zws-20220701

Exhibit 99.1

Elkay Manufacturing Water Solutions Business Unit

Contents


Consolidated Carve-Out Financial Statements:
Report of Independent Certified Public Accountant			2
Consolidated Statements of Income			4
Consolidated Statements of Comprehensive Income			5
Consolidated Balance Sheets			6
Consolidated Statements of Cash Flows			8
Consolidated Statements of Changes in Divisional Equity			9
Notes to the Consolidated Carve-Out Financial Statements			10

Exhibit 99.1

GRANT THORNTON LLP REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Grant Thornton Tower

171 N. Clark Street, Suite 200

Chicago, IL 60601-3370

D +1 312 856 0200

F +1 312 565 4719

Board of Directors

Elkay Manufacturing Company

Opinion

We have audited the accompanying consolidated carve-out financial statements of Elkay Manufacturing Water Solutions Business Unit which comprise the consolidated balance sheets as of January 1, 2022 and January 2, 2021, and the related consolidated statements of income, comprehensive income, changes in divisional equity, and cash flows for each of the three years in the period ended January 1, 2022, and the related notes to the consolidated carve-out financial statements.

In our opinion, the accompanying consolidated carve-out financial statements present fairly, in all material respects, the financial position of Elkay Manufacturing Water Solutions Business Unit as of January 1, 2022 and January 2, 2021, and the results of its operations and its cash flows for the three years in the period ended January 1, 2022 in accordance with accounting principles generally accepted in the United States of America.

Basis for opinion

We conducted our audits of the consolidated carve-out financial statements in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of management for the financial statements

Management is responsible for the preparation and fair presentation of the consolidated carve-out financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated carve-out financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated carve-out financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the financial statements are issued.


GT.COM						Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and each of its member firms are separate legal entities and are not a worldwide partnership.

Exhibit 99.1

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated carve-out financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated carve-out financial statements.

In performing an audit in accordance with US GAAS, we:

•Exercise professional judgment and maintain professional skepticism throughout the audit.

•Identify and assess the risks of material misstatement of the consolidated carve-out financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.

•Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated carve-out financial statements.

•Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

/s/ GRANT THORNTON LLP

Chicago, Illinois

March 15, 2022

Exhibit 99.1

Elkay Manufacturing Water Solutions Business Unit

Consolidated Statements of Income

(In thousands, except share data)


	January 1, 2022		January 2, 2021		December 28, 2019

Net sales	$	566,824	$	470,779	$	451,377
Cost of products sold	372,943		291,754		276,144

Gross profit	193,881		179,025		175,233

Expenses:
Selling	84,418		75,778		65,751
Administrative and general	59,346		49,851		48,735
	143,764		125,629		114,486

Operating income	50,117		53,396		60,747

Interest expense	(206)		—		(75)
Investment income	7,079		3,936		5,626
Other income (expense), net	1,245		38		1,051
Income before income taxes	58,235		57,370		67,349
Income tax expense	(12,070)		(12,528)		(12,556)

Net income	$	46,165	$	44,842	$	54,793

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.1

Elkay Manufacturing Water Solutions Business Unit

Consolidated Statements of Comprehensive Income

(In thousands)


	January 1, 2022		January 2, 2021		December 28, 2019

Net income	$	46,165	$	44,842	$	54,793

Other comprehensive (loss) income:
Cumulative translation adjustment	(638)		(265)		590
Unrealized gains (loss) on available-for-sale securities, net of tax of 2021 - ($1,837), 2020 - $1,354, 2019 - $521	(5,978)		4,408		1,693
Defined-benefit and other retirement plans:
Unrecognized actuarial gain (loss), net of tax of 2021- $96, 2020 - ($54), 2019 - ($451)	303		(172)		(1,410)
Unamortized prior service credit (cost), net of tax of 2021- $258, 2020 - $84, 2019 - ($342)	846		275		(1,112)

Total other comprehensive income (loss)	(5,467)		4,246		(239)

Comprehensive income	$	40,698	$	49,088	$	54,554

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.1

Elkay Manufacturing Water Solutions Business Unit

Consolidated Balance Sheets

(In thousands)


	January 1, 2022		January 2, 2021
Assets
Current assets:
Cash and cash equivalents	$	65,822	$	50,035
Available-for-sale securities	—		13,064
Trade and other receivables, less allowance for doubtful
accounts (2021 - $155; 2020 - $129)	85,223		76,381
Inventories, net	99,183		51,523
Prepaid expenses and other current assets	11,536		9,716

Total current assets	261,764		200,719

Other assets:
Available-for-sale securities	—		197,330
Goodwill	33,609		29,331
Intangibles, net	8,900		4,210
Deferred tax assets	15,448		12,868
Operating lease right-of-use assets	46,855		38,839
Nonqualified plan assets	34,317		31,155
Other assets	11,786		14,971

Total other assets	150,915		328,704

Land, buildings, and equipment - Net
Land and improvements	5,609		5,612
Buildings and improvements	57,679		56,165
Machinery and equipment	197,356		186,990
Accumulated depreciation and amortization	(199,227)		(189,842)

Total land, buildings, and equipment - net	61,417		58,925

Total assets	$	474,096	$	588,348

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.1

Elkay Manufacturing Water Solutions Business Unit

Consolidated Balance Sheets

(In thousands)


	January 1, 2022		January 2, 2021
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	25,577	$	16,353
Accrued expenses and other current liabilities	53,374		43,996
Customer deposits and other contract liabilities	455		231
Salaries and wages payable	23,052		18,127
Current operating lease liabilities	4,151		2,642
Current maturities of long term debt	2,577		—

Total current liabilities	109,186		81,349

Noncurrent liabilities:
Accrued pension and other liabilities	20,683		25,253
Nonqualified plan liabilities	28,056		27,587
Noncurrent operating lease liabilities	52,057		44,776
Long term debt, less current maturities	47,141		—

Total noncurrent liabilities	147,937		97,616

Total liabilities	257,123		178,965

Divisional equity:
Divisional equity	229,475		416,418
Accumulated other comprehensive loss	(12,502)		(7,035)


Total divisional equity	216,973		409,383

Total liabilities and divisional equity	$	474,096	$	588,348

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.1

Elkay Manufacturing Water Solutions Business Unit

Consolidated Statements of Cash Flows

(In thousands)


	January 1, 2022		January 2, 2021		December 28, 2019
Operating activities:
Net income	$	46,165	$	44,842	$	54,793
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Provision for depreciation and amortization	12,964		10,290		13,182
Provision for deferred income taxes	(1,000)		—		(2,705)
Provision for losses/(gains) on receivables	44		—		(422)
Gains from derivatives and investments	(8,314)		(1,736)		(3,712)
(Gains)/losses from sale of fixed assets and intangible	(124)		(934)		71
Amortization of operating lease right-of-use assets	3,919		2,989		—
Impairment of cost method investments	2,577		—		—
Changes in operating assets and liabilities:
Accounts receivable	(6,085)		(14,172)		(3,883)
Inventories	(40,630)		2,910		(9,336)
Operating lease liabilities	(3,145)		(2,303)		—
Payables and accrued expenses	16,494		10,918		(7,085)
Other	(729)		7,646		5,650

Net cash provided by operating activities	22,136		60,450		46,553

Investing activities:
Additions to land, buildings, and equipment	(12,755)		(11,602)		(17,907)
Proceeds from sale of land, buildings, and equipment	254		3,931		52
Available-for-sale securities:
Purchases	(7,118)		(66,208)		(168,969)
Proceeds from sales	215,041		50,571		52,767
Proceeds (payments) for other investment activity	894		—		(578)
Proceeds from derivative settlements	1,991		103		548
Payments for acquisitions, net of cash	(20,009)		—		—

Net cash (used in) provided by investing activities	178,298		(23,205)		(134,087)

Financing activities:

Sale of common stock	6,360		2,677		2,614
Repurchase of common stock	(158)		(1,569)		(2,349)
Dividends paid	(227,784)		(20,535)		(21,471)
Capital contribution	—		—		105,142
Return of capital	(11,865)		(9,651)		—
Proceeds from long-term debt	49,718		—		—
Other financing activities	(718)		(789)		(926)

Net cash (used in) provided by financing activities	(184,447)		(29,867)		83,010

Effect of exchange rates on cash	(200)		253		285

Increase/(decrease) in cash and cash equivalents	15,787		7,631		(4,239)

Cash and cash equivalents at beginning of reporting period	50,035		42,404		46,643

Cash and cash equivalents at end of reporting period	$	65,822	$	50,035	$	42,404



Supplemental disclosure of cash flow information
Cash paid for income taxes (net of refunds received)	$	9,887	$	8,852	$	11,833
Purchases of property, plant and equipment in accrued liabilities, accounts payable, and other long term liabilities at the end of the year	944		1,326		2,056
Cash paid during the period for lease liabilities	5,205		4,056		—
Right-of-use assets obtained in exchange for lease liabilities	11,984		9,618		—

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.1

Elkay Manufacturing Water Solutions Business Unit

Consolidated Statements of Divisional Equity

(In thousands)


	Divisional Equity		Accumulated Other Comprehensive Loss		Total

Balance December 29, 2018	$	262,808	$	(11,042)	$	251,766
Net income	54,793		—		54,793
Other comprehensive (loss) income	—		(239)		(239)
Increase in divisional equity	78,157		—		78,157


Balance December 28, 2019	$	395,758	$	(11,281)	$	384,477

Net income	44,842		—		44,842
Other comprehensive (loss) income	—		4,246		4,246
Decrease in divisional equity	(24,182)		—		(24,182)


Balance January 2, 2021	$	416,418	$	(7,035)	$	409,383

Net income	46,165		—		46,165
Other comprehensive (loss) income	—		(5,467)		(5,467)
Decrease in divisional equity	(233,108)		—		(233,108)


Balance January 1, 2022	$	229,475	$	(12,502)	$	216,973

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.1

Notes to the Consolidated Carve-Out Financial Statements

(In thousands)

Note A – Summary of Significant Accounting Policies

Description of Business and Principles of Consolidation

Elkay Manufacturing Water Solutions Business Unit (the “Company”) manufactures stainless steel sinks, faucets, and drinking water products in the United States and Mexico and distributes and installs its products worldwide.

The accompanying consolidated carve-out financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany accounts and transactions are eliminated in consolidation. The Company’s fiscal year ends on the Saturday closest to December 31. The consolidated carve-out financial statements have been prepared from the books and records maintained by Elkay Manufacturing Company (the “Parent”).

The Company’s consolidated carve-out financial statements for the fiscal years 2021, 2020 and 2019 are prepared on a “carve-out” basis using the management approach consistent with the merger transaction referenced in the subsequent events footnote (Note V). The accompanying financial statements were derived from the Parent’s consolidated carve-out financial statements and accounting records for Water Solutions Business Unit. The consolidated carve-out financial statements, prior to the carve-out, reflect the Parent’s historical financial position, results of operations, and cash flows as they were historically managed in accordance with GAAP. Certain balances and transactions that are accounted for at the Parent’s corporate level have been allocated to the Company for purposes of carve-out financial reporting and are reflected in the accompanying balance sheets and statements of income. Accordingly, the accompanying consolidated carve-out financial statements may not necessarily be indicative of the results of operations that would have been obtained if the Company had operated as an independent entity.

In addition, for purposes of preparing the financial statements on a “carve-out” basis, a portion of the total corporate expenses of the Parent were allocated based on a percentage of gross revenue for the Water Solutions and Interiors Systems business units. These expense allocations included the cost of corporate functions and resources provided by at the Parent’s corporate level, including executive management, finance, accounting, legal, human resources, and the related benefit costs associated with such functions. All assets and liabilities held at the Parent’s corporate level were specifically identified and included in the Company’s carve-out assets and liabilities. The Company’s carve-out financial statements include all investing and financing activities relatable to those sources and uses derived from the Parent’s corporate level activities. Management believes that the Company’s approach to these carve-out allocations is reasonable.

Foreign Currency Translation and Foreign Operations

The Company has a subsidiary in Mexico which uses local currency as their functional currency. Accordingly, assets and liabilities are translated into the reporting currency at the fiscal year-end exchange rates. Revenues and expenses are translated at average exchange rates for the year. Adjustments from the translation process are recorded as a component of Accumulated other comprehensive loss classified in Divisional Equity.

The Company’s consolidated statements of income include a net gain of $3,051 in 2021, $1,084 in 2020, and $758 in 2019 from foreign operations.

The Company recorded a gain of $270 in 2021, a loss of $264 in 2020, and a gain of $432 in 2019 on foreign currency transactions included in other income (expense), net in the consolidated statements of income.

Cash and Cash Equivalents

Cash equivalents represent highly liquid investments with a maturity of three months or less when purchased and approximate their fair value.

The Company had deposits in excess of federally insured limits at January 1, 2022 and January 2, 2021. The Company maintained $14,470 and $15,195 in cash balances at financial institutions outside of the United States of America as of January 1, 2022 and January 2, 2021, respectively. The Company has not experienced any losses on such amounts and believes it is not subject to significant risks related to cash.

Accounts Receivable

The Company sells to a large number of customers, and trade accounts receivable consist primarily of amounts due to the Company from its normal business activities. Credit evaluations are ongoing, and collateral or other security is generally not required on trade accounts receivable. The Company maintains an allowance to reflect the expected amount of accounts receivable that will not be realized, based on past collection history and risks identified among uncollectible accounts. Trade accounts receivable are charged to the allowance when the Company determines that the receivable may not be collectible. Trade accounts receivable balances are determined to be delinquent when the amount is past due based on the payment terms with the customer.

Our allowance for doubtful accounts changed during the fiscal year ended January 1, 2022 and January 2, 2021 as follows:


	January 1, 2022		January 2, 2021
Beginning balance	$	(129)	$	(264)
Amount of (benefit) to expense	(44)		—
Deductions and adjustments	18		135
Ending balance	$	(155)	$	(129)

Concentration of Credit Risk

Financial instruments that subject us to concentrations of credit risk consist principally of accounts receivable. We perform ongoing credit evaluations of our customers' financial conditions and generally do not require collateral to secure accounts receivable. Our exposure to credit risk associated with nonpayment is affected principally by conditions or occurrences within the semiconductor industry, pipeline and adjacent industries, and the global economy. We have not experienced significant losses relating to accounts receivable from individual customers or groups of customers. We have one customer that accounted for 16.4% of total revenue in 2021, 16.2% of total revenue in 2020, and 17.3% of total revenue in 2019. Our net accounts receivable balance from this customer was 13.5% and 19.1% in 2021 and 2020, respectively.

Available-for-Sale Securities

Available-for-sale securities are carried at fair value with unrealized gains and losses, net of tax, reported in a separate component of divisional equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums to the earliest call date and accretion of discounts to maturity. Such amortization is included in investment income. The Company applies settlement date accounting for the sale of its securities. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the average cost method, calculated for each security investment. Interest and dividends on securities classified as available-

Exhibit 99.1

for-sale are included in investment income. Securities with maturities in excess of one year are classified as noncurrent and all other available-for-sale securities are classified as current. Some debt securities may have experienced declines in value. In fiscal 2021, the Company decided to sell all available-for-sale securities in order to finance dividend distribution.

Fair Value Measurements

The Company is required to establish fair value using a three-tier hierarchy, which prioritizes the inputs used in measuring fair value. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgement. The three levels are defined as follows:

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

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

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value based on their short-term nature.

Inventories

Inventories are stated at the lower of cost or net realizable value and include raw materials, direct labor and manufacturing overhead. Cost is determined using the last-in, first-out (“LIFO”) method for valuing inventories at some of our domestic operations, 81.3% and 86.5% of total inventories in fiscal years 2021 and 2020, respectively. The cost of inventories of the foreign and certain domestic operations are based on the average cost method or first in, first out (“FIFO”) method. The value of the inventories is reduced for estimated excess and obsolete inventories, based on a review of on-hand inventories compared to historical and estimated future sales and usage.

Goodwill and Other Intangible Assets

We record the excess of purchase cost over the fair value of net tangible assets of acquired companies as goodwill or other identifiable intangible assets. Goodwill is tested for impairment at least annually in the fourth quarter and written down when impaired. An interim impairment test is performed if an event occurs or conditions change that would more likely than not reduce the fair value of the reporting unit below the carrying value. To evaluate the recoverability of goodwill, the Company first assessed qualitative factors to determine whether it is more likely than not that goodwill is impaired including factors regarding the impact of COVID-19 in its business (this assessment is commonly referred to as Step 0). Qualitative factors include changes in volume, margin, customers, and the industry. If it is deemed more likely than not that goodwill for the reporting unit is impaired, the Company will perform a quantitative impairment test using a weighting of the income and market approaches.

Purchased intangible assets other than goodwill are amortized over their useful lives unless those lives are determined to be indefinite. The determination of the useful life of an intangible asset other than goodwill is based on factors including historical tradename performance with respect to name recognition, geographic market presence, market share, plans for ongoing tradename support and promotion, customer attrition rates, and other relevant factors. Indefinite-lived intangible assets are not amortized but are evaluated at least annually to determine whether the indefinite useful life is appropriate. The Company measures the fair value of identifiable intangible assets upon acquisition and reviews for impairment annually in the fourth quarter and whenever market or business events indicate there may be a potential impairment of that intangible asset.

In 2021 and 2020, the Company performed its annual impairment test of goodwill using a Step 0 approach by performing a qualitative analysis, including the impact of COVID-19 on its future cashflows, to assess whether relevant events and circumstances regarding general economic conditions, regulatory changes and the Company’s financial performance make it more likely than not that the Company’s fair value for each reporting unit is less than its carrying amount. The Company concluded that there was no goodwill impairment in 2021 and 2020.

