ZURN ELKAY WATER SOLUTIONS CORPORATION General
As previously disclosed, onJuly 1, 2022 , we completed our combination withElkay Manufacturing Company ("Elkay") through the merger of Elkay with and into a newly created subsidiary of the Company, with Elkay surviving as a wholly owned subsidiary ofZurn Elkay (the "Merger" or "Elkay Transaction"). In conjunction with the Merger, we changed our name fromZurn Water Solutions Corporation toZurn Elkay Water Solutions Corporation . Our results of operations include the acquired operations subsequent toJuly 1, 2022 . See Item 1, Note 2, Acquisitions, for additional information on the Elkay Transaction. Following the merger with Elkay, Zurn Elkay is a growth-oriented, pure-play water management business that designs, procures, manufactures, and markets what we believe to be the broadest sustainable product portfolio of specification-driven water management solutions to improve health, human safety and the environment. Our product portfolio includes professional grade water control and safety, water distribution and drainage, drinking water, finish plumbing, hygienic, environmental and site works products for public and private spaces that deliver superior value to building owners, positively impact the environment and human hygiene and reduce product installation time. Our heritage of innovation and specification has allowed us to provide highly-engineered, mission-critical solutions to customers for decades and affords us the privilege of having long-term, valued relationships with market leaders. We operate in a disciplined way and the Zurn Elkay Business System ("ZEBS"), described below, is our operating philosophy. Grounded in the spirit of continuous improvement, ZEBS creates a scalable, process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of our business.
The following information should be read in conjunction with the audited
consolidated financial statements and notes thereto, along with Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A"), in our Annual Report on Form 10-K for the year ended
Critical Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States ("GAAP"), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Refer to Item 7, MD&A, of our Annual Report on Form 10-K for the year endedDecember 31, 2021 for information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management. Except for the items reported below, management believes that as ofSeptember 30, 2022 , and during the period fromJanuary 1, 2022 throughSeptember 30, 2022 , there has been no material change to this information.
Recent Accounting Pronouncements
See Item 1, Note 1, Basis of Presentation and Significant Accounting Policies regarding recent accounting pronouncements.
Acquisitions
OnJuly 1, 2022 , we completed the Elkay Merger for a preliminary purchase price of$1,462.9 million . Elkay, a market leader of commercial sinks and drinking water solutions, complements our existing product portfolio. The preliminary purchase price includes$1,417.0 million of our common stock based on the closing stock price of$27.48 onJuly 1, 2022 , and$45.9 million of net cash payments for the repayment of Elkay's existing term loan and Elkay's transaction related costs outstanding that were in excess of Elkay's cash and cash equivalents balance at the time of closing. Pursuant to the Merger Agreement, we issued 51,564,524 shares of common stock,$0.01 par value per share, of our common stock, which represented approximately 29% of the 177,746,770 outstanding shares of our common stock immediately following the Merger closing. The total shares of our common stock issued is preliminary and subject to change upon finalization of customary post-closing adjustments with respect to cash, indebtedness and working capital. We incurred transaction-related costs of approximately$33.7 million for the three and nine months endedSeptember 30, 2022 . These costs were associated with legal and professional services and were recognized as selling, general and administrative expenses in our condensed consolidated statements of operations. 28
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OnNovember 17, 2021 , we completed the acquisition of the Wade Drains business ("Wade Drains") fromMcWane, Inc. for a cash purchase price of$12.6 million , excluding transaction costs and net of cash acquired. During the nine months endedSeptember 30, 2022 , we received a$1.1 million cash payment from the sellers ofWade Drains in connection with finalizing the acquisition date trade working capital, which is included in the total cash purchase price above.Wade Drains manufactures a wide range of specified commercial plumbing products for customers acrossNorth America and complements our existing flow systems product portfolio. OnApril 16, 2021 , we acquired substantially all of the assets ofAdvance Technology Solutions, LLC (d/b/a ATS GREASEwatch) ("ATS GREASEwatch") for a total cash purchase price of$4.5 million . ATS GREASEwatch, headquartered inSaginaw, Michigan , develops, manufactures and markets remote tank monitoring devices, alarms, software and services for various applications and provides technology to enhance and expand our current product offerings within our existing product portfolio.
