General


  Prior to the completion of the Transaction (as defined below), we operated two
platforms: Process & Motion Control and Water Management. The Process & Motion
Control platform designs, manufactures, markets and services a comprehensive
range of specified, highly-engineered mechanical components used within complex
systems where our customers' reliability requirements and costs of failure or
downtime are high. The Process & Motion Control portfolio includes motion
control products, shaft management products, aerospace components, and related
value-added services.
  After completion of the Transaction (as defined below), Zurn is a
growth-oriented, pure-play water business that designs, procures, manufactures,
and markets what we believe is the broadest sustainable product portfolio of
solutions to improve health, human safety and the environment. Our product
portfolio includes professional grade water control and safety, water
distribution and drainage, finish plumbing, hygienic and environmental and site
works products for public and private spaces. Our heritage of innovation and
specification have 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 Business System ("ZBS") is our operating philosophy. Grounded
in the spirit of continuous improvement, ZBS 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 Transition Report on Form 10-K for the nine month transition period ended December 31, 2020 (the "Transition Period"). Fiscal Year


  Following the end of our fiscal 2020, we transitioned from a March 31 fiscal
year-end date to a December 31 fiscal year-end date. Throughout this MD&A, we
refer to the period from July 1, 2020 through September 30, 2020, as the "three
months ended September 30, 2020" or the "quarter ended September 30, 2020." We
refer to the period from July 1, 2021 through September 30, 2021, as the "three
months ended September 30, 2021" or the "quarter ended September 30, 2021."
Spin-Off of Process & Motion Control Segment
As previously disclosed, on February 15, 2021, we entered into definitive
agreements with Regal Rexnord Corporation (formerly known as Regal Beloit
Corporation) ("Regal"), Land Newco, Inc., then a wholly-owned indirect
subsidiary of the Company ("Land"), and Phoenix 2021, Inc., a wholly-owned
subsidiary of Regal ("Merger Sub"), with respect to a Reverse Morris Trust
transaction (the "Transaction"), pursuant to which, and subject to the terms and
conditions of the definitive agreements entered into among the parties, (1) we
transferred (or caused to be transferred) to Land substantially all of the
assets, and Land assumed substantially all of the liabilities, of our Process &
Motion Control segment ("PMC"), (2) after which, all of the issued and
outstanding shares of common stock, $0.01 par value per share, of Land ("Land
common stock") held by a subsidiary of the Company were distributed in a series
of distributions to our stockholders (the "Distributions", and the final
distribution of Land common stock from the Company to the Company's
stockholders, which was made pro rata for no consideration, the "Spin-Off") and
(3) immediately after the Spin-Off, Merger Sub merged with and into Land (the
"Merger") and all shares of Land common stock (other than those held by the
Company, Land, Regal, Merger Sub or their respective subsidiaries) were
converted into the right to receive shares of the common stock, $0.01 par value
per share, of Regal, as calculated and subject to adjustment as set forth in the
merger agreement entered into among the parties (the "Merger Agreement").
The Transaction closed on October 4, 2021. Following completion of the
Transaction, we changed our name to "Zurn Water Solutions Corporation"; shares
of our common stock trade on the New York Stock Exchange under the ticker symbol
"ZWS".

The following discussion of the results of operations and financial condition
for the periods ending September 30, 2021 and September, 30, 2020 reflects the
combined PMC and WM operating segments. In accordance with authoritative
guidance, beginning in our fourth quarter of 2021, the operating results of the
PMC business will be reported as discontinued operations in the consolidated
financial statements for all periods presented following the close of the
Transaction.

Critical Accounting Policies and Estimates


  The condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
("U.S. 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
                                       37
--------------------------------------------------------------------------------
  Table of Contents
reported. Actual results could differ from those estimates. Refer to Item 7,
MD&A of our Transition Report on Form 10-K for the Transition Period 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 of September 30, 2021, and during the period
from January 1, 2021 through September 30, 2021, 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.
COVID-19 Pandemic
The ongoing coronavirus ("COVID-19") pandemic and the actions taken by various
governments and third parties to combat the spread of COVID-19 (including, in
some cases, mandatory quarantines and other suspensions of non-essential
business operations) have led to disruptions in our manufacturing and
distribution operations and supply chains, including temporary reductions or
suspensions of operations at some of our manufacturing and distribution
locations around the world. In addition, our suppliers, business partners and
customers have also experienced similar negative impacts from the COVID-19
pandemic. As of September 30, 2021, all of our global facilities were operating
with only intermittent interruptions and we are not currently experiencing any
significant issues with respect to our distribution operations and supply
chains. We remain focused on the health and well-being of our associates and
have undertaken numerous actions within our offices and manufacturing sites that
are intended to minimize the spread of COVID-19, including implementing work
from home policies, establishing social distancing protocols for associates
while at work and providing associates with access to numerous collaboration and
productivity tools to facilitate communication in lieu of travel and
face-to-face meetings.