We review our other indefinite-lived intangible assets for impairment annually, in the fourth quarter, or as events occur or circumstances change that indicate the assets may be impaired without regard to the business unit. Potential impairment is identified by comparing the fair value of the other indefinite-lived intangible asset to its carrying value. We utilize a relief-from-royalty model to estimate the fair value of other indefinite-lived intangible assets. We consider the implications of both external (e.g., market growth, competition and local economic conditions) and internal (e.g., product sales and expected product growth) factors and their potential impact on cash flows related to the intangible asset in both the near and long-term. We also consider the profitability of the business, among other factors, to determine the royalty rate for use in the impairment assessment. We utilize our weighted average cost of capital as the basis to determine the discount rate to apply to the estimated future cash flows including a risk premium to increase the discount rate.

The estimated useful lives used to amortize definite-lived intangible assets are as follows:


						Weighted Average Life
Tradenames						11 years or indefinite
Developed technology						4 years
Customer relationships						13 years
Non-compete agreements						6 years

Property, Plant, and Equipment

We report property, plant, and equipment at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct the assets, required installation costs, and any expenditure that substantially adds to the value or substantially extends the useful life of an existing asset. The Company begins depreciation and amortization (“depreciation”) for property, plant, and equipment when an asset is both in the location and condition for its intended use. Property, plant, and equipment is depreciated using the straight-line method over its estimated useful lives.

The provision for depreciation is computed mostly by straight-line using the following estimated useful lives:


Land improvements									6 to 15 years
Buildings and improvements									3 to 40 years
Machinery and equipment									3 to 10 years

Depreciation on leasehold improvements is computed over the shorter of the useful lives of the improvements or the lease term.

Expenditures for routine maintenance are expensed as incurred, while major expenditures that extend the useful life of a fixed asset are capitalized.

Exhibit 99.1

Long-Lived Asset Impairment

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets is not recoverable and that it exceeds the assets’ fair value. If the expected future undiscounted cash flows from the use and eventual disposition of the asset or asset group are less than the carrying amount of the assets, an impairment loss is recognized. An impairment loss is measured as the difference between the fair value and the carrying value of the assets. The Company had no long-lived asset impairments during the years ended January 1, 2022 and January 2, 2021.

Government Grants

In connection with the construction of a manufacturing facility in 2005, the Company received government grants in the form of cash and land totaling $6,205. Subject to certain conditions, the grants defray a portion of the employment and capital costs of the new facility. In 2009, the Company negotiated an extension of the employment conditions of the grant to end in 2016. The value of the employment related grants is being recognized over the term of the required employment terms, while the value of the capital grants is being recognized over the depreciable lives of the respective assets. Deferred grant revenue of $56 per year for fiscal 2021, 2020, and 2019 was recorded as a component of cost of products sold.

Product Warranties

The Company offers a limited warranty on all of its products. The specific terms and conditions of the warranties vary depending upon the product sold. Provisions for estimated expenses related to product warranties are generally made at the time the products are sold. These estimates are established using historical information on the nature, frequency, and average cost of warranty claims. Management studies the trends of warranty claims and takes action to improve quality and minimize warranty claims. Management believes that the warranty reserves are appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the reserves.

Revenue Recognition

The Company records revenue for the majority of its product sales at a point in time when control of the product is transferred to the customer, which generally occurs when the product is shipped from its manufacturing facility, warehouses or distribution centers to the customer.

The Company provides variable volume-based rebates and the right to return product to certain customers, which are accrued on current facts and historical experience. Rebates are paid either annually or sooner based on the customer contract. We provide customer programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions, and other volume-based incentives. These customer programs and incentives are considered variable consideration. We include variable consideration in revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. This determination is made based upon known customer program and incentive offerings at the time of sale and expected sales volume forecasts as it relates to our volume-based incentives. This determination is updated each reporting period.

When a 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. These estimates are adjusted 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 recognizes the cost for freight and shipping when control of products has transferred to the customer as a component of cost of products sold in the consolidated statements of income.

Shipping and Handling Costs

Shipping and handling costs included in cost of products sold in the consolidated statements of income totaled $50,184, $38,593, and $38,962 in fiscal 2021, 2020, and 2019, respectively. Shipping and handling costs charged to customers are included in net sales in the consolidated statements of income.

Advertising

The Company expenses advertising costs as incurred. The advertising expense, included in selling expenses in the consolidated statements of income, for fiscal 2021, 2020, and 2019 is $28,313, $20,852, and $15,956 respectively.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The Company evaluates all material income tax positions for periods that remain open under applicable statutes of limitation, as well as positions expected to be taken in future returns. A recognition threshold is then imposed on each tax position. A company may recognize an income tax benefit only if the position has a “more likely than not” (i.e., more than 50%) chance of being sustained on the technical merits.

If a tax position does not meet the more-likely-than-not recognition threshold, the benefits cannot be recorded. If the tax position does pass the recognition threshold, then the position has to be measured to determine the amount of benefit to recognize in the consolidated carve-out financial statements.

We use a portfolio approach to release the income tax effects in Accumulated other comprehensive loss (“AOCL”) related to our available-for-sale debt securities. Under this approach, the income tax effects are released from AOCL upon the sale of an available-for-sale debt security based on the enacted tax rate at the date of sale. Any tax effects remaining in AOCL are released only when the entire portfolio of the available-for-sale debt securities is liquidated, sold or extinguished.

The Company has historically filed its federal income tax returns under the consolidated return method. For these financial statements, the Company has elected to prepare the income tax expense under the Separate Return method. This method is preferred by the Securities and Exchange Commission’s staff and meets the requirement of Accounting Standards Codification (“ASC”) 740 to use an allocation method that is systematic, rational, and consistent.

Leases

Right of use assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement date. The Company’s lease contracts do not provide an explicit interest rate; the Company uses its incremental borrowing rate in determining the present value of future lease payments. The Company’s calculation of the incremental borrowing rates includes estimates related to the impact of collateralization and the economic environment where the leased asset is located. The operating lease assets also include any prepaid lease payments and initial direct costs incurred but exclude lease incentives received at lease commencement. Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company’s leases have remaining lease terms of one

Exhibit 99.1

to 18 years, some of which may include options to extend or terminate the lease. Operating lease expense is recognized on a straight-line basis over the lease term. The Company does not recognize leases with an initial term of 12 months or less on the consolidated balance sheets and instead recognizes the related lease payments as expense in the consolidated statements of income on a straight-line basis over the lease term. The Company accounts for lease and non-lease components as a single lease component for all asset classes. The Company does not account for certain leases that are under the capitalization threshold as a right of use asset.

The Company does not have any variable lease payments. There are no material restrictions, covenants, sale and leaseback transactions, variable lease payments tied to an index or residual value guarantees in its lease arrangements.

Use of Estimates

The COVID-19 pandemic has caused significant disruptions to national and global economies and government activities. The Company has been designated as critical infrastructure by the U.S. government and is permitted to stay open. The Company has instituted various initiatives throughout the Company to preserve cash and continue to work to mitigate risk when disruptions occur. While the Company expects this situation to be temporary, any longer-term impact to the business is currently unknown due to the uncertainty around the pandemic’s duration and its broader impact.

The nature of its business requires that the Company make estimates and assumptions in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated carve-out financial statements, as well as the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience, currently available information, and various other assumptions that the Company believes are reasonable under the circumstances. The COVID-19 pandemic has impacted these estimates and assumptions and will continue to do so. The Company’s estimates at the end of the year included impacts from the disruptions caused by COVID-19. Given the uncertainties around the pandemic, including its duration and potential future disruptions to supply chain or workforce, it is reasonably possible that the actual impact of the pandemic could be materially different than its current estimates.

New Accounting Pronouncements

Adopted During the Fiscal Year Ended January 1, 2022

In December 2019, the Financial Accounting Standards Board (“FASB”) issued guidance ASU 2019-12, Income Taxes (“Topic 740”) – Simplifying the Accounting for Income taxes, to simplify the accounting for income taxes. The guidance primarily addresses how to (1) recognize a deferred tax liability after we transition to or from the equity method of accounting, (2) evaluate if a step-up in the tax basis of goodwill is related to a business combination or is a separate transaction, (3) recognize all of the effects of a change in tax law in the period of enactment, including adjusting the estimated annual tax rate, and (4) include the amount of tax based on income in the income tax provision and any incremental amount as a tax not based on income for hybrid tax regimes. We adopted the guidance in fiscal 2021. The adoption did not have a material impact on our consolidated financial statements or related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract ("ASU 2018-15"). ASU 2018-15 was issued to clarify the requirements of ASC 350-40, Intangibles—Goodwill and Other—Internal-Use Software ("ASC 350-40"). The ASU clarifies that implementation, setup and other upfront costs related to cloud computing agreements ("CCA") should be accounted for under ASC 350-40. ASC 2018-15 will require companies to capitalize certain costs incurred when purchasing a CCA that is a service. Under the new guidance, companies will apply the same criteria for capitalizing implementation costs in a CCA service as they would for internal-use software. The capitalized implementation costs will generally be expensed over the term of the service arrangement and the related assets will be assessed for impairment using the same model applied to long-lived assets. We adopted the guidance in fiscal 2021. The adoption did not have a material impact on our consolidated financial statements or related disclosures.

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”). The amendments in ASU 2018-14 modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU 2018-14 eliminates the disclosures for amounts in Accumulated other comprehensive loss expected to be recognized as a component of net periodic benefit cost and the effect of a percentage change in health care cost trend rate. We adopted the guidance in fiscal 2021. The adoption did not have a material impact on our consolidated financial statements or related disclosures.

Not Yet Adopted

Accounting Standards Update (“ASU”) No. 2016-13, “Measurement of Credit Losses on Financial Instruments” (Topic 326) and subsequent amendments, requires financial assets measured at amortized cost to be presented at the net amount expected to be collected using an allowance account and provides that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. The Company is exposed to credit losses primarily through trade receivables for the sales of the Company’s products. The Company’s expected credit loss allowance for trade receivables is developed using historical credit loss experience and current and future economic and market conditions. The Company assesses credit risks for these trade receivables and groups them based on similar risk to determine the expected credit loss allowance. Due to the short-term nature of the Company’s trade receivables, the estimate of the expected credit loss allowance is mainly based on historical experience, accounts receivable balances, and the financial condition of customers. ASU 2016-13 will be effective for the Company beginning in fiscal 2022. we don’t expect the adoption of this update will have an impact on our results.

Change in accounting principle and presentation

In fiscal 2020, the Company elected to change the depreciation method from an accelerated method to straight line prospectively. The effect on the change in estimate for depreciation resulted in lower depreciation of approximately $3,000 in fiscal 2020.

Exhibit 99.1

Note B – Investments

In fiscal 2021, the Company decided to sell all of the available-for-sale securities.


	Available-for-Sale Securities
			Gross Unrealized		Gross Unrealized		Estimated Fair
	Cost		Gains		Losses		Value
January 1, 2022
Fixed income securities, principally
U.S. municipal bonds	$	—	$	—	$	—	$	—
Unrealized tax effect			—		—
			$	—	$	—

	Available-for-Sale Securities
			Gross Unrealized		Gross Unrealized		Estimated Fair
	Cost		Gains		Losses		Value
January 2, 2021
Fixed income securities, principally
U.S. municipal bonds	$	202,579	$	7,842	$	27	$	210,394
Unrealized tax effect			(1,843)		(6)
			$	5,999	$	21

The unrealized gains and losses are reported in Accumulated other comprehensive loss until sold or maturity, at which time they are reclassified to earnings. The amounts reclassified out of Accumulated other comprehensive loss totaled $7,815, $169, and $(141) on a pre-tax basis for 2021, 2020, and 2019 respectively.

Realized gains and losses on the sale of available-for-sale securities in fiscal 2021, 2020, and 2019 were as follows, and are included in Investment income in the consolidated statements of income:


	January 1, 2022		January 2, 2021		December 28, 2019
Realized gains	$	5,481	$	332	$	114
Realized losses	(138)		(49)		(266)
Total	$	5,343	$	283	$	(152)

Contractual maturities of debt securities included in the above investments, which primarily consist of municipal bonds, are shown below. Expected maturities may differ from contractual maturities if issuers of securities have the right to prepay obligations without prepayment penalties.


	Level 2
	January 1, 2022				January 2, 2021
	Cost		Fair Value		Cost		Fair Value
Accrued interest	$	—	$	—	$	2,500	$	2,501
Within 1 year	—		—		10,504		10,563
After 1 year - 5 years	—		—		55,451		57,130
After 5 years - 10 years	—		—		89,332		93,306
After 10 years	—		—		44,792		46,894
Total	$	—	$	—	$	202,579	$	210,394

The fair value of the municipal bonds is determined using the “market approach” valuation technique based on quoted prices for identical or similar securities in non-active markets and is classified as Level 2.

Included in Cash and cash equivalents are investments with fair values of $26 and $25,214 as of January 1, 2022 and January 2, 2021, respectively. These investments consist of money market funds and government agency securities. The fair value is determined using the “market approach” valuation technique based on quoted prices for identical instruments in active markets and is classified as Level 1.

The Company made an equity investment in Sun to Water Technologies, LLC in fiscal 2017 for $1,000 and issued a loan for $1,577. The investment was accounted for using the cost method of accounting because the Company did not exercise any significant influence, Under the cost method, this investment is reviewed periodically to determine if impairment indicators are present. However, the Company is not required to determine the fair value of this investment unless impairment indicators exist. As of January 1, 2022, the Company determined that we could no longer estimate the fair value of the cost method investment and determined it was fully impaired. The Company recorded an impairment of $2,577 in “Other income (expense), net” in the consolidated statements of income.

Exhibit 99.1

Note C – Inventories

Inventories consist of the following:


	January 1, 2022		January 2, 2021
Raw materials	$	66,284	$	22,834
Work in process	7,423		8,632
Finished goods	57,737		41,731
Inventories at FIFO, less allowances (2021 - $3,030; 2020 - $2,485)	131,444		73,197
LIFO Reserve	(32,261)		(21,674)
Inventories, net	$	99,183	$	51,523

Inventories at FIFO approximate replacement cost. The majority of the Company’s inventory is valued using the LIFO method, which is not in excess of market. Under this method, older costs are included in inventory, which may be higher or lower than current costs. This method of valuation is subject to year-to-year fluctuations in cost of material sold, which is influenced by the inflation or deflation existing within the metals industry as well as fluctuations in the Company’s product mix and on-hand inventory levels. There was no effect of liquidation for fiscal 2021, the effect of liquidation was to increase the cost of products sold by $286 in fiscal 2020.

Note D – Property, Plant, and Equipment

Property, plant, and equipment balances as of January 1, 2022 and January 2, 2021 are as follows:


	January 1, 2022		January 2, 2021
Land and improvements	$	5,609	$	5,612
Buildings and improvements	57,679		56,165
Machinery and equipment	197,356		186,990
Accumulated depreciation and amortization	(199,227)		(189,842)
Property, plant, and equipment, net	$	61,417	$	58,925

Depreciation expense was $9,823 for fiscal 2021, $9,487 for fiscal 2020, and $11,919 for fiscal 2019. In fiscal 2020, the Company elected to change the depreciation method from an accelerated method to straight line (refer to Note A for additional information).

Note E – Goodwill and Intangible Assets


	January 1, 2022		January 2, 2021
Goodwill - beginning of year	$	29,331	$	29,482
Foreign currency translation	(77)		(151)
Acquisition (see Note Q)	4,355		—
Goodwill - end of year	$	33,609	$	29,331

Definite-lived intangible asset balances as of January 1, 2022 and January 2, 2021 are as follows:


	January 1, 2022				January 2, 2021
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Trademarks	$	1,030	$	(482)	$	1,030	$	(387)
Developed technology	—		—		610		(568)
Customer relationships	10,300		(2,234)		4,900		(1,617)
Non-compete agreements	120		(40)		220		(184)
Total	$	11,450	$	(2,756)	$	6,760	$	(2,756)

Amortization expense for the years ended January 1, 2022, January 2, 2021 and December 28, 2019 was $951, $614, and $1,223, respectively, and is expected to be $828 in 2022, $826 in 2023, $826 in 2024, $826 in 2025, and $813 in 2026. The estimated weighted average remaining life of the definite life intangibles is 12.06 years.

The Company also has some trademarks with indefinite lives. These indefinite-lived intangible assets have a carrying value of $206 and $206 as of January 1, 2022 and January 2, 2021, respectively, and are included in intangibles, net on the consolidated balance sheets.

Note F – Derivatives and Hedging Activities

The Company uses derivative instruments, commodity swaps, and other contracts to manage risks that are inherent to its business operations. Company policy prohibits entering into hedging transactions for speculative purposes.

All derivative contracts held by the Company are with the same two major financial institutions. The Company has not historically experienced any losses due to this concentration and does not believe it is subject to significant risks.

Exhibit 99.1

For fiscal years 2021 and 2020, all derivatives are classified as economic hedges. The changes in the fair value of these instruments are recorded as a component of Other income (expense), net in the consolidated statements of income. These contracts are primarily valued based on spot and forward rates quoted by the counterparties, which are major financial institutions.

The following table summarizes the fair value and location in the consolidated balance sheets of all derivative instruments held by the Company:

Classified as Level 2

January 1, 2022

January 2, 2021

Fair Value

Units hedged (000' lbs)

Fair Value

Units hedged (000' lbs)

Balance Sheet Location

Assets

Commodity contracts

2,964

1,417

1,993

1,692

Prepaid expenses

The fair value of derivatives is determined using the “market approach” valuation technique based on the spot price each individual contract was purchased at and compared with the observable future prices on the valuation date.