Spin-Off of Process & Motion Control Segment
OnOctober 4, 2021 , we completed aReverse Morris Trust tax-free spin-off transaction (the "Spin-off Transaction") in which (i) substantially all the assets and liabilities of our Process & Motion Control ("PMC") business were transferred to a newly created subsidiary,Land Newco, Inc. ("Land"), (ii) the shares of Land were distributed to our stockholders pro rata, and (iii) Land was merged with a subsidiary of Regal Rexnord Corporation (formerly known as Regal Beloit Corporation), in which the stock of Land was converted into a specified number of shares of Regal Rexnord Corporation. During the nine months endedSeptember 30, 2022 , we received$35.0 million from Regal Rexnord Corporation as a result of the final working capital and cash balances at closing exceeding the targets stipulated in the Spin-Off Transaction agreement.
The operating results of PMC are reported as discontinued operations in our
condensed consolidated statements of operations for all periods presented. The
condensed consolidated statements of cash flows for the period ended
The major components of the Income from discontinued operations, net of tax presented in the condensed consolidated statements of operations for the three and nine months endedSeptember 30, 2022 andSeptember 30, 2021 , are as follows (in millions): Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 2022 2021 2022 2021 Net sales $ -$ 327.5 $ -$ 973.0 Cost of sales - (204.5) - (598.5) Selling, general and administrative expenses - (61.0) - (184.2) Restructuring and other similar charges - (1.3) - (2.1) Amortization of intangible assets - (3.3) - (9.9) Interest expense, net - (1.1) - (4.1) Other non-operating income, net - 3.9 - 5.3 Income from discontinued operations before income tax - 60.2 - 179.5 Income tax (provision) benefit - (12.2) 0.8 (39.0) Equity method investment income - - - 0.3 Non-controlling interest income - - - 0.2 Income from discontinued operations, net of tax $ -$ 48.0
Restructuring and Other Similar Costs
During the three and nine months endedSeptember 30, 2022 , we executed various restructuring initiatives focused on driving efficiencies, reducing operating costs by modifying our footprint to reflect changes in the markets we serve and the impact of acquisitions on our overall manufacturing capacity and the refinement of our overall product portfolio. These restructuring actions primarily resulted in workforce reductions, impairment of related manufacturing facilities, equipment and intangible assets, lease termination costs, and other facility rationalization costs. We expect to continue executing similar initiatives to optimize our operating margin and manufacturing footprint. As such, we expect further expenses related to workforce reductions, lease termination costs, and other facility rationalization costs on our overall manufacturing capacity, and refining our overall product portfolio. For the three and nine months endedSeptember 30, 2022 , restructuring charges totaled$11.7 million and$13.1 million , respectively. For the three and nine months endedSeptember 30, 2021 , restructuring charges totaled$0.7 million and$1.6 million , respectively. Refer to Item 1, Note 3, Restructuring and Other Similar Charges for further information. 29
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Table of Contents Results of Operations Three Months EndedSeptember 30, 2022 compared with the Three Months EndedSeptember 30, 2021 : Net sales (Dollars in Millions) Three Months Ended September 30, 2022 September 30, 2021 Change % Change Net Sales$ 417.7 $ 229.7$ 188.0 81.8 % Net sales were$417.7 million and$229.7 million during the three months endedSeptember 30, 2022 andSeptember 30, 2021 , respectively, an increase of 82% year-over-year. Excluding a 67 % increase in sales associated with our combination with Elkay and prior year acquisition ofWade Drains and a 1% decrease in sales associated with foreign currency translation, core sales increased 16% year-over-year as nearly all of our product categories, with the exception of products sold into the residential end market, contributed to the sales growth. Income (loss) from operations (Dollars in Millions) Three Months Ended September 30, 2022 September 30, 2021 Change % Change (Loss) income from operations $ (10.1) $ 32.5$ (42.6) (131.1) % % of net sales (2.4) % 14.1 % (16.6) % During the three months endedSeptember 30, 2022 , we generated a loss from operations of$(10.1) million compared to income from operations of$32.5 million during the three months endedSeptember 30, 2021 . The year-over-year change is primarily the result of transaction related costs related to the Elkay Merger and higher intangible asset and other acquisition related amortization and restructuring costs following our combination with Elkay. These costs were partially offset by the favorable impact of year-over-year sales growth (inclusive of price realization) and productivity savings.