In order to reduce our cash outflows during this period of uncertainty and
economic volatility, we implemented workforce reductions in 2020 and reductions
of non-essential spending. Our objective with respect to these actions was to
attempt to control the downside risk to our financial results, while ensuring
that we maintain the capacity and flexibility to fully participate in the
recovery. While the duration of the COVID-19 pandemic is currently unknown and
it is not possible at this time to estimate the scope and severity of the impact
that the pandemic could have on our operations, the measures taken, and those
that may be taken in the future, by the governments of countries affected,
actions taken to protect employees, actions taken to shutdown or temporarily
discontinue operations in certain locations, changes in customer buying patterns
and the impact of the pandemic on various business activities in affected
countries and the economy generally, it could adversely affect our financial
condition, results of operations and cash flows.
Acquisitions and Divestiture
On April 16, 2021, we acquired substantially all of the assets of Advance
Technology Solutions, LLC (d/b/a ATS GREASEwatch) ("ATS GREASEwatch") for a
total cash purchase price of $4.5 million. ATS GREASEwatch, headquartered in
Saginaw, Michigan, develops, manufactures and markets remote tank monitoring
devices, alarms, software and services for various applications and provides
technology to enhance and expand our current product offerings within our
existing Water Management platform.
On December 11, 2020, we acquired substantially all of the assets of Hadrian
Manufacturing Inc. and 100% of the stock of Hadrian, Inc. (collectively,
"Hadrian") for a total cash purchase price of $101.3 million. Hadrian, based in
Burlington, Ontario, Canada, manufactures washroom partitions and lockers
primarily used in institutional and commercial end markets and complements our
existing Water Management platform.
On November 24, 2020, we acquired the remaining non-controlling interest in
a joint venture for a cash purchase price of $0.3 million. The acquisition of
the remaining minority interest was not material to the Company's consolidated
statements of operations or financial position.
On October 1, 2020, we completed the sale of our gearbox product line in China
within our Process & Motion Control platform for aggregate cash consideration of
$5.8 million. The gearbox product line was not material to the Company's
consolidated statements of operations or financial position and did not meet the
criteria to be presented as discontinued operations.
On January 28, 2020, we acquired substantially all of the assets of Just
Manufacturing Company ("Just Manufacturing") for a cash purchase price of
$59.4 million, excluding transaction costs and net of cash acquired. Just
Manufacturing, based in Franklin Park, Illinois, manufactures stainless steel
sinks and plumbing fixtures primarily used in institutional and commercial end
markets and complements our existing Water Management platform.
On May 10, 2019, we acquired substantially all of the assets of
StainlessDrains.com, a manufacturer of stainless steel drains, grates and
accessories for industrial and commercial end markets, for a cash purchase price
of $24.8 million.
                                       38
--------------------------------------------------------------------------------
  Table of Contents
StainlessDrains.com, headquartered in Greenville, Texas, added complementary
product lines to our existing Water Management platform.

Restructuring and Other Similar Costs


  During the three and nine months ended September 30, 2021, we continued to
execute 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 we continue to evaluate the impact of the ongoing
COVID-19 pandemic and the resulting effects on the global economy, we may also
execute additional restructuring actions. 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 ended September 30,
2021, restructuring charges totaled $2.0 million and $3.7 million, respectively.
For the three and nine months ended September 30, 2020, restructuring charges
totaled $6.6 million and $14.9 million, respectively. Refer to Item 1, Note 3,
Restructuring and Other Similar Charges for further information.