The pretax gain (loss) of the derivative instruments on the consolidated statements of income included in other income, net is as follows:


	January 1, 2022		January 2, 2021
Assets
Commodity contracts	$	2,962	$	1,445

The cash flows related to the derivative instruments are included in investing activities on the consolidated statements of cash flows.

Note G – Accrued Liabilities and Other Current Liabilities


	January 1, 2022		January 2, 2021
Rebates & co-op accrual	$	16,264	$	10,453
Accrued other	11,203		11,334
Accrued insurance	5,163		5,524
Warranty accrual	3,457		4,774
Accrued payroll taxes and withholding	1,895		1,812
Amounts due to related party	3,417		3,438
Accrued profit sharing	1,283		2,220
Accrued supplemental 401K	3,993		2,313
Income tax payable	5,530		—
Accrued vacation & holiday	591		1,220
Accrued professional fees	578		908
Total	$	53,374	$	43,996

The increase in the short term Accrued supplemental 401K was due to the expected retirements of certain employees within the next twelve months.

Note H – Related Party

Mr. Ronald Katz was a past employee and past Chairman of the Board, who is also a majority shareholder. Mr. Ronald Katz retired on March 31, 2020 and remains on the Board of Directors as the Company’s Chairman Emeritus. Mr. Katz is being compensated as an Independent Director and acting Chairman Emeritus. The amount due to related party in Note G represents amounts withheld, at the direction of Mr. Katz, that are due on demand.

Note I – Revenue

The Company’s principal performance obligations are the sale of kitchen and bath sinks, faucets and drinking water products. The Company recognizes revenue for the sale of goods based on its assessment of when control transfers to the customers. For most of the sales, the Company recognized revenue at the point in time when the Company shipped product from its facilities to its customers in fiscal 2021, 2020, and 2019. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods to its customers. Payment terms on product sales normally range from 30 to 90 days. Taxes assessed by a governmental authority that the Company collects are excluded from revenue. The expected costs associated with the Company’s contractual warranties will continue to be recognized as expense when the products are sold.

The Company records estimates to reduce revenue for customer programs and incentives, which are considered variable consideration, and include price discounts, volume-based incentives, promotions, and cooperative advertising when revenue is recognized in order to determine the amount of consideration the Company will ultimately be entitled to receive. Management periodically reviews the estimates for these rebates and allowances, and adjusts estimates when circumstances indicate (typically as a result of a change in volume expectations). The estimates are based on historical and projected experience for each type of customer. In addition, for certain customer program incentives, the Company receives an identifiable benefit (goods or services) in exchange for the consideration given and records the associated expenditure in selling. The Company estimates future product returns at the time of sale based on historical experience and record a corresponding refund liability, which amounted to $4,015 as of January 1, 2022 and $2,312 as of January 2, 2021. Return assets related to the refund are measured at the carrying amount of the goods at the time of sale, less any expected costs to recover the goods and any expected reduction in value. Return assets are classified within prepaid expenses and other current assets and were approximately $2,198 as of January 1, 2022 and $1,486 as of January 2, 2021. The Company also establishes allowances for other deductions. Estimates for deductions are based on negotiated customer programs, evaluation of historical deduction rates, and assessment of volume rebates allowed based on estimated achievement against targets. Deductions already taken by the customer are generally recorded as a reduction against gross sales, with additional accruals recorded to estimate future sales. The Company recorded allowances for certain customer deductions of $2,269 as of January 1, 2022 and $1,766 as of January 2, 2021.

Exhibit 99.1

The Company disaggregates revenue from contracts with customers into major sales distribution channels, as these categories depict the nature, amount, timing and uncertainty of revenues and cash flows that are affected by economic factors.


	January 1, 2022		January 2, 2021		December 28, 2019
Traditional Plumbing (1)	$	409,526	$	340,958	$	323,739
Home Center Plumbing (2)	58,790		54,286		47,998
E-Commerce Plumbing (3)	96,932		74,819		76,933
Beverage Dispensing Systems (4)	1,576		716		680
Corporate (5)	—		—		2,027
Net Sales	$	566,824	$	470,779	$	451,377

(1) Traditional Plumbing represents sales through wholesalers and kitchen and bath dealers

(2) Represents sales to big box “Do-It-Yourself” retailers

(3) Represents sales to online retailers

(4) Sales of Point of use water dispensing systems

(5) Represents revenue under the Transition Service Agreement due to the divestiture of the Cabinets business

Timing of Performance Obligations Satisfied at a Point in Time

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 facilities, warehouses or distribution centers 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. In certain cases, where the customer has obtained the ability to direct the use of the product and obtain substantially all of the remaining benefits from the asset, the Company would recognize revenue at a point in time.

Variable Consideration

Contract Costs

Incremental costs of obtaining a contract include only those costs the Company incurs that would not have been incurred if the contract had not been obtained. These costs are required to be recognized as assets and amortized over the period that the related goods or services transfer to the customer. As a practical expedient, the Company expenses as incurred costs to obtain a contract when the expected amortization period is one year or less. These costs are recorded within selling. The Company did not incur any costs of obtaining a contract that required capitalization in 2021.

Note J – Retirement Plans

Defined-Contribution Plans

Substantially all domestic employees of the Company may elect to participate in Company-sponsored retirement and savings plans by contributing a portion of their earnings. Company contributions to the plans are generally discretionary, based upon the earnings of the operations. Company contributions were $4,524 in 2021, $3,839 in 2020, and $4,747 in 2019.

The Company has an elective, nonqualified deferred-compensation plan whereby certain key employees may defer current compensation to future periods. Amounts deferred are unsecured general liabilities of the Company. Payments generally commence at retirement, death, or permanent disability, over time periods defined by the employee. The Company has invested the nonqualified deferred compensation amounts in life insurance policies. The change in the fair value of the life insurance policies and the change in the liabilities are recorded within the investment income line item of the consolidated statements of income. The plan assets and liabilities are recorded in the consolidated balance sheets as nonqualified plan assets and nonqualified plan liabilities, respectively.

Defined-Benefit and Other Post-Retirement Plans

The Company sponsors non-contributory qualified pension plans covering employees at certain operations, primarily in Mexico. The Company also sponsors another post-retirement plan to certain employees. For all plans, benefits are based on the employees’ years of service, compensation, age at retirement, and benefit levels, all according to the provisions of each plan. The Company’s policy is generally to fund the minimum required contribution to qualified plans based upon actuarial computations necessary to meet the present and future obligations of the plans.

Pursuant to the resignation of the Company’s Chief Executive Officer, the unfunded projected obligation was reduced by $2,519 and unrecognized prior service cost reduced by $1,688, resulting in a one-time curtailment of $831 as of our fiscal year end 2021.

Exhibit 99.1

Changes in the projected benefit obligation and fair value of plan assets:


	Pension Plans				Other Post-Retirement Benefit Plan
	2021		2020		2021		2020
Changes in projected benefit obligation:
Projected benefit obligation - beginning of year	$	1,012	$	1,324	$	18,503	$	17,436
Service cost	65		51		1,025		1,074
Interest cost	76		83		466		497
Actuarial loss, net	1		93		(339)		214
Foreign currency exchange	(28)		(85)		—		—
Benefit payments	(125)		—		(814)		(718)
Plan amendments	—		—		1,122		—
Curtailments/Settlements	—		(454)		(2,519)		—
Projected benefit obligation - end of year	$	1,001	$	1,012	$	17,444	$	18,503

Changes in fair value of plan assets:
Fair value of plan assets - beginning of year	$	476	$	851	$	—	$	—
Actual return on plan assets	14		35		—		—
Foreign currency exchange	(13)		(69)		—		—
Company contributions	84		64		814		718
Benefit payments	(90)		—		(814)		(718)
Settlements	—		(405)				—
Fair value of plan assets - end of year	$	471	$	476	$	—	$	—

Funded status - end of year	$	(530)	$	(536)	$	(17,444)	$	(18,503)

The components of net periodic pension cost are as follows:


	Pension Plans						Other Post-Retirement Benefit Plan
	2021		2020		2019		2021		2020		2019
Service cost	$	65	$	51	$	52	$	1,025	$	1,074	$	732
Interest cost	76		83		101		466		497		534
Expected return on plan assets	(25)		(32)		(42)		—		—		—
Net amortization and deferral of actuarial loss	7		3		(1)		540		359		204
Plan curtailment/settlement	16		71		—		(831)		—		(639)
Net periodic pension cost	$	139	$	176	$	110	$	1,200	$	1,930	$	831

For fiscal 2021, service cost was recorded in operating income in the consolidated statements of income and all other components of net periodic costs were recorded in other income, net in the consolidated statements of income.

The accumulated benefit obligation for defined-benefit pension plans was $492 at January 1, 2022, and $776 at January 1, 2021. The accumulated benefit obligation for the other post-retirement benefit plan was $13,598 at January 1, 2022 and $14,378 at January 2, 2021.

Amounts recognized in the consolidated balance sheets in accrued expenses and other current liabilities and accrued pension and other liabilities consist of the following:


	January 1, 2022		January 2, 2021
Current pension and other post retirement plan liability	$	(912)	$	(698)
Noncurrent pension and other post retirement plan liability	(17,019)		(18,341)
Total pension and other post retirement plan liability	$	(17,931)	$	(19,039)

Benefits paid	$	906	$	718

Exhibit 99.1

The amounts recorded in accumulated other comprehensive loss consist of the following:


	Pension Plans				Other Post-Retirement Benefit Plan
	January 1, 2022		January 2, 2021		January 1, 2022		January 2, 2021
Unrecognized actuarial losses/gain	$	(175)	$	(192)	$	115	$	(267)
Unamortized prior service cost	—		2		(2,118)		(3,224)
Pretax amount to be amortized	(175)		(190)		(2,003)		(3,491)
Deferred income taxes	53		58		471		820
Amount to be amortized	$	(122)	$	(132)	$	(1,532)	$	(2,671)

Weighted-average assumptions used to determine benefit obligations are as follows:


	Pension Plans				Other Post-Retirement Benefit Plan
	2021		2020		2021		2020
Discount rate	9.5	%	8.0	%	2.2	%	2.2	%
Pay increase rate	4.5	%	4.5	%	3.0	%	3.0	%

Weighted-average assumptions used to determine net periodic benefit costs are as follows:


	Pension Plans						Other Post-Retirement Benefit Plan
	2021		2020		2019		2021		2020		2019
Discount rate	8.0	%	8.5	%	8.6	%	2.7	%	2.9	%	4.2	%
Expected long-term return on plan assets	5.8	%	5.8	%	5.8	%	—	%	—	%	—	%
Pay increase rate	4.5	%	4.5	%	4.5	%	3.0	%	3.0	%	3.0	%

The expected long-term return on plan assets assumption is based on the Company’s asset allocations, as well as historical and expected returns on various categories of plan assets. The Company’s investment policy is to earn a rate of return sufficient to match or exceed the plans’ assets to the plans’ actuarial liabilities without subjecting the plan assets to undue risk. The investment guidelines consider a broad range of economic factors. Included in the policy are target allocation ranges for each asset category. Plan assets for the plans consist primarily of fixed income investments as of January 1, 2022 and January 2, 2021. The investment policy is periodically reviewed by the Company and a designated third-party fiduciary for investment matters. The policy is established and administered in a manner to comply at all times with applicable government regulations.

The following summarizes the fair values of the Company’s plan assets as of January 1, 2022 and January 2, 2021:


	As of January 1, 2022
	Totals		Level 1		Level 2		Level 3
Fixed income securities	$	470	$	—	$	470	$	—

	As of January 2, 2021
	Totals		Level 1		Level 2		Level 3
Fixed income securities	$	476	$	—	$	476	$	—

The fixed income securities consist primarily of governmental securities. The fair value of the fixed income securities is determined using the “market approach” valuation technique based on quoted prices for identical or similar securities in non-active markets.

Employer contributions were $898 and $782 in fiscal 2021 and 2020, respectively. The Company expects to contribute up to $983 to its pension plans in 2022.

The following pension and other post-retirement benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:


Fiscal	Pension		Other Post-Retirement Benefit Plans
2022	$	26	$	896
2023	54		1,104
2024	68		1,288
2025	93		1,701
2026	10		1,701
Years 2027 - 2031	547		7,744

Exhibit 99.1

Note K – Debt Obligations

On December 16, 2021, the Company entered a Credit Agreement with a syndicate of banks led by JPMorgan Chase, N.A. The credit agreement (“Credit Agreement”), and borrowings thereunder will be used for general corporate purposes.

The Credit Agreement provides for a secured credit facility of up to $150,000 (the “Facility”), comprised of a $50,000 term loan and a $100,000 revolver. $10,000 of the revolver may be used for letters of credit.

Subject to certain exclusions, the debt is secured by substantially all of our assets and the assets of our two domestic subsidiaries and by a pledge of the capital stock of our domestic subsidiaries. Additionally, except with respect to certain excluded subsidiaries, our domestic subsidiaries also guarantee the repayment of all amounts due under the Credit Agreement. If an event of default occurs and is continuing, on the terms and subject to the conditions set forth in the Credit Agreement, amounts outstanding under the Facility may be accelerated and may become or be declared immediately due and payable. Borrowings under the Facility are used for refinancing existing debt, working capital, capital expenditures, acquisitions, and other general corporate purposes.

Amounts borrowed under the Credit Agreement bear interest, at our option, at a rate equal to either (1) the Alternate Base Rate (as defined in the Credit Agreement), plus an applicable margin ranging from 0.5% to 1.25% or (2) Adjusted SOFR Rate (as defined in the Credit Agreement) plus an applicable margin ranging from 0.5% to 1.25%. The applicable margin is determined based on our consolidated leverage ratio (“Leverage Ratio”) which is defined in the Credit Agreement as Consolidated Total Indebtedness (as defined in the Credit Agreement) divided by Consolidated EBITDA (as defined in the Credit Agreement). The Company is subject to a commitment fee of 0.15% to 0.35%, based on our consolidated Leverage Ratio, on any unused portion of the Facility.

Under the Credit Agreement, we are subject to certain financial covenants and must maintain a maximum consolidated Leverage Ratio of 3.5 to 1.0 and a minimum interest coverage ratio of 3.0 to 1.0. The minimum interest coverage ratio is defined in the Credit Agreement as Consolidated EBITDA (as defined in the Credit Agreement) divided by interest expense (as defined in the Credit Agreement). Adjusted EBITDA is defined as consolidated net income before interest expense, income taxes, depreciation, amortization of intangible assets, losses from asset impairments, and certain other one-time adjustments. The Credit Agreement also contains a number of covenants, including restrictions on asset sales, investments, incurring indebtedness and permitting liens. We were in compliance with all of the financial covenants under the Credit Agreement as of January 1, 2022. The Credit Agreement restricts certain types of payments when our consolidated Leverage Ratio exceeds 3.5 to 1.00 (as defined in the Credit Agreement).

As of January 1, 2022, we had $49,641 of debt outstanding under the secured term loan and letters of credit outstanding of $0.

The components of long-term debt were as follows:


(In thousands)	2021		2020
Notes
$100,000 revolving credit agreement due September 2026	$	—	$	—
Term loan due September 2026	49,718		—

Total Debt	49,718		—
Less: Current portion	2,577		—
Total long-term debt	$	47,141	$	—

In our debt agreement, there are normal and customary events of default which would permit the lenders to accelerate the debt if not cured within applicable grace periods, such as failure to pay principal or interest when due or a change in control of the Company. There were no events of default as of January 1, 2022.

The Company incurred financing costs of $1,094 that were allocated between the $100,000 revolver and the $50,000 term loan. At the end of our fiscal year ended 2021, deferred finance costs for the revolver were $718 and $359 for the term loan. The deferred financing costs, net of amortization, for the term loan was recorded as a contra asset against the term loan. The deferred financing costs for the revolver were recorded in Other Assets.


Repayment schedule by year:
2022	$	2,500
2023	2,500
2024	3,750
2025	3,750
2026	37,500
Totals	$	50,000

Note L – Divisional Equity

The Company has four classes of common stock. Only Class A and Class B stock have preemptive rights, in proportion to one another, and such shares are subject to a right of first refusal in favor of the Company and the stockholders. The Class A and Class M stock have voting rights, while Class B and Class N stock are non-voting. All classes of stock are entitled to the same cash dividend if declared; stock dividends are paid in stock of the same class. Shares of all classes are entitled to the same distribution in the event of sale of the Company’s assets. Certain officers are given the opportunity to acquire Class M and Class N common stock, pursuant to a plan approved by the stockholders. The number of Class M and Class N common stock shares outstanding cannot exceed 15% of the total common stock shares outstanding. The purchase may be financed through a full recourse, noninterest-bearing installment note from the Company. The fair value of the transactions is measured based on current book value, i.e. equity divided by total number of shares outstanding. Options granted expire in six months from date of offering. Upon exercising the option, the executives make a down payment of either 10% or 50% of the stock value. For transactions with down payment less than 50% of the stock value, the officers will make ten annual installment payments towards 50% of the stock value. Once payment for approximately 50% of the stock has been received, the balance of the note is due on demand. Upon separation of service of a director, or qualified retirement of an officer, the stockholder may elect to retain all or a portion of the Class N shares held at the time of separation, for a period not exceeding five years from the date of separation (retention period). Prior to 2021, Stockholders electing to retain Class N shares shall be required to sell all Class M shares and shall be required to pay, in full, any outstanding demand notes. During 2021, the plan was amended to secure the unpaid amounts under the demand note by a pledge of the uncertificated shares of Class M and Class N common stock and to provide stockholders the option to retain Class N shares without having to pay, in full, any outstanding demand notes. During the retention period, stockholders may request that the Company repurchase all or a portion of their remaining Class N shares. The Company retains the right to require all remaining Class N shares to be resold to the Company at any time during the retention period.