Interest expense, net
Interest expense, net was$8.0 million for the three months endedSeptember 30, 2022 , compared to$9.9 million for the three months endedSeptember 30, 2021 . The decrease in interest expense as compared to the prior year period is primarily a result of the lower outstanding borrowings following the Spin-Off Transaction refinancing, partially offset by a higher year-over-year interest rate. See Item 1, Note 13 Long-Term Debt for more information.
Other income (expense), net
Other income (expense), net for the three months endedSeptember 30, 2022 and 2021, was$0.6 million and$(0.8) million , respectively. Other income (expense), net consists primarily of foreign currency transaction gains and losses and the non-service cost components associated with our defined benefit plans.
Provision for income taxes
The income tax provision was$1.6 million for the three months endedSeptember 30, 2022 , compared to$5.7 million for the three months endedSeptember 30, 2021 . The effective income tax rate for the three months endedSeptember 30, 2022 was (9.1)% versus 26.1% for the three months endedSeptember 30, 2021 . The income tax provision recognized on the loss from operations for the three months endedSeptember 30, 2022 was primarily due to non-deductible transactions costs associated with the Merger, the accrual of foreign income taxes, which are generally above theU.S. federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, and the accrual of various state income taxes, partially offset by the reduction in the valuation allowance associated with certain state net operating loss ("NOL") carryforwards. The effective income tax rate for the three months endedSeptember 30, 2021 was above theU.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above theU.S. federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, and the accrual of various state income taxes, partially offset by the recognition of income tax benefits associated with share-based payments. On a quarterly basis, we review and analyze our valuation allowances associated with deferred tax assets relating to certain foreign and state net operating loss carryforwards as well asU.S. federal and state capital loss carryforwards. In conjunction with this analysis, we weigh both positive and negative evidence for purposes of determining the proper balances 30 -------------------------------------------------------------------------------- Table of Contents of such valuation allowances. Future changes to the balances of these valuation allowances, as a result of our continued review and analysis, could impact the financial statements for such period of change.
Net (loss) income attributable to Zurn Elkay common stockholders
Net loss attributable to Zurn Elkay common stockholders for the three months endedSeptember 30, 2022 , was$19.1 million compared to net income of$64.1 million for the three months endedSeptember 30, 2021 . Diluted net (loss) income per share attributable to Zurn Elkay common stockholders for the three months endedSeptember 30, 2022 andSeptember 30, 2021 , was$(0.11) and$0.51 , respectively. The year over year change is the result of the PMC operations classified as discontinued operations in the prior year and the other factors described above. Net income from discontinued operations, net of tax, was$0.0 million for the three months endedSeptember 30, 2022 compared to$48.0 million for the three months endedSeptember 30, 2021 . Diluted net income per share from discontinued operations for the three months endedSeptember 30, 2022 andSeptember 30, 2021 , was$0.00 and$0.38 , respectively. Nine Months EndedSeptember 30, 2022 compared with the Nine Months EndedSeptember 30, 2021 : Net sales (Dollars in Millions) Nine Months Ended September 30, 2022 September 30, 2021 Change % Change Net Sales $ 941.5 $ 678.6$ 262.9 38.7 % Net sales were$941.5 million during the nine months endedSeptember 30, 2022 , an increase of 39% year over year. Excluding a 24% increase in sales associated with our combination with Elkay and prior year acquisition ofWade Drains , core sales increased 15% year over year as nearly all of our product categories contributed to the sales growth. Income from operations (Dollars in Millions) Nine Months Ended September 30, 2022 September 30, 2021 Change % Change Income from operations 87.3 93.8 (6.5) (6.9) % % of net sales 9.3 % 13.8 % (4.6) % Income from operations was$87.3 million during the nine months endedSeptember 30, 2022 , or 9.3% of net sales. The year over year change is primarily the result of transaction related costs related to the Elkay merger and higher intangible asset and other acquisition related amortization and restructuring costs following our combination with Elkay as well as higher year-over-year costs within transportation and material inputs. These costs were partially offset by the favorable impact of year-over-year sales growth (inclusive of price realization) and productivity savings.