Results of Operations
Three Months Ended September 30, 2021 compared with the Three Months Ended
September 30, 2020:
Net sales
(Dollars in Millions)
                                        Three Months Ended
                            September 30, 2021      September 30, 2020       Change      % Change
Process & Motion Control   $        327.5          $             293.9      $ 33.6         11.4  %
Water Management                    229.7                        199.7        30.0         15.0  %
 Consolidated              $        557.2          $             493.6      $ 63.6         12.9  %


Process & Motion Control
  Process & Motion Control net sales were $327.5 million during the three months
ended September 30, 2021, an increase of 11% as compared to the prior year.
Excluding a 1% increase to net sales associated with foreign currency
translation and a 2% decrease from a small divestiture, core sales increased by
12% year over year driven by growth across nearly all product categories and
geographies.
Water Management
  Water Management net sales were $229.7 million during the three months ended
September 30, 2021, an increase of 15% year over year. Excluding a 1% increase
to net sales associated with foreign currency transaction and a 9% increase in
net sales resulting from our prior-year acquisition of Hadrian, core sales
increased 5% year over year driven by increased demand across nearly all of our
product categories that was partially offset by temporary transportation
capacity related constraints.
Income from operations
(Dollars in Millions)
                                        Three Months Ended
                            September 30, 2021      September 30, 2020       Change       % Change
Process & Motion Control   $           57.3        $           35.8         $ 21.5          60.1  %
  % of net sales                       17.5   %                12.2    %       5.3  %
Water Management                       48.6                    48.7           (0.1)         (0.2) %
  % of net sales                       21.2   %                24.4    %      (3.2) %
Corporate                             (16.0)                  (12.1)          (3.9)        (32.2) %
  Consolidated             $           89.9        $           72.4         $ 17.5          24.2  %
    % of net sales                     16.1   %                14.7    %       1.4  %


                                       39

--------------------------------------------------------------------------------
  Table of Contents
Process & Motion Control
  Process & Motion Control income from operations during the three months ended
September 30, 2021 was $57.3 million, or 17.5% of net sales. Income from
operations as a percentage of net sales increased by 530 basis points year over
year due to benefits from cost reduction and productivity initiatives, the
favorable impact of year over year sales growth, and the reduction of
restructuring expense year over year, partially offset by the benefit of
temporary cost reduction actions in the prior year third quarter in response to
the COVID-19 pandemic.
Water Management
  Water Management income from operations was $48.6 million during the three
months ended September 30, 2021, or 21.2% of net sales. Income from operations
as a percentage of net sales decreased by 320 basis points year over year as the
favorable impact of year over year sales growth was more than offset by the mix
impact of the Hadrian acquisition, the year-over-year change in the adjustment
to state inventories at last-in-first-out cost, higher year-over-year non-cash
stock based compensation expense and the benefit of temporary cost reduction
actions in the prior year third quarter in response to the COVID-19 pandemic.

Corporate


  Corporate expenses were $16.0 million and $12.1 million during the three
months ended September 30, 2021 and 2020, respectively. The increase in
corporate expenses during the three months ended September 30, 2021, is
primarily the result of higher year-over-year non-cash stock based compensation
expense and lower spending and cost reduction actions taken in the prior year in
response to the COVID-19 pandemic.
Interest expense, net

Interest expense, net was $11.0 million during the three months ended September 30, 2021, compared to $11.5 million during the three months ended September 30, 2020. The decrease in interest expense as compared to the prior year's period is primarily a result of the impact of lower average interest rates. See Item 1, Note 12 Long-Term Debt for more information. Other (expense) income, net


  Other (expense) income, net during the three months ended September 30, 2021
and 2020, was $(0.7) million and $0.6 million, respectively. Other (expense)
income, 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 $17.9 million in the three months ended
September 30, 2021, compared to $16.1 million in the three months ended
September 30, 2020. The effective income tax rate for the three months ended
September 30, 2021 was 22.9% versus 26.2% in the three months ended
September 30, 2020. The effective income tax rate for the three months ended
September 30, 2021 was slightly above the U.S. federal statutory rate of 21%
primarily due to the accrual of foreign income taxes, which are generally above
the U.S. federal statutory rate, the accrual of additional income taxes
associated with global intangible low-taxed income ("GILTI"), the accrual of
unrecognized income tax benefits in which such realization is not deemed
more-likely-than-not, 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, substantially offset by the
recognition of income tax benefits associated with the reduction in the
liability originally recorded on the expatriation of certain foreign branch
assets and the recognition of income tax benefits associated with share-based
payments and foreign-derived intangible income ("FDII"). The effective income
tax rate for the three months ended September 30, 2020 was above the U.S.
federal statutory rate of 21% primarily due to the accrual of foreign income
taxes, which are generally above the U.S. federal statutory rate, the accrual of
additional income taxes associated with GILTI and 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 FDII.