Exhibit 99.1

Upon death, termination, retirement of the stockholder, or end of the retention period for Class N shares, the Company is obligated to repurchase the shares of Class M and Class N common stock at its current book value (119,150 shares at $320.22 per share at January 1, 2022, 105,683 shares at $507.37 per share at January 2, 2021, and 95,543 shares at $486.24 per share at December 28, 2019). The options granted, exercised, and expired during fiscal 2021 were $7,267, $7,107, and $160, respectively. The options granted, exercised, and expired during fiscal 2020 were $6,164, $4,802, and $1,362, respectively. The options granted, exercised, and expired during fiscal 2019 were $4,550, $2,973, and $1,578, respectively. The compensation expense related to the stock plan, which is calculated by multiplying the common stock note receivable times the applicable federal interest rates, is $22, $104, and $277 for fiscal 2021, 2020, and 2019, respectively, and is a component of administrative and general expense in the consolidated statements of income. The common stock note receivable has been classified as a contra equity amount netted against additional paid in capital. The amount of the common stock notes receivable was $15,626 at January 1, 2021 and $14,797 at January 2, 2021, respectively.

The following is a summary of our fiscal years 2021, 2020, and 2019 activities related to dividends on our common stock:


	For the Fiscal Year Ended
	January 1, 2022		January 2, 2021		December 28, 2019

Dividends per share declared	$	212.50	$	14.00	$	26.00

Note M – Phantom Stock Plan Award

The Compensation & Human Resources Committee of the Board of Directors (“Committee”) has awarded the Chief Executive Officer, Richard D. Philips (“Participant”) a Phantom Share Award conditioned upon the execution by the Company and the Participant of this Phantom Stock Award Agreement (“Award Agreement”). The Phantom Share Award was granted on October 21, 2019 (the “Grant Date”). The Company granted the Participant 5,203.46 Phantom Shares, subject to the terms, conditions, and restrictions contained in the Plan. The Phantom Shares granted had an initial Market Value Per Share of $480.45. A Phantom Share is an unfunded bookkeeping unit, entitling the Participant to the payment of a cash amount equal to the Market Value Per Share (as defined in the Plan) of each vested Phantom Share as of the payment. The Participant shall be entitled to the equivalent of any dividend payable on a share of the Company’s common stock for each Phantom Share granted. Such dividend equivalent amount will be applied to increase the number of Phantom Shares under this Award and shall not be payable in cash. Subject to the terms and conditions of the Plan and this Award Agreement, one-fourth of the Participant’s Phantom Shares shall become vested Phantom Shares on each of the first, second and third anniversaries of the Grant Date (each such anniversary date a “Vesting Date”) until the final one-fourth of the Participant’s total Phantom Shares granted pursuant to this Award Agreement become fully vested on the fourth anniversary of the Grant Date (the “Final Vesting Date”); provided that, except as provided if the Participant’s separation from service occurs prior to the Final Vesting Date, all of the Participant’s unvested Phantom Shares shall be immediately forfeited as of such separation from service. If the Company experiences a Change in Control prior to the Final Vesting Date and prior to the date that the Participant incurs a termination of employment for any reason, all unvested Phantom Shares will immediately vest, and the Participant shall retain such Phantom Shares subject to the terms and conditions of the Plan and this Agreement. All amounts payable under this Agreement are intended to comply with the applicable provisions of Section 409A of the Internal Revenue Code, and the provisions of this Agreement shall be interpreted as such. Notwithstanding any other provision of the Plan, payments of “nonqualified deferred compensation” provided under the Agreement may only be made upon an event and in a manner that complies with Code Section 409A or an applicable exemption.

Notwithstanding any other provision in the Agreement to the contrary, if the Participant is a “specified employee” on his separation from service, any payment payable under the Agreement that constitutes a “deferral of compensation” within the meaning of Treas. Reg. § 1.409A-1(b) (that are not otherwise exempt from the provisions of Section 409A of the Code) that would otherwise be paid or provided hereunder during the six-month period commencing on the separation from service of the Participant, will be deferred until the first day of the seventh month following the separation from service if such deferral is necessary to avoid the additional tax under Section 409A of the Code. Payment of vested Phantom Shares subject to this Award shall be made to Participant in a single lump sum within sixty (60) days following the Payment Date. For purposes of this Agreement, the “Payment Date” shall mean the earlier of Participant’s “separation from service” within the meaning of Section 409A of the Internal Revenue Code or the occurrence of a Change in Control of Company that also constitutes a “change in control” within the meaning of Section 409A of the Code. The Market Value Per Share of each vested Phantom Share will be determined as of the last day of the internal accounting period which ends immediately before the Payment Date. The amount of the payment to be made on the Payment Date will equal the total number of vested Phantom Shares multiplied by the Market Value Per Share (as determined pursuant to the previous sentence) minus any applicable withholding taxes as provided.

On December 24, 2021, the Company’s Chief Executive Officer signed a severance and release agreement. Pursuant to the agreement, the Company’s Chief Executive Officer will receive accelerated vesting of 100% of his Phantom Stock Award which will be paid in a single lump sum within sixty days of the separation date. As of January 1, 2022, the company recorded the full compensation expense and liability.

Phantom Stock Award Total Compensation Table


Fiscal Period(s)	Amount(s)
FY2019	$	123
FY2020	707
FY2021	2,101
Total	$	2,931

The Company recorded compensation expense of $2,101 in fiscal year 2021 pursuant to the severance and release agreement and $707 and $123 in fiscal year 2020 and 2019, respectively. The compensation totals include the applicable Medicare taxes. There was no unrecognized compensation cost under the Phantom Stock Plan as of January 1, 2022, as all amounts are fully vested.

A summary of the changes in the number of outstanding phantom stock awards during the year ended January 2, 2021, for the Phantom Plans is provided below. Of these awards, 9,017.44 phantom shares were vested at January 1, 2022.


						Phantom Stock Plan
Balance of shares outstanding on January 2, 2021						5,415.21
Phantom shares acquired through dividend reinvestments						3,602.23
Balance of shares outstanding on January 1, 2022						9,017.44

Exhibit 99.1

The liability for unsettled phantom stock awards under the Phantom Stock Plan consists of the following:


	Year Ended
	January 1, 2022		January 2, 2021
Phantom Stock Plan	$	2,931	$	820

Note N – Income Taxes

Details of income tax expense (benefit) for the years ended:


	2021		2020		2019
Current:
Federal	$	9,743	$	9,867	$	12,555
State	2,158		1,600		1,854
Foreign	1,169		1,061		852
	13,070		12,528		15,261
Deferred:
Federal	(590)		(18)		(2,359)
State	(349)		222		(291)
Foreign	(61)		(204)		(55)
	(1,000)		—		(2,705)

Total tax expense	$	12,070	$	12,528	$	12,556

In fiscal years 2021, 2020 and 2019, the Company recorded pretax book income of $58,235, $57,370, and $67,349, respectively. At the statutory federal rate of 21%, expected income tax expense would have been $12,229 for 2021, $12,048 for 2020 and $14,143 for 2019.

The following is a reconciliation of the U.S. federal statutory rate to the Company’s effective income tax rates for the years ended:


	2021	2020	2019

Income tax expense at federal statutory rate	21.00%	21.00%	21.00%
State and local income taxes net of federal tax benefit	2.72	2.80	2.53
Tax exempt investment income	(0.96)	(1.26)	(1.23)
(Decrease) increase in valuation allowance	—	(0.03)	(1.17)
Foreign tax rate differential	0.39	0.77	2.01
(Decrease) increase in uncertain tax position reserve	(0.37)	1.20	(0.07)
Federal and state tax credits	(1.40)	(1.47)	(3.69)
Other nondeductible and nontaxable items	(0.65)	(1.17)	(0.72)

Total income tax expense	20.73%	21.84%	18.66%

Exhibit 99.1

Components of deferred tax assets and liabilities:


	2021		2020

Reserves and accruals not currently deductible	$	25,197	$	22,591
Allowance for doubtful accounts	42		34
Defined benefit plan - OCI	522		878
Net operating loss and tax credit carryforward	257		298
Basis difference for intangibles	(1,205)		(710)
Basis difference for inventory valuation	632		548

Total deferred tax assets	25,445		23,639

Basis difference for fixed assets	8,317		7,329
Deferred state income taxes	520		446
Mark-to-market - securities	—		1,837
Prepaids and other items	1,160		1,037

Total deferred tax liabilities	9,997		10,649

Less: Valuation allowance	—		(50)

Net deferred tax assets	$	15,448	$	12,940

The following table is a reconciliation of the beginning and ending amounts of unrecognized tax benefits, including interest and penalties, is as follows:


	January 1, 2022		January 2, 2021
Balance at Fiscal Year Beginning	$	2,202	$	1,205
Increase in balances related to prior year tax positions	948		1,832
(Decreases) in balances related to prior year tax positions	—		—
Increase in balances related to current year tax	616		493
(Decrease) in balances related to current year tax	—		—
Other	—		—
Lapse in statute of limitations	(1,486)		(1,328)
Settlements	(357)		—
Balance at Fiscal Year End	$	1,923	$	2,202

Of the amounts reflected in the above table at January 1, 2022, approximately $300 would reduce the Company's annual effective tax rate if recognized. These are primarily associated with the amount of research and development tax credits claimed. The remaining uncertain tax positions are temporary differences which will have corresponding future tax deductions and therefore no impact on tax expense except for the immaterial amount of interest expense being accrued. The liability for uncertain tax positions as of January 1, 2022 and January 2, 2021 is included in accrued pension and other liabilities on the consolidated balance sheets. The Company has accrued approximately $100 and $200 for potential payment of interest as of January 1, 2022 and January 2, 2021, respectively.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was passed into law. The CARES Act includes several significant business tax provisions including among other things, bonus depreciation for purchases of qualified improvement property which the Company applied in the filing of its 2019 Federal return.

Because the Company operates in multiple foreign and state jurisdictions, it considered the need for a valuation allowance on a country-by-country and state-by-state basis, considering the effects of local tax law. Based on the available objective evidence, including the history of losses in certain foreign and state jurisdictions, management believes it is more likely than not that a portion of deferred tax assets arising from losses and foreign tax credits carried forward will not be fully realized. Accordingly, at January 2, 2021, the Company provided a valuation allowance of $50 respectively, against foreign NOL carryforwards. As of January 1, 2022, the Company determined that no valuation allowance was required on any deferred tax assets.

The Company paid federal and state income taxes (actual and estimated) net of refunds totaling $9,887 and $8,852 during fiscal years 2021 and 2020, respectively. At the end of 2021, the Company had a federal income tax payable of $4,258, state income taxes payable of $1,040 and foreign taxes payable of $232 included in accrued expenses and other current liabilities. At the end of 2020, the Company had a federal income tax payable of $1,948 state income taxes payable of $437 and foreign taxes payable of $164 included in accrued expenses and other current liabilities.

The Company is subject to taxation in the U.S., various states, and in non-U.S. jurisdictions. Its U.S. income tax returns are primarily open to examination for years 2018 through 2020. The open years for the non-U.S. tax returns range from 2016 through 2020 based on local statutes. In June 2019, the IRS commenced its audit of the Company’s federal income tax return for tax year 2017. The IRS added the Company’s 2015 and 2016 amended federal tax returns to this audit. The Company settled the 2017 tax year audit with the IRS in July 2021. The Company paid $56 of tax and interest in settlement of the 2017 federal income tax audit. The IRS approved the Company’s 2015 and 2016 amended tax returns in full. The Company received a refund of $1,200 of tax in interest in October 2021.

Management intends to continue to permanently reinvest all remaining current and prior earnings in jurisdictions located outside the U.S. As of January 1, 2022, no provision had been made for U.S. federal and state income taxes on current or prior year net earnings from the Company’s profitable foreign subsidiaries. In the foreseeable future, the Company will continue its focus toward international expansion, with plans to utilize cash available in its foreign subsidiaries for foreign investment purposes. As such, there is no need to provide for income taxes on undistributed foreign earnings as the Company maintains its policy of indefinitely reinvesting its subsidiaries’ income.

Exhibit 99.1

Note O – Leases

The Company has operating leases for buildings and certain machinery and equipment. Operating leases are included in operating lease right -of-use assets, Current operating lease liabilities, and Noncurrent operating liabilities in the consolidated balance sheets. Amounts recognized for finance leases for the year ended January 1, 2022 were immaterial.

Operating lease expense is recognized in the consolidated statements of income for the year ended January 1, 2022 was $7,836, including approximately $2,250 lease expense associated with short-term leases and leases below the Company’s capitalization threshold. Lease expense for the year ended January 2, 2021 was $5,479.

We lease certain warehouse facilities, office space, machinery, vehicles, and equipment under cancellable and noncancellable leases, most of which expire in five years and may be renewed at our option. The components of lease expense are as follows:


Lease Components		January 1, 2022			January 2, 2021

Operating lease cost
Cost of products sold		$	4,872		$	3,318
Selling		31			87
Administrative and general		2,933			2,074
Total lease cost		$	7,836		$	5,479


Lease Components	Consolidated Balance Sheet Location	January 1, 2022			January 2, 2021

Operating leases	Operating lease right of use assets	$	46,855		$	38,839

Operating leases	Current operating leases liabilities	$	4,151		$	2,642
Operating leases	Noncurrent operating lease liabilities	52,057			44,776
Total lease liabilities		$	56,208		$	47,418

Weighted-average remaining lease term (in years)		13.53 years			9.6 years
Weighted-average discount rate		3.78		%	4.00		%

Future maturities of operating lease liabilities for the years end are as follows:


Fiscal Year	Amount
2022	$	6,144
2023	6,031
2024	5,578
2025	5,040
2026	4,710
Thereafter	45,308
Total future lease payments	72,811
Less: imputed interest	(16,603)
Operating lease liability	$	56,208

Exhibit 99.1

Note P – Product Warranties

The liability relating to warranties offered on the Company’s products is included in accrued expenses and other current liabilities and consisted of the following activity:


	January 1, 2022		January 2, 2021
Warranty liability – beginning of year	$	4,774	$	4,664
Settlements made under warranties	(1,694)		(2,258)
Accruals related to warranties issued	377		2,368
Warranty liability – end of year	$	3,457	$	4,774

Note Q - Acquisitions

On April 19, 2021, the Company acquired all of the shares of Imperial Pacific Trading Company (“IPT Sink Company”) for $20,009 in cash, including a net working capital adjustment of $292, in an asset purchase. IPT Sink Company distributes sinks and fixtures to certain eCommerce, retail, home centers and services fabricators in North America. The acquisition of IPT Sink Company is a complement to the Company’s e-commerce, Home Center Market and will provide opportunities into the broad fabricator market. In connection with this acquisition, we recognized $4,355 of goodwill, which is tax deductible, and is related primarily to the expected synergies from combining the operations into our business. We also recognized $5,640 of definite-lived intangible assets, primarily related to customer relationships, which is being amortized on a straight-line basis over a weighted average amortization period of 15.4 years.

The Company incurred acquisition costs of $125 in fiscal 2021 which are included in administrative and general expenses in the consolidated statements of income.

The following table summarizes the final allocation of the purchase price to the fair value of assets acquired and liabilities assumed as of the date of the acquisition.


Accounts receivable	$	3,337
Inventory, net	7,215
Inventory step up	2,181
Customer relationship	5,400
Other identifiable intangibles assets	240
Other assets	250
Accounts payable	(2,523)
Other liabilities and reserves	(446)
Net assets acquired	15,654

Goodwill	4,355

Cash consideration paid	$	20,009

The following table summarizes the results of operations of IPT Sink Company included in the consolidated statement of income for fiscal 2021:


Net sales	$	14,055
Net loss	554

We applied significant judgement in determining estimates and assumptions used to determine the fair value of the identifiable intangibles assets, including forecasted revenue growth rates, EBITDA margins, contributory asset charges, customer attrition rate, market-participant discount rates and assumed royalty rates.

The identifiable intangible assets and their useful life are as follows:


	Intangible Assets		Useful Life (Years)
Customer relationship	$	5,400	16
Tradename	150		0.5
Non-compete agreement	90		5

The weighted average of the identifiable definite-lived intangible assets in total is 15.4 years.

Note R – Commitments, Contingencies, and Other

Approximately 10.8% of the Company’s labor force is subject to collective bargaining agreements. The current agreements expire on dates ranging from June 2023 to November 2023.

The Company, in the course of its normal business activities, is a defendant in various litigation. Management believes that the resolution of these matters will not have a material adverse effect on the Company’s business, financial condition, or results of operations.

During 2017, an action was commenced against the Company, which claimed breach of an agreement related to environmental remediation. In 2018, the Company settled this action and recorded an estimate of the resolution in the results of operations of $261 at the end of 2018. In 2018, a separate action was commenced against the Company seeking environmental remediation. In 2019, the Company revised its estimate for environmental costs related to the environmental remediation, which increased the accrual to $1,000 classified under noncurrent other liabilities.

Exhibit 99.1

In 2017, the Company had a recall of certain coolers used in the plumbing business caused by a component part from a directly sourced vendor. In 2018, the Company settled with the vendor and was reimbursed $826 and included $206 in Cost of products sold in the results of operations at the end of 2018. The remaining amount of the settlement is to be recorded each subsequent year through November 2022 if the Company meets certain provisions in the settlement.