Interest expense, net
Interest expense, net was$18.0 million during the nine months endedSeptember 30, 2022 , compared to$29.6 million during the nine months endedSeptember 30, 2021 . The decrease in interest expense as compared to the prior year period is primarily a result of the lower outstanding borrowings following the Spin-Off Transaction refinancing, partially offset by a higher year over year interest rate. See Item 1, Note 13 Long-Term Debt for more information.
Other income (expense), net
Other income (expense), net during the nine months endedSeptember 30, 2022 and 2021 was$0.3 million and$(0.9) million , respectively. Other income (expense), net consists primarily of foreign currency transaction gains and losses and the non-service cost components associated with our defined benefit plans. 31 -------------------------------------------------------------------------------- Table of Contents Provision for income taxes The income tax provision was$22.9 million for the nine months endedSeptember 30, 2022 , compared to$16.6 million for the nine months endedSeptember 30, 2021 . The effective income tax rate for the nine months endedSeptember 30, 2022 was 32.9% versus 26.2% for the nine months endedSeptember 30, 2021 . The effective income tax rate for the nine months endedSeptember 30, 2022 was above theU.S. federal statutory rate of 21% primarily due to non-deductible transactions costs associated with the Merger, the accrual of foreign income taxes, which are generally above theU.S. federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code and the accrual of various state income taxes, partially offset by the recognition of income tax benefits associated with share-based payments and the reduction in the valuation allowance associated with certain state NOL carryforwards. The effective income tax rate for the nine months endedSeptember 30, 2021 was above theU.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally above theU.S. federal statutory rate, the accrual of additional income taxes associated with compensation deduction limitations under Section 162(m) of the Internal Revenue Code, and the accrual of various state income taxes, partially offset by the recognition of income tax benefits associated with share-based payments.
Net income attributable to Zurn Elkay common stockholders
Net income attributable to Zurn Elkay common stockholders for the nine months endedSeptember 30, 2022 , was$47.5 million compared to$187.3 million for the nine months endedSeptember 30, 2021 . Diluted net income per share attributable to Zurn Elkay common stockholders for the nine months endedSeptember 30, 2022 andSeptember 30, 2021 , was$0.33 and$1.50 , respectively. The year-over-year change is the result of the PMC operations classified as discontinued operations in the prior year and the other factors described above. Net income from discontinued operations, net of tax, was$0.8 million for the nine months endedSeptember 30, 2022 compared to$140.6 million for the nine months endedSeptember 30, 2021 . Diluted net income per share from discontinued operations for the nine months endedSeptember 30, 2022 andSeptember 30, 2021 , was$0.01 and$1.13 , respectively. Non-GAAP Financial Measures Non-GAAP financial measures are intended to supplement and not replace financial measures prepared in accordance with GAAP. The following non-GAAP financial measures are utilized by management in comparing our operating performance on a consistent basis. We believe that these financial measures are appropriate to enhance an overall understanding of our underlying operating performance trends compared to historical and prospective periods and our peers. Management also believes that these measures are useful to investors in their analysis of our results of operations and provide improved comparability between fiscal periods as well as insight into the compliance with our debt covenants. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.