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

                                       40
--------------------------------------------------------------------------------
  Table of Contents
Net income attributable to Zurn
  Net income attributable to Zurn during the three months ended September 30,
2021, was $64.1 million compared to $45.4 million during the three months ended
September 30, 2020. Diluted net income per share attributable to Zurn for the
three months ended September 30, 2021 and September 30, 2020, was $0.51 and
$0.37, respectively, as a result of the factors described above.

Nine Months Ended September 30, 2021 compared with the Nine Months Ended
September 30, 2020:
Net sales
(Dollars in Millions)
                                        Nine Months Ended
                            September 30, 2021      September 30, 2020      Change       % Change
Process & Motion Control   $            973.0      $            931.9      $  41.1          4.4  %
Water Management                        678.6                   557.8        120.8         21.7  %
 Consolidated              $          1,651.6      $          1,489.7      $ 161.9         10.9  %



Process & Motion Control
  Process & Motion Control net sales were $973.0 million and $931.9 million
during the nine months ended September 30, 2021 and 2020, respectively.
Excluding a 2% increase to net sales associated with foreign currency
translation and a 1% decrease from a small divestiture, core sales increased by
3% year over year driven by growth across nearly all product categories and
geographies. Net sales in our non-aerospace markets increased by 8% year over
year, which was offset by a 25% decrease in net sales related to our aerospace
markets.
Water Management
  Water Management net sales were $678.6 million during the nine months ended
September 30, 2021, an increase of 22% year over year. Excluding a 1% increase
to net sales associated with foreign currency translation and a 9% year over
year increase in net sales resulting from our prior-year acquisitions of Just
Manufacturing and Hadrian, core sales increased 12% driven by increased demand
across the majority of our product categories.

Income from operations
(Dollars in Millions)
                                        Nine Months Ended
                            September 30, 2021      September 30, 2020      Change       % Change
Process & Motion Control   $          179.1        $           136.8       $ 42.3          30.9  %
  % of net sales                       18.4   %                 14.7  %       3.7  %
Water Management                      142.0                    130.6         11.4           8.7  %
  % of net sales                       20.9   %                 23.4  %      (2.5) %
Corporate                             (49.0)                   (41.0)        (8.0)        (19.5) %
  Consolidated             $          272.1        $           226.4       $ 45.7          20.2  %
    % of net sales                     16.5   %                 15.2  %       1.3  %



Process & Motion Control
  Process & Motion Control income from operations during the nine months ended
September 30, 2021 was $179.1 million, or 18.4% of net sales. Income from
operations as a percentage of net sales increased by 370 basis points year over
year primarily as a result of the favorable impact of sales growth year over
year, gains recognized on the sale of certain fixed assets, lower year-over-year
restructuring expense and benefits obtained from our cost reduction and
productivity initiatives, partially offset by higher year over year stock based
compensation expense and the benefit of temporary cost reduction actions in the
prior year in response to the COVID-19 pandemic.
                                       41
--------------------------------------------------------------------------------
  Table of Contents
Water Management
  Water Management income from operations was $142.0 million during the nine
months ended September 30, 2021, or 20.9% of net sales. Income from operations
as a percentage of net sales decreased by 250 basis points year over year as the
favorable impact of sales year over year was more than offset by the
year-over-year change in the adjustment to state inventories at
last-in-first-out cost, higher year-over-year non-cash stock based compensation
expense, the mix impact of the Hadrian acquisition and the benefit of temporary
cost reduction actions in the prior year in response to the COVID-19 pandemic.
Corporate
  Corporate expenses were $49.0 million and $41.0 million during the nine months
ended September 30, 2021 and 2020, respectively. The increase in corporate
expenses during the nine months ended September 30, 2021, is primarily the
result of higher year-over-year non-cash stock based compensation expense and
lower spending and cost reduction actions taken in the prior year in response to
the COVID-19 pandemic.
Interest expense, net
  Interest expense, net was $33.7 million during the nine months ended
September 30, 2021, compared to $38.3 million during the nine months ended
September 30, 2020. The decrease in interest expense as compared to the prior
year's period is primarily a result of the impact of lower outstanding
borrowings and lower average interest rates. See Item 1, Note 12 Long-Term Debt
for more information.
Actuarial loss on pension and postretirement benefit obligations
There was no actuarial loss on pension and postretirement benefit obligations
recognized in the nine months ended September 30, 2021. Actuarial loss on
pension and postretirement benefit obligations in the nine months ended
September 30, 2020, was $35.8 million. The non-cash actuarial loss recognized
during the nine months ended September 30, 2020, was primarily the result of
decreases in discount rates coupled with lower-than-expected asset returns,
partially offset by decreases in life expectancy assumptions utilized within the
remeasurement of our defined benefit plans in connection with our previous March
31st fiscal year end.