Note S – Guaranty

Digney York Associates, LLC (former indirect subsidiary of the Parent and indirect subsidiary of the Parent on the date of the Lease Agreement) entered into a Seventh Amendment to Lease on June 29, 2021 for a larger space in the same rental location. Because of the increased rent for the bigger space, the landlord, TIP Owner, L.L.C., required a guaranty by the ultimate parent company, Elkay Manufacturing Company. The Lease commencement date for the new space is expected to start in April or May of 2022. This will trigger the increased rental payments, which range from approximately $550 to $650 through the lease term. The maximum undiscounted amount payable under the guaranty would be $4,603. The lease term is approximately 7.5 years.

Under the guaranty, the Parent is responsible for the following in the event of default by Digney York:

1.Payment in full when due all rental payments pursuant to the terms of the lease

2.The performance and completion of all covenants, undertakings, agreements, liabilities, obligations, and requirements under the lease

3.The payment in full of all costs and expenses, including court costs/expenses and attorneys’ fees, paid or incurred by the landlord in the enforcement of the landlord’s rights under the lease or the guaranty

The Parent may be required to perform under the guaranty if Digney York is not able to make its rental payments as provided for in the lease. As of fiscal 2021, there were no circumstances that would require the Parent to fulfil its obligations under the guaranty. In the event that Digney York defaults in its lease obligations and the landlord pursues the Parent under the guaranty, Elkay Interior Systems International, Inc. (former direct subsidiary of the Parent and indirect parent of Digney York) would be required to indemnify the Parent for any losses or liabilities owed by the Parent under the guaranty pursuant to that certain Spin-Off Agreement dated as of March 6, 2022 by and between Elkay Interior Systems International, Inc. and the Parent.

Note T – Discontinued Operations and Intercompany Balances

As discussed in Note A, the financial statements are presented on a carve-out basis. All revenues and costs as well as assets and liabilities directly associated with the business activity of the Company are included in the financial statements. All significant intercompany accounts and transactions between the businesses comprising the Company have been eliminated in the accompanying financial statements.

For the purposes of the carve-out financial statements, the Company treated a discontinued operation that occurred in February 2019 and intercompany balances with affiliates as either contributed capital or return of capital. The Company recorded a return of capital of $11,525 for the year ended January 1, 2022, $9,651 for the year ended January 2, 2021 and contributed capital of $105,142 for the year ended December 28, 2019, respectively.

Note U – Financial Information by Geographic Area

The portion of revenue attributed to North America in fiscal years 2021, 2020, and 2019, respectively, was 98.8%, 98.9%, and 97.9%. All other geographical areas were immaterial. Revenues attributed to the U.S. and Foreign regions are based upon the customer location and not the geographic location from which our products were shipped. Financial information by geographic area was as follows:


	For Year Ended
Net sales:	January 1, 2022		January 2, 2021		December 28, 2019
North America	$	560,059	$	465,739	$	441,853
International	6,765		5,040		9,524
Total	$	566,824	$	470,779	$	451,377


	For Year Ended
Property, plant and equipment, net:	January 1, 2022		January 2, 2021
North America	$	58,458	$	56,249
International	2,959		2,676
Total	$	61,417	$	58,925

No individual countries other than the U.S. have material property, plant, and equipment.

Note V – Subsequent Events

On February 12, 2022, Zurn Water Solutions Corporation (“Zurn” or the “Company”) entered into a definitive agreement to combine with the Parent 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”), 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”). The Merger is expected to close in the third quarter of 2022.

The Company has evaluated subsequent events that occurred after the balance sheet date up to March 15, 2022. The Company did not identify any other subsequent events that would require recognition or disclosure in the consolidated carve-out financial statements.

Exhibit 99.2

Elkay Manufacturing Water Solutions Business Unit

Contents

(Unaudited)


Consolidated Interim Carve-Out Financial Statements:
Consolidated Statements of Operations			2
Consolidated Statements of Comprehensive Income			3
Consolidated Balance Sheets			4
Consolidated Statements of Cash Flows			6
Consolidated Statements of Changes in Divisional Equity			7
Notes to the Consolidated Carve-Out Financial Statements			8

Exhibit 99.2

Elkay Manufacturing Water Solutions Business Unit

Consolidated Statements of Operations

(In thousands, except share data)

(Unaudited)


	Six Months Ended
	June 30, 2022		July 3, 2021

Net sales	$	298,657	$	276,539
Cost of products sold	208,550		175,249

Gross profit	90,107		101,290

Expenses:
Selling	40,809		43,892
Administrative and general	28,671		28,446
Transaction Costs	10,028		—
Restructuring	1,880		—
	81,388		72,338

Operating income	8,719		28,952

Interest expense	(1,047)		(53)
Investment income	88		1,985
Other income, net	1,544		841
Income before income taxes	9,304		31,725
Income tax expense	(4,659)		(7,119)

Net income	$	4,645	$	24,606

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.2

Elkay Manufacturing Water Solutions Business Unit

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Six Months Ended
	June 30, 2022		July 3, 2021

Net income	$	4,645	$	24,606

Other comprehensive (loss) income:

Cumulative translation adjustment	(6,360)		(31)

Change in pension and postretirement defined benefit plans, net of tax	1,641		147

Unrealized loss on available-for-sale securities, net of tax	—		(1,197)


Total other comprehensive loss	(4,719)		(1,081)

Comprehensive (loss) income	$	(74)	$	23,525

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.2

Elkay Manufacturing Water Solutions Business Unit

Consolidated Balance Sheets

(In thousands)

(Unaudited)


	June 30, 2022		January 1, 2022
Assets
Current assets:
Cash and cash equivalents	$	23,678	$	65,822
Trade and other receivables, less allowance for doubtful
accounts (2022 - $92; 2021 - $155)	95,226		85,223
Inventories, net	116,376		99,183
Income tax receivable and other taxes	1,242		—
Prepaid expenses and other current assets	7,612		11,536

Total current assets	244,134		261,764

Other assets:
Goodwill	33,653		33,609
Intangibles, net	8,486		8,900
Deferred tax assets	14,944		15,448
Operating lease right-of-use assets	44,731		46,855
Nonqualified plan assets	26,171		34,317
Other assets	4,292		11,786

Total other assets	132,277		150,915

Land, buildings, and equipment - Net
Land and improvements	5,610		5,609
Buildings and improvements	58,149		57,679
Machinery and equipment	198,566		197,356
Accumulated depreciation and amortization	(203,883)		(199,227)

Total land, buildings, and equipment - net	58,442		61,417

Total assets	$	434,853	$	474,096

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.2

Elkay Manufacturing Water Solutions Business Unit

Consolidated Balance Sheets

(In thousands)

(Unaudited)


	June 30, 2022		January 1, 2022
Liabilities and divisional equity
Current liabilities:
Accounts payable	$	27,128	$	25,577
Accrued expenses and other current liabilities	35,137		48,469
Due to Affiliates	205		—
Customer deposits and other contract liabilities	450		455
Salaries and wages payable	11,039		23,052
Current operating lease liabilities	4,119		4,151
Current portion of accrued pension liability	17,316		912
Current portion of nonqualified plan liabilities	23,653		3,993
Current maturities of long term debt	48,750		2,577

Total current liabilities	167,797		109,186

Noncurrent liabilities:
Accrued pension and other liabilities	3,775		20,683
Nonqualified plan liabilities	—		28,056
Noncurrent operating lease liabilities	49,934		52,057
Long term debt, less current maturities	—		47,141

Total noncurrent liabilities	53,709		147,937

Total liabilities	221,506		257,123

Divisional equity:
Divisional equity	230,568		229,475
Accumulated other comprehensive loss	(17,221)		(12,502)

Total divisional equity	213,347		216,973

Total liabilities and divisional equity	$	434,853	$	474,096

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.2

Elkay Manufacturing Water Solutions Business Unit

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	June 30, 2022		July 3, 2021
Operating activities:
Net income	$	4,645	$	24,606
Adjustments to reconcile net income to net cash provided by operating activities
Provision for depreciation and amortization	5,944		5,694
Provision for deferred income taxes	337		732
Provision for losses on receivables	(33)		(5)
Gains from derivatives and investments	(4,250)		(1,913)
Losses from sale of fixed assets and intangible	122		78
Amortization of operating lease right-of-use assets	2,130		1,877
Changes in operating assets and liabilities:
Accounts receivable	(9,939)		(11,390)
Inventories	(17,043)		(11,441)
Operating lease liabilities	(2,161)		(1,541)
Payables and accrued expenses	(17,757)		(3,097)
Due to Affiliates	205		—
Other	7,192		7,400

Net cash (used in) provided by operating activities	(30,608)		11,000

Investing activities:
Additions to land, buildings, and equipment	(4,252)		(5,778)
Proceeds from sale of land, buildings, and equipment	1,026		89
Available-for-sale securities:
Purchases	—		(10,141)
Proceeds from sales	—		40,509
Proceeds from derivative settlements	8,171		972
Payments for acquisitions, net of cash	—		(19,717)

Net cash provided by investing activities	4,945		5,934

Financing activities:

Sale of common stock	7,225		2,189
Repurchase of common stock	(32)		(18)
Dividends paid	—		(13,241)
Return of capital	(21,852)		(14,955)
Repayments of debt	(1,963)		—
Other financing activities	—		57

Net cash used in financing activities	(16,622)		(25,968)

Effect of exchange rates on cash	141		59

Decrease in cash and cash equivalents	(42,144)		(8,975)

Cash and cash equivalents at beginning of reporting period	65,822		50,035

Cash and cash equivalents at end of reporting period	$	23,678	$	41,060

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.2

Elkay Manufacturing Water Solutions Business Unit

Consolidated Statements of Divisional Equity

(In thousands)

(Unaudited)


	Divisional Equity		Accumulated Other Comprehensive Loss		Total

Balance January 2, 2021	$	416,418	$	(7,035)	$	409,383
Net income	24,606		—		24,606
Other comprehensive loss	—		(1,081)		(1,081)
Decrease in divisional equity	(18,019)		—		(18,019)


Balance July 3, 2021	$	423,005	$	(8,116)	$	414,889


Balance January 1, 2022	$	229,475	$	(12,502)	$	216,973
Net income	4,645		—		4,645
Other comprehensive loss	—		(4,719)		(4,719)
Decrease in divisional equity	(3,552)		—		(3,552)


Balance June 30, 2022	$	230,568	$	(17,221)	$	213,347

The accompanying notes are an integral part of these consolidated carve-out financial statements.

Exhibit 99.2

Notes to the Consolidated Interim Carve-Out Financial Statements

(In thousands)

(Unaudited)

Note A – Summary of Significant Accounting Policies

The accompanying unaudited interim consolidated carve-out financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany accounts and transactions are eliminated in consolidation. The Company’s fiscal year ends on the Saturday closest to December 31. The consolidated carve-out financial statements have been prepared from the books and records maintained by Elkay Manufacturing Company (the “Parent” or “Elkay”). These unaudited interim condensed consolidated financial statements should therefore be read in conjunction with the consolidated financial statements and notes for Elkay Manufacturing Water Solutions Business Unit for the year ended January 1, 2022. There are immaterial reclassifications within the presentation of certain figures as of January 1, 2022 to conform to the June 30, 2022 presentation. The reclassifications do not impact net income.

The accompanying interim unaudited consolidated carve-out financial statements are prepared on a “carve-out” basis using the management approach consistent with the merger transaction referenced in the subsequent events footnote (Note U). Certain balances and transactions that are accounted for at the Parent’s corporate level have been allocated to the Company for purposes of carve-out financial reporting and are reflected in the accompanying balance sheets and statements of income. Accordingly, the accompanying interim unaudited consolidated carve-out financial statements may not necessarily be indicative of the results of operations that would have been obtained if the Company had operated as an independent entity.

In addition, for purposes of preparing the financial statements on a “carve-out” basis, a portion of the total corporate expenses of the Parent were allocated based on a percentage of gross revenue for the Water Solutions and Interiors Systems business units. These expense allocations included the cost of corporate functions and resources provided at the Parent’s corporate level, including executive management, finance, accounting, legal, human resources, and the related benefit costs associated with such functions. All assets and liabilities held at the Parent’s corporate level were specifically identified and included in the Company’s carve-out assets and liabilities. The Company’s interim unaudited carve-out financial statements include all investing and financing activities relatable to those sources and uses derived from the Parent’s corporate level activities. Management believes that the Company’s approach to these carve-out allocations is reasonable.

Note B – Recently Issued Accounting Pronouncements

New Accounting Pronouncements

Adopted During the Fiscal Year Ended January 1, 2022 and through June 30, 2022

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 six months ended June 30, 2022. The Company will continue to evaluate the impact this guidance will have on its consolidated financial statements for all future transactions affected by reference rate reform during the time period referenced above.

In December 2019, the FASB issued guidance ASU 2019-12, Income Taxes (“Topic 740”) – Simplifying the Accounting for Income taxes, to simplify the accounting for income taxes. The guidance primarily addresses how to (1) recognize a deferred tax liability after we transition to or from the equity method of accounting, (2) evaluate if a step-up in the tax basis of goodwill is related to a business combination or is a separate transaction, (3) recognize all of the effects of a change in tax law in the period of enactment, including adjusting the estimated annual tax rate, and (4) include the amount of tax based on income in the income tax provision and any incremental amount as a tax not based on income for hybrid tax regimes. We adopted the guidance in fiscal 2021. The adoption did not have a material impact on our consolidated financial statements or related disclosures.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). The amendments in ASU 2018-14 modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU 2018-14 eliminates the disclosures for amounts in Accumulated other comprehensive loss expected to be recognized as a component of net periodic benefit cost and the effect of a percentage change in health care cost trend rate. We adopted the guidance in fiscal 2021. The adoption did not have a material impact on our consolidated financial statements or related disclosures.

Accounting Standards Update (“ASU”) No. 2016-13, “Measurement of Credit Losses on Financial Instruments” (Topic 326) and subsequent amendments, requires financial assets measured at amortized cost to be presented at the net amount expected to be collected using an allowance account and provides that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. The Company is exposed to credit losses primarily through trade receivables for the sales of the Company’s products. The Company’s expected credit loss allowance for trade receivables is developed using historical credit loss experience and current and future economic and market conditions. The Company assesses credit risks for these trade receivables and groups them based on similar risk to determine the expected credit loss allowance. Due to the short-term nature of the Company’s trade receivables, the estimate of the expected credit loss allowance is mainly based on historical experience, accounts receivable balances, and the financial condition of customers. ASU 2016-13 was effective for the Company beginning in fiscal 2022. The adoption did not have a material impact on our consolidated financial statements or related disclosures.

Exhibit 99.2

Note C - Acquisitions

On February 12, 2022, Elkay Manufacturing Company and Zurn Water Solutions Corporation (“Zurn”) entered into a definitive agreement to combine with the Parent 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”), 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”). The Merger closed on July 1, 2022. See Note U.

On April 19, 2021, the Company acquired all of the shares of Imperial Pacific Trading Company (“IPT Sink Company”) for $20,009 in cash, including a net working capital adjustment of $292, in an asset purchase. IPT Sink Company distributes sinks and fixtures to certain eCommerce, retail, home centers and services fabricators in North America. The acquisition of IPT Sink Company is a complement to the Company’s e-commerce, Home Center Market and will provide opportunities into the broad fabricator market. In connection with this acquisition, the Company recognized $4,355 of goodwill, which is tax deductible, and is related primarily to the expected synergies from combining the operations i. The Company recognized $5,640 of definite-lived intangible assets, primarily related to customer relationships, which are being amortized on a straight-line basis over a weighted average amortization period of 15.4 years.

The Company incurred acquisition costs of $125 in the first six months ended in fiscal 2021.

The following table summarizes the final allocation of the purchase price to the fair value of assets acquired and liabilities assumed as of the date of the acquisition:


Accounts receivable	$	3,337
Inventory, net	7,215
Inventory step up	2,181
Customer relationship	5,400
Other identifiable intangible assets	240
Other assets	250
Accounts payable	(2,523)
Other liabilities and reserves	(446)
Net assets acquired	15,654

Goodwill	4,355

Cash consideration paid	$	20,009

The Company applied significant judgement in determining estimates and assumptions used to determine the fair value of the identifiable intangibles assets, including forecasted revenue growth rates, EBITDA margins, contributory asset charges, customer attrition rate, market-participant discount rates and assumed royalty rates

The identifiable intangible assets and their useful lives are as follows:


	Intangible Assets		Useful Life (Years)
Customer relationship	$	5,400	16
Tradename	150		0.5
Non-compete agreement	90		5

The weighted average of the identifiable definite-lived intangible assets in total is 15.4 years.

The following table summarizes the results of operations of IPT Sink Company included in the Consolidated Statements of Income for the first half of fiscal 2021:


Net sales	$	3,971
Net loss	328

Note D – Restructuring and Other Similar Charges

As discussed in Note C, on February 12, 2022, Zurn Water Solutions entered into a definitive agreement to combine with Elkay Manufacturing Company. The Company recorded the related transaction and restructuring costs as follows:


For the six months ended June 30, 2022

Transaction costs	$	10,028
Restructuring	1,880

The transaction costs were the associated legal and financial advisory fees related to the Merger. The restructuring costs consist of severance costs incurred related to the transaction.

Note E – Investments

The unrealized gains and losses, from the sale of available for sale securities, are reported in Accumulated other comprehensive loss until sold or maturity, at which time they are reclassified to earnings. The amounts reclassified out of Accumulated other comprehensive loss totaled $425 on a pre-tax basis for the six months ended July 3, 2021.

Realized gains and losses on the sale of available-for-sale securities for the six months ended July 3, 2021 were $482 and $(13), respectively, and are included in Investment income in the consolidated statements of income.