Core sales
Core sales excludes the impact of acquisitions (such as the Wade Drains and Elkay acquisitions), divestitures and foreign currency translation. Management believes that core sales facilitates easier and more meaningful comparisons of our net sales performance with prior and future periods and to our peers. We exclude the effect of acquisitions and divestitures because the nature, size and number can vary dramatically from period to period and between us and our peers, and can also obscure underlying business trends and make comparisons of long-term performance difficult. We exclude the effect of foreign currency translation from this measure because the volatility of currency translation is not under management's control.
EBITDA
EBITDA represents earnings before interest and other debt related activities,
taxes, depreciation and amortization. EBITDA is presented because it is an
important supplemental measure of performance and it is frequently used by
analysts, investors and other interested parties in the evaluation of companies
in our industry. EBITDA is also presented and compared by analysts and investors
in evaluating our ability to meet debt service obligations. Other companies in
our industry may calculate EBITDA differently. EBITDA is not a measurement of
financial performance under GAAP and should not be considered as an alternative
to cash flow from operating activities or as a measure of liquidity or an
alternative to net income as indicators of operating performance or any other
measures of performance derived in accordance with GAAP. Because EBITDA is
calculated before recurring cash charges, including interest expense and taxes,
and is not adjusted for capital expenditures or other recurring cash
requirements of the business, it should not be considered as a measure of
discretionary cash available to invest in the growth of the business.
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Adjusted EBITDA
Adjusted EBITDA (as described below in "Covenant Compliance") is an important
measure because, under our credit agreement, our ability to incur certain types
of acquisition debt and certain types of subordinated debt, make certain types
of acquisitions or asset exchanges, operate our business and make dividends or
other distributions, all of which will impact our financial performance, is
impacted by our Adjusted EBITDA, as our lenders measure our performance with a
net first lien leverage ratio by comparing our senior secured bank indebtedness
to our Adjusted EBITDA (see "Covenant Compliance" for additional discussion of
this ratio, including a reconciliation to our net income). We reported net
income attributable to Zurn Elkay common stockholders in the nine months ended
September 30, 2022 , of $47.5 million and Adjusted EBITDA for the same period of
$200.0 million . See "Covenant Compliance" for a reconciliation of Adjusted
EBITDA to GAAP net income.
Covenant Compliance
Our credit agreement, which governs our senior secured credit facilities, contains, among other provisions, restrictive covenants regarding indebtedness, payments and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and the maintenance of certain financial ratios. Payment of borrowings under the credit agreement may be accelerated if there is an event of default. Events of default include the failure to pay principal and interest when due, a material breach of a representation or warranty, certain non-payments or defaults under other indebtedness, covenant defaults, events of bankruptcy and a change of control. Certain covenants contained in the credit agreement restrict our ability to take certain actions, such as incurring additional debt or making acquisitions, if we are unable to comply with a maximum total net leverage ratio of 5.00 to 1.00 as of the end of each fiscal quarter. AtSeptember 30, 2022 , our net leverage ratio was 1.61 to 1.00. Failure to comply with these covenants could limit our long-term growth prospects by hindering our ability to borrow under the revolver, to obtain future debt and/or to make acquisitions. "Adjusted EBITDA" is the term we use to describe EBITDA as defined and adjusted in our credit agreement, which is net income, adjusted for the items summarized in the table below. Adjusted EBITDA is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding non-operational, non-cash or non-recurring losses or gains. It is also provided to aid investors in understanding our compliance with our debt covenants. Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted EBITDA varies from others in our industry. This measure should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA does not reflect: (a) our capital expenditures, future requirements for capital expenditures or contractual commitments; (b) changes in, or cash requirements for, our working capital needs; (c) interest expenses, or the cash requirements necessary to service interest or principal payments, on our debt; (d) tax payments that represent a reduction in cash available to us; (e) any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; or (f) the impact of earnings or charges resulting from matters that we and the lenders under our credit agreement may not consider indicative of our ongoing operations. In particular, our definition of Adjusted EBITDA adds back certain non-cash, non-operating or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these excluded expenses can represent the reduction of cash that could be used for other corporate purposes. Further, although not included in the calculation of Adjusted EBITDA below, the measure may at times allow us to add estimated cost savings and operating synergies related to operational changes ranging from acquisitions or dispositions to restructuring, and/or exclude one-time transition expenditures that we anticipate we will need to incur to realize cost savings before such savings have occurred.
