Zurn Elkay Water Solutions (ZWS) risk factors, FY2024 10-K

Strategic Risks

1. 01Economic and financial market weakness, as well as overall challenging market cycles, may particularly impact the markets we serve, and, as a result may adversely affect our financial condition or results of operations
2. 02The markets we serve are highly competitive; an inability to effectively compete would adversely affect our business, financial condition and results of operations
3. 03If we are unable to effectively manage risks associated with changing technology, product innovation and new product development, manufacturing techniques, distribution channels and business continuity, we may be at a competitive disadvantage
4. 04We may be unable to realize intended benefits from our ongoing Supply Chain Optimization and Footprint Repositioning initiatives, restructuring and divestiture efforts, and as a result our profitability or our business otherwise might be adversely affected
5. 05An inability to effectively integrate acquisitions, mergers or other business combinations could adversely affect our business, financial condition, results of operations or cash flows. Additionally, dispositions or liabilities retained in connection with dispositions could negatively affect us
6. 06If dispositions are not completed in a timely manner, there may be a negative effect on our cash flows and/or our ability to execute our strategy. In addition, we may not realize some or all of the anticipated benefits of our dispositions
7. 07The loss or financial instability of any significant customer or customers accounting for our backlog could adversely affect our business, financial condition, results of operations or cash flows
8. 08We depend on 1,100 independent sales representatives and approximately 65 third-party warehouses to distribute our products. In fiscal 2024, our three largest independent distributors generated approximately 33% of our consolidated net sales with the largest accounting for 19% of consolidated net sales
9. 09The inability to adequately protect intellectual property, or defend against infringement claims brought against us, could adversely affect our business

Operational Risks

1. 10Increases in the cost, and/or the availability, of raw materials, including as a result of tariffs or other trade protection measures, could adversely affect our business, financial condition, results of operations or cash flows
2. 11The ongoing updates to our Enterprise Resource Planning ("ERP") systems, as well as failures of our data security and information technology infrastructure, cybersecurity breaches or misuse of artificial intelligence tools, could cause substantial business interruptions and adversely affect our business
3. 12Our inability to attract and retain key personnel, as well as challenges with respect to the management of human capital resources, in a highly competitive industry may adversely affect our business
4. 13Increased frequency of weather events could disrupt construction activity and adversely affect the demand for our products
5. 14The long-term effect of climate change could decrease demand for certain of our products
6. 15The physical impacts of climate change may materially adversely affect our business and financial condition
7. 16Our business and operations, and the operations of our suppliers, business partners and customers, may be adversely affected by future outbreaks of infectious diseases
8. 17Artificial intelligence presents challenges that can impact our business by posing security risks to confidential or proprietary information and personal data

Financial Risks

1. 18implement our capital allocation strategy and prevent us from making debt service payments. In addition, changing or increasing interest rates, including the rates under our debt agreements, could adversely affect our business or financial condition
2. 19The agreements governing our financing arrangements impose certain operating and financial restrictions, which could have a material adverse effect on our business, financial condition, results of operations or cash flows
3. 20Our goodwill and intangible assets are valued at an amount that is high relative to our total assets and in excess of our stockholders' equity
4. 21Our required cash contributions to our pension plans may increase further and we could experience a material change in the funded status of our defined benefit pension plans and the amount recorded in our consolidated balance sheets related to those plans. Additionally, our pension costs could increase in future years

Legal and Compliance Risks

1. 22Our failure to comply with government regulations and requirements, third-party certification requirements and policies and standards driven by our customers or other constituencies, including those related to social responsibility, could adversely affect our reputation, business and results of operations
2. 23imposed by third-party organizations or other constituencies
3. 24Regulatory and legislative developments related to climate change, may materially adversely affect our business and financial condition
4. 25We are subject to changes in legislative, regulatory and legal developments involving taxes
5. 26We may incur significant costs for environmental compliance and/or to address liabilities under environmental laws and regulations, and our reputation may be adversely affected
6. 27Certain subsidiaries are subject to litigation, including product liability and other claims, which could adversely affect our business, reputation, financial condition, results of operations or cash flows
7. 28Our inability to achieve our sustainability strategy goals and targets could adversely impact our business, financial condition, results of operations or cash flows

Risks Related to the Spin-Off Transaction

1. 29If the Spin-Off Transaction does not qualify as a tax-free reorganization and distribution for purposes of U.S. federal income taxes, we may be subject to substantial additional taxes

Risks Related to the Merger with Elkay

1. 30We recorded substantial goodwill and other intangible assets as a result of the Merger that could become impaired and result in material non-cash charges to our results of operations in the future
2. 31Our results may suffer if we do not effectively manage our expanded operations following the Merger
3. 32Sales of substantial amounts of the Zurn Elkay Common Stock in the open market by the former Elkay stockholders could depress the trading price of our common stock
4. 33Certain former stockholders of Elkay have registration rights, the exercise of which could adversely affect the market price of our Common Stock