Exhibit 99.2

Included in Cash and cash equivalents are investments with fair values of $26 and $26 as of June 30, 2022 and January 1, 2022, respectively. These investments consist of money market funds and government agency securities. The fair value is determined using the “market approach” valuation technique based on quoted prices for identical instruments in active markets and is classified as Level 1.

Note F – Inventories

Inventories consist of the following:


	June 30, 2022		January 1, 2022
Raw materials	$	75,343	$	66,284
Work in process	10,799		7,423
Finished goods	71,973		57,737
Inventories at FIFO, less allowances (2022 - $3,296; 2021 - $3,030)	158,115		131,444
LIFO Reserve	(41,739)		(32,261)
Inventories, net	$	116,376	$	99,183

Inventories at FIFO approximate replacement cost. The majority of the Company’s inventory is valued using the LIFO method, which is not in excess of market. Under this method, older costs are included in inventory, which may be higher or lower than current costs. This method of valuation is subject to year-to-year fluctuations in cost of material sold, which is influenced by the inflation or deflation existing within the metals industry as well as fluctuations in the Company’s product mix and on-hand inventory levels. The effect of liquidation was to increase the cost of products sold by $212 in the six months ended June 30, 2022. The effect of liquidation in the comparable period in fiscal 2021 was immaterial.

Note G – Property, Plant, and Equipment

Property, plant, and equipment balances as of June 30, 2022 and January 1, 2022 are as follows:


	June 30, 2022		January 1, 2022
Land and improvements	$	5,610	$	5,609
Buildings and improvements	58,149		57,679
Machinery and equipment	198,566		197,356
Accumulated depreciation and amortization	(203,883)		(199,227)
Property, plant, and equipment, net	$	58,442	$	61,417

Depreciation expense was $5,527 and $4,606 for the six months ended June 30, 2022 and July 3, 2021, respectively.

Note H – Goodwill and Intangible Assets


	June 30, 2022		January 1, 2022
Goodwill - beginning of the fiscal year	$	33,609	$	29,331
Translations	44		(77)
Acquisitions (See Note C)	—		4,355
Goodwill - ending balance	$	33,653	$	33,609

Definite-lived intangible asset balances as of June 30, 2022 and January 1, 2022 are as follows:


	June 30, 2022				January 1, 2022
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Trademarks	$	1,030	$	(529)	$	1,030	$	(482)
Customer relationships	10,300		(2,590)		10,300		(2,233)
Non-compete agreements	120		(51)		120		(41)
Total	$	11,450	$	(3,170)	$	11,450	$	(2,756)

Amortization expense for the six months ended June 30, 2022 and July 3, 2021 was $413 and $425, respectively, and amortization expense is expected to be $414 in the second half of 2022, $826 in 2023, $826 in 2024, $826 in 2025, and $813 in 2026. The estimated weighted average remaining life of the definite life intangibles is 11.64 years.

The Company also has some trademarks with indefinite lives. These indefinite-lived intangible assets have a carrying value of $206 and $206 as of June 30, 2022 and January 1, 2022, respectively, and are included in intangibles, net on the consolidated balance sheets.

Note I – Derivatives and Hedging Activities

Exhibit 99.2

For fiscal years 2022 and 2021, all derivatives are classified as economic hedges. The changes in the fair value of these instruments are recorded as a component of Other income (expense), net in the consolidated statements of operations These contracts are primarily valued based on spot and forward rates quoted by the counterparties, which are major financial institutions.

The Company terminated all the outstanding hedge positions during April 2022 and received $6,868 in cash settlements.

The following table summarizes the fair value and location in the consolidated balance sheets of all derivative instruments held by the Company:

Classified as Level 2

June 30, 2022

January 1, 2022

Fair Value

Units hedged (000' lbs)

Fair Value

Units hedged (000' lbs)

Balance Sheet Location

Assets

Commodity contracts

—

2,964

1,417

Prepaid Expenses

The pretax gain of the derivative instruments on the consolidated statements of income included in other income, net is as follows:


	June 30, 2022		July 3, 2021
Assets
Commodity contracts	$	5,206	$	1,233

The cash flows related to the derivative instruments are included in investing activities on the consolidated statements of cash flows.

Note J – Accrued Expenses and Other Current Liabilities


	June 30, 2022		January 1, 2022
Rebates & co-op accrual	$	8,842	$	16,264
Accrued other	12,085		10,291
Accrued insurance	6,076		5,163
Warranty accrual	3,425		3,457
Accrued payroll taxes and withholding	1,648		1,895
Amounts due to related party	—		3,417
Accrued profit sharing	1,256		1,283
Income tax payable	—		5,530
Accrued vacation & holiday	1,417		591
Accrued professional fees	388		578
Total	$	35,137	$	48,469

Note K – Related Party

Mr. Ronald Katz was a past employee and past Chairman of the Board, who was also a majority shareholder. Mr. Ronald Katz retired on March 31, 2020. At the end of fiscal 2021, the amount due to related party in Note J represents amounts withheld, at the direction of Mr. Katz, that are due on demand. As of June 30, 2022, the balance due to Mr. Katz was fully settled.

Note L – Revenue

The Company’s principal performance obligations are the sale of kitchen and bath sinks, faucets and drinking water products. The Company recognizes revenue for the sale of goods based on its assessment of when control transfers to the customers. The Company recognizes revenue at the point in time when the Company ships product from its facilities to its customers.. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods to its customers. Payment terms on product sales normally range from 30 to 90 days. Taxes assessed by a governmental authority that the Company collects are excluded from revenue. The expected costs associated with the Company’s contractual warranties will continue to be recognized as expense when the products are sold.

The Company records estimates to reduce revenue for customer programs and incentives, which are considered variable consideration, and include price discounts, volume-based incentives, promotions, and cooperative advertising when revenue is recognized in order to determine the amount of consideration the Company will ultimately be entitled to receive. Management periodically reviews the estimates for these rebates and allowances, and adjusts estimates when circumstances indicate (typically as a result of a change in volume expectations). The estimates are based on historical and projected experience for each type of customer. In addition, for certain customer program incentives, the Company receives an identifiable benefit (goods or services) in exchange for the consideration given and records the associated expenditure in selling. The Company estimates future product returns at the time of sale based on historical experience and records a corresponding refund liability, which amounted to $3,819 as of June 30, 2022 and $4,015 as of January 1, 2022. Return assets related to the refund are measured at the carrying amount of the goods at the time of sale, less any expected costs to recover the goods and any expected reduction in value. Return assets are classified within prepaid expenses and other current assets and were approximately $1,718 as of June 30, 2022 and $2,198 as of January 1, 2022. The Company also establishes allowances for other deductions. Estimates for deductions are based on negotiated customer programs, evaluation of historical deduction rates, and assessment of volume rebates allowed based on estimated achievement against targets. Deductions already taken by the customer are generally recorded as a reduction against gross sales, with additional accruals recorded to estimate future sales. The Company recorded allowances for certain customer deductions of $2,841 as of June 30, 2022 and $2,269 as of January 1, 2022.

Exhibit 99.2


	June 30, 2022		July 3, 2021
Traditional Plumbing (1)	$	216,710	$	201,451
Home Center Plumbing (2)	30,512		27,960
E-Commerce Plumbing (3)	49,603		46,620
Beverage Dispensing Systems (4)	977		508
Corporate (5)	855		—
Net sales	$	298,657	$	276,539

(1) Traditional Plumbing represents sales through wholesalers and kitchen and bath dealers

(2) Represents sales to big box “Do-It-Yourself” retailers

(3) Represents sales to online retailers

(4) Sales of Point of use water dispensing systems

(5) Represents revenue under the Transition Service Agreement due to the spin-off of Elkay Interior Systems International, Inc

Timing of Performance Obligations Satisfied at a Point in Time

Variable Consideration

Contract Costs

Credit Losses

The company is exposed to credit losses primarily through sales of products and services. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable may not be collected is based on the aging of the accounts receivable balances and other historical and forward-looking information on the financial condition of customers. Balances are written off when determined to be uncollectible.

The Company maintains an allowance to reflect the expected amount of accounts receivable that will not be realized, based on past collection history and risks identified among uncollectible accounts. Trade accounts receivable are charged to the allowance when the Company determines that the receivable may not be collectible. Trade accounts receivable balances are determined to be delinquent when the amount is past due based on the payment terms with the customer.

Note M – Retirement Plans

Defined-Contribution Plans

Defined-Benefit and Other Post-Retirement Plans

Exhibit 99.2

The components of net periodic pension cost are as follows:


	Pension Plans				Other Post-Retirement Benefit Plans
	June 30, 2022		July 3, 2021		June 30, 2022		July 3, 2021
Service cost	$	36	$	33	$	294	$	549
Interest cost	47		39		228		219
Expected return on plan assets	(14)		(13)		—		—
Net amortization and deferral of actuarial loss	4		3		232		184
Plan curtailment/settlement	10		—		1,433		—
Net periodic pension cost	$	83	$	62	$	2,187	$	952

For the six months ended June 30, 2022 and July 3, 2021, service cost was recorded in operating income in the consolidated statements of income and all other components of net periodic costs were recorded in other income, net in the consolidated statements of income.

The Company will settle the other post-retirement benefit plan obligation subsequent to the effective date of the Merger, July 1, 2022. The Company classified the other post-retirement benefit plan obligation as short-term as of June 30, 2022.

Note N – Debt Obligations

On December 16, 2021, the Company entered a Credit Agreement with a syndicate of banks led by JPMorgan Chase, N.A. The credit agreement (“Credit Agreement”) and borrowings thereunder were to be used for general corporate purposes.

The Credit Agreement provides for a secured credit facility of up to $150,000 (the “Facility”), comprised of a $50,000 term loan and a $100,000 revolver. The Company may use up to $10,000 of the revolver for letters of credit.

Subject to certain exclusions, the debt is secured by substantially all of the Company’s assets and the assets of our two domestic subsidiaries and by a pledge of the capital stock of our domestic subsidiaries. Additionally, except with respect to certain excluded subsidiaries, our domestic subsidiaries also guarantee the repayment of all amounts due under the Credit Agreement. If an event of default occurs and is continuing, on the terms and subject to the conditions set forth in the Credit Agreement, amounts outstanding under the Facility may be accelerated and may become or be declared immediately due and payable. Borrowings under the Facility are used for refinancing existing debt, working capital, capital expenditures, acquisitions, and other general corporate purposes.

Under the Credit Agreement, we are subject to certain financial covenants and must maintain a maximum consolidated Leverage Ratio of 3.5 to 1.0 and a minimum interest coverage ratio of 3.0 to 1.0. The minimum interest coverage ratio is defined in the Credit Agreement as Consolidated EBITDA (as defined in the Credit Agreement) divided by interest expense (as defined in the Credit Agreement). Adjusted EBITDA is defined as consolidated net income before interest expense, income taxes, depreciation, amortization of intangible assets, losses from asset impairments, and certain other one-time adjustments. The Credit Agreement also contains a number of covenants, including restrictions on asset sales, investments, incurring indebtedness and permitting liens. The Credit Agreement restricts certain types of payments when our consolidated Leverage Ratio exceeds 3.5 to 1.00 (as defined in the Credit Agreement).

The components of long-term debt were as follows:


	June 30, 2022		January 1, 2022
Notes
$100,000 revolving credit agreement due September 2026	$	—	$	—
Term loan due September 2026	48,750		49,718

Total debt	48,750		49,718

Less: Current portion	48,750		2,577
Total long-term debt	$	—	$	47,141

The Company incurred financing costs of $1,094 that were allocated between the $100,000 revolver and the $50,000 term loan. At the end of our fiscal year ended 2021, deferred finance costs for the revolver were $718 and $359 for the term loan. The company did not incur any additional financing costs during fiscal 2022.The deferred financing costs, net of amortization, for the term loan was recorded as a contra asset against the term loan. The deferred financing costs for the revolver were recorded in Other Assets and were fully amortized as of June 30, 2022. The Company settled the total debt balance immediately subsequent to the effective date of the Merger, July 1, 2022. The Company classified the total debt balance as short-term as of June 30, 2022. The Credit Agreement was terminated and all outstanding debt thereunder was repaid in connection with the closing of the Merger on July 1, 2022. See Note U.

Note O – Divisional Equity

Exhibit 99.2

noninterest-bearing installment note from the Company. The fair value of the transactions is measured based on current book value, i.e. equity divided by total number of shares outstanding. Options granted expire in six months from date of offering. Upon exercising the option, the executives make a down payment of either 10% or 50% of the stock value. For transactions with down payment less than 50% of the stock value, the officers will make ten annual installment payments towards 50% of the stock value. Once payment for approximately 50% of the stock has been received, the balance of the note is due on demand. Upon separation of service of a director, or qualified retirement of an officer, the stockholder may elect to retain all or a portion of the Class N shares held at the time of separation, for a period not exceeding five years from the date of separation (retention period). Prior to 2021, Stockholders electing to retain Class N shares shall be required to sell all Class M shares and shall be required to pay, in full, any outstanding demand notes. During 2021, the plan was amended to secure the unpaid amounts under the demand note by a pledge of the uncertificated shares of Class M and Class N common stock and to provide stockholders the option to retain Class N shares without having to pay, in full, any outstanding demand notes. During the retention period, stockholders may request that the Company repurchase all or a portion of their remaining Class N shares. The Company retains the right to require all remaining Class N shares to be resold to the Company at any time during the retention period.

The following is a summary of the activity in the first six months ended in 2022 and 2021 related to dividends on our common stock:


	For the six months ended
	June 30, 2022		July 3, 2021
Dividends per share declared	$	—	$	12.50

Note P – Phantom Stock Plan Award

On December 24, 2021, the Company’s Chief Executive Officer signed a severance and release agreement. Pursuant to the agreement, the Company’s Chief Executive Officer will receive accelerated vesting of 100% of his Phantom Stock Award which will be paid in a single lump sum within sixty days of the separation date. As of January 1, 2022, the Company recorded the full compensation expense and liability.

The Company recorded compensation expense of $389 for the six months in fiscal year 2021 pursuant to the severance and release agreement. In the first six months of fiscal 2022, there was no compensation expense related to the phantom stock award. The compensation totals include the applicable Medicare taxes. There was no unrecognized compensation cost under the Phantom Stock Plan as of January 1, 2022, as all amounts are fully vested.

A summary of the changes in the number of outstanding phantom stock awards for the six months ended June 30, 2022, for the Phantom Plans is provided below.


						Phantom Stock Plan
Balance of shares outstanding on January 1, 2022						9,017.44
Phantom shares settled						(9,017.44)
Balance of shares outstanding on June 30, 2022						—

The liability for unsettled phantom stock awards under the Phantom Stock Plan consists of the following:


	Year Ended
	June 30, 2022		January 1, 2022
Phantom Stock Plan	$	—	$	2,931

As of June 30, 2022, the total Phantom Stock award was completely settled.

Note Q – Income Taxes

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 but not limited to, the amount of taxable earnings derived in its Mexican jurisdiction that has a tax rate which is higher than the U.S. federal statutory rate, state tax rates in the jurisdictions where the Company does business, increases or decreases to its unrecognized tax benefits, and the Company's ability to utilize various federal and state income tax credits.

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 no valuation allowance against its domestic federal, state, and foreign deferred tax assets.

For the six months ended June 30, 2022, the Company recorded an income tax expense of $4,659, which includes a discrete income tax benefit of $217. The calculation of the overall income tax provision for the six months ended June 30, 2022 primarily consists of domestic income taxes. Transaction costs were treated as discrete items for the six months ended June 30, 2022. For the six months ended July 3, 2021, the Company recorded an income tax provision of $7,119, which includes a discrete income tax benefit of $156 related to the settlement of the Company’s 2017 IRS income tax audit.

Exhibit 99.2

The effective tax rate for the six months ended June 30, 2022 was an income tax benefit of 50.07% on pretax income of $9,304 compared to an income tax provision of 22.44% on pretax income of $31,725 in the comparable prior period. The effective tax rate for the six months ended June 30, 2022, differs from the U.S. statutory rate of 21% primarily due to the merger and spin transaction costs, state income taxes, nondeductible domestic permanent differences, federal and state income tax credits, and income taxed in foreign jurisdictions at varying rates.

The Company’s total unrecognized tax benefits as of June 30, 2022 and July 3, 2021, were approximately $2,076 and $2,033, respectively. Included in the unrecognized tax benefits are research and development tax credits claimed on open income tax returns including R&D refund claims filed on 2015 and 2016 amended federal income tax returns. The remaining uncertain tax positions are temporary differences which have corresponding future tax deductions and therefore the only impact to income tax expense is accrued penalties and interest. The Internal Revenue Service (IRS) completed the audit of the Company’s 2017 tax year and the amended 2015 and 2016 federal tax returns during the period ended July 3, 2021. A favorable resolution resulted in unrecognized tax benefits being recognized as a reduction to the tax provision and effective tax rate in the period of resolution.

Note R – Product Warranties

The liability relating to warranties offered on the Company’s products is included in accrued expenses and other current liabilities. The warranty expense for the months ended June 30, 2022 and July 3, 2021 are $1,036 and $746, respectively.

Note S – Commitments, Contingencies, and Other

Approximately 10.8% of the Company’s labor force is subject to collective bargaining agreements. The current agreements expire on dates ranging from June 2023 to November 2023.