Other income (expense), net


  Other income (expense), net during the nine months ended September 30, 2021
and 2020 was $0.6 million and $(2.6) 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. The year-over-year change is primarily driven by changes in foreign
currency rates and lower year over year interest cost within the non-service
cost components of our defined benefit plans.
Provision for income taxes
The income tax provision was $55.6 million during the nine months ended
September 30, 2021, compared to $39.7 million in the nine months ended
September 30, 2020. The effective income tax rate for the nine months ended
September 30, 2021 was 23.3%versus 26.5%in the nine months ended September 30,
2020. The effective income tax rate for the nine months ended September 30, 2021
was above the U.S. federal statutory rate of 21% primarily due to the accrual of
foreign income taxes, which are generally above the U.S. federal statutory rate,
the accrual of additional income taxes associated with GILTI, the accrual of
unrecognized income tax benefits in which such realization is not deemed
more-likely-than-not, 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 a discrete foreign financing-related income tax benefit, the
recognition of income tax benefits associated with the reduction in the
liability originally recorded on the expatriation of certain foreign branch
assets, the recognition of certain previously unrecognized tax benefits due to
the lapse of the applicable statutes of limitations and the recognition of
income tax benefits associated with share-based payments and FDII. The effective
income tax rate for the nine months ended September 30, 2020 was above the U.S.
federal statutory rate of 21% primarily due to the accrual of foreign income
taxes, which are generally above the U.S. federal statutory rate, the accrual of
additional income taxes associated with GILTI and compensation deduction
limitations under Section 162(m) of the Internal Revenue Code, the accrual of
withholding taxes associated with foreign dividends, and the accrual of various
state income taxes, partially offset by the recognition of certain previously
unrecognized tax benefits due to the lapse of the applicable statutes of
limitations as well as the recognition of income tax benefits associated with
share-based payments and FDII.

                                       42
--------------------------------------------------------------------------------
  Table of Contents
Net income attributable to Zurn
  Net income attributable to Zurn during the nine months ended September 30,
2021, was $187.3 million compared to $109.5 million during the nine months ended
September 30, 2020. Diluted net income per share attributable to Zurn for the
nine months ended September 30, 2021 and September 30, 2020, was $1.50 and
$0.89, respectively, as a result of the factors described above.
                                       43
--------------------------------------------------------------------------------
  Table of Contents
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 Hadrian and Just
Manufacturing 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 of acquisitions and divestitures 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 from continuing operations 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 U.S. 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 U.S. 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.
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 in the nine months ended September 30, 2021, of
$187.3 million and Adjusted EBITDA for the same period of $381.5 million. See
"Covenant Compliance" for a reconciliation of Adjusted EBITDA to net income
attributable to Zurn.
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
meet a maximum total net leverage ratio of 6.75 to 1.0 as of the end of each
fiscal quarter. At September 30, 2021, our net leverage ratio was 1.7 to 1.0.
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.
                                       44

--------------------------------------------------------------------------------

Table of Contents


  "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. In view of our debt level, 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) the significant 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 allows us
to add 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 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 September 30, 2021, is presented in the table below. However, the results of such calculation could differ in the future based on the different types of adjustments that may be included in such respective calculations at the time.


