedings The company is involved in various legal actions, but management anticipates no material adverse effect on financials - The Company's subsidiaries are involved in various unresolved legal actions, administrative proceedings, and claims in the ordinary course of business[82][139] - Management believes the eventual outcome of these legal actions, individually or in aggregate, will not have a material adverse effect on the Company's financial position, results of operations, or cash flows[82] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 2.27 million common shares for $77.4 million in Q1 2025, with $162.8 million authority remaining - The Company's Board of Directors approved increasing the remaining share repurchase authority under the Repurchase Program to $500.0 million on February 8, 2023[140] Common Stock Repurchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Cost (Millions) | Remaining Authority (Millions) | | :------------------------ | :------------------------------- | :--------------------------- | :-------------------- | :----------------------------- | | Jan 1 - Jan 31, 2025 | 267,650 | $37.34 | $10.0 | $230.2 | | Feb 1 - Feb 28, 2025 | 1,659,223 | $33.62 | $55.8 | $174.4 | | Mar 1 - Mar 31, 2025 | 345,149 | $33.68 | $11.6 | $162.8 | | Total/Average (Q1 2025) | 2,272,022 | $34.07 | $77.4 | $162.8 (as of Mar 31, 2025) | Item 5. Other Information This section confirms no directors or officers adopted or terminated Rule 10b5-1 trading arrangements during Q1 2025 - No director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended March 31, 2025[142] Item 6. Exhibits This section lists Form 10-Q exhibits, including CEO and CFO certifications and Inline XBRL documents - Key exhibits include certifications of the Chief Executive Officer (31.1, 32.1) and Chief Financial Officer (31.2, 32.1), and Inline XBRL Instance Document (101.INS) and related taxonomy extension documents[144] Signatures This section contains the official signatures for the report, confirming its submission - The report was signed on April 22, 2025, by David J. Pauli, Chief Financial Officer, on behalf of Zurn Elkay Water Solutions Corporation[149]