Note T – Guaranty

Digney York Associates, LLC (former indirect subsidiary of the Parent and indirect subsidiary of the Parent on the date of the Lease Agreement) entered into a Seventh Amendment to Lease on June 29, 2021 for a larger space in the same rental location. Because of the increased rent for the bigger space, the landlord, TIP Owner, L.L.C., required a guaranty by the ultimate parent company, Elkay Manufacturing Company. The Lease commencement date for the new space is expected to start sometime in 2022. This will trigger the increased rental payments, which range from approximately $550 to $650 through the lease term. The maximum undiscounted amount payable under the guaranty would be $4,603. The lease term is approximately 7.5 years.

Under the guaranty, the Parent is responsible for the following in the event of default by Digney York:

1.Payment in full when due all rental payments pursuant to the terms of the lease

2.The performance and completion of all covenants, undertakings, agreements, liabilities, obligations, and requirements under the lease

Note U – Subsequent Events

The Company has evaluated subsequent events that occurred after the balance sheet date up to August 16, 2022. Other than the events summarized below, the Company did not identify any other subsequent events that would require recognition or disclosure in the consolidated carve-out financial statements.

On July 1, 2022 the Merger under the Merger Agreement was completed and the Company became a wholly-owned subsidiary of Zurn Water Solutions Corporate. Concurrently with the closing, the Credit Agreement was terminated and all outstanding debt thereunder was repaid.

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information and notes thereto have been prepared by Zurn Elkay Water Solutions Corporation (formerly known as Zurn Water Solutions Corporation) ("Zurn" or the "Company") in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”, in order to give effect to the Merger and the 2021 RMT Transaction (each as defined below).

On February 12, 2022, Zurn entered into a definitive agreement to combine with Elkay Manufacturing Company (“Elkay”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among Zurn, Elkay, Zebra Merger Sub, Inc., a wholly owned subsidiary of Zurn (“Merger Sub”), and Elkay Interior Systems International, Inc., as representative of the stockholders of Elkay. 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”). On July 1, 2022, the Company and Elkay closed the Merger. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Zurn issued 51,564,524 shares of common stock, $0.01 par value per share, of the Company ("Company common stock"), as calculated in the Merger Agreement, which represents approximately 29% of the 177,746,770 outstanding shares of the Company common stock immediately following the Merger closing. The total shares of Company common stock issued is preliminary and subject to change upon finalization of customary post-closing adjustments with respect to cash, indebtedness and working capital. In addition, the Company made net cash payments of $45.9 million for the repayment of Elkay's debt and transaction related costs outstanding that were in excess of Elkay's cash and cash equivalents balance at the time of closing.

On October 4, 2021, Zurn completed the spin-off and subsequent sale, through a Reverse Morris Trust transaction, of its Process & Motion Control ("PMC") business ("2021 RMT Transaction"). As a result of the 2021 RMT Transaction, the operating results of PMC were reported in discontinued operations in Zurn’s historical consolidated statement of operations for the six months ended June 30, 2022. A pro forma adjustment has been included to reflect Zurn's historical consolidated statement of operations as if the 2021 RMT Transaction occurred on January 1, 2021.

The unaudited pro forma condensed combined financial information is based on the historical consolidated financial statements of Zurn and the historical consolidated financial statements of Elkay as adjusted to give effect to the Merger and the 2021 RMT Transaction. The unaudited pro forma condensed combined balance sheet as of June 30, 2022 gives effect to the Merger as if it had occurred on June 30, 2022. As the effects of the 2021 RMT Transaction are already included in Zurn’s historical balance sheet as of June 30, 2022, no pro forma adjustment is required. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2022 and the year ended December 31, 2021 gives effect to the Merger and the 2021 RMT Transaction as if it had occurred on January 1, 2021. Refer to Note 1 - Basis of Presentation for additional information.

The unaudited pro forma condensed combined financial information and related notes should be read in conjunction with the historical financial statements of Zurn and Elkay referenced below:

a.The consolidated financial statements and the accompanying notes included in Zurn’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 9, 2022; and

b.Zurn's unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2022 included in Zurn's Current Report on Form 10-Q which was filed with the SEC on July 26, 2022; and

c.Elkay’s audited carve-out consolidated financial statements and the accompanying notes which comprise the balance sheet as of January 1, 2022 and January 2, 2021, and the related consolidated statements of income, comprehensive income, changes in divisional equity and cash flows for each of the three years in the period ended January 1, 2022, included in Zurn's Registration Statement on Form S-4, as amended (Registration No. 333-264125), which was declared effective by the SEC on April 26, 2022, and which are filed as Exhibit 99.1 to this Current Report on Form 8-K/A; and

d.Elkay's unaudited interim carve-out consolidated financial statements and the accompanying notes as of and for the six months ended June 30, 2022, which are filed as Exhibit 99.2 to this Current Report on Form 8-K/A.

The consolidated carve-out financial statements are prepared on a “carve-out” basis in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated carve-out financial statements have been prepared from the books and records maintained by Elkay, which included Elkay Water Solutions and Elkay Interiors Systems business units. Prior to the Merger, the Elkay Interiors Systems business unit was spun-off as an independent entity from Elkay and accordingly the consolidated carve-out financial statements reflect the financial position and results of operations of the Elkay Water Solutions Business Unit. Certain balances and transactions that are accounted for by Elkay have been allocated to the consolidated carve-out financial statements for purposes of carve-out financial reporting and are reflected in the accompanying balance sheets and statements of operations. Accordingly, the accompanying consolidated carve-out financial statements may not necessarily be indicative of the results of operations that would have been obtained if the Elkay Water Solutions business unit had operated as an independent entity.

Exhibit 99.3

In addition, for purposes of preparing the financial statements on a “carve-out” basis, a portion of Elkay's total corporate expenses were allocated based on a percentage of gross revenue for the Elkay Water Solutions and Elkay Interiors Systems business units. These expense allocations included the cost of Elkay's corporate functions and resources, including executive management, finance, accounting, legal, human resources, and the related benefit costs associated with such functions. The consolidated carve-out financial statements include all investing and financing activities relatable to those sources and uses derived from the Elkay’s corporate level activities. Elkay management believes that the approach to these carve-out allocations is reasonable.

The unaudited pro forma adjustments, including the preliminary purchase price allocation as further described below, represent Zurn management’s estimates based on information available as of the date of the unaudited pro forma condensed combined financial information and are subject to change as additional information becomes available and analyses are performed. However, Zurn management believes that the assumptions provide a reasonable basis for presenting the significant effects of the Merger and the 2021 RMT Transaction, and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information. The 2021 RMT Transaction Adjustments and Merger Adjustments are intended to represent the necessary adjustments to account for the 2021 RMT Transaction Adjustments and Merger Adjustments. Autonomous Entity Adjustments are adjustments that are necessary to reflect the operations and financial position of the registrant as an autonomous entity when the registrant was previously part of another entity. There are no Autonomous Entity Adjustments included in the combined company unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the financial position or results that would have occurred had the events been consummated as of the dates indicated, nor is it indicative of any future results.

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

(in millions)


	June 30, 2022		June 30, 2022
	Zurn (Historical)		Elkay (Note 2)		Merger Adjustments (Note 4)			Pro Forma Combined
Assets
Current assets:
Cash and cash equivalents	$	110.4	$	23.7	$	(69.6)	A	$	64.5
Receivables, net	188.9		95.2		—			284.1
Inventories	243.4		116.4		22.2		B	382.0
Income taxes receivable	20.1		1.3		6.0		C	27.4
Other current assets	25.6		7.6		—			33.2
Total current assets	588.4		244.2		(41.4)			791.2
Property, plant and equipment, net	61.6		58.4		88.2		D	208.2
Intangible assets, net	174.8		8.5		852.2		E	1,035.5
Goodwill	252.6		33.7		485.5		F	771.8
Insurance for asbestos claims	66.0		—		—			66.0
Other assets	32.9		75.2		—			108.1
Total assets	$	1,176.3	$	420.0	$	1,384.5		$	2,980.8
Liabilities and stockholders' equity
Current liabilities:
Current maturities of debt	$	5.6	$	48.8	$	(48.8)	A	$	5.6
Trade payables	126.1		24.3		—			150.4
Compensation and benefits	9.2		17.4		—			26.6
Current portion of pension and postretirement benefit obligations	1.3		17.3		—			18.6
Other current liabilities	99.0		60.0		33.4		G	192.4
Total current liabilities	241.2		167.8		(15.4)			393.6

Long-term debt	531.9		—		—			531.9
Pension and postretirement benefit obligations	55.9		0.6		—			56.5
Deferred income taxes	9.9		(14.9)		226.6		C	221.6
Operating lease liability	5.9		49.9		—			55.8
Reserve for asbestos claims	66.0		—		—			66.0
Other liabilities	36.1		3.2		—			39.3
Total liabilities	946.9		206.6		211.2			1,364.7

Stockholders' equity:
Common stock, $0.01 par value	1.3		—		0.5		H	1.8
Additional paid-in capital	1,438.3		33.2		1,383.3		H	2,854.8
Retained (deficit) earnings	(1,135.3)		197.4		(227.7)		H	(1,165.6)
Accumulated other comprehensive loss	(74.9)		(17.2)		17.2		H	(74.9)
Total stockholders' equity	229.4		213.4		1,173.3			1,616.1
Total liabilities and stockholders' equity	$	1,176.3	$	420.0	$	1,384.5		$	2,980.8

See accompanying notes to unaudited pro forma condensed combined financial information

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(in millions, except share and per share amounts)


	Six Months Ended
	June 30, 2022						June 30, 2022
	Zurn (Historical)		2021 RMT Transaction Adjustments		Pro Forma for 2021 RMT Transaction		Elkay (Note 2)		Merger Adjustments (Note 4)			Pro Forma Combined
Net sales	$	523.8	$	—	$	523.8	$	298.7	$	—		$	822.5
Cost of sales	308.1		—		308.1		196.6		3.9		J	508.6
Gross profit	215.7		—		215.7		102.1		(3.9)			313.9
Selling, general and administrative expenses	112.3		—		112.3		90.2		(8.7)		J, K	193.8
Restructuring and other similar charges	1.4		—		1.4		1.9		—			3.3
Amortization of intangible assets	4.6		—		4.6		1.3		24.6		L	30.5
Income from operations	97.4		—		97.4		8.7		(19.8)			86.3
Non-operating expense:
Interest expense, net	(10.0)		—		(10.0)		(1.0)		—			(11.0)


Other (expense) income, net	(0.3)		—		(0.3)		1.6		—			1.3
Income from continuing operations before income taxes	87.1		—		87.1		9.3		(19.8)			76.6
(Provision) benefit for income taxes	(21.3)		—		(21.3)		(4.7)		7.2		M	(18.8)
Net income (loss) from continuing operations	65.8		—		65.8		4.6		(12.6)			57.8
Income from discontinued operations, net of tax	0.8		(0.8)		—		—		—			—
Net income (loss)	$	66.6	$	(0.8)	$	65.8	$	4.6	$	(12.6)		$	57.8

Basic net income per share attributable to Zurn common stockholders:
Continuing operations	$	0.52			$	0.52						$	0.32
Discontinued operations	$	0.01			$	—						$	—
Net income	$	0.53			$	0.52						$	0.32
Diluted net income per share attributable to Zurn common stockholders:
Continuing operations	$	0.51			$	0.51						$	0.32
Discontinued operations	$	0.01			$	—						$	—
Net income	$	0.52			$	0.51						$	0.32
Weighted-average number of shares outstanding (in thousands):
Basic	126,350				126,350				51,565		N	177,915
Effect of dilutive equity awards	2,063				2,063				—			2,063
Diluted	128,413				128,413				51,565			179,978

See accompanying notes to unaudited pro forma condensed combined financial information

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(in millions, except share and per share amounts)


	Year Ended
	December 31, 2021						January 1, 2022
	Zurn (Historical)		2021 RMT Transaction Adjustments		Pro Forma for 2021 RMT Transaction		Elkay (Note 2)		Merger Adjustments (Note 4)			Pro Forma Combined
Net sales	$	910.9	$	—	$	910.9	$	566.8	$	—		$	1,477.7
Cost of sales	537.7		—		537.7		351.6		31.4		I, J	920.7
Gross profit	373.2		—		373.2		215.2		(31.4)			557.0
Selling, general and administrative expenses	239.0		—		239.0		163.8		76.6		J, K	479.4
Restructuring and other similar charges	3.7		—		3.7		—		—			3.7
Amortization of intangible assets	23.5		—		23.5		1.3		50.4		L	75.2
Income from operations	107.0		—		107.0		50.1		(158.4)			(1.3)
Non-operating expense:
Interest expense, net	(34.7)		—		(34.7)		(0.2)		—			(34.9)
Loss on the extinguishment of debt	(20.4)		—		(20.4)		—		—			(20.4)
Actuarial gain on pension	1.2		—		1.2		—		—			1.2
Other (expense) income, net	(0.7)		—		(0.7)		8.3		—			7.6
Income from continuing operations before income taxes	52.4		—		52.4		58.2		(158.4)			(47.8)
Provision for income taxes	(2.7)		—		(2.7)		(12.0)		30.8		M	16.1
Net income (loss) from continuing operations	49.7		—		49.7		46.2		(127.6)			(31.7)
Income from discontinued operations, net of tax	71.2		(71.2)		—		—		—			—
Net income (loss)	$	120.9	$	(71.2)	$	49.7	$	46.2	$	(127.6)		$	(31.7)

Basic net income (loss) per share attributable to Zurn common stockholders:
Continuing operations	$	0.41			$	0.41						$	(0.18)
Discontinued operations	$	0.59			$	—						$	—
Net income (loss)	$	1.00			$	0.41						$	(0.18)
Diluted net income (loss) per share attributable to Zurn common stockholders:
Continuing operations	$	0.40			$	0.40						$	(0.18)
Discontinued operations	$	0.57			$	—						$	—
Net income (loss)	$	0.97			$	0.40						$	(0.18)
Weighted-average number of shares outstanding (in thousands):
Basic	121,493				121,493				51,565		N	173,058
Effect of dilutive equity awards	3,621				3,621				(3,621)		N	—
Diluted	125,114				125,114				47,944			173,058

See accompanying notes to unaudited pro forma condensed combined financial information

Exhibit 99.3

Note 1 - Basis of Presentation

The unaudited pro forma condensed combined financial information is based on the historical consolidated financial statements of Zurn and the historical carve-out consolidated financial statements of Elkay. The unaudited pro forma condensed combined balance sheet as of June 30, 2022 gives effect to the Merger as if it had occurred on June 30, 2022. As the effects of the 2021 RMT Transaction are already included in Zurn’s historical balance sheet as of June 30, 2022, no pro forma adjustment is required. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2022 and for the year ended December 31, 2021 gives effect to the Merger and the 2021 RMT Transaction as if each had occurred on January 1, 2021. Elkay has historically operated on a 52/53-week fiscal year on the Saturday nearest to the last day of the year or the quarter, which was January 1, 2022 for the fiscal year 2021.

The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial information to give pro forma effect to Merger Adjustments and the 2021 RMT Transaction Adjustments that reflect the accounting under U.S. GAAP. The unaudited pro forma condensed combined financial information does not reflect any anticipated synergies or dis-synergies, operating efficiencies or cost savings that may result from the Merger.

The accounting policies used in the preparation of the unaudited pro forma condensed combined financial information are those set out in Zurn’s consolidated financial statements as of and for the six months ended June 30, 2022 and the year ended December 31, 2021. Management has substantially completed the review of Elkay’s accounting policies, and based on its analysis to date, has determined that no significant adjustments are necessary to conform Elkay’s financial statements to the accounting policies used by Zurn in the preparation of the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial information and related notes were prepared using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”), with Zurn as the accounting acquirer of Elkay. ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. For purposes of the unaudited pro forma condensed combined balance sheet, the estimated purchase consideration has been allocated to the assets acquired and liabilities assumed from Elkay based upon management’s preliminary estimate of their fair values as of June 30, 2022. Accordingly, the preliminary purchase price allocation and related adjustments reflected in the unaudited pro forma condensed combined financial information are subject to further adjustment as additional information becomes available and as additional analyses and final valuations are completed. There can be no assurances that these additional analyses and final valuations will not result in significant changes to the estimates of fair value set forth below.

The unaudited pro forma condensed combined financial information, including the preliminary purchase price allocation, is presented for illustrative purposes only and does not necessarily reflect the operating results or financial position that would have occurred if the Merger and the 2021 RMT Transaction had been consummated on the dates indicated, nor is it necessarily indicative of the results of operations or financial condition that may be expected for any future period or date. Accordingly, such information should not be relied upon as an indicator of future performance, financial condition or liquidity.

Note 2 - Reclassification Adjustments

Certain items included in the Elkay historical consolidated financial statements have been reclassified to conform to Zurn’s financial statement presentation.

Balance Sheet Reclassifications:

The following items represent certain reclassification adjustments to conform Elkay's consolidated balance sheet to Zurn’s condensed consolidated balance sheet presentation, which have no impact on net assets and are summarized below (in millions):

Exhibit 99.3


		Six Months Ended June 30, 2022		Six Months Ended June 30, 2022
Zurn Presentation	Elkay Presentation	Zurn (Historical)		Elkay (Historical)		Reclassification Amount			Elkay (as adjusted)
ASSETS	ASSETS
Current assets:	Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	110.4	$	23.7	$	—		$	23.7
Receivables, net	Trade and other receivables	188.9		95.2		—			95.2
Inventories	Inventories, net	243.4		116.4		—			116.4
Income taxes receivable	Income tax receivables and other taxes	20.1		1.3		—			1.3
Other current assets	Prepaid expenses and other current assets	25.6		7.6		—			7.6
Total current assets	Total current assets	588.4		244.2		—			244.2
Property, plant and equipment, net	Land, buildings, and equipment - net	61.6		58.4		—			58.4
Intangible assets, net	Intangibles, net	174.8		8.5		—			8.5
Goodwill	Goodwill	252.6		33.7		—			33.7
Insurance for asbestos claims		66.0				—			—
	Operating lease right-of-use assets			44.7		(44.7)		i	—
	Nonqualified plan assets			26.2		(26.2)		i	—
	Deferred tax assets			14.9		(14.9)		i	—
Other assets	Other assets	32.9		4.3		70.9		i	75.2
Total assets	Total assets	$	1,176.3	$	434.9	$	(14.9)		$	420.0
LIABILITIES AND EQUITY	LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:	Current liabilities:
Current maturities of debt	Current maturities of long term debt	$	5.6	$	48.8	$	—		$	48.8
Trade payables	Accounts payable	126.1		27.1		(2.8)		iii	24.3
Compensation and benefits	Salaries and wages payable	9.2		11.0		6.4		iv	17.4
Current portion of pension and postretirement benefit obligations	Current portion of accrued pension liability	1.3		17.3		—			17.3
	Current operating lease liabilities			4.1		(4.1)		v	—
	Customer deposits and other contract liabilities			0.5		(0.5)		v	—
	Due to Affiliates			0.2		(0.2)		v	—
	Current portion of nonqualified plan liabilities			23.7		(23.7)		v	—
Other current liabilities	Accrued expenses and other current liabilities	99.0		35.1		24.9		iii, iv, vi	60.0
Total current liabilities	Total current liabilities	241.2		167.8		—			167.8
Long-term debt	Long term debt, less current maturities	531.9		—		—			—
Pension and postretirement benefit obligations		55.9				0.6		vi	0.6

Deferred income taxes		9.9				(14.9)		ii	(14.9)
Operating lease liability	Noncurrent operating lease liabilities	5.9		49.9		—			49.9
Reserve for asbestos claims		66.0				—			—
Other liabilities	Accrued pension and other liabilities	36.1		3.8		(0.6)		vi	3.2
Total liabilities	Total liabilities	946.9		221.5		(14.9)			206.6
Equity:	Divisional equity:
Stockholders' Equity:	Divisional equity:
Common Stock, $0.01 Par Value		1.3				—			—
Additional paid-in capital		1,438.3				33.2		vii	33.2
Retained (deficit) earnings		(1,135.3)				197.4		vii	197.4
	Divisional equity			230.6		(230.6)		vii	—
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(74.9)		(17.2)		—			(17.2)
Total Stockholders' Equity	Total Divisional equity	229.4		213.4		—			213.4
Total Liabilities and Equity	Total liabilities and divisional equity	$	1,176.3	$	434.9	$	(14.9)		$	420.0

(i)To reclassify operating lease right-of-use assets and nonqualified plan assets to other assets.

(ii)To reclassify deferred tax assets to deferred income taxes.

(iii)To reclassify commissions payable from accounts payable to other current liabilities.

Exhibit 99.3

(iv)To reclassify certain accrued expense balances from accrued expenses and other current liabilities to compensation and benefits.

(v)To reclassify current operating lease liabilities, current portion of nonqualified plan liabilities, due to affiliates and customer deposits and other contract liabilities to other current liabilities.

(vi)To reclassify pension related balances from accrued pension and other liabilities to pension and postretirement benefit obligations.

(vii)To reclassify divisional equity to additional paid-in-capital and retained (deficit) earnings.

Statement of Operations Reclassifications:

The following items represent certain reclassification adjustments to conform Elkay's consolidated statement of operations for the six months ended June 30, 2022 to Zurn’s condensed consolidated statement of operations presentation for the six months ended June 30, 2022, which have no impact on net income and are summarized below (in millions):


		Six Months Ended June 30, 2022		Six Months Ended June 30, 2022
Zurn Presentation	Elkay Presentation	Zurn (Historical)		Elkay (Historical)		Reclassification Amount			Elkay (as adjusted)
Net sales	Net sales	$	523.8	$	298.7	$	—		$	298.7
Cost of sales	Cost of products sold	308.1		208.6		(12.0)		i	196.6
Gross profit	Gross profit	215.7		90.1		12.0			102.1
Selling, general and administrative expenses		112.3				90.2		i, ii, iii	90.2
	Selling			40.8		(40.8)		ii	—
	Administrative and general			28.7		(28.7)		ii	—
Restructuring and other similar charges	Restructuring	1.4		1.9		—			1.9
	Transaction costs			10.0		(10.0)		ii	—
Amortization of intangible assets		4.6				1.3		iii	1.3
Income from operations	Operating income	97.4		8.7		—			8.7
Non-operating (expense) income:	Non-operating (expense) income:
Interest expense, net	Interest expense	(10.0)		(1.0)		—			(1.0)


	Investment income			0.1		(0.1)		iv	—
Other (expense) income, net	Other income, net	(0.3)		1.5		0.1		iv	1.6
Income from continuing operations before income taxes	Income before income taxes	87.1		9.3		—			9.3
Provision for income taxes	Income tax expense	(21.3)		(4.7)		—			(4.7)
Net income from continuing operations		$	65.8	$	4.6	$	—		$	4.6
Income from discontinued operations, net of tax		0.8		—		—			—
Net income	Net income	$	66.6	$	4.6	$	—		$	4.6

(i)To reclassify warehouse costs from cost of products sold to selling, general and administrative expenses.

(ii)To reclassify selling, administrative and general and transaction costs to selling, general and administrative expenses.

(iii)To reclassify amortization expense from selling and administrative and general expenses to amortization of intangible assets.

(iv)To reclassify investment income to other (expense) income, net.

Exhibit 99.3

The following items represent certain reclassification adjustments to conform Elkay's consolidated statement of operations for the year ended January 1, 2022 to Zurn’s condensed consolidated statement of operations presentation for the year ended December 31, 2021, which have no impact on net income and are summarized below (in millions):


		Year Ended December 31,, 2021		Year Ended January 1, 2022
Zurn Presentation	Elkay Presentation	Zurn (Historical)		Elkay (Historical)		Reclassification Amount			Elkay (as adjusted)
Net sales	Net sales	$	910.9	$	566.8	$	—		$	566.8
Cost of sales	Cost of products sold	537.7		372.9		(21.3)		i	351.6
Gross profit	Gross profit	373.2		193.9		21.3			215.2
Selling, general and administrative expenses		239.0				163.8		i, ii, iii	163.8
	Selling			84.4		(84.4)		ii	—
	Administrative and general			59.4		(59.4)		ii	—
Restructuring and other similar charges		3.7				—			—

Amortization of intangible assets		23.5				1.3		iii	1.3
Income from operations	Operating income	107.0		50.1		—			50.1
Non-operating (expense) income:	Non-operating (expense) income:
Interest expense, net	Interest expense	(34.7)		(0.2)		—			(0.2)
Loss on the extinguishment of debt		(20.4)				—			—
Actuarial gain (loss) on pension and postretirement benefit obligations		1.2				—			—
	Investment income			7.1		(7.1)		iv	—
Other (expense) income, net	Other income (expense), net	(0.7)		1.2		7.1		iv	8.3
Income from continuing operations before income taxes	Income before income taxes	52.4		58.2		—			58.2
Provision for income taxes	Income tax expense	(2.7)		(12.0)		—			(12.0)
Net income from continuing operations		$	49.7	$	46.2	$	—		$	46.2
Income from discontinued operations, net of tax		71.2		—		—			—
Net income	Net income	$	120.9	$	46.2	$	—		$	46.2

(i)To reclassify warehouse costs from cost of products sold to selling, general and administrative expenses.

(ii)To reclassify selling and administrative and general to selling, general and administrative expenses.

(iii)To reclassify amortization expense from selling and administrative and general expenses to amortization of intangible assets.

(iv)To reclassify investment income to other (expense) income, net.

Exhibit 99.3

Note 3 - Preliminary Purchase Price Allocation

The table below summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, as if the Merger had been completed on June 30, 2022. The allocation has not been finalized. The final determination of the estimated fair values, the assets’ useful lives and the amortization methods are dependent upon certain valuations and other analyses that have not yet been completed, and as previously stated could differ materially from the amounts presented in the unaudited pro forma condensed combined financial information. The final determination will be completed as soon as practicable but no later than one year after the consummation of the Merger.

The fair value of the purchase consideration expected to be transferred upon closing includes the value of the estimated equity consideration, which is based on the volume weighted average share price of Zurn Common Stock issued to the stockholders of Elkay in the period starting on the tenth consecutive full trading day prior to closing and ending on the second full trading day prior to closing. The unaudited pro forma condensed combined financial information includes estimated total consideration of approximately $1,462.9 million, including approximately $1,417.0 million of Zurn Common Stock based on Zurn's closing share price of $27.48 on July 1, 2022, and net cash payments of $45.9 million for the repayment of Elkay's debt and transaction related costs outstanding that were in excess of Elkay's cash and cash equivalents balance at the time of closing. The Merger Agreement provides for closing working capital and other adjustments, which are not reflected in the combined company unaudited proforma condensed combined financial information at June 30, 2022, and therefore the purchase price consideration may change significantly between the date of these pro forma financial statements.

The preliminary purchase price allocation is presented below (in millions):


	As of June 30, 2022
Assets acquired:
Receivables, net	95.2
Inventories	138.6
Income taxes receivable	7.3
Other current assets	7.6
Property, plant and equipment, net	146.6
Intangible assets, net	860.7
Goodwill	519.2
Other assets	75.2
Total assets acquired	1,850.4
Liabilities assumed:
Trade payables	24.3
Compensation and benefits	17.4
Current portion of pension and postretirement benefit obligations	17.3
Other current liabilities	59.8
Operating lease liability	49.9
Pension and postretirement benefit obligations	0.6
Deferred income taxes	215.0
Other liabilities	3.2
Total liabilities assumed	387.5
Total estimated consideration	$	1,462.9

Any increase or decrease in the fair value of the net assets acquired, as compared to the information shown herein, could also change the portion of the purchase consideration allocable to goodwill and could impact the operating results of the combined company following the Merger due to differences in the allocation of the purchase consideration and changes in the depreciation and amortization related to some of these assets and liabilities.

Note 4 - Merger Adjustments

Unaudited Pro Forma Condensed Combined Balance Sheet

A.Reflects the adjustment to cash and cash equivalents for the repayment of Elkay's outstanding debt balance of $48.8 million and the cash payment of $20.8 million of Elkay's outstanding transaction related costs.

Exhibit 99.3

B.Reflects the $22.2 million adjustment to inventories for the estimated step-up in the fair value of inventory acquired, valued using a comparative sales method. The calculated value is preliminary and and subject to change and could vary materially from the final purchase price allocation.

C.Reflects the $6.0 million adjustment to income taxes receivable associated with the estimated income tax benefits associated with the recognition of Elkay transaction costs that are not reflected in the historical financial statements and the $226.6 million adjustment to deferred income taxes for the estimated income tax impacts of the pro forma adjustments calculated using a blended statutory income tax rate of 24%. The adjustment to deferred income taxes is preliminary and subject to change based on the final determination of the fair values of assets acquired and liabilities assumed.

D.Reflects the $88.2 million adjustment to property, plant and equipment, net for the estimated step-up in the fair value of property, plant and equipment acquired, which consists of the following (in millions):


	As of June 30, 2022
	Fair Value		Remaining Average Useful Life (in years)
Land and improvements	$	7.3	N/A
Buildings and improvements	39.1		15
Machinery and equipment	100.2		9
Fair value of property, plant and equipment acquired	146.6

Less: Elkay historical net property, plant and equipment	(58.4)
Net adjustment to property, plant and equipment	$	88.2

E.Reflects the $852.2 million adjustment to intangible assets, net for the estimated fair value of intangible assets acquired, which consists of the following (in millions):


	As of June 30, 2022
	Fair Value		Estimated Useful Life (in years)
Trade name	$	168.7	15-20
Customer relationships	691.8		16
Favorable leases	0.2		5
Fair value of intangible assets acquired	860.7

Less: Elkay historical intangible assets, net	(8.5)
Net adjustment to intangible assets, net	$	852.2

The fair value estimates of the identifiable intangible assets are preliminary and are based upon assumptions that market participants would use in pricing an asset. The fair value of customer relationships was valued using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from Elkay's existing customer base. The Elkay trade name was valued using the relief from royalty method, which considers both the market approach and the income approach. The calculated value is preliminary and subject to change and could vary materially from the final purchase allocation.

F.Reflects the $485.5 million adjustment to goodwill resulting from the Merger.

G.Reflects the accrual of $33.6 million for estimated Zurn Merger-related costs expected to be incurred by Zurn that were not reflected in the historical financial statements offset by the payment of $0.2 million of Elkay's transaction related costs accrued within the historical Elkay financial statements that were paid by Zurn.

Exhibit 99.3

H.Reflects the net adjustments to stockholders' equity, which consist of the following (in millions):


	As of June 30, 2022
	Common Stock		Additional Paid-in-Capital		Retained Deficit		Accumulated Other Comprehensive Loss
Elkay historical equity (i)	$	—	$	(33.2)	$	(197.4)	$	17.2
Zurn Merger-related costs (ii)	—		—		(30.3)		—
Issuance of Zurn Common Stock (iii)	0.5		1,416.5		—		—
Net adjustment to stockholders' equity	$	0.5	$	1,383.3	$	(227.7)	$	17.2

i.Reflects the elimination of Elkay's equity as of June 30, 2022.

ii.Reflects the Zurn Merger-related costs, net of a $3.3 million tax benefit, expected to be incurred by Zurn in connection with the Merger closing.

iii.Reflects the shares of Zurn Common Stock issued as purchase consideration in the Merger.

Unaudited Pro Forma Condensed Combined Statements of Operations

I.Reflects the adjustment to cost of sales of $22.2 million for the year ended December 31, 2021 resulting from the amortization of the estimated step-up in fair value of Elkay's inventory. This adjustment will not affect the combined statement of operations beyond twelve months after the acquisition date.

J.Reflects the adjustment to cost of sales and selling, general and administrative expenses of $3.9 million and $1.3 million, respectively, for the six months ended June 30, 2022 and $9.2 million and $3.4 million, respectively, for the year ended December 31, 2021 for the incremental depreciation expense, calculated on a straight-line basis, resulting from the step-up in fair value of Elkay's property, plant and equipment, net. The calculated value is preliminary and subject to change and could vary significantly upon completion of the purchase price allocation.

K.Adjustment to selling, general and administrative expenses for the year ended December 31, 2021 of $33.6 million for estimated Merger-related costs expected to be incurred by Zurn and $29.6 million for estimated Merger-related costs expected to be incurred by Elkay that are not reflected in the historical financial statements, which consist of professional, legal and other Merger-related fees. In addition, adjustment for the year ended December 31, 2021 also includes $10.0 million of Merger-related costs which were recognized by Elkay during the six months ended June 30, 2022. These expenses are removed from the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2022 as these costs will not affect the combined statement of operations beyond twelve months after the acquisition date.

L.Reflects the adjustment to amortization of intangible assets of $24.6 million for the six months ended June 30, 2022 and $50.4 million for the year ended December 31, 2021 for the incremental amortization of intangible assets, calculated on a straight-line basis, resulting from the step-up in fair value of Elkay's intangible assets, net. The calculated value is preliminary and subject to change and could vary significantly upon completion of the purchase price allocation.

M.Adjustment to (provision) benefit for income taxes for the six months ended June 30, 2022 of $7.2 million reflects the estimated income tax impacts of the pro forma adjustments calculated using a blended statutory income tax rate of 24%. Adjustment to (provision) benefit for income taxes for the year ended December 31, 2021 of $29.7 million estimated income tax impacts of the pro forma adjustments calculated using a blended statutory income tax rate of 24% as well as the $1.1 million estimated reduction to the valuation allowance relating to certain state net operating loss carryforwards as a result of the combined income of Zurn and Elkay and the associated change in apportionment allocation. The total effective income tax rate of the combined company could be significantly different depending on the post-acquisition geographical mix of income and other factors.

N.Reflects the adjustment to the basic and diluted weighted-average number of common shares outstanding in connection with the number of shares of Zurn Common Stock issued as purchase consideration in the Merger for the six months ended June 30, 2022 and the year ended December 31, 2021. The effect of dilutive equity awards was excluded from the weighted average diluted shares outstanding for the year ended December 31, 2021 due to its anti-dilutive effect resulting from the net loss reflected in the pro forma condensed combined statement of operations.


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


Exhibit No.						Description

23.1						Consent of Grant Thornton LLP.

99.1						The audited carve-out Consolidated Balance Sheets of Elkay as of January 1, 2022 and January 2, 2021, the related Consolidated Statements of Income, Comprehensive Income, Changes in Divisional Equity and Cash Flows for each of the three years in the period ended January 1, 2022, and the notes related thereto (incorporated by reference to the Registration Statement on Form S-4 declared effective on April 26, 2022).

99.2						The unaudited interim carve-out Consolidated Balance Sheets of Elkay as of June 30, 2022, and the related Consolidated Statements of Operations, Comprehensive Income and Cash Flows for each of the six months ended June 30, 2022 and July 3, 2021, and related Consolidated Statement of Changes in Divisional Equity at June 30, 2022, and the notes related thereto.

99.3						The unaudited Pro Forma condensed combined financial information of the Company and Elkay for and as of the six months ended June 30, 2022 and for the year ended December 31, 2021 and the notes related thereto.

104						Cover Page Inline XBRL data embedded within the Inline XBRL document



ZURN ELKAY WATER SOLUTIONS CORPORATION

By:			/S/ Mark W. Peterson
			Mark W. Peterson
			Senior Vice President and Chief Financial Officer


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