The calculation of Adjusted EBITDA under our credit agreement as of
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Set forth below is a reconciliation of net income attributable to Zurn Elkay common stockholders to Adjusted EBITDA for the periods indicated below.
Nine months Twelve months Nine months Twelve months
ended ended ended ended
September 30, December 31, September 30, September 30,
(in millions) 2021 2021 2022 2022
Net income (loss) attributable to Zurn
Elkay common stockholders $ 187.3 $ 120.9 $ 47.5 $ (18.9)
Income (loss) from discontinued
operations, net of tax (1) (140.6) (71.2) (0.8) 68.6
Provision for income taxes 16.6 2.7 22.9 9.0
Actuarial gain on pension and
postretirement benefit obligations - (1.2) - (1.2)
Other expense (income), net (2) 0.9 0.7 (0.3) (0.5)
Loss on the extinguishment of debt - 20.4 - 20.4
Interest expense 29.6 34.7 18.0 23.1
Depreciation and amortization 24.6 32.7 30.9 39.0
EBITDA 118.4 139.7 118.2 139.5
Adjustments to EBITDA
Restructuring and other similar charges
(3) 1.6 3.7 13.1 15.2
Stock-based compensation expense 23.2 37.5 15.5 29.8
Merger costs (4) - - 33.7 33.7
LIFO expense (5) 6.9 14.1 4.0 11.2
Acquisition-related fair value adjustment 0.6 0.8 15.2 15.4
Other, net (6) - - 0.3 0.3
Subtotal of adjustments to EBITDA 32.3 56.1 81.8 105.6
Adjusted EBITDA $ 150.7 $
195.8
52.3
Pro forma Adjusted EBITDA 297.4
Consolidated indebtedness (8) $ 478.7
Total net leverage ratio (9) 1.61
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(1)Income from discontinued operations, net of tax is not included in Adjusted EBITDA in accordance with the terms of our credit agreement.
(2)Other expense (income), net for the periods indicated, consists primarily of gains and losses from foreign currency transactions and the non-service cost components of net periodic benefit costs associated with our defined benefit plans.
(3)Restructuring and other similar charges is comprised of costs associated with workforce reductions, lease termination costs, and other facility rationalization costs. See Item 1, Note 3, Restructuring and Other Similar Charges for more information.
(4)Merger costs is comprised of costs associated with legal and other professional services incurred in connection with completing the merger with Elkay, which are excluded in calculating Adjusted EBITDA as defined in our credit agreement.
(5)Last-in first-out (LIFO) inventory adjustments are excluded in calculating Adjusted EBITDA as defined in our credit agreement.
(6)Other, net consists of gains and losses on the disposition of long-lived assets.
(7)Represents a pro forma adjustment to include Adjusted EBITDA related to the acquisition ofWade Drains and Elkay, which was permitted by our credit agreement. The pro forma adjustment includes the period fromOctober 1, 2021 , through the date of the Wade Drains and Elkay acquisitions. See Item 1, Note 2, Acquisitions for more information. (8)Our credit agreement defines our consolidated indebtedness as the sum of all indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of indebtedness for borrowed money and capitalized lease obligations, less unrestricted cash, which was$58.3 million (as defined by the credit agreement) atSeptember 30, 2022 .