                                       45

--------------------------------------------------------------------------------

Table of Contents

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


                                         Six months ended          Nine

months ended Nine months ended Twelve months ended (in millions)

September 30, 2020         December

31, 2020 September 30, 2021 September 30, 2021 Net income attributable to Zurn $ 81.0 $

118.2 $ 187.3 $ 224.5



Non-controlling interest income                     0.2                         0.4                       0.2                       0.4
Income from discontinued operations,
net of tax                                            -                           -                      (3.8)                     (3.8)
Equity method investment income                       -                        (0.2)                     (0.3)                     (0.5)
Income tax provision                               33.3                        36.3                      55.6                      58.6
Actuarial loss on pension and
postretirement benefit obligations                    -                         1.6                            -                    1.6
Other income, net (1)                              (1.0)                       (4.5)                     (0.6)                     (4.1)

Interest expense, net                              24.9                        36.6                      33.7                      45.4
Depreciation and amortization                      44.0                        67.0                      69.4                      92.4
EBITDA                                            182.4                       255.4                     341.5                     414.5
Adjustments to EBITDA:
Restructuring and other similar charges
(2)                                                 8.3                        14.6                       3.7                      10.0

Stock-based compensation expense                   20.7                        36.6                      38.3                      54.2
Last-in first-out inventory adjustments
(3)                                                (0.5)                          -                       7.5                       8.0
Acquisition-related fair value
adjustment                                          0.9                         1.2                       0.6                       0.9
Other, net (4)                                     (0.2)                       (0.3)                    (10.1)                    (10.2)
Subtotal of adjustments to EBITDA                  29.2                        52.1                      40.0                      62.9
Adjusted EBITDA                         $         211.6          $            307.5          $          381.5          $          477.4
Pro forma adjustment for acquisitions
(5)                                                                                                                                 1.7
Pro forma Adjusted EBITDA                                                                                                         479.1
Consolidated indebtedness (6)                                                                                          $          795.7
Total net leverage ratio (7)                                                                                                        1.7

__________________________________


(1)Other 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.
(2)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.
(3)Last-in first-out (LIFO) inventory adjustments are excluded in calculating
Adjusted EBITDA as defined in our credit agreement.
(4)Other, net for the periods indicated, consists of gains and losses on the
disposition of long-lived assets.
(5)Represents a pro forma adjustment to include Adjusted EBITDA related to the
acquisition of Hadrian, which was permitted by our credit agreement. The pro
forma adjustment includes the period from October 1, 2020, through the date of
the Hadrian acquisition. See Item 1, Note 2, Acquisitions and Divestiture for
more information.
(6)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 $396.1 million (as defined by the
credit agreement) at September 30, 2021.
(7)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.
                                       46
--------------------------------------------------------------------------------
  Table of Contents
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 $264.0 million under
our revolving credit facility.
  As of September 30, 2021, we had $477.6 million of cash and cash equivalents
and $255.8 million of additional borrowing capacity. As of September 30, 2021,
the available borrowings under our credit facility were reduced by $8.2 million
due to outstanding letters of credit. As of December 31, 2020, we had
$255.6 million of cash and cash equivalents and approximately $339.2 million of
additional borrowing capacity ($261.0 million of available borrowings under our
revolving credit facility and $78.2 million available under our accounts
receivable securitization program).
Our revolving credit facility is available to fund our working capital
requirements, capital expenditures and for other general corporate purposes.
On October 4, 2021, RBS Global, Inc., a Delaware corporation renamed "ZBS
Global, Inc." on October 4, 2021 ("Holdings"), Zurn Holdings, Inc., a Delaware
corporation ("Zurn Holdings"), Rexnord LLC, a Delaware limited liability company
renamed "Zurn LLC" on October 4, 2021 ("Zurn" and, together with Zurn Holdings,
the "Borrowers"), the lenders from time to time party thereto ("Lenders"), and
Credit Suisse AG, Cayman Islands Branch, as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders entered into a Fourth
Amended and Restated First Lien Credit Agreement (the "Restated Credit
Agreement").