(9)Our credit agreement defines the total net leverage ratio as the ratio of consolidated indebtedness (as described above) to Adjusted EBITDA for the trailing four fiscal quarters.
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Liquidity and Capital Resources
Our primary sources of liquidity are available cash and cash equivalents, cash
flow from operations, and borrowing availability of up to $200.0 million under
our revolving credit facility.
As of September 30, 2022 , we had $71.9 million of cash and cash equivalents
and $192.4 million of additional borrowing capacity. As of September 30, 2022 ,
the available borrowings under our credit facility were reduced by $7.6 million
due to outstanding letters of credit. As of December 31, 2021 , we had $96.6
million of cash and cash equivalents and approximately $193.9 million of
additional borrowing capacity under our revolving credit facility.
Our revolving credit facility is available to fund our working capital requirements, capital expenditures and for other general corporate purposes. We believe this resource is adequate for our expected needs.
Cash Flows
Cash flows for the period endedSeptember 30, 2021 include our continuing operations and discontinued operations for the entire period, while the period endedSeptember 30, 2022 only includes the cash flows associated with continuing operations. Refer to Item 1, Note 4, Discontinued Operations for further information. Cash provided by operating activities was$12.6 million and$245.8 million during the nine months endedSeptember 30, 2022 and 2021, respectively. The change in year-over-year operating cash flows was primarily the result of higher trade working capital and the impact of timing of payments on accounts payable and accrued expenses, including the payment of merger related costs in connection with the acquisition of Elkay during the nine months endedSeptember 30, 2022 . In addition, cash provided by operating activities for the nine months endedSeptember 30, 2021 includes cash flows associated with our discontinued operations that are not included in the nine months endedSeptember 30, 2022 . Cash used for investing activities was$12.8 million during the nine months endedSeptember 30, 2022 and$6.5 million during the nine months endedSeptember 30, 2021 . Investing activities during the nine months endedSeptember 30, 2022 , included$4.3 million of capital expenditures and net cash payments of$44.8 million in connection with acquisitions, which were partially offset by the receipt of$35.0 million from Regal Rexnord Corporation in connection with the final net assets transferred in the PMC Spin-Off Translation and the receipt of$1.3 million in connection with the sale of certain long-lived assets. Investing activities during the nine months endedSeptember 30, 2021 , primarily included$21.6 million of capital expenditures and net cash payments of$3.4 million in connection with our acquisition of ATS GREASEwatch and our 2020 acquisition of Hadrian, partially offset by the receipt of$18.5 million in connection with the sale of certain long-lived assets associated with our discontinued operations. Cash used for financing activities was$23.1 million during the nine months endedSeptember 30, 2022 , compared to$13.1 million during the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2022 , we utilized a net$4.4 million of cash for payments on outstanding debt and$20.1 million for the payment of common stock dividends, which was partially offset by$1.4 million of proceeds from the exercise of stock options, net of taxes withheld and paid on employees' share-based awards. During the nine months endedSeptember 30, 2021 , we utilized$1.7 million of cash for payments on outstanding debt,$32.6 million for the payment of common stock dividends and$0.9 million to repurchase common stock, which was partially offset by$22.1 million of cash proceeds from the exercise of stock options, net of taxes withheld and paid on employees' share-based awards.
Indebtedness
As of
Total Debt at Long-term
September 30, 2022 Current Maturities of Debt Portion
Term loan (1) $ 536.3 $ 5.5 $ 530.8
Finance leases 0.7 0.2 0.5
Total $ 537.0 $ 5.7 $ 531.3 ___________________________________________
(1)Includes unamortized debt issuance costs of
See Item 1, Note 13, Long-Term Debt for a description of our outstanding indebtedness.
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