The Restated Credit Agreement amends and restates in its entirety the Third
Amended and Restated First Lien Credit Agreement, dated as of August 21, 2013,
by and among Chase Acquisition I, Inc., a Delaware corporation, Holdings, Zurn,
the several lenders party thereto from time to time and the Administrative
Agent, as administrative agent thereunder (the "Existing Credit Agreement").
Pursuant to the Restated Credit Agreement, the Lenders have provided to the
Borrowers (i) a $550 million Term B Loan (the "Term B Loan") and (ii) a
$200 million revolving line of credit under which the Borrowers may borrow
revolving credit loans and multicurrency swing loans (subject to certain
sublimits) and cause to be issued letters of credit (subject to certain
sublimits), in an aggregate principal amount not to exceed $200 million
outstanding at any time. The maturity date for the revolving line of credit is
October 4, 2026 and the maturity date of the term loan is October 4, 2028. The
Restated Credit Agreement also makes certain other technical changes to the
Existing Credit Agreement, such as modifying provisions related to the potential
future replacement of the London Interbank Offered Rate ("LIBOR").

In addition, the DDTL Facility discussed in Item 1 Note 12, Long-Term Debt, was
drawn in connection with the consummation of the Transactions in order to fund
the Land Cash Payment from Land to Rexnord LLC of approximately $486.6 million
pursuant the terms of the Separation Agreement entered into in connection with
the Transaction.

The proceeds of the term loan were, together with the Land Cash Payment and cash
on hand, used to (i) repay in full the $625.0 million aggregate principal amount
of term B loans outstanding under the Existing Credit Agreement, together with
accrued interest thereon, (ii) redeem the $500.0 million outstanding principal
amount of 4.875% Senior Notes due 2025 issued by Holdings and Zurn pursuant to
an Indenture dated as of December 7, 2017, among Holdings, Zurn, the guarantors
named therein and Wells Fargo Bank, National Association, as Trustee, at a
redemption price equal to 102.438% of the principal amount thereof plus accrued
and unpaid interest and (iii) pay related fees and expenses.

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

Cash Flows


  Cash provided by operating activities was $245.8 million and $237.7 million
during the nine months ended September 30, 2021 and 2020, respectively. Higher
trade working capital and the impact of timing of payments on accrued expenses
were partially offset by higher net income generated during the nine months
ended September 30, 2021.
  Cash used for investing activities was $6.5 million during the nine months
ended September 30, 2021 compared to $81.6 million during the nine months ended
September 30, 2020. Investing activities during the nine months ended
September 30, 2021, primarily included $21.6 million of capital expenditures and
$3.4 million for the acquisition of ATS GREASEwatch, partially offset by the
receipt of $18.5 million in connection with the sale of certain long-lived
assets. Investing activities during the nine months ended September 30, 2020,
included $31.2 million of capital expenditures and $59.4 million for the
acquisition of Just Manufacturing, partially offset by the receipt of
$9.0 million in connection with the sale of certain long-lived assets.
                                       47

--------------------------------------------------------------------------------

Table of Contents


  Cash used for financing activities was $13.1 million during the nine months
ended September 30, 2021, compared to $108.8 million during the nine months
ended September 30, 2020. During the nine months ended September 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 shares
of common stock. The nine months ended September 30, 2021, also includes
$23.5 million of cash proceeds associated with stock option exercises, partially
offset by $1.4 million of cash used for the payment of withholding taxes on
employees' share-based awards. During the nine months ended September 30, 2020,
we utilized a net $1.1 million under our credit facilities and we utilized $29.0
million for the payment of common stock dividends and $95.7 million to
repurchase common stock. The nine months ended September 30, 2020, also includes
$26.4 million of cash proceeds associated with stock option exercises, partially
offset by $9.4 million of cash used for the payment of withholding taxes on
employees' share-based awards.
Indebtedness

As of September 30, 2021, we had $1,191.8 million of total indebtedness outstanding as follows (in millions):


                                                Total Debt at          Current Maturities of          Long-term
                                             September 30, 2021                Debt                    Portion
Term loan (1)                                $          622.2          $                -          $       622.2
4.875% Senior Notes due 2025 (2)                        496.9                           -                  496.9

Finance leases and other subsidiary
debt                                                     72.7                         2.5                   70.2
Total                                        $        1,191.8          $              2.5          $     1,189.3

___________________________________________


(1)Includes unamortized debt issuance costs of $2.8 million at September 30,
2021.
(2)Includes unamortized debt issuance costs of $3.1 million at September 30,
2021.
                                       48

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses